In a year that’s seen wild fluctuations in equity markets and investor confidence, leaders of some locally based real estate investment trusts say they’re sticking with strategies that have gotten them through plenty of tough times — and also allowed them to aggressively add to their portfolios in 2011.
The publicly traded Realty Income Corp. and Excel Trust Inc., both focused on retail and related commercial buildings, plan to continue scouting for high-occupancy properties with stable national and regional tenants, which do well in most economies.
BioMed Realty Trust Inc., also publicly traded and among the largest holders of life sciences real estate nationally and locally, maintains its focus on an arena that has relatively limited supply — compared with the general office market — in a limited number of U.S. markets geared to the needs of biotech and health-care-related research.
All are capitalizing on an environment that continues to favor well-capitalized investors who can keep leveraged debt to a minimum, while taking advantage of historically low financing rates to fund acquisitions.
Being in a Good Position
“You want to stay flexible and be in position to take advantage of good opportunities,” said Tom Lewis, chief executive officer of Escondido-based Realty Income. Lewis notes that in the first eight months of 2011, the REIT had already notched the most active year ever in its 42-year history, with $750 million in new acquisitions — beating 2010’s $700 million.
The company in recent months has diversified beyond retail centers, acquiring real estate such as vineyard-related properties in Northern California, and well-located industrial buildings and distribution centers around the U.S. with brand-name tenants like Boeing, FedEx and The Coca-Cola Co.
Lewis said his company has been able to maintain ample investment capital through stock offerings and low-rate bond financing. Realty Income will be looking for buying opportunities that could arise as property owners who are less well funded encounter issues with refinancing their loans — a possibility if the Federal Reserve is unable to keep long-term interest rates from rising, even as short-term rates are expected to stay low.
At Excel Trust, with headquarters in Rancho Bernardo, President and Chief Operating Officer Spencer Plumb said the REIT’s portfolio has grown to $600 million since its April 2010 initial public offering, and the company recently completed one of its largest ever acquisitions — a Scottsdale, Ariz., retail center it bought for $110 million.
The company has an untapped $200 million credit facility backed by several large banks that Plumb says are eager to do business with the REIT on future acquisitions. Many of its current shopping center properties are up to 99 percent leased, and it was quickly able to find a replacement tenant — at a higher leasing rate — when its property in Stockton recently lost its Borders bookstore.
“We have not shifted our strategy, because we have been focused for a long time on the kinds of properties that have tended to do pretty well even during recessions,” Plumb said.
BioMed Realty Trust, also based in Rancho Bernardo, is on track to end 2011 with $100 million in investment activity, following approximately $675 million in acquisitions throughout the U.S. in 2010.
“The lending costs are actually lower than they were about a year ago,” said Kent Griffin, the company’s president and chief operating officer, noting that the REIT has maintained a “robust” pace of acquisitions throughout the past year.
The Safety of Biotech
Griffin said the life sciences focus has given it some insulation from the struggles of the general office market. Its holdings are primarily in U.S. biotech hubs including San Francisco, San Diego and Boston — that held up relatively well during the recession, as new construction was minimal.
Griffin said life science tenants are generally less susceptible to fluctuations in the credit market and consumer spending than other types of businesses, and have recently seen research funding opportunities increasing, through venture capital, industry partnerships and initial public offerings.
One result is that they’re feeling more confident about their future, and some are committing to long-term leases at BioMed properties, he said.
John Stewart, an analyst who tracks life sciences REITs at research firm Green Street Advisors in Newport Beach, said BioMed and its sector rivals are not immune to the uncertainties of the economy. “But the fundamentals of that (biotech) market have generally been less volatile than for other property types,” Stewart said.