Seeking Alpha

Marc Gordon

View as an RSS Feed
View Marc Gordon's Comments BY TICKER:
Latest  |  Highest rated
  • An Appetizing REIT With 9% Icing On The Cake [View article]
    buster0391, it would be very helpful if you would list each of the "missed points" and "half truths" to inform the rest of us.
    Dec 10, 2014. 01:38 PM | 3 Likes Like |Link to Comment
  • An Appetizing REIT With 9% Icing On The Cake [View article]
    Brad, if you gain an interview with the CEO two questions that I suggest you ask are:

    1. Is it planned that NRF's remaining 20% mREIT component will be disposed of and the cash converted to eREIT holdings?
    2. If the answer to (1) is yes, what is the anticipated time to rough completion?
    Lunco suggets in his earlier comment that NRF will continue to rapidly decrease its mREIT component, and it would be illuminating to find out at what rate (if any) the CEO plans to do so.

    Also, a third question for the CEO that may be of interest is what the approximate dividend yield would be if it was calculated solely for the 80% of NRF that is currently eREIT holdings. An answer to this would give information that would be important to investors who might buy NRF in anticipation of it becoming a pure eREIT.

    Thank you!
    All the best,
    Dec 10, 2014. 01:08 PM | 3 Likes Like |Link to Comment
  • An Appetizing REIT With 9% Icing On The Cake [View article]
    Brad, thanks for this article, but I do not understand your reasoning. You state that for mREITs "the volatility of the underlying investments, the leverage embedded in the portfolio and many unsustainable dividends, these investments should be avoided or minimized." I agree with you on this. NRF is 80:20 an eREIT:mREIT combination, so that for every 1,000 shares of NRF, one gets essentially a basket containing 800 shares of eREIT with 200 shares of mREIT. Since you would not buy 200 shares of an mREIT on its own, why would you buy them embedded in a mixed company like NRF?

    Personally, since I agree with your position that mREITs do not deserve a place in my portfolio, I am going to pass on NRF.
    Dec 9, 2014. 05:19 PM | 2 Likes Like |Link to Comment
  • A Fundamental Analysis Of American Realty Capital's Likely Dividend Cut [View article]
    Philipsonh, what you are missing is that ARCP already owns Cole Capital (ARCP closed its purchase of Cole on 2/17/14), and RCS Capital Corp., known by its ticker symbol RCAP, said around 10/1/14 it was acquiring Cole Capital Partners and Cole Capital Advisors from ARCP, but then backed out of the deal at the start of November, leaving ARCP to continue owning Cole.
    Dec 8, 2014. 02:40 PM | Likes Like |Link to Comment
  • A Fundamental Analysis Of American Realty Capital's Likely Dividend Cut [View article]
    Brad, thanks for this article. One of the many reasons I read you is that even when I have the financial outlines correct in my head, you put precise numbers to the outline so that I can better judge the magnitude of the effects. I agree that the Cole contribution to ARCP earnings is substantially diminished for this and next quarter, but unless the accounting review finds some financial irregularities in Cole's business, and there is no reason to think that is the case, the suspensions of Cole's offerings by broker-dealers will eventually be lifted, and Cole's business will continue. This may be a little cynical, but the nonlisted REIT business is too big a profit center for broker-dealers for them to not restart pushing it, short of a direct tie to fraud. Therefore, I think your assessment of "I see no value in Cole Capital" is too pessimistic, and much of the adverse effect will have ended by the end of 1Q CY15. Broker-dealers' customers tend to have short memories (or else they would not be interested in buying nonlisted REITs in the first place!). Accordingly, I would place a 50% reduction in income derived from Cole Capital for the next year or two as reasonable, but a total loss is very unlikely. After that, with an aggressive marketing campaign (which Cole is good at) the business will likely gradually rise back to normal.

    Since the Cole impairment is likely temporary (although it may take a year or two to completely shed the impairment), if we assume a 50% impairment for now, then the projected AFFO covers roughly 100% of the dividend (a little poorer coverage this year, a little better next) which, while not good, is tolerable for ARCP, so a dividend cut is not all that likely.

