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REITs Impacted by Margin Calls
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This excerpt from our latest REIT Weekly
Comments discusses unusual trading in certain REIT stocks impacted
by margin calls on brokerage accounts held by key management officials:
Weekly REIT Comments
10/20/2008
Impact of Margin Calls
For the first time, we are seeing individual
REIT stocks hammered down on news of margin calls for brokerage accounts
owned by key management. Typical is the plight of Macerich CEO Arthur
M. Coppola, forced last week to sell 90% of his Macerich holdings
from his brokerage account. Macerich is now down
(53%) year to date for 2008, with the
stock down (22%)
last week. Developers Diversified, an S&P 500 Index REIT, is
suddenly down (57%)
year to date for 2008, with (13%)
of the damage done last week. No word yet on how much stock was forced
to be sold from the margin account of Scott A. Wolstein, CEO of Developers
Diversified, although management disclosure indicates this is a factor
in the stock price decline. At beleaguered General Growth Properties,
facing investor concern over more than $27 billion in debt maturities,
CFO Bernard Freibaum was replaced following margin calls so extreme that
his account was inadequate to cover the last $3.4 million in margin debt.
General Growth Properties is down (85%)
year to date for 2008.
This type of news is extremely unusual, probably
signaling we are approaching the bottom of the market for REIT stocks during
2008. Unfortunately, investors have no way of knowing when margin selling
is forcing the price of their REIT stocks down, at least not until management
disclosure is made after forced trades are complete and regulatory reports
for changes in insider ownership are filed.
Investors should remember that whether or
not CEO margin accounts are troubled, REITs must still distribute 90% of
pretax income as dividends to shareholders. Yields are now sharply higher
on the REITs impacted by margin calls. Macerich now yields 9.98%
and Developers Diversified 19.48%, the highest yields ever seen
for these previously well perceived Retail REITs. General Growth Properties,
following the abrupt departure of the CFO, chose to "suspend"
dividend distributions for 4Q 2008, although another distribution will
probably be required before the end of 1Q 2009 in order for General
Growth Properties to maintain REIT status.
To obtain a pdf copy of our REIT Weekly
Comments for 10/20/2008, please use this link:
http://www.reitmonitor.net/atlantis/reitwebrpt.nsf/PayBuy?OpenForm&REIT
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