REIT Shares Fall On Renewed Liquidity Fears

   By John Spence 
 

Shares of real estate investment trusts, which have been pummeled so far in 2009, were down again Monday on fresh liquidity worries after mall giant General Growth Properties Inc. said it is in default under multiple loans.

Commercial real estate stocks have gotten off to a dreadful start this year. The SPDR Dow Jones Wilshire REIT ETF (RWR) through Friday was down 30%, trailing the S&P 500 Index (SPX) by nearly 16 percentage points, according to investment researcher Morningstar Inc. The ETF was off over 5% in midday trading Monday.

Troubled mall owner General Growth (GGP) in a regulatory filing late Friday said it is currently in default under certain of its loans. The stock was down about 9% to 42 cents at last check Monday.

"The firm reported that - despite these defaults - none of its lenders have yet taken steps that would require it to immediately file for bankruptcy protection," Morningstar analyst Todd Lukasik wrote in a research note Monday on General Growth's filing.

"Still, it appears to be just a matter of time before this firm is forced into bankruptcy, as the head winds of reduced consumer spending, excessive leverage, and unreceptive credit markets are too much to bear, in our opinion," the analyst said.

General Growth is scheduled to release quarterly results after Monday's closing bell. The company's descent has stood out even in the decimated REIT sector, where the stocks have been thumped by the recession, declining property values and rents, and turmoil in the debt markets.

Shares of the SPDR Dow Jones Wilshire REIT ETF hit an all-time high of $100.28 in February 2007. It was trading hands at $26.74 in recent action Monday.

Developers Diversified Realty Corp. (DDR) was down 5% after the retail REIT said it swung to a fourth-quarter loss after charges. Like General Growth, the company's stock has been hit hard by liquidity concerns.

Developers Diversified's board of directors has approved the payment of the company's first-quarter dividend in a combination of cash and common stock.

"While our financial results were lowered by significant impairment charges and certain other non-recurring charges, our core operating results were in line with expectations and continue to display relative stability as we weather these unprecedented economic challenges," said Chief Executive Scott Wolstein. "We made progress in the fourth quarter, but are extremely focused on further improving our liquidity and lowering leverage."

REIT shares could fall further if the economy continues to weaken and the companies are unable to resolve their financing problems. The stocks are underperforming the broader market "as the stimulus catalyst passed and the reality of a still weakening economy and a still dysfunctional credit market remains," said Deutsche Bank analysts in a note to clients.

-By John Spence, 415-439-6400; [e-mail]