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When A REIT Trading Over $15 A Share Is Shown To Have Nearly All Of Its Properties UNDERWATER!!!

Reggie Middleton's picture




 

 

This is part six, and the second to last of my forensic rant on what I believe to be the CRE Short of the Year and the dead REIT walking known as PEI. In this installment, I will simply show that much of PEI's portfolio is either underwater, negative cash flowing or fully leveraged - in essence of null or negative value to the shareholder. If you haven't yet read parts one or two or three or four and five, please do for there is a wealth of data and analysis behind them that will bring the new reader up to speed. 

I'm releasing this proprietary blog research for two reasons:

  1. the share price has risen materially since the research was released, primarily due to the fact that so very little has been done to shed light on this company's true financial situation, and
  2. this gives us a prime opportunity to once again demonstrate the thoroughness and rigor of BoomBustBlog forensic analysis.

I'll keep this one short and simple. Most of PEI is U-N-D-E-R-W-A-T-E-R!!! That translates to the majority of its portfolio being of no value to equity shareholders or bondholders upon sale. In addition, at least 4 properties are kick negative cashflows, draining valuable and much needed cash from the rest of the company. See below and  Click to enlarge to print quality...PEI negative cash flow properties

 

Paid subscribers are welcome to download the corporate level valuation of PEI as well as all of the summary stats of our findings on its various properties. The spreadsheet can be found here - File Icon Results of Properties Analysis, Valuation of PEI with Lenders' Names. In putting a realistic valuation on PEI, we independently valued a sampling of 27 of its properties. We found that many if not most of those properties were actually underwater. Most of those that weren't underwater were mortgaged under a separate credit facility.  

If you have a problem viewing these tables, reference the original article here and click the charts to enlarge to printer quality! 

PEI Underwater  Overly Encumbered Properties

Of course, many may be asking, "Well, what about those properties that you didn't look into independently?". Well, the reason why we didn't look into the others independently (other than resource constraints - this stuff is a lot of work and consumes many man-months of analytical labor) is that the state of the properties were rather obvious without deep digging. Below is a list of those properties we did not value. Please keep in mind that we feel (and we're most likely quite correct) that the carrying value of assets on management's balance sheet are often heavily skewered to the optimistic side. Not to say that they are explicitly lying, per se, just that they may have been feeling particularly good the day they spit out the numbers. With that being said, notice the amount of red that you see below.

PEI Properties Not Valued By BoomBustBlog

Again, subscribers are welcome to download the corporate level valuation of PEI as well as all of the summary stats of our findings on its various properties. The spreadsheet can be found here - File Icon Results of Properties Analysis, Valuation of PEI with Lenders' Names.

I will continue this analysis with a conclusion in the Fire Sale scenario, and offer professional and institutional subscribers property by property analysis in full and complete detail (about 10-30 pages per property). In the meantime and in between time I'm available to discuss the finer aspects of the analysis in the subscriber retail investor's discussion forum and individual property valuation discussions and higher end questions will be answered in the professional/institutional discussion forums. I will also be available to chat there as well.

The complete REIT analysis referred to in the chart can be found here for subscribers (the property by property valuations are for Professional/Institutional subscribers only):

 

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Wed, 07/18/2012 - 09:12 | 2627633 Panafrican Funk...
Panafrican Funktron Robot's picture

If you agree with this, a synthetic short (sell the call, buy the put for those not familiar) at the 15 strike for January 2013 expiration is a pretty low capital req. way to get in on this.  

Tue, 07/17/2012 - 18:53 | 2626254 rocker
rocker's picture

BTFD  It can only go up in a rigged market.  Look at the IYR.   Up Up and Away

Tue, 07/17/2012 - 18:40 | 2626225 Rearranging Dec...
Rearranging Deckchairs's picture

Just wish there were some LEAPS. The latest expiration put i can find is for Jan 13, that's not even after announcement of final fiscal year 2012 results.

 

I think they can hold this sh&t together longer than I can stay solvent buying expiring puts.

