"LONDON -- Lack of financing and a deteriorating U.K. economy are forcing funds and real-estate investment trusts to boost cash flow by selling assets at rock-bottom prices."
The number of institutional asset sales have nearly doubled in 2008. English REITs have started selling assets at a discount to increase their equity positions. Increased liquidity is needed to address the implications of the current economic downturn as well as the redemption requests of investors. This trend will likely continue through 2009.
According to the article, British Land Company PLC (LON:BLND) has disposed of over US$1 billion of assets. It would be safe to assume that the "fire sales" will continue.
The problem of insolvency of REITs worldwide is starting to become apparent. Earlier this year, Australian REIT, Centro Properties Group (ASX: CNP), filed for bankruptcy protection to reorganize. Centro has until December 15 (approximately 2 weeks) to pay off a US$5 billion debt. If they are not successful in negotiating an extension, federal regulators will begin the process of taking back the 700+ retail malls owned by Centro.
I'm wondering when American REITs will start selling off significant chunks of their holdings. There is significant pain in all product types (office, industrial, retail, multifamily), but we have not seen any "fire sales" yet.
This is surprising considering the state some of these REITs are in.
General Growth Properties (NYSE: GGP), the nations former largest retail REIT, was well on the path about to file chapter 11. However, with Morgan Stanley (NYSE: MS) investing a 5% stake in the company (announced 5 hours ago), GGP might get the refinancing they need to stay afloat... for now.
Prologis (NYSE: PLD), the nations largest industrial REIT, has halted all construction. With significant vacancies looming in the horizon, investors are scared that they will not be solvent in the months to come.
Both GGP and PLD have seen over 90% declines in their market capitalization.
-ML
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