Monday, 02 November 2009 00:00

Reggie Middleton on BOKF's 3Q09 Results

Here is my review of the BOKF 3rd quarter results. BOKF has performed relatively well in comparison to other regionals, but the caveats and basis of the orignal thesis that we warned about in the forensic preview are still valid. See:

BOK 1Q09 BOK 1Q09 2009-05-07 06:34:52 460.74 Kb

BOK 2Q09 review BOK 2Q09 review 2009-08-01 05:04:06 1.05 Mb

March Actionable Note - Banking Sector BK March Actionable Note - Banking Sector BK 2009-03-03 11:58:22 184.25 Kb

March 2nd Actionable Note Preview - banking March 2nd Actionable Note Preview - banking 2009-03-02 09:44:20 61.88 Kb

and an off topic piece that BOKF just happened to be involved in... Deposit Insurance Arbitrage

Published in BoomBustBlog
Sunday, 01 November 2009 19:00

Reggie Middleton on BOKF's 3Q09 Results

Here is my review of the BOKF 3rd quarter results. BOKF has performed relatively well in comparison to other regionals, but the caveats and basis of the orignal thesis that we warned about in the forensic preview are still valid. See:

BOK 1Q09 BOK 1Q09 2009-05-07 06:34:52 460.74 Kb

BOK 2Q09 review BOK 2Q09 review 2009-08-01 05:04:06 1.05 Mb

March Actionable Note - Banking Sector BK March Actionable Note - Banking Sector BK 2009-03-03 11:58:22 184.25 Kb

March 2nd Actionable Note Preview - banking March 2nd Actionable Note Preview - banking 2009-03-02 09:44:20 61.88 Kb

and an off topic piece that BOKF just happened to be involved in... Deposit Insurance Arbitrage

Sunday, 01 November 2009 19:00

Reggie Middleton on BOKF's 3Q09 Results

Here is my review of the BOKF 3rd quarter results. BOKF has performed relatively well in comparison to other regionals, but the caveats and basis of the orignal thesis that we warned about in the forensic preview are still valid. See:

BOK 1Q09 BOK 1Q09 2009-05-07 06:34:52 460.74 Kb

BOK 2Q09 review BOK 2Q09 review 2009-08-01 05:04:06 1.05 Mb

March Actionable Note - Banking Sector BK March Actionable Note - Banking Sector BK 2009-03-03 11:58:22 184.25 Kb

March 2nd Actionable Note Preview - banking March 2nd Actionable Note Preview - banking 2009-03-02 09:44:20 61.88 Kb

and an off topic piece that BOKF just happened to be involved in... Deposit Insurance Arbitrage

BoomBustBloggers have been on a wild CRE and residential rollercoaster ride over the last couple of years. Starting in 2007,we ran into Lennar and discovered things off balance sheet that the sell side and the company itself forgot to tell us (Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth), Ryland and their sell happy management (What does Reggie Middleton and Ryland's Upper Management have in Common?), Hovnanian and his you should by a house now (as he puts his on the market, Credibility is the Key to Success for a CEO – Hovnanian has Lost that Key: A letter to Mr. Hovnanian) and a whole host of other homebuilders. We gave

Quick note: We are finishing up our scan of REITs that will have definitive refinance and/or cash flow issues in the next quarter or two, and have narrowed them down to four, with one finalist attempting to win the prize. I have the team running a cashflow and valuation analysis on each property in the portfolio and I should have somethingto munch on for subscribers sometime late next week.

an early warning on CRE in the 3rd quarter of 2007 (about a year before it was fashionable to do so - Will the commercial real estate market fall? Of course it will), then moved on to short General Growth Properties (now bankrubpt, GGP and the type of investigative analysis you will not get from your brokerage house) and Macerich (got this one to profit right before the market went coo coo for Cocoa Puffs -Macerich Forensic Valuation - Retail Macerich Forensic Valuation - Retail 2009-10-22 01:46:14 192.71 Kb - Macerich Forensic Valuation - Professional Macerich Forensic Valuation - Professional 2009-10-22 01:45:52 344.92 Kb - Macerich Sensitivity Analyis - Pro Macerich Sensitivity Analyis - Pro 2009-10-22 01:46:36 344.92 Kb) close to the top of their cycles (unfortunately, we're still waiting on ALX to speak to Mr. Reality for this one has benefitted from both a thin float and a fundamentally irrational market! - Alexander's Actionable Research Note Retail Alexander's Actionable Research Note Retail 2009-02-19 16:16:44 - Alexander's Actionable Research Note Pro Alexander's Actionable Research Note Pro 2009-02-19 16:20:08 and video too: February REIT Actionable Intelligence Note Update - remember, who are you going to believe, short term stock prices or your lying eyes!).

