REITs hungry to buy as economy recovers

Canadian REITs continue to shore up their balance sheets in an expected run on acquisitions over the rest of this year.
Analysts estimate more than a billion dollars have been raised by Canadian REITs in the last year, says a story in Monday's The Globe and Mail.
“We think the next 18 months will be a very fruitful time for listed [property companies],” AMP Capital Brookfield chief investment officer Kim Redding told the Globe. “They are one of the few investors in the world that have capital.”
RioCan, the largest REIT in Canada, has said it would make a major purchase in the U.S. as it deploys $150 million that it raised on capital markets. Scott's REIT chief executive officer John Bitove told the Globe his company will “certainly be a buyer,” and Whiterock REIT has already jumped in by taking a large stake in an $82-million deal for Toronto office towers, which are definitely in play these days as tenants look for better deals as leases roll over.
But questions remain about whether REITs are raising capital for investment to deal with internal financial issues as they continue to recover from the global financial meltdown.
“Most REITs have taken advantage of the open capital markets,” said Mark Rothschild, an analyst at Genuity Capital Markets. “Most management teams have expressed confidence this capital will be used to take advantage of distressed opportunities – we believe that there will not be many extremely accretive acquisition opportunities and ultimately many of the recent offerings will prove dilutive.”
And despite the rash of fundraising, Mr. Rothschild told the Globe, REITs face challenges in their everyday operations that should be highlighted over the next two weeks as they report earnings. Funds from operations – a key gauge of health – are expected to have slipped lower for the first time this recession for residential REITs, while the commercial REITs could see the second decline in a row.
“Fundamentals have softened across most Canadian markets as a result of the weakening economy … vacancy rates have increased” he said.
Whiterock CEO is Jason Underwood is on the lookout for deals after his firm raised $30 million. He's confident that he has a cushion behind him in the event of another downturn, even if he can't find enough assets worth $30 million.
“REITs have raised all that money and you know they don't need a billion dollars to bolster their balance sheets,” he told the Globe. “That doesn't mean it all needs to be spent at once – I'd characterize our outlook as cautiously optimistic, so it's not a bad thing to have some money in the bank.”