Monday, June 15, 2009

Has The Merrill REIT Equity Offering Well Run Dry?

In a surprising development on the REIT scene, today the Omaha World Herald announced that Merrill REIT group darling Simon Property Group is selling the Crossroad Mall in Omaha on 72nd and Dodge Streets. With tenants such as Finish Line, LensCrafters, Old Navy, Victoria' Secret and near bankruptcy Claire's, it is not too hard to see why the mall has fallen on hard times.

What is mildly troubling is that Crossroads is located less than three miles away from the famous Borsheim's store at 120 Regency Parkway where the annual BRK B share circle jerk takes place, and where Becky Quicky has a lifetime 100% discount.

What should be much more troubling (especially to holders of REIT stocks), is that instead of simply doing a tactical drive by follow on offering (we are talking $$$ peanuts here), SPG is forced to stoop to the level of actually selling assets for cash. What's wrong - not enough ammo left to institute a little REIT short squeeze? Someone is slipping.

Back to the mall - Omaha Herald notes that the price will be "market value" and that in 2002 the mall was appraised for $57.1 million "according to a JP Morgan" report. Add this to the increasingly larger number of CRE market tests currently percolating in the market place: someone may be very unpleasantly surprised with the price this (and other) mall fetches. Also, whatever happened with the whole premise that SPG would be an acquiror for real estate? Uhm, doesn't this refute both the "logic" of both NAREIT and the most recent Merrill upgrade, and I quote:
"We are moving from Neutral to Buy on Simon given the company’s opportunity to boost external growth (and improve SPG’s core U.S. portfolio) as they prepare to become a major player in the emerging “M&A” market in U.S. retail real estate."
Sooo.... Schmidt was actually referring to the company being a divestor of assets, not acquirer....honest mistake - now it all makes sense. Sphere: Related Content
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