EOP
Vornado is expected to top Blackstone's bid for Equity Office Properties. The bid will likely be $55 to $57 per share. Analyst's estimate EOP to have a FFO of $2.35 per share in 2007. This puts the sale at a multiple of 23 to 24 times expected FFO, much higher than EOP's recent low teen multiple. I am not sure of Vornado's interest other than principal ego.

As public company Vornado will be more constrained in its use of leverage than Blackstone. Private equity firms buy REITs so that they can take the leverage from 40% to 50% to a level of 70% or more, the proceeds of which make a nice payday for the private equity firms. Vornado, as a public company, would be punished by the markets if it tried this leverage play.

Restless Leg Follow-up
I got a few hate mails on a post last fall on Restless Leg syndrome. The post was directed to the marketing of the drug for Restless Leg but suffers of the syndrome took offense. NBC news had a segment tonight on how well the drug company GlaxoSmithKline marketed its drug that fights Restless Leg. This was supposed to be the point of the original post (that I didn't do very well gaging from the response). It was not supposed to be that Restless Leg does not exist, but that Glaxo did such a fantastic job creating a market that was not previously there. From the NBC broadcast:

But in the process, Glaxo also identified a market and began introducing Americans to a problem many people didn't realize they had, or had never mentioned to their physicians.

Good luck to the suffers of Restless Leg, but be careful of the big pharma marketing machine.

The The
I saw a new M&M commercial last night that used The The's song This is the Day. I was amazed and immediately went to iTunes to verify that it was The The. It is a really cool but obscure song. Props to the marketing guys at M&M for digging up this song. A great The The song is Uncertain Smile from the same album, Soul Mining. It is 80s independent/new wave/college/alternative music at its very best.

EOP Update
I received this email:
"I went looking for an FFO estimate for EOP. Its website had the 06Q3 10-Q, which includes guidance of $1.59 to $1.74 per diluted share (see p. 10(d)). Elsewhere it says that the FFO figures quoted are net of the effect of some impairment and severance charges. I didn’t spend a lot of time searching for a full year estimate of these charges, but p. 10(b) notes that they amounted to $0.54 per share in Q3.

Midpoint FFO multiple: 32.3

Multiple based on midpoint adjusted for Q3 charges: 24.4

Seems Sam is selling pretty dear!"

I am not an expert on EOP, but I think it recently cut its dividend and has been a disappointment to Wall Street due to lackluster growth and lack of synergies or economies from recent acquisitions. Whether EOP's multiple is 32 or 24 times FFO it is much higher than the typical REIT FFO multiple of 8 to 14 times earnings. EOP's anemic performance makes the multiple that much more impressive. Sall Zell's new nickname will be Snake Charmer, not Grave Dancer.

Thoughts on Dividend Capital
I went to Dividend Capital's broker/dealer meeting last week. I was impressed with Dividend Capital. (The successful IPO of its industrial REIT in late 2006 helped.) The sales staff is polished and professional, and management seems focused on diversification and paying the dividend from operating cash flow. Whether they know that this is a major consideration for some analysts or not, they do seem to talk about it without provocation. (The industrial REIT, Dividend Capital Industrial Trust (DCT), has its first earnings conference call since going public late last year on February 20th. I plan to listen to the call to hear about the dividend and FFO.) If there was one knock on the meeting it is that the presentations were light on hard data. No FFO figures. No cap rates. No credit ratings. The Wall Street analysts on the earnings call will want this data.

Does This Make Sense?
I went to Dividend Capital's meeting for due diligence analysts and other broker/dealer home office personnel. One take away was that the Dividend Capital's new REIT, Total Realty Trust, raised over $100 million last month. I was told that this high level of capital was from investors selling Dividend Capital Industrial Trust (DCT) (that had an IPO in December) and buying Total Realty Trust. (Total Realty Trust raised approximately $150 million in its first six months.) Investors are selling a publicly traded stock, that is fully invested and paying a solid dividend, to go into a non-traded REIT that is not fully invested and paying its dividend partially from reserves. This does not make sense. Brokers have to be recommending this switch - two commissions in less than five years. These are good brokers, the kind you'd refer to little old ladies.

FFO of Recent Deals
If I am doing the math right, CNL's Hotel REIT had an annualized Funds from Operations (FFO) of $.72 a share. At a $20.50 sales price, the REIT was sold at 28 times FFO. Good deal for investors if that's the case. How much value was in those 50-plus hotels Morgan Stanley sold as part of the acquisition. I received Inland's proxy material for its non-traded REIT that is being acquired by Developer's Diversified Realty Corp (DDR), and that acquisition looks like it is being done on a multiple of 14 times FFO. Dividend Capital's DCT Industrial Trust has annualized FFO of $.60 per share and trades at $12 per share after its recent IPO, a multiple of 20.

A lot of FFO talk, but FFOs are like P/E ratios, the higher the growth potential the higher the FFO should be. I think the one to watch is DCT's FFO as that is traded every day and the other two have set prices. The market seems to think the multiple is OK, but REITs have historically traded in the 8 to 12 times FFO range, which would value the DCT stock much lower than current prices.

CNL Sells its Hotels
CNL has agreed to sell its hotels to Morgan Stanley. The sale price is $20.50 per share, which due to a reverse stock split CNL did in advance of an aborted IPO several years ago, is about what investors paid for their shares. (I think this is what happened.) This appears good for CNL and for investors and a positive end to an ugly part of CNL's history. The IPO failed, in part, because CNL had overvalued its management company as part of the transaction. CNL was expecting an IPO price over $20 a share but pulled the deal when it was priced at $12 to $14.

This is Going to be Interesting
The bidding for Equity Office Properties is heating up. Two articles, here and here, detail the latest bid. I need to figure out the FFO (Funds from Operations) multiple to see the insanity of this bidding war.

Shoulda, Woulda, Coulda
Mills Corp, the troubled super-mall developer agreed to be bought today by Brookfield Asset Management. Mills' stock tanked earlier this year due to financial problems but stabilized around $17. I thought about buying it as a deep discount turnaround play, but did not. Brookfield is paying a 21% premium to Mills' stock price yesterday, and its stock has not dropped, indicating the market feels Brookfield is not overpaying.

No Brainer
Here is an article on the weak condo market. Many condo owners can't rent their units for what their mortgage payments are. Not surprising. Real estate is about rental income, and prices will fall (or rents will increase) until investors can earn at least 7% on their equity.

DCT - DCT Industrial Trust
DCT is the symbol for Dividend Capital's recent IPO of its first (formerly) non-traded real estate investment trust. Dividend Capital syndicated the REIT in 2002 and 2003 at $10 per share. The stock since its IPO last month has traded over $11, off its IPO price of $12.25, but higher than the $10 investors paid. Not too bad. I will get more information on the dividend yield and estimate an overall return for investors, but I think this IPO has raised the bar for other sponsors of non-traded REITs by offering a successful liquidity event in such a short period of time.

New Computer
This is my first post with my new MacBook Pro. I could not take the slowness of Windows any more and am making the switch to the Apple platform. The darn iPod and iTunes are the culprit, they are so easy to use it made the decision easy.