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Changes in Health Care Landscape Offer Opportunities, HCP CEO Says

Wed, 19 Jun 2013 17:00:00 -0400

Jay Flaherty, chairman and CEO of HCP, Inc. (NYSE: HCP), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

HCP invests in real estate serving the health care industry. The firm acquires, develops, leases, sells and manages health care real estate and is a capital partner to health care providers. Flaherty discussed the prospects for growth going forward in the health care REIT sector.

“Within medical office buildings, in part because of the advent of incremental technologies that allow for certain procedures that historically were done in an acute care hospital setting, particularly non-invasive procedures now, they can take place in a medical office building,” he said. “So the medical office building portfolio of, maybe, 10 years ago was primarily used for doctor visits. Now you’re seeing some procedures actually take place in these medical office buildings. “

Flaherty described HCP’s sustainability program.

“We’ve used sustainability in a much more comprehensive manner,” he said. “Particularly in the life science and medical office building area, we’re very proud to have a number of LEED certified properties. We’ve earned over 100 Energy Star designations, far and away the leader in that space. So that’s all good, but when we take that to the next level, in the last year and a half we’ve taken a board of director approach on down. We want to be a good corporate citizen.”

Flaherty also talked about how health care reform is affecting his business.

“I think we’ll see a number of companies get quite a bit larger, because health care reform will reward companies that create quality outcomes, have critical mass, particularly in local markets, and run efficient operations,” he said.

Flaherty said the results of the implementation of the Affordable Care Act should bring new opportunities for his company.

“As this plays out in the next 12 to 18 months, it’s going to create significant opportunities for our operating partners and, as a second derivative, HCP, because we want to continue to be their real estate capital partner of choice,” he said.

Analyst says REITs Have Benefited from Recovering Property Prices

Wed, 19 Jun 2013 16:50:00 -0400

Paul Adornato, managing director with BMO Capital Markets, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Adornato discussed the implications of recovering commercial real estate prices for REITs and whether or not he believes REITs are fairly valued.

“First of all, for those REITs that are looking to sell properties, they have had a pretty good time of it,” he said. “They’ve been able to sell whatever assets that they want to sell and have also been able to get pretty good pricing for those assets.”

On the flip side, he said companies that are active acquirers are finding that cap rates are becoming compressed and that valuations, in some cases, “are getting a little bit frothy.” However, he said the counterargument to that is that the cost of capital that REITs enjoyed has been somewhat competitive, so their rates are coming down.

When it comes to being fairly valued, Adornato explained that he was concerned about REIT stock prices prior to the recent market correction. However, he has become more comfortable with valuations in recent weeks. Adornato noted that common valuation metrics, such as the premium on net asset value and multiples on adjusted funds from operations (AFFO), were nearing “peak valuations” leading up to the correction.

“So we were becoming concerned that REIT stock prices were getting ahead of fundamentals. Then, in the last few weeks, of course, the REIT stock prices have corrected, taking a little bit of the heat out of the REIT market,” he said.

Looking ahead, Adornato said he’s keeping a close eye on which REITs have pricing power and are acting on it by actually raising rents.

“When we talk to some companies, there’s a little bit of timidness, if you will,” he said. They are a little bit shy about raising rents. Others seem to be a little bit more aggressively positioned. I think this might differentiate the companies in an environment that’s otherwise pretty good for all operators.”

Rayonier Industrial Property Receives Special Designation

Wed, 19 Jun 2013 16:32:00 -0400

A unique industrial site in Florida owned by Rayonier, Inc. (NYSE: RYN) has received a special certification intended to encourage large-scale industrial development.

The 1,800-acre Crawford Diamond Industrial Park has received a “megasite” designation from McCallum Sweeney Consulting, a site location firm that specializes in certifying sites as development ready. Megasites are parcels of land of at least 1,000 acres that meet specific requirements in terms of not only size, but infrastructure and accessibility. It’s the only industrial site in Florida where two major railroads, CSX Transportation and Norfolk Southern Railway, intersect.

Up to 10.5 million square feet of industrial space has already been approved for use on the site. Certification sends a message to the market that the site is ready for significant development, according to Rayonier executives.

“Prospective companies can expand or relocate to Crawford with the security of knowing that zoning and permits are secured, environmental and geotechnical testing is done, and engineering work for drainage, utilities and transportation infrastructure is complete,” said Paul Boynton, chairman, president and chief executive officer of Rayonier.

“The certification was really an effort to increase exposure and position the property to attract key companies and industries that could best take advantage of the dual railroad,” said Dan Camp, a project manager with Rayonier who has been working on the site.

With most rail-served facilities having access to just one railroad, Boynton said companies put a major premium on being able to choose between two competing top-tier railroads.

Camp said the nearby workforce includes more than 700,000 residents within a 50-mile radius of the site. It’s also located 10 miles from Jacksonville International Airport. The site is situated close to five deep water ports, four marine terminals and two interstates, including I-95.

“All of those components make it pretty compelling,” Camp said. “We’ve had strong support from our local government.”

“Florida is ideally positioned to be a global hub for business, and this site will allow any company to do business worldwide,” Florida Governor Rick Scott said at a ceremony at the site on June 11. “Projects like this will help us continue to create jobs and opportunities for Florida families.”

Crawford became the state’s second certified industrial site and the first in Florida’s Nassau County. It’s owned and managed by Terra Pointe, LLC, the real estate arm of Rayonier.

Potential for REIT IPOs Limited, Menna Says

Tue, 18 Jun 2013 16:30:00 -0400

Gil Menna, partner with the law firm of Goodwin Procter, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.
Menna was asked about the potential for more REIT initial public offerings (IPOs). He said he views the opportunities as being limited.

“Broadly speaking, I think limited in the context of prior years,” he said. “My sense is that perhaps maybe Brixmor will be coming out to the markets. Archstone obviously was sold and didn’t go out to the public markets. So, with the exception of the American Homes 4 Rent single-family market, I would say there’s not going to be likely a lot of activity.”

Menna also offered his opinion on the outlook for private portfolios going public.

“You really need a platform,” he said. “Obviously, some of the single-family residential property companies have strong platforms. Some of them are externally advised. Homes 4 Rent is not. If you take a look at some of Blackstone’s portfolios, for example, on the office side, the question is what management team would be around that portfolio to affect a successful initial public offering (IPO). I think that there’s more likely to be trades into the existing public market, or possibly even foreign capital coming into the U.S., which was significant last year.”

Goodwin Proctor represented apartment REIT MAA (NYSE: MAA) in its recent deal with Colonial Properties Trust (NYSE: CLP). The combined company is projected to have a total market capitalization of $8.6 million. Menna talked about the potential impact the deal might have on the market.

“That was a unique transaction, an exciting transaction for MAA,” he said. “I don’t think the MAA and Colonial transaction necessarily bodes for significant activity in the REIT M&A space. At the NYU conference a handful of us were sitting around the table wondering whether or not there would be one, two, three major business combinations in the sector this year, and people were all over the map on that question. I think that there are still logical combinations, but they are few and far between.”

Investment Banker Anticipates Uptick in REIT M&A Activity

Tue, 18 Jun 2013 16:24:00 -0400

Mark Decker Sr., managing director with BMO Capital Markets, joined REIT.com for a video interview in Chicago at REITweek 2013: NAREIT’s Investor Forum.

Decker spoke about REIT mergers and acquisitions and IPO activity, as well as founding REITWeek 20 years ago when he was head of NAREIT.

While the market was much more active prior to the 2008 downturn, Decker said he anticipates an uptick in M&A activity.

“I think we’re starting to see quite a bit of activity now. Mergers are typically synergy-related and require more than stock price valuation differences. But, as the market normalizes a little bit, I think we’ll see more. We’re on track this year for seven or so, which is a little higher than average,” he said.

As far as IPO activity, Decker said that unlike the M&A activity, the IPO market has stayed consistent in the last 10 years, even in spite of the 2008 crash.

“We are seeing some farmland and agricultural kind of REITs. I think we’ll see more infrastructure opportunities for the public REIT market and private REIT market,” Decker said. “The core REITs, where we’re well-populated in the industry by companies that are well-run, are difficult. But some of the new niches and new ideas, I think, show good signs.”

Decker explained that he believes REITs remain in the earlier stages of the evolution of public markets. He added that he anticipates increased activity over the next decade.

“It’s still a small business relative to the broader real estate market,” he said.

Decker said REITWeek, which began 20 years ago as the “Real Estate Forum,” has served as an opportunity to give REITs the chance to tell their stories to investors.

“I think, since then, this industry event has become really important. It’s really been important that NAREIT’s be the leader and has stayed the leader,” he said.

Asian Markets Remain Active, Schwartz Says

Tue, 18 Jun 2013 15:17:00 -0400

Jeff Schwartz, chairman of Global Logistic Properties (SGX: MCO.SI), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Schwartz was asked about the surge in activity in the Asian commercial real estate markets in the first half of 2013. He offered his thoughts on the state of the industrial facilities in China.

“You look at China, for instance,” Schwartz said. “It has one-fourteenth the amount of distribution space per capita that the U.S. has today, a massive shortage. Out of that one-fourteenth, we estimate that more than 80 percent of the space that exists today is completely and totally functionally obsolete.”

Schwartz noted that despite a slowing in the explosive rate of growth in the Chinese economy, it continues to expand at a healthy clip.

“People talk about slowing in China, and it makes you chuckle,” he said. “The rest of the world would kill for 8 percent growth. There’s not another country in the world that is growing at 50 percent the rate that China is.”

Schwartz also noted the strong level of domestic consumption in China.

“Retail sales drive the domestic consumption component, and 82 percent of our space is focused on domestic consumption,” said Schwartz, noting that retail sales are going at a rate of roughly 14 percent in 2013 and are estimated to strengthen in 2014. Global Logistics has a 96 percent lease rate in its properties that are oriented towards domestic consumption.

“As we build space, it’s leasing up ahead of pro forma,” Schwartz said. “There’s tremendous demand. It’s tremendously exciting.”

Regarding Japan, Schwartz said consumer sentiment has improved with the implementation of the Abenomics economic policies.

“We’ve actually seen customer inquiries up 50 percent since mid-December,” said Schwartz, who pointed out that the company’s Japan portfolio is already 99 percent leased. “We estimate that less than 5 percent of the total space in what is the third-largest economy in the world is what we consider modern of efficient logistics space, so there’s still a long way to go in building that out. It’s a great market opportunity.”

Analysts Say REIT IPO Activity Likely to Lag in Second Half

Tue, 18 Jun 2013 15:09:00 -0400

While the REIT IPO market got off to a strong start in 2013, analysts say recent developments will likely discourage companies from holding initial public offerings in the second half of the year.

The five REIT IPOs that have taken place since the beginning of the year generated $1.2 billion. With the total returns of the broader market this year now nearly doubling those of equity REITs, Jason Lail, senior industry analyst with SNL Financial, expressed skepticism about the chances that the number of companies going public in the next six months will match the first six, calling the idea “a reach.”

Through June 17, the S&P 500 had total returns of 16.1 percent for the year, compared to 8 percent from the FTSE NAREIT Equity REITs Index.

Marty Cicco, senior managing director with Evercore Partners, noted that the recent sell-off in the REIT market may discourage some companies from going ahead with plans to hold initial public offerings. For example, while the Empire State Realty Trust Inc. continues to forge ahead towards an IPO, Colony American Homes, a single-family rental home company, postponed its IPO this month.

Gil Menna, a partner with Goodwin Procter and specialist in REIT transactions, said the decision by Colony to hold back was the right call. “It’s always good for markets to take a time out and see what happens,” he said.

In the last 10 years, the highest amount of IPO activity occurred in 2004, according to a report from SNL Financial. Seventeen REITs completed IPOs that year and raised $4.5 billion.

