Real Estate Investment Trusts

CoreCivic Offering Broader Range of Government Solutions

Damon Hininger, president and CEO of CoreCivic, Inc.(NYSE: CXW), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

CoreCivic, previously known as Corrections Corporation of America, provides corrections and detention facilities, government criminal justice real estate solutions, and residential re-entry centers.

Hininger said the decision to rebrand the company occurred about three to four years ago in order to transform the business from largely corrections and detention services to a wider range of government solutions.

“We want to be there as a flexible, innovative solution,” Hininger said. For example, he noted that CoreCivic’s detention assets can be marketed to jurisdictions nationwide.

Hininger also discussed common misperceptions about the industry. He described allegations that the company has lobbied against sentencing reform as “absolutely unfair and untrue.”

Meanwhile, Hininger stressed CoreCivic’s emphasis on rehabilitation. During the past five years, CoreCivic has helped about 10,000 individuals obtain their high school or GED diplomas. The company has also helped 25,000 individuals gain vocational certification, he noted.

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Published at Fri, 07 Jul 2017 12:33:43 +0000

Analyst Says Office REITs Evolving to Meet Market Demands

In the latest episode of The REIT Report: NAREIT’s Weekly Podcast, Richard Anderson, REIT analyst with Mizuho Securities, offered his thoughts on the state of the office REIT sector.

Observers have speculated on the shifts in the office market for roughly a decade in the wake of the financial crisis. Anderson noted that the improved productivity in terms of how tenants use their space is also impacting office REITs. However, he said office REITs are shifting their strategies to meet the changes in the marketplace.

“It’s an ongoing process,” Anderson commented.

Anderson pointed out that the office business is generally driven by dynamics in local markets. “To paint the office sector with a broad brush, I think, is a really dangerous undertaking,” he said. Instead, Anderson said specific details, including strategies and geographies, are key to evaluating office REITs.

Office REITs are acknowledging the changing dynamics within the marketplace and “muddling their way through,” according to Anderson.

Total returns from office REITs grew 4 percent in the first six months of 2017, trailing broader market measures such as the S&P 500. Anderson said he doesn’t see a “catalyst” in the market to suggest the sector’s performance will improve substantially in the second half of the year.

“We have been leaning on the cautious side with the office sector” as the market evolves, Anderson said.

“I don’t think there’s a catastrophic scenario ahead of us [for the office sector], but I think it’s tough to visualize a meaningful outperformance scenario for the office sector for the time being,” he added.

The office sector has witnessed significant deals done this year, such as Parkway, Inc.’s (NYSE: PKY) acquisition by a Canadian pension find and Government Properties Income Trust’s (NASDAQ: GOV)agreement to purchase Federal Potomac Realty Trust (NYSE: FPO). Anderson downplayed the likelihood that the deals will touch off more office sector transactions in the near term.

“For the time being, I don’t think of these two as representative of a broad thesis on the office sector,” he said. “They’re more targeted situations in two targeted markets that have had their share of difficulty.

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Published at Fri, 07 Jul 2017 14:24:36 +0000

Retail REIT Ramco-Gershenson Experiencing Healthy Interest from Potential Tenants

Dennis Gershenson, president and CEO of Ramco-Gershenson Properties Trust(NYSE: RPT), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Gershenson commented that the broad discussion surrounding the retail real estate sector fails to differentiate between categories and tenants. Most of the focus is on retailers facing challenges, rather that the considerable number of retailers that are performing well in the current environment, he noted.

“We have a whole list of retailers who are very interested in our centers, and we plan to take advantage of their interest,” Gershenson said.

Ramco-Gershenson is concentrating on acquiring regionally dominant, multi-anchored shopping centers and infill, urban-oriented sites, Gershenson said. While the company ideally seeks a balance between acquisitions and dispositions, it is more likely to be a net seller than net buyer this year, he added.

Meanwhile, Gershenson said he is challenging his staff to take advantage of the many opportunities in the market and to “get all the deals done.”

“We’re a little bullish about what we expect to accomplish in the balance of the year,” Gershenson said.

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Published at Fri, 07 Jul 2017 12:43:03 +0000

UMH CEO Highlights Strength of Demand for Manufactured Housing

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

UMH owns and operates manufactured housing communities in eight states.

Landy discussed UMH’s outlook for acquisitions in the residential market. He noted that the company doesn’t have any more new acquisitions under contract at the moment. UMH took advantage of distress in the market to grow through favorable deals to acquire properties, but competition for residential assets has ramped up, according to Landy.

