Real Estate Investment Trusts

Empire State Realty Optimistic on Street Retail

John Kessler, president and COO of Empire State Realty Trust(NYSE: ESRT), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Kessler noted that the REIT is experiencing positive results in terms of leasing spreads and same-store net operating income (NOI) growth.

Turning to the company’s street retail activities, Kessler said that retailer Target signed a lease during the first quarter for a store in Herald Square in Manhattan. He noted that Target will be joined by Foot Locker and Sephora at the Herald Square location.

“We feel very good about our street retail. It’s about 7 percent of our total business, and we’re roughly 94 percent leased today,” Kessler noted.

Empire State has “tremendous potential” to grow income across the portfolio, according to Kessler. He noted that the company sees about $110 million of revenue growth opportunity across the portfolio for the next five to six years.

Turning to its namesake, the Empire State Building, Kessler said renovation of the property is proceeding “extremely well.” The renovation project started about 10 years ago and today there is only about 250,000 square feet of office space that has not been redeveloped, out of a total of roughly 2.7 million square feet, according to Kessler. He noted that the building is attracting “world-class” tenants.

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Published at Wed, 05 Jul 2017 12:38:34 +0000

CyrusOne Cites Cloud Computing as Driving Force Behind Growth

Gary Wojtaszek, president and CEO of CyrusOne(NASDAQ: CONE), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Wojtaszek commented on the data center REIT’s record earnings performance during the past five quarters, which he attributed to the growth of cloud computing.

“That’s been the unbelievable story for us. It’s a vertical that we started focusing on two years ago, and as of the end of the year, we had nine of the top 10 largest cloud companies,” Wojtaszek said.

Wojtaszek also commented on CyrusOne’s plans to meet the growing level of demand for space.

After having sold out of space in four key markets, CyrusOne has capacity coming on line in the third quarter, Wojtaszek said. The added capacity will “really help drive growth into 2018,” he noted.

As more companies become comfortable with cloud and enterprise solutions, deal sizes are becoming “enormous,” according to Wojtaszek.

“Customers are more and more comfortable trusting us to manage their critical data center assets and are willing to back that up with longer-term contracts with us,” Wojtaszek said.

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Published at Fri, 30 Jun 2017 16:59:36 +0000

Parkway Announces $1.2 Billion Sale Agreement with Canada Pension Plan

Parkway, Inc. (NYSE: PKY) said June 30 it has agreed to be sold to the Canada Pension Plan Investment Board (CPPIB) for $1.2 billion.

Parkway’s portfolio consists of the Houston-based assets that were spun off into a new REIT following the 2016 merger between Cousins Properties Inc. (NYSE: CUZ) and Parkway Properties, Inc.

The terms of the deal state that Parkway shareholders will receive $23.05 per share, a premium of approximately 13 percent on the previous day’s closing price. The transaction is expected to close in the fourth quarter of 2017.

James Heistand, president and CEO of Parkway, said CPPIB shares Parkway’s view of the long-term resiliency of the Houston market.

“We believe there are still some near-term headwinds in the office sector for Houston, but the implied asset valuation of this transaction shows CPPIB’s appreciation for the high-quality portfolio we have assembled and the near-term stability it provides during the current downturn in the market,” Heistand said.

Hilary Spann, managing director and head of U.S. real estate investments at CPPIB, said Parkway fits well with CPPIB’s long-term real estate strategy to hold stable, high-quality assets in large U.S. markets. The deal will enable CPPIB to gain additional scale in Houston, she noted.

Meanwhile, Mizuho Securities managing director Richard Anderson said the timing of the sale was sooner than many had expected. Nonetheless, he added, “we think the purchase price should be viewed as a good one,” given the continued challenges facing the Houston office market.

John Guinee, managing director at Stifel Nicolaus, observed that CPPIB “offered a valuation today that Parkway may not have been able to attain for several years, as the Houston market slowly recovered.”

Guinee added that any recovery in the Houston office market is likely to be even more delayed, given the 15.5 percent drop in the price of crude oil since the beginning of the year.

