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Carter Validus is changing its name as part of an anticipated corporate pivot, but the Tampa-based real estate investment trust intends to maintain a focus and a portfolio that’s “mission critical.”
In adopting its new name, Sila Realty Trust Inc., Carter Validus Mission Critical REIT II Inc. also is internalizing its management through a $40 million transaction.
Consolidating management and advisory roles inside the REIT — the transaction closed Sept. 30 — will both save significant expenses each year and streamline operations, Carter Validus officials say.
As part of the move, 80 employees in Tampa and Atlanta will become directly part of the REIT’s staff, rather than working for an outside manager and advisor.
Company officials estimate the consolidation will save about $18 million annually beginning later this year on asset, property and construction management costs, as well as acquisition and disposition fees.
But perhaps most importantly, the conversion to Sila Realty is expected to better position the company in advance of what could be a public listing on a stock exchange or outright sale. Though the company is currently public, its shares are non-traded, which makes liquidity — and institutional recognition — difficult.
Michael A. Seton, the company’s president and CEO, describes the changes as a “natural progression.”
“What this does is it creates a stronger alignment of the REIT’s management and stockholders' interests, adds shareholder value, reduces our (general and administrative expenses) and presents us with an opportunity for heightened liquidity in the future,” says Seton, a former banker in New York who worked with REITs such as Boston Properties Inc. and Vornado Realty Trust before joining Carter Validus.
“It presents us with a cleaner path to the extent that we might want to list our stock on a major exchange sometime in the future.”
The company has roughly 66,000 individual shareholders at present, Seton says.
The shifts come roughly a year after Carter Validus Mission Critical REIT II became a successor company after merging with Carter Validus Mission Critical REIT Inc., which was also based in Tampa.
Together, the two complimentary companies created a single entity with a diverse set of properties centered on healthcare and data centers that benefited from larger size and scale.
Today, the company owns roughly $3.1 billion worth of assets in 152 properties containing 8.63 million square feet in 69 markets throughout the U.S., according to a second-quarter earnings report.
Total occupancy for the 124 healthcare properties and 29 data centers in 30 states as of June 30 was 93.7%.
“The investments in the buildings themselves is really somewhat insignificant compared to the value our tenants have invested since occupancy in generators, software, servers, (heating, air conditioning and ventilation systems) and alike,” he says. “As a result, we think that provides a fairly sticky tenancy.”
Additionally, being spread out geographically is in itself a benefit.
“Diversity reduces risk,” he says. “Our landscape is truly the entire U.S.”
Seton adds that despite the COVID-19 pandemic, which has crippled some senior housing operators and lodging firms, Carter Validus’ portfolio has kept its value because most of its tenants are “very resilient” and have continued to pay rent without interruption.
In the second quarter of this year, ended June 30, Carter Validus generated total rental revenue of $68.87 million, a 47% gain from a year ago, and funds from operations attributable to common shareholders — a key REIT financial metric — of $33.69 million, a 54% increase.
Earnings before interest, taxes, depreciation and amortization — another REIT gauge of financial health — rose even higher, by 59.24%, to $50.59 million.
Seton is banking that those gains, together with the greater control of management going forward, will attract heightened interest and provide increased credibility throughout public markets for the 10-year-old company.
“In the healthcare space, we’ve determined that a bigger, broader portfolio provides a better value for either an exit through a sale or merger or for publicly listing the company,” Seton says.
Carter Validus’ data center portfolio is valued at roughly $1 billion today, with the balance of its assets in healthcare properties.
“We’re very focused on shareholder value,” Seton says. “And internalization of management is key to that step. Being self-managed is critical to making us more attractive to the markets or to private buyers.
“Right now, our strategy is flexible; we have a lot of optionality with the stock,” he adds. “We recognize, too, that synergies are important and very beneficial, and there’s a recognition that the banking community and keeping the cost of capital as low as possible will be helpful for the company.”
Regardless of which path Carter Validus decides to take, Seton says he relishes the progress the REIT has made over the past two years to get where it is today.
“We’re excited about the future and very proud of the company that we’ve built and where it stands right now.”
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