This is a corrected and extended update of my glance into the Macerich update. This post was delayed due to material data input errors which have been rectified. I've decided to offer a peak into the ongoing analysis of its property portfolio, which combined with its credit and cash flow situation brings to mind the concerns that I have had about GGP about a year before it collapsed (see "GGP and the type of investigative analysis you will not get from your brokerage house.").

In looking at the data that I am about to display, I want readers to think of MAC as an investment entity that you, yourself, would run as a real estate investor. Think of your ability to make money over time, and the viability of your entity if you would actually lose money. As a property investor, I view MAC's properties in terms of being underwater or being profitable on a capital appreciation and NOI basis. As of 11/09, many of MAC's properties are significantly underwater, the ramifications of which depend on the financing utilized, since the use of debt has literally wiped out all of the equity in some, has made others require an equity infusion to roll over the mortgage, and has simply destroyed shareholder capital in other cases.

Even those properties that are 100% equity financed represent a material loss to shareholders where they are underwater. As you will read below, this has occurred in many instances. Very few publicly disseminated REIT analyses seem to take into consideration the ramifications of REITs actually losing money on investments that don't have large loans against them. They should, though. A loss, is a loss, is a loss. Leverage simply amplifies the loss. That being said, if I paid $30 million in cash for a property that is currently worth $20 million, I lost $10 million (less the real income derived from that property since acquisition) - no matter which way you look at it. At least with a cash purchase, I may have the option of riding it out to hope that the market returns. If I bought the property with a 70% LTV, $21 million loan), not only have I taken a 110%+ loss, but I would probably be forced to write the property off come time to refinance the loan. The leverage significantly reduces my flexibility. This is what happened to GGP.

The next question is, "Will the market come back to where it was when I made these high priced, high leverage purchases?". Reggie's assertion is, "No time in the near future!". Let's take a look at Richard Koo's chart on the Japanese asset bubble, after GDP started to ramp up...











Published in BoomBustBlog
Monday, 07 December 2009 00:00

The Latest REIT Updates are Now Available

In case subscribers haven't noticed, I have decided to decrease the frequency of analysis in order to increase the depth of the subjects analyzed. Due to the market's detachment from the fundamentals (a phenomenon that looks like it has just about run its course, btw), fundamental practitioners must tread very, very carefully. On that note, I am releasing the 2nd REIT analysis, which I feel makes for an outstanding short opportunity, particularly in comparison to the previous analysis whose subject has no immediate and/or pressing concerns. This is the most comprehensive work performed in the real estate space since the GGP project, and has the potential to be just as successful as well. The professional version of the document is nearly 30 pages long, and although it is dense reading, I strongly recommend subscribers read through every page very carefully. The retail version is twice its normal length as well.

There will be a substantial amount of follow up analysis and opinion coming. Basically, I am at loggerheads with Goldman Sachs who has out a buy call on the banking and CRE space, wherein my readers know that I am very bearish on this space for fundamental reasons for 2010. I will present evidence to support my case both privately through the subscription services and public through the blog by pulling up instances in the past when GS turned bullish on real estate and what happened to those clients a year or two afterwards.

Enjoy!

MAC Report Consolidated 051209 Retail MAC Report Consolidated 051209 Retail 2009-12-07 03:46:49 580.11 Kb

MAC Report Consolidated 051209 Professional MAC Report Consolidated 051209 Professional 2009-12-07 03:48:11 1.03 Mb

Published in BoomBustBlog

This is a corrected and extended update of my glance into the Macerich update. This post was delayed due to material data input errors which have been rectified. I've decided to offer a peak into the ongoing analysis of its property portfolio, which combined with its credit and cash flow situation brings to mind the concerns that I have had about GGP about a year before it collapsed (see "GGP and the type of investigative analysis you will not get from your brokerage house.").

In looking at the data that I am about to display, I want readers to think of MAC as an investment entity that you, yourself, would run as a real estate investor. Think of your ability to make money over time, and the viability of your entity if you would actually lose money. As a property investor, I view MAC's properties in terms of being underwater or being profitable on a capital appreciation and NOI basis. As of 11/09, many of MAC's properties are significantly underwater, the ramifications of which depend on the financing utilized, since the use of debt has literally wiped out all of the equity in some, has made others require an equity infusion to roll over the mortgage, and has simply destroyed shareholder capital in other cases.

