Tuesday, February 24, 2009

Goldman Slams Commercial REITs

Summary from report:

"Commercial real estate trends are eroding at a pace indicating that occupancy and rental declines should match the deep recession of the early 1990s. To that end, we ran a “stress test” for the 36 companies under coverage and now expect a 25% decline in earnings in 2009/2010, far below Street growth forecasts. Moreover, we expect most companies to reduce dividends to help address debt rolls of more than $100 bn into 2012."

Punchline: $26 billion of debt comes due in 2009/2010. Even with all REIT dividends converting to 100% stock/0% Cash, this measure would satisfy at best 25% of needed cash to pay down upcoming maturities. In our opinion a massive wave of commercial REIT defaults is expected.

ZH still thinks SRS is a terrific investment vehicle as this industry unwinds, despite the embedded weaknesses of a double negative ETFs (and yes we do hold a position).

Full report here. Sphere: Related Content
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Anonymous said...

ZH: Love the blog, and appreciate you posting these reports. Thanks.

Soon these REITs and hotel stocks are going to trade as long dated call options on surviving refis. Hotels are already trading at these levels.

Anonymous said...


Because of the weakness of the double negative ETFs (long-term mathematical bleed-off), you are much better off shorting the double positive ETFs.

For example, shorting URE (ultra real-estate) has given 48% returns over the last 3 months vs -43% returns for SRS. Better yet, short them both.

Anonymous said...

URE is now at 2.84. not much meat left.