Cole REIT Has Dividend Problems

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Re: Cole REIT Has Dividend Problems

Postby RealEstateGuy » Fri Sep 16, 2011 11:43 am

Well, now I'm starting to wonder how accurate the info disseminated on this site is. I guess that's what you get on the internet - anyone can say anything and call it "fact". Azure said they didn't buy much in 2009-2010 ... turns out that was just factually incorrect. %3 BILLION in property is a LOT in my book! Also, the dividend IS covered, it seems.

Let's be careful not to throw all the non-traded REITs into the same bucket - obviously, the timing of the offerings and the market conditions at the time make a HUGE difference in how they wind up performing.

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Re: Cole REIT Has Dividend Problems

Postby REIT Wrecks » Fri Sep 16, 2011 2:09 pm

RealEstateGuy, I agree, and I personally would love to take a more constructive view on this sector, but it's just not easy with all the warts.

With regard to Azut's contention that not much was bought in 2009-2010, it was absolutely factually incorrect, he knew it, and here's why:

CRE Tranaction Volume.jpg
Water, water everywhere ($3 billion worth) but not a drop to drink...data from Real Capital Analytics
CRE Tranaction Volume.jpg (35.36 KiB) Viewed 7556 times


Do you think Cole got a good deal on their $3 billion in the 2009-2010 environment, or a bad deal? Only time will tell, but it appears as though there was very low supply, and Cole had high demand.

As for Kimberly's contention that losemoneynow's post is "misleading", and that Cole REIT III is fully covering its dividend with MFFO, the latter half of her statement is factually correct. However, in order for her make that factually correct claim, she and Cole are using a definition of FFO that is not consistent with the definition supported by the National Association of Real Estate Investment Trusts ("NAREIT"). So who is misleading whom?

Using NAREIT's definition, Cole's dividend coverage was actually negative by roughly $7 million in Q1 2011 and negative by roughly $18 million through Q2 2011.

In fact, using NAREIT's definition, dividend coverage was negative by almost $80 million in 2010. This is cash out the door, and it must somehow be earned back in order to make investors whole. Again, did Cole get a good deal on its $3 billion in the above environment, when there was virtually nothing for sale, or did it not? Only time will tell, but for investors, if the answer isn't yes, there could be some considerable trouble down the road. Would anyone like to play kick the can with a stick of dynamite?

Some investors may be tempted to view this as a technicality, but it isn't. The difference between the two definitions can be attributed largely to the treatment of acquisition fees. In Cole's case, they earn an amazing 2% of the gross purchase price of whatever they buy, no matter what they pay for it, and this cash goes straight into Cole's pocket. Investors paid $44 million in acquisition fees to Cole in 2010, and an additional $16.6 million in acquisition fees went straight into Cole's pocket through the first six months of 2011. These fees are paid using investors' principal, which means there is LESS money available to buy income producing real estate.

With respect to losemoneynow's response to Kimberly, which she failed to answer, this egregious fee drag is one reason why the REIT is still forced to fund its 6.5% dividend using borrowings and proceeds from sales of new stock, not cash flow. As reported on page 30 of the 2011 second quarter 10Q, the year to date dividends of $87.8 million were funded as follows:

$62.5 million from operating cash flow
$22.7 million from selling new stock
$2.1 million from borrowings
.5 from the sale of an unconsolidated JV interest

Meanwhile, in just the first six months of 2011 alone, Cole managed to pull a total $38 million in fees and expenses out of the REIT (page 20), and this totally ignores the ridiculous 7% commission skimmed of the top by your friendly financial advisor.

Bon chance!

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Can't Trust Cole Credit Propert Trust III

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Re: Cole REIT Has Dividend Problems

Postby RealEstateGuy » Fri Sep 23, 2011 1:20 pm

Thanks for the reply, RW. I don't agree with some of your points, but I appreciate the input and analysis. I also would have to agree that's it's tough to be posative on the overall non-traded REIT market - due to the "warts" as you aptly put it. However, as with ALL investments, all investments within a certain category can never be painted with the same brush! For example, Cole II and Cole III are very different investments and I believe should be discused on their own merits. A lot of this has to do with the markets when they buy and want to liquidate, which can be very different from product to product, obviously.