Even those properties that are 100% equity financed represent a material loss to shareholders where they are underwater. As you will read below, this has occurred in many instances. Very few publicly disseminated REIT analyses seem to take into consideration the ramifications of REITs actually losing money on investments that don't have large loans against them. They should, though. A loss, is a loss, is a loss.  Leverage simply amplifies the loss. That being said, if I paid $30 million in cash for a property that is currently worth $20 million, I lost $10 million (less the real income derived from that property since acquisition) - no matter which way you look at it. At least with a cash purchase, I may have the option of riding it out to hope that the market returns. If I bought the property with a 70% LTV, $21 million loan), not only have I taken a 110%+ loss, but I would probably be forced to write the property off come time to refinance the loan. The leverage significantly reduces my flexibility. This is what happened to GGP.

The next question is, "Will the market come back to where it was when I made these high priced, high leverage purchases?". Reggie's assertion is, "No time in the near future!". Let's take a look at Richard Koo's chart on the Japanese asset bubble, after GDP started to ramp up...

This is a corrected and extended update of my glance into the Macerich update. This post was delayed due to material data input errors which have been rectified. I've decided to offer a peak into the ongoing analysis of its property portfolio, which combined with its credit and cash flow situation brings to mind the concerns that I have had about GGP about a year before it collapsed (see "GGP and the type of investigative analysis you will not get from your brokerage house.").

In looking at the data that I am about to display, I want readers to think of MAC as an investment entity that you, yourself, would run as a real estate investor. Think of your ability to make money over time, and the viability of your entity if you would actually lose money. As a property investor, I view MAC's properties in terms of being underwater or being profitable on a capital appreciation and NOI basis. As of 11/09, many of MAC's properties are significantly underwater, the ramifications of which depend on the financing utilized, since the use of debt has literally wiped out all of the equity in some, has made others require an equity infusion to roll over the mortgage, and has simply destroyed shareholder capital in other cases.

Even those properties that are 100% equity financed represent a material loss to shareholders where they are underwater. As you will read below, this has occurred in many instances. Very few publicly disseminated REIT analyses seem to take into consideration the ramifications of REITs actually losing money on investments that don't have large loans against them. They should, though. A loss, is a loss, is a loss.  Leverage simply amplifies the loss. That being said, if I paid $30 million in cash for a property that is currently worth $20 million, I lost $10 million (less the real income derived from that property since acquisition) - no matter which way you look at it. At least with a cash purchase, I may have the option of riding it out to hope that the market returns. If I bought the property with a 70% LTV, $21 million loan), not only have I taken a 110%+ loss, but I would probably be forced to write the property off come time to refinance the loan. The leverage significantly reduces my flexibility. This is what happened to GGP.

The next question is, "Will the market come back to where it was when I made these high priced, high leverage purchases?". Reggie's assertion is, "No time in the near future!". Let's take a look at Richard Koo's chart on the Japanese asset bubble, after GDP started to ramp up...

As predicted by Zerohedge (see Is Goldman Preparing To Upgrade The REIT Sector?) and probably preordained by their underwriting of REIT debt a couple of weeks ago (see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off), Goldman Sachs has upgraded the US REIT sector, and put a buy recommendation on Taubman.

If I were you I would keep my eyes open for additional Goldman underwritings in the REIT space in order to help said entities out of their bad debt dilemma, which of course doesn't exist since Goldman just recommended that we buy these companies. That is, until said analysts/strategist leave the employ of their respective bank - then all of a sudden the truth comes out.

Don't believe me, see the off Broadway version of the "Pump 'em and Dump 'em" play - "Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!." Don't forget to notice the change of heart of the head REIT analyst right after he leaves Merrill Lynch.

Of course, Wall Street analysts have absolutely nothing to do with their investment banking, broking and trading brethren, Right????

The post on Macerich that I released for a few hours yesterday had a material data input error causing some of the unconsolidated numbers to be off. It is being corrected and I will re-post it once it is fully checked.

As predicted by Zerohedge (see Is Goldman Preparing To Upgrade The REIT Sector?) and probably preordained by their underwriting of REIT debt a couple of weeks ago (see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off), Goldman Sachs has upgraded the US REIT sector, and put a buy recommendation on Taubman.

If I were you I would keep my eyes open for additional Goldman underwritings in the REIT space in order to help said entities out of their bad debt dilemma, which of course doesn't exist since Goldman just recommended that we buy these companies. That is, until said analysts/strategist leave the employ of their respective bank - then all of a sudden the truth comes out.

