REITs Bankruptcies Avoided But Upside Now Becomes Elusive: Industry Expert Picks the Winners
* On Monday July 27, 2009, 10:00 pm EDT
67 WALL STREET, New York - July 27, 2009 - The Wall Street Transcript has just published its Reits Report report offering a timely review of the sector to serious investors and industry executives. This 44 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Real Estate Investment Trust Stock Picks - Strong Balance Sheets - Quality of Real Estate Assets - Current Economics Lodging Industry - Near-Term Debt Maturities - Insolvency Risk - Projected Economic Stress - Investment Opportunity - Real Estate Sector Strength - Vacancy Rates by Real Estate Sector - Declining Rental Rates - Growth Potential for Retail Real Estate - Positive Cash Flow Growth - Sustainable Dividends
Companies include: HCP (HCP); Senior Housing Properties Trust (SNH); Digital Realty (DLR); Simon Property Group (SPG); Tanger Factory Outlet (SKT); Federal Realty (FRT); Pennsylvania REIT (PEI); Developers Diversified (DDR); Kimco Realty Corporation (KIM), Simon Property Group Inc. (SPG), Federal Realty Investment Trust (FRT), Realty Income Corp. (O), Prologis (PLD), AMB Property Corp. (AMB), First Industrial Realty Trust Inc. (FR); General Growth Properties Inc. (GGP); Starwood Hotels & Resorts (HOT), Marriott International Inc. (MAR), Host Hotels & Resorts Inc. (HST); Sunstone Hotel Investors Inc. (SHO).
In the following brief excerpt from just one of the 10 detailed interviews in the 44 page report, industry expert David Wigginton discusses the outlook for the REIT sector and picks high return stocks with sustainable dividends for investors in this industry.
David Wigginton is a U.S. Retail REIT Equity Research Analyst for Macquarie Capital (USA). He joined Macquarie in November of 2008. Prior to joining, he was a part of the Merrill Lynch REIT research team focused on the retail sector. He also previously served in a risk management advisory practice at Ernst & Young. He obtained his undergraduate degree from Brigham Young University and his graduate degree from the University of Notre Dame.
TWST: Would it be accurate to say the REIT industry is showing signs of life?
Mr. Wigginton: It depends on your perspective. The stocks have clearly responded favorably in the second quarter, largely as a result of the equity offerings that occurred across the industry. I don't have the exact number of offerings that took place or the amount of capital raised, but I believe it was over $10 billion of equity capital raised in the second quarter. Close to the end of first quarter, REITs were trading at extremely distressed levels. Liquidity concerns and fears of insolvency pervaded the marketplace. With the equity capital raised, those concerns have been alleviated in large part.
TWST: I read that there were 52 secondary offerings that raised $16 billion so far this year. Has this solved the problems of the industry or is it just a stopgap measure at this point?
Mr. Wigginton: REITs sometimes get unfairly grouped with the overall commercial real estate industry. While they are commercial real estate owners and operators, unlike a lot of the smaller, private operators, they are much better capitalized, they have greater access to capital and typically own the better properties in the markets in which they operate. I'm speaking from a retail perspective only here. I think you can say there are signs of life, but they are faint. When looking at property fundamentals, vacancy rates are increasing and rental rate growth is declining. In addition, you're facing macro headwinds in the form of high unemployment rates, declining consumer spending, negative consumer sentiment and stagnating wages in general. The federal stimulus package helped prop things up a little bit, but it's still hard to get a clear read on what the run rate will be going forward.
TWST: What are REITs doing in this tough environment?
Mr. Wigginton: It depends on the REIT. You have a clear quality segmentation amongst REITs. Let's take a higher quality company like Simon Property Group (SPG). They've been stockpiling capital with two equity raises and two unsecured bond offerings. Now they are positioned to take advantage of distressed opportunities as they arise. They are cutting expenses both on the operational and administrative sides of the business as a means of adapting to the current operating environment. I don't want to say it's business as usual because it is an extremely challenging environment, but they are working to position themselves for the future while maintaining their core business. At the opposite end of the spectrum, it's different for the lower quality operators that have weaker portfolios or have greater liquidity needs or have higher levered capital structures. They are focused on meeting near-term liquidity needs, sometimes at the expense of their core business. Looking at the longer term, they're going to be forced to delever their capital structures which will most likely result in significant dilution to existing shareholders. From an operational standpoint, these operators are trying to fill vacancies any way they can, by cutting rents or by resorting to other creative solutions. It's a real dogfight out there for some of these operators. They are in a much worse position than the operators that have not suffered high levels of vacancies from bankruptcies.
TWST: Are there some that have escaped bankruptcies?
Mr. Wigginton: There are a couple of companies that have only had a few bankruptcies. Equity One (EQY), a shopping center operator focused primarily in the Southeast, only had two or three of their properties that were affected by the major bankruptcies that occurred last year and earlier this year. But really everybody has been affected to some extent by the bankruptcies that have occurred. Nobody has been able to avoid them completely.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 44 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .
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