tshk1221

Real-Estate Veteran Sees a Rare Opportunity to Buy Quality REITs - Barron's

GGP's LTC ratio per balance sheet as of 9/30/2008 was 96.7%. Now, see what's happening with GGP. Lenders are refusing to refinance its high LTC real estate loans. Its real estate loans cannot be refinanced at all now without any additional equity cash down. LTC / LTV for prudent US banks and lenders to refinance ranges from 80% or lower for commercial loans. Now there is a widespread rumor that GGP might go bankrupt.

SPG just slashed its cash dividends by 90%. SPG's balance sheet as of 9/30/2008 shows an LTC ratio of 95%. What's going to happen?

DDR skipped its dividends back in October, 2008. Its LTC is a little high at 75% according to its balance sheet as of 9/30/2008, but it is still within a lendable LTC range. Besides, DDR has been trying to reduce its LTC by reducing its dividends earlier and saving up cash to pay down its loan balances. Probably, updated balance sheet of DDR will show its LTC to be around 60% - 65% range. If this is shown in DDR's updated balance sheet, DDR will survive through the next real estate boom.

Real-Estate Veteran Sees a Rare Opportunity to Buy Quality REITs - Barron's

Loan to Cost Ratio (LTC) determines equity cash injected into a project when lending. It is more important than Loan to Value Ratio (LTV) which fluctuates signicantly depending on market situations.

The author of this article suggest that SPG is 'well capitalized'. Its balance sheet is far from being 'well capitalized'. Equity cash injection made into most of its real estate projects including equipment was around 5%. SPG seemed to have extended its leverage way too much and much, and the lenders which extended these, impossible 95% LTC construction loans could be in a dire jeopardy. Probably not banks but private lenders with sky hefty interest rates..

Kimco Realty seems to be the far better one. Its balance sheet shows a healthy LTC of 60% for a commercial REIT with a dividend yield of 12.7%. Being the biggest is not always the best, well managed and well capitalized. If overall LTC is only 60%, there wouldn't be any big, major problems when refinancing its real estates with banks.

Why don't you guys check out REITs' balance sheets and come up with LTC ratios first?

Real-Estate Veteran Sees a Rare Opportunity to Buy Quality REITs - Barron's

I agree to the Barron's opinion that AVB is one of the most valuable REITs out there now. What I cannot agree with is as follows:

SPG: Its balance sheet shows an overall loan to cost ratio of 94%.
BXP: Its balance sheet shows an overall loan to cost ratio of 70%.
DDR: Its balance sheet shows an overall loan to cost ratio of 74%.

SPG has the highest probability of going belly up and never survive because of its initial, impossible leverage financing with 94% overall loan to cost ratio. The overall current loan to value of SPG must be over 120% now. As for DDR, its loan to cost ratio is within an acceptable range from prudent commercial lenders' lending point of view. I warrant DDR's survival.