Commercial Real Estate and Real Estate Investment Trusts [REITs]
Area Market Flat, But May Get Worse. "All market fundamentals in Chicago appeared to be losing steam during the second quarter as leasing activity slowed, vacancies rose and rental rates declined," said Studley, the tenant-oriented real estate services firm… No downtown Chicago office building was sold in Q2… But not all sectors are soft. The firm noted that health and medicine remain strong. For example, Children's Memorial Hospital purchased a site for $18 million, while the Chicago School of Professional Psychology expanded its space at the Merchandise Mart from 16,000-sf to nearly 82,000-sf.” (Chicago Tribune, Aug. 6th)
Fitch: Access to Capital Continues to Challenge U.S. REITs. “Fitch Ratings Q2 REIT Report Quarterly: Although access to capital via the public unsecured debt markets opened for U.S. equity REITs in April and May, during which time all $4.6 billion of this year's unsecured bonds were issued by investment-grade rated equity REITs, the capital markets have reverted to being less hospitable, as spreads continue to widen relative to historical levels. Fitch expects that the slowing economy will impact real estate fundamentals; however, large highly rated REITs will remain well positioned to weather reduced capital access, as these companies benefit from stable retained cash flows from operating activities and meaningful amounts of capacity in the form of unsecured revolver availability and unencumbered assets.” (MarketWatch, Aug. 5th)
Real Estate Company UDR Reaffirms 2008 Outlook. “UDR Inc., (NYSE:UDR) a REIT focusing on apartment homes, on Tuesday reaffirmed its 2008 forecast for funds from operations of between $1.50-$1.55/share. Analysts currently expect FFO of $1.51/share for 2008. FFO, a widely used gauge of real estate operating performance, adds depreciation and amortization expenses, as well as other non-operating items, back to net income. UDR also reaffirmed its expectations that revenue from its existing properties will increase 4%-4.5%, expenses will grow 3%-3.5%, and net operating income will rise 5%-5.5%. UDR’s Q2 FFO was $49.8 million, or $0.36/share, down from $66.3M, or $0.45/share, in Q2’07.” (Forbes, Aug. 5th)
Weyerhaeuser Posts Loss, Plans to Cut 1,500 Jobs. “Weyerhaeuser Co. (NYSE:WY) said it would cut about 1,500 employees, or 6.3% of its global work force [after] reporting a net loss of $96 million, or $0.45/share, compared with year-earlier net income of $32M, or $0.15/share. Excluding real-estate impairments, restructuring charges and other items, per-share earnings slumped to three cents from $0.48. Revenue fell 17% to $3.61 billion, with a 27% drop from continuing operations to $2.17B. International Paper Co. closed its $6B purchase of Weyerhaeuser's containerboard, packaging and recycling business… The company has shed several units as it seeks to focus on its logging and residential units.” (WSJ, Aug. 5th)
REIT Generated Growth For Plum Creek. “Plum Creek Timber (NYSE:PCL) President and CEO Rick Holley says that growth wouldn't have happened if Plum Creek hadn't become a REIT in 1999. The company now is the country's largest private landowner, with 8 million acres of timberland in 18 states. Since 1999 its revenues and assets have more than tripled. Its stock price has climbed 56% [since 1999], far outpacing the major indexes. Plum Creek's profits have shrunk lately, a consequence of the housing downturn. Still, in a bear market, its share price is up nearly 6% so far this year. No wonder Wall Street is pressuring slip-sliding Weyerhaeuser to follow Plum Creek into REIT-dom.” (Seattle Times, Aug. 3rd)
Weyerhaeuser Under Pressure For More Change. “Wall Street is demanding changes that could turn the Federal Way timber giant from a diversified manufacturer into a pared-down cash cow for investors hunting for more lucrative returns on timber and real-estate assets. That… would emphatically repudiate Weyerhaeuser's expansion strategy, capped by its 2002 takeover of rival Willamette Industries after a lengthy hostile pursuit. [With its] third straight quarterly loss, the company likely will finish the year without a profit for the first time since 1991… raising the specter of further drastic changes at yet another major employer in the Northwest. Weyerhaeuser is one of the region's oldest and most iconic corporations, a global player with nearly 38,000 employees.” (Seattle Times, Aug. 3rd)
Developers Diversified Realty Relies On A Strong Foundation. “Times might be getting tougher in the economy, but when it comes to building and maintaining shopping centers, one REIT sees a bright future. Despite headwinds for many retailers, Developers Diversified Realty Corp. (NYSE:DDR) gives investors reason to be optimistic. Buoyed by a strong balance sheet, diverse funding sources and a defensive portfolio, the Cleveland-based REIT looks to bank on its relationships with retailers and investors to keep earnings and dividends rolling for years to come. Developers Diversified has an intangible asset: trust, derived from a consistent history of delivering on its promises.” (NAREIT, August, 2008)
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