Saturday, April 25, 2009

Total Realty Trust
I am reading Dividend Capital Total Realty Trust, Inc.'s 2008 10-K. It is another dreary read. I've more to read, but its real estate securities are in trouble. In 2008 Total Realty Trust wrote down $192.7 million of its real estate securities (which Total Realty Trust classified as "other-than-temporary impairment charge" on the financial statements). The original face value of the securities was $246.50 million, meaning that 78% of the REIT's original investment was eliminated last year. Looked at another way this is approximately 12% of the amount that Total Realty Trust has outstanding in investor share capital (159 million shares at $10 per share, or $1.6 billion in outstanding investor capital (I made no adjustment made for any dividend reinvestment shares that would be priced somewhat lower than $10 and would raise the percentage that has been lost)). The real estate securities included CMBS and CRE-CDO (commercial real estate collateralized debt obligations). Total Realty Trust has another $106 million of real estate loans that includes mezzanine loans and B-notes (not sure what this means) that did not have any impairment charge in 2008.

Despite the write-off, Total Realty Trust is still selling shares to new investors at $10 per share. This is not unique to Total Realty Trust. Other non-traded REITs are selling shares at $10 per unit and have assets that have declined in value (pretty much any real estate asset bought before 2008). I have calculated some potential Net Asset Values for the Total Realty Trust. I am not sure whether I am am going to post them, but even using a low cap rate, the NAVs I calculated are much less than $10 per share.

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