“The year 2004 was a banner year for equity REIT IPOs,” Lail noted. “This is the highest one-year total for REIT IPOs over the last decade in terms of both volume and aggregate proceeds and is indicative of the general strength of the REIT market during that time.”

Lail said the strong REIT returns of almost 40 percent in 2003 played a role in the large number of REITs deciding to pursue IPOs in 2004. In fact, 2003 witnessed the second-highest aggregate amount raised by REIT IPOs in the last decade. Six IPOs raised a total of more than $2.4 billion that year, according to SNL.

Health Care REIT Strives to Add Value

Mon, 17 Jun 2013 16:00:00 -0400

George Chapman, chairman and CEO of Health Care REIT (NYSE: HCN), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Chapman discussed the various property segments in which his company invests and their prospects for growth going forward.

“We really like private pay,” he said. “We prefer to avoid the volatility inherent in a lot of reimbursement, so we really emphasize senior housing. We think in the last five years in a tough economic time, it has really proven its resiliency and will continue to do so even going forward. And then medical office buildings are another strong segment -- 65 percent of our nation’s care is delivered in outpatient facilities, so the larger, newer, customer-friendly medical office buildings are our other area of focus.”

Chapman talked about how the acquisition of Sunrise Senior Living will enhance his company’s portfolio.

“In a way, Sunrise epitomizes what we’re trying to do best,” he said. “And what’s really unique about Sunrise properties are that 90 percent of them are mansion style. They’re in the best markets in the country. They’re eight years on average old. Their market rent is about two times the average rent in the country – these are very high end.”

Chapman also described his strategy with regard to joint venture relationships.

“Our JV strategy is just part of our overall strategy,” he said. “That is, for years we have been a partner of choice. We’ve tried to add value, and so easily over 60 percent of our deals every year are from existing deals. The JV opportunities came about with the RIDEA legislation, and it allows us to have another arrow in our quiver, because some of the operators just want to align interests even more. They want a piece of the action on real estate, we want a piece of the action on operations. So we think these kinds of facilities will give us greater growth and allow us to interact even more with those operators.“

Hotel REIT Plans to Expand in the South

Mon, 17 Jun 2013 15:30:00 -0400

Drew Sims, chairman and CEO of SoTHERLY Hotels (NASDAQ: SOHO), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

SoTHERLY Hotels is a Virginia-based lodging REIT with a portfolio of full-service hotels primarily located in the South. The company, formerly known as MHI Hospitality, underwent a rebranding in April 2013 to more clearly define its mission.

“The reception from the investment community has been very positive. Our company traded for almost 55 years as MHI. My father founded the company back in 1957, so there’s a little nostalgia in changing the name,” Sims said.

After a complete restructuring of the company’s balance sheet and a redirection of its expansion efforts in its core Southern markets, Sims said that the name reflects what the REIT’s mission will be going forward.

He said that while the company has hotels in locations such as Tampa, Miami, Jacksonville, Savannah, Raleigh, Wilmington, NC, and Louisville, Atlanta is one of SoTHerly’s most important markets.

“Those markets are fed out of Atlanta so we feel like having a signature hotel in Atlanta is a must for us. That’s going to be our first stop,” Sims said. “After that it is markets like Houston, Charleston, Charlotte, and others to follow after that.”

When it comes to fundamentals and sustaining the momentum in the hotel sector, Sims said the lack of new supply will help to ensure continued growth.

“It bodes well for the future of our industry. We’re not seeing a lot of new product and as a result of increased demand we’re actually in a very good position for extended growth,” he said. “Our belief is that in the next two or three years we should see a continued growth in rates, and occupancy has already stabilized at a very healthy level.”

Portfolio Changes on Target at Duke Realty

Fri, 14 Jun 2013 15:00:00 -0400

Denny Oklak, chairman and CEO of Duke Realty Corp. (NYSE: DRE), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Duke Realty owns and operates 145 million rentable square feet of industrial and office assets, including medical offices, in 18 major U.S. cities. Oklak discussed the latest changes to the composition of the company’s portfolio.

“We’ve been working on this for a few years now, and we’re basically where we want to be,” he said. “When we started out this re-positioning, our target was to be 60 percent industrial, 25 percent suburban office and about 15 percent medical office, so we’re virtually there. We still have some things going on, mainly still selling a little bit of the suburban office portfolio.”

Oklak talked about how aggressive he plans to be in developing medical office and industrial assets.

“We’re really being very aggressive, I would say, on the pre-lease product today,” he said. “That’s the medical office business. A lot of that business is really the pre-lease to the major hospital systems, a lot of it on campus, some of it off campus, but all of it affiliated with the hospital system. On the industrial side today, we’re more focused on build-to-suits with our major customers on our land positions.”

Oklak described any potential risks in the industrial and medical office sectors.

“I think the biggest risk on the industrial side is probably typically what we have at this point in the cycle: I think it starts to be over-building,” he said. “So, too much speculative product going on. I don’t think we’re at that point now, but certainly in the last 12 months, the amount of speculative product out there has really picked up. So, I think it’s going to be interesting to see over the next six or nine months how the absorption of that space goes. On the medical side, everything is very solid there. I think the one risk is changes in our health care system.”

W.P. Carey Celebrating 40th Anniversary

Fri, 14 Jun 2013 14:36:00 -0400

Trevor Bond, president and CEO of W.P. Carey (NYSE: WPC), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

W. P. Carey is a New York-based net-lease investor that manages a global investment portfolio of more than $15 billion. The company elected REIT status in September 2012 and is celebrating its 40^th anniversary this year. Bond talked about the keys to W.P. Carey’s sustained success.

“I think that our longevity stems from our ability to make money for our investors. Fundamentally, that’s really what it’s all about,” he said. “As an investment manager, we’ve had 14 funds come full cycle since 1979 through a wide range of cycles.”

Bond added that the company has also increased its dividend over the past 48 consecutive quarters.

When it comes to making investment decisions, Bond said that W.P. Carey’s performance comes from its “investment discipline.”

“We have lots of eyes looking at each investment, and it’s a long process. We study each deal carefully,” he said. “Also, this is particularly important for the net-lease space. We do spend a lot of time being proactive asset managers.”

Bond discussed the company’s investment tactics. W.P. Carey’s assets are 99 percent occupied at present.

“In terms of what we’re trying to avoid, we are always looking at underwriting the residual value,” he said. “What happens if the tenant isn’t paying rent anymore and we have to put someone else in there and do something else with the asset? We’re trying to avoid markets that are very thin, so that the property itself would comprise too large a portion of that individual market. That would be a red flag for us.”

Bond said he would also avoid specially designed retail buildings that are overly branded, regardless of the yield.

“They’re hard to sometimes position a new tenant in,” he said.

Additionally, Bond discussed the impact of quantitative easing and what he hopes is an “improving and expanding economy.”

Cicco: Still Opportunities for Consolidation in REIT Market

Fri, 14 Jun 2013 11:49:00 -0400

Marty Cicco, senior managing director with Evercore Partners, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Cicco discussed the possibility that more iconic properties end up being held publicly, as the Empire State Building in New York is slated to be. He noted that the recent sell-off in the REIT market may discourage some companies from going ahead with plans to hold an initial public offering (IPO).

“I’m not sure that the iconic part of the real estate aspect will drive more companies trying to get to the public marketplace,” Cicco said. “I think iconic real estate will always have a place in the public market, but also will still have very strong market holdings in a private form as well.”

Cicco was asked about any potential signs of major transactions percolating in the REIT market.

“Obviously, in our side of the world, we’d like to see more activity,” he said. “You’ve seen a lot of activity in the private REIT sector, in that you have a number of companies that are being forced to list. And a couple of the existing companies have quite acquisitive over the last few months, both on a friendly and a hostile basis. I think health care has some more consolidation left. If one thing came out of the crisis, you did see for the first time in the history of the REIT sector much more of a bifurcation between the winners and losers, so you do have some significant multiple spread or gap between the top-tier companies and the lower-tier companies. We think activity will pick up, but I’m not sure anything will hit the major category. I think each sector has the ability to have some further consolidation.”

Cicco offered his opinion on the impact of the Federal Reserve’s monetary policy on REITs and their cost of capital. Fed Chairman Ben Bernanke indicated in May that interest rates could begin to start creeping back up in the near future.

“I would suggest that the last two weeks have been a knee-jerk reaction, not just within the REIT sector, but the markets broadly,” he said.

Kimco Looks to Lower Retail Tenant Energy Usage

Thu, 13 Jun 2013 16:42:00 -0400

After discovering that 85 percent of the energy used within its shopping centers came from tenants, Kimco Realty Corp. (NYSE: KIM) is starting a pilot program at one if its malls to reduce energy usage in tenant-occupied spaces.

Kimco on June 13 announced a partnership with the Pacific Gas & Electric Company (PG&E), seeking to identify ways to improve the efficiency of leased retail spaces. Other goals of the initiative include helping to identify and eliminate barriers to investments in energy-efficiency improvements by tenants.

The program is believed to be the first of its kind, according to Will Teichman, director of sustainability for the retail REIT.

“Particularly in the retail sector of commercial real estate, there’s been a lack of focus on energy efficiency in smaller tenant spaces," he said.

Kimco has been collecting energy usage data since 2010 when it launched its Corporate Responsibility Program. As a result of that data collection, Teichman said it became clear that Kimco’s tenants are the primary users of energy, as opposed to the energy used in common areas throughout the property.

Consequently, Teichman said Kimco is trying to break down some of the traditional barriers between landlords and tenants. Namely, Kimco is encouraging them to share information about their energy usage. Teichman spent the day of the announcement at Westlake Shopping Center in Dale City, Calif., where the pilot program was launched. He said he’s been talking to tenants and getting releases signed for the sharing of data.

Smaller retail tenants tend to lack knowledge of how to improve their efficiency, according to Teichman.

“They’ve got a lot of different things on their plate. They are more focused on selling inventory in their stores,” he said.

Teichman added that under a triple net lease structure, tenants pay their bills directly to utility companies. Therefore, it’s harder for the landlords to manage usage.

Kimco plans to spend the year conducting an in-depth analysis of energy usage at the Westlake site.

“That’s going to take a fairly significant amount of time this year. By the end of the year, we want to have a list of potential energy efficient improvements. Then, we’ll start to move forward to implementing the program in 2014 and will look to repeat it in other types of centers in the PG&E territory,” he said.

American Residential Properties Finding Success after IPO

Thu, 13 Jun 2013 16:00:00 -0400

Laurie Hawkes, president, COO and co-founder of American Residential Properties (NYSE: ARPI), joined REIT.com for a video interview at in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

American Residential Properties acquires, owns and manages single-family homes as rental properties. Hawkes discussed the timing of her company’s initial public offering (IPO), as well as the market response.

“We were very pleased with the timing, especially given the current market conditions,” she said. “The timing went well; it was a shortened road show because we had enough interest to move in price.”

The company also held a follow-on offering in December that raised $148 million . In January American Residential executed on a debt facility with an initial tranche of$150 million.

Hawkes talked about what increased market competition means for her company.

“It’s a huge opportunity,” she said. “There is some increasing competition. There are markets such as Phoenix where house prices have gone up. We consider that great, considering that’s about 41 percent of our portfolio. What sets us apart is we are internally managed. We’re the only publicly traded internally managed REIT in this space. We also have an independent and highly accomplished and experienced board from the public sector.”

Hawkes described any potential concerns regarding the continued health and recovery of the housing sector.

“Interestingly enough, this is probably one of the few sectors that, whether the market is coming our way or not, we’re in a very good position,” she said. “If the economy continues to grow, house prices continue to appreciate. We believe the underlying net value will be reflected in the stock price. We still see very strong growth in terms of rental demand as more and more homes go through the foreclosure process, but also as we found some of our existing tenants are looking to re-up year after year. But, importantly, if the market doesn’t do well and the economy falters, it bodes very well for the rental business.”

