Reggie Middleton's Boom Bust Blog site syndication http://boombustblog.com Tue, 02 Dec 2008 09:52:46 +0100 FeedCreator 1.7.2 http://boombustblog.com/images/M_images/joomla_rss.png http://boombustblog.com Reggie Middleton's Boom Bust Blog site syndication http://boombustblog.com/index.php/20081202706/Food-sector-actionable-intelligence-update.html This is the final report and valuation for the food sector actionable item released a few weeks ago. As usual, I recommend the professional users delve deep into the reasonings and logic behind my taking a bearish stand on this company. The micro/macro argument is extensive. Keep in mind that the vast majority of the company's assets are goodwill and intangibles, something that is quite likely to go poof when the going get's rough. Retail Analysis (342.01 kB 2008-12-02 01:51:43) Professional Analysis (417.53 kB 2008-12-02 01:48:33) Reggie Middleton's Boom Bust Blog - MyBlog Tue, 02 Dec 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081202707/Come-join-me-for-an-evening-of-fun-neworking-and-investment-discussion.html It's time to get together again. Ambition, beauty, drive, wealth, intellect, knowledge, fun - or maybe just nothing to do Friday night - come on out and meet me at the Buddakahn Restaurant to discuss macro economic themes and trading my research. I'll have a drink or two to loosen up, and will bring some hard copies of the latest professional and institutional research for the first lucky few to arrive. As you can see below, we have had a lot of fun in our previous events and I expect this one to be no different. You will have to register and subscribe to the blog (index.php?option=com_acctexp task=subscribe Itemid=99) if you are not already a member (it can be done for free for the stingy folk) then register for the event using the link to the registration form at the bottom of the actual event page (index.php/component/option,com_eventlist/Itemid,/did,4/func,details/) (you will have to scroll to the bottom). On the bow of the Motherland in the Hudson River. This is different from the finance taught in school. At the BuddaKahn Lounge, NYC This entertaining couple came to visit us from Cyprus! Things are getting rough out their too. At the 79th St. Boat Basin. Location Venue The Buddakahn Restaurant, NYC (index.php/component/option,com_eventlist/Itemid,99999999/categid,0/func,shlocevents/locatid,3/) Homepage: http://www.buddakannyc.com/ (http://www.buddakannyc.com/) Street: 75 9th Ave ZIP: 10011 City New York Reggie Middleton's Boom Bust Blog - MyBlog Tue, 02 Dec 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081129703/Macerich-Forensic-analysis-Undervalued-REIT-or-the-Commercial-Real-Estate-Bankruptcy.html The unprecedented turn of events in the global financial space has frozen credit markets, jeopardizing global economic growth. This, coupled with a rapidly deteriorating retail climate and declining commercial real estate valuations, has severely damaged the fundamentals of real estate investment trusts (REITs) with significant amounts of debt maturities in the near-to-medium term. Macerich (MAC), which has nearly $4 bn of debt due over the next three years faces a daunting task ahead to navigate as a going concern. Further compounding the problems for MAC is the Company’s property portfolio, which is highly susceptible to the current crisis, built on high leverage (current LTV of 85% based on market value) and including a significant number of underwater properties with negative equity. As expectations of a recession are fast turning into a reality, a slowdown in consumer spending and a consequent impact on retailers would result in additional pressure on the Company’s occupancy levels, impacting its rental rate growth and net operating income. As we navigate through future, the problems in the financial sector are expected to get worse before they stabilize wherein our expectations of the Distressed scenario (of the four scenarios explained in the report) could well turn into a reality. REITs are very labor and intellectual capital intensive companies to value properly. General Growth Properties and Macerich consumed an enormous number of man (and woman!) hours and required extensice modeling, macro research and fact gathering. Thus, this particular professional report is 37 pages long, nearly twice the normarl report size, and this is after releasing over 100 pages of preliminary findings! The effort is well worth it, though, for it illustrates the anwer to the quesion: Is Macerich an undervalued victim of a bear market slaughter, or is it a bankruptcy waiting to happen? The work that went into this... We have arrived at MAC’s valuation by valuing each of MAC’s 103 properties (including that of consolidated and unconsolidated JVs) after consideration of their expected rental income and debt repayment obligations. Each individual property valuation assumes rental income based on the current prevailing market rentals for similar properties