With the $380 million sale of 53 garden apartment buildings to a private investor, New York-based New Plan Excel Realty Trust once again has become a retail-only REIT determined to expand its portfolio of neighborhood shopping centers.

New Plan Excel sold the apartments to Houlihan-Parnes Realtors LLC and CLK Management as part of its retail-based strategic plan established in November 2000, according to Glenn Rufrano, CEO and president of New Plan Excel. When he came on board last spring, Rufrano said the company's mission was muddled. New Plan Excel's combination of retail and multifamily property types was taking its toll as the company was being pulled in different directions.

“The new management team, including Glenn Rufrano, recognizes that the market gives higher valuations to companies with a more focused business plan,” said Lee Schalop, REIT analyst and managing director of Banc of America Securities in New York. The market doesn't reward REITs that have multiple businesses and property types because these companies don't have a vision that is easily understood, he noted.

Focus for the future

The challenge before Rufrano and the management team was to formulate an appropriate development strategy. It turned out to be an easy decision. “When you looked at the assets and you looked at the infrastructures, there were some obvious conclusions,” Rufrano said.

The most staggering findings revealed that 80% of the net operating income was derived from the retail portfolio while just 13% of the net operating income was derived from the apartment portfolio. In addition, more than half of the employees, 400 out of approximately 750, were devoted to the management of apartments.

“We looked at the portfolio itself, with 12,500 apartment units. It was not large relative to our competitors. We either had to grow that portfolio and become excellent in its management or sell it,” Rufrano said. “We decided that instead of focusing on both portfolios, it was better to become a premier retail owner.”

Rising stock values

According to Schalop, New Plan Excel's stock price is up 29% this year compared with a 16.4% average increase for shopping centers as reported by the NAREIT Market Index as of June 18. The retail emphasis is driving the upward trend in New Plan Excel's stock price, he said. “The way to maximize shareholder value in the long term is to pick one business that you're good at and focus on it,” Schalop said.

He added that the New Plan Excel stock price had been a big disappointment from the beginning of the modern REIT era (1991-1992) until the time Rufrano first took the company reins. “Part of the reason for the poor performance is the view by the market that having multiple business lines is a bad idea,” he explained. Now, the stock price reflects the company's focus on a particular property type and other changes, such as the board of directors' reorganization.

“New Plan Excel is one of the few companies that had a majority of insider directors,” Schalop said. “It was run more like a family-run enterprise than an independent public company.” He said Rufrano took the necessary steps to restructure the board by appointing new directors without ties to management who provide an independent view, rather than just towing the management line.

Forward motion

New Plan Excel was formed three years ago, after San Diego-based Excel Realty Trust and New Plan Realty Trust, New York, signed a $1.4 billion merger agreement. New Plan has been in the retail REIT business since 1972.

New Plan Excel's focus going forward will be to complete the sale of its multifamily portfolio. The proceeds from the sale will be used to upgrade the existing retail assets, redevelop assets, reduce debt and purchase back its own public securities.

The first step in the reorganization will be to concentrate on deferred maintenance. “We have allocated $25 million over two years to secure that deferred maintenance,” Rufrano said. As part of the upgrade process, the company also is discovering redevelopment assets.

The company currently has a 42% debt-to-equity ratio. After paying down its debt with part of the proceeds from the apartment sale, New Plan Excel will have a 36% debt-to-equity ratio.

Schalop believes New Plan Excel is on the upswing with the sale of its multifamily portfolio and its new retail emphasis. “There was a management that was running the business in a way that was not keeping with the current thoughts about the way REITs should be run,” he said. “They've [New Plan Excel] become a success story because they've focused the business on a single business line.”

New Plan Excel at a glance

New Plan Excel Realty Trust is a New York-based REIT in the process of selling its multifamily properties.

• NYSE symbol: NXL
• Price as of 6/20/01: $16.83
• 52-Week High: $17.74
• 52-Week Low: $27.25