All GLG News Analyses Filed Under: REITs/Operating & Development

Kenneth LeonardPrincipalLeonard Associates

Mall Pall----Appallingly Awful

December 12, 2008

Analysis of:The Mall Pall: Have America's Biggest Shopping Centers Lost Their Allure? | knowledge.wharton.upenn.edu

According to new Wharton research by the "fifth survey of Customer Dissatisfaction" by the little known department  of Penn's Graduate School of Business' " Jay H, Baker Retailing Initiative", malls are all but dead unless they quickly fix the problems revealed by a few graduate student's survey. What a crock! It is doubly disappointing because not only is this a less than useful rehash of cliches and very old and obvious complaints that are well known in the industry, it is being circulated by a prestigious institution with close ties to the shopping center industry who should have known better!

Kenneth LeonardPrincipalLeonard Associates

The Bubble Has Burst

December 5, 2008

Analysis of:Centro, GGP Find Ways To Hang On | retailtrafficmag.com

Both REITs have contributed to their own demise by over bidding for groups of mediocre assets and then compounding the problem by over leveraging their acquisitions. The fact that they paid too much at the height of the "feeding frenzy" in retail real estate and then took advantage of accepting far too much money in loans to finance them, is reminiscent of the movie, "The Perfect Storm". Such conditions are unlikely to happen again in our lifetime and consequently only those cockeyed optimists such as Pershing Square Capital Management, Morgan Stanley and Citicorp still believe in the "hidden value" theory of real estate investments which posits that these geniuses know more about how to value shopping centers than all the experts in the shopping center industry.

Kenneth LeonardPrincipalLeonard Associates

Office Depot Sends A Message That GLG Readers Must Listen To

December 3, 2008

Analysis of:More Risks in Store for Retailers | online.wsj.com

In 40 + years of close involvement in the retail real estate industry I have never seen such a risky course of action taken by any troubled retailer.  Not only is Office Depot actually closing numerous underperforming stores, but they are announcing to the world that almost all of their new store decisions were bad and either could not produce enough profit to pay the rent or were based upon the blind hope of continued cheap money into the indefinite future. Either way, the management team that allowed this type of strategic planning to proceed should be replaced. It is evidence of even more stupidity than that displayed by the big three auto makers when they flew their private jets into Washington.

Kenneth LeonardPrincipalLeonard Associates

Let's End The Myth Of "Hidden Value" In Retailer's Portfolios.

December 3, 2008

Analysis of:For Sale: 200,000-Square-Foot Box | www.slate.com

This brief commentary about what is happening to big-box buildings when a retailer abandons them comes at a critical time when so many of the "big name" analysts are still talking about the value of retailer's real estate providing some type of "cushion" to a failing retailer. The article properly points out that the vast majority of empty big-box buildings have little or no value! The article correctly gives a very brief list of reasons for this counterintuitive phenomenon.   First they mention the lack of demand for this single-use purpose. Next, and of equal importance they note the cost of demising or renovating them to other smaller uses is prohibitive. Finally they mention the need of the communities to continue receiving real estate taxes as the motivation for those communities to arrange for churches, flea markets museums, schools and government buildings to occupy them for $1.00 per year rental, just to get a taxpayer to open the doors.

Kenneth LeonardPrincipalLeonard Associates

The Failure Of Programed Investing, All REITs Are Not The Same

November 24, 2008

Analysis of:Shocks in Commercial Mortgage Trigger Selloff in REIT Stocks | online.wsj.com

This is another classic example of the blind, sheeplike behavior of both investors and analysts. By treating all REITs as generic commodities, the market has done what it does best,---acting without thinking based upon some computer software ringing a Pavlovian bell. Dumping all REIT stocks seems to me to make as much sense as dumping all retail stocks just because SHLD is going down the toilet and a few marginal retailers who have been dying for several years have finally decided to submit to doctor assisted suicide.

Kenneth LeonardPrincipalLeonard Associates

WITH FRIENDS LIKE THIS, TARGET DOESN'T NEED ENEMIES

November 24, 2008

Analysis of:Ackman Says Target REIT IPO Would Raise $5.1 Billion | www.bloomberg.com

This plan that Mr. Ackman is proposing is good for Mr. Ackman and other stock speculators and short term players but lethal to Target in the longer term.  The only way this plan makes sense is if ALL THE PROCEEDS were used to pay down debt and even then, only if the cost of the new debt created by the sale-leaseback costs less than the debt they will be replacing! 

Kenneth LeonardPrincipalLeonard Associates

15% of all U.S. Malls Will Be Hurt Bad

November 24, 2008

Analysis of:It's Official, Steve & Barry's To Liquidate | blog.retailtrafficmag.com

The announcement of Steve & Barry's closing an additional 173 stores immediately after Christmas will be a devastating blow to that many Malls. Not only have those malls not yet amortized the several million dollar "bribe" money they paid to entice S & B to take over a vacant anchor store position in their mall,but now they have no idea how they will ever find a replacement anchor! After all S & B was their "replacement anchoe of last resort". 

Kenneth LeonardPrincipalLeonard Associates

IT'S STARTING!

November 20, 2008

Analysis of:Sears to shutter Schaumburg Great Indoors | www.chicagobusiness.com

With the announcement of the closing of 7 Great Indoors and 3 Sears Essentials and Sears Grand stores in addition to the  4 Sears Department stores and 8 Kmarts previously announced, SHLD is sending a very strong indication that the program of closing Mr. Lampert's earlier forecast of 200 to 300 "underperforming stores", has begun. Although this may be more accurately be classified as part of the "General Merchandise" category or listed in the Retail Sector, I have placed it under "Real Estate" because of the impact these closing will have on the REITs that own the shopping centers and malls that these Sears Stores are in.

Kenneth LeonardPrincipalLeonard Associates

The Other Shoe Has not Dropped Yet

November 20, 2008

Analysis of:Regional Mall REITs Hang ON During Third Quqrter | retailtrafficmag.com

This is a perfect example of what I have been preaching for the past year, namely that there is a definite lag between poor sales performance and Mall REIT FFOs. September, October and November have been retail disasters yet the FFO column for most REITs seem unaffected. Furthermore, the all important NOI column is only beginning to show some weakness. What should the GLG client make of this puzzling news?

Jack KernManaging DirectorKern Investment Research

And the REIT goes on...

October 22, 2008

Analysis of:Analyst decries REITs sell-off | www.investmentnews.com

Reit analyst Paul Puryear is brave, and providing a real public service. Those analysts who cover these specialized investments tend to be more reactive than necessary and he's done a good job make the point about value. In essence, Analyst Puryear criticizes the Street, for a sell off in REIT stocks, when the underlying value is still strong. I admire Mr. Puryear, but have some issues with his choices.

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