in the same location (zip codes) sourced through prominent info sources and brokers including Loopnet and CB Richard Ellis. The rental stream for each property has been projected for the next 20 years based on macro-economic factors like expected population and household growths at each of the subject property location. In addition, the valuation takes into account the total gross leasable area and rentable area, occupancy rates, property management expenses including insurance and taxes, renovation and maintenance capex, mortgage outstanding, and refinancing requirements. The above methodology has been followed under four different scenarios - Refinancing scenario, Asset Sale scenario, Foreclosure scenario and Distressed scenario. We have arrived at MAC’s valuation based on weighted average (probability of likelihood being weights used) of valuations arrived at under each of these scenarios. A sizeable portion of MAC’s portfolio was acquired over the last 5 years, during the period when property prices were on an upswing. As of September 30, 2008, MAC had an ownership interest in 103 regional shopping centers and community shopping centers, primarily concentrated in the western US, with 80.7 mn square feet of gross leasable area. Of these properties, nearly 32% were acquired between 2002 and 2004, and 25% were acquired after 2004. With nearly 57% of the properties acquired in or after 2002, when the commercial real estate prices were witnessing a steep rise, a sizeable portion of MAC’s properties currently have a market value lower than the book value (purchase cost net of depreciation) and have a loan-to-value greater than 100%, representing negative equity. Subscribers may download the full reports here (the files have been updated): Macerich Forensic Valuation - Retail (264.45 kB 2008-11-28 14:49:36) Macerich Sensitivity Analyis - Pro (298.73 kB 2008-11-20 12:02:08) Reggie Middleton's Boom Bust Blog - MyBlog Sat, 29 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081129704/Sample-research-available.html I have created a sample research package for those who want to gauge the quality of research one gets with a professional subscription. Simple download the package below and unzip to your hard drive. Adobe Acrobat view version 9.0 or higher is required to view the PDF files. Sample Research (2.89 MB 2008-11-28 13:12:26 Reggie Middleton's Boom Bust Blog - MyBlog Sat, 29 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081128701/Macerich-Forensic-analysis-Undervalued-REIT-or-the-Commercial-Real-Estate-Bankruptcy.html The unprecedented turn of events in the global financial space has frozen credit markets, jeopardizing global economic growth. This, coupled with a rapidly deteriorating retail climate and declining commercial real estate valuations, has severely damaged the fundamentals of real estate investment trusts (REITs) with significant amounts of debt maturities in the near-to-medium term. Macerich (MAC), which has nearly $4 bn of debt due over the next three years faces a daunting task ahead to navigate as a going concern. Further compounding the problems for MAC is the Company’s property portfolio, which is highly susceptible to the current crisis, built on high leverage (current LTV of 85% based on market value) and including a significant number of underwater properties with negative equity. As expectations of a recession are fast turning into a reality, a slowdown in consumer spending and a consequent impact on retailers would result in additional pressure on the Company’s occupancy levels, impacting its rental rate growth and net operating income. As we navigate through future, the problems in the financial sector are expected to get worse before they stabilize wherein our expectations of the Distressed scenario (of the four scenarios explained in the report) could well turn into a reality. REITs are very labor and intellectual capital intensive companies to value properly. General Growth Properties and Macerich consumed an enormous number of man (and woman!) hours and required extensice modeling, macro research and fact gathering. Thus, this particular professional report is 37 pages long, nearly twice the normarl report size, and this is after releasing over 100 pages of preliminary findings! The effort is well worth it, though, for it illustrates the anwer to the quesion: Is Macerich an undervalued victim of a bear market slaughter, or is it a bankruptcy waiting to happen? The work that went into this... We have arrived at MAC’s valuation by valuing each of MAC’s 103 properties (including that of consolidated and unconsolidated JVs) after consideration of their expected rental income and debt repayment obligations. Each individual property valuation assumes rental income based on the current prevailing market rentals for similar properties in the same location (zip codes) sourced through prominent info sources and brokers including Loopnet and CB Richard Ellis. The rental stream for each