REITs

S&P 500: +8.12% (+0.97%)

REITs
Shopping center developer Kimco Realty Corp (KIM) joined the growing list of REITs that are slashing dividends and issuing shares to shore up their balance sheets. Although these actions are dilutive to current shareholders, investors are applauding actions taken by REITs to stabilize their balance sheets.  Perhaps investors will finally return their focus to leasing fundamentals rather than balance sheet deficiencies.

One of the flaws with the REIT model is that companies pay out most of their earned cash, so they need debt or equity to continue growing. With the capital markets still tight, companies have resorted to selling new shares despite the fact that most are trading well below intrinsic value. Still, adding cash greatly improves a company’s chances of meeting debt maturities and surviving the recession.

REITs may also be benefiting from FASB’s change to the mark-to-market, which should provide lenders with regulatory capital relief. This, in turn, should free up more capital and make it easier for REITs to get financing.

Things are definitely improving for REITs.




Quick Hits

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Peter Lazaroff, Junior Analyst