Tuesday, 22 June 2010

First Allied watch - no. 1 in an occasional series

Even the World Cup won't stop this blog from keeping an eye on what's happening in the Glazer family "empire" (more Brittas than Roman).  This is the first of an occasional series of updates about First Allied Corporation using the company's own published vacancy information and the relevant CMBS trustee reports (which are published monthly). Those readers who don't see the relevance of any of this to Manchester United can look away now.

For those who can't be bothered with the detail, the key points from this update are a) another centre has gone "delinquent" (i.e. has stopped paying its mortgage) and b) the First Allied Corp portfolio continues to weaken.

Market trends
Industry data across First Allied's major markets (Texas, greater DC, Georgia and North Carolina) remains quite weak, with property values still declining and only small signs of retail rental rates stabilising.  The charts below (source: Loopnet.com) show some of the trends, First Allied's properties tend to be in "metro" (i.e. suburban) areas:
Atlanta retail real estate prices remain weak
Dallas retail real estate - City recovers, suburbs in decline

Greenbelt MD (greater DC), rents stagnant
Charlotte prices declining....
but rents stabilising
June occupancy data
Occupancy rates across the business are inherently volatile, a single letting or tenant departure can have a material impact on a centre's occupancy.  In the last month, twenty centres have seen their occupancy rise and sixteen have seen their occupancy fall.  Occupancy in six centres has fallen by more than 5% percentage points, and another six centres have seen occupancy rise by more than 5% percentage points.  The large  falls are significantly greater than the large rises:

You can see how these changes knock on to run-rate debt service coverage ratios below (all figures are post interest only periods where these expire in 2010).

New letting activity has helped push run-rate DSCR back above 1x for Frisco Gate and Gleneagles Plaza, with Smoky Hill almost back to this level.  On the downside, River Plaza will no longer be able to cover its mortgage at current occupancy and Stonecrest Park is now at risk.

Trustee reports
The main news from the June trustee reports relate to Ulster Terrace (Denver, Colorado) which has now gone delinquent (last mortgage payment was 11th May 2010) and Lakeview Crossing (Dallas, Texas) where the "Special Servicer" reports "Imminent default due to cash flow problems."  Schoolhouse Plaza (Ohio) remains delinquent for a second month.

There is nothing in the latest data from First Allied or the mortgage trustees to change my original view on the company.  The coming months will see more and more centres run into severe financial problems as interest only periods end and tenant demand and rents remain weak, and the Glazers will have to decide whether to support them financially or let them fail.  There's more chance of the United States winning the World Cup than First Allied generating any significant cash flow for it's owners in 2010.