Realty Trust is spinning off its suburban
shopping center portfolio, as is Simon
Property Group into a company called
Washington Prime Group.
Performance is certainly one reason
why. Freestanding retail has been the
leading REIT sector year to date, delivering returns of 16.37%, according to
NAREIT. The retail sector as a whole,
which also consists of shopping centers
and regional malls, is doing a more moderate 8.85%, but that is still a high-level
return, especially compared to the S&P
500’s gain of 0.96%.
One driver behind Vornado’s spin-off is
its desire to focus more on its New York and
Washington, DC-based portfolios.
Following the spin-off, the REIT expects
that 91% of its EBITDA generated from
properties in these two markets.
Deleveraging is also a driver, at least
according to SNL’s analysis of ARC’s spin
off. The REIT anticipates that its net debt
will slide to $8.44 billion from $9.38 billion
and it expects its ratio of net debt to 2014
estimated EBITDA to move down to 7.0x
from 7.2x, it said.
Even without these twists and turns in the
REIT story over the past year, it is safe to
assume the industry would have continued
at a steady pace. Ultimately REIT perfor-
mance is based on the underlying funda-
mentals of the assets and commercial real
estate in general.
For the most part, there is little to worry
about in this respect. Pricing continues to
rise for real estate assets, albeit at a slower
pace than last year. According to the
Green Street Commercial Property Price
Index, pricing increased by 1% in April.
Prices are now, on average, 7% above the
then-peak levels seen in ’07, it reports.
There are clouds, of course such as the
slow and plodding improvement in
employment and concerns that interest
rates could somehow rise unexpectedly—
-although that fear is diminishing, ironi-
cally in part because of the slow improve-
ment in employment and the Fed’s
reluctance to move forward without sig-
nificant job growth.
But as REITs get down to business,
focusing on what they do best, in the mar-
kets they know best, those concerns are
moving to the back burner.
Consider the comments of SL Green
Realty CEO Marc Holliday during the
REIT’s earning call in April after the com-
pany proudly reported FFO of $150 mil-
lion for the first quarter compared to
$109.2 million for the same quarter in
The REIT has a substantial pipeline in
investment and leasing ahead of it, he
said. “So, clearly, we’ve got a lot of work
cut out for us for the remainder of the
year. But I don’t think I could have asked
for a better start or a better market at this
point to be conducting it in.” ◆
trust in us.
At First Industrial Realty Trust,
it’s not only about the
buildings, it’s about the trust.
9 out of 10 customers would
recommend First Industrial as
a landlord, just one reason why
we're a preferred industrial real
estate provider in the U. S.
From leasing to developing
to managing our properties,
we have the knowledge,
resources and relationships
to make it happen.
For more information,
BRAD CASE, NAREIT
East: Peter Schultz
Central: David Harker
National: Jojo Yap
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It’s not that
in the econ-
omy are more important.”