Keeping with this theme, the rabble rousing, digital rag known as ZeroHedge recent ran a couple of posts concerning the CRE crash and its effects on NYC hotels.

Fcur Seasons Hotel In New York Is Latest Victim Of CRE Crash

In addition to the Four Seasons, three other luxury hotels, which back a loan sent to a special servicer 10 days ago include the Four Seasons Biltmore Resort in Montecito, the ritzy Las Ventanas in Cabo, the destination of many a banker closing dinner, and the San Ysidro Ranch in Montecito.

The special servicing action has forced S&P to place 15 classes of bonds backed by a $425 million loan to Ty Warner Hotels & Resorts on "credit watch with negative implications." The catalyst for the action and the transition to special servicing was prompted by a staggering drop in cash flows from properties which came 46% below S&P expectations. The loan, which matures in January 2010, and which investors were hoping to recoup full principal on, may now be looking at substantial losses. And due to the declining cash flow, the loan would not qualify for an extension as it is in breach of it debt service coverage ratio.

More indicative of the collapse in the luxury hotel segment is the drop in occupancy for the four properties from 69% in the last fiscal year to a meager 58% recently. Alas the Ty Warner penthouse pictured insert unfortunately does not seem to be seeing a lot of action (if any) these days.

The full blown impact of CRE deterioration on the hotel industry could escalate rapidly: according to RealPoint there are over 1,500 loans with a total balance of nearly $25 billion which may be in danger of default...

The Next CRE Casualty: Union Square's W Hotel
"... the iconic Union Square W Hotel may just be it. The hotel, which was acquired by Dubai's troubled sovereign wealth fund, Istithmar, for $285 million in 2006 (one of the few acquisitions of a hotel at a price of more than $1 million per room) has been bleeding cash lately after room rates have declined by 24%. The result has been an inability for the owner to even meet debt service obligations: a sure sign the current balance sheet is doomed, with an outright default just a matter of time.

... And here is why the math on every single REIT "upside case" out there is highly suspect:

The hotel’s net cash flow this year is running at an annualized rate of $8 million, down from $14.8 million in 2008, according to the servicer report. That barely covers the $7.5 million of annual debt service on the senior mortgage, but isn’t enough for the mezzanine loan. Like all luxury hotels in Manhattan, the W New York Union Square, at 201 Park Avenue South, is struggling with a drop in revenue because of the recession. Room rates are down $100 from a year ago, according to a servicer report. What’s more, the hotel’s annual property tax more than tripled, to $3 million.

If industry indications are any sign, the rebound is still far away for the troubled New York hotel segment:

The average occupancy for luxury hotels in Manhattan was 74.2% in the first eight months of the year, down from 81.9% a year earlier, according to Smith Travel Research. Room rates plunged 24%, driving room revenues down 31%.

As for those about to get whacked when and if Istithmar decided to call it a day: some very unhappy clients of Credit Suisse:

The purchase was financed with a $232 million debt package from Credit Suisse that consisted of a $115 million senior mortgage and a $117 million mezzanine loan. Credit Suisse securitized the senior loan and placed the mezzanine debt with one or more unidentified high-yield investors. The interest-only senior mortgage, with a 6.5% coupon, matures in October 2011. It was securitized via a $3.4 billion pooled offering (Credit Suisse Commercial Mortgage Trust, 2006-C5).

And while the maturity is only two years in the future (as are many other scheduled CRE maturity rolls), the likelihood that the loan will continue paying current income for the next 24 months is virtually nil.

