Commercial Properties & REITs - General News

[millionairemind]

Published February 21, 2009

It's status quo for Reits on payout ratio
Government's stand is to preserve the stable, high-payout characteristics of the trusts, says minister

By KALPANA RASHIWALA

IT'S official. The authorities will not be lowering the minimum payout ratio that real estate investment trusts (Reits) must meet to qualify for tax transparency treatment.

Spelling out the government's stand, Senior Minister of State for Finance and Transport Lim Hwee Hua said at a Reits seminar yesterday: 'The key characteristics of Reits as a stable, high-payout, pass-through vehicle are important considerations for investors, and hence, must be preserved.'

'Ministry of Finance and Monetary Authority of Singapore have deliberated this issue and have decided that the minimum payout ratio would not be changed,' she added.

Yesterday's official pronouncement on the topic confirms earlier BT reports.

Under current guidelines, Reits have to distribute to unitholders at least 90 per cent of their distributable income, in order to enjoy tax transparency, which means exemption from paying corporate tax at the Reit/vehicle, on the portion of income they distribute.

'While we appreciate the refinancing difficulties faced by Reits, there are, at present, no strong grounds to justify a special tax treatment for Reits that is not made available to other entities,' Mrs Lim said at a seminar organised by the Asian Public Real Estate Association (Aprea).

She noted that a few Singapore Reits have already managed to secure refinancing either through bank loans, loans from sponsors or recapitalisation, albeit at a higher cost. 'It is unrealistic for S-Reits to expect to have continued access to cheap and easy credit during this recession,' Mrs Lim commented.

BT reported last month that some Reit managers had urged the government to trim the minimum payout to unitholders to as low as 50 per cent of distributable income, while still allowing Reits to enjoy tax transparency.

The proposals were meant to help Reits - especially smaller ones - conserve cash. But they sparked concerns that Reit investors, especially institutional players like funds who count on the certainty of a regulated minimum distribution from their investments in the S-Reit sector, may pull out from this market if this rudimentary attraction of S-Reits disappears.

The issue of fairness also surfaced. It was asked why Reits enjoy special treatment when many other listed companies also return a chunk of their profits to shareholders but still have to pay corporate taxes.

Mapletree Logistics Trust's deputy CEO Richard Lai welcomed yesterday's official pronouncement. 'We have never agreed with any move to reduce the distribution payout ratio because it will destroy investors' confidence and consequently tarnish the S-Reit market. S-Reit is a special play for investors and reducing the payout ratio would definitely bring into question the very existence of Reits. Why do we need Reits if they don't have the discipline to maintain high payout ratios?'

However, Securities Investors Association of Singapore president and CEO David Gerald said: 'The 90 per cent rule means that a Reit is always geared. If there is a reserve, the Reit can face economic downturn or financial crisis confidently as banks may not be willing to lend. For this reason, I am not in favour of the authorities insisting that the 90 per cent level be maintained as that may affect the liquidity of a Reit, especially in these bad times.'

Mapletree's Mr Lai suggests that to conserve cash, Reits could give investors the option to receive their distributions in the form of new units issued, instead of cash. 'That could be dilutive but unitholders who support you would understand, whereas if you seek to reduce the payout ratio, you'd be destroying the very nature of having Reits,' he added.

In her speech, Mrs Lim said: 'With the credit crunch, many businesses across various sectors are faced with similar refinancing difficulties that S-Reits are facing.' She noted that the government has introduced measures in last month's Budget to stimulate businesses, including $5.8 billion of measures to stimulate bank lending such as the Special Risk-Sharing Initiative.

In addition, S-Reits can also tap measures announced recently by Singapore Exchange to facilitate listed issuers' secondary fund-raising efforts. 'SGX will continue to explore other initiatives to facilitate secondary fund raising, including the Australian accelerated rights issue structure, which requires a more detailed study,' Mrs Lim added.

[iam802]

Investors eye fire sales of REIT assets

http://business.smh.com.au/business/inv ... -8v3t.html

Carolyn Cummins
March 11, 2009 - 5:55PM

A swathe of property asset sales are anticipated in coming weeks as private investors enter the market to snap up prime office, retail and industrial building at bargain-basement prices.

Amid the expected deals will be the launch of large-scale marketing campaigns in newspapers for prime properties as banks and financiers apply the blow torch to real estate investment trusts (REITs) to prove they are serious vendors.

A year ago when the market was turning sour, much of the $20 billion of assets up for sale were taken off the public notice board, as it was perceived as desperation campaigning.

But, with REITs hitting all-time lows, banks have said they wish to see, via public ads, that the assets are being marketed in the public arena - such as GPT's recent campaign to sell its 11 resorts and hotels.

