Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Commercial Real Estate tic.............tic,,, -- Ignore unavailable to you. Want to Upgrade?

To: Smiling Bob who wrote (100)	12/7/2008 11:07:27 AM
From: Perspective	Respond to of 442

Was reviewing my REIT shorts, and "O" warrants a little sharing. You know how all the retailers claim to have these nice clean balance sheets? You know, the investment required to put up their (excessive amount of) buildings somehow magically disappeared through the magic of sale-leaseback agreements? From the looks of things, O has been one of the primary enablers. So what that means is that O represents the off balance sheet risk of some of the big retail chains. More here: realtyincome.com Our acquisition and investment focus is primarily on purchasing the properties of middle and upper market retailers who provide goods and services that consumers use every day. Typically, we purchase a property from the retail company and then lease it back to them under a 15-20 year lease agreement. This type of real estate transaction is called a "sale-leaseback" and allows the retail company to pull their capital out of real estate and put it back into their retail business. This provides them with access to capital to fund further growth or expansion. (Retail chains like Taco Bell, Pier 1 Imports, Staples, Office Max, Children's World day care, Jiffy Lube, and Hollywood Video.) realtyincome.com `BC

To: Smiling Bob who wrote (100)	12/7/2008 11:12:37 AM
From: Perspective	Respond to of 442

More on "O": They appear to have a decent balance sheet, 1.5B debt against The interesting part is cash flow. Their model has made substantial use of the capital markets, either for borrowing or stock issuance. So they are not cash flow generators. They have been borrowing money to keep the model going: finance.yahoo.com Remember when I asked which REITs had acquired a bunch of property near the bubble peak? Look at the balance sheet expansion in 2005-7: finance.yahoo.com So they're carrying a bunch of the commercial RE risk for a variety of large retail chains. Their margins are pretty wide; they cover interest like 4:1. I know there is a huge arbitrage because they are a diversified pseudo-retailer that can therefore borrow much more cheaply, but something tells me that the retailers are also doing this to offload a ton of risk from their shoulders. Wouldn't matter in normal times, but in a concerted consumer recession? They may not have imminent debt problems, but this looks like a nice commercial REIT short to me. `BC