No. of Recommendations: 9
Mathew Emmert, author of the MF Income Investor newsletter, posted the following in response to an inquiry by missash at the AFR stock folder here in Fooldom:

I initially recommended American Financial Realty Trust on 1/15/04. When I selected the company and wrote the issue the stock was trading at about $16. Unfortunately, by the time the issue was released the shares had surged to $17.87. As of today's closing price we have a total return (including dividends, but not dividend reinvestment) of -20.26%, making it my second-worst performer behind Merck.

I typically don't publish subscriber-only information on the main boards, but in this case I'll make an exception because I've also recommended American Financial in one of my articles on Below I'll paste some comments on the firm that are excerpted from my latest mid-issue update email.

Foolish best,
Mathew Emmert (TMFGambit)

Income Investor Mid-Issue Update -- November 2005:

American Financial (NYSE: AFR): This stock's recent decline has many of you worried about this recommendation. The sell-off is largely the result of two things: One, recent earnings were somewhat weaker than expected. And two, some analysts appear to be growing frustrated with the company's strategy -- or, rather, the implementation of its strategy.

Let me explain. I think many analysts -- myself included -- believed American Financial would prove a very conservative REIT. Given the safety of the properties in question and the company's match-funded approach, this seemed a very plain-vanilla opportunity.

However, while the firm's assets are indeed conservative, management has proved more aggressive than anticipated in its pursuit of growth, which has mostly come in the form of a higher-than-expected use of leverage and a few complicated financing strategies. But the firm has also been willing to acquire properties with lower occupancy rates and enter into development deals. Though these sound strategies increase property returns when employed well, they do add operational risk. And, frankly, management's track record just isn't long enough to gain the complete trust of analysts.

Also worrisome has been its continued spending on expansion when the dividend represents all available funds from operations (FFO). This has led some to question whether it can or will be maintained, which I think is premature. Even after the complete implementation of the growth plan, normal FFO should fully cover the payout in the fourth quarter of 2007 (at the latest). In the meantime, current cash flow and the company's large surplus of available non-core properties for sale can more than cover the dividend.

Indeed, in response to multiple questions on the safety of the dividend during a recent analyst call, CEO Nicholas Schorsch said, "We're very comfortable with our dividend. The board is comfortable with the dividend. We are generating ample earnings to support our dividend. And at this point, what the market does or doesn't do really doesn't affect our business operations. The business is running in a very solid fashion. We are very comfortable with our improved efficiencies. Our core earnings are growing, and we're not having to push to achieve that. We have good opportunities to dispose of non-core assets at yields that are accretive to our dividend, and we're comfortable with that at this point."

Thus, though this hasn't turned out to be the conservative, low-risk REIT I initially envisioned, I believe the firm's approach is going to work out in the end for shareholders, and current owners will enjoy a significant yield in the interim.


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