No. of Recommendations: 4
"Maybe I'm just wrong?"

That is what I wonder about JCAP. Speaking of not covering one's dividend, in its four years of operation it has not yet had positive CFO.

From Schwab's financial statement summary, from 2018 to 2014 JCAP's CFO in millions has been -6, -4, -6, & -3.

That's right a REIT with negative CFO EVERY year.

FFO or AFFO? Surprise, they don't publish it!

Dividends from 2018 to 2014 in millions were +24, +16, +8, & +4 - plus signs added to increase contrast with the negative cash flows.

So how do they get the cash to pay the dividends? Debt & and issuing common and preferred shares.

So why does JCAP have negative cash flows? Two reasons, first they have what I consider phantom income, although their accountant signs off on it. They are a combination equity and mortgage REIT. When they do a mortgage loan they not only charge a high interest rate, but take 20% of profits above the interest they collect as well as 20% of the equity on top of the loan balance. Who would take such a deal is beyond me. By realizing that 20% equity stake, which is non-cash, they have made a profit in each of the last three years.

The second reason is the management team pays them selves as if they were running a hedge fund. Instead of 2 & 20, they get 1.5 and 20. Instead of a salary the management team pays themselves 1.5% of capital/equity and 20% of the profits, including what I consider to be phantom profits. Since the REIT pays the office rent, office staff, accountants, etc., it costs the shareholders pretty close to 2 & 20.

What surprises me the most about JCAP? That anyone will buy their shares or borrow from them? No! That Brad Thomas used to own them and might still? No! What surprises me most is that JCAP went up 19.5% versus 17.72% for VNQ over the last 12 months.

What am I missing?
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.