property has been projected for the next 20 years based on macro-economic factors like expected population and household growths at each of the subject property location. In addition, the valuation takes into account the total gross leasable area and rentable area, occupancy rates, property management expenses including insurance and taxes, renovation and maintenance capex, mortgage outstanding, and refinancing requirements. The above methodology has been followed under four different scenarios - Refinancing scenario, Asset Sale scenario, Foreclosure scenario and Distressed scenario. We have arrived at MAC’s valuation based on weighted average (probability of likelihood being weights used) of valuations arrived at under each of these scenarios. A sizeable portion of MAC’s portfolio was acquired over the last 5 years, during the period when property prices were on an upswing. As of September 30, 2008, MAC had an ownership interest in 103 regional shopping centers and community shopping centers, primarily concentrated in the western US, with 80.7 mn square feet of gross leasable area. Of these properties, nearly 32% were acquired between 2002 and 2004, and 25% were acquired after 2004. With nearly 57% of the properties acquired in or after 2002, when the commercial real estate prices were witnessing a steep rise, a sizeable portion of MAC’s properties currently have a market value lower than the book value (purchase cost net of depreciation) and have a loan-to-value greater than 100%, representing negative equity. Subscribers may download the full reports here: Macerich Forensic Valuation - Retail (264.45 kB 2008-11-28 14:49:36) Macerich Sensitivity Analyis - Pro (298.73 kB 2008-11-20 12:02:08) Reggie Middleton's Boom Bust Blog - MyBlog Fri, 28 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081126700/As-investment-banks-cut-back-the-serious-blogs-take-the-forefront.html The most successful analysts are being laid off on Wall Street. The Street as always thought of the analysis as a loss leader for M&A sales and brokerage commissions. After Spitzer tightened down on the industry, they tightened the budgets even more. Now, with this unprecedented downturn combined with the limited ability of the firms to use the analysts to sell other services (the Spitzer conflict of interest argument), the analytical staff is considered expensive dead weight that does not add directly to the revenue line. If you thought the accuracy of the sell side was bad in the past (see Blog vs. Broker, whom do you trust! (http://boombustblog.com/index.php?option=com_myblog&show=Blog-vs.-Broker-whom-do-you-trust-.html&Itemid=92)), you ain't seen nothin' yet. With conflicts of interest still deeply ingrained in the culture and business models, the top flight (cost?) quality talent fleeing or getting fired, and budgets cut to the bone marrow, expect accuracy and analytical quality to drop considerably below mean - and mean was not very high to begin with. Luckily, a certain entrepreneurial investor who never was shackled by the hypocritical, recursive conflicts of interests that plagues the street has decided to share his proprietary research and lo and behold... I really think his research is better! See Bank industry analysts fall prey to the shrinkage (http://www.iht.com/articles/2008/11/25/business/25analyst.php): Goldman Sachs, Citigroup and Bank of America have recently axed analysts who covered some of their competitors. The analysts were particularly prominent within the industry because they were often quoted in Wall Street news stories and invited to meetings with bank executives. They were the voices who questioned executives on earnings calls, and they were often the ones casting most doubt on their field. Now they join a growing pool of bankers and traders losing their jobs just before bonus time, with little hope of new employment any time soon. "A lot of these analysts did not believe that they could get sacked," said Gustavo Dolfino, president of WhiteRock Group, a head-hunter in New York. "But just writing about the market doesn't mean you're making any money for the firm, that's why these analysts are losing their jobs." Goldman was the first major bank to sack its banking analyst, William Tanona. Tanona, laid off Nov. 7, had worked there since 2005, when Goldman recruited him from JPMorgan Chase. He was one of the first analysts last fall to turn negative on Citigroup and to warn about Merrill's problems with its bundles of mortgages... ...In a note to clients, the bank, which is cutting 10 percent of its work force, said it was suspending coverage of his companies, which included Merrill Lynch, Morgan Stanley and Citigroup. ...Last week, Citigroup laid off Prashant Bhatia, who covered a range of brokers and asset mangers like the Fortress Investment Group, Merrill Lynch and BlackRock. Earlier this fall, Bank of America dismissed Michael Hecht, who covered investment banks. A Bank of America spokesman declined to say