BDN - I put a little time into looking at BDN and I do NOT like what I see.
Using my metrics, I much prefer HRP over BDN.
My basic process is simple and stems from my being a small or medium sized commercial real estate investor, developer and manager. I calculate the Net Operating Income of the portfolio of properties. I use a 10% cap rate to put a value on the portfolio. I add something for non-revenue producing assets. I look at what's left over after the debt.
In BDN's case I come up with a $3.7 billion value in the rental properties, plus maybe $400mm in other assets. BDN has debt and other liabilities of $3.1 billion. Liabilities as % of assets is 75%. 25% of this debt is due within two years, and 54% within four years. The very thin layer of preferred is yielding 20%.
Contrast this with HRP. I come up with a $4.9 billion property value at 10% cap rate. Add $500mm of other hard looking assets for $5.4 billion, against total liabilities of $3.1mm. Liabilities as % of assets is 57%. Only 10% of this debt is due within 2 years, and 33% within four years.
Now, HRP does have a much larger preferred stock tranche, at $700mm of par value. To a large extent, they have preferred where BDN has debt. That $700mm represents about 13% of asset value. Until last week the preferred was also yielding 20% but it's down to about 18% now.
From the above I believe that:
The HRP debt is a lot safer than the BDN debt, and the ytm differential (20% vs 14%) supports this.
The HRP preferred is a lot safer than the BDN preferred, but yields are nearly the same.
The HRP common stock (yielding 15%) is also a lot safer than BDN's common (yielding 16%), as the HRP preferred does not have the power to throw the company into default should more damage befall commercial real estate.
Please tell me where this analysis is weak. Criticism is the investor's best friend.
peter |