Taubman Centers Looking to Asia for Growth

Thu, 13 Jun 2013 11:57:00 -0400

Bobby Taubman, chairman, president and CEO with Taubman Centers, Inc. (NYSE: TCO), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Taubman Centers was founded in 1950 and has its headquarters in Bloomfield Hills, Mich. The company held its initial public offering in 1992. Its portfolio consists of regional malls in major markets across the United States.

Taubman discussed some of the potential challenges facing his company following a recent run of strong performance.

“Our fundamentals right now are unbelievable,” Taubman said. “We’ve had three years in a row of unbelievable sales. When you’re up over 30 percent three years in a row, it creates a halo over your whole business. All the metrics in our business—occupancy, lease space, average rent growth, NOI comp growth, our spreads on leasing—all of these things are excellent metrics. We’re at the highest occupancies in our history. All the metrics are good, and it really comes from sales. At the end of the day, if tenants are doing business in your shopping center, other tenants want to be there, and they pay you more rent.”

Taubman also discussed the growth of the company’s Taubman Asia subsidiary, which is headquartered in Hong Kong. The company has recently made announcements about two deals in China and one in South Korea. Taubman described the company’s approach as “systematic” and “cautious” when it comes to expansion.

“They’re all very interesting projects,” he said. Taubman noted that all three properties are anchored by leading retailers and placed in major population centers.

“We have three great locations in three great markets,” he said. “We’re very excited about it.”

Taubman talked about the potential impact of the Marketplace Fairness Act, legislation advancing in Washington that aims to level the playing field between online retailers and brick-and-mortar stores by compelling remote sellers to collect sales tax at the time of a transaction.

“We think this is really important, because it does level the playing field,” Taubman said.

European Commercial Real Estate Market Stabilized, Fund Manager Says

Thu, 13 Jun 2013 10:45:00 -0400

Scott Crowe, managing director with Resource Real Estate, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Crowe recently moved from investment firm Cohen & Steers to head up Resource Real Estate’s securities practice. Crowe discussed the experience of starting the division.

“Resource is a great enterprise,” he said. “It’s very entrepreneurial. It has a 20-year track record in real estate investment and a very unique background in credit underwriting. I’m also having a great time setting up my own property securities platform to invest our clients’ capital in line with the investment philosophy and experience that I’ve gained over the years.”

Crowe’s group recently launched its first fund, the Diversified Income Fund. The fund invests in both property securities and direct real estate and real estate credit. The group is also working on a joint venture with a partner in Asia to create a global REIT product for institutional investors.

Crowe shared his thoughts on what he views as an improving situation in the European market.

“The underlying commercial real estate markets have stabilized,” he said. “If you have good, quality real estate, there’s debt available, and the spreads are very wide. I think Europe’s attractive. It doesn’t have to be the highest-quality real estate, but stabilized real estate in a decent location. Where you have to still be careful is development, leverage and the periphery. It’s still too early to take that kind of risk. But I definitely think we’re in the bottoming-out phase of the European real estate market.”

Crowe said he thinks investors are underestimating the investment potential in Europe in the current market environment.

“Frankly, Europe is one of the only places with real value left today,” said Crowe, who noted that his firm is overweighting selected stocks in the region.

Apartment Fundamentals on West Coast Continue to be Strong, Schall Says

Wed, 12 Jun 2013 16:30:00 -0400

Michael Schall, president and CEO of Essex Property Trust (NYSE: ESS), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Essex focuses on multifamily properties, primarily on the West Coast. Schall discussed the fundamentals in his core markets.

“Apartment fundamentals on the West Coast continue to be strong,” he said. “We just received our April-May 2013 results, which indicate that same property revenue is up 6.3 percent, which accelerated from [the first quarter] and is above the midpoint of the guidance rating for 2013. As we expected, Northern California and Seattle are leading the way, and Southern California continues its recovery that is longer-term in nature, but is certainly going the right direction. So, we’re very pleased with the results so far this year.”

Schall described the acquisitions market in light of the strong fundamentals.

“It is more difficult,” he said. “Owners of property are pretty pleased with the current conditions. They see the economy getting better. Rent growth is good amid very low interest rates, which provides a good cash flow, so they’re reluctant to sell. Buyers on the other hand, have seen a lot of rent growth already occur and are concerned about overpaying.”

Schall also described the company’s development pipeline and any potential concerns about a shift in supply and demand.

“The good news is that we don’t produce a lot of apartments on the West Coast,” he said. “Generally, the supply of new housing in total both for sale and for rent is less than 1 percent of stock over longer periods of time. Still, our strategy on the development side is to be an early-cycle developer. We have nine communities under construction right now, for an aggregate estimated cost of about a billion dollars. We expect to slow down our development activity as we get further along in the economic cycle, but we’re very well positioned right now.”

Analyst Says Quality Portfolios a Boost to Office REITs

Wed, 12 Jun 2013 11:57:00 -0400

Jed Reagan, analyst with Green Street Advisors, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Reagan covers the office sector for Green Street. He discussed the sector’s adaptability in light of the difficult market conditions that have held sway since the Great Financial Crisis.

“There’s no question that it has been tough sledding in the office sector over the past few years,” Reagan said. “This recovery has been one of the slowest ones we’ve seen in recent recoveries. That is largely a function of the very poor job growth climate that we’ve seen out there. What has made things worse for the office sector is that office tenants are really in efficiency mode. They’re getting much tighter with their office space usage, and so the little job growth that we have seen has not translated into office demand in a meaningful way.”

According to Reagan, high-quality portfolios have helped office REITs cope with the tough economic terrain.

“Office REITs are actually faring relatively well in this environment,” he said. “They’re seeing slow but steady occupancy growth. The REITs that are doing best are those that have exposure to energy- and tech-driven markets, such as San Francisco or Austin or Houston.”

Reagan said the office sector appears to be fairly valued in the market right now.

“Historically, office REITs actually tend to underperform most other major property types, both in the private and the public markets,” he said. “If you look back over the past 13 years or so, office REITs have underperformed the broader NAREIT index for 10 of those 13 years. The sector is a tough business with high capital needs, a lower NOI growth profile and an ease of new supply. That said, as we look at the office market today, it does appear to be fairly priced.”

Reagan cited the health of the New York office market as one of the key storylines to follow in the second half of 2012.

“Manhattan is the largest and most important U.S. office market,” he said. “It has generally been pretty stagnant over the last few years, but there are signs now that may be changing. There’s some momentum building, both in terms of fundamentals and asset value appreciation.”

Manufactured Housing Benefits from Renters, Landy Says

Tue, 11 Jun 2013 16:42:00 -0400

Sam Landy, president and CEO of UMH Properties (NYSE: UMH), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

UMH owns and operates manufactured home communities in seven states throughout the northeast. The company owns a portfolio of 68 manufactured home communities that hold approximately 12,800 home sites.

The REIT recently reported a strong jump in occupancy rates. Landy saidthose results were driven by a growth in the rental market, and UMH has cost advantages over competitors.

“If they’re paying $200,000 for 980 square feet and we’re paying $80,000 for 980 square feet, we could rent our homes out at $750 a month, where they have to be over $1,000 per month,” he said. “If we look at the markets we’re in and we rent our homes for at least $50 per month less than apartments, we generally generate a waiting list, and that’s what’s increasing occupancy.”

Landy added that in light of the regulatory measures enacted by the Dodd–Frank Wall Street Reform and Consumer Protection Act and the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), UMH has transitioned to both renting and selling homes. UMH filled about 200 rental units last year and plans to put in about 200 more rental units online this year.

UMH has also been active in the acquisitions market in 2013 so far. Landy said the company is operating at an 8 percent cap rate and is looking for vacant sites where it can generate sales income, add rentals and finance homes.

“We’ve done some acquisitions in Indiana and Tennessee where people built 300-space communities, sold about 150 homes in the good times, couldn’t sell in the bad times and wound up selling to us at about 8 percent cap. So, the upside is substantial should we fill those vacant sites.” he said.

However, he said finding deals is getting tougher as prices are starting to rise and cap rates are decreasing.

“But everybody talks about this great wealth transfer that’s going to occur, and that could generate individual deals for us,” Landy said.

American Realty Capital Properties Strives for Organic Growth

Tue, 11 Jun 2013 16:00:00 -0400

Nick Schorsch, chairman and CEO of American Realty Capital Properties (NASDAQ: ARCP), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

ARCP’s investment strategy is designed to generate monthly dividends from a durable and predictable level of monthly rents paid by primarily investment grade rated and other credit-worthy tenants and to provide significant growth potential. The company seeks to maintain a portfolio blend of both mid-term and long-term lease durations. American Realty Capital serves as an external advisor to ARCP. Schorsch discussed how he defines quality for his company’s property portfolio.

“Diversification, credit quality, geographic, tenant and industry diversification,” he said. “We want to be diverse by industry, by tenant and also geographically across the country. When you look at the net lease sector, you really want to have those risk-adjusted, durable returns, and that’s what most of the investors are looking for.”

Schorsch described the strategy behind his company’s acquisitions. ARCP announced in May that it had struck a deal to buy an $807 million property portfolio from GE Capital.

“We look at our portfolio from an organic-growth basis,” he said. “We have a large staff of people looking to acquire assets. We’ve been aggregating assets for a long time, so we’ve generated about $12 billion of assets in the last decade. So, we continue to look at acquiring assets on a granular basis. We also look at adding to those corporate and strategic acquisitions.”

Schorsch also discussed the company’s intent in terms of internalizing management.

“We intend to continue to carefully construct – we’re not looking to buy everything, we are looking to buy what fits out company,” he said. “There’s definitely more to come. We are continuing and have put out guidance for a least a billion dollars of new organic acquisitions from our pipeline of small assets and we are looking at a number of other strategic and corporate opportunities as the year unfolds.”

Retail Properties of America Exceeds Own Expectations in First Year After IPO

Fri, 07 Jun 2013 08:00:00 -0400

Steven Grimes, president and CEO of Retail Properties of America (NYSE: RPAI), joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

Retail Properties of America recently celebrated the one-year anniversary of its initial public offering. Grimes described the past year and the company’s accomplishments.

“We’re very excited about the progress we made, both from a stock performance perspective as well as from an operational perspective,” he said. “In fact, I would even argue that we exceeded our own expectations. We set out to achieve some simple goals, but very large goals, and with our IPO, our preferred issuance in the tail end of last year and the sale of $500 million of non-core assets, we were able to de-lever the balance sheet and meet our longer-term objective of six to seven times EBITDA in just one short year.”

Grimes talked about the status of the company’s portfolio repositioning plan, as well as his vision for the ideal portfolio composition.

"We have defined what our objectives are for the multi-tenant retail portfolio,” he said. “We look to ultimately become very concentrated in 10 to 15 markets. Ten to 15 markets from all of the 35 states we’re currently in is going to take some time, so we’re going to look to be very disciplined and measured about how we go about doing that, hopefully having some meaningful progress over the medium to longer term.”

Grimes provided insight regarding changes in retailers’ space usage and needs.

“Space needs and usage is always a hot topic with retailers these days, but the lack of supply has really limited the concern in that regard,” he said. “What we are finding is that the retailers over the past several years have looked to manage their margins, and managing the margin is helping to pay the rent which is obviously a good thing. So, they’re looking at their footprint and their space usages and they’re trying to rationalize the size of the box that they may have. But, by and large, those retailers that had hard mandates to reduce their box size have really done so already.”

NAREIT Announces 2013 Investor CARE Award Winners

Thu, 06 Jun 2013 16:10:00 -0400

The winners of NAREIT’s 2013 Investor CARE Awards were announced on June 6 in Chicago at REITWeek 2013: NAREIT’s Investor Forum. It marked the 13th year that NAREIT has handed out the annual awards, which honor excellence in communications and reporting to shareholders.