So if this is the fate of one of the sovereign fund's landmark properties, what will happen to its two other trophy hotels?

Istithmar’s real estate holdings include two other Manhattan properties: the Mandarin Oriental at Columbus Circle and the office building at Six Times Square. Istithmar has been converting Six Times Square into a hotel, but work on the project appears to have slowed dramatically."...

Published in BoomBustBlog

BoomBustBloggers  have been on a wild CRE and residential rollercoaster ride over the last couple of years. Starting in 2007,we ran into Lennar and discovered things off balance sheet that the sell side and the company itself forgot to tell us (Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth), Ryland and their sell happy management (What does Reggie Middleton and Ryland's Upper Management have in Common?), Hovnanian and his you should by a house now (as he puts his on the market, Credibility is the Key to Success for a CEO – Hovnanian has Lost that Key: A letter to Mr. Hovnanian) and a whole host of other homebuilders. We gave

 Quick note: We are finishing up our scan of REITs that will have definitive refinance and/or cash flow issues in the next quarter or two, and have narrowed them down to four, with one finalist attempting to win the prize. I have the team running a cashflow and valuation analysis on each property in the portfolio and I should have somethingto munch on for subscribers sometime late next week.

an early warning on CRE in the 3rd quarter of 2007 (about a year before it was fashionable to do so - Will the commercial real estate market fall? Of course it will), then moved on to short General Growth Properties (now bankrubpt, GGP and the type of investigative analysis you will not get from your brokerage house) and Macerich (got this one to profit right before the market went coo coo for Cocoa Puffs -Macerich Forensic Valuation - Retail Macerich Forensic Valuation - Retail 2009-10-22 01:46:14 192.71 Kb - Macerich Forensic Valuation - Professional Macerich Forensic Valuation - Professional 2009-10-22 01:45:52 344.92 Kb - Macerich Sensitivity Analyis - Pro Macerich Sensitivity Analyis - Pro 2009-10-22 01:46:36 344.92 Kb) close to the top of their cycles (unfortunately, we're still waiting on ALX to speak to Mr. Reality for this one has benefitted from both a thin float and a fundamentally irrational market! - Alexander's Actionable Research Note Retail Alexander's Actionable Research Note Retail 2009-02-19 16:16:44 - Alexander's Actionable Research Note Pro Alexander's Actionable Research Note Pro 2009-02-19 16:20:08 and video too: February REIT Actionable Intelligence Note Update - remember, who are you going to believe, short term stock prices or your lying eyes!).

Keeping with this theme, the rabble rousing, digital rag known as ZeroHedge recent ran a couple of posts concerning the CRE crash and its effects on NYC hotels. 

Fcur Seasons Hotel In New York Is Latest Victim Of CRE Crash 

In addition to the Four Seasons, three other luxury hotels, which back a loan sent to a special servicer 10 days ago include the Four Seasons Biltmore Resort in Montecito, the ritzy Las Ventanas in Cabo, the destination of many a banker closing dinner, and the San Ysidro Ranch in Montecito.

The special servicing action has forced S&P to place 15 classes of bonds backed by a $425 million loan to Ty Warner Hotels & Resorts on "credit watch with negative implications." The catalyst for the action and the transition to special servicing was prompted by a staggering drop in cash flows from properties which came 46% below S&P expectations. The loan, which matures in January 2010, and which investors were hoping to recoup full principal on, may now be looking at substantial losses. And due to the declining cash flow, the loan would not qualify for an extension as it is in breach of it debt service coverage ratio.

More indicative of the collapse in the luxury hotel segment is the drop in occupancy for the four properties from 69% in the last fiscal year to a meager 58% recently. Alas the Ty Warner penthouse pictured insert unfortunately does not seem to be seeing a lot of action (if any) these days.

The full blown impact of CRE deterioration on the hotel industry could escalate rapidly: according to RealPoint there are over 1,500 loans with a total balance of nearly $25 billion which may be in danger of default...

