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Cohen & Steers Reit and Preferr Message Board

  • joelndll joelndll Nov 18, 2008 8:27 AM Flag

    Has panic set in?

    The drop in C&S funds in the last 2 months is
    almost 70%. Since know one knows what the true NAV of these CEFs is, would it not be
    prudent to wait until mid December when C&H
    announces the dividend for Jan, Feb. & Mar of
    2009? I cannot comprehend why these REITS are this low in value. From 1.2 billion at
    inception i.e. 48,000,000 shares at $25 to
    an NAV less debt of about $5 or $ 220,000,000
    is a capital loss of 82%. Can anyone explain where they see value?

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    • Yes they are. The last two preferred purchases were not funded by increasing their credit line.They were funded by asset sales.They have to deleverage to get their debt ratios down to the level required by the ARPS.This would not happen if they simply replaced debt with more debt.In an earlier post I referred you to a conversation of a poster with Investor relations where they confirmed this was what was happening and would show up later in reduced distributions.Please refer to all posts on the subject and also the FFC Board where this exact same situation arose. They had to sell assets because they violated the ARPS ratios and this resulted in a distribution decrease- same thing is happening here.
      The initial 55% purchase had nothing to do with asset sales or financial ratios; it was done to increase liquiity.The last two preferrred purchases were triggered by ratio violations and have been funded by asset sales.The result is that leverage has been reduced.RRW

    • I think C&S fundamentally misjudged what was happening/going to happen. They thought the down turn starting 07 was normal and cyclical and expected it to play out in maybe a year. But that downturn preceeded sub-prime crises, then the credit crunch (especially ARPS), and now the recession, and now a CRE recession that’s going to flow out of the recession. C&S funds have been taking big hits for nearly 2 years, there’s not much left. I fault them for not changing course NLT 6 mos ago, maybe 1 yr ago. The funds have been crushed, NAV is down about X10 for RPF & RLF X6 for RNP, you are looking at going out of business disasters. They urgently need to adapt and implement sustainable models.

      Re what they hold. I am not impressed. I see holdings like GKK and GGP (just examples, there are others), these holdings, and others, are waiting in line to go BK. C&S portfolios include a sample of everything, not just the best.

      Disclosure: I’ve held C&S for many years. 2 yrs ago they were 95+% of my portfolio. Today they are 5% - 10% and dropping. To be fair, the past 2 years have been a very challenging environment and C&S has not executed as poorly as Pimco (e.g. PHK); that said, they have not done as well as I expected. You would be $ ahead if you’d just held IYR (passive managment) instead of RNP, RLF, or RPF (C&S active managment) beginning Mar 07 until now - IMO they need to shape up, or give up the great managers myth.

      • 2 Replies to dclewis12002
      • Very good post.C$S is on the brink of massive forced deleveraging as shrinking NAVs of their reits cause debt covenants in the ARPS to be violated and the 2/1 equity requirement of Fed Act of 1940 comes into play.Absent an unlikely sudden market reversal this is probably imminent.It will be particuarly painful regarding their reit holings which will have to be sold at their present depressed prices. Hopefully funds like RTU and RNP which have mixed holdings will not be hurt as badly.
        In short C&S is going to have to deleverage just like the banks and hedge funds and its not going to be fun.When this is done maybe they can take alook at more sustainable models as you suggest.The days of 40-45% leverage are over.
        In their defense,they have done some managing as I don't see either GGP or GKK in their 3rd quarter holdings report.We will get a first hand look at their management skills very shortly is my guess.
        Finally it is my opinion alot of this is already in the stock price-but lots of folks disagree. IMHO.RRW

    • they are leveraged they borrow money to invest that is the problem what is worse they are selling assets to cover margin calls furthering the decline in values

    • There are virtually no loans for real estate. You can buy existing loans at 50% of face or less. Why make a new loan? Any entity that has debt due in 2009 is being crushed. As a practical matter it should be renewed, The banks do not want to take the properties.

    • NAV $7.80. Still selling at a discount of almost 30%. But highly exposed on heath real estate, probably some commercial as well, residential, REITs, all hard hit and maybe getting worse. Sad.

      • 1 Reply to npindrus
      • The heath care reits seem a source of stability to me.However, since the entire reit sector is in for hard times, it seems to me C&S could exercise the investment discretion given it by this fund's charter and limit direct investment in reit common to 40% of the highestquality with another 40% in high quality non reit preferreds and the rest in bonds.Payout would be reduced but investment quality greatly increased an share price volatility reduced. C&S in the past has proved an adept fund manager so I am sure they are considering this option to some extent- I await their year end portfolio eagerly.RRW

    • With a maximum of 1/2% of outstanding shares trading daily, I wouldn't call this a panic. I think it is a lack of buyers willing to look at anything connected to real estate. I would appreciate more information out of C&S on their plans during this desaster. Kind of reminds me of Bush-FEMA during Katrina! Where are these people?

    • According to etfconnect, at a price of 6 dollars rnp is selling at a nav discount of almost 25% and a yield of 40%.Even conceding a distribution cut is in the cards, even if the dividend is halfed(unlikely) you have a 20 per cent yield and are paying only 75% of an already severely depressed nav. The Dec dividend will cut your cost basis by another.20cents. The fund is comprised at least of 40% of stable nonreit preferreds. This is being ignored by the market IMHO. These funds are owned mainly by small investors who are the first to panic- add in tax loss selling selling and fatigue with large market losses and you have a perfect storm- and a buying op IMHO. Same is true of RTU which is 40% utes.RRW

19.25-0.14(-0.72%)Oct 26 4:02 PMEDT