Monday, December 29, 2008

Is there any there there? Negative Article in WSJ on Mall REITs

Sometimes, there is no there there.  What was really there in terms of assets when Lehman filed for bankruptcy after its 158 years in existence.  Sure, some small dividends were paid to the stakeholders over the years but the only real beneficiaries over its entire history were its employees.
When credit is pulled, the game just comes to an abrupt end. If all assets owned by U.S. citizens and our governments (state, local and federal) were sold today at fair market value, would there be any equity left after paying off all debts, public and private? Is there really any there there anymore?

There was a study released last week, based on data from the Federal Reserve, that credit is available and the problems originate from just a few lenders. Reuters  This report suggests the credit crisis is being way overblown by the media.  Shortly after reading that article, I started reading an article in the NYT about Vornado Realty having to suspend, due to lack of financing, its construction on a 700 million dollar redevelopment of its One Franklin project in Boston.  The deal was funded with a 40% equity stake and a great deal of the space had been pre-leased.  It looks like a viable project. Nonetheless, the developers could not put together a 400 million loan from the banks now flush with taxpayer money.  This project would create 3000 construction jobs for 3 years.   It may be that lending has dried up from the brazenly incompetent large financial institutions- whose competence is largely confined to losing hundreds of billions in exotic ways - while the smaller regional banks are still lending to their traditional customers who need loans measured in the thousands rather than the millions.

There is a negative article in the WSJ about REITS that own malls, which mentions CB & L Properties and Glimcher in particular.  It is noted in this article that the common stocks of both Glimcher and CB & L have recently experienced spectacular bounces, with Glimcher up 250% since its November low and CB & L up 150% since 12/1.  Then being a party pooper, the WSJ suggests that these gains may be premature and mentions a few commonly known bearish details about the health of the retail sector.. Dismal Outlook for Mall Owners -
I have discussed the many negatives for those two REITS in prior posts.  
In these posts, I mentioned buying recently GRTPRF, CBLPRC and CBL (only 40 shares at less than 4). I did not mention the buys of GRTPRG & GRT.  I would estimate that 90% of my position in these two REITS is in cumulative preferred stocks, with the Glimcher buy of GRTPRF increasing in value by over 100% in a few weeks. The reasons for selecting the preferred stocks over the common are discussed in detail in prior posts.  These kind of issues presented serious opportunities and risks when purchased, with the largest risk being the debt load and the constant need to refinance it, which is also mentioned briefly in the WSJ article.  If I was going to take some off the table before year end or early next year, it would probably be the incredibly wimpish buy of 50 GRT which I was too ashamed of to even mention. I believe that Glimcher's common and preferred issues go ex dividend today.  If I continue to take a long term risk with these two mall REITs,  it will be most likely in the cumulative preferred issues.  It does not take long for an investment to double at 75% per year.   Although it is not knowable until it happens, a preferred shareholder may receive something in the event of a bankruptcy whereas a common shareholder in a defunct highly leveraged REIT will likely be left with nothing but a good tax loss.   I would reiterate, however, my earlier comment that I suspect that the investors in Glimcher's preferred shares are a nervous lot, and will soon start worrying about whether the next preferred dividend will be paid.

I would like to congratulate one nephew for being one of the 12 Americans selected in the People to People 2009 Peace Camp in Jordan and another for winning an award for his album at the 2008 International Bluegrass Association.   My accolade for 2008 is that I have lost less money than most individual investors this year. 

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