Can't Trust Cole Credit Property Trust III

We did not have sex with that Pension Board!
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Can't Trust Cole Credit Property Trust III

Post by REIT Wrecks » Tue Jan 11, 2011 8:31 pm

Just like John Kerry, Cole Capital was for inflating their REIT dividends before they were against it, but now that they're against it, they're still inflating it! :lol: Now for the story behind Cole's financial flip flop: On November 15, 2010, Cole announced that the Cole Credit Property Trust III dividend would be reduced from 7 percent to 6.5 percent for 2011. But this dividend cut was preceded by two consecutive dividend increases, which collectively hiked Cole's payout from 6.5 percent 7 percent less than twelve months earlier. [url=]Some investors thought that the 7 percent rate was guaranteed[/url], even though Cole's SEC filings clearly said otherwise, and from a financial perspective those same filings showed that Cole Credit Property Trust III had never even come close to covering its dividend in the first place.

Unfortunately, even with this recent cut, Cole still isn't anywhere close to covering its dividend with cash flow. Nor, perhaps, will it ever be.

In [url=]its third quarter 2010 10Q[/url], Cole Credit Property Trust III reported paying dividends of $74 million, against Funds From Operation of only $12 million. This is deeply negative dividend coverage, and from a GAAP cash flow perspective, coverage wasn't much better. In Q3, Cole reported cash flow from operations of only $22 million, which is obviously double its reported FFO, but still results in negative coverage of 183 percent.

This dividend deficit is being subsidized by Cole's investors, and if Cole Credit Property Trust III is not able to produce real funds from operations soon, investors will be crippled -- as usual. Take a look at Cole Credit Property Trust I ("CCPT I"), for example. After the offering closed, Cole cut the share value to $7.65, cut the dividend to 5%, and closed all shareholder redemptions. This represents a 25% loss, assuming you could actually sell for $7.65, which you can't, because Cole won't buy your shares.

Shamefully, Cole also reports something called "Adjusted Cash Flows From Operations," which is a non-GAAP fiscal frankenstein, and nothing more than a lame attempt to whitewash its egregious 2% levered acquisition fee from the cash flow statements. (This a particularly troubling example of the "misleading accounting" that P-Solve identified in its due diligence on Cole Credit Property Trust III). These policies do nothing but dilute shareholders, and they are a large part of the reason that is Cole reporting a book value of only $7.70 per share in its Q3 2010 SEC filings, vs. the fictional stated value of $10.00 per share shown on client statements (upfront commissions and fees are the other reasons).

If it weren't for the 7% commissions paid to brokers and financial advisors, I doubt that Cole could sell this putrid piece of turd to an entire galaxy of starving fly larvae. Why anybody would continue buying this thing at all is beyond me, but apparently some people who make their living by selling it have started to complain. In Chris Cole's letter to Cole's "broker-dealer partners" (attached below), he says...
it became it became clear that broker-dealers, advisors and investors are increasingly looking for assurance that distributions from a non-traded REIT remain aligned with the REIT’s present rental income, and not, as long has been customary in the industry, with rental income that the REIT expects to generate in the future [ed. note: Is this so-called "custom" really their excuse for this financial stupidity? Who would trust their money to these people?? Good grief!]

The problem with this happy talk is that it's just all talk. Cole is still nowhere near covering its dividend with "present rental income", and they are diluting their investors to death by paying dividends with offering proceeds. This is done for only one reason: to sell more of these stupid shares. Cole also says that it's a "terrific time in the market cycle to raise cash and purchase real estate," and that Cole is doing so at "favorable prices."

However, while it may be a good time to raise cash, especially if investors are still willing to pay a 7% commission to Cole's "broker-dealer partners" for the privilege of being eviscerated with Cole's self-serving dividend policy, how is it possible that Cole could deploy almost $100 million per month at favorable prices in any environment, never mind in an environment when hardly anybody is selling?
CRE Tranaction Volume.jpg
Data Source: Real Capital Analytics
CRE Tranaction Volume.jpg (35.36 KiB) Viewed 23989 times
Perhaps Cole Credit Property Trust III will wind up in better shape than the crippled Behringer Harvard REIT I, which pursued this same path of dividend profligacy to the extreme. Unfortunately, however, [url=]Behringer Harvard REIT I can now barely pay a nickel in distributions[/url], and their share value has been chopped in half by their own admission. Cole REIT III is traveling along an even steeper trajectory than Behringer Harvard did, and for investors, surviving re-entry will be even more financially harrowing.

Related Posts:

[url=]Cole REIT III "Wholly Inappropriate" Says Advisor[/url]
[url=]Cole REIT Has Dividend Problems[/url]
[url=]Non-Traded REITs Are Designed to be Sold, Not Bought[/url]
Cole Credit Property Trust III Dividend Cut.doc
How Much Is That Mohair Suit in the Window?
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Re: Can't Trust Cole Credit Property Trust III

Post by NTRGUY » Thu May 17, 2012 10:04 pm

Haha, your going to remember this post and be like damn, how stupid was that!

Posts: 16
Joined: Thu Sep 01, 2011 10:58 am

Re: Can't Trust Cole Credit Property Trust III

Post by RealEstateGuy » Tue Aug 28, 2012 2:51 pm

Yep, my bet is Cole III pays off. I see nothing wrong with adjusting the dividend based on market conditions. I think the timing of this reit bodes well for the value, as does the Cole II performance so far.

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