Several real estate investment trusts (REITs) have announced major business transformations over the past year to focus on a property class they believe will create the most value for their investors in the future. Many have chosen to rebrand as part of that strategy shift to reflect their new direction. They're hoping this fresh start will attract new investors who embrace their vision.
Here's a look at two renamed REITs that are heading in a new direction.
1. The Necessity Retail REIT: The name says it all
The Necessity Retail REIT (RTL) is the new name for the former American Finance Trust. As the name implies, the rebranded REIT will focus primarily on owning properties leased to retailers that provide everyday necessity items, such as grocery, home improvement, and gasoline/convenience stores.
This new name reflects the former diversified REIT's strategy shift. It previously focused on retail, office, and warehouse properties. However, the company unveiled its new focus last fall by agreeing to acquire 81 shopping centers for $1.3 billion. It partially financed that purchase with the sale of three of its remaining office buildings for $261 million, reducing its exposure to that sector to 1% of its portfolio.
The newly refocused retail REIT believes this further pivot toward retail positions it for sustained growth in the coming years. The acquisition is immediately accretive to its adjusted funds from operations (FFO) per share and highly complementary to its existing retail properties. It will also significantly increase its scale and diversify its retail portfolio.
The REIT believes this portfolio focused on necessity retailers will benefit from favorable industry tailwinds as consumers continue to rely on physical retailers for their everyday necessity items. That should enable it to maintain high occupancy levels and increase its rental rates, which should grow its income in the coming years.
2. Veris Residential: A new kind of residential REIT
Veris Residential (VRE -1.22%) is the former Mack-Cali Realty. The new brand aligns with the company's strategic evolution into an environmentally, socially conscious multifamily company. That's a shift from Mack-Cali's former strategy of owning, managing, and developing premier office and multifamily properties in select waterfront and transit-oriented markets throughout New Jersey.
The company sold over $1 billion of suburban assets throughout 2021 to reduce its exposure to the office sector and bring it one step closer to becoming a pure-play residential REIT. These sales, along with its dividend suspension early last year, helped enhance its balance sheet to support its multifamily strategy.
The company acquired and developed several multifamily properties in the Northeast in recent years. With most of its developments complete, the REIT can now focus on becoming a leading operator in the sector to grow the value of its existing portfolio. A key aspect of that strategy is to be a leader in ESG by reducing its carbon footprint and deepening its connection with the residents and communities it serves.
From diversified to focused on where they see growth
Mack-Cali and American Finance Trust struggled as diversified REITs. In recent years, both have produced negative total returns, weighed down in part by their exposure to the office sector.
That led both REITs to sell off those assets to focus on property types they believe have more long-term upside potential. They're also rebranding to reflect the transformational focus on these new strategies. While these moves make sense, it's unclear if they'll turn these REITs into long-term winners. Both need to demonstrate that their new strategy can deliver sustainable FFO per share and dividend growth in the coming years, because that's the key to growing long-term value in the REIT sector.