.There is an acquisitions rule about "18 months and 85%" at Newkirk Realty Trust, a company that went public last November and has offices in Jericho, NY and Boston. Michael L. Ashner, chairman and CEO of both Newkirk Realty Trust and Winthrop Realty Trust, explains the acquisition rule for as well as how Newkirk differs from most other net-lease or single-tenant REITs.

GlobeSt.com: So what led to the formation and ultimate listing of the Newkirk REIT?

Ashner: It had long been our intention to do so, but we had to do a substantial amount of financial engineering over the years. Newkirk was originally 120 private syndicated limited partnerships. We had to create a master limited partnership first, into which we merged all the separate partnerships. We had to restructure the secured indebtedness. We had to restructure in a fashion that would reduce phantom income and result in mortgage amortization. We went from owning one-tenth of 1% in 120 partnerships in 1997 to, pre-IPO, owning approximately 75% of the master limited partnership. As to why list? I think Vornado and our management saw it as a great platform and a great vehicle for single-tenant real estate. For Apollo, it was an opportunity to start to liquefy their investment. Not liquidate, but liquify.

GlobeSt.com: How does it differ from what you do with Winthrop?

Ashner: Newkirk is in the business of investing in equity and debt interests related to underlying assets in which a tenant occupies 85% or more of the space for more than 18 months. Any asset that fits that is a Newkirk asset, though it's not a net-lease company per se. Any multi-tenanted asset or interest in a multi-tenant asset goes into Winthrop.

GlobeSt.com: Winthrop had, when it was still under the First Union name, bought single-tenant assets?

Ashner: We acquired net lease assets under that name, but that was before the Newkirk formation. When the Newkirk formation occurred, Winthrop gave up that right. Prior to the IPO, Newkirk was not in the business of acquiring assets or making new investments, it dealt only with its existing portfolio.

GlobeSt.com: Why was Newkirk's IPO priced lower than initially anticipated?

Ashner: It priced very much at the lower end and sold at the lower end. The glass is half-full because it closed and it closed with a substantial offering, $240 million, 15 million shares at $16 a share. So in that regard it was a big offering for an IPO. On the other side, it closed at the lowest of the lowest end and it closed with fewer shares than we originally thought. So, in that regard, the glass is half-empty. There were three reasons. We really did hit substantial headwinds; Treasuries moved up about 60 basis points from the day we filed our initial registration statement to the day we went public. The Morgan Stanley REIT Index declined I think 8% over that period. So we had a big market headwind going against us. Secondly there were two issues I think the market was concerned about. We have a substantial amount of lease rollover over the next four years; the market was deeply concerned and the fact that our rents have step-downs and what impact that would have on our FFO and our ability to pay dividends. So that's quite a cloud that hung over us, notwithstanding that historically we've had an 80% lease renewal rate. The third issue, which is related to that, was, could we do accretive transactions to replace the lost income from the step-downs? The stock price, I suspect, in large measure over the next year or so will be based on the market's perception that we can in fact do accretive transactions and deal with our lease renewals in such a fashion that we can maintain our dividend.

GlobeSt.com: So there's room in the public REIT market for another net-lease player?

Ashner: We view the net-lease, single-tenant business from more of a real estate perspective than we do from a financial perspective. I'm careful to say that we are in the single-tenant business; we are not a net-lease business. Certainly, our portfolio is 100% triple-net leased assets right now, at least as of the IPO, and it's about 84% investment-grade credit for that matter. We will do that business, but our background is as opportunistic real estate investors who have a very large real estate operating platform that supports our endeavors. Consequently, we will pursue not simply traditional triple-net lease but single-net lease, double-net lease, investment grade, non-investment grade. We're much more interested in doing lots of different things that involve single-tenant assets than just the triple-net lease. We look at the single-tenant business differently than others. We'll go places I think other people won't go or can't go. And in that regard, we're also not married to one investment format. We're not simply an equity investor, but we'll also acquire debt, we'll originate loans, we'll acquire securities in other companies that are in net lease. We'll do anything that relates to single-tenant assets that we believe makes sense and allows us to use our operating platform.

GlobeSt.com: So what are your plans going forward?

Ashner: Winthrop's a total growth vehicle--we pay as little dividend as we can and reinvest our capital. We're the most diversified of the diversified REITs. You can't even identify a platform on which we're based. Newkirk is a much more formal company in the sense of how we have to present it to the marketplace. We will focus, in this market, on what we consider to be more opportunistic investments than simply a straight net lease--because in my view the spreads, what you're being compensated for in the credits, are too thin on the upper end and in the larger transactions. And at the lower end, the 1031 buyer has driven yields down to a point where, why do that business? To the extent that we're doing equity investments, they'll be in the middle tier, $8 million to $40 million: that's where we're focused right now, the more opportunistic kinds of situations. They may be non-investment grade or sub-investment grade. They may be short-term leases. We're not married to a lease term or anything except 18 months and 85%.