Monday, 23 July 2012 09:27

PEI Fire Sale? Unlikely... Why? Because There's So Little Worth Selling - Yes, It's That Bad!!! Featured

This is part seven and the last (I think) of my forensic rant on what I believe to be the CRE Short of the Year and the dead REIT walking known as PEI. In this installment, I will show that PEI can't even sell off it's portfolio due to a lack of value add to its rather dire situation - nearly all of the properties are either underwater, negative cash flowing or fully leveraged. As concluded in my previous analyses, the company's assets are, in essence, of null or negative value to the shareholder. If you haven't yet read parts one or two or three or four or five or six, please do for there is a wealth of data and analysis behind them that will bring the new reader up to speed. Please refer to PEI Cashflows and Debt Preliminary Analysis, PEI Sample Property Valuation  and  PEI Foreclosure Scenario Analysis for the background to this document which is the 3rd of 3 scenario analyses that detail the likely bankruptcy of PEI.

Scenario III : Sale of properties to fund debt repayment

The “fire sale” or distressed asset disposition scenario seems like the least possible, least likely and the least practical scenario. The reason is that the Company’s portfolio has either properties (1) which have negative valuation after considering debt due on them or (2) have properties that don’t have specific debt against them but are mortgaged under the revolving credit facility.

Please see the details on valuation of 27 properties we have valued…

PEI Underwater  Overly Encumbered Properties
PEI Underwater Overly Encumbered Properties

The properties that we didn't specifically value had similar characteristics. Those properties that are highlighted in blue do not have a mortgage, but are used to collateralize credit facilities that are being actively used and are expected to be maxxed out.

PEI Properties Not Valued By BoomBustBlogPEI Properties Not Valued By BoomBustBlog

As illustrated above, almost all properties with a positive valuation (see Column L) lack property-specific debt against them. But all of these properties have been encumbered under the revolving credit facility. The properties not covered under the revolving credit facility and having positive valuation after deduction of debt due on them are (1) Exton Mall (2) Moorestown Mall (3) Patrick Henry Mall. The total positive value of these three properties is around USD 36 mn which is insufficient to meet net refinancing requirement of USD 295 mn (as of Nov. 2011) as detailed below:

Amount (USD million) – 2012

Cash at the beginning – Jan 2012


Cash flows from operations


Unused credit lines


Debt due for repayment


Shortfall (before proceeds from sale of properties)


Paid subscribers are welcome to download the corporate level valuation of PEI as well as all of the summary stats of our findings on its various properties. The spreadsheet can be found here - File Icon Results of Properties Analysis, Valuation of PEI with Lenders' Names

The complete REIT analysis referred to in the chart can be found here for subscribers (the property by property valuations are for Professional/Institutional subscribers only):

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