whether it had begun eliminating overlapping workers among its ranks since it agreed to acquire Merrill Lynch in September. Banking analysts were not singled out. Goldman, for instance, dismissed a dozen other analysts who covered other industries, including newspapers and industrial companies. In some cases, banks may choose to lay off senior analysts and promote lower-cost workers into their roles. Anybody looking for analysis can always come to me. I won't even try to push the securities of a company that I just underwrote or try an convince you to allow me to churn your account. Reggie Middleton's Boom Bust Blog - MyBlog Wed, 26 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081125698/It-appears-that-Mack-can-t-take-his-own-medicine.html The Wall Street Journal ran an interesting, well researched piece on the run on Morgan Stanley that has been well covered in the blogoshere. From a journalistic perspective, it was excellent, but it was lacking from an actual hard core investor's perspective - the very same hard core perspective that drives my patrons to pay for my blog. So, lest I disappoint my readers, let's throw some analytical and historical facts into this debate. I feel the need to throw my two cents in because nobody is calling a spade a spade, thus partially justifying the nonsense that was the short sale ban that came down from the highly hypocritical industry. Yeah, the same industry whose prop desks short other companies and industries,,, the same industry that profits heavily form enabling their clients (through prime brokerage) to short other companies and industries. With the final fall of the big sell side brokerages, there is even a bigger dearth of services left on Wall Street. Honest, unbiased research. That is, I believe, the draw that the BoomBustBlog (/) has. That is what is lacking throughout nearly all of Wall Street. That is what this blogging medium has allowed me to provide - and I'm just luv'in it. Reggie Middleton's Boom Bust Blog - MyBlog Tue, 25 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081125699/GGP-back-in-the-news.html From Benjamin Spillman of the Las Vegas Review-Journal. I would like to take the time to commend Mr. Spillman for his professionalism in his given vocation. He literally read through each and every page of research that I published on GGP, and that was a minimum of several hundred pages (see GGP and the type of investigative analysis you will not get from your brokerage house, (http://boombustblog.com/content/view/425/34/) and GGP Shenanigans: How much value do you place on the credibility of management? (http://boombustblog.com/index.php/20080806498/GGP-Shenanigans-How-much-value-do-you-place-on-the-credibility-of-management.html)). This is not CRE developer or investment specialist, either. He then took the time to contact me several times to make sure he had a firm grasp on what he read, he fact checked my research (too bad he just couldn't take my word for it :-)) and even asked other reporters what their experience has been with me. In other words, he dug deep - very deep, to get the FACTS and then took to the time to both comprehend and verify him. I'm not knocking all journalists, but there are some guys and girls who do not put forth have the investigative effort and research that this man has. Kudos, it is well deserved. Hedge fund buys up to 20 percent interest in mall giant General Growth Properties By BENJAMIN SPILLMAN LAS VEGAS REVIEW-JOURNAL A New York-based hedge fund bought an interest in up to 20 percent of mall giant General Growth Properties for just $9.3 million in cash — a company that had a market capitalization of nearly $9 billion as recently as February... It’s the first vote of confidence in General Growth in several months, but by itself won’t dig it out from about $900 million in debt that comes due by December on Fashion Show Mall and Shoppes at Palazzo on the Strip. General Growth Shares have lost more than 98 percent of their value this year and were hovering beneath $1 each until the Pershing announcement boosted them to as high as $2. Pershing acquired 7.5 percent of General Growth shares for $9.3 million and an interest in another 12.4 percent through, “total-return swaps,” according to Bloomberg.com... ... Brooklyn-based investor Reggie Middleton was one of the first to raise red flags about General Growth’s debt problems, which can be traced back to an $11.3 billion purchase of Rouse Co., in 2004. Middleton said Pershing might have gotten a steal if General Growth management can somehow right the ship andrefinance the debt due Friday plus another $3 billion next year. But Middleton also said if he had the money he would cherry-pick individual malls from the company’s portfolio of about 200 properties in 44 states. Middleton cited South Street Seaport in New York and the Las Vegas properties as potential winners. “There are quite a few gems, marquee properties,” Middleton said. Reggie Middleton's Boom Bust