Publications

- April 1, 2017; Vol. 4, Number 4

REITs Go into Divestiture Mode: Proceeds to fund new development, while only retail REITs are expected to be net buyers in 2017

by Mark Heschmeyer

The nation’s publicly traded REITs are projecting to remain net sellers again this year with current disposition plans announced by 39 major REITs calling for the sale of more than $15 billion in properties.

REITs have reported they plan to plow most of the proceeds from those sales into their development pipelines, funding the construction of new properties or redeveloping existing properties. The high end of their 2017 development pipeline currently stands at more than $19 billion in new projects. In addition to their development projects, REITs reported they are also looking to make select purchases with projected acquisitions totaling more than $8.6 billion in properties.

The two combined pipelines currently stand at more than $27.6 billion. As a result, REITs are expected to raise additional funds from unplanned sales, new fundraising as well as stock or debt offerings. These totals are based on 39 major REITs that have published their guidance and assumption numbers on projected activity for this year. By property type, multifamily REITs reported the largest pipeline of properties slated for disposition — more than $4 billion on the high end.

Essex Property Trust is expected to be among the more active sellers, as well as an active buyer. The company did not issue any new stock during 2016 and said it has no plans to do so this year as long as REIT stock prices remain “unattractive.” To fund the up to $600 million in planned acquisitions it hopes to make this year, Essex expects to sell between $400 million and $700 million in properties. Underperforming properties will be sold outright. Properties with upside are likely to be sold, in part, into new joint ventures.

AvalonBay Communities is also expected to be among the most active developers again as it has for the past few years. The REIT currently has more than $4 billion in new multifamily properties under construction, including the $1.3 billion started this past quarter across five projects.

While REITs are projecting to be net sellers on a combined basis, retail REITs are the only property segment projecting to be net buyers. The high end of their planned acquisition projections stands at more than $3 billion, while their high-end sales totals about $2.9 billion.

Acadia Realty Trust accounts for the biggest portion of the planned spending, expecting to shell out $500 million to $1.1 billion in acquisitions. Acadia Realty says it will continue to focus its core acquisition activities on urban and high-street retail corridors. Today, more than 85 percent of its core portfolio is located in five markets: Boston, Chicago, New York City, San Francisco, and Washington, D.C.

Mark Heschmeyer (mheschmeyer@costar.com) is senior news editor at CoStar Group, where the full-length version of this article was originally published. To access the complete article, go to: http://bit.ly/2kNkQpF

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