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.

General Growth Properties: One Last Look

Brian- It looks like you were right and I was wrong on this one. Congratulations on what must be a very nice payout!

How to Profit from the Commercial Real Estate Fallout

I agree with seeking and Ezee. It's also important to note that SRS's underlying index, IYR, is constantly being rebalanced in favor of long positions and it's current holdings are some of the stronger REITs. The time for SRS was last year before your average Joe was talking about the coming crisis in CRE.

I am just starting some research on this, but I think the next play may be to short Residential Apartment REITs (that hold B and C class properties) using long dated puts.

Disclosure: Long IYR

On Jun 18 03:29 PM seekingnothing wrote:

> David, I second Ezee's comments. The SRS has been a poor way to short
> CRE. the SRS is the double inverse of the IYR. SPG is one of the
> major holdings in the IYR. You point out the SPG should be a beneficiary
> of the fall out. Any better plays?

Has the Well of Merrill REIT Offerings Suddenly Run Dry?

Good call. This property is 54% occupied and Simon has over $1billion on their balance sheet--- doesn't sound like a distressed sale or a core asset to me. This guy is more concerned about conspiracy theories than real analyses.


On Jun 16 09:08 AM HotCarNut wrote:

> This might just be the dumbest analysis I've ever seen, and that's
> saying something. Large real estate companies are CONSTANTLY evaluating
> their portfolios and looking to buy high quality assets and divest
> assets that aren't performing. A company like Simon that has grown
> through a lot of acquisitions has probably acquired a number of properties
> that it normally would never have bought but were owned by the acquisition
> target. In fact, I'd bet if you looked at the property table in their
> 10K and annual report, you could identify which assets SPG is likely
> to want to dispose of. In my view, this disposition activity doesn't
> signal that SPG isn't in the market to acquire assets or entire companies.
> It merely looks like normal course of business. I would only become
> concerned if high-quality assets in fundamentally strong areas were
> going on the block. Those "fortress assets" as companies like to
> call them are the true signal of intent or distress, not an underperforming
> property in Omaha.

Simon Property Dilutes Shares to Extinguish Debt (Again!)

I agree with you here and these are some very good points.


On May 07 06:19 PM TraderMark wrote:

> SPG will be a survivor but i do believe it will be a long haul here.
> cash flows will be interesting with falling vacancy rates and a consumer
> in shell shock. Right now Bernanke has allowed everyone to do the
> refinance game ONE MORE TIME, and we are in the middle of tax refund
> season as well. With what i see as a jobless recovery until summer
> 2010 and some destroyed balance sheets of many consumers I expect
> retail spending to be at a "new normal" for at least 18 more months.
>
>
> It will be interesting to see what is filling up these malls, but
> that said I saw Macerich was able to find new tenants to pay 21%
> more than expiring leases - that boggles me but its a data point.
>
>
> We'll see how much they gobble up of GGP if any - Ackman does not
> want to let go of any of it.

Simon Property Dilutes Shares to Extinguish Debt (Again!)

Hi Mark,

Here is a quote from the Q1 SPG conference call (thanks to SeekingAlpha):

"We retired $700 million of senior notes. At the quarter end we have approximately $1.1 billion of cash on hand including our share of joint venture cash and our availability on our corporate credit facility is somewhat over $3 billion." -David Simon, CEO

The retirement of the notes provides a savings on the debt service side. By paying the corporate credit facility down, they save on interest payments and now have $3 billion available to draw. If SPG cannot refinance a maturing debt, they will use the $3 billion line to avoid a maturity default (they mentioned this later in the call). This leaves the $1.1 billion in cash in a pretty safe position. Some will be kept for reserves but I would expect SPG to invest in properties or buyback debt at discounts (both would increase FFO, directly or indirectly). In short, they now are well positioned to acquire assets and gain market share.


On May 07 11:31 AM TraderMark wrote:

> I can agree with that but are these funds for distressed assets or
> taking care of debt obligations...

Simon Property Dilutes Shares to Extinguish Debt (Again!)

In the long term, it doesn't dilute FFO if the funds are used to acquire more market share and reduce debt service. Simon can realize some very attractive yields from distressed owners dumping off performing assets. They have also stated that they may be open to buying their bonds back down the road. Not everyone is a day-trader here.

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

General Growth Properties Files for Bankruptcy

Okay, I feel like a total hypocrite, but I just put a very small position on SRS. It was just too attractive at 26 and change. I still have a much larger position on the long side and will continue to buy URE....Just a short term trade but I thought I would come clean.

General Growth Properties Files for Bankruptcy

Or are the dilutions already priced in? Everyone and their mother saw the offerings coming.

General Growth Properties Files for Bankruptcy

Take a look at the holdings in IYR for your answer on SRS. GGP is nowhere to be found and is the exception not the rule. SPG, KIM, AMB have had success raising capital in the public markets. SRS was bled dry a long time ago. When your average Joe is talking about getting in on the action (i.e. shorting CRE) the bubble is about to pop or already has.

Disclosure: long URE


On Apr 16 11:49 AM [e-mail] wrote:

> Can someone ... ANYONE ... explain to me why GGP, the second largest
> mall operator in the US, is declaring bankruptcy and SRS is within
> spitting distance of an all-time low on the same day?

The Bull Case for Simon Property Group

I should note that the Cincinnati response was directed at Amateur Hour, not Adam.

The Bull Case for Simon Property Group

Adam,

Thanks for pointing that out on the J.V. side. My apologies. Much of this debt is non-recourse but you are absolutely correct, it is still a liability.

You make a good point about the depreciation of CRE. However, I have a tough time believing that values will drop below the cost of acquisition for properties acquired or built in the 1990's or before. Cincinatti Mills was acquired by SPG as part of a larger acquisition of the Mills Corporation. According to the Wall Street Journal, it was only 60% occupied by non-anchor tenants at the time of sale and was a failed redevelopment long before SPG acquired it. I think it is a bit extreme to use the sale price as an indicator for the entire portfolio.

The Bull Case for Simon Property Group

I am long SPG.

The Bull Case for Simon Property Group

If I am reading their balance sheet correctly, SPG has $19.7 billion in liabilities and $24 billion in assets. $19 billion of the assests are real estate being depreciated from cost. A large number of their properties were built or acquired over 10 yrs ago, so I assume that there must be some appreciation of these assests. It looks like SPG has about $7 billion in debt rolling over in 09 & 10. Relative to their assets, this should not be a major concern to their solvency.

I agree that the cost of capital is rising (i.e. the 10% offering). But if cap rates are already near 10%, is it unreasonable to think that SPG can reinvest in distressed property and realize a 15% cap rate?

I know there is some pain in the short term. However, 3 years from now, I think I will be happy with my investment at these prices.


On Apr 02 06:18 PM Adam Sharp wrote:

> $24b in debt and $774 million in cash = strong balance sheet? I disagree,
> and think any cash they raise/earn will go towards paying that off,
> not buying up properties.
>
> Costs of borrowing rising (they paid 10%+ on most recent bond issue),
> property values falling, retailers going bankrupt, consumer spending
> still falling (YOY, MOM fluctuations are worthless). I'm short SPG
> still.
>
> They have some great properties, but you have to factor in that debt.
> No bulls like to mention that.