“We’re not sure that we’ll find that kind of growth through acquisitions ever again,” he said.

Landy said the company is seeing strength in demand for manufactured housing in markets such as Indiana, Ohio and Pennsylvania. He also said Nashville has been a bright spot in UMH’s portfolio. Western New York is the only area of weakness for the company, according to Landy.

In terms of concerns, Landy noted that while projected rental activity is solid, the company is trying to boost its sales of manufactured homes. Some potential regulatory and public policy developments offer signs of hope in that regard, according to Landy.

“That’s an area where we have the possibility of substantially growing income,” he said.

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Published at Thu, 06 Jul 2017 17:55:47 +0000

REIT Consultant Urges Companies Considering Going Public to Do Their Homework

Merrie Frankel, president of Minerva Realty Consultants, LLC, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Minerva provides credit rating and capital structure analysis to REITs and real estate companies. The firm’s clientele includes listed REITs and private real estate companies seeking strategic analysis, companies considering going public and companies that are working through the ratings process.

Frankel previously served as a REIT analyst with Moody’s Investor Service before launching Minerva earlier this year.

In terms of advice for clients considering going public, Frankel stressed the importance of “doing your homework.” She noted that clients must ensure they are ready for enhanced reporting and public access. They also should have staff in place to deal with different constituencies.

“It’s important to think about the landscape and have an advisor that can help you look out for any landmines,” Frankel said.

Meanwhile, Frankel noted that clients are also seeking her help to evaluate the REITs in their investment portfolios, collateralized debt obligations (CDOs), commercial mortgage-backed securities (CMBS) and other types of structured products.

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Published at Thu, 06 Jul 2017 14:02:53 +0000

FTSE NAREIT All REITs Index Up 5.4 Percent in 2017’s First Half

REIT returns were positive in the first half of 2017, but underperformed the broader market. Looking ahead, industry fundamentals remain solid heading into the remainder of the year, according to REIT market watchers.

The total returns of the FTSE NAREIT All REITs Index rose 2 percent in June, while the S&P 500 posted a total return of 0.6 percent. For the first six months of 2017, total returns of the FTSE NAREIT All REITs Index gained 5.4 percent, while the S&P 500 returned 9.3 percent.

Total returns of the FTSE/NAREIT All Equity REITs Index gained 2 percent in June and 4.9 percent through the first six months of the year. The total return of the FTSE NAREIT Mortgage REIT Index rose 2.5 percent in June and 16 percent for the year to June 30.

The yield on the 10-year Treasury note rose 0.1 percent in June. Through June 30, it dropped 0.1 percent for the year.

Brad Case, NAREIT’s senior vice president for research and industry information, noted that during the first half of the year, investors sought out more speculative investments. As a result, value-oriented investments—including REITs—underperformed, he said. He noted that REITs did provide better returns than value-oriented non-REIT stocks.

“REITs continue to provide very attractive valuations with both yield spreads and price-to-net asset value (NAV) spreads firmly in the bullish parts of their historical ranges,” Case stressed.

At current pricing, REITs are looking attractive relative to equities and bonds, according to Matt Werner, portfolio manager at Chilton Capital Management. “We feel pretty good about the back half of the year,” he said. Werner noted that REITs are “right on track” to produce total returns in the mid-to-high single digits.

If historical relationships continue to hold, Case observed, then current valuation metrics suggest that REIT investors may see annual returns in the low-to-mid double-digit ranges over the next few years. REITs may outperform non-REIT stocks by five to seven percentage points per year on average, he added.

Brad Schwer, an equity analyst for Morningstar Research Services, LLC, noted that the REIT market’s underlying performance has remained healthy overall. He pointed out that REITs have been focused on repositioning and strengthening their portfolios, deleveraging and recycling capital.

“Most portfolios are characterized by historically high levels of occupancy and durable balance sheets,” Schwer said.

Werner acknowledged that there has been an absence of volatility in REIT performance during the last few months, excluding the retail segment.

Strong First Half for Infrastructure and Data Center REITs

Infrastructure and data center REITs were among the top-performing sectors during the first half of the year. Returns for infrastructure REITs stood at 22 percent for the year to June 30, while data center REIT returns also rose 22 percent in the same period.

Returns for manufactured home REITs climbed 18.7 percent in the year to June 30, and industrial REIT returns gained 11.2 percent.

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Published at Thu, 06 Jul 2017 15:32:59 +0000

Essex Property Trust Says Tech Industry Fueling West Coast Demand

Michael Schall, president and CEO of Essex Property Trust, Inc.(NYSE: ESS), joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Essex acquires, develops, redevelops and manages multifamily apartment communities on the West Coast.

