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Linn Energy, LLC (LINE) Message Board

nowreallyknowthetruth 2 posts  |  Last Activity: Nov 14, 2014 8:03 AM Member since: Jul 3, 2010
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    Analysis-ARCP

    by nowreallyknowthetruth Nov 14, 2014 7:26 AM
    nowreallyknowthetruth nowreallyknowthetruth Nov 14, 2014 8:03 AM Flag

    A $1.05 guidance AFFO less the $1.00 dividend leaves approx. $50 million "excess". For 2015, use your own estimates, deduct Cole Capital earnings impairment, Legal expenses, legal settlement (accrual), stock buyback, reduction of AFFO by selling properties.

    ARCP previous guidance included adding $2.5B of properties. ARCP previous guidance did not include legal expenses and cash for a stock buyback. There just is very little room in the numbers.
    ARCP can't issue debt and shouldn't issue stock. Selling buildings to buyback stock is kind of counter productive. Selling properties/leases as a long term business model is not long term sustainable or wise. ARCP, over the long term, can't keep selling buildings to pay the dividend and buy back stock. Eventually, you have no buildings and no cash flow.

    The lenders will not let them sell buildings to buyback stock and to pay the dividend. If ARCP sells buildings, the lenders will want them to use it to reduce the debt. The lenders want the buildings to remain as collateral, not to be sold to pay the dividend and buy back stock. Dividend reduction coming? The lenders will decide this. Either sell buildings to pay down debt, or cut the dividend. The lenders are not going to go with selling buildings to pay dividend and buy back stock, because the lenders end up with same amount of debt, but less collateral and less total cash flow for the same amount of debt.
    The lenders and bondholders ("the debt holders") are above the shareholders in priority in the capital structure.

  • nowreallyknowthetruth by nowreallyknowthetruth Nov 14, 2014 7:26 AM Flag

    Issue #1 is to complete the financial filings. The accountants and Senior management want to be extra careful that they are correct....because the penalty is potentially jail time. After a thorough review, they are now doing a thorough review.

    Issue #2 for the business going forward:
    ARCP faces a catch-22. They will pull 2015 AFFO/FFO guidance. Previous guidance was for $1.05 growing to approx. $1.14. The $1.14 was based on adding approx. $2.5 billion of new real estate, and Cole Capital earnings. (No new properties, ARCP can't issue debt and can't issue stock). They will not be able to add any new properties, and Cole Cap earnings may be impaired over the short run.
    ARCP is back to the $1.05 run rate, and pays a $1.00 dividend. No new accretive deals for now.
    Management says:
    -They are going to pay the dividend at $1.00/year.
    -They now have legal expenses.
    -They now have a potential legal settlement (accrual?)
    -They say they will do a stock buyback.
    -They will not be able to do the $2.5 billion of new properties to add to AFFO.
    -They will potentially sell properties to buyback shares. Kind of the opposite of adding $2.5B.
    -Selling properties to buyback shares reduces cash flow and changes credit metrics.
    -Cole Capital will not have the earnings contribution budgeted (nominal).

    ARCP, excuse the pun, the numbers don't add up.

    ARCP has some headwinds. Long term, it seems to be a great value. Short term, the next couple of months are challenged. Going to a long cold winter.

LINE
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