 

 

Tue, 07/17/2012 - 18:25 | 2626170 Mentaliusanything
Mentaliusanything's picture

I don't believe Algorithm's need or indeed have the ability to peruse balance sheets and make an informed opinion/assumptions.

It would continue to trade until the power was cut to its brain. 

 

Tue, 07/17/2012 - 17:36 | 2626043 rsnoble
rsnoble's picture

You really don't need to make an issue at this. REIT's are a concentation area of the FED, nothing more.  Gazillions have to go somewhere, what the fuck do they care if it's in a worthless investment. Anything to keep people fooled.

Bernanke's world is like going to Buffalo Bobs house in Silence of the Lambs or wtf that crazy bastards name was.  Everything is A-ok at first glance, and totall motherfucking nuts underneath. They have no fucking idea what to do.  Mainly because there is nothing they can do. The last, and greatest bubble of all time is getting ready to possibly end in WW3.  Yee haw!  BTW that guy really was crazy fucking with that gal like that in the dark, come into my house like that and yeah you're going to be getting your asshole pounded raw but then again im not crazy. LOL.

Tue, 07/17/2012 - 18:01 | 2626110 Bastiat
Bastiat's picture

You had me up to the last sentence, so plus one.

Tue, 07/17/2012 - 17:31 | 2626023 shovelhead
shovelhead's picture
Looks like a ground floor opportunity @ 15 a share. QE3 ought to get it to $45.

Go Benny.

 

Tue, 07/17/2012 - 16:31 | 2625760 cocoablini
cocoablini's picture

PEI will go up and down with the general economy as most of the markets are computer traded by agnostic algos. Just pick a direction.

With that said, if the economy tanks, this will go down 2x faster as all hope is lost in real estate. CME's were slated to shit the bed last year but the "recovery" happened and came and went.

Deflation is a bitch!

Tue, 07/17/2012 - 16:30 | 2625751 jimcg
jimcg's picture

The time to short REITs and other financials was 2007-2009, that was before the Fed had their market manipulation playbook down to a science. I don't disagree with Reggie, we've been on the same page since I first found his website in 2006.He's one of the smartest guys in the room, for sure.

These REIT, homebuilder, and financial puppies are all insolvent. But they have been for half a decade already and they continue to exist as zombie entities thanks to all the propping up, accounting fraud, government assistance and just plain manipulation.

Eventually they will fail to wake up one morning, but I'll be damned if I bet on when. Been there, done that...ain't purty.

Good luck fighting the Anglo/American central banking system.

J

 

 

Tue, 07/17/2012 - 15:06 | 2625271 RobotTrader
RobotTrader's picture

VNQ and IYR now printing world record highs.

Tue, 07/17/2012 - 14:57 | 2625238 Capitalist87
Capitalist87's picture

How far out for puts do you guys believe is logical?

Tue, 07/17/2012 - 16:30 | 2625755 Gromit
Gromit's picture

Bascially go out as far as you can find someone who'll sell you some, very thin market, good luck!

Tue, 07/17/2012 - 14:36 | 2625137 PSEUDOLOGOI
PSEUDOLOGOI's picture

That's OK...

 

They're just waiting for Christmas season, errr, the Holidays season... then people will spend money and all of their problems will be solved.

Tue, 07/17/2012 - 14:32 | 2625122 1000pips
1000pips's picture

Just what I needed to know to short this pig. Reggie, many other REIT's are even in worse shape than PEI; that being perhaps correct-do u have anyother's you feel strong about shorting.
As usual, your work is excellent! Thx

Tue, 07/17/2012 - 14:32 | 2625120 giggs
giggs's picture

Yeah, the shameless self promotion is completely absent in his writing now.  Still same great analysis though.  I too bought some puts; let's see if this sinking ship has a good pump.

Tue, 07/17/2012 - 14:29 | 2625109 Seasmoke
Seasmoke's picture

Fantasy to Fantasy

Tue, 07/17/2012 - 13:54 | 2624991 Gromit
Gromit's picture

Reggie,

Your writing has been much clearer and easier to read lately thank you.

Picked up[ a few more Octobers this morning.....

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