    Additionally, Schorsch is still Chairman of the Board (COB) of ARCP, and if we know anything, it is that he considers job number one to be looking out for own interests. Past experience has taught me that it is rare for a dividend cut, when it occurs, to be completely baked into any stock's price, and I suspect Schorcsh knows this. So he will try to avoid a dividend cut as long as he is ARCP's COB, to protect his own portfolio value. Since the Cole impairment is likely temporary, I think ARCP will try to wait out a cut.

    Unless the accounting review reveals more fraud, Cole will slowly recover, and ARCP will eventually improve dividend coverage, although due to Scorsch's double dealing I expect the valuation of ARCP to remain low as long as Scorsch remains COB.

    So, while I think the risk for the ARCP stock price is way above average because of all of the unknowns, I think the odds of a dividend cut are substantially lower than you believe. Price volatility will be large while the story plays out.

    By the way, in your other article today there was the comment that your recent negative ARCP articles are "hurting ARCP in the market which is really hurting those of us who have held our shares." I totally disagree with this, since I value your thoughts whether positive or negative on a REIT, and while you have a lot of readers, there are also many other sources (such as broker's Research reports) that also supply information , and I doubt many institutions buy and sell based solely (if at all) on SA authors' articles; institutions have a huge influence on price movements. So I look forward to your evolving thoughts regarding ARCP.

    All the best.
    Dec 8, 2014. 02:23 PM | 6 Likes Like |Link to Comment
  • A Shark Tank Approach To These Riskier REITs [View article]
    Hi Brad, it is nice to be able to answer a question from you, rather than the other way around. Cole continues to raise capital through three nontraded REIT offerings:

    Cole Credit Property Trust V CCPT V) is a public, non-listed REIT that primarily invests in income-producing retail properties commercial real estate primarily leased to creditworthy tenants under long-term, net leases.

    Cole Office and Industrial (CCIT II), is a public, non-listed REIT that invests primarily in single-tenant, income-producing, necessity office and industrial properties that are leased to creditworthy tenants under long-term leases. Cole Capital defines necessity corporate properties as those that are essential to the day-to-day operations of a corporation's operations. Necessity corporate properties include distribution facilities, warehouses and corporate and regional headquarters.

    Cole Real Estate Income Strategy is a continuously offered, public, non-listed public REIT that provides daily valuation and daily liquidity. Cole Income NAV primarily invests in income-producing, necessity commercial real estate across the retail, office and industrial sectors, seeking further diversification by tenant, property type and geography.

    However, with all the broker-dealers that have announced that they have suspended sales of Cole's offerings, I would guess that these are not attracting much money now. As of November 9, Investment News reported an estimated 25 percent of the 160,000 licensed Independent Broker-Dealers in the U.S. had suspended sales of Cole Capital, RCS Capital and ARC non-traded REIT products. Then on November 12, I read that three giants in the clearing and custody industry followed suit, with Fidelity, Pershing and Schwab, joining the exodus. Thirty-one of the top 50 independent broker-dealers, ranked by total revenue, have clearing agreements with Pershing. Meanwhile, 15 of the top 50 have clearing agreements with National Financial Services, Fidelity's clearing arm.
    Dec 5, 2014. 08:51 PM | 2 Likes Like |Link to Comment
  • A Shark Tank Approach To These Riskier REITs [View article]
    Steve Rasher, your points are valid and I would not complain about the termination fee if ARCP and RCS were two completely independent companies. But it rankles that Schorsch was at the helm as CEO of ARCP when the fraud occurred, he was in charge when ARCP bought Cole, he made the deal to sell Cole from one company he was running (ARCP) to another he controls (RCS), and then when the ARCP fraud becomes public and Cole's business is impaired, he hurts ARCP further by canceling the deal. All this while Schorsch continues to collect substantial compensation from ARCP by being its Chairman!

    Remember that this is the same Schorsch who said about the accounting fraud at the end of October in a conference call “How does it impact any [ARC] programs? It doesn't. It doesn't impact any programs by Cole [Capital],” and then only weeks later he cancels the Cole deal.

