Wednesday, April 23, 2008

From today's (Wednesday 4/23) Wall Street Journal's Plots and Ploys column:

Sharing the Pain

While the stocks of most real-estate investment trusts have fallen sharply in the past year, few have been clobbered as hard as Phoenix-based Feldman Mall Properties Inc., which owns four malls and holds partial interests in three others.

Feldman's shares have fallen nearly 83% to $2 and weren't helped a bit last week when the company reported disastrous results for its fourth quarter.

It suffered a decline of $2.1 million, or 15 cents a share, in funds from operations for 2007. A key factor was a near doubling of Feldman's operating expenses to $16.5 million, including an extra $1 million provision for missed payments by tenants and $2 million in severance for two departed executives.

But the pain from Feldman's losses isn't limited to its investors. Another victim is Inland American Real Estate Trust, another REIT, which in the past year bought two million preferred shares in Feldman for $25 a share. Starting June 30, 2009, Inland can begin converting its preferred shares to common shares at a ratio of 1.77. Trouble is, Feldman's stock has fallen; if Inland were permitted to convert its shares at today's prices, it would get stock worth only $7.1 million. An Inland spokesman declined to comment.

The loss is 85% of the original $50 million investment. In terms of Inland American's big picture, this is not much more than a blip. It has raised $6 billion in investor equity. It has not released its 10-K yet. Inland American's 10-K will be another interesting read because its whole strategy is to buy shares of REITs rather than individual properties. The decline in REIT prices due should make for interesting valuations and its valuation methods need scrutiny.

Wednesday, April 16, 2008

Black Swan
This is the new financial term. It means that large unpredictable, unexpected events have big impacts on the markets. I just saw a numb-nut on CNBC stating that two Black Swans are pending, one the unpredictability of LIBOR and the other is inflation. LIBOR has been out of whack since last summer and is the subject of a front page Wall Street Journal article this morning. Commodity prices have been hitting highs for months and food shortages and related riots are well reported. I have read numerous articles that the large cut in interest rates will lead to inflation - plus, this is Econ 101. Neither event, therefore, fit the definition of a Black Swan. When known events and conditions are called Black Swans the term is irrelevant. Here is a good article from the Financial Times discussing Black Swans.

Sunday, April 13, 2008

The IMH 10-K was released two weeks ago. Again, like Timberland, there is significant data to digest. A post will have to wait as other work is pressing. The amount of loans in default shot up in the fourth quarter - which to me, was not unexpected. There have been substantial redemption requests already this year. Defaults and redemptions - yikes. More details soon....
S@%t Rolls Downhill
Linens n Things is preparing to file for bankruptcy. There are multiple Tenant in Common deals with Linens as a tenant. This chain was taken private by Apollo Management in early 2006. Linens was not the only retailer that was taken private by hedge funds or private equity firms. Toys R Us, Petco and others were bought during the era of cheap credit. I imagine the hedge funds and private equity firms leveraged the companies and paid themselves huge dividends. Now this leverage is leading to bankruptcy. I will watch how the bankruptcy impacts the TIC deals I saw.
Pet Peeve
I hate when restaurants serve food in baskets. I don't eat from a basket at home and I don't want to eat from one in a restaurant.
If A Deal Falls In A Forest.....
I don't have time to probe the Timberland 10-K in depth. I think I have enough information - I have to wait for the 10-Q (due in mid-May) for more relevant data. An anonymous reply says about Timberland:

"It might be hard to sell stock in a black box. That's almost six months without pertinant (sic) financial data."

This is a perfect summation. This deal needs to raise substantial equity over the next six months just to keep its one property, and its current run rate is not encouraging. Timberland has become a high risk, high leverage, speculative investment. The investors and advisors that look to Wells do not, generally, look for high risk, high leverage, speculative investments.

Tuesday, April 01, 2008

Thornburg Mortgage
This is good news. It looks like Thornburg is going to make it through the credit crisis. Thornburg's equity investors got wiped out but at least it stays in business.