If you're an investor in either of the two Lightstone REITs, you'll be forgiven for not knowing there even was a Q1 earnings call. Naturally, this is because Lightstone doesn't make these earnings calls available to its investors, nor does it record or otherwise make these calls available for later review by anyone. But don't worry! REIT Wrecks has a recording of the entire call safely archived in our truth vault, and we have posted parts of it here for your listening pleasure.
For the sake of brevity and clarity, we edited the forty-one-minute-and-fifty-eight-second pep talk (the call was held for the various obsequious, head-bobbing financial planners and brokers who sell the REITs) into two minutes and ten seconds of high-fidelity, investor-oriented substance.
The insanity in this call was simply suffocating. By using various folksy verbal red herrings and truckloads of empty chatter to cloak reality, Steve Hamrick, who is president of the Lightstone REITs, deftly attempted to sidestep any real scrutiny of the REITs' actual financial performance. In response, we gleefully deleted this obfuscatory noise (as well as, unfortunately, some outright falsehoods), and we hereby present the substance of the call for your listening pleasure (If you can't see the play button on the bottom left, you may be missing the plug in...just click on the "Lightstone Rips it Up!" link to hear the audio):
Yes, you heard it right: Hamrick actually said that paying dividends in excess of earnings is "appropriate and frankly necessary to attract investors" even though "it does reduce principal and does come at the expense of investors" Simply put, Lightstone's dividend is nothing more than a fictitious sales tactic, and even Hamrick is doubtful that Lightstone could sell the shares without it.
Unfortunately, investors in Lightstone's first REIT (Lightstone Value Plus REIT I) are now paying the price for Lightstone's dividend fiction. As Hamrick explains in the call, Lightstone is selling shareholders' interests in the Prime Outlets portfolio, but Lightstone won't distribute the proceeds. This is because without Prime Outlets, the cash flow from Lightstone's nearly $306 million in remaining assets does not cover the 7 percent dividend. ($306 million includes the 2009 write-downs, the REIT's unconsolidated $66 million joint venture interest in 1407 Broadway and its $11 million investment in Park Avenue Funding). Of course, this begs the question: why did Lightstone sell the REIT's only decent asset in the first place? That's a subject for an entirely different post, but as Hamrick himself clearly states, if the Prime Outlet sale proceeds were distributed, the remaining assets:
As if this bombshell weren't enough, even more amazing is the fact that some astonishingly deluded financial advisor comes on at the very end and congratulates Lightstone for creating this disaster. He calls it a "big win". Clearly he's either in denial, or actively choosing to ignore the fact that throughout its entire existence, this REIT paid a 7 percent dividend that was almost entirely made up, and his clients' equity capital was severely eroded as a consequence.would not be able to continue paying the 7 percent dividend, if they would be able to pay any dividend at all.
In fact, In 2007 and 2008, Lightstone reported that 53% and 54% of the dividend, respectively, had been paid using proceeds from its public offering - not cash flow. In 2009, the Company reported only $1.4 million in operating cash flow, yet somehow managed to pay $12.3 million in dividends. In Hamrick's own words, this practice does nothing but erode equity and it comes at the expense of their own investors. How could this possibly be "appropriate and necessary?" In this particular case, the result is a seasoned, more than four-year old REIT with $306 million in "assets" that still can't pay a real dividend.
Surely, Lightstone Value Plus REIT I was a "big win" for financial advisors, who collectively earned $24 million in commissions for selling it to their clients, and it was definitely a "big win" for the Lightstone Group, the REIT's sponsor, which pocketed almost $30 million in fees and expense reimbursements in 2009 alone (over and above property management fees). For investors however, who weren't even invited to join a 40 minute phone call, it's clearly a different story.
[url=http://www.reitwrecks.com/forum/viewtopic.php?f=2&t=11]Watch out! Lightstone REIT is Trailing Smoke[/url]
[url=http://www.reitwrecks.com/forum/viewtopic.php?f=2&t=5]REISA Addresses Non-Traded REIT Ponzi Scheme Allegations[/url]
[url=http://www.reitwrecks.com/forum/viewtopic.php?f=2&t=3]Sale and Promotion of Non-Traded REITs - FINRA Investigates[/url]