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CBRE Clarion Global Real Estate Message Board

  • roo813 roo813 Sep 18, 2008 8:09 PM Flag

    Read The Fine Print

    Several things are conspiring against IGR at this time.

    Someone has had to dump shares pronto. Look at average daily volume and the discount to NAV which have both popped recently. This suggest that a major holder or two has had to, or wanted to liquidate positions quickly. As for me, I worry less about the NAV and the share value then I do the nature and the amount of the distributions. Assuming of course the NAV isn't in free fall.
    Though IGR is full of assets that sweat, the return on these hard assets are dependent on the economy. If vacancies climb, or rates fall then IGR will not generate the income from its investments needed to fund the current dividend unless it either sells properties (equities), and generates Capital Gains, or losses that can be banked for tax purposes and then returns capital from the sale of the properties (equities) in the form of dividends). If you look at the latest declared dividend of .115 per share, only about 0.075 of this is from income, the rest is from capital gains and return of equity. The down side of this is that when equity is returned it represents part of our initial investment coming back to us, and reduces the value of the composite holdings. It is no co-incidence that the major sell off seems to have occured after the fund published the distribution data. Certainly more pronounced with the lehman, AIG crises superimposed on the fundimentals of the fund.

    This leads me to believe the following are possible.

    1) Baring a fundemental shift in the portfolio management and performance the short term sell off could be relatively limited and short lived. Assuming the management has or is positioning itself for a continued downturn in the market for a bit we will benefit with holding on,taking a look and see attitude. In this scenario it makes sense to fund distributions by selling off underperforming assets and concentrating investments in superior performers until money can be put back to work. The last thing IGR wants is a run on the bank caused by a falling share price and a falling dividend.

    2) The smart money sees a blowoff coming down the line which will either materially impact the income performance of the fund, or worse will crunch the N.A.V. as the holdings fall. There is some evidence that we are at risk of this because a significant percentage of the current dividend is composed of a return of "equity", Capital not earnings, and there has been a small run for the door when this became known. Remember a dividend composed of return of capital is just IGR returning the shareholders investment slowly in the form of a dividend. That is like slowly pulling money out of a bank account at a rate greater than the interest accrues. In the end you have little left in the bank that has the potential to earn money. I wouldn't be surprised to see IGR reduce the dividend to reflect the current income performance of the holdings, and as such if that hasn't already been priced into the equity, there is potential for sell off at that time. My gut feeling is that the "smart money" was making that bet and it may already be priced into the shares. Because of this belief I rate IGR a hold, but I won't roll any new money into the holding until I see improved financials or the fallout from the decreased dividend first. However,I have been investing long enough to know how little I really know about the markets so I will continue to reinvest my dividends and follow the trends closely.

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    • don't fixate on the return of capital diatribe, the point is that in order to maintain the .115 dividend IGR has had to tap the capital gains distribution. This suggests falling income and this always puts a dividend at risk. Cap gains while good are a return on the investment performance and a security sold even for a profit cannot generate further income unless the capital is reinvested fruitfully. Moreover in a climate of decreasing equity prices cap gains are harder to come by, hence the discussion of return of equity.

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