Wednesday, May 19, 2010

Four Dollars and Twenty-Five Freaking Cents
$4.25.  That is the price per share that the Behringer Harvard REIT is now values itself.  The original share price was $10.  I heard rumblings a few weeks ago that a large devaluation was pending.  I have never analyzed this REIT, so I am not sure the valuation is that shocking, but on its face, a 57.5% loss of value is troubling.  Here is a link to the SEC's website where BH posted its document that puts forth the valuation - buried at the bottom of page 26 of a 32 page document. The REIT also cut its distribution to 1%.  The Moody / REAL All Type Property Aggregate Index for commercial real estate shows a 41.8% drop in commercial real estate prices from their peak in August 2007 through February 2010.

Part of the BH document is dedicated to laying out a case that part of its troubles stem from problems in commercial real estate and the greater economy.  There is obviously some truth to this.  But not all real estate firms have lost 57.5% of their value.  Publicly traded Federal Realty Trust (FRT) has gained nearly 19% since the start of 2006.  It pays a quarterly dividend that it has managed to increase from $.56 a share to $.66 a share over the same period.  I know that comparing Behringer Harvard REIT I to FRT is not an apples-to-apples comparison, but I show it to illustrate that while all real estate firms have faced the same economy, using a bad economy and tough real estate market cannot be used to explain away all problems.


Anonymous said...

Even more troubling than the recognized writedown in NAV of 60% and realized hit of 83% in distributions (albeit prior distributions were unsupported from FFO), is the fact that nearly $750mm is due to be refinanced by 2011 and approximately 50% of the leases are due to expire by 2014. The combination of impaired asset values, rolling leases, and imminent refinancing events, will likely result in a recasted Loan-To-Value that will be too high to refinance (est. 80-85%), particualay in today's constrained credit environment. Short of a massive capital infusion, and/or accelerated improvements in underlying fundamantals and related market value, these assets are underwater, and very well may end up as REO bank property--effectively wiping out the remaining $4.25 in share value.

Rational Realist said...

Ouch! Good analysis. I only read the presentation and not the whole 10-k or most recent 10-q. It looks like this REIT has its work cut out for it.

REITs that have sizable debt are going to get hammered when it comes to refinancing. Most just don't have the capital that will allow refinancing.