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How the US Real Estate Market Affected IEP’s Real Estate Revenue

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Nov. 20 2020, Updated 4:10 p.m. ET

About Icahn’s real estate segment

Icahn Enterprises (IEP) owns 100% outstanding stock of AREP Real Estate Holdings through Icahn Enterprises Holdings (IEH). IEP has 99% limited partnership interest in IEH.

AREP Real Estate is engaged primarily in property rental, property development, and associated club services.

Under its rental segment, AREP provides retail, office, and industrial property leases to single corporate tenants. Under its property development and associated club activities, it focuses on the construction and sale of single- and multi-family houses, lots in subdivisions and planned communities, and raw land for residential development.

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About the US real estate industry

Home sales in 2015 were some of the best in last ten years. Sales were primarily driven by increasing consumer confidence, job growth, and lower interest rates. In 2015, house prices rose by ~6% on a year-over-year basis.

2016 is expected to be another strong year for home sales. This will be on account of an improving labor market, modest income gains, rising rental yields, and a rise in house prices. Market participants expect house prices to continue to rise, but at a moderate pace. Annual house price appreciation is expected to slow to ~5% percent in 2016.

The US rental vacancy rate fell to 7.4% in 3Q15. According to US Census Bureau data, there’s an undersupply of single-family houses, offices, and apartments for rent for the first time since 2001.

The supply-demand equation is in favor of house owners. This provides the opportunity for a rise rental rates and an improvement in occupancy rates. Overall, the rental market is in favor of owners for the next five years, which bodes well for IEP.

Year-to-date as of April 2016, IEP fell 33% compared to a 1% fall in the SPDR S&P 500 ETF (SPY). Some leading real estate players also gained in the period. Carter’s (CRI), National Retail Properties (NNN), and Getty Realty (GTY) rose by 11%, 13%, and 17%, respectively.

Keep reading for a discussion on Icahn’s real estate segment’s profit.

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