NEWTON, MA—Select Income REIT (SIR) said late Tuesday afternoon that it had registered with the SEC for a planned spin-off of subsidiary Industrial Logistics Properties Trust (ILPT), with a view toward making an initial public offering. The SEC filing did not provide detail on the timing or pricing of the IPO.
Post-IPO, ILPT will own almost all of SIR's industrial portfolio, which currently runs to 229 properties in Hawaii and 46 in other states. The spin-off REIT's portfolio would include 226 Hawaiian assets and 40 mainland industrial properties. SIR will continue to own a majority of the spin-off entity's stock.
Moody's Investors Service on Wednesday said it had downgraded SIR's issuer and senior unsecured ratings on news of the spin-off plan, while also revising the company's outlook to “stable” from “negative.” The downgrade, Moody's said Wednesday, reflected the ratings agency's view that the planned spin-off “will result in a smaller and less diversified by property type company with a weaker credit profile and a more complex structure than the current combined business.”
While still participating in the growth of the industrial business through its stake in ILPT, “SIR gives up full ownership of some of its most productive and valuable assets within its current portfolio and the benefits of property type diversification going forward,” according to Moody's. “The increased focus on the highly competitive single-tenant net lease office space also limits SIR's future growth potential.'
However, an SEC filing shows that although the industrial portion of SIR's portfolio comprises a total of about 70% of the REIT's square footage, the office segment provided 62.5% of its NOI for the third quarter that ended Sept. 30. Moody's notes that proceeds from the IPO will allow SIR to address its upcoming debt maturities and pare down debt, resulting in net debt/EBITDA declining to approximately 6x on a pro-forma basis from 7.2x at the end of Q3.
UBS Investment Bank, Citigroup and RBC Capital Markets are the joint bookrunning managers on the ILPT offering. Shares of SIR were up 1.3% as of early Wednesday afternoon.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
