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.

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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.

How’s Manhattan commercial real estate doing?

Manhattan commercial real estate leasing posted another solid quarter at the end of June, with rising asking prices for office space and availability in decline, Colliers International said on

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Three New York REITs saw increases in occupancy and releasing spreads during 2015’s second quarter. These three particular REITs are New York REIT (NYSE:NYRT), Empire State Realty Trust (NYSE:ESRT), and SL Green Realty Corporation (NYSE:SLG).

New York REIT

Since the first quarter of 2015, occupancy rose two whole percentage points. This makes current portfolio occupancy 97.2 percent. New York REIT has a total of 3.3 million rentable square feet. Ninety-six percent of that square footage is in Manhattan.

Strong internal growth is evident through the gain in same-store cash NOI excluding hotel business. This year-over-year growth is 12 percent. Re-leasing spreads on a cash basis have risen 30 percent.

There has been a year-over-year 8 percent increase for core FFO per fully diluted share. Year-over-year AFFO has also improved by 9 percent. Payout ratios for both core FFO and AFFO are 83 percent and 94 percent, respectively. Dividends, however, have remained the same since their 2014 IPO.

Empire State Realty Trust

Occupancy climbed 40 basis points to 88 percent from the first quarter. There has been a strong interest in Manhattan office properties; the company saw new lease signings spreads of 56 percent.

Although the core FFO per share gained 13 percent, the dividend rate is still the same from last year and dividend payout ratio is now at 33 percent.

The Manhattan and New York City metro areas make up the office and retail real estate portfolio of ESRT. Office properties in Manhattan total about 8 million square feet of rentable space. Manhattan makes up more that 80 percent of their total portfolio and has an occupancy rate of 86.4 percent.

SL Green Realty

Same-store occupancy for Manhattan soared 110 basis points in the second quarter over first quarter results. Replacement leases surpassed previous rates on the same offices by 11.3 percent. FFO per share was flat.

SL Green Realty, which is New York City’s largest office landlord, focuses on commercial real estate in Manhattan. They have ownership interests in 120 Manhattan buildings covering over 44.1 million square feet.