Chef Ptomaine

All the people rushing into Noodles & Co. stock this morning - it has doubled in price in its debut on NASDAQ to over $36 per share since it priced last night at $18 per share - must have never eaten at a Noodles & Co. restaurant. 

Columbia Preps For Listing

Columbia Property Trust, which was formerly named Wells REIT II, just filed an 8-K that notified investors it has hired investment bankers and attorneys to prepare the REIT for listing on a national exchange.  As part of the preparation, Columbia has suspended its dividend reinvestment plan and share repurchase plan.  These steps are normal as a non-traded REIT moves to liquidity.

Columbia announced a net asset value per share of $7.33 late last year.  It's my opinion that Columbia's valuation process is one of the most conservative - little management input on value calculations - of non-traded REITs, and I'm curious to see market reaction to the listing.   Columbia has approximately $5.4 billion of investor equity (~$6.1 billion in its offering, less ~$700 million of share redemptions), and originally offered its shares at $10.00 per share.

Today's notice to investors did not give any information on timing, although suspension of share repurchase and dividend reinvestment indicates to me a listing sooner rather than later; nor did it mention whether a listing would be immediate or staged over time in tranches, like Piedmont Office Realty Trust (Wells REIT I) used when it listed; or whether Columbia plans to use some form of tender offer to support the listing price.

Anagram My A#%

Behringer Harvard REIT I has changed its name to TIER REIT.  TIER is REIT spelled backward.  Oy vey.  I hope shareholders in the company formerly known as Behringer Harvard REIT I don't get stuck with the bill from the consultant that thought up this brilliant name. 

CMBS Slow Down

The jump in Treasury yields has hit the CMBS market.  Here is a Bloomberg article on CMBS issuance.  Investors are demanding higher yields, which impacts banks' profits (which I am guessing is an implication of an issuance slowdown).  The spread between CMBS and comparable swaps hit a low of 72 basis points in February, and yesterday Bank of America sold a CMBS with spread of 120 basis points.  The article has information on the current CMBS market:

Banks ramped up lending to commercial property owners with CMBS issuance poised to climb 50 percent to $70 billion this year, according to Credit Suisse Group AG. (CSGN) Sales had rebounded after plunging to $11 billion amid the credit market seizure in 2008 from a record $232 billion in 2007.

And this:

Loan rates for borrowers have climbed about 100 basis points, or 1 percentage point, over the past two months, JPMorgan analysts led by New York-based analyst Ed Reardon wrote in the June 21 report.

This passage on commercial real estate prices has plenty of percentages from a couple of property indexes, which I had trouble reconciling, but that showed strong gains in prices over the past year:

Commercial real estate prices increased 0.4 percent in April, and have gained 40 percent since bottoming in January 2012, according to Moody’s Investors Service. The S&P/Case-Shiller index of property values increased 12.1 percent from April 2012, the biggest year-over-year gain since March 2006, after advancing 10.9 percent a month earlier, a report showed today in New York.

REIT Links

Here are several articles on REITs.

The first is from this morning discussing the recent drop in REIT pricing, as REIT's react to rising interest rates.

The second is from Tuesday, and goes into detail on the slump in mortgage REIT share prices (which haven't improved since the article was posted).

Finally, the Wall Street Journal reports on net lease REITs.  The article is dated June 18, 2013.

Chamber's Tender Results

Chambers Street Properties Trust (CSG) - formerly the CB Richard Ellis Trust - a $2.5 billion in equity non-traded REIT, released the results of its Dutch Auction tender this morning.  Chambers listed on the NYSE in May, and it offered a $125 million Dutch Auction tender offer concurrent with the listing.  The $125 million represented approximately 5% of the equity Chambers raised in its offering.   Investors tendered 76,107,253 shares, or 30.57% of the outstanding shares.  Chambers accepted 12,376,237 shares for tender, 16.26% of the amount tendered.

The original share price for the CB Richard Ellis shares was $10.00.  The Dutch Auction had a stated range of $10.10 to $10.60 per share.  All shares were tendered at $10.10 per share.

Update:  Stated another way, the Chambers Street Tender was six times oversubscribed.

Just Sayin'

Day-to-day market moves are unpredictable, but Cole Real Estate Investments couldn't have picked a worse day to list its shares.  Today, the Dow, S&P 500 and NASDAQ were each off more than 2.0%, and the yield on the ten-year Treasury jumped eleven basis points.

