In a time when GDP is soaring and corporate earnings are supporting record
indexes on Wall Street, things are getting tougher for real estate
investment trusts.
Earlier this week, we told you about cash flow problems putting Prison
Realty's REIT status in jeopardy. Without the dollars needed to pay out 95
percent of funds from operations, as required to maintain the favorable tax
status, Prison Realty has sought outside advisors for suggestions on
improving cash flow.
Now American Industrial Properties REIT has engaged engaged Salomon Smith
Barney, Inc. and Prudential Securities to help the company evaluate
"strategic alternatives designed to increase shareholder value."
Translation? American Industrial (NYSE: IND) is considering a merger, or an
all-out sale of its assets, because of poor stock valuation.
"We believe we have made significant progress in enhancing the underlying
value of our portfolio through strategic leasing transactions and accretive
acquisitions," said Scott Wolstein, chairman of the board. "In addition, we
believe we have further enhanced the intrinsic value of the trust through
targeted acquisitions and pursuing a customer-focused operational strategy.
"However, we believe our current stock price does not reflect the underlying
value of our assets," Wolstein added. "Given the changing dynamics of the
REIT market, and in addition to maximizing the growth and improvement of
AIP's business and operations, we believe it is prudent to evaluate all
legitimate alternatives available to the Trust consistent with our ongoing
commitment to increase shareholder value."
American Industrial Properties owns 156 buildings comprising more than 8.3
million square feet. Its industrial and office flex space is concentrated in
Arizona, California, Colorado, Georgia and Texas.
While these markets are incredibly hot right now, American Industrial has
not been able to cash in. Despite a 29 percent gain in FFO and nearly
doubling income for the third quarter, the company's stock price continues
to hover around the $11 mark.
The company has failed to get any analysts interested in the stock, leading
to a more difficult sale on the Street. Nevertheless, it's upsetting to see
a turnaround company with improving performance consider dissolving the
ticker, all because no one except real estate people are interested in REITs
these days.
It's all about expectations. Unfortunately, the expectations for real estate
are nowhere near the expectations for high tech and light industrial on the
market right now.
On a lighter note, Happy Thanksgiving. The real estate industry has a great
deal to be thankful for, including improved occupancies, increasing rents
and a growing, healthy economy. Maybe, if we're all really good, Santa will
convince the Fed chairman not to be such a Scrooge. Then we'd really be in
good shape.
Published: November 26, 1999
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