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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (31506)	7/16/2008 1:35:29 PM
From: E_K_S	Read Replies (2) \| Respond to of 78626

Hi Spekulatius - Is it typical for these REITs to maintain a high debt ratio as it provides them more leverage and better overall return? Or, have you noticed that over the typical real estate cycle, a good management team will pay down more debt during the cycle bottom so they can weather any prolonged downturn. I have not followed these REITs enough to know what the standard practice is in a typical real estate cycle. I do know that when times get tough, management needs to do everything possible to deleverage and pay down as much outstanding debt as affordable, keep vacancy rates low and stagger leases so any significant available space does not hit in any one period. After reviewing all of BDNs leases on their web site, it appears that management has accomplished this especially in their core eastern markets. I recently increased my BDN position after I read that they sold some properties with the proceeds used to reduce their debt. These properties had the largest vacancy rates (one piece was new construction now available in a soft market). To me, I felt management was being conservative and took the prudent path so they could weather any prolong down turn in this real estate cycle. Thursday, July 3, 2008 Brandywine sells Oakland towers for $412 million to CIM Group sanfrancisco.bizjournals.com From the article:"... The deal includes assumption of about $95.6 million in existing mortgage loans. The properties included in the sale are One Kaiser Plaza, also known as The Ordway building, 28 stories, 515,070 square feet; 1901 Harrison St., 17 stories and 272,100 square feet; 1333 Broadway, 10 stories, 238,394 square feet; 2101 Webster St., 20 stories and 464,424 square feet; and the recently completed, unleased 2100 Franklin St., 10 stories and 215,000 square feet. The first four properties were about 89 percent occupied as of May 31, said Brandywine (NYSE: BDN)..." Management had to be creative to close this deal. "...About $40 million of the $316.9 million in cash due at the closing has been deferred as a two-year interest-free loan to the buyer...". Brandywine expected to realize $269.9 million of cash proceeds at closing with the proceeds used to pay down debt. That equates to $3.08/share cash which if applied to their outstanding debt ($3.06B) would represent a 8.9% reduction in their long term debt. After the dust settles, I believe their net FFO will increase and their overall portfolio debt will be less. They are still leveraged as you pointed out but with this recent transaction, just not as much. I have been wrong in the past and may very well be missing something and am wrong in my analysis. From the recent price action, the market may be pricing in some other financial "event" or it could be sellers just throwing in the towel at these price levels (multi-year lows). EKS