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Published at Fri, 30 Jun 2017 16:51:32 +0000

Chatham Lodging CEO Says Business Travel “Firmer Than Expected”

Jeffrey Fisher, chairman, president and CEO of Chatham Lodging Trust(NYSE: CLDT), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Chatham primarily invests in upscale extended-stay hotels and premium-branded, select-service hotels.

Fisher attributed the better-than-expected revenue per available room (RevPAR) result in the first quarter to a boost in corporate demand in selected markets. While expectations of a large upswing in the business climate following last year’s general election have yet to materialize, “it’s still firmer than expected,” he added.

Fisher also observed that one of the main challenges for Chatham and other hotel companies is the cost and availability of labor. “That’s becoming an issue in a lot of markets around the country,” he said.

Fisher noted that the shortage of labor is occurring in part due to staff being hired away from existing hotels as new properties enter the market.

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Published at Thu, 29 Jun 2017 14:41:47 +0000

National Retail Properties Portfolio About 99 Percent Occupied

Jay Whitehurst, president and CEO of National Retail Properties, Inc.(NYSE: NNN), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Whitehurst assumed the role of CEO in April. His predecessor, Craig Macnab, held the CEO position since 2004.

Whitehurst pointed out that the portfolio’s occupancy rate stands at about 99 percent today – above the long-term occupancy rate of 98 percent.

National Retail owns 2,500 single-tenant, broadly diversified retail properties across the United States, Whitehurst noted. The properties are small, with an average value of about $2.8 million, he added.

Whitehurst described the company’s portfolio as “extremely healthy” due to its focus on customer services and experiences.

Meanwhile, Whitehurst noted that the company has set an acquisition guidance for 2017 of $500 million to $600 million. As of the end of April, National Retail had bought $250 million of assets, “so we’re off to a very good start for this year,” he said.

The company is also on track to dispose of about $100 million in assets this year, Whitehurst said.

Whitehurst stressed that the company’s main goal is to generate repetitive, consistent multi-year funds from operations (FFO) per share growth of around 5 percent.

“We’re very comfortable we can do it this year. We’re very comfortable we can do it next year,” Whitehurst said.

“If we continue to do that on a multi-year basis, we will beat the REIT averages over the long term and deliver above-average returns while taking below-average risks,” Whitehurst said.

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Published at Thu, 29 Jun 2017 19:10:19 +0000

Green Street CEO Remains Bullish on REIT Market

Craig Leupold, CEO of research firm Green Street Advisors, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Leupold said Green Street continues to be “very bullish” toward the REIT market and observed that most institutional investors are under-allocated to real estate at this point.

Leupold stressed that REITs are no more volatile than underlying real estate on a short-term and long-term basis. REITs have outperformed core real estate funds by 275 to 300 basis points a year, he added. That results in REITs having similar risk characteristics to private real estate, but better returns, according to Leupold.

Meanwhile, Leupold explained how Green Street’s Real Estate Analytics platform enables the firm to focus on private market fundamentals, valuations and return expectations across 50 different property markets and eight different property sectors.

“As we look at how real estate is priced relative to other capital market alternatives, we’re quite comfortable with where real estate is priced today. In fact, we’d even say it’s slightly undervalued,” Leupold said.

Meanwhile, REITs are trading at roughly a 7 percent discount to underlying real estate values on an unleveraged basis, he added.

“We see real estate as being attractively priced, but REITs as even more attractively priced,” Leupold observed.

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Published at Thu, 29 Jun 2017 14:10:36 +0000

VEREIT Seeking to Create Fortress Portfolio

Glenn Rufrano, CEO of VEREIT, Inc. (NYSE: VER), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

VEREIT owns and manages a portfolio of retail, restaurant, office and industrial real estate assets.

Rufrano explained that the company’s acquisition target for 2017 is in a range of $450 million to $600 million. In addition, VEREIT plans to sell a similar amount of assets to diversify its holdings and create a “fortress” portfolio for the long term, he said.

Rufrano also commented on VEREIT’s balance sheet. He noted that the company’s net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio has shrunk to a level of 5.5 from 7.5.

VEREIT also hasn’t drawn on a $2.3 billion revolving line of credit. At the same time, the company has received investment-grade ratings from Moody’s, Standard & Poor’s and Fitch Ratings.