Schall attributed Essex’s double-digit increase in funds from operations (FFO) in the first quarter to improved pricing power in the apartment REIT’s West Coast markets.

“The outlook for apartments on the West Coast remains very bright,” Schall said. He attributed the positive scenario to both the persistence of strong job growth in the technology industry and the apparent peaking of residential supply.

Schall stressed that the technology industry’s growth in size and strength and its ability to pay elevated salaries should continue to fuel demand for Essex’s properties for at least the next couple of years.

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Published at Wed, 05 Jul 2017 19:00:58 +0000

Monogram Residential Agrees to $3 Billion Go-Private Transaction

Apartment REIT Monogram Residential Trust, Inc. (NYSE: MORE) said July 4 that it has agreed to be bought by a private investment consortium in a deal valued at approximately $3 billion.

Under the terms of the deal, Monogram will be bought by a newly formed perpetual life fund, Greystar Growth and Income Fund, LP. Monogram investors will receive $12 per share of company stock, a 22 percent premium on the July 3 closing price of $9.80. The $3.0 billion transaction value includes Monogram’s shares of its two joint ventures with Dutch pension fund manager PGGM and South Korea’s NPS.

Mark Alfieri, president, COO and CEO of Monogram, said the deal confirms that “our targeted focus on building our portfolio with high-quality, class-A assets in select core markets has been recognized.”

Drew Babin, a senior research analyst with R.W. Baird, said the Monogram deal is the first notable transaction for some time that involves upscale assets in supply-pressured markets.

Monogram’s well-located, relatively new portfolio should outperform in the intermediate-to-long term, he added.

BMO Capital Markets analyst John Kim agreed.

“Monogram has an attractive geographic exposure, and its portfolio is the youngest among its peers, resulting in lower-than-average capex and enabling it to command a premium-to-market rent,” Kim said. The company’s development pipeline provides near-term growth, and its balance sheet will improve incrementally as projects come online, he added.

Babin added that the 4 percent cap rate for the deal should be a positive signal for other REITs with meaningful exposure to similar assets.

Monogram owns, operates and develops luxury apartment communities, with a significant presence in major coastal markets. It was previously known as Behringer Harvard Multifamily REIT I, Inc., a public non-listed REIT. The company changed its name and listed on the New York Stock Exchange in 2014.

The transaction is expected to close in the second half of the year.

The price of Monogram shares had gone up more than 20 percent through mid-day trading on July 5.

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Published at Wed, 05 Jul 2017 17:37:19 +0000

Real Estate Strategist Says Transaction Volumes in Balance

Michael Hudgins, managing director and global strategist at Ell Capital Management, Inc., joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Hudgins discussed trends in transaction volumes across major real estate markets. He pointed to the United States’ office market, where transaction volume is about 6 percent lower nationwide. At the same time, investors are showing interest in secondary markets, he added.

Hudgins explained that although the trend is lower, it remains in balance due to the offsetting impact of secondary markets.

Overall, the U.S. is seeing a mix in terms of real estate transaction activity, according to Hudgins. He added that with declining net operating income (NOI) occurring across the REIT industry and little room for job market acceleration, now is the time to anticipate a drop in valuations.

Hudgins stressed, however, that he does not expect the highest-quality cap rates to move yet, “but that’s something you need to watch very carefully now.”

Looking ahead, Hudgins said he expects gains in property values to be “spotty” for the remainder of the current cycle “and then a more significant move downwards when we hit the next recession.”

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Published at Wed, 05 Jul 2017 15:57:39 +0000

MCR Development’s TWA Flight Center Hotel on Track

Russ Shattan, senior vice president for acquisitions and development at MCR Development LLC, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

MCR’s development experience includes ground-up development of Marriott and Hilton select service hotel properties. The company also does partial renovations, property expansions, adaptive re-use and historic restoration.

Currently, one of MCR’s most unique projects is the TWA Flight Center Hotel at JFK International Airport in New York. The TWA Flight Center is being built in the airplane terminal that TWA used from 1962 to 2001. The terminal was designated as a New York City landmark in 1994. MCR is converting the asset, which has sat empty for 16 years, into a 500-room hotel.

Shattan said the project is proceeding “very well.”

Shattan also noted that MCR’s portfolio of 90 Hilton- and Marriott-branded hotels, located in secondary markets, are performing well. Customers continue to return to these assets thanks to the strength of the brands, he observed.

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Published at Wed, 05 Jul 2017 13:55:30 +0000