In total about $200 million, of the $20 billion of assets on the market, could change hands in the near term.

It is tipped that some may go to foreign buyers and private investors, who have more access to capital.

This comes as vendors say they are starting to get interest in a number of Sydney CBD's office assets.

According to Simon Wheatley at Goldman Sachs JBWere, while the proposed sale of No.1 Martin Place, jointly owned by Macquarie Group's listed and unlisted REIT, is still in limbo, there are suggestions that interest in Dexus Property's 343 George Street, 11-storey, B-grade office building is quite strong. It was last valued at about $55.6 million.

GPT's wholesale fund is said to be concluding a sale of its 179 Elizabeth Street, worth about $70 million to $80 million.

The broker said there was also interest being shown in the North Shore market, encompassing St Leonards, North Sydney and North Ryde, on yields between 8.5% to 9.5%.

"The continued listing of assets below the $100 million and closer to the $50 million mark highlights some depth of demand from smaller investors for yield product in this range and the preference for REITs to use their smaller assets as liquidity/trading stock to top up cash balances. We also understand REITs remain very unwilling to talk on selling their core assets at this point,'' Mr Wheatley said.

[mocca_com]

http://www.moneyweek.com/investments/pr ... 14660.aspx

It's time to get back into property - Asian property By Cris Sholto Heaton Mar 09, 2009

"You can't beat bricks and mortar." Or so the property touts told us over and over again in the last few years. We all know how that turned out – Britain is now a nation of reluctant landlords wishing they'd put their savings on the 4:15 at Doncaster instead.

So it might sound odd if I say I think there may now be value in property. But bear with me. A couple of weeks ago, I talked about the difficulty of investing when it's unclear if inflation or deflation is the bigger threat (How to invest for inflation or deflation). As I noted then, well-chosen real estate could be part of an inflation/deflation portfolio. It will pay a decent rental yield, attractive in a low rate world. Or, if we have severe inflation, hard assets such as property should rise in line with it.
......

[millionairemind]

And in the same magazine.. they are saying the UK is ripe for a major property bubble slump...

UK house prices will plummet: look at this scary chart
http://www.moneyweek.com/investments/pr ... 14664.aspx

[greenhoney]

this is from 60 minutes about the second wave that is coming, how i wish its the second coming.

http://www.youtube.com/watch?v=XR0asxyRGX4

[iam802]

Thanks. Good video.

Some of the points are highlighted in articles before. But, the impact is so much greater when you are watching and listening to a video.

[iam802]

I am going to put this here instead of opening a thread specific to the counter.

The key news here is more REIT is trying to conserve cash. And Simon Property Group is trying to payout part of the dividend in the form of shares.

Look at the percentage of shareholders opting for cash ....

==
Simon Property Group Announces Results of Dividend Elections and Details of Common Stock Dividend Payable on March 18, 2009

http://www.earthtimes.org/articles/show ... 9496.shtml

INDIANAPOLIS, March 13 IN-SimonProperty-Div.
INDIANAPOLIS, March 13 /PRNewswire-FirstCall/ -- Simon Property Group, Inc. (the "Company" or "Simon") (NYSE: SPG) today reported results of the stockholders' elections relating to the dividend announced on January 30, 2009. The quarterly dividend of $0.90 per share of common stock is payable on March 18, 2009 to stockholders of record on February 12, 2009.

Summarized results of the dividend elections are as follows:

Holders of 15.2 million shares elected to receive the dividend all in shares.

Holders of 193.6 million shares elected to receive the dividend all in cash and will receive $0.0971 per share in cash (10.8%) and $0.8029 per share in stock (89.2%).

Holders of 22.5 million shares made no election and will receive $0.09 per share in cash (10%) and $0.81 per share in stock (90%).

The Company will pay fractional shares in cash.

......

Holders of 193 million shares opt to have it in cash vs 15.2 million who opt for dividend in shares.

[iam802]

This is not going to be a surprised. Soon news on dividend cuts will be out for these REITs.

Any defaults from REIT, followed by bankruptcy can be fuel for the next downtrend.

========
Retail REITs Have Further to Fall as Stores Struggle (Update1)

http://www.bloomberg.com/apps/news?pid= ... HFAwYtk24#

March 16 (Bloomberg) -- There’s little relief in store for investors in U.S. shopping center and mall landlords even after the shares plummeted 80 percent from their February 2007 highs.

“REITs are cheap but they’re going to continue to be cheap,” said Marc Halle, managing director of Prudential Real Estate Investors in Parsippany, New Jersey, whose firm manages about $32.5 billion in real estate assets. “We’re going to see increased corporate bankruptcies and continued unemployment for the next few months.”

