Rubicon Associates

Reits, special situations, bonds, preferred stock
Rubicon Associates
REITs, special situations, bonds, Preferred Stock
Contributor since: 2009
Company: Rubicon Associates LLC
Time for someone to do a roll up of these non traded REITs. management is keen to get rid of them, pricing could be good.
On an income basis, taking the income and reinvesting it in cash, the return for your holding period is (2/16/11 - 2/8/15) is +6.85%, reinvested in the security it is +8.10%.
Wow, three responses to this, don't want to manipulate the space, sorry if I did. Hope it helps though.
As well, as I look at the tables, the return is as you state it is - 8.8%. It is in red because it has underperformed the referenced alternative.
As it states: all those with returns above the S&P 500 will have their returns colored green, while those with returns below the S&P 500 will have their returns colored red
Bill, agree with your conclusion. Conceptually, the impact was minimal (at least on a GAAP basis), and the portfolio remains largely the same as it was at the IPO - only better performing. That said, there is a distinct possibility of getting "VEREITed" and seeing dead money for a while and, as you stated, is the yield enough to sit on dead shares. Nice piece, as usual.
Did you reinvest dividends? The total rate of return will assume the reinvestment of dividends into the security. When this is done, due to the loss on the greater number of shares held, it is not simply adding the amount you received in dividends and the amount you have lost in investment value.
Even if it is not material, as they say, how long does it take for a company to get their reputation back? To me, one of the larger issues is the question of why.
Every time we have seen accounting "issues" there has been some form of personal gain for the actors involved. Here, I am not seeing it and the company said compensation was not linked to NOI. What gives? Why impugn your reputation for nothing? These guys were not hacks, they are pros with a strong reputation - Blackstone is the epitome of pro. What am I missing?
I bought in to VEREIT when they dropped and held for a while waiting for the rebound. Eventually I got tired of waiting for Godot and punted my stake.
seeing more of this with equity reits as well. A review of the tax treatment of dividends is interesting. not simply income and taxes/position cost have to reflect this.
The folks at Hancock do a great job. The three big players in the space -Spectrum Asset (manage the Nuveen Income funds), F&C and Hancock - all have decent track records and strong staff. Personally, I like F&C. Even with Don Crumrine's retirement, Eric Chadwick and Brad Stone are great stewards.
Look at the yield-to-call and determine whether it meets your needs. As with any income investment, the reality is that it will be taken away when least desirable to the investor. Bonds get called (much less frequently) and equities can cut their divvie. the key to managing that risk is to diversify the portfolio and always keep your eye on the options available to you.
As they pay out their income (the nature of a REIT and a qualification), they cannot be qualified dividends (or QDI). financials such as banks are QDI, but they are not cumulative like REIT issues.
I have known the team at F&C for a long time, they are second to none. Great choice of manager. while I mainly pick my own, I own F&C funds as well.
one thing to realize about CMBS is that it trades differently than MBS and the liquidity profile is significantly different. Having traded and managed CMBS for a long time, I can tell you when the market gets nervous, spreads blow out and bids dry up. look at what spreads are currently doing in the CMBS market (either cash or CMBX), not very additive. This holds for conduit CMBS, large loan and agency DUS. All of which are different and will have a different impact on the portfolio. Yes, there is prepayment protection afforded through the penalties and yield maintenance provisions, but prepayments will still occur and one must look into loans going into special servicing and the impact of this. There is no free lunch.
Adding physical real estate always sounds good (consider, however, most commercial leases have become triple net and therefore triple net must be further defined - think EPR vs O), but look at those who own a diversity of assets -RAS, NRF... the discount can easily outweigh the diversity.
Reversion back to an internal management structure would be interesting. It could be considered a failed experiment as it has been with others - think of NSAM/NRF and to a degree IRT.
NRF reimburses NSAM for all other ancillary costs.
Agree on the preferreds (long C and E). Your point on liquidation also rings true and is what Winthrop decided to do when nothing else seemed to work, but that cooks the golden goose (unless they get disposition fees!). Maybe enough voices will draw attention to the real issues here - strategic alternatives aren't necessary, but better alignment of interests. RMR even found this out and has modified their agreements (losing your flagship REIT will do this apparently).
Keep beating the drum Bill, we will be heard.
I am wrong for not working for them. I would think even fetching coffee is worth $500k or so.
I agree. Management is not stupid, in fact they are very financially adept (this is their thing, not operating assets). For NRF to grow, the cost of capital has to be reduced for anything to be acccretive. Recall NSAM is paid on equity issued, at these levels, the only thing they can buy that might be accretive is maybe RAIT (RAS) and then only if levered! CAD is sustainable. The assets generate sufficient CAD to pay common and preferred divvies, the yield is merely a function of the submarine share price (which turned many from momentum investors to value investors).
