Mr. Kenneth Leonard

GLG News by Mr. Kenneth Leonard, Principal

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

The Clouds Of Danger Are Gathering Over Carrefour's Horizon

April 16, 2008

Analysis of:Family Bids Adieu to Carrefour Control | online.wsj.com

One of the major reasons for Carrefours success thus far is about to become its biggest lability! By keeping its' occupancy costs low through ownership of many of its' locations, Carrefour has managed to pass along the benefits of below market rents to its' shareholders in the form of increased profits.  Now under the plan of the private equity group called Blue Capital, the rents will rise to "market rates" and the "spread" between the market rate rents and the below-market occupancy costs determined by conservative family management, will go toward a front end payment to the Blue Group and other stock holders at that time. Who wins and who loses from this new arrangement?

Finally, Reality Sets In

April 16, 2008

Analysis of:BID/ASK GAP BRINGS INVESTMENT SALES TO A HALT | retailtrafficmag.com

With extensive anecdotal evidence from retail real estate  brokers around the country who are bemoaning their lack of action, this article attempts to depict what's behind the almost moribund market for retail properties.  As usual, this reporter who frequently writes for one of the industry trade journals, gets it wrong.  Instead of pointing a finger at the true underlying cause of the virtual halt in investment sales, she simply collects and echoes the complaints of brokers who look no further than the last excuse they heard from their prospective buyer or seller.   Consequently the article does little to help the GLG News reader understand what is really going on in the industry.

Is It Cause For Alarm When Bottom Tier Companies Fail?

April 16, 2008

Analysis of:RETAILING CHAINS CAUGHT in a WAVE OF BANKRUPTCIES | www.nytimes.com

There are two glaring problems with this New York Times Article.   First of all, its' headline is very misleading and designed to stir up controversy, while the body of the article is a well reasoned and evenhanded analysis of a far less disturbing trend. One could almost finish reading this with a positive feeling about the sudden realization of certain lenders that they should think twice about lending lots of money to people that could not pay it back!  Next, while it further verifies what readers of GLG News have been reading about for many weeks; that the real reason behind this wave of bankruptcies has less to do with the current recessionary economy than with the ridiculous levels of debt that these bottom tier retailers have been carrying, it only deals with this issue "in the fine print" at the end of the article.

Another Victim Of Over-leveraging

April 15, 2008

Analysis of:Home Retailer Expected to File For Bankruptcy | online.wsj.com

This WSJ writer and many like him are raising big red flags about the fate of the retail industry. They are seizing upon the rash of retail bankruptcies as either further evidence of the severity of the depression or the tightening of customer purse strings, or both. However, not one business writer I have found is talking about the "elephant in the room". The elephant is simply the fact that every one of the retailers recently declaring bankruptcy have been the target of a buyout by some private Investment Fund who overpaid for a long-troubled company and then promptly loaded the company up with debt to enrich their investors.

WHERE HAVE ALL THE GROCERS GONE?

April 10, 2008

Analysis of:GROCERY ANCHORED CENTERS GET SQUEEZED | retailtrafficmag.com

This article is important because it provides an early impression of what is happening around the country  to vacancy rates,  asking rents and effective rents.  Obviously if true, this limited survey by Reis Inc., could provide an early indicator of a growing problem in the shopping center industry However, based upon my experience in this industry over many years and many economic cycles, I suspect that not only is the information rather shaky, but that it needs much more in the way of careful analysis to be meaningful for use in making investment decisions.

The Russians Are Coming! - The Russians Are Coming!

April 9, 2008

Analysis of:Russia’s Sistema to invest up to $200 mn in Indian realty | www.livemint.com

ASistema is the largest Telecom company in Russia and together with its' construction subsidiary, Sistema Hals, (listed on the London Stock Exchange with a first 9 months turnover of $9.6 billion), is making their first ever investment outside of Russia and the CIS. With so much opportunity to make profitable real estate development investments in Russia and the CIS, the question arises as to what is Sistema thinking about going so far afield to get involved in a high risk real estate venture? This analysis will look at some of the possible answers.