U.S. mall owners are coming off their worst-ever year of stock market losses as consumers cut spending and retailers shut stores. Vacancies at malls and shopping centers approached 10- year highs in the fourth quarter and will rise further, according to New York property research firm Reis Inc. More than 200,000 store closures are projected for this year by Howard Davidowitz, chairman of New York-based retail consulting and investment banking firm Davidowitz & Associates Inc.

“Thousands of shopping centers will close,” Davidowitz said in an interview. “It’s a debacle.”

The global credit crisis has eroded retail profits worldwide and put REITs including General Growth Properties Inc. near bankruptcy as they sell assets and negotiate with lenders.

‘Solvent Company’

Hedge fund manager William Ackman said today he may join the board of General Growth and that he expects the owner of more than 200 malls in 44 U.S. states to file for bankruptcy “imminently,” according to a Bloomberg Television interview.

“This is a solvent company with a liquidity problem,” said Ackman, who heads Pershing Square Capital Management LP. He said his company has acquired stakes that could give it 25 percent of Chicago-based General Growth and advocates a reorganization over liquidation. The latter would be “a disaster for the entire REIT industry,” Ackman said.

Australian developers Westfield Group, Centro Properties Group and Lend Lease Corp. in February reported $3.4 billion of losses as property values and retail sales plunged. Westfield, the world’s biggest shopping center developer by market value, last year cut operating hours at most of its 55 U.S. malls and sold shares to cut debt. Centro has ceded control to its bankers.

The Bloomberg REIT Retail Index of 27 U.S. companies, including Simon Property Group Inc., Kimco Realty Corp. and Taubman Centers Inc., sank to a record low of 101.18 on March 6 and had rebounded 32 percent through March 13. In February 2007, it peaked at 610.39 as cheap credit fueled a takeover frenzy.

Index Falls

The retail REIT index today fell 11.16, or 8 percent, to 122.79, the biggest drop in two weeks. The index fell 69 percent during the past year, compared with 41 percent for the Standard & Poor’s 500 Index, a benchmark for large U.S. companies.

A sustained recovery in retail sales is unlikely until later in the year because of mounting unemployment and falling home and stock values. February retail sales were buoyed by stores discounting to get rid of surplus inventory, said Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, in a Bloomberg Television interview.

“In order to have a sustained increase in personal consumption, wealth has to go up,” Kubarych said.

Simon Property is the largest U.S. mall owner and the biggest company in the Bloomberg Retail REIT Index by market value. One Simon property, Northgate in Seattle, was dubbed “America’s First Mall” after it opened in 1950.

Cancelled Store Plan

Seattle-based developer TRF Pacific LLC sued Whole Foods Market Inc. last year after the supermarket chain canceled plans to open a 60,000 square-foot store in the Interbay Urban Center, located north of downtown Seattle between two of the city’s wealthiest neighborhoods, Queen Anne and Magnolia. Whole Foods in January agreed to open a smaller store, of about 40,000 square feet, and is trying to sublet the rest of the space, said Whole Foods spokeswoman Vicki Foley.

A hobby shop called Science, Art and More in Seattle’s Roosevelt District, one of the city’s retail hubs, closed after Christmas sales fell 50 percent, complicating store owner Doug Livingston’s efforts to find a buyer. For the past 12 years, the store had been a popular destination for shoppers buying microscopes, carnivorous plants, origami kits, and plastic skeletons.

Lost Confidence

“At the beginning of ‘08 we had some interest but then we hit September with the whole economic meltdown and the few people who seemed to be interested just evaporated,” Livingston said in an interview. “The biggest problem is confidence. We won’t see it turn up for at least six months.”

More than a dozen retailers, including Circuit City Stores Inc. and Linens ‘n Things Inc., filed for bankruptcy protection in 2008. Store closures have hit shopping center landlords including Developers Diversified Realty Corp., whose stock fell 95 percent during the past year to $1.85 today.

Consumers are cutting expenditures as incomes fall and homes and stock portfolios lose value. The U.S. unemployment rate jumped to 8.1 percent in February, the highest in more than a quarter century, the Labor Department said. U.S. household wealth fell by a record $5.1 trillion from October to December, according to Federal Reserve figures.

Normally, lower stock prices mean higher dividend yields, a prime reason why investors buy REIT stocks. The credit crisis has pushed such traditional measures to the margin as many REITs have cut dividends or paid part of them in stock along with cash.

Dividend Cuts

The dividend yield on the retail REIT index is 15.7 percent, more than five times the 2.95 percent yield of the 10-year Treasury note, a traditional benchmark of value. During the past decade, REIT yields averaged less than 2 percentage points above Treasury yields.

