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Merrill Lynch Analyst Downgrades Several Retail REITs on Valuation AP 9-14 A Merrill Lynch analyst downgraded real estate investment trusts Regency Centers, General Growth Properties and Kimco Realty on Thursday to reflect his view that the share prices are reaching -- or have surpassed -- what he sees as a fair level. Recent increases in the stock of all three companies prompted analyst Steve Sakwa to downgrade the shares of all three to "Neutral" from "Buy." Sakwa said the share price of Regency Centers, which owns, manages and develops neighborhood shopping centers, is trading near his estimated fair value price of $69, after closing Wednesday at $68.70. In the last three months, shares of Regency have increased about 12%. He praised the company's pursuit of quality development projects and its "superior" portfolio, but is concerned the company may be pressured by a general slowing of new store openings among some of the open-air anchors [and Sakwa believes that ground-up development yields will continue to feel pressure due to that slowing]. General Growth Properties has seen its shares appreciate quickly this month, as concerns about weak retail sales trends dissipate, Sakwa said. Over the past month, shares of the company have risen nearly 9%. Shares closed Wednesday at $48.22 and Sakwa thinks a fair value is $48. Kimco Realty has also seen its shares appreciate, as the company has taken a more aggressive stance toward growth. In the last three months, shares have increased 16% to close Wednesday at $42.72. He says a fair value is $42. Sakwa stressed that the company's outlook is still very positive, and is downgrading the company solely on its share price. "The company is trading above its historical average and well above its peer group," he wrote. On 9-13 Realty Income [O] announced an increase in it's monthly dividend to $0.125875 per share from $0.12525 per share. O announced a div increase last month also. On 9-19 Lehman Brothers Downgraded GGP from Overweight to Equal-weight. On 9-14 Ferris Baker Watts Downgraded BFS from Buy to Neutral. On 9-14 JP Morgan Downgraded EQY from Neutral to Underweight. On 9-22 Bear Stearns Downgraded EQY from Outperform to Peer Perform. On 9-21 Ferris Baker Watts Initiated coverage of CDR at Buy. On 9-19 Lehman Brothers analyst David Harris wrote in a note to clients that REITs' net asset values, or assets minus liabilities, continue to rise. REITs reported higher net asset values when they reported second-quarter earnings, Harris said. Harris raised his price target on Developers Diversified Realty Corp. (Overweight) to $60 from $58; on Kimco Realty Corp. (Equal Weight) to $40 from $37; on Kite Realty Group Trust (Equal Weight) to $17 from $16; on Macerich Co. (Overweight) to $83 from $75; and on Simon Property Group Inc. (Overweight). On 9-29 Stifel Nicolaus Downgraded WRI from Buy to Hold, Downgraded NXL from Buy to Hold, Downgraded FRT from Buy to Hold, Downgraded b>EQY from Buy to Hold, and Upgraded RPT from Hold to Buy. GE Real Estate Agrees to $2.2 billion Deal Reuters 9-27 The real estate arm of diversified conglomerate General Electric Co. agreed to buy a $2.2 billion portfolio of U.S. industrial, residential and commercial properties. GE, the world's second-largest company by market capitalization, said it expects the deal to buy 147 properties from a unit of privately held Crow Holdings to close by the end of the year. The portfolio consists of 112 industrial buildings, 19 retail centers, eight multifamily properties, six hotels and two office buildings across the United States. GE said it would sell the 19 Crow retail centers to Kimco Realty for about $920 million. Crow Holdings, which directs the investments of the Trammell Crow family and its partners, said it began exploring the idea earlier this year given market conditions and the tremendous volume of capital seeking real estate assets. "We believe it was in the best interests of our partners to capitalize on today's attractive investment sales market and generate very strong returns for our partners," Bob McClain, head of Dallas-based Crow Holdings' real estate group, said in a statement. Mall REITs' Winning Streak Cools Ryan Chittum, WSJ 9-06 Shopping-mall real-estate investment trusts have spent most of this decade on a phenomenal run. But so far this year, the shopping-mall REIT sector is up just 3.9% while REITs overall are up 18.2%. What gives? For one thing, it's hard for any sector to continue a long winning streak. Shopping-mall REIT shares have far outperformed the REIT average for five straight years -- no mean feat given that the REIT average has crushed the Dow Jones Industrial Average and the S&P500 index since the start of 2000, soaring 142.1% while the Dow is down 0.2% and the S&P 500 is off 10.6%. During those six-plus years, mall REIT shares have skyrocketed 271.1%. In addition, malls are going head to head against other commercial real-estate sectors -- such as office and apartment REITs -- that are seeing their fortunes soar after having been hammered by the 2000-2001 