Dabqs

The Secondary Bailout Market for Banks, REITs

Hey Reg,

Good article, however, riddle this:
The main prublem for the REIT industry was NOT the inability to make payments on their debt, it was their inability to rollover maturing debt. REITS (even GGP-General Growth, now in bankruptcy), can make payments on their debt, since they generate positive FFO. Add in this riddle to the mix: The government has established, starting this fall, a means for refinancing REIT debt maturities. Clearly, the government will not allow the REIT industry to go under. That means SURVIVAL. And the last piece of the riddle belongs to famed billionaire investor John Templeton, who famously explained the greatest key to sucessful investing: "You must buy at the point of maximum pessimism."
In time, you will be buying back your short positions-- and cleaning off your undershorts!

dabq


On Nov 06 07:52 PM Swashbuckler wrote:

> Thanks for continuing to expose the misconduct of public companies
> Reggie. Time will enhance your message.

Ackman's Pershing Square Misleads About General Growth Properties' Equity Value

Tom,
I think you are incorrect on a number of points. First, the lower cap rate Ack assigns GGP relative to Simon is largely due to the higher percentage of class A malls that GGP owns as a percent of its overall business as compared to the percent of Class A malls that Simon owns in comparison to its overall business. On a value basis, Class A malls are simply worth more than lesser properties, and this must be reflected in the cap rate assigned a REIT.

Secondly, Ack posits that the BK judge may well make the decision to extend maturities for 7 years. Ultimately, it is the judge's decision that matters, now that GGP is in BK court. Both Ack and creditholders can wish all they want for better terms, but now that the decision is out of their hands and ultimately will be decided by the judge, all both sides can due is argue their points and hope for the best. A 7 year extension is simply Ack's thought on what the judge may ultimately rule.

Glad to hear that you still come up with residual equity value even with your more conservative assumptions. And glad to have your input!

dabqs

Despite Risks, Cherokee Has the Right Business Model

Steve,
I also considered the concentration of revenues at Target and Tesco a risk for Cherokee, Inc.. As I thought about it, and then spoke with management to understand the business better, I have come to the conclusion that the risk is far less than I had worried about, given that, for example, the agreement with Target precludes the company from establishing a similar agreement with WalMart (brands sold exclusively through Target), however, the agreement with Target and Tesco-- should they not be renewed, allow for Cherokee to immediately establish a new agreement with any other retailer, including, obviously, retailers which compete directly with Target and Tesco. Now, imagine that you are Target, and you have had the Cherokee brands in your stores for years and years, and your customers have come to expect that these brands will be available when they shop your stores. Should these brands not be available due to an end of the Cherokee/Target relationship, how quickly do you think WalMart or another direct competitor to Target would be to establish a new agreement with Cherokee to offer the Cherokee brands which Target's customers have come to expect?

When it comes to something as personal as clothing/apparel, shoppers become very loyal to brands. Should Target end the relationship with Cherokee, Target would likely lose a substantial amount of sales which would follow the brands to a major competitor. And in the ultra competitive retail business, taking such a risk is very unlikely, and would amount to a poor business decision.

In addition, buying Cherokee stock on a pullback where, for example, the dividend yield would be approximately 15% per annum, provides one heck of a cushion--as at 15% per annum, the entire purchase price of the stock is returned to the investor in just under 5 years.

Dabqs

Commercial Real Estate: From 'Best' to 'Worst of Times' in Seven Months Flat

Mad Hedgie,

It may be wise to watch what Soros is DOING with his dollars, instead of what he is SAYING. He has recently began building a position in CBL, a well known retail REIT.

I have observed that truly great investors buy when others are petrified with fear, and while the media is beating the drum of negative news toward a sector.

Have you given some thought to this possibility?

Dabqs

Just Say No to Commercial Real Estate Beggars

Monday1929,

No, I'm not one of the beggars, just a realist.

Unfortunately, just letting the chips fall as they may will cause more harm to everyday Americans such as myself than it will to those deserving the pain of letting "the chips fall where they may."

As your name suggests, you are likely aware of the risks of not supporting the economy in such a critical time. This is not a risk we should take, and, as we are witnessing, government is doing the right thing by stepping in so that we do not suffer another Monday1929 and subsequent economic malaise as we did in the 1930's.

