No. of Recommendations: 7
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?


Not much, at least on my review.

In reading through their dog-n-pony PP Presentation, it looks like they do mostly RE development. The slides shows they have 7 wholly owned assets that likely provide most of their current revenue, and then they hold 46 development asset, 11 assets held in a JV that sound like they produce some income and 5 other 'bridge' investments which sound like some sort of JV financing. Their 2018 interest income is $399,000, so they ain't makin it on interest on loans.

This company is currently cash flow negative. Most pure financial plays will have small or negative CFFO but instead will have periodic large positive CFFIs when appreciated assets are sold, while others will have negative CFFO and negative CFFI but very large financing gains....an arrangement I do not understand. But with JCAP, they show positive GAAP earnings and about 45% of their 2018 dividends are ordinary income with the remainder Return of Capital, with no capital gains. This kind of paradox is most likely due to gain on sale of appreciated assets that are somehow treated as ordinary income (hence no capital gains on the 1099-DIV) and which are taken out of the earnings in arriving at CFFO (gains and losses go on the statement of income, not the statement of cash flows), and what seems to be very small overhead costs, resulting in GAAP and I'm sure taxable gains. But their 2018 CFFA shows them borrowing like crazy, adding $145.7MM in new debt and preferreds in 2018 nearly doubling their asset base.

Yes, the flat almost obligatory quarterly dividend of $.35 is being paid for from borrowed dollars (debt + Preferred), and the reason the market is putting up with what seems on the surface to be some sort of Ponzi, is because of what is in the development pipeline and its potential future value....I guess.

A kind of interesting study in cash flows, but speaking only for my investing goal of reliable income, there aren't too many prospective investments out there that could be further from my interest than JCAP.

BruceM
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