REITBull

General Growth Properties: Rebutting the Bears

The use of cap rates is a good way to value a REIT. However, it is also useful to look at the equity cap rate when making peer to peer comparisons. The equity cap rate will give you the yield after principal and interest payments. So for illustration purposes, let's say the cap rate is 6.5% on $2.2 billlion in NOI, giving you a per share price of $28.15. When you apply the equity cap rate, an investor would have to yield 7.91% in order receive a 6.5% return after principal and interest payments (assumes a 20 year amortization schedule and a 5% interest rate). A 7.91% interest rate would drop their equity to $8.90. Not an exact science but I think it gets you a little closer to current value when comparing to other peers. I have no position nor do I intend to take one and I have been wrong on GGP before. But just thought I would share another approach.

The Great REIT Unravelling Begins? Simon Property Group Defaults on Loan

Just for the record (Source: SeekingAlpha SPG transcript):

"We have a 25% carried interest in that property behind significant preference for what I will call the true economic owner; there are two other partners in that deal. We have no invested capital in that project. We were working toward a refinance kind of as the property manager of that asset.....we are actually trying to work with the true economic owner and the lender to figure out how to come up with an acceptable alternative to extend the maturity date and give us the time to figure out how to fill the space....Both the true economic owner and the lender have expressed an interest in us maintaining our role in that, even though we don’t get any cash flow and the management fee is de minimus in terms of what we’re doing. So, we are actually trying to be an honest happy broker to figure out how to make and give both of those lender and the borrower the ability to maintain the status quo for a better environment down the road. So, that is the source."
-David Simon

The Great REIT Unravelling Begins? Simon Property Group Defaults on Loan

This headline is very misleading and irresponsible, in my opinion. The Source at Westbury is a joint venture in which Simon Property Group only has a 25.5% ownership interest for operating rights. Keep in mind that this a company that has $774 million in cash and equivalents as of the end of 2008.

Source: SPG 10K