Hi FL,It's a crazy market all right but gotta say the market is...

Hi FL,

It's a crazy market all right but gotta say the market is rarely completely wrong. The credit market is so fkd up that there is real concern that ANY money at ANY price will not be available for many REIT's.

There is talk that o'seas banks are being forced to keep any lending at home and support their own countries economy. Not an unreasonable argument given central banks are basically giving banks almost free money at the short end of the curve to make nice fat margins. The free ride comes with some responsibilty but no responsibility towards foreigners. Unfortunately Oz doesn't have enough money to service outstanding debt rollovers because we have always been financed by massive current account deficits from overseas.

ALZ's problem is that it has probably maxed out it's ability to borrow from Oz syndicated banks which is why it is now looking to overseas banks. The CBMS market is dead and many banks are using the free money from the Fed et al to buy CMBS on the secondary market for a lot higher returns than they would get issuing new debt. Until the credits markets really thaw the premiums for new commercial debt, even mortgage secured, may be prohibitive.

My mail says they will have just enough cash and undrawn syndicate debt to pay back the June $560M CBMS together with fascility drawdowns to finish the developments already underway (nothing is selling obviously so all new developments are going onto the balance sheet). Gearing will head back up to low 40%'s with new developments booked to balance sheet.

IF ALZ don't get any money they may have to bunker down into a period reduced or no dividends to provide working capital and strengthen the balance sheet during a period of asset write downs and squeezed cash flow. Loan covenents such as earnings or interest cover might also be triggered such that the banks enforce a no dividend period. Although not catastrophic the share price would definitely sell off and this is probably why people aren't loading up right now. The time to average down is to come although probably good value if they get finance to replace the CMBS.

ALZ have 3 years to rollover 2 lots of CBMS and a large syndicated debt fascility with development earnings non-existent, recession and credit crunch heading where?? Having said that Capitaland will not let them go under but they may also be prepared to see dividend's cut for a couple of years while the Trust earnings are kept on balance sheet. Not a tragedy or bad value but as I said with the risk of getting cheaper and poorish liquidity for the big boys it has been heavily sold off.

Definitely good value on a risk reward basis and if I wasn't already heavily long on AAZPB I would be having a nibble for the bounce when they get $250M new syndicate debt to tide them over.

good luck