The Next CRE Casualty: Union Square's W Hotel
"... the iconic Union Square W Hotel may just be it. The hotel, which was acquired by Dubai's troubled sovereign wealth fund, Istithmar, for $285 million in 2006 (one of the few acquisitions of a hotel at a price of more than $1 million per room) has been bleeding cash lately after room rates have declined by 24%. The result has been an inability for the owner to even meet debt service obligations: a sure sign the current balance sheet is doomed, with an outright default just a matter of time.
... And here is why the math on every single REIT "upside case" out there is highly suspect:

The hotel’s net cash flow this year is running at an annualized rate of $8 million, down from $14.8 million in 2008, according to the servicer report. That barely covers the $7.5 million of annual debt service on the senior mortgage, but isn’t enough for the mezzanine loan. Like all luxury hotels in Manhattan, the W New York Union Square, at 201 Park Avenue South, is struggling with a drop in revenue because of the recession. Room rates are down $100 from a year ago, according to a servicer report. What’s more, the hotel’s annual property tax more than tripled, to $3 million.

If industry indications are any sign, the rebound is still far away for the troubled New York hotel segment:

The average occupancy for luxury hotels in Manhattan was 74.2% in the first eight months of the year, down from 81.9% a year earlier, according to Smith Travel Research. Room rates plunged 24%, driving room revenues down 31%.

As for those about to get whacked when and if Istithmar decided to call it a day: some very unhappy clients of Credit Suisse:

The purchase was financed with a $232 million debt package from Credit Suisse that consisted of a $115 million senior mortgage and a $117 million mezzanine loan. Credit Suisse securitized the senior loan and placed the mezzanine debt with one or more unidentified high-yield investors. The interest-only senior mortgage, with a 6.5% coupon, matures in October 2011. It was securitized via a $3.4 billion pooled offering (Credit Suisse Commercial Mortgage Trust, 2006-C5).

And while the maturity is only two years in the future (as are many other scheduled CRE maturity rolls), the likelihood that the loan will continue paying current income for the next 24 months is virtually nil.

So if this is the fate of one of the sovereign fund's landmark properties, what will happen to its two other trophy hotels?

Istithmar’s real estate holdings include two other Manhattan properties: the Mandarin Oriental at Columbus Circle and the office building at Six Times Square. Istithmar has been converting Six Times Square into a hotel, but work on the project appears to have slowed dramatically."...

BoomBustBloggers  have been on a wild CRE and residential rollercoaster ride over the last couple of years. Starting in 2007,we ran into Lennar and discovered things off balance sheet that the sell side and the company itself forgot to tell us (Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth), Ryland and their sell happy management (What does Reggie Middleton and Ryland's Upper Management have in Common?), Hovnanian and his you should by a house now (as he puts his on the market, Credibility is the Key to Success for a CEO – Hovnanian has Lost that Key: A letter to Mr. Hovnanian) and a whole host of other homebuilders. We gave

 Quick note: We are finishing up our scan of REITs that will have definitive refinance and/or cash flow issues in the next quarter or two, and have narrowed them down to four, with one finalist attempting to win the prize. I have the team running a cashflow and valuation analysis on each property in the portfolio and I should have somethingto munch on for subscribers sometime late next week.

an early warning on CRE in the 3rd quarter of 2007 (about a year before it was fashionable to do so - Will the commercial real estate market fall? Of course it will), then moved on to short General Growth Properties (now bankrubpt, GGP and the type of investigative analysis you will not get from your brokerage house) and Macerich (got this one to profit right before the market went coo coo for Cocoa Puffs -Macerich Forensic Valuation - Retail Macerich Forensic Valuation - Retail 2009-10-22 01:46:14 192.71 Kb - Macerich Forensic Valuation - Professional Macerich Forensic Valuation - Professional 2009-10-22 01:45:52 344.92 Kb - Macerich Sensitivity Analyis - Pro Macerich Sensitivity Analyis - Pro 2009-10-22 01:46:36 344.92 Kb) close to the top of their cycles (unfortunately, we're still waiting on ALX to speak to Mr. Reality for this one has benefitted from both a thin float and a fundamentally irrational market! - Alexander's Actionable Research Note Retail Alexander's Actionable Research Note Retail 2009-02-19 16:16:44 - Alexander's Actionable Research Note Pro Alexander's Actionable Research Note Pro 2009-02-19 16:20:08 and video too: February REIT Actionable Intelligence Note Update - remember, who are you going to believe, short term stock prices or your lying eyes!).

