REITs unload RE assets as credit crunch continues

American Land Lease, the US senior housing real estate investment trust, has become the latest company to announce a possible sale of its portfolio as the credit markets continue to impact the public sector.

The Clearwater, Florida-based firm said it would consider selling “some or all” of its 7,500 senior housing sites in the US in a bid to “enhance shareholder value.” It is the latest in a line of strategic reviews announced by REITs worldwide, as the industry struggles to balance declining market capitalizations against the value of their underlying real estate portfolios.

Last week, Canadian REIT Huntingdon Real Estate Investment Trust put a for-sale sign on its 5.4-million-square-foot portfolio of office, retail and industrial buildings, after unveiling a strategic review of the firm. The Western Canada-focused REIT, which owns 79 buildings and parking lots, said it would consider all bids to merge or acquire the company. The company is worth about C$140 million ($137 million; €88 million) and owes about $330 million of mortgage debt and has issued $59 million of convertible debentures, according to local media reports.

A unit of Australia's Macquarie Group is also soliciting potential buyers for its Singapore-listed trust, Macquarie Prime REIT. The REIT has had a “number of indicative proposals from third parties,” according to the firm, although the company stressed a deal was not guaranteed.

American Land Lease also warned in a statement the strategic review may not lead to any sales. “[We] are focused on long term shareholder value and expressly note that short term factors, including continued volatility and uncertainty in the broader capital markets, may make certain strategic alternatives unattractive or unfeasible at this time.” American Land Lease was unavailable for comment.

The sales come as private equity real estate firms actively focus on real estate debt and distressed opportunities, particularly in the US. Colony Capital, Apollo Real Estate Advisors and JER Partners have all launched real estate debt funds, while The Blackstone Group is also expected to use its €3 billion European real estate fund to focus on debt and distress.

Last week, Dalton Investments, a California and Japan-based investment firm, said it was raising up to $450 million to invest in struggling Japanese real estate investment trusts. Junichiro Sano, head of Dalton’s activities in Japan, told a Reuters conference that overseas investors had already committed $300 million for the distressed REIT fund, with another $150 million expected to be raised from Japanese investors.

Ron Kuykendall, a spokesman for the Washington-based National Association of Real Estate Investment Trusts (NAREIT), told PERE trusts had experienced a “tough” June, following solid gains in the spring, with total returns for the FTSE NAREIT All REIT Index – the industry benchmark – down 11.25 percent.

During the first half of the year, the index, which includes US equity, mortgage and hybrid REITs, was down 5.5 percent compared to the S&P 500, which was down 11.9 percent over the same period, and the Dow Jones Industrial Average, which was down 14.4 percent.