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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (55659)7/10/2015 8:19:33 PM
From: Spekulatius1 Recommendation

Recommended By
MCsweet

  Respond to of 78748
 
I have looked at ARCP and what scares me away is their extremely high leverage. They have roughly $10B in net debt and $1.2B in NOI. A typical low investment grade REIT would have max. 7x leverage (or $8.4B) in net debt. That $10B in debt does not even count the preferred, which count as equity (for the bond holders that is correct) but from the shareholders point of view, it is just like debt. For me, the leverage is a deal breaker and I would look somewhere else for value in real estate.



To: E_K_S who wrote (55659)7/11/2015 9:01:10 AM
From: bruwin  Read Replies (1) | Respond to of 78748
 
"Buyer beware on this one "

It seems that two words in that sentence need to be considered ... "Buyer" and "beware"
Would one want to be a Buyer of this stock bearing in mind what its current financials show, and maybe it's a good idea to beware of hoping for a future upturn in this stock.

This company is supposed to have "Properties (which) are good and generate good cash flows". But considering the various costs that ARCP has to contend with, is that good enough ?
Looking at their latest Annual Income Statement, if one considers the costs/expenses between Gross Profit and Pretax Income there's an amount of approximately -$1.9billion. That's already far in excess of its "only source" of Revenue, which, if I'm not mistaken, is income from its properties.
So just to break even at Pretax Income it seems that ARCP has to more than double the revenue from its properties.

If we add the other cost "millstone", which Spekulatius referred to, namely the company's debt burden, then we have to add another -$0.45billion to Revenue to work towards breaking even at its Bottom line ... and that's without the company, as yet, paying any tax.

American Realty Capital Properties, Inc. (ARCP) -NasdaqGS

8.41 0.12(1.39%) Jul 10, 4:00PM EDT
After Hours : 8.41 0.00 (0.00%) Jul 10, 5:24PM EDT
Income StatementGet Income Statement for:
View: Annual Data | Quarterly DataAll numbers in thousands
Dec 31, 2014Dec 31, 2013Dec 31, 2012
Period Ending
Total Revenue1,579,257 329,323 67,207
Cost of Revenue203,969 23,616 3,522
Gross Profit1,375,288 305,707 63,685
Operating Expenses
Research Development- - -
Selling General and Administrative188,629 140,634 5,670
Non Recurring649,336 290,002 47,673
Others916,003 210,976 40,957
Total Operating Expenses- - -
Operating Income or Loss(378,680)(335,905)(30,615)
Income from Continuing Operations
Total Other Income/Expenses Net(179,584)(66,328)979
Earnings Before Interest And Taxes(558,264)(402,233)(29,636)
Interest Expense452,648 105,548 11,856
Income Before Tax(1,010,912)(507,781)(41,492)
Income Tax Expense- - -
Minority Interest33,727 16,316 585
Net Income From Continuing Ops(1,010,912)(507,781)(41,492)
Non-recurring Events
Discontinued Operations- (34)(745)
Extraordinary Items- - -
Effect Of Accounting Changes- - -
Other Items- - -
Net Income(977,185)(491,499)(41,652)




If the company should sell some of the Assets, contained within the $15billion on its Balance Sheet, and use that to pay off debt, does that solve its problems overall ?
It may still not have enough Revenue earning capability to exceed its ongoing costs/expenses based on what one sees so far.
One has to wonder how new management can change that possible reality.

True 'Value Investors' are often looking for that share price which falls below "value of company per share", and may see ARCP falling in that category.

So, at the end of the day, for a stock like ARCP it's probably all about the regular dividend. Many of its "compatriots" such as STAG and SRC are in much the same boat. And to continue paying that dividend they continue to report losses.

One wonders if a company in a similar business, such as Reality Income Corporation (O), may not be a better investment bet. They also pay a regular dividend. According to Yahoo Finance, O's Trailing Annual Dividend Yield is 4.9% compared to ARCP's at 5%. So nothing in it.
But at least with O you are getting a company that reports regular Bottom Line profits from its Property Portfolio and its chart also looks a lot more attractive and in line with its business performance ....