Steve Wechsler, NAREIT’s president and CEO, announced the companies that had been recognized for their annual reports and websites.

The Gold Award in the “Annual Report - Management Discussion and Analysis” category went to Home Properties Trust (NYSE: HME). The Silver Award was given to SL Green Realty Corp. (NYSE: SLG) and the Bronze Award went to First Potomac Realty Trust (NYSE: FPO).

In the “Annual Report - Presentation and Design” category, Camden Property Trust (NYSE: CPT) received the Gold Award. The Silver Award went to Health Care REIT, Inc. (NYSE: HCN). Duke Realty Corp. (NYSE: DRE) won the Bronze Award.

Camden Property Trust is celebrating its 20th year as a public company, and Kim Callahan, senior vice president of investor relations, said the latest annual report was created to recognize the anniversary.

“We always tried to keep our annual report a little outside of the box and do something a little different and keep it fresh, especially at this point in the game as our annual report has gone from a very large text and narrative type of document into basically a very long financial SEC document,” she said.

The Gold Award in the “Website” category went to Kimco Realty Corporation (NYSE: KIM). The Silver Award went to American Tower Corporation (NYSE: AMT), while Campus Crest Communities, Inc. (NYSE: CCG) received the Bronze Award.

“When we set out to redesign our website some time ago, we knew it didn’t just have to look pretty. It also had to be functionally operational and user friendly,” said David Bujnicki, Kimco’s vice president of investor relations and corporate communications.

The NAREIT CARE Awards are judged by an independent panel of REIT securities analysts and portfolio managers.

This year’s judges included: Dave Aubuchon, research analyst, Kennedy Capital Management; the Chilton REIT team of Bruce G. Garrison, managing director, and Matthew R. Werner, portfolio manager and analyst; Eden Levinson, senior vice president, Harrison Street Securities, LLC; Keven Lindemann, director-real estate group, SNL Financial LLC; Neil Malkin, associate-REIT Equity Research, U.S. Apartments, Lodging & Self Storage, RBC Capital Markets; and the ICR team of Brad Cohen, senior managing director, Shannon Devine, senior associate, Kara Guaraldi, senior vice president, Taylor Krafchik, associate, Rodny Nacier, senior vice president, Jeremy Pinchot, senior vice president, Steve Swett, managing director, and Nikki Sacks, managing director.

Gordon Says Emerging Real Estate Markets Rapidly Evolving

Thu, 06 Jun 2013 15:39:00 -0400

Jacques Gordon, global head of research and strategy at LaSalle Investment Management, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

Gordon offered his thoughts on the growing evolution and sophistication of the BRIC countries -- Brazil, Russia, India and China.

"Each one is quite different," Gordon said. "They do share this characteristic of higher growth rates and massive urbanization. After that, it gets very different. Some of them have cities that have been around for 500 or a thousand years. You think about stability - well, they've got that. On the other hand, they don't have modern real estate and infrastructure in many parts of those countries. When one thinks about stability, there are aspects of each of those countries that are very stable. When it comes to commercial real estate markets, there are a lot of examples where things are moving much faster than we're used to in the United States. The cycle of supply and demand can be faster. So, there are a lot of contrasts out there."

Gordon also named a few countries that he views as being on the rise.

"There are lots of interesting countries that are frontier markets, and those are often in places like Africa," he said. "But when it comes to real estate investing, I would say it would be more like Turkey and Poland. Those are the up-and-comers in that part of the world. When it comes to Latin America, it would be Colombia. When it comes to Asia-Pacific, it would probably be a toss-up between Malaysia and Indonesia."

Gordon discussed the recent flurry of real estate investment activity in Asia.

"REITs in Asia are not one kind of REIT," he noted. "The common theme there is a lot of capital flowing in, a lot of development and a lot of asset price appreciation."

REITs Benefit from Supply-Demand Dynamics, Fund Manager Says

Thu, 06 Jun 2013 11:42:00 -0400

Paul Curbo, portfolio manager with Invesco Real Estate, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

He discussed some of the sectors that his fund is currently targeting for investment.

“Two of the sectors that we like are the apartment sector and the regional mall sector -- the apartment sector from both a growth standpoint and a valuation standpoint,” he said. “In the regional mall space, it’s more a function of scarcity of assets. REITs own roughly 50 percent of all regional malls in the U.S. When you look at the high-quality malls it’s even a higher proportion.”

Overall, Curbo said that the supply-and-demand fundamentals are still favorable for REITs.

“In terms of the space market, I think the supply-and-demand fundamentals are still pretty good," he said. "I think we’ll see demand outpace supply, and that will result in rising occupancy rates, rising rents and rising dividends. So, absent an economic shock, I think that’s pretty good."

In terms of the capital markets, Curbo said REITs have benefitted from an environment with low economic growth and low interest rates. If that environment changes, then some of the capital flows that have been positive for the industry may ebb a bit.

“I think it really requires a focus on stock-specific, bottom-up-type investing, as opposed to top-down allocation, where it may not be as positive as it's been over the last several years,” he said.

With many REIT sectors at their long term-averages in terms of occupancy rates, growth will have to come from rents.

“So, we’re going to be looking at the companies that can grow their rents and also that can grow form a development and re-development standpoint,” he said.

Real Estate Credit Markets Are Stable, According to Analyst

Thu, 06 Jun 2013 09:30:00 -0400

Merrie Frankel, vice president and senior credit officer with Moody’s Investor Service, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

Frankel described the state of real estate credit markets today.

“I think the real estate credit markets are doing very, very well,” she said. “They’re stable and liquid, despite the uncertain macroeconomic environment.”

Frankel also gave some insight into the challenges that come with rating new companies.

"The challenges are primarily for the companies in understanding us and what we are looking for,” she said. “We have a methodology with about 16 elements, qualitative as well as quantitative, so setting themselves up to be rated and looking at their debt maturity schedule. I would say probably the number one issue is how much secured debt they have, because we do look at the amount of secured debt to gross assets.”

In 2012, a number of REITs were focused on de-leveraging their balance sheets. Frankel was asked if REITs have that same focus in 2013.

“The answer is actually yes and no. On the one hand, companies realized as a result of the recession that having less leverage is good,” she said. “But to the question are companies de-leveraging, I’m not quite sure as much as we thought they might. What’s happening is when you’re redeeming the old or issuing new at lower interest rates, you bring down your interest costs, your fixed charge coverage is going to get better and your net debt dividend is going to get better, but you overall leverage number will not necessarily change."

Roth, Simon Talk Challenges, Opportunities for Retail REITs

Wed, 05 Jun 2013 18:16:00 -0400

Steven Roth, chairman and CEO of Vornado Realty Trust (NYSE: VNO), and David Simon, chairman and CEO of Simon Property Group (NYSE: SPG), participated in a panel discussion at REITWeek 2013: NAREIT’s Investor Forum that had them offering candid thoughts on topics ranging from how their companies have evolved to the impact of the Internet on retail REIT to politics.

Simon said that since Simon Property Group went public 20 years ago, he has been most surprised by the growth in the size of his company and the REIT industry in general.

“I would never have predicted the size of the company when we went public. Not just us, but Vornado and a host of other companies,” he said. “In the late 1990s we were just trying to make smart deals. It’s really surprising that the whole industry has gotten to the size it is.”

Roth said the “dire” state of the real estate industry in the mid-'90s proved to be a formative period for his company.

“We changed in the past 15 or 20 years to constantly seek assets that are out of favor,” Roth said. “We started to go into New York City office in a very large way.”

Both CEOs agreed that the advent of the Internet has both challenged retail REITs and provided opportunities for the sector. Simon said online sales will ultimately accelerate the obsolescence of bad retailers. On the other hand, stronger properties with successful retailers will get stronger, according to Simon, who said mall owners should embrace what technology can offer consumers.

“Hopefully, over time, the mall owner will be able to introduce technology to make the shopping experience a better environment for them,” he said.

However, Simon predicted a change in the way consumers choose to interact with one another. He said the millennial generation prefers physical interaction, as opposed to social networking.

“That’s what we have the potential to deliver in a number of our shopping centers,” he said. “I actually think there will be a movement toward going back to the basics. There will be a social movement to looking up, as opposed to looking down at your PDA.”

On a related note, Simon and Roth agreed that the adoption of the Main Street Fairness Act, federal legislation that would allow states to require online retailers to collect and remit sales and use taxes on purchases by residents of those states, is needed to level the playing the field for bricks-and-mortar retailers.

The REIT CEOs also agreed that Federal Reserve Chairman Ben Bernanke deserves more credit than he has received for his stewardship of the national economy.

“In my personal opinion, what the Fed has done has been remarkable,” Simon said. “The fact that our economy is reasonably stable, given all of the atmospherics that are going to and have occurred in Washington, is a direct result of Ben Bernanke.”

“The single most important thing going on in the capital markets is 0 percent interest rates,” Roth said.

Roth also discussed the struggling J.C. Penny’s chain and Vornado’s decision to invest in the retailer.

“J.C. Penny’s was a mistake," he said. "We have a history of investing in retailers and have had an enormous amount of success. We lost some money, and thank God our company can withstand the loss. We admit the loss and we moved on."

Roth added that the retailer has made management changes and moves to bolster its capital position. “We have a high degree of confidence and optimism that JC Penny's will move its operations and flourish again,” he said.

Wharton Professor Discusses REITs' Inflation-Hedging Benefits

Wed, 05 Jun 2013 15:43:00 -0400

Susan Wachter, professor at the University of Pennsylvania Wharton School of Business, joined REIT.com for a video interview in Chicago at the Real Estate Research Conference at REITWeek 2013: NAREIT's Investor Forum.

Wachter has done extensive studies into the inflation sensitivity of REITs. She offered some thoughts on her major conclusions as a result of her research.

"Real estate is regarded consistently as a good inflation hedge, and it is," Wachter said. "But the question is how good are REITs, because REITs are the transparent way of investing in real estate. We studied it absolutely and relative to other hedges, such as gold, and it's the best out there. In good times and in bad times, REITs do hedge inflation."

Wachter has also looked at how issues such as debt loads affect REITs' hedging characteristics. She said she has found that REITs that rely on long-term financing have "slightly better" inflation-hedging properties.

Wachter discussed the implications of her findings for investors and investment managers.

"Real estate has also been found in the research literature as moving with the S&P 500, but the point is that it isn't just the S&P 500," she said. "It is, additionally, an inflation hedge far better than the S&P 500. Although it is in the short run correlated with the S&P 500, looking at longer-run trends, it's a far better hedge. And, substantively, if you look at the differential movements, you can see the long-term factors that are causing real estate, as reflected in REIT returns, to have a different investment performance than the S&P 500."

That means REITs offer investors a chance to diversify their portfolios, according to Wachter.

Wachter offered some suggestions on other areas of REIT research that would be worth exploring. Her ideas centered around international REITs.

"I'm curious to what extent… REITs are serving as hedges against the local currency," she said. "Our work suggests that international REITs are actually hedges against the dollar."

Outlook Stable for Equity REITs, According to Fitch Ratings

Wed, 05 Jun 2013 11:00:00 -0400

Steven Marks, managing director with Fitch Ratings, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

Earlier in the year, Fitch Ratings had taken a favorable view of REITs' liquidity position. Marks discussed any possible changes to that view.

“If anything, we’re more positive,” he said. “We just put out a report about two weeks ago where we said that liquidity is the best ever as we analyze it.”

Marks share some of the conclusions of the recently published Fitch mid-year review of the state of the REIT market.

"The outlook on the overall equity REIT sector is stable, and that stable outlook is driven by a couple of things," he said. “On the positive side, one is that access to capital has been fantastic, liquidity has been quite strong and fundamentals have been improving, as well, generally across most of the sectors. Those positive elements are balanced by a couple things. One is leverage that we still believe is elevated in this sector, and, secondly, is the overall macroeconomic environment, which remains slow.”

