Another REIT listed today on the New York Stock Exchange: Columbia Property Trust (CXP) invests in high-quality commercial office properties in primary U.S. markets and the company currently owns around $5+ billion in assets consisting of 82 operational buildings in 19 states and the District of Columbia, totaling 21 million square feet. The Atlanta-based REIT - formerly Wells REIT II - is now the seventh-largest office REIT in terms of portfolio size. CommonWealth REIT (CWH) and Boston Properties (NYSE:BXP) are the largest competitors among the office REIT peers. However, based upon occupancy, Columbia has one of the highest occupancy rates in the office REIT sector.
Prior to the new REIT listing today there has been 16 new REIT IPOs this year with around $3.8 billion in equity (14 of the IPOs were NYSE and 2 were Nasdaq). In an email, Ron Bohlert, Director of the Global Corporate Client Group at NYSE Euronext commented:
2013 has seen over $3.4B proceeds raised from REIT IPOs at the NYSE alone - representing 90% of all REIT IPO proceeds. This is already significantly more than the $1.7B raised from total REIT IPOs last year and perhaps even more interesting is that we are on pace to list more REIT IPOs this year than in 2007, 2008 and 2009 combined.
In conjunction with the listing today, Columbia has commenced a "Dutch Auction" tender offer to purchase up to $300 million of its common shares whereby investors will have up to 20 business days to place bids (expires at 11:59 p.m on November 8, 2013) . The purpose for the tender is support the stock price in which around 135,000 current retail non-traded REIT investors will have an opportunity to "fish or cut bait".
The strategy of not restricting sales and orchestrating a tender offer is nothing new for Columbia - other non-traded REITs like Healthcare Trust of America (NYSE:HTA), Chambers Street Group (NYSE:CSG), and Cole Real Estate Investments (NYSE:COLE), all purposely utilized the Dutch Auction as a method of stabilizing potential share price declines. However, Columbia is a much larger REIT and with only 10% of tender shares ($300 million / $3.8 billion) there is considerably more risk for volatility (in selling).
According to SNL Financial and recently available property information, the Columbia owns more square footage in the Atlanta-Sandy Springs-Marietta, GA, MSA than any other area, with 3.5 million square feet. The New York-Northern New Jersey-Long Island, NY-NJ-PA, and Cleveland-Elyria-Mentor, OH, MSAs fall next in the area rankings, with 2.7 million and 1.6 million square feet owned in each, respectively.
According to an article today by Jim Stevens with SNL Financial:
Prior to its listing on the NYSE, Columbia Property stood out as one of the oldest nontraded office REITs, having established its REIT status in 2003. Since all nontraded REITs must eventually complete a liquidity event for investors, the age of a company's REIT operations becomes increasingly important as it grows older. On March 1, Columbia Property, then operating as Wells REIT II Inc., announced that it had internalized its management. Having distanced itself from is former adviser, Wells Real Estate Funds, the company also changed its name to Columbia Properties Trust Inc. After internalizing its management, Columbia Property set itself apart as being one of only two of the largest nontraded office REITs to handle its own advising. TIER REIT Inc. is the only other nontraded REIT in the top 10 comparison list to be self-advised.
According to Stevens,
Changing its management structure was an important move for Columbia Property in its progress toward listing on a public exchange. Among the publicly listed U.S. equity office REITs, only three of 21 companies use external advisers. The conflict of interest involved in such a structure has caused large headaches for CommonWealth REIT, for example, as it has faced significant activist shareholder criticism for its fee and advising structure.
The Value Proposition
Columbia opened today at $22.00 as the company split shares 4:1 making the non-listed $5.50 shares a fair indicator of poor performance to date. Conversely, current Columbia investors will have to decide whether they want to take their losses (original price of $10.00) or let the market decide if the new office REIT has value. I guess we all know that liquidity has a price!
Questions remain regarding the experience of Columbia's management team. The CEO, E. Nelson Mills, has been a board member since 2007 and President since 2010. Up until recently Columbia was externally managed and Mills has not had much time on the clock as CEO. In addition, Columbia has a legacy affiliation with Leo Wells, the founder, who is more famous for defending investor non-traded REIT lawsuits that managing returns.
Although I wouldn't pounce on this "opening bell" REIT, there are a few things that I like about the portfolio: (1) The company has modest debt of 34% and an investment grade balance sheet, (2) The portfolio is diverse and on the upper-end of the occupancy range (92% leased), and (3) The company focuses on higher-yielding office assets that could provide for higher dividends.
At the end of the day, I can't get excited about this one. As I often advocate, I would wait on this REIT IPO and see how the market reacts. As you may recall, I recommended waiting on Chambers Street back in May and I was able to pick up shares at a discount (of around 25%) around 90 days after the IPO. For existing Columbia investors, it's a tough call. I would wait to see what the tender offer is and then decide whether to take your losses or ride it out. I will put together a full research report on Columbia in a few weeks as the tender offer gets closer to expiring.
Source: SNL Financial
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