Kafkaesque

The Logic Behind Bill Ackman's Purchase of General Growth Properties

Retail Property REITS are going to see their tenants (i.e. their property's Retailers) "absolutely hammer" their FFO (revenue) streams and there is little that they can do about it. Retailers of every type (Nationals, Regionals & Locals) are going to reduce their operating costs with renegotiations of base rent or close. This is happening in mass already. Couple this event with a complete drying up of percentage rent as a result of the tenant's severely reduced gross sales and one has a real problem. The BK's of the retail industry will allow many of these retailers to carte blanche renegotiate their economic occupancy cost line items or leave their spaces vacant. The GGP's, DDR's, CBL's of the world have very little leverage in this equation and little can be done at this stage to stop the train from running off of the cliff.
Office REITs and Industrial REITs have a very similar storm coming that they, too, will have to weather. Beware of the REIT game today; despite what you think the hidden value of the assets are because they were booked years ago........ be very cautious.