Don't believe me, see the off Broadway version of the "Pump 'em and Dump 'em" play - "Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!." Don't forget to notice the change of heart of the head REIT analyst right after he leaves Merrill Lynch.

Of course, Wall Street analysts have absolutely nothing to do with their investment banking, broking and trading brethren, Right????

The post on Macerich that I released for a few hours yesterday had a material data input error causing some of the unconsolidated numbers to be off. It is being corrected and I will re-post it once it is fully checked.

Wednesday, 02 December 2009 00:00

A note on the latest REIT reports

Subscribers, please see the note in the discussion forums here .

Published in BoomBustBlog

First, a quick news scan:

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

Published in BoomBustBlog

The TCO reports are now available. Here is an excerpt from the Professional level report:

The following table summarizes the valuation of each property through NOI-based and CFAT-based approaches. Individual property valuations will be discussed in detail separately, and released to professional subscribers.

Click to enlarge...

tco_ltvs.png
The two deep underwater properties - The Piers Shops at Caesars and Regency Square were written down to the fair value by recording impairment charge in 3Q09. While the former is being handed over to the lenders for auction proceedings, the latter still remains with the Company and the Company continues to service its debt obligations. Additionally, there are 5 more properties with LTV of more than 80%, making them highly susceptible to reach the negative equity territory in case of further declines in rentals or increase in cap rates.

It is noteworthy that properties with high LTV include a) the new developments during 2005- 2008 phase and b) the existing properties against which additional debt was raised during 2005-2008. Among the properties with LTV of more than 80%, Northlake Mall was the new development in 2005, The Piers Shops was acquired in 2007, while additional debt was raised against International Plaza, The Mall at Short Hills, The Mall at Wellington Green and Waterside Shops during 2005-2008.

Additionally, there are four properties - MacArthur Center, The Mall at Partridge Creek, Stony Point and Westfarms - with LTVs in the "immediately at risk" zone.

So, I am sure many are wondering if these properties are destined to be written off, or what??? Well, let's look at the trend...

cap_rate_trend.png

Sharply rising cap rates combined with...

mall_vacancies.png

Dramatically increasing mall vacancies.

Subscribers can download the full reports here:

TCO Report - Retail TCO Report - Retail 2009-11-27 11:41:15 355.95 Kb

TCO Report - Professional TCO Report - Professional 2009-11-27 11:42:05 663.14 Kb

I will probably be releasing the lenders to these properties in the upcoming week. Any banks that have economic interests in these properties, or others should feel free to reach out to me via phone or email to discuss my research.

Published in BoomBustBlog

The TCO reports are now available. Here is an excerpt from the Professional level report:

The following table summarizes the valuation of each property through NOI-based and CFAT-based approaches. Individual property valuations will be discussed in detail separately, and released to professional subscribers.

Click to enlarge...

tco_ltvs.png                      
The two deep underwater properties - The Piers Shops at Caesars and Regency Square were written down to the fair value by recording impairment charge in 3Q09. While the former is being handed over to the lenders for auction proceedings, the latter still remains with the Company and the Company continues to service its debt obligations.  Additionally, there are 5 more properties with LTV of more than 80%, making them highly susceptible to reach the negative equity territory in case of further declines in rentals or increase in cap rates.

It is noteworthy that properties with high LTV include a) the new developments during 2005- 2008 phase and b) the existing properties against which additional debt was raised during 2005-2008. Among the properties with LTV of more than 80%, Northlake Mall was the new development in 2005, The Piers Shops was acquired in 2007, while additional debt was raised against International Plaza, The Mall at Short Hills, The Mall at Wellington Green and Waterside Shops during 2005-2008.

Additionally, there are four properties - MacArthur Center, The Mall at Partridge Creek, Stony Point and Westfarms - with LTVs in the "immediately at risk" zone.

So, I am sure many are wondering if these properties are destined to be written off, or what??? Well, let's look at the trend...

cap_rate_trend.png

Sharply rising cap rates combined with...

mall_vacancies.png

  Dramatically increasing mall vacancies.

Subscribers can download the full reports here:

TCO Report - Retail TCO Report - Retail 2009-11-27 11:41:15 355.95 Kb

TCO Report - Professional TCO Report - Professional 2009-11-27 11:42:05 663.14 Kb

I will probably be releasing the lenders to these properties in the upcoming week. Any banks that have economic interests in these properties, or others should feel free to reach out to me via phone or email to discuss my research.