    This whole episode is a huge disservice to ARCP shareholders.
    Dec 5, 2014. 03:09 PM | 1 Like Like |Link to Comment
  • A Shark Tank Approach To These Riskier REITs [View article]
    Be Here Now, I think ehsiii says CSG is a flame-out because it went public about two years ago at $10, and for the last 1.5 years it has traded at roughly a 20%-25% loss, which can only be described as disappointing. To those (including me, and I suspect you) who bought CSG at prices near the lows and are collecting a nice dividend while waiting for additional capital appreciation, CSG is a nice investment, but for anyone who bought near the IPO price, I can understand that they would call CSG a flame-out, since it has consistently underperformed since then.
    Dec 5, 2014. 02:46 PM | Likes Like |Link to Comment
  • A Shark Tank Approach To These Riskier REITs [View article]
    BSP, like exchange-traded REITs, nontraded REITs invest in real estate. They are also subject to the same IRS requirements that an exchange-traded REIT must meet, including distributing at least 90 percent of taxable income to shareholders. Like exchange-traded REITS, nontraded REITs are registered with the Securities and Exchange Commission and are required to make regular SEC disclosures, including filing a prospectus and quarterly (10-Q) and annual reports (10-K), all of which are publicly available through the SEC’s EDGAR database. While these two types of REITs share these similarities, there are also numerous differences between them:

    Nontraded REIT shares are not listed or traded on national securities exchanges. Nontraded REITs are often sold in part based on their being nonvolatile, since they are not priced daily (or ever) on exchanges. This is essentially a lie, since the value of Nontraded REITs varies with the value of the real estate holdings in them, but Nontraded REITs simply do not quantify or report the variability on a daily or monthly basis. In this case, ignorance is not bliss.

    The Nontraded REIT secondary Market is very limited. While a portion of total shares outstanding may be redeemable each year, subject to limitations, redemption offers may be priced below the purchase price or current price. Some Nongraded REITs will not redeem shares at all.

    Nontraded REIT front-end fees that can be as much as 15% of the per share price. Those fees include selling compensation and expenses, which cannot exceed 10%, and additional offering and organizational costs.

    Nontraded REIT investors typically seek income from distributions over a period of years. Upon liquidation, return of capital may be more or less than the original investment depending on the value of assets.

    Nontraded REIT distributions are not guaranteed and may exceed operating cash flow. In newer programs, distributions may be funded in part or entirely by cash from investor capital or borrowings—leveraged money that does not come from income generated by the real estate itself, such as rents or hotel occupancy fees. The REIT’s articles of incorporation often allow it to increase debt, dip into cash reserves and apply proceeds of the sale of new shares to sustain or even increase distributions. Some REITS even allow borrowing in excess of 100 percent of net assets.

    Nontraded REIT's lack of a public trading market creates illiquidity and valuation complexities. As their name implies, non-traded REITs have no public trading market. However, most non-traded REITS are structured as a "finite life investment," meaning that at the end of a given timeframe, the REIT is required either to list on a national securities exchange or liquidate. Even if a liquidity event takes place, there is no guarantee that the value of your investment will have gone up—and it may go down or lose all its value. Indeed, valuation of non-traded REITS is complex. Many factors affect the pricing, including the portfolio of real estate assets owned, strength of the trust’s balance sheet (assets versus liabilities), overhead expenses, cost of capital and more. The boards and managers of non-traded REITs might even rely on third-party sources to estimate a per-share value. If the value of the REIT’s portfolio has changed materially during the offering period, then new investors may be paying a per-share price above or below the per-share net value of the underlying real estate.

    Early redemption is often restrictive and may be expensive, and can even be not allowed. Most public non-traded REIT offerings place limits on the amount of shares that can be redeemed prior to liquidation. Redemption provisions can be as restrictive as 5—or even 3—percent of the weighted average number of shares outstanding during the previous year. In addition, shares may have to be held for some period, typically one year, before they can be redeemed. Redemption programs may be terminated or adjusted, so investors should not count on them, even as an emergency exit strategy. While a redemption program may allow you to sell your shares prior to a liquidity event, the redemption price is generally lower than the purchase price, sometimes by as much as 10 percent.

