Wednesday, December 13, 2006

reit mania / what are buyers thinking...?

to me this looks like another bubble. i suggest to read more (economist etc. on the topic (look at the label at the bottom of the post)
das sieht mir doch sehr nach nehr neuen blase aus. ich empfehle mehr darüber zu lesen. bitte auf das label am ende des posts achten)
WALL STREET has managed to post some pretty impressive gains in 2006. But again, the market for real estate investment trusts has beaten most stocks, as large investors pumped reams of capital into companies with large holdings of commercial property and, in some cases, gobbled up entire portfolios in private deals.

REIT mergers and acquisitions, in fact, have reached record levels this year. Some 22 transactions with a total value of $102.8 billion (including the assumption of debt) have been announced according to the research company SNL Financial, compared with 11 deals valued at $28.8 billion for all of last year and a total of $92 billion in transactions for the last six years combined.

“Everyone thought 2005 was a big year — and relative to prior years, it certainly was — but 2006 was in a completely different ballpark,” said Keven Lindemann, director for the real estate group of SNL Financial.

The deals this year have included the "Blackstone Group´s $ 36 billion"plan to acquire Equity Office Properties Trust, the nation’s largest owner and manager of office buildings, in what would be the biggest leveraged buyout ever. Earlier this year, Blackstone, a private equity firm and the biggest player in the real estate takeover scene, also agreed to acquire Carr-America Realty for $5.6 billion and to team up with Brookfield Properties to buy Trizec Properties for $7.2 billion.

The onslaught of takeovershalf by private companies, half by other public REITs, and often at premium prices — has helped to lift prices of most REIT shares, .....

All of that activity, though, took Mr. Adornato and others by surprise. “Coming into this year, we had thought that economic fundamentals alone would justify total returns of about 5 to 15 percent for REITs over all,” he said. “However, the wild card that’s impossible to price is the appetite for real estate from private institutions.”

...... “This has completely turned the investment world upside down,” he said of the influx of capital into dividend-paying REITs. .....come from big institutions, including private equity funds and both public and private pensions. ( but the dividends are les than risk free yield..../ aber die dividenden liegen unten denen von staatsanleihen....)

make sure you read this "piece from mike larson"

The top-performing REIT sectors for the year so far were offices, up 45.18 percent, and apartments, up 42.55 percent. The apartment sector continues to benefit from the reduced affordability of single-family homes; this has caused many people to defer home buying. Among other categories, the health care sector was up 39.49 percent and the self-storage sector was up 38.13 percent.

This is likely to be the seventh consecutive year that REITs eclipse most categories of stocks, according to the association. (By the calculations of Bear, Stearns, the REITs’ gains have been about 315 percent over those seven years.)

Analysts say the prolonged REIT rally is poised to continue, so long as the economy remains healthy and interest rates relatively low. (good luck ...../ viel spaß....)

“What’s happened very simply is that the private real estate markets are valuing the assets held by REITs at a much higher value than the public securities. Then you combine that with the fact that there is a huge amount of capital looking for a home.” (excess!)

Even some analysts think that prices of REIT shares have room to grow. “The analytical community was basically too shortsighted” ....
Large institutions — which have the added advantage of using leverage to increase returns by tying up less of their money ........
REITs own more than $475 billion of commercial real estate assets, .....
For institutional investors, the attraction to commercial real estate, and REITs in particular, has grown steadily over the years, though Mr. Grupe of the REIT association said that lately “there seems to be a growing sense of urgency to accelerate the allocation to real estate.”(juts as the prices are skyhigh..../ genau zum zeitpunt als die preise extrem hoch sind....)
It is almost as if they are playing a game of catch-up. “

Indeed, the California Public Employees’ Retirement System, known as Calpers, the largest public pension fund with more than $200 billion in assets, has been increasing its overall REIT allocation, particularly into global REITs. And last summer, the $144 billion California State Teachers’ Retirement System, the nation’s second-largest public pension fund, announced that it would allocate 11 percent of its portfolio assets to real estate, up from 6 percent.

Mr. Grupe, meanwhile, is concerned about the heightened merger-and-acquisition activity. “You have something very powerful that’s under way,” he said, “and just setting real estate aside, you oftentimes have these things come to an end in a manner that is not particularly pleasant.”

While not intending to infer any direct comparisons, he readily recalled the frenzy after the dot-com bust in the early part of the decade.

I think you’re going to see some of these private companies come back as REITs in five years,” Mr. Taylor said. (for sure with much much more debt.../ dann sicherlich mit tonnenweise schulden....)

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