Money Matters, Simplified.
Commercial Real Estate: Think Twice, It's Still Not All Right
Tue, 04/14/2009 - 08:05 by Mike Pienciak
In the past month or so, a number of commercial real estate investment trusts (REITs) -- including Kimco Realty (NYSE: KIM), Simon Property Group , AMB Property (NYSE: AMB), and Alexandria Real Estate Equities (NYSE: ARE) -- have announced plans to strengthen their balance sheets by issuing shares. The presence of apparently willing buyers may suggest that the commercial property market is starting to stabilize, but that looks to me like a hasty conclusion.
Consider the following facts and forward estimates from a recent Deutsche Bank (NYSE: DB) presentation:
Granted, a broad view can obscure individual situations, but the picture doesn’t necessarily improve at the company level.
Simon Property Group, in particular, looks to be in danger of holding unrealistically high expectations. On the fourth-quarter 2008 conference call, management predicted flat to slightly better financial performance in 2009. Baked into that estimate is the savings that will come from the decision to pay 90% of the dividend in stock, but the view still seems to suppose that leases can generally be renewed at historic rates. Meanwhile, investors have received a mall-style dilution special -- first, via the dividend change, and more recently, by the 17.25 million-share offering.
From an investing standpoint, I'd be hesitant to get involved with any of the mentioned stocks. If business prospects worsen, further dilution is a likely scenario. In that case, buyers may demand lower prices, which would mean that companies would need to sell a greater number of shares to reap the same proceeds.
Nonetheless, I understand that investors may feel anxious to get in on an eventual recovery in the commercial real estate market. In that case, a better play could be online marketplace provider LoopNet (Nasdaq: LOOP). The company carries no debt, recently raised additional cash through issuing convertible preferred shares (a scenario that poses little risk of repeat, in my view), and should see the same, if not greater, upside as commercial REITs once offices and malls decisively shed their poker chip personas.
Rent some related Foolishness:
Will Real Estate Lead the Recovery?Dream Stocks for Real Estate InvestorsOases of Value in the Real Estate Desert
© 2009 UCLICK, L.L.C.
Comments
Post new comment