I couldn't find a standard of care or fiduciary responsibility of NSAM in the management agreement, and trust me, I was looking. Of course, being a simple finance guy without a lawyer on retainer (or Goldman), I could be wrong.
Amen brother. There is nothing they can buy as cheap as the stock. Buybacks would be significantly accretive. Personally, I say whack the divvie and buy shares, the resultant increase in the share price will more than make up for the lost divvie.
I am also long a couple series of NRF prefs. No intention of selling them - especially at these prices. Despite their shortcomings, they generate a significant amount of CAD (FAD/AFFO - whatever you want to call it) to cover the common and preferred. Given the preferred are senior to the common and the common is well covered, no reason to sell.
I used to invest in airline credits and structured product (ETCs, EETCs...) and in discussions with the unions as well as the airlines, I learned the simple truth of situations (like union/management relations with ALPA and NRF/NSAM) - you squeeze the golden goose hard enough to lay golden eggs, just not enough to kill it. NSAM squeezes (management squeezes, bankers squeeze, hell, everybody seems to squeeze) but wont kill the goose.
That said, enough is enough. The structure is broken and must be fixed or liquidated. FUR recognized that they weren't going to see MV=NAV and liquidated (in process). Either right the ship or get out of the way. Would love to hear management find a way to say that any asset they buy is cheaper than their own stock.
Lastly, Who would have thought that managing NSAM/NRF/NRE and the other assets was nearly twice as difficult than managing a little bank like JPMorgan. It obviously must be in order to justify the salary differentials. Hamamoto and crew are talented, this cannot be denied, but they are getting too clever for our own good and should now be managing the assets rather than simply dealmaking.
As a shareholder, I can only stand so much value creation from these guys. Their value creation (alternative options to maximize shareholder value) has cost over $2B since the spins and splits. Only ones making money here are the bankers and management.
STAG is rated BBB by Fitch and the preferreds are BB+.
Always use limit orders. Have seen the same with Schwab. I would rather be patient with a limit than get filled and killed. That said, unless there is heavy pressure on a name (CORR/NRF for example), I am not tossing out a below market limit.
All: Here is an updated spreadsheet with all the preferreds mentioned and more. It includes the QDI and cumulative flags.
QDI, but not cumulative. I have the cumulative flag, and will add QDI.
with the exception of REITs and cap trust (TRUP) issues, preferreds are generally not cumulative. I would expect the issuers to call them if it makes sense, that is why the option is present. In the case of fixed>flt, the spread to LIBOR that they usually float to almost ensures they will be called (MSpI float at 3mLIB+370). That is why the YTC is important. If the YTC is acceptable, then the call isn't as painful.
They are increasing capital - because they have to due to regulatory reasons. Banks are better capitalized than they have been in years, which bodes well for the stability going forward. QE 1,2 and 3 have, thus far, not even stirred inflation, and even if some did arise and rates rose as a result, yes, the price of these preferreds - and all rate sensitive investments - will fall. This is the market we are confronted with and have to invest in.
I like the MS Is. The combination of the fixed>flt structure, decent yields (stripped and to call) make it my favorite in the complex. You can pick up more yield in the Fs and Es, but you have to be willing to pay a higher premium.
You can't be concerned about their emphasis on entertainment properties, until 2012 they were known as Entertainment Properties Trust. One benefit to management from issuing equity is deleveraging. Some might remember back in the "risk off" days, leveraged REITs, EPR among them, underperformed due to the amount of their leverage. As they ended their most recent quarter at over 6x EBITDA (yes, REITs use this metric too - as do their rating agencies) and slightly over 50% debt/cap - both obviously within their debt covenants - taking a little off the top doesn't hurt, and, as you said, hitting their revolver should they find that next property is easier.
The properties in this REIT have been misunderstood by the market for years (little acknowlegment of the stability, not understanding the value of substition in their school properties and perpetual fear of theaters) and management blunders (anyone remember the vineyards?) have caused this REIT to be underloved and undervalued. BTW, if you are into bonds, check out their '22 or '23 paper.
40% of the assets of the captive:
captive insurers that became members prior to publication of FHFA's proposed rule in 2014 will be allowed to remain members for up to 5 years after the effective date of the final rule. For these institutions, the final rule limits outstanding advances during the five-year transition period to 40 percent of the assets of the captive and prohibits new advances or renewals that mature beyond the five-year transition period. Existing advances that mature beyond this transition period will be permitted to remain in place.
If they were to liquidate, who would the buyers be? A large scale liquidation in this market would increase nervousness of repo lenders (death knell) and drive prices through the floor. recoup losses? hardly.
in the last market dump in these names, some mREITs bought shares of others as they are, essentially, buying the portfolio at a discount.