Marks also discussed the potential for lending standards to tighten for REITs.

“If anything, we see a loosening on the secured side,” he said. “As it relates to the unsecured side, we see continued strength. If there was ever an opportunity to issue and access the unsecured bond market, the time is now.”

Marks talked about the stories he is watching in the second half of the year.

"There are two things we are paying closer attention to,” he said. "One is the extent to which REITs go out on the risk spectrum, and that could be in the form of speculative development. It could be in the form of highly levered M&A transactions or M&A transactions that are potentially not good fits. On the flip side, we are potentially looking at growth in the IPO market."

Flexibility Key to Ventas' Acquisition Strategy

Wed, 05 Jun 2013 10:05:00 -0400

Debra Cafaro, chairman and CEO of health care REIT Ventas, Inc. (NYSE: VTR), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

Having completed approximately $20 billion in acquisitions since 2004, Cafaro discussed the company’s flexible business model. She said it has helped when it comes to focusing on specific segments of the health care sector that are primed for acquisitions.

"One of the great aspects of the health care REIT model is that we are able to flexibly allocate capital into different sub-sectors at different parts of the cycle, and that has been a way to create value for shareholders," Cafaro said. “Our effort is really to allocate the capital where we see either valuations increasing for multiple expansion and/or valuations increasing because the cash flow is increasing.”

Cafaro added that both senior housing and medical office buildings are poised to continue their upward trends as a result of policy changes, demographics and improving economics.

When it comes to health care reform, Cafaro said that it has a slightly negative impact on Ventas' business overall, but she sees positives as well.

“The positives certainly are that along with the 79 million baby boomers that will be coming into the system and will become Medicare-eligible starting in 2011, they will use our medical offices. In addition, there is a policy drive to treat patients in the lowest-cost, most clinically appropriate setting. We do believe that benefits office and skilled nursing,” she said.

However, she said the negative effect is that some of Ventas’ health care provider tenants in the skilled nursing business are subject to pay for performance. As a result, she said, growth in their reimbursements has been muted.

Cafaro also spoke about being Ventas named to Fortune magazine’s "Most Admired Real Estate Companies" list.

“It was a great honor and tremendous recognition for our team. Our team is long-tenured, very skilled and we work very well together,” she said. “A lot of it is due to the team and, of course, our performance.”

REIT Assets Should Continue to Appreciate, Hudgins Says

Tue, 04 Jun 2013 17:21:00 -0400

Michael Hudgins, real estate strategist with J.P. Morgan Asset Management, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

With commercial real estate property pricing at the 2007 market peaks, Hudgins discussed how trends in pricing are affecting his outlook for REIT investment.

"REITs right now are growing cash flow from a depressed base," he said. "They've moved past this peak, but still are generating [net operating income] at the property level of about 4 percent year on year. Additionally, I see no reason why with low supply and incremental demand that REITs can't continue to grow that NOI at a 3 percent year-on-year rate for the next couple of years. What that means is that year on year, as the cash flow increases at the property level, values should increase."

Hudgins also offered his opinion on the value of REIT shares in the current market environment.

"I like to remind investors that REITs are a combination of three things - real estate, equity and bonds," he said. "When I look at REITs right now, they look expensive versus equities. They still look slightly cheap versus bonds. The tiebreaker is real estate. Rationally, REITs should be trading at a premium to real estate."

Hudgins gave a preview of what he thought would be the major stories in the REIT market in the second half of the year.

"I'm, personally, curious to see how single-family housing REITs do," he said. "Do they demonstrate that they can actually be cash generators? I think that's going to be critical. If you're going to be a REIT, it's all about generating cash and paying out a dividend."

American Campus Communities Celebrating 20th Anniversary

Tue, 04 Jun 2013 15:02:00 -0400

Bill Bayless, president and CEO of American Campus Communities (NYSE: ACC), joined REIT.com for a CEO Spotlight video interview in Chicago at REITWeek 2013: NAREIT's Investor Forum.

American Campus Communities is celebrating its 20th anniversary in 2013. Bayless discussed the importance of the company holding its first ever bond offering this year, as well as being named to Forbes magazine's "100 Most Trusted Companies" list.

"When we started the company back in 1993, one of the statements in our mission statement was a dedication to excellence and integrity," he said. "When we went public in 2004, one of our specific goals was obtaining an investment-grade rating so that ultimately we could issue corporate debt. In doing business with colleges and universities across America, for them, both of those send a great message in terms of the character of the company, especially when they're looking at picking a long-term partner to do housing on their campus. We're very proud of both and think that it really speaks well for the business that we're in."

American Campus had acquisitions and new development totaling more than $2 billion in 2012, which Bayless called "an incredible year for growth." Bayless talked about the outlook for activity when all is said and done in 2013. He said the company is currently in development on $305 million of seven owned properties.

"We see excellent growth on the development front," Bayless said.

Regarding new acquisitions, Bayless noted that there is approximately $1 billion in assets on the market right now.

"For us, it's always about the quality of growth versus the quantity of growth," he said. "Where we end up in the year will be a process after staying true to our process of diligently looking for assets that meet our criteria and executing where it makes sense."

Bayless cited oversupply of student housing facilities as the greatest threat to American Campus' business.

"We always talk about the great benefit to student housing is not being subject to macroeconomics," he said. "It really does come down to supply and demand in each individual market. Enrollments always tend to be steady and resilient. The supply side is where you can get hurt in our business. What we've always done to protect ourselves in that situation is making sure that our assets are located in pedestrian campuses in the infill submarkets with barriers to entry so that when oversupply does occur, it's happening outside of where our properties are located and we're somewhat insulated from that."

CEO Bernstein Says Acadia Realty Trust Adjusting to Online Retail

Tue, 28 May 2013 16:48:00 -0400

Acadia Realty Trust (NYSE: AKR) is celebrating its 15^th anniversary this summer. The shopping center REIT was formed in 1998 following the merger of RD Capital, Inc. and Mark Centers Trust, which would have been 20 years old on May 26.

Acadia specializes in the acquisition, redevelopment and operation of retail and urban mixed-use properties, with a focus on retail centers with visible street locations in high-traffic areas. The company currently owns and operates a portfolio of more than 10 million square feet of space across the United States.

Kenneth F. Bernstein, president and CEO, spoke with REIT.com about the company’s accomplishments and why he’s paying special attention to street retail.

REIT.com: What would you say are some of the primary ways that the company has evolved over the years?

Kenneth F. Bernstein: Over the past 15 years, we took over a troubled shopping center company, Mark Centers Trust, and have aggressively repositioned the company to where it is today. Thankfully over the past 15 years our shareholders have been well rewarded.

REIT.com: Are there currently any noticeable trends in the shopping center industry that are affecting how you do business?

Bernstein: When we took over Mark Centers Trust, it was primarily a suburban shopping center company in secondary markets with a variety of relatively fragile anchor tenants. We have transitioned the company over this time period into primarily dense suburban or urban high street retail properties. We did that by selling off the majority of the Mark Centers Trust assets and then, over the past five, 10 or 15 years, acquiring the assets that we think more justify the current trends and challenges in the retail industry.

Those trends include the reality that many of our retailers are embracing e-commerce as part of their multi-channel strategies. We think that while there will be some disruption and dislocation for some retailers and for some landlords, in the long term, for the best-located properties, multi-channel retailing will be a plus. And the kinds of properties we’ve been focused on acquiring have been those properties that we think will benefit the most from these trends.

The downside to some of the shifts is that many of these “big box” retailers will be able to merchandise with perhaps fewer stores and probably smaller footprints. There are some risks associated with that downsizing, and we’ve positioned our portfolio so that we’re hopefully well-protected against the shift.

REIT.com: During the first quarter, Acadia closed on an $86.6 million retail property on Chicago’s “Magnificent Mile,” North Michigan Avenue, and the company has been extremely active in the acquisitions market in late 2012. Do you see this continuing in 2013?

Bernstein: Our focus has primarily been in acquiring high street retail in those key markets that we’re involved with and includes New York City, downtown Chicago, South Beach in Miami and Washington, D.C., through to Boston. Again, our focus has been to own the kind of real estate for those retailers who need a physical bricks-and-mortar presence in key markets to complement their other channels of retailing. Our goal is to own that kind of retail.

REIT.com: How would you describe the company’s current investment strategy?

Bernstein: Our strategy is to acquire retail properties in the higher barrier to entry markets where—notwithstanding some of the ongoing trends and challenges in retail—we believe over the next five, 10 or 15 years, those retailers will do sufficient sales growth to justify strong rental growth.

Fundamentally Speaking: Federal Reserve Policy Unlikely to Change Soon

Wed, 22 May 2013 14:29:00 -0400

In the latest edition of “Fundamentally Speaking,” Calvin Schnure, NAREIT’s vice president of research and industry information, discussed the Federal Reserve’s monetary policy.

“The Fed has been in the news an awful lot, frankly, because the economy is a lot stronger than what people had expected,” Schnure said.

Schnure noted that members of the Federal Open Market Committee have spoken out against the level of “policy accommodation” given to the national economy in the form of low interest rates and bond purchases. He said the thinking among critics is that the need for such stimulus measures has decreased since they were implemented.

“It’s actually very appropriate: The economy is stronger, so they should start talking about taking away some of what they’re doing,” Schnure said.

Schnure pointed out, however, the economy hasn’t yet reached the point of full recovery.

“We need to see even more strength to get back to full employment and a good strong economy to get where we need to go,” said Schnure, citing the national unemployment rate of 7.5 percent. The Fed has indicated that it would investigate policy changes once the unemployment rate reaches 6.5 percent.

Schnure also said expectations are that inflation should remain “well-contained.”

Overall, Schnure advised not to expect significant policy changes in the near future.

Schnure also discussed the interest-rate outlook once policy does change.

“The real key here is going to be [the Fed’s] communication policy,” Schnure said. “We’re in a completely different environment for central-banking communications now than we were before the 1990s. Then, it was a surprise—nobody knew what was going to happen. There was no deliberation. Right now, they publish the forecasts. They talk about what’s on their radar screen.”

When the Fed does decide to revise monetary policy, the implementation could be relatively slow, according to Schnure.

“They’re also likely to start fairly early, perhaps gradually tapering off their purchases of bonds, Treasurys and mortgage-backed securities before ending those,” he said. “Then, sometime later, they will begin raising interest rates, so that’s going to help make for a smooth transition. The other important factor is that, right now, markets are flush with cash. People are looking for places to put that cash.”

Shoppers Want More from Malls

Wed, 22 May 2013 14:21:00 -0400

In the aftermath of the Great Recession, Glimcher Realty Trust (NYSE: GRT) Chairman and CEO Michael Glimcher and his staff looked at their portfolio of shopping malls and saw a change in the way their customers experienced their malls.

During the recession, Glimcher theorized that consumers started looking at malls as more than just a place to shop. They took on more of the character of community event centers and social gathering spots.

The Glimcher Realty team decided to test their intuition by conducting research on shoppers’ behavior. The result, the Glimcher Retail Monitor, was released this month, and it confirmed their suspicions.

“We found that the affinity for the physical shopping center has a lot to do with being social and wanting to experience it with others, whether it’s trying on makeup, having salad and a glass of wine with your girlfriends or enjoying a movie,” Glimcher said.

The New Mall Experience

Among the survey’s key findings, the data indicated that 80 percent of U.S. shoppers prefer to go shopping with a companion.

“Consumers are using the mall as a bonding experience,” said Marianne Bickle, professor at the University of South Carolina, which helped Glimcher Realty conduct the survey. “In the 1950s everyone knew everyone in the neighborhoods. Shopping malls are our new neighborhood experience.”

Experiences that range from dining at sit-down restaurants to participating in community events all help to drive consumers to the mall versus shopping alone online, according to the survey. Farmers’ markets and live music were among the top events that shoppers said they would like to see on a more regular basis at the mall. Fifty-two percent of people surveyed said they would be drawn to the mall more frequently if stores offered more experiences such classes and workshops.

