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

To: Spekulatius who wrote (31516)	7/17/2008 8:25:52 AM
From: Grommit	Respond to of 78627

Grommit was it who previously introduced FFO/market cap as a key metric for a REIT. nope. not me. I pointed out that P/FFO takes into account 2 other measures, yield and payout ratio. P/FFO = P/DIV * DIV/FFO.

To: Spekulatius who wrote (31516)	7/17/2008 11:52:32 AM
From: E_K_S	Respond to of 78627

Spekulatius good overview on the REIT analysis. Is there typically good debt vs bad debt for an REIT to use? What should one watch for as the company deleverages? I noticed that many of these REITs have several different types of debt that range from preferred stock w/ callable options, different flavors of bond financing and even floating lines of credit pegged to adjust at the LIBOR rate. What caught my attention for BDN was how they compared to their Peers for: (1) EBITDA/Int. Exp (2) EBITDA/Int + Pref Divs . They seem to compare well in our low interest rate environment but as you stated depending on the type of debt used (floating rate), they may have significant exposure to future rising rates. snl.com Peer Analysis BRANDYWINE REALTY TRUST (NYSE - BDN) Data for trailing four quarters Financial Performance (%) BDN Peer Peer Median Average Rec. EBITDA / Int. Exp. (x) 2.30 2.64 2.73 Rec. EBITDA / Int. Exp. + Pref. Divs. (x) 2.19 2.24 2.33 G&A / Total Revenue 3.75 7.37 7.20 FFO / Share Growth 3.16 (3.23) (10.66) ROAE 2.92 6.24 7.21 ROAA 0.97 2.33 2.63 Payout / FFO 67.43 67.61 67.15 Market Performance Price / FFO (x) 5.43 11.62 11.90 Dividend Yield (%) 12.41 5.31 5.42 UPREIT Market Cap ($M) 1,294.96 2,023.66 2,363.15 Total Capitalization ($M) 4,561.07 5,136.76 5,472.62 In general, this is probably true for all REIT structured investments. It would seem that a low risk management would try to use fixed rate debit instruments with callable terms so long term debt could be paid down as excess cash is obtained through periodic asset sales. You mentioned "...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. ..." So even if real estate values STAY THE SAME and interest rates rise compounded by the REIT having "Bad Debit instrument" (ie. floating Libor rates), the "undervalued" investment all of a sudden do not look that attractive. The FFOs decrease and the attractive dividend gets cut. Based on the chart above, it should not be a surprise to see the dividend yield fall back to its peers. Finally, the other "value" theme that attracted me to look at REITs was that with the weak $US, U.S. real estate assets now look attractive to foreign investors. There should be some minimum floor that these U.S. based REITs could fall before a foreign investor would come in and buy them. I guess this would only become a factor if we begin to see actual deals announced. EKS