In a funny way (and not necessarily the right way) the CIT program announced today might drive people to invest in REIT's. Traditionally banks were seen as safe havens....got a solid steady return and didn't go up or down too much.
Given that shareholders will lose big time in this deal (including preferred) people may look at the banks and decide they want to go elsewhere. Where to go if you want dividend returns? Well utilities and phone companies will be attractive. Some consumer stocks.....and REIT's & MLP's may start to look more attractive - especially given the beaten down state that they are in......Investors may look at it that the government may nationalize my bank....and then make loans to the REIT's that need financing.
Strange day today in the market. Glad that I got more PEI at 3.16, but really wondering when we will see the bottom.
The fear of default is the main driver pushing the stock price down. Here is the transcript of the cc to put away those fears:
Question by Michael Mueller – JP Morgan And then going back to the question about leverage at year end approaching 70%, I mean how should we –
Answer by Robert F. McCadden I don’t think we said that. We didn’t say that. I think we said we are currently, believe we are beneath 55%, we approach 65% at the middle of the year and we exceed 65% toward the end of the year, but I don’t think in any of our estimates did we get close to a 70% threshold.
Michael Mueller – JP Morgan Okay so implicit in the idea that you would break the covenant if you are two quarters beyond that end of 2010, is the assumption that you guys are working toward that the credit line gets refinanced or recast this year with new terms that would let you out of that? In which case you're assuming that in your numbers or yes I guess the question is are you assuming the credit line gets redone in 2009?
Robert F. McCadden Yes our expectation is as Ed mentioned, we have begun very preliminary discussion with the banks and we will work diligently over the next couple of months, quarters to complete the refinancing and have a new credit facility in place hopefully by the end of the year.
Michael Mueller – JP Morgan Okay is the remedy to that situation north of 65% for two quarters, more likely to be at this point the redoing of the terms at the credit facility or kicking up extra proceeds from mortgages to pull you back down below that 65%?
Robert F. McCadden Yes I mean all of these things are available to us, certainly as we mentioned we have a fairly wide range of spending in terms of what we are committed for and what we could spend. Otherwise we assess the performance of the company over the next quarter, so we'll be in a much better position to either scale back spending; certainly we can reduce costs in other areas of the company. Obviously, opportunistically, we saw an opportunity to buy back converse with the fourth quarter which allowed us to reduce leverage on that three to one basis, so there's a lot of tools in the toolbox that we have available to ensure that we remain in compliance with the existing covenants.
Well that is a possibility. Beyond the overall financial market mess here is my ultimate thinking on that.
In about 1/2 of their locations they are a primary job sources. They have many regional malls that if they were closed, multiple communities would be impacted (both from jobs and from sales tax). I could easily see them getting 1/2 of their financing from their current backers and getting the other half from local/regional banks and credit unions. The local governments and perhaps even the state government in PA would also work to make things happen. To me that is one negative scenario and even then they pull through.
A worse case scenario would involve forced sales of assets and seizures by banks, etc. But given the situation with GGP (who arguably have some good properties that the banks could sell for real money - along with some that would be tough to sell) its obvious banks don't want to be seizing commercial real estate as their is a limited market for it right now.
Rubin has been doing this for 40 years and if he's not panicking then I'm not either.