Bickle noted that hosting community events has the added benefit of bringing more foot traffic to malls’ stores.

Glimcher Realty is adapting to the changes in consumer preferences. In response to its finding that consumers would prefer more high-quality food choices in malls, for example, Glimcher said his company has started to add more full-service dining options in its properties. Additionally, he said the company is seeking out more services to include in its malls, such as grooming and fitness centers.

Glimcher said one of the challenges of trying to make such changes is that finding the right tenants for a particular market can be difficult. Additionally, some of the newer, smaller tenants can’t afford to pay the same rental rates as larger national chains.

The survey was conducted in April 2013 by C&T Marketing Group and included answers from 3,334 adults over the age of 18.

Europe Real Estate Debt Funds Aggressively Pursuing New Capital, Study Says

Fri, 17 May 2013 15:54:00 -0400

The combined capital-raising target of Europe-focused real estate debt funds has grown by more than 300 percent in the past year, according to a May 17 report from alternative asset research firm Preqin.

According to Preqin, as real estate financing becomes more competitive, a growing number of fund managers are turning to debt offerings. There are currently 19 Europe-focused debt funds in the market targeting aggregate commitments of approximately $12.8 billion Euros. That compares to seven funds with an aggregate target of approximately $2.9 billion in May 2012.

Debt funds account for 26 percent of the approximately $48.8 billion Euros that is being targeted to be raised by the 117 Europe-focused funds in the market.

“With real estate financing from traditional lenders now harder to secure, an increasing number of Europe-focused fund managers are launching debt offerings to take advantage of the opportunities in the commercial real estate lending market,” said Andrew Moylan, head of real assets products at Preqin. He added that both new managers and established firms are forming new debt platforms.

The Preqin report noted that institutional investors are becoming more interested in the value that real estate debt can add to their existing real estate portfolio with a lower level of risk than equity investments in real estate. Of the European investors beginning to search for new funds in the first quarter of 2013, Preqin found that 27 percent were targeting real estate debt funds, compared to 8 percent that were targeting debt funds in the first quarter of 2012.

Overall, more institutional investors worldwide in 2013 are planning to ramp up their commitment to funds with debt strategies, according to a survey by Preqin. In December 2012, 34 percent of real estate investors surveyed said they planned to target debt funds in the next 12 months, up from 8 percent who responded that way a year earlier.

“Despite this increased investor appetite, the fundraising market for debt funds is very challenging, and with more firms entering the market, this is likely to remain the case in the coming months,” Moylan said.

Fitch Ratings Says CMBS Delinquencies Lowest in Five Years

Thu, 16 May 2013 10:19:00 -0400

Commercial mortgage-backed securities (CMBS) delinquencies in the United States fell in April to their lowest level in five years, according to the latest data from ratings agency Fitch Ratings.

Late payments for CMBS declined 19 basis points in April, going down to 7.44 percent from 7.63 percent in March, according to Fitch Ratings. Furthermore, the total amount of new delinquencies reported in April, $747 million, dropped below the $1 billion mark for the first time since February 2009.

The Fitch Ratings report noted that the last time new delinquencies were lower was in October 2008, when they came in at $458 million. At that time, the overall late payment rate for CMBS was 0.51 percent. The firm said it expects that the current delinquency numbers for CMBS will continue to move downward as real estate conditions improve.

“With many large assets having now made their way through the foreclosure process, CMBS delinquencies stand to drop further, sometimes sharply, as those assets are sold,” said Mary MacNeil, managing director at Fitch Ratings.

The apartment sector saw its delinquency rate fall the most of any individual sector, declining from 8.91 percent in March to 8.38 percent in April. The office sector’s delinquency rate dropped from 8.50 percent in March to 8.39 percent in April.

On the other hand, Fitch found that CMBS delinquencies rose to 9.82 percent for the industrial sector in April, up from 9.41 percent in the previous month. Hotel sector delinquencies also increased, up from 7.71 percent in March to 8.01 percent in April. Additionally, retail delinquencies moved up slightly, climbing to 7.10 percent in April from 7.09 percent in March.

“The volume of CMBS loan resolutions is likely to remain strong, with the share of real estate owned assets (REOs) at an all-time high,” MacNeil said.

MacNeil said the share of real estate owned assets, which include properties that go back to the mortgage company after an unsuccessful foreclosure auction, represents 45 percent of the total outstanding delinquencies. The share of REOs is even higher, 57 percent, for larger loans of more than $100 million.

Property Values Hovering Around Market Peaks

Mon, 13 May 2013 16:31:00 -0400

Five years after the onset of the global financial crisis, bellwether pricing indices indicate that commercial property values appear to have reached—if not surpassed—the market peaks of 2007.

Commercial property values were up 1 percent percent in April, putting them above their 2007 high, according to data from Green Street Advisors’ Commercial Property Price Index (CPPI). The FTSE NAREIT PureProperty Index, which covers REIT-owned properties exclusively, tells a similar overall story: Unlevered property values of REIT-owned properties nationwide were almost exactly on par at the end of April with where they were when peaking in January 2007.

The price increase in April indicates that property values have fully recovered the ground that was lost during the last downturn. In the previous month, commercial property values were up 2 percent returning them back to their 2007 highs.

Jason Moore, an analyst with Green Street Advisors said commercial real estate values continue to benefit from low interest rates combined with modest economic growth.

“Lower rates, an overall drop in yields and real estate catching up to other capital markets has attributed to rising values,” Moore said.

Moore said it’s likely that the upward momentum in pricing will be sustained. Property values rose 7 percent during 2012, according to the CPPI.

Other commercial property indices, however, remain below 2007 highs. For example, according to the Moody’s/RCA Commercial Property Price Index (CPPI), as of February 2013 unlevered property prices were still 19.9 percent below the market peak. As of the first quarter of 2013, the appraisal-based NCREIF Property Index (NPI), showed that unlevered property values were still 16.5 percent below their peak. Additionally, NCREIF’s Transaction Based Index (NTBI), showed unlevered property values in the first quarter of 2013 still 12.6 percent below the market peak.

Brad Case, NAREIT’s senior vice president of research and industry information, noted that the Moody’s and NCREIF indices tend to lag the market. Furthermore, Case said, they don’t cover all of the major property types and include smaller properties, which can affect their results.

Industrial Sector Improving

Commercial property values in the industrial sector, which have tended to lag the other sectors in previous months, were up 3 percent in April, according to the Green Street index.

“This looks like it was from B-quality properties in A locations,” Moore said. “There haven’t been many transactions in the industrial space, especially at the lower end of the spectrum. It looks like that’s changing, and we're starting to see lower-quality property transactions at reasonably high values.”

Strip center retail property values rose 1 percent in April, according to the Green Street Index, while the apartment, mall, office and lodging sectors held steady.

“It’s more of the same story with strip center retail. The lower-quality properties are playing catch up, perhaps due to the CMBS machine ramping back up which is where these properties tend to get financed,” Moore said.

Book Offers ‘Road Map’ to REIT Investing

Fri, 10 May 2013 14:09:00 -0400

Stephanie Krewson, vice president of investor relations at Corporate Office Properties Trust (NYSE: OFC), says she wrote her book,"REIT Roadmap,” in 2010 before joining COPT, to serve as a succinct resource on investing in REITs.

Prior to COPT, Krewson was an analyst covering REITs for Salomon Smith Barney and JP Morgan Chase. She wrote the book while on sabbatical from Wall Street. The first edition rolled off the presses in June 2011 and the second edition became available in September 2012.

The book addresses issues ranging from descriptions of major REIT property types to taxation of dividends to performance metrics. She specifically planned for the book, which is currently being used as required reading in courses at Georgetown University and the James A. Graaskamp Center for Real Estate at the Wisconsin School of Business, to be less than 100 pages long.

In an interview with REIT.com, Krewson discussed her inspiration for the book as well as advice for investors who are new to the REIT market.

REIT.com: What inspired you to write “REIT Roadmap?”

Stephanie Krewson: I realized there was a gap in the educational tools available to investors. Although REITs today are an established asset class, there are still so many investors who don’t know about REITs, or, if they know of them, they don’t know enough to invest in them or even have an informed conversation with their financial advisors. I wanted to create a thorough but brief and easy-to-understand resource that would help bring new investors into the REIT industry by making REITs intellectually accessible.

Many helpful books about REITs already existed, but each had the same three issues. First, they assumed the reader already had some basic level of REIT knowledge. Second, each of the existing REIT books was at least 250 pages in length. Most people just don’t have that much time to read about REITs. Third, no one book contained all the information an investor would need to learn about and then analyze individual companies.

So, the challenge was to write a handbook about REITs that discussed every essential topic, including valuation metrics like NAV, used plain English that even a novice investor could understand, and to do all of this in 100 pages or less. After about 60 re-drafts, “REIT Roadmap” finally met each of these criteria.

REIT.com: How would you say that investors’ perceptions of REITs have changed over the years?

Krewson: Investor perception of REITs could not be more different today than in 1994 when I began my career in REITs. Back then, REITs were still viewed as an alternative investment, rather than an accepted asset class. The industry’s market cap was less than $50 billion dollars, which was spread over more than 200 companies, so REITs generally were small-cap companies that attracted retail investors. Back then, you still had to explain to investors that REITs were not limited partnerships and that the investor would not need to wait for their Form K-1 to arrive in the mail in order to do their taxes.

Since 2001 when the S&P committee admitted the first equity REIT into their 500 index, the REIT industry has grown and changed exponentially, as has investors’ perception. Today, there are over 170 publicly traded REITs, and the industry’s market cap exceeds $625 billion. Although the market place for REIT shares is still not as liquid it is for other investments, liquidity generally is not an impediment to investing, especially in the large- and mid-cap REITs. REITs may still be viewed as alternative investments by some portfolio managers, but they are a well-established and valid asset class.

REIT.com: In your experience, what are the most important things that investors who are new to REITs should know?

Krewson: I would advise them that predicting total returns for REITs is more complicated than for other industries. Other companies, like Apple or Home Depot, trade off of future sales expectations. REIT share prices reflect both future leasing expectations and cash flows from leases that were signed in the past, unless you’re dealing with hotel REITs, which have no leases. Because of this past-future revenue mix, current REIT performance rarely reflects the current real estate fundamentals.

But this is probably is too subtle a concept for someone new to REITs. Instead, I’d probably give three pieces of advice that are easy to measure and follow:

Debt is risk. No company ever went bankrupt because it had too little debt.

Dividends are only attractive if they are safe. Look at forward dividend/FFO payouts (or AFFO payouts, if you have access to that data) and invest in REITs that have lower, more conservative payout ratios.

Match your risk tolerance to REITs that invest in appropriate property types. If you have a low risk tolerance, you probably shouldn’t invest in hotel REITs, which trade with the greatest volatility of any property sector. Conversely, if you have a high risk tolerance, triple-net REITs will not likely fill your need for adrenaline.

REIT.com: How was the transition going from an analyst to vice president of investor relations?

Krewson: I love it. I knew I wanted to work at a REIT, rather than go back to Wall Street. Investor relations is a very different role at each company, depending on where that company is in its evolution. I knew I still wanted to be involved in financial modeling, as well as writing and marketing, so it was a matter of finding a company whose needs aligned with my skills. COPT is a company I had always admired, not just for assets like The National Business Park, but for the culture of caring and respect that was always evident in my meetings with management over the years. It sounds touchy-feely, but it’s true.

REIT.com: Did having the perspective from both types of positions help?

Krewson: Absolutely. Knowing what the sell-side analysts and buy-side investors need to model our company has helped me work with other departments at COPT consistently assures our best practices for disclosure.
Also, you need to excel at multi-tasking when you work in IR. I think I earned a Ph.D. in that on Wall Street over the years.

