Cole Real Estate Investments Inc., the owner of more than 1,000 U.S. properties and manager of nonlisted real estate investment trusts, debuted as a publicly traded company today as shares of single-tenant property landlords slumped with climbing interest rates.
The Phoenix-based company, formerly a nontraded REIT known as Cole Credit Property Trust III Inc., listed its shares on the New York Stock Exchange after buying the company that sponsored it. Cole, which owns single-tenant retail, office and industrial properties, is ready for higher interest rates because most of its debt is long-term, and annual tenant rent increases will help counter higher borrowing costs, Chief Executive Officer Marc Nemer said.
“This is not coming as a surprise to us,” Nemer said today in a telephone interview. “We’ve been planning for it.”
REIT shares tumbled today to their lowest level since December on concern that an increase in rates will boost property-acquisition costs. Federal Reserve Chairman Ben S. Bernanke said yesterday that policy makers may end bond purchases in 2014 should risks to the U.S. economy abate. The yield on 10-year Treasury notes today rose to the highest in almost two years.
Cole shares, which opened at $11.50, fell to $10.90 at the close in New York.
REITs are dependent on the capital markets to finance acquisitions and development because they are required to pay out most of their taxable earnings to shareholders in return for not paying corporate taxes.
Cole gets revenue from rent on properties it owns and fees from the nontraded REITs it manages. The company is buffered from rising rates by annual rent growth that’s built into its leases, Nemer said. The company has about 500 tenants at properties in 48 states. About 70 percent of its real estate is retail, with the rest office and industrial.
Cole is seeking acquisitions across the country, Nemer said.
“We’re really a long-term value player,” he said. “We’re seeing and capitalizing on terrific opportunities out there.”
The Bloomberg REIT Single-Tenant Index dropped 5.5 percent today, with National Retail Properties Inc. (NNN) having the biggest decline in the index at 7.1 percent. The Bloomberg REIT Index fell 4.2 percent, the most in 19 months, after a 3 percent decline yesterday.
Single-tenant and triple-net-lease retail landlords rent to such tenants as pharmacy chains and restaurants under multiyear agreements, with tenants paying property expenses. Tenants in triple-net leases are responsible for paying all of a property’s costs, minimizing expenses for the owner. Those types of leases get their name from tenants paying the net amount of three types of costs: real estate taxes, building insurance and common-area maintenance.
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