Griffin CEO: Coke Departure Offers Upside to Investors

Yesterday, The DI Wire reported on the Coca-Cola Company’s plan to vacate 2500 Windy Ridge, a 16-story office tower near Atlanta owned by Griffin Capital Essential Asset REIT. Our request for additional information went unanswered prior to our publishing deadline, but in a subsequent extended and lively dialogue with Griffin Capital CEO Kevin Shields, we learned that the planned Coke departure offers his REIT an opportunity to generate additional value for investors.

Highlights from our candid conversation with Shields:

• Coca-Cola Refreshments USA, Inc. leases nearly 300,000 square feet of the 316,000-square-foot 2500 Windy Ridge building pursuant to a lease that does not expire until December 31, 2018. The lease does not contain a termination right. As such, Griffin Capital Essential Asset REIT has three-and-a-half years to identify a replacement tenant or multiple tenants, while Coca-Cola Refreshments remains obligated to pay rent through the remainder of its term. In addition, Coca-Cola previously subleased two floors to a related entity, which is unaffected by the move and may continue to be a long-term tenant prospect.

• Griffin is working closing to re-tenant the facility with Coca-Cola, which is “ready and willing” to negotiate an early lease termination fee once a replacement tenant is identified. This fee will serve to offset certain of the expected re-tenanting costs.

• Shields characterized the Greater Atlanta leasing market as “strong and improving,” while predicting that he and his team “will be able to find a replacement tenant or tenants before the CCR lease expires.”

• Griffin developed and began implementing a “comprehensive action plan” to re-tenant the building some time ago, including contact with local economic development groups about possible incentives and preparation of a marketing and communications strategy.

• Stream Realty was engaged as the leasing agent for the property immediately after it became apparent Coca-Cola Refreshments intended to vacate the property. According to Shields, there have been multiple showings of the building with “large prospects active in the market, including at least one potentially interested in the entire building.” Lease proposals to several prospective tenants have already been issued.

• The new Atlanta Braves stadium is under construction approximately one mile from the building. Griffin anticipates this addition will enhance the location and the overall desirability of 2500 Windy Ridge. Shields said they are investigating whether a sign on top of the building will be seen from any seats in the stadium.

• The acquisition value of 2500 Windy Ridge was $56.7 million, or $179.48 per square foot, which comprises less than 2 percent of the REIT’s current total portfolio capitalization of $3.0 billion. The acquisition cap rate for 2500 Windy Ridge was an attractive 9.18 percent, and according to Shields, “the pricing parameters at acquisition took into consideration in-place rental rates, market rental rates, a shorter lease duration and a possibility that Coca-Cola might not renew. Given the relative size of the property and the remaining term on the existing lease, the impact on our operating performance from this situation will be negligible.”

• Shields also indicated that any potential long-term effect on cash flow would be mitigated by the diversification provided by the REIT’s sizable portfolio of 70 properties, approximately 65 percent investment grade tenancy, remaining portfolio weighted lease duration in excess of 7 years, and a “healthy MFFO payout ratio.”

Shields characterized his team’s approach as a pro-active one, focused on preserving and protecting shareholder value.