recession and the weak recovery that followed. Real-estate investment firm Cohen & Steers Capital Management lowered its mall REIT holdings by some 10% to 15% in the second quarter. "We lightened up in malls," says James Corl, executive vice president at the New York-based firm. "We're seeing better relative growth opportunities elsewhere within the REIT sector." Cohen & Steers, for instance, raised its holdings in Equity Office Properties Trust by 31% in the second quarter while cutting its holdings of mall REIT Taubman Centers Inc. by 61%, according to Thomson Financial. Another thing hurting mall stocks: Consumers' worries about rising interest rates, a deflating housing bubble, high gasoline prices and a slowing economy. Matthew Ostrower, an analyst with Morgan Stanley, says those are hurting mall stocks more than they will hurt mall-company performance because hedge funds and other shorter-term investors have poured into REITs in the past few years, and many such investors believe that malls are more vulnerable to short-term consumer-spending trends than he believes they really are. Mr. Ostrower and some other analysts believe the mall sector is still fundamentally strong, and while the days of far outpacing overall REIT growth may be over for now, it still has a number of things going for it. In fact, Mr. Ostrower argues that malls are one of the more defensive real-estate bets against economic softness because mall leases turn over every seven to 10 years, and rents and occupancy rates tend to be more stable than those in offices or apartments. Greg Andrews, an analyst with Green Street Advisors, notes the sector hasn't had much happen in the past year, except for bad news from Mills Corp. Mills' stock has plunged 58% so far this year on accounting woes, cash-flow problems and a Securities and Exchange Commission investigation. The company is exploring a sale of all or part of itself. Moreover, there haven't been any privatizations or mergers in the mall business in nearly two years, unlike in other sectors like office, which has been seen as undervalued at a time when private-equity firms have cash to invest. "It's not so much that the mall sector is doing poorly," says David Contis, chief operating officer with Macerich, a mall REIT. "It's just the other sectors are finally catching up and they're heating up in terms of stock performance." Some of the underperformance is because of factors not specifically related to malls. General Growth Properties missed earnings expectations in the second quarter, for example, because of lower-than-forecast land sales from a division it acquired in 2004, contributing to a 2.4% drop in its stock price so far this year. General Growth declined to comment. Mills's problems also have depressed the sector's average, though its problems stem from aggressive accounting and development practices, not retail fundamentals. Taubman is the major mall REIT faring best this year, mainly because investors view its luxury portfolio, with properties including the Mall at Short Hills in New Jersey, as being better able to withstand hiccups in consumer spending. The Bloomfield Hills, Mich., company's shares are up 17.1% this year, though they still trail the overall REIT average. Mall REITs have benefited this decade from a variety of factors, including the fact that mall values were battered in the late 1990s by the rise of Internet retailing and the prematurely prophesied death of the mall. "As with any long run, it's generally preceded by a period of underperformance and fears that the business model was going down the rat hole," says Mr. Corl of Cohen & Steers. "That's where the mall rally began." The sector also consolidated rapidly in the first few years of the decade. By 2004, more than 80% of the best-performing 400 malls in the U.S. in terms of sales per square foot were owned by a handful of REITs -- a stark change from 10 years before, when the industry was populated with a myriad of private regional players. Consolidation gave the mall companies more leverage in their dealings with big retailers such as Gap Inc. and Limited Brands Inc. Meanwhile, construction is still restrained and there are fewer malls in the U.S. than there were 10 years ago, according to the International Council of Shopping Centers, a trade group. While there are still about 1,100 shopping malls in the U.S., only about two new ones open each year, limiting competition for shoppers' dollars and increasing the value of existing malls in good locations, which helps mall stocks to gain value. Mall REITs have focused on boosting earnings by raising rents as leases turn over and by pouring money into the redevelopment of existing properties. "Lifestyle centers," which are higher-end, open-air malls that typically have one or no anchor stores, are the biggest source of new supply, making up 64% of new retail that competes with existing malls, says Morgan Stanley's Mr. Ostrower. "Mall fundamentals are very, very positive in the U.S.," says Cohen & Steers' Mr. Corl, "and I think they're going to stay good." Home Page Previous REIT Update Top Sites |