Realty Income Corporation (O) -NYSE

46.36 0.41(0.89%) Jul 10, 4:04PM EDT
After Hours : 46.36 0.00 (0.00%) Jul 10, 4:25PM EDT
Income StatementGet Income Statement for:
View: Annual Data | Quarterly DataAll numbers in thousands
Dec 31, 2014Dec 31, 2013Dec 31, 2012
Period Ending
Total Revenue933,505 780,209 484,581
Cost of Revenue53,871 38,851 21,306
Gross Profit879,634 741,358 463,275
Operating Expenses
Research Development- - -
Selling General and Administrative51,085 56,881 38,123
Non Recurring4,126 13,303 11,538
Others374,661 306,769 147,515
Total Operating Expenses- - -
Operating Income or Loss666,128 545,847 389,242
Income from Continuing Operations
Total Other Income/Expenses Net39,205 - -
Earnings Before Interest And Taxes666,128 545,847 389,242
Interest Expense216,366 181,442 123,143
Income Before Tax449,762 364,405 266,099
Income Tax Expense3,461 2,350 1,061
Minority Interest(1,305)(719)-
Net Income From Continuing Ops267,835 179,894 141,895
Non-recurring Events
Discontinued Operations2,800 65,670 17,257
Extraordinary Items- - -
Effect Of Accounting Changes- - -
Other Items- - -
Net Income270,635 245,564 159,152
Preferred Stock And Other Adjustments(43,077)(41,930)(44,614)
Net Income Applicable To Common Shares227,558 203,634 114,538





To: E_K_S who wrote (55659)7/11/2015 1:50:46 PM
From: bruwin1 Recommendation

Recommended By
ekimaa

  Read Replies (2) | Respond to of 78748
 
Maybe a good article on REIT's ?? :-

forbes.com

According to the National Association of Real Estate Trusts (NAREIT), there are 126 equity REITs with a combined market capitalization of around $ 459 billion (as of January 31). However, there are just 11 such REITs with S&P-rated investment grade credit ratings of ‘BBB+’ and higher (Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk. ‘BBB-’ rated debt is considered lowest investment grade by market participants)...

... and an interesting Table ?? :-



PSA seems to have a healthy Income Statement ...

Public Storage (PSA) -NYSE

196.13 2.40(1.24%) Jul 10, 4:03PM EDT

Income StatementGet Income Statement for:
View: Annual Data | Quarterly DataAll numbers in thousands
Dec 31, 2014Dec 31, 2013Dec 31, 2012
Period Ending
Total Revenue2,195,404 1,981,746 1,842,504
Cost of Revenue618,720 565,161 555,904
Gross Profit1,576,684 1,416,585 1,286,600
Operating Expenses
Research Development- - -
Selling General and Administrative71,459 66,679 56,837
Non Recurring- - -
Others437,114 387,402 357,781
Total Operating Expenses- - -
Operating Income or Loss1,068,111 962,504 871,982
Income from Continuing Operations
Total Other Income/Expenses Net358 43,892 32,406
Earnings Before Interest And Taxes1,068,469 1,006,396 904,388
Interest Expense6,781 6,444 19,813
Income Before Tax1,061,688 999,952 884,575
Income Tax Expense- - -
Minority Interest(5,751)(5,078)(3,777)
Net Income From Continuing Ops1,149,955 1,057,531 930,161
Non-recurring Events
Discontinued Operations- - 12,874
Extraordinary Items- - -
Effect Of Accounting Changes- - -
Other Items- - -
Net Income1,144,204 1,052,453 939,258
Preferred Stock And Other Adjustments(236,028)(207,722)(269,564)
Net Income Applicable To Common Shares908,176 844,731 669,694

.... and so does BXP ...

Boston Properties Inc. (BXP) -NYSE

124.16 1.04(0.84%) Jul 10, 4:02PM EDT
After Hours : 124.16 0.00 (0.00%) Jul 10, 4:25PM EDT
Income StatementGet Income Statement for:
View: Annual Data | Quarterly DataAll numbers in thousands
Dec 31, 2014Dec 31, 2013Dec 31, 2012
Period Ending
Total Revenue2,396,998 2,135,539 1,847,186
Cost of Revenue864,526 771,403 667,208
Gross Profit1,532,472 1,364,136 1,179,978
Operating Expenses
Research Development- - -
Selling General and Administrative102,077 117,073 93,782
Non Recurring- 8,306 -
Others628,573 560,637 445,875
Total Operating Expenses- - -
Operating Income or Loss801,822 678,120 640,321
Income from Continuing Operations
Total Other Income/Expenses Net167,209 11,343 7,027
Earnings Before Interest And Taxes979,664 689,341 651,801
Interest Expense455,743 446,880 410,970
Income Before Tax523,921 242,461 240,831
Income Tax Expense- - -
Minority Interest(69,677)(16,555)6,589
Net Income From Continuing Ops443,611 612,019 242,967
Non-recurring Events
Discontinued Operations- 137,792 46,683
Extraordinary Items- - -
Effect Of Accounting Changes- - -
Other Items- - -
Net Income443,611 749,811 289,650
Preferred Stock And Other Adjustments(10,500)(8,057)-
Net Income Applicable To Common Shares433,111 741,754 289,650


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