Many REITs are in trouble.  That is becoming the understatement of the year.  The REITs doing better in today’s environment are the ones whose projects are already built and those that were fully leased.  This is particularly true of retail and office REIT structures where investors are starting to become more risk adverse.

General Growth Properties, Inc. (NYSE: GGP) has been among the worst performers of retail and multi-use REITs.  Last week was deemed by many as the apex but that didn’t hold.  The company has secured additional funding in recent weeks, but is still back in the barrel.  Financing needs apparently still prevail and last week executives had to sell shares to cover margin calls.  Now, it is reviewing strategic alternatives and shares are down again.  In summer these shares were north of $40.00 and in the first half of 2007 this was a $60+ stock. On September 12, this was at $27.55.  Last week it closed as low as $19.92 before Friday’s recovery.  Shares today are down 17% at $17.70.

Kilroy Realty Corp. (NYSE: KRC) has significant exposure to the woes oftoday as many of its office properties and industrial properties are in Southern California.  Live by the sword, die by the sword.Shares of this REIT are down almost 4% today at $50.25 and are downabout 27% from highs seen in late 2007 and down over 40% from early2007 highs.  Until things begin to improve in California, it’s justhard to get excited here.  The good news is that once things begin toturn Kilroy could see a leveraged gain due to its geographies.

Developers Diversified Realty Corp. (NYSE: DDR) has also been under thehammer before its recent stabilization and recovery.  Shares are downalmost 7% today at $33.52, and this stock was almost at $60 a year ago andtraded north of $70 in early 2007.  It owns and manages shoppingcenters, mini-malls, and lifestyle centers.  Shares are down over 40%from 52-week highs.  With a cash-strapped consumer, many have steered clear.

SL Green Realty Corp. (NYSE: SLG) has felt the punch with shares havinglost more than one-third of their value before today’s 6% drop to$69.00.  Its office concentration is in New York City, Brooklyn, and thesurrounding areas.  This traded hands for more than $150 in early 2007.

We are starting to hear more about the fallout on Wall Streetstarting to impact a previously very strong New York realty market.  Sofar most of the commentary around prime New York real estate has beenon fear rather than actual carnage.  With so many on Wall Street beingshut down or downsized in their mergers, bailouts, closings, and thelike, you can only imagine what may come if the trends of 2008 continueinto 2009.

Even here in Houston where the market is said to be better thanelsewhere, many vacant retail locations in the downtown area or innearby shopping areas has confirmed that some leases can be had forabout 60% or 65% of levels early in 2007.

Many of the larger REITs have staved off the economic woes.  So far most have been able to keep up their dividends, and many yield more than 6% now.  Some are even higher.  But much of that is based upon share prices having come down.  We’ll be sending more and more data on REIT shares in the coming weeksas those investors who have sought dividends are becoming increasinglyworried about their exposure to many office, corporate, and retailREITs. 

The good news so far is that overall things haven’t gotten asbad as they have in other sectors (particularly the finance sector).The bad news is that things can get far worse, particularly if those prized dividends get cut too much.

Jon C. Ogg
September 22, 2008

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