Update:  Here is a Bloomberg article on COLE's listing.

Update Update:  Here is a video of COLE CEO Marc Nemer on CNBC's Squawk Box. 

Open Market

Cole Real Estate Investments' (COLE) stock is trading on the NYSE.   Early this morning Cole announced a $250 million Dutch Auction tender offer, where it will purchase properly tendered shares at prices "not greater than $13.00 nor less than $12.25 per share."  The tender offer expires August 8, 2013.  The $250 million tender offer represents approximately 5% of the equity raised in Cole Credit Property Trust III.  Following the completion of the tender offer, COLE has made available additional $250 million to repurchase shares on the open market.

In a June 5, 2013, filing, COLE stated that it expected to have $500 million available to fund a tender offer and a secondary market purchase program to support liquidity in the period following listing.  So, the $500 million is being split between the tender offer and the share repurchase program.

This morning COLE announced that Christopher Cole agreed to waive a $7.5 million equity award.

COLE, in initial trading, is pricing above the $10 per share paid by investors, but less than the tender offer prices. 

COLE-List-mas Eve

I feel like an eight-year old on Christmas Eve!  Cole Real Estate Investments' (COLE) imminent listing is the most exciting event to hit the world of non-traded REITs, since, well, ARC's last liquidity event.  Tomorrow, COLE's $4.9 billion of investor equity - which was raised over multiple years - becomes fully liquid, and we still don't even know the price COLE will offer to tender $500 million of shares.   How exciting!  At least I won't have to wait for the adults to get back from church to open presents.  I expect Santa to deliver a wave of emails filled with COLE filing data by 4:00 a.m. 

It stinks getting old.

COLE Listing

According to InvestmentNews, Cole Real Estate Investments is listing its shares on the New York Stock Exchange tomorrow under the symbol COLE.  COLE raised $4.9 billion in equity through Cole Credit Property Trust III.  InvestmentNews had no information on the pricing for COLE's $500 million tender offer, and I have no additional information on the listing other than what's in the article. 

Who is GSO?

The Franklin Square business development companies (BDCs) are the 800-pound gorillas in the world of non-traded BDCs.  Franklin Square's association with Blackstone Group is touted as a key competitive advantage for its three BDCs.  Look closer, and you'll find that the Franklin Square BDCs are managed by a company Blackstone Group purchased in 2008 called GSO Capital.  GSO is a leader in alternative credit financing, which is a fancy way to say it's now funding companies that banks stopped lending to after the credit crisis of 2008.

Here is a link to a fascinating, detailed Institutional Investor article on GSO.  It's a must-read piece for anyone working with or buying alternative credit investments, which for retail investors have arrived in the form of BDCs.  The principals of GSO have deep pedigrees in junk and alternative credit, dating back to the 1980s and early 1990s with Drexel Burnham Lambert and DLJ.  (I use the term alternative credit to describe debt investments that are not bank loans or traditional bond financing.) 

GSO is more than just a sub-advisor for the Franklin Square BDCs.  According to the article, it manages $58 billion in assets and has grown five-fold since Blackstone acquired it: 

With $58 billion in assets under management and 235 employees, GSO has grown fivefold under the Blackstone umbrella. Today it offers $27 billion in alternative-investment funds, including the now $4 billion hedge fund, $8 billion in mezzanine funds — financing buyouts for private equity — $8 billion in rescue lending and $7 billion in small-cap direct lending. The firm’s long-only strategies include a $24 billion CLO business, making GSO the largest institutional investor in leveraged loans, as well as closed-end and other funds.

For perspective, the three GSO-managed Franklin Square BDCs have raised approximately $5 billion in equity.

There is plenty of information to absorb in the article, including GSO's thoughts on the current domestic credit markets (cautious) and where it's looking for opportunities (Europe).  The main point I took away is that alternative credit is a big business that's not going away.

Oil Exports

Here is a Bloomberg article on the United States becoming a potential oil exporter.  I didn't know Congress banned oil exports in the 1970s, I just assumed that domestic demand was so great and that we imported so much oil, there was no excess crude to export.  Hydraulic fracturing (fracking) is leading to supply increases, and last year US oil production set a record. 

United Realty, We Barely Knew Ye

Non-traded REIT, United Realty Trust, pulled its offering after its distributing broker / dealer, Allied Beacon, ran "afoul of net capital regulations," according to InvestmentNews.   The InvestmentNews article says the REIT has $24.9 million in assets, and that it intends to engage another dealer manager.  United Realty's 10-Q is worth a glance.