Keeping with this theme, the rabble rousing, digital rag known as ZeroHedge recent ran a couple of posts concerning the CRE crash and its effects on NYC hotels. 

Fcur Seasons Hotel In New York Is Latest Victim Of CRE Crash 

In addition to the Four Seasons, three other luxury hotels, which back a loan sent to a special servicer 10 days ago include the Four Seasons Biltmore Resort in Montecito, the ritzy Las Ventanas in Cabo, the destination of many a banker closing dinner, and the San Ysidro Ranch in Montecito.

The special servicing action has forced S&P to place 15 classes of bonds backed by a $425 million loan to Ty Warner Hotels & Resorts on "credit watch with negative implications." The catalyst for the action and the transition to special servicing was prompted by a staggering drop in cash flows from properties which came 46% below S&P expectations. The loan, which matures in January 2010, and which investors were hoping to recoup full principal on, may now be looking at substantial losses. And due to the declining cash flow, the loan would not qualify for an extension as it is in breach of it debt service coverage ratio.

More indicative of the collapse in the luxury hotel segment is the drop in occupancy for the four properties from 69% in the last fiscal year to a meager 58% recently. Alas the Ty Warner penthouse pictured insert unfortunately does not seem to be seeing a lot of action (if any) these days.

The full blown impact of CRE deterioration on the hotel industry could escalate rapidly: according to RealPoint there are over 1,500 loans with a total balance of nearly $25 billion which may be in danger of default...

The Next CRE Casualty: Union Square's W Hotel
"... the iconic Union Square W Hotel may just be it. The hotel, which was acquired by Dubai's troubled sovereign wealth fund, Istithmar, for $285 million in 2006 (one of the few acquisitions of a hotel at a price of more than $1 million per room) has been bleeding cash lately after room rates have declined by 24%. The result has been an inability for the owner to even meet debt service obligations: a sure sign the current balance sheet is doomed, with an outright default just a matter of time.
... And here is why the math on every single REIT "upside case" out there is highly suspect:

The hotel’s net cash flow this year is running at an annualized rate of $8 million, down from $14.8 million in 2008, according to the servicer report. That barely covers the $7.5 million of annual debt service on the senior mortgage, but isn’t enough for the mezzanine loan. Like all luxury hotels in Manhattan, the W New York Union Square, at 201 Park Avenue South, is struggling with a drop in revenue because of the recession. Room rates are down $100 from a year ago, according to a servicer report. What’s more, the hotel’s annual property tax more than tripled, to $3 million.

If industry indications are any sign, the rebound is still far away for the troubled New York hotel segment:

The average occupancy for luxury hotels in Manhattan was 74.2% in the first eight months of the year, down from 81.9% a year earlier, according to Smith Travel Research. Room rates plunged 24%, driving room revenues down 31%.

As for those about to get whacked when and if Istithmar decided to call it a day: some very unhappy clients of Credit Suisse:

The purchase was financed with a $232 million debt package from Credit Suisse that consisted of a $115 million senior mortgage and a $117 million mezzanine loan. Credit Suisse securitized the senior loan and placed the mezzanine debt with one or more unidentified high-yield investors. The interest-only senior mortgage, with a 6.5% coupon, matures in October 2011. It was securitized via a $3.4 billion pooled offering (Credit Suisse Commercial Mortgage Trust, 2006-C5).

And while the maturity is only two years in the future (as are many other scheduled CRE maturity rolls), the likelihood that the loan will continue paying current income for the next 24 months is virtually nil.

So if this is the fate of one of the sovereign fund's landmark properties, what will happen to its two other trophy hotels?

Istithmar’s real estate holdings include two other Manhattan properties: the Mandarin Oriental at Columbus Circle and the office building at Six Times Square. Istithmar has been converting Six Times Square into a hotel, but work on the project appears to have slowed dramatically."...

PNC has reported strong accounting earnings for Q3-09 and lower charge-offs as well as lower 90 day lates. The press and the blogs were all over it as a news search in Google reveals:

PNC Financial Services profit jumps 88% - MarketWatch PNC Financial Services Group (NYSE:PNC) said that its third-quarter net profit jumped to $467 million, or $1.00 a share, ...

