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Commercial REITs in 2Q17: A Close Look at the Top 3

PART:
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Part 3
Commercial REITs in 2Q17: A Close Look at the Top 3 PART 3 OF 7

How Commercial REITs Managed Their Expenses in 2Q17

Expense control matters

Commercial REITs undertake several strategic initiatives to maintain leadership in the face of ongoing headwinds in the industry. They expand their properties into key demand areas, which is expected to boost their rent growth. Class A cities with high income growth attract mall visitors since they have higher disposable incomes.

How Commercial REITs Managed Their Expenses in 2Q17

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Similarly, commercial REITs dispose of underperforming assets and non-core businesses, which helps them maintain their profits. Let’s have a look at how successful these REITs were in lowering their expenses and maximizing their income during 2Q17.

Simon Property reported higher expenses

Simon Property reported a 5.0% rise in NOI (net operating income) during the quarter, backed by an 80.6% higher NOI for US malls and premium outlets, an 8.4% hike in the company’s international business, and an 11.0% rise in the Mills.

Expenses such as property operating expenses, depreciation, real estate taxes, advertising, and promotion increased during the quarter. However, the company was able to control general and administrative expenses as well as home and regional office costs, which fell during the quarter. Total operating expenses rose to $675.4 million compared to $656.1 million reported a year ago.

GGP witnessed lower expenses

GGP’s (GGP) NOI was $551.0 million, which is 1.3% higher than the year-ago level of $544.0 million. Same-store NOI rose 0.70% from the previous year. Retail bankruptcy partially offsets NOI growth. Excluding the effect of closed malls, NOI would have risen 3.0%. Although total expenses remained flat year-over-year, retail taxes increased.

Vornado’s expenses in 2Q17

Same-store NOI in the New York segment rose 10.6% year-over-year. NOI at 55 California Street rose a whopping 34.0% during the quarter, and theMART witnessed a same-store NOI fall of 2.8% year-over-year.

Vornado is expected to report flat NOI year-over-year since higher revenue is expected to be offset by a dilution of profit resulting from the disposition of properties.

SPG, GGP, VNO, and Prologis (PLD) together make up 14.0% of the Vanguard REIT ETF (VNQ). VNQ has an expense ratio of 0.12%.

In the next part, let’s look at the development activities for these REITs.

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