Mad Hedge Fund Trader's  Instablog

The big listed REIT’s are grasping for a life raft, a life preserver, or a flotation device of any description they can get their hands on. Even Pamela Anderson will do! They have used this month’s ferocious short covering rally to engage in some prodigious equity fund raising, nearly $4 billion in total. Only companies drowning in debt would be raising equity at these subterranean prices. Prologis (PLD) lifted $1.15 billion, followed by Chimera (CIM) $810 million, Kimco Realty (KIM) $747 million, Vornado (VNO) $645 million, and AMB Property (AMB) $576 million. I guess management isn’t sleeping too well at night. Existing shareholders are being diluted up to the gills. But half an asset is better than nothing. Many bought commercial properties with cap rates as low as 3% at the top of the market, betting that rents inflated by an endless retail boom would drag them up to 7-8% over time. The opposite happened, and some properties now have negative yields in extreme cases, with massive debt, and irate tenants pounding on the table demanding lower lease rates. Bankers are taking their pound of flesh, rolling over short term debt with only the most draconian terms, merrily widening spreads, adding covenants, and chopping loans to value along the way. I wonder if this orgy of recapitalization is simply an effort to bail water out of a sinking craft, or a battening down of the hatches for the tidal wave that is about to hit them. Women and children first!