The sell side jumps on the bandwagon as well... Wells Fargo Upgrades PNC Financial Services Group (PNC) to Outperform; Raises ... StreetInsider.com (subscription)

As a result their share jumped more than 10%.

But, and there is always a but, if we look at the bigger picture things really don't look so rosy...

As a matter of fact, if anyone really bothered to look at the numbers offered (not even the real 10Q numbers, but the numbers offered in the conference call), one would realize that there was no real improvement in asset quality, despite lower charge-offs. As a matter of fact, asset quality AND loan quality got worse, not better - both quarter over quarter and year over year!!! This was the crux of the share price collapse in PNC to begin with. What the hell is wrong with those charged with analyzing these companies???

Published in BoomBustBlog

You know, I happen to really, really appreciate the blogoshpere. There are a select handful of blogs that offer unique, insightful and very difficult to come by expertise, opinion and commentary. Much more so than the mainstream media and even more so than the more specialized media. Despite this, there are certain components of the MSM and corporate America that still do not respect the blogs. Now, why is that? Well, I dare you - no, I double dare you - to find an MSM outlet that performs investigative analysis at the level of the top blogs. I'm not even going to bother to mention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.

Just a few hours ago, I posted my review of PNC's 3rd quarter earnings for 2009 (please look here to see the media, sell side brokerage and equity market's accolades for said results as well as my opinion -For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results). In that review, I actually gave management kudos what appeared to be operational excellence. While typing the review and pondering the data trends, that annoying thing called common sense kept nagging me. I thought to myself, how can their 90 day late loans and charge offs trend downwards after just buying one of the largest junk loan manufacturers in the country amid near record (and rising) unemployment? Even more to the point, why the hell didn't anyone else press this point? Well, I asked my analytical team to dig in a little deeper, and it didn't take long to come up with an answer...

Published in BoomBustBlog

PNC has reported strong accounting earnings for Q3-09 and lower charge-offs as well as lower 90 day lates. The press and the blogs were all over it as a news search in Google reveals:

PNC Financial Services profit jumps 88% - MarketWatch PNC Financial Services Group (NYSE:PNC) said that its third-quarter net profit jumped to $467 million, or $1.00 a share, ...

The sell side jumps on the bandwagon as well... Wells Fargo Upgrades PNC Financial Services Group (PNC) to Outperform; Raises ... StreetInsider.com (subscription)

As a result their share jumped more than 10%.

But, and there is always a but, if we look at the bigger picture things really don't look so rosy...

As a matter of fact, if anyone really bothered to look at the numbers offered (not even the real 10Q numbers, but the numbers offered in the conference call), one would realize that there was no real improvement in asset quality, despite lower charge-offs. As a matter of fact, asset quality AND loan quality got worse, not better - both quarter over quarter and year over year!!! This was the crux of the share price collapse in PNC to begin with. What the hell is wrong with those charged with analyzing these companies??? 

You know, I happen to really, really appreciate the blogoshpere. There are a select handful of blogs that offer unique, insightful and very difficult to come by expertise, opinion and commentary. Much more so than the mainstream media and even more so than the more specialized media. Despite this, there are certain components of the MSM and corporate America that still do not respect the blogs. Now, why is that? Well, I dare you - no, I double dare you - to find an MSM outlet that performs investigative analysis at the level of the top blogs. I'm not even going to bother to mention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.

Just a few hours ago, I posted my review of PNC's 3rd quarter earnings for 2009 (please look here to see the media, sell side brokerage and equity market's accolades for said results as well as my opinion -For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results). In that review, I actually gave management kudos what appeared to be operational excellence. While typing the review and pondering the data trends, that annoying thing called common sense kept nagging me. I thought to myself, how can their 90 day late loans and charge offs trend downwards after just buying one of the largest junk loan manufacturers in the country amid near record (and rising) unemployment? Even more to the point, why the hell didn't anyone else press this point? Well, I asked my analytical team to dig in a little deeper, and it didn't take long to come up with an answer...