“That high dividend yield will shrink as the year progresses,” said Ben Yang, a retail REIT analyst at Green Street Advisors. “Dividend cuts are looming on the horizon.”

Another measure, price to net asset value, is difficult to establish because so few assets have traded recently.

There have been some signs of life in the retail industry that are starting to buoy investments. Investors got some good news on March 12. Sales at U.S. retailers in February fell less than forecast and a gain in January exceeded the previous estimate, the Commerce Department said, indicating the biggest part of the economy may be starting to stabilize.

‘Cheap’ Stocks

“People are going to start sniffing around because these stocks are a lot cheaper than they were a year ago,” said Yang.

Glimcher Realty Trust, which closed today at $1.28, and CBL & Associates Properties Inc., at $2.49, are two stocks that trade “like options,” said Yang.

Retail REITs are worse off because they borrowed more heavily than apartment and health care landlords, said Dean Frankel, a senior portfolio manager at Urdang Securities who helps manage about $1 billion of real estate securities.

Within retail, Frankel advises sticking to REITs that have stronger balance sheets and high-quality assets, citing Taubman and Federal Realty Investment Trust.

The real estate market has been in limbo while investors await government measures to deal with the collapse of the banking industry and boost an economy in its second year of recession.

Refinancing risk is driving REIT prices, said Prudential’s Halle.

“No one cares about value,” he said. “It’s about survival and making your balance sheet as strong as you can.”

[iam802]

Mall Operator General Growth Files for Bankruptcy Protection

http://www.washingtonpost.com/wp-dyn/co ... s_business

This is expected. They have been unable to pay for a number of times.

A proxy to other REITs failure.

[winston]

Nothing Performs Better in Times Like These By Steve Sjuggerud

Darn it. I should have known better...

A fantastic idea sat right under my nose, and I missed it. I will try not to let it happen again.

Let me show you what this investment is... how it was so obvious... and how to NOT miss it next time.

The investment is, historically, the best-performing asset in our current economic situation (at least by one measure).

Before I get to the specifics, let me back up and explain something about investing...

When it comes to investing, I know everything will work out just fine as long as I follow my rules.

I don't worry about my returns year to year (though I do have a few accounts up more than 100% in the last year). I know the returns will come if I just stick to the rules.

I don't beat up on myself at all for taking losses, either. Losses these days don't faze me a bit... Giving up small battles is simply a part of winning the war. Never let a small loss turn into a big loss. It's part of the rules.

So I don't get worked up over winners or losers... What do I get worked up over? NOT sticking to my rules. Argh! The worst is when your brain overrides your rules. If you do that, the rules aren't even rules anymore.

In this case, it was a missed opportunity...

I didn't follow my rules and invest heavily in an asset class I knew would perform best in the current situation. Why didn't I? Darn it, I have no idea!

The missed opportunity... the asset I SHOULD have bought... was real estate investment trusts (REITs).

Yes, real estate stocks. By my rules, a year ago, REITs were exactly what I look for...

REITS were 1) hated, 2) cheap, and 3) in an uptrend.

If I had simply, mechanically, pulled the trigger a year ago, I would have made another 100% gain in a year, by simply investing in a fund that tracks the REIT market (like the iShares Dow Jones REIT Index Fund, IYR).

My friend Meb Faber reminded me of my missed opportunity when he published a table showing what asset classes perform best when the spread between short-term and long-term interest rates is wide.

In short, you make a fortune in real estate stocks when the spread is wide. Right now, the spread between short-term interest rates (near zero percent) and long-term interest rates (approaching 4%) is at near-record levels.

Meb did a historical test, going back to 1973, of how various asset classes perform when the spread is at different levels. When the spread is above three percentage points, REITS are the top-performing asset class by a long shot – earning an astounding 24% a year.

Even when you step down a level (when the spread is between two and three percentage points), REITS are STILL the best-performing asset class, making you 15% a year.

These numbers are exceptional. So is now a time to buy REITs? I don't think so. They don't fit my rules anymore...

The uptrend is strongly in place. And investors still expect bad things from commercial real estate. But they're far from cheap.

The index of REITS is up over 100% in the last year. The real estate those companies hold, those buildings, didn't double in value... The shares went from underpriced a year ago to overpriced today. Now, REITs have a dividend yield of only 4% and are selling at near two times book value...

That's not a deal worth chasing.

Don't worry about your returns. And don't worry about taking losses. If you follow the rules (which we've laid out over the years in DailyWealth), you will be just fine.

Don't celebrate your winners or kick yourself for having losers. Instead, beat up yourself over not following your rules... like not cutting your losses or missing opportunities that fit your rules (like REITs a year ago).

It works for me... and it will for you, too. I'm certain of it.


Source: Daily Wealth