Last, I would mention that the perspective on the REIT industry and the knowledge I gathered on individual companies’ experiences—which ones handled problems the best, which companies communicate most effectively, et cetera—have enabled me to share my knowledge as part of management’s decision process.

Macerich Added to S&P 500 Index

Wed, 08 May 2013 15:18:00 -0400

Retail REIT Macerich (NYSE: MAC) was added to the S&P 500 on May 8, making it the first REIT to be added to the benchmark index in four years.

Arthur Coppola, chairman and CEO of Macerich, said inclusion in the S&P 500 is as much of a positive reflection on the entire REIT industry as it is on his company.

“This represents a growing recognition of the attractiveness of the REIT model and of REITs maturing in our industry and the fact that our industry has performed well in the broader markets and in all indices,” Coppola said in an interview with REIT.com.

Health care REIT Ventas (NYSE: VTR) was the last REIT added to the index, joining the S&P 500 in March 2009. Prior to that, Health Care REIT Inc. (NYSE: HCN) was added in January 2009.

Coppola reflected on the growing number of REITs now included in the index despite the four-year hiatus. The first REIT was added to the S&P 500 in 2001 with the inclusion of Equity Office Properties.

“Since then, about one REIT on average per year was added. It’s a positive sign for the industry to bring in another company now,” he said.

The addition of Macerich brings the total number of REITs now listed on the S&P 500 to 17. Macerich is the second retail REIT. Simon Property Group (NYSE: SPG) was added in 2002.

Coppola said the S&P inclusion means more exposure for the company to the investment community.

“There are many investors that only want to invest in S&P 500 companies, so it just clearly broadens the appeal to the investment community,” he said. “It will most likely result in higher liquidity of the company in the stock market in terms of the volume of shares that will trade on any given day, which investors like to see.”

Shares of Macerich were up nearly four-tenths of a percent through mid-day trading on May 8 at $70.39.

Macerich had been a member of the S&P MidCap 400 index since 2005. The company replaced Coventry Health Care on the S&P 500 following Coventry’s acquisition by Aetna Inc.

Ferguson: Canadian Real Estate Going Strong

Fri, 03 May 2013 15:32:00 -0400

The Canadian commercial real estate market didn’t go through the same downturn witnessed in the United States during the global financial crisis. How our neighbors to the north managed to pull that off is a subject of interest to William Ferguson, co-chairman and co-CEO of Ferguson Partners, an executive search firm specializing in real estate.

Ferguson published a book on the Canadian real estate market in 2012 and put out a report last month on the Canadian real estate outlook. The report offered insight into the market though interviews with CEOs of Canadian real estate companies.

In 2012 the Canadian real estate market “did enviably well because of the country’s fiscal conservatism and close-knit professional real estate community,” according to Ferguson.

In an interview with REIT.com, Ferguson discussed some of common themes that emerged in the report, including the benefits of institutional players growing presence in the Canadian market. Additionally, Ferguson said banks are looking for assurance from commercial real estate company executives as lending standards tighten.

REIT.com: What led you to write your book “Market Discipline”
and produce this report on the Canadian real estate market specifically?

William Ferguson: I was interested in trying to understand why Canada didn’t really run off the cliff in 2008. There are a number of reasons but the main reason is, even though it is a big country, it’s a very small community—at least as far as the leaders who run these respective businesses. A lot of the cultural elements relative to everything, as silly as it sounds, from “your word as your bond” to “once you commit, you don’t back out,” are important to them.

Following the book, we wanted to take a little bit more forward-thinking position: “What’s going to go on in Canada over the near term?”

REIT.com: How do CEOs view the current real estate market in Canada?

Ferguson: I would generally say that there’s a lot of equity and debt capital available up there. So, if you are undercapitalized, meaning if you are neither an investment manager nor a REIT, it’s tough for a lot of the private developers to compete.

Because prices are being driven up, the people with capital are stepping up to the plate to do deals. If you really don’t have the balance sheet and the ability to borrow and you don’t have equity capital, it’s tough.

So, generally speaking, I think you’ve got some of the same issues in Canada that you‘ve got in the U.S. relative to a lot of demand being driven by a lot of capital.

REIT.com: What seems to be the forecast for the remainder of 2013?

Ferguson: This is a country that is rich in natural resources. Now, the good news is that they are rich in natural resources, but the bad news is that if a number of their trading partners have economic difficulties—whether it’s the U.S., Europe or whatever—that is going to have an impact on their economy. That is going to be a bit of a wild card out there.

If interest rates go up, that will also slow things down as well. But, generally speaking, I think the forecast for the balance of the year is good.

REIT.com: What are some of the challenges facing the real estate market in Canada?

Ferguson: Well, clearly an economic slowdown will obviously have repercussions in the office market. I think the residential market may sustain itself better than some. The retail side inevitably will have some potential slow down if the economy slows down as well. The industrial business tends to be a little bit stronger up there, just because of the fact that their economy is so natural resource focused.

If there are asset classes that could slow down if the economy is at risk, they would be office and retail.

Leader in the Light and GRESB Advance Sustainability in Commercial Real Estate

Fri, 03 May 2013 12:00:00 -0400

NAREIT held its Leader in the Light Working Forum from March 18-19 in La Quinta, Calif. The event was a collaborative working session to discuss the key drivers of sustainability in real estate, share participants’ leading sustainability practices, and identify future events, initiatives and milestones in sustainability.

Several participants shared their thoughts on how programs like LITL and GRESB have helped advance sustainability in commercial real estate.

“They help to establish a benchmark for performance,” said Will Teichman, director of sustainability at Kimco Realty Corporation (NYSE: KIM). “You can’t overstate the value in recognizing and positively incentivizing companies to get in the game and to work to advance sustainability.”

“Being able to see where you fit in with your peers is really valuable,” said Marla Thalheimer, director of sustainability at Liberty Property Trust (NYSE:LRY).

“There are a lot of improvements in terms of people being able to say, ‘My competitor is doing that; I should be doing that,’” said Dianne Horton, sustainability manager with Thomas Properties Group (NASDAQ: TPGI).

“At a corporate level, I think it helps us recognize and remind us that it is very important to our investor base,” said Sukanya Paciorek, vice president of corporate sustainability at Vornado Reality Trust (NYSE: VNO).

“I think the great thing about GRESB is it’s actually a great way for investors to realize who is doing good work across the board,” said Sara Neff, director of sustainability programs at Kilroy Realty Corporation (NYSE: KRC).

“Programs like this are really key and crucial to moving these industry standards along,” said Joe Lopez, vice president of property management at Equity One (NYSE: EQY).

“The Leader in the Light Award has been very effective at harnessing a focus for us internally, but I think also externally as well within the REIT industry,” said Aaron Binkley, director of sustainability programs at Prologis (NYSE: PLD).

REITs Outperform Broader Market in April

Thu, 02 May 2013 17:39:00 -0400

U.S. REIT stocks were up in April, the first month of 2013 in which they surpassed the broader stock market.

Data from the FTSE NAREIT U.S. REIT Index showed that U.S. equity REITs posted total returns of 5.8 percent in April. That bested the S&P 500, which posted total returns of 1.93 percent.

“It was a very strong month for REITs,” said Brad Case, NAREIT’s senior vice president of research and industry information. “I have noticed that we’ve been seeing declines in the correlation between REITs and the broader stock market. This kind of different performance is part of what we see there.”

REITs had gained 15.44 percent through the end of April, compared to 12.74 percent for the S&P 500.

“People have been talking about a recovery of the stock market, but, actually, REITs have outperformed the stock market so far during the first one-third of the year,” Case said.

David Toti, senior managing director with Cantor Fitzgerald, said that REIT’s “made up a lot of ground” in April. He said REITs’ dividends, hard assets and visible cash flows appeared to attract investors in search of safe havens from broader economic concerns.

“I think one of our biggest concerns going into the year with the economy looking a little bit strong was that the appetite for yield was increasing,” Toti said. “REITs were worried that the generalist investors would go to lower-level equities.”

Alexander Goldfarb, managing director and senior REIT analyst with Sandler O’Neil and Partners L.P., also cited concerns about the broader economy, including potential effects from the European financial crisis, as a key reason behind investors’ interest in REITs in April. Low borrowing costs and positive prospects for rent growth amid tight supply of space appeal to investors as well.

Retail Leads

Retail was the best performing sector for the month, posting gains of 9.81 percent. Case said trends in consumer spending indicate growing confidence in the economy

“People start spending before they feel confident. They get to the point where they just need stuff and can afford it, so they just go out and do it, even before they express confidence,” Case said.

Goldfarb said his firm has been “very bullish” on shopping centers. He said small shop tenants are filling vacant spaces in retail centers, helping to boost rents.

The timber REIT sector was a leading performer the previous month, up 7.3 percent in March. However, timber REITs underperformed in April, down 1.61 percent. Case downplayed the results for the sector.

“Timber has been so strong. That’s just investors taking a breather in that sector. There’s nothing that indicates any weakness for timber REITs,” Case said.

Quick Study: REITs Beat Market in April

Thu, 02 May 2013 17:22:00 -0400

In the latest edition of “Quick Study,” Brad Case, NAREIT’s senior vice president of research and industry information, provided an analysis of the REIT market’s performance in April.

The U.S. REIT market delivered total returns of 5.8 percent in April, according to NAREIT data. That beat the S&P 500, which was up 1.9 percent for the month. The NASDAQ Composite returned 1.9 percent for the month as well.

“It was another strong month for the REIT market in April,” Case said.

Case noted that while the performance of the broader market this year has generated attention, REITs actually outperformed it in the first third of 2013. REITs were up 15.4 percent in the first four months of the year. Meanwhile, the S&P 500 was up 12.7 percent during the same time period.

“That repeats a pattern that we’ve seen over each of the last four complete years, and, of course, over most longer periods of years, the REIT market has outperformed the stock market,” he said.

Case said the retail, infrastructure, self-storage and health care sectors stood out for their performances in April. He also pointed out that mortgage REITs have produced strong returns so far this year. The sector has a total return of 19 percent in 2013 and is offering dividend yields above 10 percent.

“Mortgage REITs have really had a very strong run so far this year,” Case said. “They’ve gained nearly 19 percent in the first four months of 2013. Yet, they still offer dividend yields greater than 10 percent.”

Case attributed the strong showing in the retail sector to “growing confidence” among consumers.

“Really it was a strong month for most of the REIT market,” he added.

Case also discussed the duration of the REIT bull market. He said 18 months have passed since REITs’ recovery from the liquidity crisis was complete. The upswing of the real estate market cycle generally lasts 16 years, according to Case’s research. He added that economic growth supports improvements in REITs’ overall operating performance going forward.

Plum Creek Executive Says Audit Activity Increasing for Timber REITs

Tue, 30 Apr 2013 12:00:00 -0400

Paul Stamnes, vice president of tax with Plum Creek Timber Company (NYSE: PCL), joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Plum Creek is one of the largest land owners in the nation. Stamnes described audit issues surrounding timber REITs.

“In the last couple of years there has been increased activity, in particular looking at transfer pricing,” he said. “The IRS is really starting to focus on REITs, primarily from the taxable entities, because that’s where the tax dollars are.”

Stamnes explained concerns regarding recreational leasing.

“Recreational leasing is somewhat unique to the timber REIT industry, because timber REITs own a lot of land,” he said. “Clubs engaged in hunting or other activities will lease land from timber companies because our land is generally open to the public when we’re not engaging in forestry activities. The critical tax issue is ensuring that income remains qualified for REIT purposes.”

Private Real Estate Fundraising Declines to 10-Year Low in First Quarter

Fri, 26 Apr 2013 17:05:00 -0400

Fundraising for private real estate investment reached its lowest level in 10 years in the first quarter of 2013, according to the latest data released by alternative assets research firm Preqin.

