REITdaily Morning Call: March 11, 2015


S&P futures are up +0.4%, and the 10-year tsy is up slightly from yesterday to 2.14%, from 2.126%.


Economic Indicators

Nothing significant on the calendar today. Tomorrow we get Initial Jobless Claims (306k consensus), and Retail Sales ex- Auto (+0.6% consensus).


Company News

Yesterday evening, the Board of American Realty Capital Properties (ARCP) attempted to put a rudder on a wandering ship by appointing industry-veteran, Glenn Rufrano as CEO. Rufrano has been the CEO of multiple real estate companies: New Plan Excel Realty Trust, Centro Global Property Group and Cushman & Wakefield. He was also the CEO of O’Connor Capital Partners since 2013 and serves on the board of Ventas (VTR), Rufrano is replacing Nicholas Schorsch, who was forced out of the company following the revelations that the company has misled its investors about its AFFO results for multiple quarters. The entire C-suite needs to be replaced, in addition to the Board finding a new Chairman. The big question now is if Rufrano was brought in to right-the-ship and continue as a ongoing company, or if he was brought in to position the company for sale.

First Industrial (FR) took advantage of its recent upgrade to investment grade and refinanced its credit facility at a new rate of L+115 bps, which is 35 bps lower than the previous facility. The size of the facility remained constant at $625 million, and as of December 31, 2014 the company had about $209 million outstanding on the credit facility. We believe that in addition to the market undervaluing FR’s properties, the market is also not ascribing enough value to the interest savings potential that is available to FR now that the company has regained its investment grade rating.

Wendy Silverstein, Vornado Realty’s (VNO) EVP of Capital Markets and Acquisitions, announced that she would be stepping down from her position at the end of the month. She spent the past 17 years with VNO and is a well-respected player in the industry. We assume the split was amicable and the 8-K filed by the company suggests that her intention is the serve on the Board of an “affiliated” VNO company, which is likely the recent spin off of the company’s shopping center portfolio, Urban Edge (UE), but it could also be VNO’s Alexander’s (ALX) subsidiary.

Gramercy Property Trust (GPT) announced a 1-for-4 reverse stock split, which will take effect on March 20th. GPT’s $7.01 stock price will become about $28 once the split goes in effect. The company has spent the past few years redefining itself as an Industrial REIT, which is a long way from its roots as a mortgage REIT, externally managed by SL Green (SLG). The transformation has been a success as the stock has climbed +63% in the past two years, compared to +24% for the REIT industry. A higher stock price will help to erase the stigma associated with low stock price REITs, which have generally gone through a rough patch.


Industry News

Despite declining mall traffic in recent years, demand for quality properties remains strong. The WSJ reported that General Growth Properties (GGP) sold a 25% interest in a Hawaiian mall at a 2.9% cap rate, which is far below the average mall cap rate of 5.2%, according to Green Street Advisors.

The owner of the Mall of America is assuming these lofty valuations mean that the Miami market is in need of a new mall — one that is even larger than the Mall of America. The WSJ reported that Triple Five, a Canadian real estate company, announced its plans for a 4.2 million square foot mall with 520 stores. “In addition to the retail space, the mall would include a ski slope, a water park, a sea-lion show, miniature golf, bowling, a submarine ride, restaurants, a performing-arts theater, a cinema, a Ferris wheel, an ice rink and a roller-coaster ride as well as hotels and condominiums.”

Howard Hughes Corporation’s (HHC) plan to build a 42 story tower on the site of the South Street Seaport in Manhattan continues to run into opposition. A group call “Save our Seaport” is calling for renovating and repurposing the existing structure with neighborhood involvement. Given that HHC just paid $31 million for 300,000 square feet of air rights a few weeks ago, we can assume that the company is not taking these objections too seriously. That said, development in Manhattan is notoriously difficult, and the current administration is not considered developer friendly, so we can see a scenario where a movement like “Save our Seaport” can take hold.