Manhattan Real Estate Defies Benchmarks

Nearly a year after New York REIT said it was exploring strategic options, the real-estate investment trust is moving to kick-start a potential sale of the firm or its assets.

Sourced through from:

The management team at New York REIT (NYSE:NYRT) recently announced that they are open to selling the company’s assets. This is certainly in line with past comments stating that there is an inconsistency between the business’s NAV and share price. Jonathan Litt, a leading activist from Land and Buildings Investment Management LLC, believes that New York REIT’s share price is discounted as much as twenty five percent.

The national media has recently reported on how rapidly New York City real estate has increased in value, particularly in the residential sector. You have to wonder how it is possible for a public REIT, which is focused on Manhattan, to be devalued. The management believes that the current market is doing a poor job in valuing the business. Prior to changing course, New York REIT was prepared to reduce their NAV gap by selling off its non-core properties located in Brooklyn and Queens. The company expected a significant gain from the transaction and even planned to buy back shares.

The infamous Manhattan real estate market defies both sector and industry benchmarks. For example, the office segment’s median price-to-FFO is about 13x. Manhattan based REITs, such as Empire State Realty Trust (NYSE:ESRT), SL Green Realty (NYSE:SLG), and Paramount Group (NYSE:PGRE), average a median of 19x. NYRT is trading at 22x.

New York REIT’s management not only defends the assessment that the company is undervalued, they act on it as well. That leads us to believe that the price-to-FFO should be at least 27x. This figure is far closer to the valuation of high growth companies in other categories such as Extra Space Storage (NYSE:EXR) and Federal Realty Investment Trust (NYSE:FRT).

New York REIT has a market capitalization of $1.7 billion. The company has been trading publicly since April of 2014, and paying dividends since May of 2014. They are managed externally and pay disposition fees as a percentage of the contract sales price of the properties. NYRT’s dividend yield is approximately 4.6 percent. Apollo Global Management has recently increased its role in managing AR Capital, NYRT’s external management team. Mr. Litt recently mentioned that the majority of the board members are connected with AR Capital.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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