Timber Transaction

Weyerhauser is buying Longview Timber for $2.65 billion in the third largest timber transaction in US history.  Most of Longview Timber's land is in the Pacific Northwest, and two-thirds is covered with valuable Douglas Fir.  Bloomberg has the details.  The sale coincides with news that home builder confidence is at its highest level since March 2006.

Energy Chutzpah

This blog's old friend, Aubrey McClendon, is back (he left Chesapeake Energy at the end of Marcy) and looking to raise $1 billion for his new energy venture, American Energy Partners, LP.  The Wall Street Journal has the details.  Here a few of the passages that stood out to me:

Now that he is pitching Wall Street on his new energy company, Mr. McClendon is asking for a lot of money, an unusually large slice of profits and a high degree of control over his business.

It isn't clear he will get what he wants this time.

In April, after setting up shop in a six-story Oklahoma City building and conducting informal meetings with prospective backers, Mr. McClendon, 53 years old, sent a six-page letter to about a dozen private-equity firms.

The letter said that Mr. McClendon wants to raise between $2 billion and $3 billion of "initial equity capital" for his new exploration-and-production company, American Energy Partners LP.

It sounds like he is asking for complete control of the new investment vehicle and a 50% profit participation.  Further in the article was this section:

Some who have invested with Mr. McClendon in past energy deals or dealt with him on other matters said his strategy may be to ask for a lot, even if some investors blanch, and see what he has to settle for when the time comes to cut a deal.

For now, some private-equity investors said they aren't reaching for their checkbooks.

Several investors who received the letter said they were taken aback by Mr. McClendon's terms. Some of these investors said their own guidelines may prevent them from investing with someone maintaining as much control over a business as Mr. McClendon's letter suggests he would have.

"The number was aggressive and the terms were aggressive," said one energy investor who has regular dealings with Mr. McClendon.

It didn't take long for McClendon to get back to raising capital, and his penchant for self-interest seems unabashed.  

Are Data Centers Real Estate?

The IRS is questioning whether companies that own data center properites, along with other types of property owners, like outdoor advertisers, meet the qualifications of a REIT.  Bloomberg has some details. 

Exemptive Relief

Business Development Companies (BDCs) are regulated investment companies that must follow strict investment and operational guidelines.  BDCs are prohibited from participating in transactions with affiliates.  Because non-traded BDCs are either advised or sub-advised by external companies that originate or can originate investments, the inability to participate in affiliated transactions is viewed by BDC sponsors as a tough restriction.  In response, BDCs have filed for what's known as "exemptive relief" from the SEC to allow them to participate in affiliated transactions while maintaining their status as BDCs. 

The SEC has been selective in granting exemptive relief.  But late last month the SEC granted the CNL / KKR BDC, Corporate Capital Trust, relief, and today all three Franklin Square BDCs - FS Investment Corp, FS Investment Corp II and FS Energy and Power Fund - announced that they have been granted relief.  These BDCs can now participate - and earn origination income - in investments originated by affiliates of their sub-advisers.   I don't know the full impact of this change, but I expect to see a big jump in affiliated investment participations. 

New Listing. Coming Soon!

Yesterday, Colony American Homes Inc. delayed its planned initial public offering due to "market conditions." Colony American would have been the third IPO since December 2012 for real estate investment trusts (REITs) that exclusively buy, lease and manage single family homes.  Reuters has some details on the deal.

Colony American is affiliated with Los Angeles private equity firm Colony Capital.   It's been a rough couple of weeks for REITs and other high yielding stocks and bonds, which I'm sure played into Colony's decision.  I am curious whether rising interest rates and lack of housing supply helped spook investors. 

The following is from Colony American's S-11 and details its holdings and expected cash:

Colony American Homes, Inc. is a market leader in the acquisition, ownership, renovation, leasing and management of single-family properties in the United States. Our growing portfolio consisted of 9,931 homes as of April 30, 2013, which we believe is one of the largest portfolios of single-family homes in the United States. We are externally managed by CAH Manager, LLC, or our Manager, a subsidiary of Colony Capital, LLC, a leading real estate private equity firm that has established 44 investment vehicles and raised over $20 billion of equity capital since its founding in 1991.

