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.



Anonymous said...

Wow! The Glazers' real estate interests are nothing more than highly leveraged commercial property trusts using mortgage-backed securities as funding source.
Similar highly leveraged property trusts like Centro Properties Group(from Australia) hit a credit crunch during rollover negotiations in 2007 and subsequently, had to renegotiate their outstanding loans with their lenders involving restructuring and asset sales. However, Centro's key portfolio are in Australia where the shopping malls are considerably healthier (low vacancies) than US and aussies are still spending! At least they have some hope!
Another case, General Growth Properties Inc, the second-largest operator of 200-plus U.S. malls with 200m sq.ft of retail space, filed bankruptcy with debts of $27.29b on 16/04/2009, the biggest real estate failure in U.S. history. General Growth got caught in the credit crunch & US recession that has cut spending and property values. About $15.17b debts were securitized under commercial mortgage-backed securities & were due. These could not be refinanced during the ongoing global financial crisis. This bankruptcy underscores the pressure on U.S. commercial real estate. According to real estate research firm Foresight Analytics, about $814 billion of commercial mortgage debt is expected to mature over the next two years. Another research firm, Real Estate Economics "see a significant rise in delinquent and defaulted mortgages in commercial real estate above and beyond what we already experienced"
A New York- based research company Real Estate Economics LLC believes it's “beginning of the distress cycle and may lead other companies to fail. This is kind of the beginning of the end. This bankruptcy will drive down the values of mall assets in the United States. It’s going to put more supply on the market than can be absorbed by investors.”
That means the Glazers through First Allied Corporation are not genuine property owners (like ManYoo fans were initially led) like the Rockefellers. They are just property managers earning management fees, property investment managers juggling rental income against mortgage payments, for a % of capital gains after assets are sold for profit & to walk away when there's none. No different breed from hedge fund, private equity, LBO operators (or predators!). Sheesh!

Anonymous said...

Morning Gill.

Yet another Anonymous said...

Come EastStand, Red Devil and the rest of yous glazer apologists, where the fcuk are you? Spin this one away why don't you.

Anyway, this latest news "might" go some way to bring the gimps to the negotiating table, although I won't hold my breath.

The Red Devil said...

"Come EastStand, Red Devil and the rest of yous glazer apologists, where the fcuk are you? Spin this one away why don't you."

I'm a bit bored with the subject now, to be honest.

I'm happy to sit back and watch Anders spin himself into knots trying to prove that Manchester United are not being well run under the Glazers.

Stan Johnson said...

Thanks for the post. Those graphs are very informative, I had no idea real estate was acting like that.