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=http://www.sec.gov/Archives/edgar/data/1425923/000142592310000102/ccptiii_10q.htm]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
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?
[url=http://www.reitwrecks.com/forum/viewtopic.php?f=8&t=21]Cole REIT III "Wholly Inappropriate" Says Advisor[/url]
[url=http://www.reitwrecks.com/forum/viewtopic.php?f=2&t=20]Cole REIT Has Dividend Problems[/url]
[url=http://reitwrecks.com/2009/05/non-traded-reits-are-designed-to-be.html]Non-Traded REITs Are Designed to be Sold, Not Bought[/url]