Friday, March 13, 2015

Bad Guess

Last week I guessed at a price of $6.50 per share for CNL Lifestyle's new net asset value.  I was not close, not even in the same county close.  In an 8-K filing on March 10, 2015, CNL Lifestyle disclosed a new NAV estimate of $5.20 per share, down 24% from the $6.85 per share estimate at the end of 2013.  Read the 8-K, the candor of certain statements is jarring, like the following passages that help explain why the REIT's NAV dropped from $6.85 per share to $5.20 in one year:
Based on discussions between Jefferies and more than 150 potential buyers over the course of the last year, the Company has determined that the value of its assets is lower than the NAV per share of common stock as of December 31, 2013 (the “2013 NAV”). This price discovery data was not available in prior valuations and represents the most significant factor in the decrease of the 2014 NAV from the 2013 NAV. 
Another factor driving the reduction of the 2014 NAV was portfolio performance that, in certain instances, did not meet the Company’s, its operators’ or CBRE’s forecasts. 
CNL Lifestyle's investment banker, Jefferies, shopped the REIT and its assets to more than 150 potential buyers and was told that the $6.86 per share price was too high ("price discovery").  In addition, the assumptions (i.e. net operating income, cap rates, etc.) the REIT used to determine value in early 2014 were too optimistic.  This REIT purchased plenty of niche assets during a real estate boom, so you can't play revisionist today, but a near halving of value is still ugly.


Anonymous said...

Can't wait to see CNL on NPH's platform. Any day now.

Anonymous said...

With these stealer results and track record, you should sell a lot of product on this platform. Makes sense - maybe that is why NPH is losing a lot of their advisors.

Anonymous said...

With CNL, it was not just the reduction of equity as a result of the real estate price decline since purchase. The REIT returned a hefty chunk of principal for many years, (they were raising capital for 6+ years ?), and I don't think they ever generated enough cashflow to support the dividend during that stretch or after during the operating period, until reducing the dividend, and it turns out the buybacks since inception have been at a premium to true NAV further reducing the remaining NAV for current shareholders. Leverage of course amplifies all of this, which could have been positive had the market gone the other way, but weighs heavy in each of these areas.