Why A REIT Cut Itself In Half

Columbia Property Trust Inc., an NYSE-traded firm yesterday announced it closed on the sale of 18 properties Griffin Capital Essential Asset REIT, a non-traded REIT that is, in its words, "sponsored" by Griffin Capital Corp., a privately-held, 18-year-old Los Angeles-based real estate investment and management company.  See more on Griffin here.

The sale covers about four million square feet in 12 markets; the "gross proceeds" were about $521.5 million.

Investment analysts don’t think much of Columbia’s “liquidity event,” and say that the company’s performance has lagged other REITs. 

Columbia says that the move narrows its market holdings to 16, from 31 in 2011, putting 88% of the company’s annual lease revenue into top 10 markets. The sale increases its available liquidity to $850 million.

Nelson Mills, Columbia’s president and CEO, put out this statement: “We have been very proactive in repositioning our portfolio with a focused market strategy to invest in premier office properties in growing markets with solid fundamentals,” adding,“This transaction substantially increases our concentration in our top 10 markets, reduces our exposure to suburban markets and raises our percentage of multi-tenant properties.”

The release says the sale proceeds, a net of about $500 million, will be used to pay down a $90 million mortgage loan on one of the properties and to reduce Columbia's outstanding borrowings on its revolving credit facility.

The company just listed its common shares on the New York Stock Exchange on Oct. 10, and on the same day began buying back its common shares. It suspended its distribution reinvestment plan and terminated a share redemption program, it disclosed, "effecting a four-for-one reverse stock split, and repurchasing for cash all of the fractional shares remaining upon completion of the reverse stock split."

Separately yesterday, the company listed its financial results ahead of an analysts’ call today.  The report and results were mixed at best.

It noted that in connection with yesterday’s sale, “it reduced the aggregate carrying value of the properties to the net sales price by recognizing a $12.9 million impairment loss in the third quarter.”  That move according affected common shareholder’s net income.

Still, “Net Income Attributable to Common Stockholders” increased to $4.8 million, or $0.04 per diluted share, for 2013’s third quarter of 2013, up from a net loss of $5.9 million in the year ago period. Net Income for 2013’s first nine months was $2.8 million, down from $36.2 million in the same 2012 period. Funds from Operations sunk to $181.0 million in the nine-month period, from $208.1 million in 2012. Normalized and adjusted figures for funds from operations suffered similar drops.

Here are the details of yesterday’s sale:

Property Details

        Property Name       Market       ST
1       2500 Windy Ridge       Atlanta       GA
2       4100 & 4300 Wildwood       Atlanta       GA
3       4200 Wildwood       Atlanta       GA
4       4241 Irwin Simpson Road       Cincinnati       OH
5       8990 Duke Boulevard       Cincinnati       OH
6       Chase Center Columbus       Columbus       OH
7       Sterling Commerce Center I - IV       Columbus       OH
8       4300 Centreway Place       Dallas       TX
9       One MacArthur Ridge       Dallas       TX
10       333 & 777 Republic Drive       Detroit       MI
11       Eagle Rock Executive Office Center IV       East Hanover       NJ
12       College Park Plaza       Indianapolis       IN
13       11200 W. Parkland Avenue       Milwaukee       WI
14       One Century Place       Nashville       TN
15       1200 Morris Drive       Philadelphia       PA
16       15815 25th Avenue West       Seattle       WA
17       16201 25th Avenue West       Seattle       WA
18       13655 Riverport Drive       St. Louis       MO
                         

 

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