SPG - in some puts
We have over 10 x's the retail space of other countries and way too many office building for a dying economy, yet this article thinks it's not enough
HEARD ON THE STREET: REITs May Be Starting Second Act
Monday 04/06/2009 4:34 PM ET - Dow Jones News
Related Companies
Symbol Last %Chg
AMB 16.97 7.41%
KIM 9.22 3.13%
SPG 39.10 5.88%
As of 11:44 AM ET 4/9/09
By Anton Troianovski
A DOW JONES COLUMN
A strange emotion swept through the REIT world in recent days: hope.
Kimco, a strip-mall landlord whose stock has plummeted more than 70% in the past six months, said Friday that it expected to raise $700 million of new equity. It was the latest and most compelling sign that the real-estate investment trust industry's painful transformation has entered a second act.
Vacancies are still zooming up and property values are still crashing down. But for now, investors seem to have enough confidence in the long-term value of office buildings, warehouses, and shopping malls to provide fresh capital to REITs they think can survive the credit crunch and the recession.
At least, that is, if the price is right. Kimco's $7.10 offering price was nearly a 40% discount to its net asset value, pegged at $11.50 on April 1 by Green Street Advisors. The average NAV discount April 1 for strip mall REITs like Kimco was 14%, according to Green Street.
The two other REITs that completed stock offerings in recent weeks, mall owner Simon Property Group and warehouse developer AMB Property Corp., also had to swallow a bigger-than-usual discount to the value of their assets when they raised a combined total of $1 billion.
Even so, Kimco's stock surged by more than 25% on Friday after the offering was announced. Both Simon and AMB are trading well above their offering price.
The question now: How many will be able to follow suit? Cohen & Steers Inc. co-CEO Martin Cohen, an influential REIT investor whose company bought major positions in all three of the recent stock offerings, says he's willing to provide equity to 10 to 20 "realty majors" -- the leading companies that will be able to ride out the downturn. The others will have to fend for themselves and about one-third of all REITs, Mr. Cohen estimates, simply won't survive.
Those might become merger or acquisition targets for private funds and healthier REITs. With a shakeout still to come, investors contemplating the sector need to choose carefully.
Write to Anton Troianovski at anton.troianovski@wsj.com
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04-06-09 1634ET
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