Commercial Real Estate - Part #2

It is now time for Part 2 of the Commercial Real Estate discussion. I elaborated on some of the reasons why I don't like Commercial Real Estate (archive 3/15/09) and now I want to provide some names, for discussion. This analysis focuses primarily on the financial health and liquidity of these REITs. The analysis considered the following REITs: Healthcare, Industrial, Diversified, Retail, Office, and Hotel/Motel. My overall goal was to determine which REIT's had the biggest liquidity issues, concentrating around cash levels and short-term/long-term debt obligations. The key metric I used was Cash per Share / Current Market Price and used a filter to include any REIT that had a ratio -0.10 (or worse). The first 10 on the list are in big trouble; however, the list is comprised of about 65 REITs. A few that catch my eye (as challenged) are WRI, AIV, and MAC.

I tried plowing into MAC this week, in hopes to catch a short squeeze, and as a result, I flat out failed. This stock is heavily shorted and for probably the right reasons. MAC doesn't seem to have a great balance sheet. As of the 12-31-2008 balance sheet, the firm had only $66 million in cash on their balance sheet. I believe now that cash level is higher, around $166 million; however, the debt is very heavy. MAC’s debt levels were astronomical, possessing about $5.6-5.8 billion in debt. According to the balance sheet, $2.3 billion of that is short-term and $3.7 billion is long-term debt. MAC has no short-term investments and have only $1.2 billion in long-term investments. MAC does have a line of credit, valued around $400 million, but the problem comes with the debt owed. This year alone, MAC has nearly $600 million worth of debt due and additional $775 million due in 2010. After 2010, MAC has nearly $3 billion in debt due for the next 2-3 years. With that being said, MAC will have a challenging time and will probably sell great assets to cover, for the lack of cash. If they are able to get equity financing, it will be very dilutive, leaving the firm to have a tough future.

The link below will provide you with a list of the REITs in the analysis, ranked by the metric. Feel free to leave a comment or e-mail.

http://www.docstoc.com/docs/4951704/?key=Mjg2MWQwZDQt&pass=NjBkZi00ZDU4