You seem to be quite the hardliner. Unwilling to recognize the greater good that is at stake. May a thousand fire ants take up refuge under your armpits, and should we suffer the type of economic decline you seem to desire as "medicine", may all of your past and present mother-in-laws and other undesireable relatives take up residence in your house with the fire ants--perhaps this experience would encourage you to think a little more broadly.

Dabqs


On Dec 24 08:33 AM monday1929 wrote:

> You must be one of the beggers. The risk of tight credit, the risk
> of an econonomic slowdown, the risk of the largest credit bubble
> imploding-
>
> RISK is what business people take. And when they bet wrong, and when
> I bet wrong, WE LOSE MONEY. Stop begging, take your losses, wear
> your flag pin, and preach the benefits of free markets. Shut up and
> take your medicine. Remember the "personal resonsibility" you are
> always telling the poor about? Well, it's your time now.

Just Say No to Commercial Real Estate Beggars

This article is not thorough enough to be taken seriously.

In the article itself, the author indicates that the REIT/Commercial Real Estate industry is seeking help due to an inability for REITS/Commercial Real Estate industry participants to obtain financing EVEN WHEN THEIR PROPERTIES ARE PRODUCING FINE CASH FLOW.

Sure, in a recession, as in all recessions, there will be a reduction of operating cash flow, however, there is no doubt that banks are unwilling to lend in this credit crisis environment, and though some REITS are getting financing, they are finding it many times difficult and more expensive, and many are finding it very difficult to obtain financing at all--even though their operating cash flow would permit them financing without question in normal non-credit constrained economic environments. And this is the problem, as we are in a credit crisis environnment which is quite unusual and abnormal.

I don't think anyone doubts that bad businesses should not obtain financing, however, the author forgets the most important part of the current situation, and that is that due to the credit crisis, many creditworthy REITS which should get financed may not, or the terms may be prohibitive not for any fault of their own, but rather from the fault of the banks which have gotten themselves in such trouble that they do not want to lend--to almost anybody, even those that are deserving!

This is why the government needs to add REITS/Commercial Real Estate to the list of industries getting help-->> since a normal financing market is not available to them.

And what are the consequences if the government should not help? Should we then allow good businesses producing very good cash flow to go under just because the banks are unwilling to lend to these creditworthy borrowers???

Indeed not, this is why we need government or the Federal Reserve to step in--afterall, the Federal Reserve is empowered to be "The Lender of Last Resort " for a good reason, and that reason is becoming apparent to everyone now since banks are unwilling to lend.

dabqs

Re-examining My American Capital Strategies Position

Najdorf wrote in his 7-24-08 commentary the following to which I would like to add some thoughts--

"The writedowns are in large part an attempt to assess the default risk - are they accurate? It's hard to say because we're talking about high-yield investments in small, illiquid, private companies. It's probably even harder to predict than the mortgage market, since no individual mortgageholder has a big impact on a bank's finances, but a few of their larger positions could significantly hurt ACAS by defaulting."

Two things of note here--

First, as you know, FASB 157 now requires mark to market accounting adjustments be made, yet, as you mention, ACAS holds largely illiquid private equity positions for which active quotes are largely not available. Importantly, we are seeing writedowns in many financial companies which reflect lower than true valuations due to the credit crunch we are currently in. In a credit crunch, due to lack of liquidity, valuations are often beneath true valuation levels not due to a lack of creditworthiness on the part of the borrower, but due to a lack of liquidity in the trading of those credits. Historically, as credit crunches have resolved themselves, liquidity has returned and credits have traded more in line with the actual creditworthiness of the borrower. Also, important to think about is that AmCap has a history of holding its investments to maturity. So FASB 157 forces AmCap to take writedowns as if they were to seek a buyer for their loans in today's credit crunch effected market, which is not their historical operating manner, and which brings up the likelihood that in future quarters, as the credit crunch subsides, we will see a reversal of these Q1 writedowns. As such, these writedowns are largely of a temporary nature, and investors should focus their attention on net operating income, as this will determine future dividend payments and dividend increases.

Finally, I would also ask that you visit the company's website and take a look at the wide diversification in the portfolio of positions held by ACAS. Not only are the investments widely diversified (small positions by percent and diversified across industry sectors, thus, there is no single large position which could meaningfully tip the boat), and of further importance is that the company has specifically targeted investments in non-cyclical companies, which should considerably help them weather this current economic slowdown/recession.

Last thing to mention--

Great work by Davy Bui! Thanks for the legwork, and thoughtful commentary by all message board posters as well!

Dabqs