Another Example Of Disastrous Over-leveraging

April 8, 2008

Analysis of:Centro Suitors Submit Buyout Bids | online.wsj.com

With debt of of roughly $17 billion and $3.4 billion in short term debt due to be paid or refinanced by April 30, can even the most ardent suitors expect to be able to do the necessary due diligence to come up with any kind of a rational offer within the next 3 weeks? Alternatively, is this another Bear Sterns $2.00 a-share-type buyout? It is my belief that the outcome of this bidding process will reveal a great deal about whether or not the retail real estate bubble has really burst or if investors have learned anything about valuing troubled and over-leveraged REITs.

It Is A Bad Sign When The Boss Blames It On The Real Estate

April 7, 2008

Analysis of:Circuit City Critic Stirs It Up | online.wsj.com

As a veteran of 40 years at the highest levels of the corporate retail real estate industry and as a close observer of Circuit City's real estate efforts since their inception, it is my opinion that Mr. Schoonover is simply using the real estate as a coverup for his bad decisions. Mr. Schoonover has said that one of their biggest challenges is that "400 of their 654 stores are too big, outdated, or in suboptimal locations, or all of the above".  He has said some other equally ridiculous things about other parts of his operation but since this writer's credentials are primarily based in real estate, I will leave the merchandizing and financial comments to others. 

Circuit City Has A Short Circuit

April 4, 2008

Analysis of:Activists Circle Circuit City | online.wsj.com

With eight major investment funds taking very large positions in Circuit City immediately after their highly publicized turn around effort failed badly, things look bleak for the new management and , if the track record of these investment funds are any indication of the type and quality of retail management they provide, even bleaker for the investors in the investment funds. So what is to become of the former innovator and powerhouse that was Circuit City? This was the company that not only  invented the appliance and electronic catagory as a  national chain, but virtually invented the entire concept of "big box Catagory Killers".  Today instead of reaping the benefits of their past innovations and leadership, their very survival is in question.

A Lot Of Money Wasted On A "Clumsy Trick"

April 3, 2008

Analysis of:Private equity boom was nothing more than a clumsy trick | www.ft.com

In a rare moment of candor, Henry Kravis, Alan Bond, Hamilton James and David Rubinstein confess at the Super Returns private equity conference, that the private equity market is simply a "proxy for the credit markets".  They also agree that the private equity buyouts are "now recognized as reality triumphing over hope" and are seen to "count for very little". The retail industry was a major target of private equity buyouts and have come to an abrupt halt with the onset of the credit crisis. The big question is whether the buyouts that did occur will end up working out?

Not Just an Odd Couple, An Odd Threesome

April 2, 2008

Analysis of:Penney's buys Wal-Mart site | www.chicagorealestatedaily.com

For almost the entire history of JCP's store expansion, they have been recognized in the industry as having one of the most conservative and highly selective programs of any major chain.  Suddenly they are starting to take locations in secondary, troubled strip centers and paying premium prices for the privilege. What is happening? For almost the entire history of Wal-Mart's relocation and superstore expansion program they have been noted for their willingness to dispose of their old properties at near giveaway prices. Suddenly they are hanging on to vacant old stores for two or three years in an attempt to obtain higher prices. What is happening?

Tesco is developing a credibility problem

April 1, 2008

Analysis of:Tesco takes three-month breather on US expansion plans | www.forbes.com

A three month planned delay? Come on guys, we may have been your colonies and were conditioned to believe what the "Mother Country" tells us is true, but we are not stupid! Not only did Tesco launch one of the most irresponsible invasion plans that this writer has seen in 40 years of observing the retail real estate scene, but over the past several months they have issued announcements that seriously distort the truth about the success of their efforts. Now they want us to believe that they had planned this delay all along and ignore the fact that they will be paying rent on 19 stores that are leased and ready for merchandize.

Strange Times Makes For Strange Bedfellows

March 20, 2008

Analysis of:Costco Taking Mall Space | blog.retailtrafficmag.com

This article can be read to mean  several different important things. First, it could mean that Costco is making a significant, but unannounced, change in their very successful expansion strategy.  Next it could mean that malls have made a significant, but unannounced change in their anchor store strategy.  Finally, it could be read to mean that "strange times makes for strange bedfellows". I will attempt to explain why I think this is the most logical and meaningful explanation.

The Sky Is Falling And Stores Are Closing!

