Thursday, 02 August 2012 08:25

PEI 2nd Quarter Earnings Review - Why Aren't Analysts Asking The Hard, Or Even The Obvious Questions??? Featured

I got this in my mailbox the other day:

How did PEI just refinance the Christiana Center with a $50 million loan when they are carrying the asset at a value of $30 million on its balance sheet?


Asset Value: 2011 10-K

 Well, that's a damn good question. If you recall, I went over PEI's portfolio with fine toothed, valuation comb in Q4 - reference When A REIT Trading Over $15 A Share Is Shown To Have Nearly All Of Its Properties UNDERWATER!!!

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 -  Results of Properties Analysis, Valuation of PEI with Lenders' Names. In putting a realistic valuation on PEI, we independently valued a sampling of 27 of its properties. We found that many if not most of those properties were actually underwater. Most of those that weren't underwater were mortgaged under a separate credit facility.   

PEI Underwater  Overly Encumbered Properties

If you haven't yet read parts one or two or three or four or five or six or seven in this series, its some engaging reading. Trust me! On that note, let's review my observations of the most recent quarter. Subscribers can download File Icon PEI Q2 Earnings Review _July 2012 to view the document in full.

Overall, the quarter has seen better performance compared to the previous ones. However, the negatives are:

  • The higher base rent achieved this quarter was due to a higher occupancy rate while the per square foot rental metrics continued to slide. I don’t foresee this trend reversing in the near future.  As a matter of fact, the likely course of the US, EU and Chino-Japan is that of recession. Reference RGE Monitor’s Christian Menegatti on US: No more risks of stall speed…stall speed is here, recession next?
  1. The US is witnessing 1.5% real growth through Q2 GDP - Sad.
    July ISM manufacturing data (with a headline still in contraction territory at 49.8) confirms last month’s weak reading. Most components moved roughly sideways- the exceptions included a jump up in inventories from 44 to 49 (which should be viewed as a negative development, amid falling new orders and exports) and a step down in employment (from 56.6 to 52).
    Employment is still positive, but note that it is a lagging indicator—the contraction territory reading of new orders and a worsening of export orders lead us to expect continued pressure on the labor market going forward.
  2. The drop economic outlook is most important when viewing PEI’s quarterly results. Despite the fact that PEI pulled some impressive base rent growth, a closer look at said growth is illuminating…

PEI rents

  1. Average base rent (per square feet basis) has decreased

(US$ per square feet)              

June 2011

June 2012

% Change

Malls Weighted Average




Consolidated Properties




Unconsolidated Properties




Same Properties




Pertinent observations:

Base rent (on a total rented basis) is growing in 93% of PEI’s properties (@1.17%) considerably slower than average base rent is decreasing (@-2.0%). Moving up 1.17 inches for every 2.0 inches you have moved down results in a lower position – period!

This means that if we revalue the Company’s property portfolio, it should be negatively impacted by lower average base rent, with that negative impact offset roughly 59% by the higher occupancy rate - which has increased. Of course, that still leaves us 41% underwater, doesn't it?

  1. The company has about 10% of its leases due for renewal in 2013, which if impacted by worsening economic condition described above, could negatively and materially impact the Company’s rental income.
  1. We see the Company as marginally being able to meet its debt obligations for 2012, and that’s assuming nothing else goes wrong in a macro environment that has new things going wrong nearly every weak!!! 

I will most likely launch my TV show sometime next week via YouTube as I shop it around to various networks, and I will included significant PEI analysis in the pilots. I welcome one and all to view and participate. Feel free to tell all of your friends, colleagues and associates about the guy kicking Wall Street in the balls...

PEI analysts

Compare everyone above to my analysis of PEI, then feel free to look at our track record throughout this malaise, starting from 2007. As a matter of fact, don't compare analysis, compare me against the entire banking establishment!!! 

We believe Reggie Middleton and his team at the BoomBust bests ALL of Wall Street's sell side research: Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

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