Forest City - 7%+ On The Debt Is Not Enough [View article]
Great analysis. I would mention a few things that I would look at a little differently. Firstly, the peer group is a little skewed. I would find comparables that have a REOC structure vs. a REIT (i.e. FCE is a REOC not a REIT). Simon Property Group, Kimco, and Tanger are not in my mind the same type of company.
That being said REOCs face fewer restrictions than REITs with regards to paying out dividends, allocation of capital expenditures on existing assets and have different ownership structure. This may explain their ability to invest in such things as the Brooklyn Nets. I do like how you outlined their diversification of asset types. It concerns me that they have a large amount of lease renewals coming due in 2013 as we are still in a "down" real estate cycle specifically in retail and office which appear to have the largest concentration. Additionally, regarding your observation of the land group investments, my understanding is that they have now fully divested themselves from the majority of land holdings in 4Q2011. We can see that the company has started to de-leverage it's balance sheet, which may be a result of its sell-off of non-core assets to help in this process. I think your conclusion about the riskiness of these notes is absolutely spot-on. The risk in the market and the unknowns regarding future debt maturities and tenant roll-over in a volatile market should reward a bigger upside from debt investors. I think the assets under development (seen in the company's 10K) may result in future opportunities for growth if all goes right. However, the costs of holding these assets in place and turning them out in a "down-market" could be very bad for the holders of these notes. Those are my thoughts. Great job on this.
Forest City - 7%+ On The Debt Is Not Enough [View article]
That being said REOCs face fewer restrictions than REITs with regards to paying out dividends, allocation of capital expenditures on existing assets and have different ownership structure. This may explain their ability to invest in such things as the Brooklyn Nets. I do like how you outlined their diversification of asset types. It concerns me that they have a large amount of lease renewals coming due in 2013 as we are still in a "down" real estate cycle specifically in retail and office which appear to have the largest concentration. Additionally, regarding your observation of the land group investments, my understanding is that they have now fully divested themselves from the majority of land holdings in 4Q2011. We can see that the company has started to de-leverage it's balance sheet, which may be a result of its sell-off of non-core assets to help in this process. I think your conclusion about the riskiness of these notes is absolutely spot-on. The risk in the market and the unknowns regarding future debt maturities and tenant roll-over in a volatile market should reward a bigger upside from debt investors. I think the assets under development (seen in the company's 10K) may result in future opportunities for growth if all goes right. However, the costs of holding these assets in place and turning them out in a "down-market" could be very bad for the holders of these notes. Those are my thoughts. Great job on this.