When A Fire Sale Burns Down The Building, Bankruptcy Is Inevitable!!!
After just posting the next installment of my "proof of impending bankruptcy" for a REIT which we identified for my subscribers, I realized there was an important message embedded within for all who still do not see a significant CRE reset in the works.
The piece that I posted (click here for the list of documents for download), "Scenario III : Sale of properties to fund debt repayment" covers the argument for the latest forensic analysis REIT subject potentially wriggling out of the bankruptcy line by selling off properties (at a loss) in order to stave off insolvency. The problem with that argument is that insolvency is already here for many property holders that leveraged up during the bubble - still here and never left. As stated in previous posts, this company is virtually a guaranteed bankruptcy. My aim is to cover all of the bases in order to build an unassailable argument for the share price of this company to be ZERO or lower. I have on tap, but yet to be published a recapitalization and individual property analyses. With those reseearch postings, I feel I've covered every practical angle this company could take to kick the can down the road and the resultant findings are the exact same as they were before the analysis - bankruptcy, or a simulacrum of such, is unavoidable!
So, I'm sure many of you are asking... What does this have to do with the price of tea in China? Well, as my grandmother told me, there is never JUST ONE ROACH! This company is in a precarious position where it can't even sell off its properties for a thin dime to raise capital, and if this company is in said position it's nearly guaranteed that it has plenty of company. The problem is that it is near impossible to discern this type of situation without a lot of labor borne by guys/girls who really know their way around real estate valuation. To wit, and as excerpted from today's subscriber download...
The "fire sale" or distressed asset disposition scenario seems like the least possible, least likely and the least practical scenario. The reason is that the Company's portfolio has either properties (1) which have negative valuation after considering debt due on them or (2) have properties that don't have specific debt against them but are mortgaged under the revolving credit facility.
Please see the details on valuation of 27 properties we have valued in the aforelinked document. As illustrated, almost all properties with a positive valuation (see Column L) lack property-specific debt against them. But all of these properties have been encumbered under the revolving credit facility. The properties not covered under the revolving credit facility and having positive valuation after deduction of debt due on them are as listed in the analysisl. The total positive value of these three properties is around USD 36 mn which is insufficient to meet net refinancing requirement of USD 295 mn as detailed in the document. Again, a hard landing is absolutely unavoidable at this point.
This will not be the only real estate company to meet such a fate, and I have made this point very clear in many a past post, TV interview and presentation.
Reggie Middleton on CNBC's Fast Money Discussing Hopium in Real Estate
Reggie Middleton discusses the fall of commercial real estate in the US
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Reggie
Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate
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Author: Reggie Middleton
Reggie
Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/
Who am I?
Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.
Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.
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So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.
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