As of April 30, 2013, our portfolio consisted of 8,764 wholly owned homes and 1,167 homes owned in a joint venture, which are concentrated in attractive sub-markets within Arizona, California, Colorado, Delaware, Florida, Georgia, Nevada, Pennsylvania and Texas, offering us significant operating efficiencies and economies of scale. Our portfolio is comprised of homes acquired from a variety of sourcing channels by means of various types of transactions, including trustee auctions, Multiple Listing Service, or MLS, short sales, “mini-bulk” portfolios ranging from five to 500 homes, government-sponsored entities, or GSEs, and real estate owned, or REO, from banks. Our strategy is to continue to grow our portfolio in our existing sub-markets and also to strategically expand our footprint to additional markets where conditions support attractive investment returns.

The estimated total cost basis for our wholly owned homes as of April 30, 2013 was $1.4 billion, inclusive of acquisition and actual and estimated upfront renovation costs. The average total cost basis per home, inclusive of acquisition and actual and estimated upfront renovation costs, was approximately $163,000, representing an average estimated investment cost per square foot of approximately $92. For vacant homes, through April 30, 2013, we have incurred, on average, actual and estimated upfront renovation costs of approximately $20,000 per home. In the period from May 1, 2013 through May 17, 2013, we acquired 879 homes with an estimated total cost basis of $151 million, inclusive of actual and estimated upfront renovation costs. In addition to our portfolio of owned properties, as of May 17, 2013, we had 1,437 homes under contract, representing a total purchase price of $226 million. Including homes acquired and under contract through May 17, 2013, we expect to have a portfolio of 12,247 homes with an estimated total cost basis for our wholly owned homes of approximately $1.8 billion, as of May 17, 2013.

Upon completion of this offering and our use of existing cash balances to fund acquisitions through May 17, 2013, we expect to have approximately $860 million in cash available for future acquisitions and working capital. In addition, we currently have no outstanding indebtedness, but are in the process of negotiating to obtain a credit facility to provide us with additional capital to support further growth in our business.

I wouldn't doubt that the market felt $860 million is a significant sum with which to buy homes in a rebounding housing market.   

I would not bet against Colony Capital, and believe this delay is nothing but a speed bump.  Colony American owns 12,247 single family rental homes, and I am still convinced these, along with other institutional investor owned homes, are now permenant rentals.

Cole Filings

Cole Credit Property Trust III is now Cole Real Estate Investments Inc. (CREI).  As it moves to its listing, CREI made two important filings this morning.  The first stated that CREI has changed its name to the aforementioned Cole Real Estate Investments Inc., and declared a 7.0% distribution, an increase from the previous 6.5% distribution.  CREI appointed Jeffery Holland as President and Chief Operating Officer and Stephan Keller as Chief Financial Officer and Treasurer.  CREI has amended its credit agreements to increase the amount it has available to borrow to $518 million.

In a second filing, CREI provided some listing details.  It will list on the NYSE under the symbol COLE in June.  It is a full listing, so 100% of shares are "freely tradeable on day 1."  CREI expects a $500 million tender offer to support its liquidity, which corresponds to the $518 million of new borrowing capability under the amended credit facility.  The filing did not list a tender offer price, stating instead "details to come."    

Bond Market Recap

I saw this Bloomberg article over the weekend summarizing the bond market's awful recent performance.  The article won't brighten your Monday, but it does have good information.

More, More Hunger Games

American Realty Capital Trust IV (ARCT IV), which raised a staggering $1.05 billion in investor capital in March 2013, to close its $1.70 billion equity offering, announced this morning it has acquired a $1.45 billion portfolio of net leased properties from GE Capital.  This follows American Realty Capital Properties' (ARCP) announcement on Friday that it had acquired $800 million of GE Capital properties.  Bloomberg has the details on the ARCT IV's the transaction.  Note that the article appears to confuse the amount of equity ARCT IV plans to use in the transaction.  The REIT is obviously not using its entire $1.70 billion of equity on this acquisition.

More Hunger Games

On Friday, American Realty Capital Properties (ARCP) announced its second acquisition in a week, acquiring a $807 million portfolio of net leased assets from GE Capital.  Early last week ARCP agreed to acquired NYSE-listed CapLease in a $2.2 billion transaction.  According to Bloomberg, the 471-property GE Capital portfolio consists mainly net leased restaurant properties, including IHOP, Jack in the Box, Burger King and Taco Bell.  The transaction allows ARCP to achieve its 2013 goal of $1.1 billion in acquisitions, and pushes number of properites to over 1,200.