“We are in very good shape; we are happy where we are,” Rufrano said.

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Published at Wed, 28 Jun 2017 17:13:58 +0000

Government Properties to Acquire First Potomac in $1.4 Billion Deal

Government Properties Income Trust (Nasdaq: GOV) said June 28 that it has agreed to buy First Potomac Realty Trust(NYSE: FPO) for approximately $1.4 billion in cash, including debt.

First Potomac stockholders will receive $11.15 per share, a discount of about 2 percent from the previous day’s close of $11.35. On a combined pro forma basis, the merged company will have an enterprise value of $4.3 billion with gross assets of $4.1 billion.

The transaction, which is expected to close before the end of 2017, almost doubles Government Properties’ ownership and operation of office properties leased to government and private sector tenants in the metropolitan Washington, D.C., market.

In a conference call, David Blackman, president and COO of Government Properties, noted that the Washington office market, which is one of the largest in the country and the top beneficiary of government spending, has lagged the recovery seen elsewhere in the country. The region is now in a rising, recovery phase, he said.

Blackman noted that the increased scale better positions Government Properties to absorb certain lease expirations that might have impacted the company negatively after 2018, absent the merger.

Meanwhile, Robert Milkovich, CEO of First Potomac, noted that the company has spent the last 18 months refining its portfolio, strengthening its balance sheet and enhancing corporate governance.

David Auerbach, a senior trader and REIT specialist at Esposito Securities, LLC, described the deal as “an interesting transaction, as it truly puts [Government Properties] on investors’ radars.”

John Guinee, managing director at Stifel Nicolaus, added that the transaction was a “good deal” for First Potomac shareholders. Guinee also said he did not expect a higher counter offer, given that the deal was widely marketed.

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Published at Wed, 28 Jun 2017 16:08:34 +0000

Broadstone Sees Expansion in Net Lease, Single-Family Rental Platforms

Chris Czarnecki, CEO of Broadstone Real Estate, LLC, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Czarnecki was promoted to CEO of the private REIT in February. He noted that some of his major goals in the new role include maintaining consistency with investors and growing the employee base to ensure the company has enough expertise to handle the growth of its net lease and single-family rental home platforms.

Broadstone Net Lease became a public filer for the first time this spring, Czarnecki said, and has also undertaken some more complicated capital markets transactions.

Meanwhile, the single-family rental platform Broadtree Residential is growing quickly, Czarnecki noted, and increasing capital raising is important.

“We’re looking to be the low-cost, low-fee leader for the high net worth investor,” Czarnecki said.

Looking broadly at the single-family rental market, Czarnecki observed that consolidation is still happening rapidly.

“Portfolios are trading and we are looking to be a consolidator,” Czarnecki said.

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Published at Wed, 28 Jun 2017 12:42:31 +0000

STORE Capital Sees Broad Opportunities to Expand Tenant Base

Chris Volk, president and CEO of STORE Capital Corp.(NYSE: STOR), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

STORE is an acronym for single-tenant operational real estate, which is the company’s target market.

Volk emphasized that STORE’s number one goal is to create an investment-grade contract lease stream.

At the same time, Volk stressed that STORE places a premium on tenant diversity. He noted that 80 percent of STORE’s revenue comes from tenants that individually represent less than 1 percent of the portfolio.

STORE’s top tenant represents about 3 percent of the portfolio, Volk said. “When you compare that to our gross internal rate of growth, it’s about the same thing. That’s totally by design,” he added.

Volk also said he sees broad opportunities for growth.

“The opportunities for growth are really all over the place. The marketplace we are addressing is in the trillions of dollars,” Volk said.

STORE has a database of potential tenants that exceeds 10,000 companies, according to Volk. Fewer than 400 of those companies are current STORE tenants, and many companies in the database aren’t even aware of the potential services STORE can provide, he added.

“Our opportunity is not just to gain market share, but really to create demand,” Volk said.

STORE announced on June 26 that Berkshire Hathaway has invested $377 million in the company, representing 9.8 percent of total shares outstanding.

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Published at Tue, 27 Jun 2017 16:15:14 +0000