Tuesday, 8 June 2010

Is Malcolm Glazer a better boss than Tom DeLay?

Edit: 8th June 2010.  If you think I'm being harsh, check out these two comments on this statement from NFL commentators including one of the main sports writers on the Tampa local paper, The St Petersburg Times:

St Petersburg Times
Adam Schein

I couldn't help but laugh at the swift statement issued by the Tampa Bay Buccaneers spokesman Jonathan Grella today. The man used to be press spokesman for disgraced House Speaker Tom DeLay. Plus ca change.....

This is what he said:

"Buccaneers fans should know that the Glazer family is as financially well-positioned as ever before.

"Companies they own generate revenues in excess of $800 million each year.

"Sophisticated real estate experts know that the family's refinancing of their commercial real estate before the global meltdown has proven to be the wise move.

"While First Allied represents only a small portion of their asset portfolio, it continues to generate significant profits, enjoys over 90-percent occupancy, and has long term non-recourse financing.

"This franchise remains committed to bringing the resources to build its next championship team.''

Let's do the paragraphs one by one.
1. On my calculations, the three companies generated revenue of c. $780m (it depends on the exchange rate you use for United), so no missing gems. As someone once said, “Turnover is vanity, profit is sanity, cash flow is king”. Revenues are not profits and First Allied proves it. Old friend of United, AIG, had revenues of $96bn the year it went bust. Anyway, it's interesting that he chose to quote a revenue figure.

2. As these details have never been published before, we must wonder who these "sophisticated real estate experts" are. Maybe the commercial property lending department of Lehmans? Anyway, how wise is it to remortgage in 2005, 2006 and even worse in 2007? Of the 35 remortgaged properties, nine already can't cover their "wise" loans and eleven more will join them when interest free periods end. 

3. I have looked at every shopping centre they own (bar one that had 2008 cash flow of $0.5m) and "significant profit" is not possible. The $9.7m I have quoted is cash flow before income taxes (be they personal to the Glazers or corporate taxes) and before any head office costs (First Allied operates out of three offices and employs such cheap staff as Edward Glazer). The cash flow will fall to just over $7m per annum as interest only periods end, if occupancy rates don't pick up.

The 90% occupancy doesn't tally with actual data. On their website, First Allied like to include buildings they don't actually own, but are on the site. You can see a "142,438 sq ft" centre here (including Walmart). The 90,000 sq ft Walmart isn't owned by First Allied (I checked the county records), so occupancy is 88.3% not 96.5%.

I calculate occupancy to be 86%, but frankly it doesn't matter. The centres in trouble (DSCR below 1x) have occupancy that averages 79%, the one with DSCR above 1x average 94%.

Non-recourse just means that the bancruptcy of a centre doesn't knock on to other companies.  Brilliant.

4. Does being "committed to bringing the resources" actually mean anything?  If you've got resources, why not bring them?