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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
- The
Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt!
Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet! - The
Conundrum of Commercial Real Estate Stocks: In a CRE "Near Depression",
Why Are REIT Shares Still So High and Which Ones to Short? - Reggie Middleton ON CNBC's Fast Money Discussing Hopium in Real Estate
Previous related posts on this company...
Watch The Evidence Of Global Real Estate Travails Mount As Subscribers Short This Stock
I Present To You The First Probable US Commercial Real Estate Insolvency Of Many To Come
The Real Estate Recession/Depression is Here, Eurocalypse Style
An Overview of a US REIT Headed Towards Distress
Prepare For CRE Crash And Burn Marks At A Shopping Mall Near You
- advertisements -
I don't know.......I prepared for this inevitable collapse 2 years ago by buying SRS and after many reverse splits, my cost average is 350.00/share. It trades at 31.87 now....think I'll ever break even??? LOL
I had a bad feeling when I saw SRS. I tried looking it up on GOOG and it brought up Sex Reassignment Surgery. Then I realized - real estate.
Ultra Short ouch dude.
I think ZH posted something about leveraged ETFs before. Or maybe financial media caught on and started declaring them terrible investments (but "good" for max 1 week long trades).
If you can decipher this it will explain a little more of how leveraged ETFs are a bad deal.
http://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp#axzz1m93RQKZl
Basically, the promised 2x,3x, etc leverage on the upside might not be there and you'll lose more on the downside. On top of that, the management expenses and continuous rolling over of derivatives make it shrink even further.
I was n00b and held on to a leveraged Natural Gas Bull even after the dumb trade died... was SMRT enough to not put a whole lot in it, but ended -60% (or more) after painfully realizing, I'd never be able to recoup the gains even if double/triple/quadrupling down on it and hoping to trade out on a big upswing.
As you mentioned, they'll reverse split again... and again... and again... until there's nothing left.
Sorry man... but do what you need to do. I guess if you think the crash will finally happen or will happen after selling the SRS then all the power to you. Good luck :(
REITs have been in the background of the news for at least a decade. Eventually, they incurred the stigma of the shady underworld of real estate reputation. Speculation and cheap currency eventually burst the real estate bubble. Inevitably, the commercial real estate market had to implode. Currency and market collapses happen in steps, transferring wealth from the population, to the banks. The investment side of the system is designed to fail. It always reminds me of horse players describing their activity as "investing".
http://thedailyclimb.wordpress.com/
Rent Free!
"Over 1,000 recent postings on Craigslist for the Las Vegas market are offering free rent. This ranges from two weeks to the entire first month off. You don’t need to have an MBA to realize that giving out something for free isn’t exactly good business especially when you have expenses on the property. Now look at the prices above. There seems to be this misconception that people will dive in, buy an $80,000 to $100,000 property and have the best renter ever for years on end churning out $1,000 a month.
The days of flipping properties and television promoting this bubble exploitation are gone here in California...."
http://www.doctorhousingbubble.com/doubling-down-on-rentals-las-vegas-re...
Love it ! Reggie.. you are the squid hunter~!
Excellent, succinct, no-BS analysis. Keep up the great work!