CenterPoint Firing on All Cylinders

CHICAGO-After reporting that its third quarter FFO rose 13.1%, analysts are confident that CenterPoint Properties REIT will continue to report FFO growth double that of the average industrial REIT for the foreseeable future. The secret to the industrial REIT’s success is its avoidance of growth for its own sake, keeping leverage conservative and delivering unique solutions to clients who will then be willing to pay a premium for that solution, says the REIT’s CEO.

“CenterPoint is one of the best managed REITs in the country by far,” says Robert Norfleet, REIT analyst at Davenport & Co. “They will continue to deliver returns that are double that of the average industrial REIT for the next three years at least.”

On Wednesday, Centerpoint reported that, excluding one-time accounting adjustments, net income available to shareholders soared 39% in the third quarter to $12.1 million. Same store growth was 6.7%, occupancy was 96% and debt as a percentage of total market capitalization was 36%.

“We learned tremendously from our experience in the 1980s when we were part of a publicly traded UK real estate company,” says CenterPoint CEO John Gates. Until 1993, when CenterPoint went public in the U.S., it was majority owned by Capitol & Regional Properties PLC of Great Britain. Gates says many publicly traded UK real estate concerns embarked on ambitious asset expansion pushes, with results that were often far less than spectacular.

Size doesn’t matter is what Gates learned. He has avoided some of the indiscriminate asset growth strategies that have gotten other industrial REITs in hot water. First Industrial REIT, also based here, is just now extricating itself from a 1990s asset growth tear that went sour. In an interview with Globest.com last week, First Industrial CEO Mike Brennan said that the trust’s asset realignment strategy is on track.

Another thing Gates says he learned from his UK experience was the importance of conservative leveraging. “CenterPoint recycles their assets when they have maximized their value,” says Davenport & Co.’s Norfleet. “They have a self funding model and don’t constantly need to be going to the capital markets to raise money for investment.” In an example of the extent to which CenterPoint self funds, the trust’s CFO Paul Fisher said in a conference call Wednesday that net new investment is $190 million so far this year, but debt is up only $50 million.

CenterPoint, which is the Chicago area’s largest industrial developer, has many ongoing projects, but three very large ones stand out. The biggest is the $1 billion redevelopment of the former Joliet Arsenal, another is the $100 million Chicago International Produce Market and the third is a huge co-development with Ford Land for a supplier park to service the auto giant’s Torrance Avenue plant.