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

To: E_K_S who wrote (31511)	7/16/2008 3:13:50 PM
From: Madharry	Read Replies (1) \| Respond to of 78626

Im now down about 5% in my income portfolio after being 90% invested. nothing more in this portfolio until my loss gets pared.

To: E_K_S who wrote (31511)	7/17/2008 2:13:16 AM
From: Spekulatius	Read Replies (2) \| Respond to of 78626

E K S =re BDN: Hi Spekulatius - Is it typical for these REITs to maintain a high debt ratio as it provides them more leverage and better overall return? This works in good times, when the underlying assets appreciate.In bad times the same logic applies in reverse, 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. Good management will deleverage in good times not when they are with the back against the wall. BDN did a questionable merger in 2005/2006 that provided them the assets that they are now working so hard to get rid of. They also bought back stock at around 30$, twice the current price, funded by debt. 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. What they do right (shedding assets) are the right things, but they still have to put new funds to finish After the dust settles, I believe their net FFO will increase and their overall portfolio debt will be less. No it won't. Shedding assets will not be accreditive to FFO. they recently lowered they guidance and they will lower more if they sell more assets.But they do not have a choice. if they do not deleverage their cost of debt will go up and they will not be able to roll over maturing debt to reasonable terms. Than it's game over and the debtholders are running the show. Grommit was it who previously introduced FFO/market cap as a key metric for a REIT. I think it is an important metric but EV/EBITDA is even more important since it a true leverage adjusted metric. FFO/market cap adjust for interest payment but since money was so cheap back than that did not amount to all that much. It was easy to increase FFO by increasing leverage when times are good. but if overdone lenders are balking and raise interest rates and the credit rating goes south if the assets depreciate in value.