    According to state regulatory guidelines, the total for both types of fees cannot exceed 15 percent. FINRA guidelines also limit the total for both types of fees to 15 percent in offerings that are sold by an affiliated broker-dealer. All investments carry fees, and they add up, reducing the amount of capital available for investment. For example, a 15 percent front-end fee on a $10,000 investment means that $8,500 is going to work for you at the time of investment.

    Nontraded REIT properties may not be specified. Most non-traded REITS start out as blind pools, which have not yet specified or even identified the properties to be purchased! Others may specify a portion of the properties the REIT plans to acquire, or they may be in various stages of acquisition. In general, the more properties that have been specified for purchase or that have actually been acquired the less risk an investor incurs because the investor has the opportunity to assess the nature and quality of the assets of the REIT before investing.

    In summary, Nontraded REITs are a bad investment for the investor, but they are good for the broker who sells them.
    Dec 4, 2014. 02:33 PM | 5 Likes Like |Link to Comment
  • A Shark Tank Approach To These Riskier REITs [View article]
    Once again RCS has successfully screwed over ARCP, this time by paying only $60 million to walk away from the Cole Capital purchase. The value of Cole has been impaired by a vastly larger amount due to Nicholas Schorsch's actions, yet his company, RCS, gets away with paying peanuts. The ARCP story continues to get worse by the week.
    Dec 4, 2014. 01:58 PM | 3 Likes Like |Link to Comment
  • Quit Chasing Silly Rabbits And Invest For The Long Run [View article]
    Brad, now that you believe "the keys to winning are as simple to understand as the tortoise and the hare" are there other REITs besides ARCP that you have recommended in the past that you no longer like?

    (Long WPC since they became a REIT)
    Nov 18, 2014. 03:07 PM | Likes Like |Link to Comment
  • Monmouth Is A Steady Eddie REIT, So Why Don't I Own It? [View article]
    Hi Brad, since you wrote that you would take a closer look, I want to check if you now have opinions regarding Cuneo's retirement and the outrageously large exit package he is being granted? Also, what impact will his exit have on the company's direction?
    Nov 16, 2014. 03:34 PM | 2 Likes Like |Link to Comment
  • Monmouth Is A Steady Eddie REIT, So Why Don't I Own It? [View article]
    Brad, since you discussed CSG, what do you think about the announced retirement of Cuneo, the CEO? Cuneo oversaw CSG go public at $10/share, since which CSG has lost about 20%, and Cuneo will get for sticking around for another five months and then leaving:

    1) $3.25 million cash
    2) his shares of restricted common shares of the Company will become fully vested (likely including many that would otherwise be canceled when he left)
    3) 200,000 shares of CSG for free
    4) his annual cash bonus and equity grant for 2014
    5) and he will continue to be compensated as currently until March 16, 2015.

    I do not understand how the Board of Directors can think that this is appropriate. Items 2, 4, and 5 are possibly justifiable, although with the stock doing so poorly I think he should forfeit at least item 4. But tossing in items 1 and 3 for yet another (roughly) $5 million of compensation, when the shareholders have done so poorly while he has been in charge, strikes me as totally disregarding the concept of paying for performance!
    Nov 10, 2014. 10:14 PM | 2 Likes Like |Link to Comment
  • Equity REITs: A Critical Component To A Diversified Portfolio And Essential To Our Way Of Life [View article]
    That is the point, that REITs exhibit volatility like other sectors and individual stocks. REITs are not inherently "low risk." Like other stocks, it comes down to performing appropriate due diligence on REITs, if one wishes to be successful, and even then poor performance will sometimes happen. REITs are just as risky as many other sectors.
    Nov 5, 2014. 10:36 PM | Likes Like |Link to Comment
  • American Realty Capital - Enough Already, Thoughts From A Shareholder [View article]
    I totally support your contention that Nick Schorsch should resign from his position at ARCP. He did a poor job of running ARCP once it got to be large, has conflicts of interest, and has screwed ARCP over by canceling the Cole transaction. It is past time for him to go!
    Nov 5, 2014. 03:25 PM | 26 Likes Like |Link to Comment