At a time of tightened up liquidity for mall owners, Washington Prime Group Inc. (NYSE: WPG) is raising money where it can, that includes selling underestimated possessions.
The Columbus, OH-based REIT accepted offer 41 dining establishment outparcels to Four Corners Home Trust Inc. (NYSE: FCPT) for$67.2 million. This pricing shows a mid-6% capitalization rate on in-place net operating income.
Lou Conforti, CEO and director of Washington Prime Group, stated 4 Corners, a net lease dining establishment REIT, is much better matched to own the residential or commercial properties and stated his REIT prepares to put the earnings into other chances.
The restaurant outparcels remain in Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Maryland, New Jersey, Ohio, Pennsylvania, Texas and Virginia.
The portfolio includes 22 different restaurant brands, including: McDonald’s (five restaurants), Buffalo Wild Wings (four), Olive Garden (4), Taco Bell (4), BJ’s Dining establishment (three), Red Lobster (three), Chick-Fil-A (two), Starbucks (2), and one each of Arby’s, Burger King, Cheddar’s, Chili’s, Checkers, IHOP, Outback Steakhouse, Panda Express, Panera Bread, Rally’s Hamburgers, Steak N’ Shake, Texas Roadhouse, Wendy’s and White Castle.
The outparcels included in the transaction are presently occupied under leases with a weighted typical regard to eight years, representing $4.5 million of annualized net operating income.
“Plain and basic, senior management and I have a fiduciary duty to act upon arbitrage opportunities particularly when the resultant deal does not in any way whatsoever detrimentally impact the underlying vigor of the confined and open air properties in concern,” Conforti stated. “Offering a long-dated portfolio of outparcels which are leased to restaurant operators shows such an arbitrage situation.”
Arbitrage is not constantly “plain and basic” but basically it involves exploiting the cost distinctions in between comparable assets in different markets or various forms. Conforti is wagering that how the cash will be utilized will generate a better return than owning the outparcels.
Capital today is a precious product for Washington Prime. This week, Fitch Ratings modified its outlook for the REIT to negative. Fitch stated it sees Washington Prime’ access to many kinds of debt and equity capital to be at the lower end of the investment-grade REIT spectrum.
Home loan schedule for Class B shopping centers of the type the REIT owns is less numerous and more discriminating than it has actually remained in prior years and has actually compromised even further over the past year, Fitch stated.
Likewise, Fitch said it views Washington Prime’s access to non-bank unsecured debt capital as weak compared with investment-grade peers.
Fitch associates the discount to the wide bid-ask spread for ‘B’ shopping malls normally as the market has a hard time to establish the long-lasting viability and value of less productive shopping centers. By extension, thinner investor need for B-malls limits the level to which Washington Prime can raise equity through property sales, Fitch kept in mind. Hence the business has resorted to contributing shopping mall possessions to joint ventures as a method to extract equity from them; and now is selling non-mall possessions.
Washington Prime’s present liquidity is not a concern, Fitch noted as the REIT has little unsecured debt coming due over the next couple of years. The company ended the 2nd quarter with $76.8 countless money and equivalents and has a $900 million revolver with no exceptional borrowings.
“While liquidity is appropriate through the ranking horizon, our company believe unfavorable retail headlines will continue and hence ‘B’-shopping mall sentiment is not likely to enhance,” Fitch analysts concluded.
The deal with Four Corners Property Trust is expected to close in two tranches. The very first tranche is expected to close in the 4th quarter of 2017, and the second tranche is anticipated to be finished in the first half of 2018,
“This transaction makes up a special opportunity for FCPT, using diversity in location, brand, lease maturity, operators and credit,” stated Costs Lenehan, CEO and director of 4 Corners. “The portfolio gain from modest rents, a large bulk of business operators and strong demographics and traffic counts. While much of the leases have a shorter lease term than those in our existing portfolio, we anticipate that the low rent-to-sales figures will increase the possibility of renewal upon lease expiration.”