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5 US equity REITs identified as share-repurchase candidates in 2018

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5 US equity REITs identified as share-repurchase candidates in 2018

While U.S. equity real estate investment trust share prices have been on an upward trajectory since their large drop in early February, REITs continue to trade at large discounts to net asset value, with the SNL U.S. REIT Equity index closing June 7 at a 4.6% discount. If the sector continues to trade at a discount in 2018, common stock-repurchase programs could be on the table for certain REITs, according to an S&P Global Market Intelligence analysis.

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S&P Global Market Intelligence has identified five REITs as potential candidates to announce share-repurchase plans in 2018. These REITs trade at NAV discounts of more than 10%, have debt-to-recurring EBITDA multiples below the median for the company's respective property sector and have not recently executed or announced repurchase plans.

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Regional mall REIT Washington Prime Group Inc. traded at the largest discount to NAV among the potential candidates, at 38.5% as of June 7. On the company's first-quarter earnings conference call, executive vice president and CFO Mark Yale said that the company's current available liquidity of more than $500 million and free cash flow after dividends "puts us in a position to fully commit to our current redevelopment pipeline, which we believe represents our fast and most strategic use of capital to debt."

Saul Centers Inc. had the second-largest discount to NAV among potential candidates, at 26.7%. The shopping center REIT had $321.0 million in liquidity as of March 31.

Office REIT Empire State Realty Trust Inc. also fits S&P Global Market Intelligence's criteria as a potential share repurchase candidate in 2018. When asked about the idea of buying back shares during the company's April 26 conference call, executive vice president and CFO David Karp confirmed that share repurchases are something the company reviews and discusses with the board regularly, but said it is not something the company currently plans to pursue.

Specialty REITs Iron Mountain Inc. and Equinix Inc. rounded out the list of potential candidates, trading at NAV discounts of 18.4% and 13.6%, respectively.

During the first quarter of 2018, 15 REITs announced new share repurchase programs or increases to existing plans.

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On Feb. 16, SBA Communications Corp.'s board of directors approved a new $1 billion share repurchase plan, the largest announcement during the first quarter. The communications REIT bought back 238,497 shares at an average price of $161.60 per share in March for a total of $38.5 million. The company repurchased an additional $261.5 million after the end of the quarter and had $700 million of capacity left on its repurchase plan as of May 7.

Diversified REIT Forest City Realty Trust Inc. placed second on the list, with its board expanding the company's $100 million share buyback program to $400 million during the first quarter.

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