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As If On Cue, Goldman Upgrades REITs As It Pumps Commerical Real Estate Offerings

Reggie Middleton's picture




 

As predicted by Zerohedge (see Is Goldman Preparing To Upgrade The REIT Sector?) and probably preordained by their underwriting of REIT debt a couple of weeks ago (see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off), Goldman Sachs has upgraded the US REIT sector, and put a buy recommendation on Taubman.

If
I were you I would keep my eyes open for additional Goldman
underwritings in the REIT space in order to help said entities out of
their bad debt dilemma, which of course doesn't exist since Goldman
just recommended that we buy these companies. That is, until said
analysts/strategist leave the employ of their respective bank - then
all of a sudden the truth comes out.

Don't believe me, see the off Broadway version of the "Pump 'em and Dump 'em" play - "Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!." Don't forget to notice the change of heart of the head REIT analyst right after he leaves Merrill Lynch.

Of
course, Wall Street analysts have absolutely nothing to do with their
investment banking, broking and trading brethren, Right????

The
post on Macerich that I released for a few hours yesterday had a
material data input error causing some of the unconsolidated numbers to
be off. It is being corrected and I will re-post it once it is fully
checked.

 

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Thu, 12/03/2009 - 17:48 | 151459 Anonymous
Anonymous's picture

Accuracy is important, so I commend you for taking some more time to go over the numbers.

If you need help, posting your valuation assumptions would be a good place to start. At the moment, I believe that the discount rate on a portfolio basis for regional malls would be in the 9% range, however, each asset may range from 7% up to 10% for the dogs.

The mall owners are really good at capturing increases in tenant sales through percentage rent clauses. Significant portions of their income is from % rent as sales have continued to grow, up until now. % rent can be up to half of the income from a mall, especially for the older anchor deals that have low base rents.

Some malls are offering rebates back to select tenants to keep them going. We have not seen the volume of transactions that we thought would see this year. 2010 seems to be shaping up as a more active year.

Thu, 12/03/2009 - 20:28 | 151667 Reggie Middleton
Reggie Middleton's picture

There are two analysts working on it and one of them made a double counting error on a subset of the unconsolidated properties that got past me and the QC person. There was a changing of the guard with my analysts and I'm pissed that it happened but mistakes do happen, no one is perferct, and it was only out for a few hours. I have the reworked set now, and am giving it a once over. The data input error did not cause a material change in the valuation nor the investment thesis - but it was a material error nonetheless. Trust me, my stuff is heads and shoulders over what many institutions actually consume from the sell side, many of which are paying subscribers.

The assumptions are available, but I do not distribute them publicly (you have to pay for something and there are at least two man months each of work that go into building these models). We canvassed brokers, the REITs themselves (who are generally quite uncooperative), and databases that are popularly used. When in doubt, I always err to the conservative side. Rates used are more optimistic than you suggested (in many cases) and we add premiums to the rent figures when in doubt. I always choose to be conservative. Each and every single property is modeled individually.

Thu, 12/03/2009 - 15:50 | 151227 Anonymous
Anonymous's picture

Geithner and Obama - Blankfien's Bitches

Thu, 12/03/2009 - 15:27 | 151162 Joanito
Joanito's picture

fascinating...  Amazing that they didn't put any ammunition manufacturers on their conviction buy lists a few weeks back, especially with the foreknowledge that GS was starting their glocks for investment bankers campaign.  Those ammunition guys are actually earning a windfall.  But I guess that investing based on funamentally positive earnings and not subsidies and underwriting chicanery is dead and buried....   for now

Thu, 12/03/2009 - 15:23 | 151145 TheGoodDoctor
TheGoodDoctor's picture

Cramer just chatised Goldman for doing a similar thing with Dole last night on his show. Basically doing an IPO and then coming out with a Neutral rating on the stock.

Thu, 12/03/2009 - 15:19 | 151137 bugs_
bugs_'s picture

Dump them.

Thu, 12/03/2009 - 14:42 | 151055 E Thomas St.
E Thomas St.'s picture

After Dubai last week REITs have been on an absolute tear. It's kind of disheartening too because I was hoping that would be an inflection point to go short but nope, not this time.

Thu, 12/03/2009 - 15:31 | 151172 Gilgamesh
Gilgamesh's picture

Dear Lord (Blankfein), please let the REITs end red on this here day of thy upgrade.

 

Thu, 12/03/2009 - 15:52 | 151235 E Thomas St.
E Thomas St.'s picture

Haha, I'd send that holiday card.

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