RE: Any thoughts?/wrk.unWhy no sale? Some ideas.
MICRO-REIT w/ MACRO-LEVERAGE
The presentation indicates that Whiterock was running with 79% D/GBV. The Quebec properties' sale proceeds temporarily dropped that figure to 73%, although the pro-forma AFFO coverage projection assumes the reinvestment of those monies, so back to 79%. For perspective:1) Riocan or Calloway or some other established REIT could be taken out, re-levered up by a HALF and still be at Whiterock's debt level. 2) Most of Whiterock's assets were accumulated in the 2005+ vintage when nothing was underpriced. A reasonable drop of 10% to 15% in the market values of commercial real estate in Regina, Windsor or Quebec City could wipe out almost all of the equity. In the long run ( i.e. what matters most to pension plan buyers), is a very second tier quality portfolio levered to the highest degree in the Cdn REIT universe (RBC analyst) really something that's built to last the business cycle? Why is it that the older generation of REIT CEO's do not reach up into the 70's when levering their portfolios despite their hold on very high quality portfolios with the best tenants and locations? Whether or not Underwood appreciates this, WRK will have to be discounted.
Ongoing evaluation? C'mon. O&Y REIT set up a data room, envited the world, held an auction, a vote, another vote and then sold it. What's so hard about that? The vague mealy-mouthed baffle garb coming out of Whiterock is sad. Underwood needs to set the process on a almost irrevocable path - not an open ended, potentially merge, or be aquired into an existing REIT, or partial sale, or outright sale, or just explore options, etc. Existing holders bought into a business plan of growth; the opportunity cost of this sit-on-our-behinds-and-wait-for-the-takeout-fairy comes out of their capital returns. I'm sure many of executives and trustees hired in the last twelve months feel they have more productive things to do than watch the guys from Whiterock Capital sit at a craps table with their $3.5 million in class B chips.
9% yield is not out of line considering balance sheet, quality, size, rate environment, outlook based on cost of capital, payout ratio underneath the disribution, management quality, and so on. The appropriate "industry average" for WRK is the one that includes BTB and the entire Shelter family which, IIRC, are all highly levered, double digit yielding, junk REITs. Just "bringing things in-line" on a leverage basis will take the boys at Whiterock at least another year or two, and they've already pi$$ed away most of 2007.
WRK should cancel the sale, apologize, get on with the growth, the delevering, the focus on increasing their coverage ratios and create some "honest" value for a change. They've had their chance to play at the casino, now it's time to get back to work.