At $22.50, ADC is down 17% from before the Border's announcement. Borders constitutes about 20% of ADC's rental income. Not all of that is going away, and there is a good chance that if some actually goes away, that ADC can restructure to ensure that a majority of those assets are revenue producing. Looks like a great entry point to me.
Well, reasonable men can disagree; that's what makes a market. My opinion is that Border's 20% of ADC's lease portfolio is huge. If BGP, currently trading at 86 cents, files for bankruptcy, those leases are effectively cancelled. In today's environment of half empty malls, I don't see prospective tenants falling all over themselves to move into the space. Perhaps BGP will offer to stay in *some* of the locations at, say, 50% of their former rent. In any scenario, rental income for ADC will be materially reduced, as will the dividend to shareholders.
I don't see any growth possibilities for traditional bookstores in general, and Border's in particular. The troubles at BGP will ultimately affect ADC negatively.
If there is a bullish case for ADC I am open and would love to hear it.
If this becomes a chapter 11 bankruptcy, most likely the rents would be paid on stores that remain in business. How many of ADC's stores that will be closed is, of course, unknown. The difficulty of renting vacant stores would be substantial.
If the dividend is reduced proportionally to the decrease in rental income (20% max), the dividend would still be attractive for many investers.
Well, I tend to agree with your sentiment that Borders filing for bankruptcy is quite huge, but the analysis I have heard in the downgrade was that a fair price for ADC, factoring in a bankruptcy for Borders is $24, and if Borders somehow manages to remain solvent, a fair price is $27. Other than Borders, ADC seems to have a solid portfolio of properties and tentants and the investors are attracted to the solid and stable dividend yield. Even if the dividend needed to be reduced temporarily, it probably won't be by much and it also probably wouldn't be for long. So my opinion, is also that ADC is oversold.