Mideast funds eye discounted REITs

Mar.12, 2008 in Market Outlook

NEW YORK: Cash-rich Middle Eastern investors are eyeing acquisitions of US-listed real estate investment trusts, which have been underperforming in recent months, as a discreet way to pick up undervalued property portfolios.
“Sovereign wealth funds want places they can stash lots of money, and taking down a US REIT would certainly qualify,” says Dan Fasulo, managing director of New York-based research firm Real Capital Analytics.

Qatar Investment Authority, which invests internationally on behalf of the Gulf state, is part of consortium bidding for Los Angeles-based Maguire Properties Inc, while Bahrain-based Arcapita Bank, an investment bank, says it also on the lookout for REIT opportunities.

Apartment REITs such as Post Properties Inc and mortgage REITS such as Thornburg Mortgage Inc, whose shares have plummeted in recent months and are badly in need of refinancing, are thought to be the types of investments these funds are weighing.

One person familiar with a Middle Eastern investor said it had considered but decided against making an offer for Post.

Other beaten-down real estate companies, such as certain homebuilders, could also be candidates for buyers.
In recent years, oil-rich Arabian Gulf states such as Qatar and the United Arab Emirates have been investing billions of dollars around the world. Their sovereign wealth funds have been a source of badly needed cash for US and European banks amid the global credit crunch.

Now, Middle Eastern funds are turning their attention towards US REITs, many of which are trading at approximately 20%-30% less than their estimated net asset value amid fears over financing and trouble for rentals.

“Buying REITs is a less obvious way for a sovereign wealth fund to buy property in the US,” says Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. Because buying REITs is unlikely to provoke a political backlash, “I’m sure that others will follow Qatar.”

REITs were established in the 1960s to give individuals an easy way to invest in income-producing real estate. The companies, which typically focus on distinct areas of real estate such as offices, retail properties or apartments, pay no corporate income taxes as long as they pay at least 90% of their taxable income to investors as dividends.

Since 1971, the number of REITs has grown from 34 to 152, while their market value rose from about $1.49bn to $312bn at the end of 2007, according to the National Association of Real Estate Investment Trusts, or NAREIT.

Gulf Times Newspaper, 2008

http://www.gulf-times.com/site/topics/article.asp?cu_no=2%26item_no=206775%26version=1%26template_id=48%26parent_id=28