The firm noted that the $5.2 billion raised by private equity funds that closed in the first quarter is the lowest quarterly total since the third quarter of 2003 Twenty-two closed-end private real estate funds held final closes in the first three months of 2013.

In the fourth quarter of 2012, private equity real estate fundraising reached its highest quarterly point in four years when funds raised $22.6 billion.

Investors’ appetite for private real estate appears to be high, as the Preqin report noted that 53 percent of private real estate investors plan to make a commitment to the private equity real estate in 2013, a jump from the 36 percent who planned to commit in 2012. However, Andrew Moylan, head of real assets products for Preqin, attributed the fundraising decline to strong competition in the marketplace.

“The first quarter of 2013 was a slow period for private equity real estate fundraising. Competition for limited partner commitments remains intense, and fundraising for most managers is a long, difficult process,” he said. “While there is a degree of momentum in the fundraising market, with 44 funds holding interim closes in the quarter, it remains very hard for managers to hold final closes for their funds.”

There are currently 436 private real estate funds in the market, targeting aggregate commitments of $157 billion.

The 20 firms that closed in the first quarter spent an average of more than 18.7 months marketing their funds, according to Moylan. That represents a small increase from the average 18.3 months taken to raise capital for funds that closed in 2012. He pointed out that funds took an average of 9.2 months to close in 2007.

Funds with a primary focus on North America raised the most capital in the first quarter of 2013. Twelve funds dedicated to North America received aggregate commitments of $3.7 billion, while three Europe-focused funds and five Asia-focused funds raised totals of $756 million and $776 million, respectively.

Brookfield Reaches Deal to Acquire MPG

Thu, 25 Apr 2013 16:07:00 -0400

Brookfield Office Properties, Inc. (NYSE: BPO) announced plans on April 25 to acquire MPG Office Trust, Inc. (NYSE: MPG) for approximately $180 million. Brookfield intends to use the newly acquired assets to form a new fund focused on the office market in downtown Los Angeles.

The portfolio of the new fund, DTLA Holdings, would consist of Brookfield’s existing downtown LA assets and all of the assets of MPG, which owns and operates Class-A office properties in the city’s central business district. Additionally, DTLA plans to acquire two additional properties in downtown LA, including a newly redeveloped retail complex from Brookfield and a development site.

BPO’s contribution to DTLA Holdings would total approximately $550 million, including the equity in its existing Los Angeles assets totaling $410 million as well an additional investment of $140 million.

“This proposed transaction provides the opportunity to combine and operate a sizeable portfolio of the highest quality assets in a major U.S. gateway city,” said Dennis Friedrich, chief executive officer of Brookfield Office Properties. “Downtown Los Angeles has all the attributes of a dynamic urban market, including modern transportation infrastructure, a growing residential population and access to a diverse labor pool.”

Under the terms of the merger agreement, the holders of MPG’s common shares of stock would receive $3.15 per share in cash. That represents a 21 percent premium on MPG’s closing share price of $2.60 on April 24.

The agreement also called for Brookfield to tender an offer to purchase all preferred shares of MPG stock at a price of $25. Any preferred shares not tendered would be converted into new preferred shares of Brookfield stock “with rights, terms and conditions substantially identical to the rights, terms and conditions of the outstanding preferred shares” of MPG stock. If more than two-thirds of the outstanding MPG preferred shares are tendered, then Brookfield will have the right to convert all of the untendered MPG preferred shares at the $25 tender price.

The announcement comes after a “lengthy and exhaustive search” for a buyer, according to David Weinstein, president and CEO of MPG. “The transaction potentially offers both MPG’s common and preferred shareholders a liquidity event that would remain uncertain if the company were to continue on as an independent entity,” he said.

Michael Knott, analyst with Green Street Advisors, said the merger appears to be a creatively structured “win-win” deal for the common shareholders of both companies. However, he said he worries about the potential for adding vacancies to the Brookfield portfolio and any potential impact on its balance sheet.

The deal is contingent upon shareholder approval and is expected to close in the third quarter of 2013.

Brookfield’s shares were trading up close to three percent at $17.91 mid-day April 25 after closing the previous day at $17.43.

SNL Analyst Sees No Slowing for REITs in Capital Markets

Thu, 25 Apr 2013 10:44:00 -0400

Keven Lindemann, director with SNL Real Estate, joined REIT.com for a video interview to discuss REITs’ performance in the first quarter of 2013.

Lindemann noted that REITs’ net asset values (NAVs) indicate that the stocks are trading at a premium of about 14 percent, which, historically, has been on the high side for the industry. REITs’ stock prices relative to funds from operations (FFO) are also high, according to Lindemann.

“The sector has performed fairly well this year. I think there may be some concern that valuations are getting a little bit rich in the sector,” he said. “I think there is some reason for concern, but earnings growth continues to be reasonably strong, and the companies tend to keep clean balance sheets. If the economy continues to recover, I think the outlook is still very positive.”

Lindemann called the six initial public offerings of REITs in the first three months of the year a “very encouraging sign.”

“I certainly see a lot more activity out there,” he said.

Lindemann also offered his thoughts on REITs’ efforts to raise capital. The industry raised a record amount last year, and the first quarter saw that momentum continue to hold up in a variety of areas, according to Lindemann. He pointed out that the amount raised through offerings of common shares in the first quarter actually exceeded the year-earlier period.

“It has been fairly balanced between unsecured debt, preferreds and common shares. The companies continue to have very ready access to the capital markets, which I think is also very encouraging for them,” Lindemann said.

Lindemann noted that companies also continue to take advantage of at-the-market stock offerings, enabling them to raise equity over time.

“As long as companies’ share prices remain high, companies are going to be very interested in issuing equity,” he said. “If there is investor demand for it, they will continue to do it and continue this de-leveraging that we’ve seen. It will all hinge on investor demand. If the institutions continue to want those REIT stocks, I think the companies will continue to raise capital at this pace. Eventually, we’re going to see institutions start asking more about the use of proceeds and making sure that we’re getting a good return on them, but there doesn’t seem to be any sign that capital raising is slowing down at all.”

PwC Partner Says REITs Frustrated With Accounting Convergence

Wed, 24 Apr 2013 14:59:00 -0400

Thomas Wilkin, partner with PwC, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Wilkin discussed the issues and views surrounding the convergence of global accounting standards, as well as the impact of other financial proposals on REITs.

“I think at this point there’s a fair amount of dissatisfaction and just tiredness of dealing with the whole convergence project in general. It’s been going on many years longer than it was supposed to, and there doesn't seem to be any light at the end of the tunnel,” he said. “Even the major box car projects, many of which will very significantly affect real estate, will clearly have major implications to our clients. Many of them at this point are almost taking the position of ‘tell me when it’s done and I’ll focus on it, because I’ve been hearing about it for so long.’ ”

He also spoke about how the Financial Accounting Standards Board’s (FASB) new revenue recognition proposal will impact companies. Wilkin indicated that some companies are questioning the need for change at all.

“I think from a practical perspective, in the real estate space in the United States, it’s unclear to many whether it’s really broken,” he said.

In terms of the impact that the new leases proposal will have on REITs, Wilkin said it will affect both the business and accounting departments.

“Certainly from a business perspective, any real estate company is affected by something that will affect how their customers and tenants change their business practices as a result,” he said. “It's likely going to vary by the different property types that are out there.”

Wilkin said that while there will be little or no impact on customer behavior in the apartment or hotel sector, it will impact others. That would include companies that own and operate single-tenant properties with long-term leases.

“This is where they’ll actually have to change the types of terms they negotiate for and the types of transactions that they engage in. That can have a significant impact on their business,” he said.

Sector Focus: Multifamily Momentum Showing Signs of Slowing

Tue, 23 Apr 2013 16:35:00 -0400

While multifamily REITs have enjoyed strong fundamentals, returns from the sector continue to lag behind the broader REIT market. Industry analysts are attributing the sector’s performance to investors’ concerns with competition from the single-family home market and a muddled employment picture.

Multifamily REITs have posted total returns of 3.9 percent for the year as of April 22, trailing the average 2013 gains of 12.4 percent for all equity REITs, according to data from the FTSE NAREIT U.S. Real Estate Index. In comparison, the S&P 500 has posted returns of 10.2 percent for the same time period. In 2012 multifamily REIT returns were 6.9 percent, compared to 19.7 percent for all equity REITs.

“The markets have not been kind to multifamily REIT stockholders,” said Jim Stevens, analyst with research firm SNL Financial. Multifamily REITs’ lukewarm returns have come as projections for the growth in the sector’s funds from operations (FFO) have dropped.

Median FFO growth for 2012 in the multifamily sector was 16.5 percent, well above the 5.2 percent median FFO growth of the entire equity REIT sector, according to SNL data. However, that is expected to slow in 2013, with SNL projecting FFO growth for multifamily REITs of 7.5 percent, below the mark of 9 percent projected in the broader REIT market.

“FFO growth projections and the current NAV discount for the sector suggest momentum is slowing down,” Stevens said. The multifamily sector ended March trading at a 9.2 percent discount to NAV. That was higher than the median for all equity REITs of 6.7 percent.

Additionally, Stevens said that if the unemployment rate maintains the slow improvement seen in the last year, demand for multifamily space is likely to decrease. Unemployment dropped from 8.2 percent in March 2012 to 7.6 percent in March 2013, according to data from the Bureau of Labor Statistics.

Housing Market Effects

Calvin Schnure, NAREIT’s vice president of research and industry information, speculated that many investors expect rent growth in the multifamily sector to decelerate as the single-family housing market rebounds. Single-family housing starts are projected to rise from 535,300 a year ago to 700,000 this year and reach 1 million by 2015, according to an April report from the Urban Land Institute.

Yet, Stevens noted that the evidence that single-family homeownership and multifamily rental markets cannibalize revenue from one another isn’t definitive.

“There are historical examples of the two industries growing in harmony, as well as examples of them moving inversely,” he said.

Oversupply Concerns

Another important variable affecting the multifamily sector is the number of new apartment units being made available. Luis Mejia, CoStar’s director of multifamily research, said “the wild card in the equation” is a possible overbuilding of multifamily units, “especially if the combination of relatively easy financing and developers’ optimism, which is always there, continues to persist too long.”

CoStar is projecting that 140,000 new apartment units will be delivered in 2013, with more that 400,000 to come in the next three years. Mejia said some markets that recovered early in the real estate cycle, such as Dallas, Washington, Denver and Seattle, may see higher vacancy rates in 2013 as they become saturated with new units.

Given the significant increase in deliveries of multifamily buildings scheduled for 2013, if demand growth diminishes, Stevens said “the unit owners could find themselves in trouble.”

D&O Litigation Will Continue to Increase, Lishner Says

Tue, 23 Apr 2013 16:30:00 -0400

Melisa Lishner, director with Crystal and Company, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Lishner discussed trends in D&O insurance litigation.

“Even though federal class actions have slowed down, we anticipate that it is not going to continue,” she said. “With the economy slowly strengthening, you end up with more transactions, which require more documentation, which require either shareholder approval or more scrutiny over those documents. Whenever you have a transaction, you are going to get noticed, and with mergers and acquisitions, you have a 95 percent chance of getting a claim once the transaction is announced.”

Farer further described the trends in D&O litigation affecting REITs.

“There are a number of other issues that appear to be on the rise,” she said. “The first is executive compensation. In the REIT world, every time the shareholders have disapproved of the board’s recommendation, there’s been litigation filed. In addition to that, there’s more development going on now. With development, you have joint-venture prospects starting, and you generally get a lot of litigation out of those.”

Lishner shared advice for NAREIT members regarding D&O insurance.

“Meet with your carriers. Sit down and tell your story. You are the best people to tell the story of how your company is doing and how you expect it to do in the future,” she said.

Crystal & Company advises clients on strategic risk and insurance matters.