Anyhow, with Cole III, I do disagree with RW's analysis that Cole likely did not get good deals in 2009-2010. Yes, there was very little transacted during that time, however, the primary reason for this was NOT suply, but the fact that financing was non-existant so there were almost no BUYERS. Cole, having cash and access to some leverage, was able to buy. This is especially true in 2010 when the banks/pensions/etc. were being forced to dump some of their under water properties and had to do so at very low prices because the buyers still were not back yet.

Cole's $3-4 mil is nothing in this market, of course, so it's not like they had to poor funds into a dead market. Hopefully, they got some great deals done during this period. We'll see later when it's time to liquidate, I guess.

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Re: Cole REIT Has Dividend Problems

Postby REIT Wrecks » Thu Oct 20, 2011 9:55 am

REIT Wrecks wrote:This is cash out the door, and it must somehow be earned back in order to make investors whole. Again, did Cole get a good deal on its $3 billion in the above environment, when there was virtually nothing for sale, or did it not? Only time will tell, but for investors, if the answer isn't yes, there could be some considerable trouble down the road. Would anyone like to play kick the can with a stick of dynamite?


With respect to this particular question, the answer may not be too comforting. CoStar just published a 4 part series on triple net lease investments, and so far, the anecdotal answer seems to be no, Cole did not get a good deal. Part Two of the Series is entitled "Cheap Money Fueling Net Lease Market". From CoStar:

"The 'buy' side is being driven by the non-traded public REITs that raise funds from individual investors through broker-dealer networks," said Scott E. Tracy, founding principal Corporate Partners Capital Group in Los Angeles.

"Investors CoStar talked to in this series bumped up against Cole in deals across the country. Enough so, that they said they believe prices are increasing from Cole's demand alone. "

So, the question that investors and financial advisors should be asking themselves is this: If Cole is paying a premium for these "bonds", investing almost none of its own money, AND stripping out 15-20% in commissions and fees up front, including a 2% acquisition fee that actually motivates them to overpay, where does that leave me?

The full stories can be read here (great series from Mark Heschmeyer):
Part 1: Single-Tenant Property Sales Surge To Record Numbers.
Part 2: Cheap Money Fueling Net Lease Market
Part 3: Competitors Attack Single-Tenant Market with Varying Tactics.
Part 4: Niche Targets Spreading the Playing Field in Single-Tenant Arena.

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Can't Trust Cole Credit Property Trust III

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Re: Cole REIT Has Dividend Problems

Postby RealEstateGuy » Fri Oct 21, 2011 6:02 am

Very interesting articles on the sale-lease back market, etc. However, I wouldn't conclude that they imply properties bought in 2009 and 2010 weren't "good buys". Just the opposite I think - seems like prices NOW are going up due to demand, much from non-traded REITs it seems. So... my conclusion at least is that the properties bought in 2008-2010 would likley sell for much more NOW with the higher demand and lower cap rates deals are seeing.

Now, did Cole III buy enogh in past years at a better price to offset what may be higher prices now? I don't know - I need to do a bit more investigation as to when and how much was aquired vs. how big they expect the entire REIT to be before closing it down. It certainly wuld seem to be a popular investment area now, which does concern me a bit, unless a REIT you own was able to buy a lot in the past few years and can use this better market to liquidate over the next few years.

Again, as I said before, the overall performance of these non-traded REITs depends A LOT on when they buy and when they cell/list/whatever. Overlay the timing issue - which I belive to be a huge one - with a huge headwind they need to overcome based on sunk costs, any "dividend" payments from principal, etc. to determine if it may be a sound investment for you. I do agree that an investor needs to hot the "timing" well to overcomme the headwinds. That's why I'd never invest in one of these until close to the end of the offering period so one can see how the market has performed for those past few years and whether it is likely early aquisitions are now in hiogher demand and appreciated enough in value to justify the overall REIT. Most won't, that's for sure. Some will though.

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Re: Cole REIT Has Dividend Problems

Postby Joker001 » Tue Sep 10, 2013 4:56 am

Such things happen most time. The statement and reality would be lying far apart when we check it. In order to avoid that we should check the statements or the status recently and make sure it is up to dated. The same scenario happened with my friend last year.

Thanks
http://www.howtooutlook.com

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Re: Cole REIT Has Dividend Problems

Postby klous » Mon Mar 31, 2014 2:01 am

Now, did Cole III buy enogh in past years at a better price to offset what may be higher prices now? I don't know - I need to do a bit more investigation as to when and how much was aquired vs. how big they expect the entire REIT to be before closing it down.
http://www.watchbaseus.com/richard-mille-watches-26.html

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