I cringe when I see this company recommended for more reasons than I have room to type - integrity of management, excessive leverage, can't imagine the dividend has ever been covered, lack of credit quality tenant base, etc. However, I continue to see it recommended, novice readers quick to agree with the poster. Maybe I'm just wrong?
Being 'recommended' should carry no weight, as those doing the 'recommending' are usually driven by forces that may be of benefit to them and likely will not be of benefit to you.To get some idea how well this small REIT (or any other REIT) is or isn't doing, as a quick screen, just look at the statement of cash flows for WSR at Morningstar. Set it on 'Annual' and then look at the CFFO (Net Cash Provided by Operating Activities) line and compare each year's value with the corresponding year's value of 'Cash Dividends Paid' line in the third section CFFA (Net Cash Provided by (used for) Financing Activities). What do you see for each year? What I see is a small (Tiny?) REIT that cannot generate sufficient operational cash to cover its dividend, every year except for 2015!Its certainly up to you, but if reliable dividends are what you're after, I would stop right there.BruceM
"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?
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
Some time back JCAP was discussed on the board with the same basic truths being revealed about the cash flow and dividends.So, why would anyone buy it?I was looking at it because I thought it would be good dividend to collect while the 20% equity in the developments eventually became monetized.I decided that this was too risky. Especially after what was going on with NRF/CLNS/CLNY. It makes me wonder how much of the company is owned by institutions? They may feel they are nimble enough to exit quickly if they see things going south?-srockazNo JCAP position
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