Blog - MyBlog Tue, 25 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081124697/It-s-the-government-version-of-3-card-Monte-Betcha-ya-can-t-guess-which-company-the-cash-is-under.html Reggie Middleton's Boom Bust Blog - MyBlog Mon, 24 Nov 2008 01:00:00 +0100 http://boombustblog.com/index.php/20081123696/The-Giants-of-Wall-Street.html Excerpted from From the NY Daily News: (http://www.nydailynews.com/money/2008/11/22/2008-11-22_giants_claim_defunct_firm_lehman_brother.html) Giants claim defunct firm Lehman Brothers owes team $300M Big Blue claims the bankrupt investment behemoth owes the team $301.8 million from a complex financing deal for its new stadium in the Meadowlands. The battle centers on a high-risk financial contract - the kind that has contributed to America (http://www.nydailynews.com/topics/United+States)'s economic meltdown - between football's reigning champs and Wall Street (http://www.nydailynews.com/topics/Wall+Street)'s leading chumps. It surfaced in a little-noticed, 238-page claim Giants co-owner John Mara (http://www.nydailynews.com/topics/John+Mara) filed in federal Bankruptcy Court on Oct. 17. It contends the team was guaranteed full payment because Lehman defaulted on its obligations. The team filed a second claim to collect another $401,500 from Lehman to cover half of its $803,000-a-year bill for leasing an on-the-sidelines luxury suite with a bar and space for 24 guests, bankruptcy filings show. A stadium spokeswoman said the luxury suite issue had been "resolved." She refused to provide details... ... "It would be quite unhealthy to hold your breath waiting for the Giants to get paid," said Reggie Middleton (http://www.nydailynews.com/topics/Reggie+Middleton), who runs the Boom Bust Blog and was one of the earliest investors to warn of Lehman's impending demise. "They can expect to recover less than 9 cents on the dollar - a lot less - and they'll probably get zilch." The Giants have a long wait before they can collect. "It could be as long as three or four years," said Lynn LoPucki (http://www.nydailynews.com/topics/Lynn+LoPucki), a law professor at both Harvard (http://www.nydailynews.com/topics/Harvard+University) and UCLA (http://www.nydailynews.com/topics/University+of+California-Los+Angeles) and an expert on corporate bankruptcies. "Widows and orphans might qualify for a hardship claim and get paid earlier, but the New York Giants are an unsecured creditor - and they won't be on anybody's list to get paid ahead of schedule." The flashpoint is the 82,500-seat, open-air new Meadowlands Stadium the Giants and Jets (http://www.nydailynews.com/topics/New+York+Jets) have been jointly building since 2007 on a 40-acre site across the Hudson.Complete with four restaurants, a Hall of Fame, 213 luxury suites, 2,000 video screens and a 300,000-square-foot outdoor plaza for tailgate parties, the stadium, expected to open in the spring of 2010, is budgeted at $1.6 billion. To fund it, the National Football League (http://www.nydailynews.com/topics/National+Football+League) loaned the teams $150 million apiece in 2007. The Giants and Jets each snared $650 million bank financing deals, with the Giants buying 40-year bonds from a seemingly healthy Lehman Brothers. Interest on those bonds, paid out until 2047, could be punishing, and the Giants wanted to reduce borrowing costs. So they entered into a so-called interest rate swap with Lehman, "swapping" interest that could float much higher for fixed interest that would remain moderately priced, court filings indicate... ..."The agreement broke down the day Lehman declared bankruptcy" on Sept. 15, said Middleton, who analyzed the deal at the request of The News. The Giants were suddenly at risk of having to pay over time all the borrowing costs they had expected to save - an amount calculated at $301.8 million - because Lehman defaulted. _______________________________________________ I have been crowing about investment bank and commercial bank insolvency for over a year now. Why didn't Wall Street read my post on Lehman being a yellow lying lemon? See "Is Lehman really a lemming in disguise? (http://boombustblog.com/index.php/20080221162/Is-Lehman-really-a-lemming-in-disguise.html)" and realize that this post was made on February 20th, when Goldman Sachs had a recommended price of about $55 while this blog warned that Lehman may be done for. This very similar to when I warned about the potential demise of Bear Stearns in January, when the rest of the Street had a "buy" at about $130 per share. See Is this the Breaking of the Bear?. (http://boombustblog.com/index.php/20080127142/Is-this-the-Breaking-of-the-Bear.html) We all know how both of these stories ended. Please click the graph to enlarge to print quality size. If I am not mistaken, didn't the major rating's agencies have an investment grade rating on Lehman leading up into its bankruptcy? What a damn shame. Reggie Middleton's Boom Bust Blog - MyBlog Sun, 23 Nov 2008 01:00:00 +0100