I have made available the latest find in our "REIT at Risk" search. This one has the makings of a grand slam. Subscribers, see Cashflows and Debt Preliminary Analysis (as usual, the latest downloads are listed in the left margin of the homepage). As excerpted from said report:
The shortfall indicates that it is virtually impossible for the company to retire the debt, thus it will have to refinance it at a higher rate or default. If the debt is refinanced in full, it will most likely breach covenants. Even if just the shortfall is refinanced, current credit facilities will be maxed out leaving no room for error and still possibly tripping covenants.
The Company has been meeting its debt obligations through credit facilities in the past 2 years. Its operating cash flows have not been enough to fund its debt repayments and we forecast the retail CRE market to take a material and structural downturn from here. Reference:
- The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet!
- The Conundrum of Commercial Real Estate Stocks: In a CRE "Near Depression", Why Are REIT Shares Still So High and Which Ones to Short?
- Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate
- 18% of its rents will likely be reduced in 2012 and an additional 21% will be reduced in 2012, unless we see a material firming in lease prices, an occurrence which we not only see happening but to the contrary we anticipate additional softening as demand dwindles.
- More than 75% of the property portfolio was purchased during the period 2003-2005. This was very close to the apex of the bubble, meaning the there is a very material chance that most (if not all) of these properties have declined significantly in value.
We are in the process of valuing this trust’s portfolio of properties on an individual basis in order to ascertain an accurate enterprise value and gauge both the likelihood and potential scenarios for default and/or fire sale of assets.