March 20, 2008

Analysis of:Behind Closed Doors | retailtrafficmag.com

As this article implies, due to the sagging economy, 2008 is going to be a record year for store closings which could have profound impact on shopping center REITs. So what is the real story here? In my comment section I will examine some alternative reasons for the closings and some alternative theories of why this increased number of closings will have little real impact on shopping center REITs.

WSJ Sensationalizes Routine Mall Conflicts

March 19, 2008

Analysis of:Score One for Challenger In Phoenix's Mall Bout | online.wsj.com

WSJ writes a feature article about an event that has zero significance out side of the Phoenix mall development community. While it may be of interest to those curious few who care about routine struggles between real estate developers of every type, size and description, it is really of no consequence to the larger business community. It must have been a slow news day at the business desk. All that really happened was that one very wealthy and influential mixed use developer managed to outmaneuver another wealthy and influential mixed use developer for the rights to build a regional shopping center complex on the far north side of Phoenix. Actually, by WSJ's own admission, it wasn't even new news. The real news had happened several months ago when one developer gained a commitment from Nordstrom's which virtually guaranteed that Bloomingdales would follow suit. The article was all about Bloomingdale's new commitment which was actually a nonevent.

Why Is Everybody Picking On Malls?

March 19, 2008

Analysis of:Drifting Away | retailtrafficmag.com

The past 12 months have seen mall stocks drop 31%.  Same store sales are down and store closings are up. So what?   Mall REIT profits are up and occupancy rates are holding steady at 94%. Re leasing rates are also holding steady in the top line REITs but not in the REITs with a majority of product in smaller markets or in "B & C" malls. Is this the beginning of a disaster or simply the routine workings of an orderly market?

Vally View Is Just One Of Many More To Come

March 18, 2008

Analysis of:Valley View Center has shot at renewal after Macy's closing | www.dallasnews.com

Depending upon which article you read, Macy's have announced between 88 & 97 closings of duplicate stores they purchased in the 2005 May deal. Most are still vacant and causing REIT owners and mall retailers, who are unfortunate enough to be located on the Macy's/May wing of the mall, very serious and expensive problems. Although hard numbers are almost impossible to obtain, industry "guesstimates" reveal that as many as 75 of these duplicate properties have been acquired by the mall owners and that most are still sitting vacant. As best as this writer can tell, only 6 or 8 have been retenanted by conventional department stores. Another 6 or 8 have been retenanted by discounters such as Target or Mervyn's. At least 10 more locations have been demolished and are in some stage of redevelopment as open-air lifestyle centers. Is this the coming of the end of Malls?

THE REPORTS OF THE DEATH OF THE MALL HAVE BEEN GREATLY EXAGERATED

March 14, 2008

Analysis of:Retailers bracing for worst January report on record | www.marketwatch.com

While Mr. Burns correctly points out to the GLG reader who may have missed the news, that the real estate bubble has finally burst and that the country is in the midst of a recession, he totally fails to establish his main theme in this and previous articles, that the death of the Mall is close at hand. It should also be noted that the article he chose to analyze is also from a reporter known for gloom and doom writing. Although there is nothing wrong with belaboring the obvious economic realities that recessions cause many people to spend less money in higher priced retail stores and more money in discount stores, it is no more relevant than commenting that the tide has gone out and many ships are floating lower in the water. Is Mr. Burns implying that when the tide comes back in, certain ships will no longer be able to float? If he is, he should be chastised for failing to cite adequate reasons for his conclusions.

How Does Easy Credit Make Turn Around Specialist out of Financial Genius'?

March 11, 2008

Analysis of:BUYOUT ALL-STARS STUMBLE | online.wsj.com

This article sheds considerable light on one company's efforts (Sun Capital Partners) to prosper by buying second or third tier troubled companies. They use very little cash and then, using their real or imagined genius as self titled "Turn Around Specialist", try to "make a silk purse out of a sow's ear". How well are they going to do now that the going is getting very rough?

WSJ Belabors The Obvious

March 10, 2008

Analysis of:Malls, Offices May Slump Less Steeply Than Homes | online.wsj.com

Using the well publicized problems of Harry Macklowe and Centro Properties as the poster boys of WSJ's front Page article, we then learn that it is only the over leveraged commercial property speculators who are likely to suffer in this real estate recession. The article then quickly points out that the commercial property downturn isn't expected to be nearly as steep as the current slump in the housing market. Ho Hum, so what else is new?

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