Deverloper Diversified Realty Corp. which has over $5 billion in debt, and announced results last week, just got the gentle nudge from a Merrill Lynch analyst, who raised his price target on the company by almost 100%, from $2 to $3.50, as the company "continues to make progress towards deleveraging its balance sheet." Of course, the chicken or egg nature of the problem is unmistakable as DDR will likely need to raise outside equity (presumably with certain Bank Of America entities' assistance) in order to deleverage its balance sheet. Either way, expect DDR to come to market with an equity raise announcement any minute as the "rally" is starting to act in some unpredictable ways, and with DDR only having 10 million shares short left to squeeze (of which quite a few likely covered in the last two weeks), timing is of the essence.
The company is, of course, feverishly trying to raise capital by all other means possible as well, in which the Otto family bought 15 million shares for $3.50 (the wholesale burning of new money chasing old, deep underwater REIT investments is the new black), and also giving away warrants struck at $6. That's not all. As Mr. Schmidt himself points out:
In addition, a $60 million five-year loan provided by an affiliate of the Otto family replacing the $60 million bridge loan entered into last month with the Otto family will close along with the other debt and equity closings. Proceeds from the bridge loan and asset sales were used to purchase more than $150 million of DDR’s bonds in March when discounts to par were attractive.
DDR also sold more than $67 million of assets in the first quarter at a weighted average cap rate of 8% and they currently have over $175 million of assets under contract or subject to letter of intent, which should result in the company being able to hit its target of $200mn of asset sales in 2009.
In addition to the $112mn of equity DDR raised from the Otto family, DDR has in place a continuous equity programming [sic] and they have the capacity to issue over $150 million worth of new shares.
ZH presume the "programming" was merely a Freudian slip here. Bottom line is that it is likely only a matter of time before ML manages to sell this fabulous "story" to some more naive investors after they generate some solid additional reverse inquiry from one or less seed investors.
And lastly, let's not forget that it was none other than DDR's CIO David Oakes who disclosed on the very same April 24th conference call this very cryptic implicit support from Mr. Bernanke himself:
"And I would like to add – to chime in here too, Jim, that I was at the real estate roundtable meeting the other day and we spent a few hours with Ben Bernanke, and he's pretty confident that we're going to see this help program for CMBS up and running within a few weeks; and very helpful that that's going to start to create a little bit of liquidity in the CMBS market, and we're in the queue with one of the major investment banks to do a significant self-financing when that becomes available."
All is good, especially when one considers that before his current post at DDR, David Oakes was a portfolio manager at ... Cohen and Steers.