Biz partner’s troubles could hurt REIT

Developers Diversified Realty Corp., a shopping center real estate investment trust that has struggled with debt issues, faces yet another headache. A large joint-venture partner, Coventry Real Estate Advisors, “appears to be facing liquidity issues,” which could be a major blow to the retail REIT, Jim Sullivan, an analyst at REIT research firm Green Street Advisors Inc. in Newport Beach, Calif., wrote in a research note. Beachwood, Ohio-based Developers Diversified and Coventry of New York jointly own a $1 billion portfolio of retail real estate, much of which comprises properties in the midst of development or redevelopment, he wrote. The joint venture has about $670 million in debt. This week, Developers Diversified said that it was suspending construction on a lifestyle center development in suburban Detroit after Coventry failed to cough up the cash it promised. If the joint venture unravels, Mr. Sullivan estimated that it could cost Developers Diversified about 75 cents a share. All this comes during a time when the retail REIT is struggling with debt and tenant problems, and its stock price has lost more than 80% of its value in the past 12 months. The REIT is trying to refinance about $2 billion in debt that comes due over the next two years, and three of its largest tenants — Mervyn’s LLC of Hayward, Calif., Circuit City Stores Inc. of Richmond, Va., and Linens 'n Things Inc. of Clifton, N.J. — have either announced store closings or filed for bankruptcy protection. The company has been selling stakes in its malls and recently slashed its dividend by almost 50% to raise cash. Dan Hurwitz, president and chief operating officer of Developers Diversified, declined to comment on Coventry’s liquidity issues. However, he said, his company is “ready, willing and able to fund whatever our obligations are pursuant to the joint-venture documents” and that there are “myriad” options that it can consider if Coventry doesn’t meet its joint-venture obligations and projects are put on hold. Mr. Hurwitz emphasized that Developers Diversified is under no obligation to cover Coventry’s obligations in the joint venture. Developers Diversified is the latest retail REIT to face serious debt challenges. General Growth Properties Inc. of Chicago, whose stock has lost more than 95% of its value in the past year, recently suspended its dividend, replaced its president, chief financial officers and chief executive. The company has also been selling some of its crown jewel properties as it has struggled desperately to address heavy debt issues, including about $900 million in mortgages that are scheduled to expire in the next month.