Saturday, June 03, 2006

But You're Not Saying Anything
The legal disclosure in prospectuses (or how lawyers can write and present tables for hundreds of pages and not say anything) can be frustrating. CNL combined its restaurant REIT and its income partnerships (I through XVIII) and merged these with an existing company, US Restaurant Properties. The new name is Trustreet Properties (TSY) and it began trading on February 24, 2005. CNL's track record goes on for pages and no mention of the conversion is made. The name of the new entity is buried in an appendix's footnote.

I am not clear as to why the presentation is so opaque because the results are not horrible. I guess it is the company's preference for secrecey and disclosing what legally needs to be disclosed - good new or bad. Whether the diclosure is coherent is another matter and probably irrelevent. I would challenge any investor reading the CNL Income Properties prospectus to determine what happened to all those old partnerships. And what was paid for the management company? This is not in the prospectus either.

Investors received cash and convertible preferred stock. The stock has dropped from $18 to about $13. I am not sure what the conversion or target IPO price was, but it was probably near $20. The convertible stock is convertible anytime with one preferred share convertible into 1.28 common shares at $19.50 per share. The preferreds have never traded "in the money," and convertible preferreds typically trade at a lower yield than non-convertible preferreds. My first instinct is that investors did OK, not great, and likely could have and should have done better.

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