September Idea of the Month: Leverage on Retail Real Estate

by Travis Johnson, Stock Gumshoe | September 14, 2012 9:29 pm

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Source URL: https://www.stockgumshoe.com/2012/09/september-idea-of-the-month-leverage-on-retail-real-estate/


14 responses to “September Idea of the Month: Leverage on Retail Real Estate”

  1. valentinoamoro says:

    Superb analysis. I learnt a ton about REIT’s and will research more. It’s crazy to think most investors are not aware of the insane leverage (and consequent volatility) of most REIT’s. This sounds like a no brainer.

    I’m in – will watch out for a good entry position. Should complement my Sandstorm positions nicely!

  2. valentinoamoro says:

    Hi Travis, cant seem to find ROICW on Google Finance. any clue on whats going on?

  3. jfenlin says:

    ROIC is interesting, and thank you for the Warrants 101. Anyone interested in ROIC should also look at RSE. We watch what BAM, Brookfield Asset Management does as close as BRK, in fact BAM stock has trownced Berkshire since the early 2009 lows for both and over 10 years (with high volatility); sporting a US$ > 22 billion market cap at a fair valuation, this was no micocap luck thing. GGP spun out RSE in 1/2012. As the largest holder of GGC BAM started with about 42% of RSE REIT. Shortly after RSE was spun out the stock was ~13 and a writes offering to raise $200 million @ $15, Huh? The trick is that BAM backstopped the offering bought the whole thing at 13.00 and change net of a backstop fee. Us of proceeds is to implement an interesting counter intuitve strategy with a portfolio of “B” malls. First dividend is 0.07 < 25% payout on likely 2012 FFO. The company is in a cap-ex cycle and as that winds down the payout should normalize and early evidence (see most recent 8-K) indicates that the plan is already working, with a 90 basis point sequential (June over March Q) increase in occupancy to 88.4% so plenty of room. 5.0% increase in tennant sales. 6.1% increase in rental rates on new and renewed leases with ~double the leasing activity year over year. A property was aquired cheap with assmption of debt. I sense there are several B malls out there that meet parameter that can be aquired and refied on very favorable terms. With all this going on RSE should be able to increase its distribution for a very long time unless we find ourselves in an environment where we don't want to own retail driven stocks at all. I encourage reading about the "town hall" strategy including additions to food and beverage (food can be ordered but not delivered on line) and entertainment. I could see distribution in closing on a buck in by late 2014 and getting a growth REIT value. I believe that RSE is very complimentary to ROIC. I often by 2 stocks with similar drivers to mitigate company specific risk and get exposure to different positoning. (one really good example was DOW DD when one could buy DOW at <7.00, recently set up 60/40 FCX/SCCO etc).

  4. guigui says:

    Hi Travis, can we use the warrants to cover for calls selling?

  5. valentinoamoro says:

    Hi Travis,
    Apologies in case you answered this already – “Hi Travis, cant seem to find ROICW on Google Finance. any clue on whats going on?”

  6. tou0033a says:

    your welcome!

  7. tou0033a says:

    does anybody know what ROICU is?

  8. Probably the staples units (share plus warrants), though I can’t imagine they trade much if at all. Haven’t checked, that’s a guess.

  9. tou0033a says:

    i just wrote an email to the company so hopefully they’ll explain it to me. ill let you know what i find out.

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