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Bought RAS today. Commercial real estate. Provides 11% yield to the common stock.

The height of the buildings tend to indicate the depth of the depression. The Empire State was completed in 1930, ahead of schedule, took awhile to make money on the building though.



I continue to like REIT’s [selected or diversified] at these levels due to their yields. Dividends, as proven through time contribute enormously [especially if re-invested] to total returns when holding periods extend.

I’ll provide a detailed analysis later in the week. For now, just the quick basics;

American Campus Communities, Inc. is a fully integrated, self-managed and self-administered equity real estate investment trust (REIT). It specializes in the acquisition, design, financing, development, construction management, leasing and management of student housing properties across the United States. American Campus Communities conducts its business through a controlling interest in American Campus Communities Operating Partnership LP and American Campus Communities Services, Inc., which serves as a taxable REIT subsidiary (TRS). Through the TRS, the Company also provides construction management and development services, for student housing properties owned by colleges and universities, charitable foundations, and others. On June 11, 2008, American Campus Communities, Inc., completed the acquisition of GMH Communities Trust, a real estate investment trust (GMH). With the close of the GMH acquisition, it owns 88 student housing properties containing approximately 54,300 beds.

I’m having trouble actually finding the data in a centralized manner, without having to read each individual set of financial statements.

With the consumer currently under pressure, and unemployment rising, non-recourse commercial mortgages will come under increasing pressure for that “Put Option” to be exercised to the originator.

Now while this may well be a negative for the Banks, that’s not really where the opportunity [shorting bank stocks] may lie. Rather, REIT’s that specialise within this market segment, who can off-load non-performing properties [debt] thus deleveraging their Balance Sheets, but at no future disadvantage when looking to re-leverage.

Thus, we have a situation where non-performing assets can be “Put” back to the originators, while potentially higher performing assets can be purchased.

“U.S. commercial real estate, while not as bad off as the U.S. housing market, has softened since last year as credit has become more expensive and difficult to obtain, bringing sales to a near standstill.

What’s more, with the U.S. economy continuing to weaken, some commercial property owners are starting to see some large department stores in malls or grocery stores in neighborhood shopping centers close their doors.

U.S. commercial property sales transactions were off nearly 70% in the first quarter of 2008 versus a year earlier, according to research firm Real Capital Analytics.”

“Grocery-anchored neighborhood shopping centers, where a loss of the grocery store often represents a loss of at least 40 percent in the property’s income, may do this more than any other type of property owner, Longua said.

“Kimco has done it, and they should,” Longua said. “There’s no problem. It’s part of the game.”

Kimco Realty is the largest U.S. owner of grocery-anchored shopping centers, and had in the past defaulted on individual mortgages, especially after Kmart Corp closed doors on many stores in 2002.

Since then, Kimco has had no problem attracting lenders.”

“Glimcher Realty Trust, is one company analysts and credit rating companies are watching.

A $45.5 million payment on its Eastland Mall in North Carolina comes due this year. The 1.1 million square foot mall has closed two of its anchor stores – J.C. Penney and Belk Inc. department stores. The mall has an ice skating rink, which has also been closed. A lease on a Sears, owned by Sears Holdings, expires next year.

The mall has been up for sale but has yet to attract a buyer. When asked if Glimcher would consider giving the property back to the lenders if it failed to find a buyer, Michael Glimcher, chairman and chief executive said: “It’s not our intention to own Eastland at the end of the year.”

Medical REIT’s are an area that potentially are an interesting longer term investment based on some macro-based trends.

This macro-trend [ageing population within US] is positive for medical specialist REIT’s as an increase in the ageing population provide an increased supply and demand dynamic for the medical REIT’s.

One risk associated with REIT structures is the risk of over-supply relative to demand, viz. excessive new building or development. Therefore we should initially examine macro-trends within the industry.

Hospital spending is the strongest within this sector. Medical care and Specialist spending are lower, thus are less likely on current data to move into oversupply. Thus in our search for a potential candidate, this should be a factor taken into account. The first data set differentiates the spending into sectors, the second, while not differentiating the spending, does confirm the general data.

