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REIT Replay: Spin it to win it

REITs held steadyand the broader markets were mixed Monday, May 9, as HCP Inc. unveiled plans tospin off its HCR ManorCare portfolio into a REIT in a move that executives saidin an earnings call would allow flexiblemanagement of the troubledtenant.

The MSCI US REIT Index (RMZ) jumped 1.04% to 1,194.05, and theSNL US REIT Equity Index put on 0.90% to finish at 317.37. The Dow Jones IndustrialAverage lost 0.20% to close at 17,705.91, while the S&P 500 inched 0.08% toend the day at 2,058.69.

HCP Inc.revealed plans to form an independent publicly traded REIT out of its skilled-nursingand assisted-living assets operated by its top tenant, HCR ManorCare.

The planned spinoffhas received unanimous board approval and should be completed during the secondhalf of 2016. The move should allow HCP to enhance the quality of its portfoliowhile refining its focus on its core-growth seniors-housing, life-science and medical-officebusinesses, the health care REIT said.

Reportingfirst-quarter FFO applicable to common shares of 68 cents per share, compared toa loss of 26 cents per share in the year-ago quarter, HCP slightly lifted its FFO-per-shareguidance for the 2016 full year to a range of $2.76 to $2.82 from a range of $2.74 to $2.80.

Mizuho Securities USA Inc. analyst Richard Anderson said in anote that the spinoff "lacks substance" and reiterated his "neutral"rating on HCR. His $32.00 price target on the company's stock is under review.

While the move qualifies as a "decisive step" to addressthe issue of HCR ManorCare and will improve HCP's portfolio, Anderson said, thecompany "could have been best served to wait a bit longer to announce so themarket had more information to contemplate." Although the boost in the company'sstock Monday is not surprising because of the improved HCP portfolio, it may proveto be a "false positive" given the lack of details about the plan, theanalyst said.

HCP shares surged 4.17% to close at $35.99.

Colony StarwoodHomes disclosed that it is expeditingthe time line of its exit from the nonperforming loan business to 2016 from an of 2017-end. As ofMarch-end, the company's NPL portfolio comprised 2,308 first-lien loans, which havean aggregate purchase price of $344.6 million, representing 61.6% of their collateralproperty broker-price opinion value.

The company, which was formed out of the merger of Starwood Waypoint Residential Trust and ColonyAmerican Homes Inc., said that its board of trustees approved the sale of its NPLportfolio May 4 and that marketing activities and evaluation of disposition optionsare expected to begin immediately.

Colony Starwood shares added 3.26% to close at $26.61.

In property news, SLGreen Realty Corp. said it pickedup a 20% stake in the 71-story, 1,176-unit Sky residential buildingat 605 West 42nd St. in Midtown Manhattan, N.Y.

The company received the option to buy the stake in the newlybuilt asset in exchange for the $50 million mezzanineloan it provided to The Moinian Group for the development of the 927,358-square-foottower.

SL Green shares rose 0.67% to close at $105.61.

In capital offerings, DuPontFabros Technology Inc. announced a public offering of its series C cumulative redeemable perpetualpreferred stock, which it intends to file for listing on the NYSE.

The company said it will use the proceeds mainly to fully redeemany series A preferred shares that will remain outstanding after its May 27 redemption of 3.4million shares of 7.875% series A cumulative redeemable perpetual preferred stock.

DuPont Fabros shares climbed 1.45% to $42.65.

Hersha HospitalityTrust plans a full redemption of its 8.00% series B cumulative redeemablepreferred shares of beneficial interest on June 8.

The company said it will redeemthe 4.6 million outstanding series B preferred shares for an aggregate redemptionprice of $25.3722 apiece.

Hersha shares rose 0.65% to $20.04.

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HCP Inc. execstout spinoff's flexibility in managing troubled tenant: The plannedspinoff will allow a new entity to manage its relationship with HCR ManorCare inways that HCP Inc. cannot, executives said, without discussing many specifics.

Target Market:A Southern industrial market both quaint and colossal: Picturesque Savannah,Ga., has become an industrial powerhouse in recent years, and its significance inglobal logistics will increase when the expanded Panama Canal opens this year, observerssay.

Market prices and indexvalues are current as of the time of publication and are subject to change.