With a favourable macro-picture, we can now look at one potential candidate;

National Health Investors, Inc. (NHI) is a real estate investment trust that invests in healthcare properties primarily in the long-term care industry. As of December 31, 2006, NHI had ownership interests in real estate, mortgage and notes receivable investments. These investments include long-term care facilities, acute care hospitals, medical office buildings, retirement centers and assisted living facilities. As of December 31, 2006, the Company had investments in 139 healthcare facilities located in 18 states consisting of 97 long-term care facilities, one acute care hospital, four medical office buildings, 14 assisted living facilities, six retirement centers and 17 residential projects for the developmentally disabled. Of these 139 facilities, 41 are leased to National HealthCare Corporation (NHC). These 41 facilities include four centers subleased to and operated by other companies, the lease payments to NHI being guaranteed by NHC

Capitalization of this common stock has improved with a larger % coming from equity, and the long term debt declining from a 5yr average of $150.7 to currently $113.5. In the current credit environment and generally, this is a positive.

Expenses have increased. This is not really what you want to see. They are reflected primarily in two areas; Cost of Goods, which would be properties purchased, increased by 15% reflecting the high real estate prices and SG&A which is management, increased by 117%.

The increase in property costs [to purchase] is unfortunate, and definitely hurts results. The huge increase in management costs I shall look into more closely.

Cashflows have remained positive, and reflect hidden value from the reported Net Profits. This understated income has been utilized to pay down long term debt. This is a major bonus as no further Equity was required to be sold. In point of fact, common stock was reduced, also from cashflows. Cashflows have weakened, but are still showing a surplus that has not filtered through to Net Income.

Cash has increased, not unimportant with the coming problems anticipated in commercial real estate and thus impacting commercial REIT’s.

CapEx is a further cost that has been absorbed by the strong cashflows. Again, this is a little added value.

Revenues have been static. This represents the inability to raise rents. Of course the major concern would be leases renegotiated at lower rents going into the future, which would seriously impact Revenues and overall profitability. Again, leases will need to be further investigated.

All other operating ratio’s are and have been consistent, thus no immediate red flags have been thrown up.

Dividends have been consistently paid, with an approximate 6% compounded increase. Currently the dividend seems secure. This of course is the major concern. Should a serious recession strike this [healthcare] sector, can Revenues be maintained high enough to preserve at current levels the dividend? That there are some hidden cashflows that provide some cushion is positive, but, not conclusive.

Valuation: Currently, overvalued. I have an intrinsic value range from $16.50-$22.39 and with a current price circa $30, we would be paying a premium. However, current Yield is circa 7% this is not an insubstantial factor if as mentioned, this dividend is relatively secure.

NHI Increases Dividend to 55 Cents
February 5, 2008 4:31

National Health Investors, Inc., NHI announced today that it will pay a first quarter dividend of 55 cents per common share to shareholders of record on March 31, 2008 and payable on May 9, 2008. This is an increase of five cents, or 10% over last quarter’s dividend.

This 55 cent dividend reflects the company’s continued success in managing its portfolio and confidence in its future cash flow.

NHI specializes in the financing of health care real estate by purchase and leaseback and first mortgage transactions.

The long term debt is at variable rates of interest. Thus swings in the interest rate will effect a swing in cashflows due to interest paid. Thus the paying down of debt reduces the gains/losses to this variable.

The largest customer [NHC] who lease 41 properties, reached agreement to extend the leases through 2021

Increased diversification through customer base; this is important as when this REIT was started in 1991, NHC was the sole customer and constituted 100%. Currently NHC constitutes 14.1% of the portfolio.

Hidden value. When the assets were purchased [transferred via non-taxable exchange] the properties were valued at net depreciation book value, after 20+yrs of depreciation. Thus the actual values [land] will have appreciated at 4% compounded to provide increased [undervalued] assets.
No figures were provided, so feel free to speculate a little and add your own figures.

In summary, this REIT provides potential for conservative investment returns based on three main factors;

*Initial purchase price is reasonable
*Provides high dividend yield that is both secure and likely to grow
*Provides opportunity for capital growth over a period of time

Therefore, investors who are interested by income producing investments, should take a close look at this candidate.