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.

Indigestion Follows Overeating

April 7, 2009

Analysis of:Bon-Ton followed numbers after acquisition | www.jsonline.com

Bon-Ton is a classic example of what happens when a healthy Goldfish tries desperately to swallow a sick Lake Trout. First Bon-Ton, a small, moderately priced department store chain serving mostly small Pennsylvania towns, acquired a chain of small, moderately priced department stores called Elder-Beerman, serving mostly small Ohio towns. That worked pretty well since there was no overlap and the "fit" was good between the two "neighboring" chains. At the height of the "cheap money feeding frenzy" in 2006, Bon-Ton bought the troubled collection of second rate department stores from Saks. For the most part they were much bigger stores serving large urban areas and offering a more upscale line of goods. Almost immediately the industry noted that a severe case of indigestion had set in.

Soros is Predicting Yesterday's Weather

March 31, 2009

Analysis of:Soros Says Commercial Property Values Will Fall 30% | www.bloomberg.com

While the article does have some limited value to the GLG reader, it is comprised mostly of contradictory information and old news. I think it is important for the GLG reader to understand the basics of value for commercial real estate and not just respond to the pleadings of the most aggressive and highly leveraged investors who are lobbying the government for a bailout.

Don't Dock Your Money at Pier 1

March 24, 2009

Analysis of:Pier 1 to Close 80 Stores | blog.retailtrafficmag.com

Pier 1 has been flirting with bankruptcy well before the current recession. Now, under the cover of the recession, they are laying blame for all their problems to the bad economy and not to the lousy management decisions they have been making for the past 5 years.  Additionally, the rent reductions that they are touting as evidence of smart management and possible significant improvements to their bottom line, are actually evidence of smart landlords agreeing to lower the rent rather than have a vacant space on their hands. The fact that so many landlords have agreed to lower rents is more of a comment on how close the company is to bankruptcy than any brilliant maneuvering by management. 

Hey Mr. Simon: How Should We Determine Which Malls Should Written Off?

March 23, 2009

Analysis of:David Simon: "Don't Write Off Malls | blog.retailtrafficmag.com

This article quotes the gist of what David Simon , the CEO of SPG, said in his address to the Wharton Leadership Lecture Series. It quite naturally paints a much rosier picture than industry insiders believe. In reality his speech serves as a thinly veiled commercial for the SPG's ability to sell off their underperforming malls to "bigger fools" while buying up the best malls of other troubled mall REITs such as GGP. It says nothing about the proper way to determine which malls should be written off and which malls should not be written off.

Whatever Happened To Fundamentals ?

March 17, 2009

Analysis of:RETAIL REITs HAVE FURTHER TO FALL as STORES STRUGGLE | www.bloomberg.com

While many of the industry professionals quoted in this article are solid performers in the money management industry, not one of them appear knowledgeable in the shopping center or mall ownership industry. As would be expected in a Bloomberg article that interviews money manager's opinions about stock prices, the entire thrust of the article consist of various unrelated commentary about recent events in the industry and how they relate to measurable changes in certain economic indicators such as unemployment and income. Not one of the comments talked about what is really happening in the industry itself! For example,  not one of the commentators made reference to the impact the growing  number of department store closings will have on most Retail REIT's NOI!

A great example of how far things have deteriorated in the office market

March 16, 2009

Analysis of:Sears Tower To Be Renamed For New Tenant | www.chicagobusiness.com

This article provides some very sobering data demonstrating just how desperate owners of major office buildings have become in this depressed real estate market. Not only have both asking and offered rents declined precipitiously, but the value of "naming" an iconic building has virtually disappeared.

They Continue To Miss The Obvious

March 16, 2009

Analysis of:Real estate stocks: It may still be too early to buy | www.usatoday.com

By blaming the recent decline in stock value almost entirely on the current recession, the reporter has taken the "brainless" approach to filling his required space for the day. The only  items worth highlighting is the fact that the reporter took the time to report on the calculations of the SNL U.S. REIT equity indexindicating that REITs are now 40% below the companies projected asset values and that most REITs used borrowed money to bid the prices of their acquisitions well above the market.

Now the Real Con Artists Will Get Their Money Back

March 16, 2009

Analysis of:Commercial Real Estate Bailout | blog.retailtrafficmag.com

The proposed bailout by the Federal Government to save the over-leveraged office buildings and shopping centers from failure in amounts equal to the subprime housing bailout, is a worthy topic of comment.

Lampert no match for Buffet

March 16, 2009

Analysis of:Heavy Discounting Hits Sears Profit, Raising Doubts About Revival Effort | online.wsj.com

Although the WSJ reporter was much too polite to totally trash Mr. Lampert's efforts to revive the ailing SHLD and went overboard in his efforts to find something nice to say in his analysis of Mr. Lampert's "Buffet-like" letter to his stockholders, it should be obvious to even the most faithful GLG believers in the Lampert genius that his luster is worn off and the "king has no clothes". This article and the many others that came out immediately after Eddie's letter hit the wires, clearly demonstrate that Mr. Lampert's self aggrandizing comparisons to Mr. Buffet, (or at least his self appointed role as heir apparent to the title of resident financial genius) has lost all creditability.  I for one, would like to see all future comparisons put to rest. I would go so far as to promise never to question Mr. Lampert's genius ever again if Mr. Lampert so much as demonstrates he is capable of producing one quarter of increased sales and profits any time in the next three years!

Impairment Is Only The First Shoe To Drop

February 25, 2009

Analysis of:Impairment Charges Hammer Shopping Center REITs In The Fourth Quarter | retailtrafficmag.com

This article is basically just a listing of the lackluster results turned in by the 11 Shopping Center REITs reporting on their fourth quarter results. The reporter makes a feeble attempt to justify the decline by noting that almost all REITs mentioned that they blame "Impairment" relating to abandoned projects, aborted deals and declining land values. It is interesting to note that not one of the REITs blamed what I think is the real reason behind their poor performance, the increased competition that has forced the marginal retailers in their centers to go dark. This is also the same reason that is going to explain the continued decline in performance during the next few quarters.

It Shouldn't Take A Recession To Do The Right Thing

February 23, 2009

Analysis of:Westfield to Cut U.S. Mall Hours to Help Retailers | www.bloomberg.com

Now that SPG and Westfield have announced shorter Mall hour, we can expect to see almost every mall in America follow suit.  There is no single change in mall operating conditions that will have as profound and beneficial affect on retailer's bottom lines as the simple act of finally recognizing what has been obvious for many years, shorter hours saves money. The real question behind the headlines is "what has taken Mall REITs so long to make this happen"?

Another Example Of Why The Sky Is Falling

February 20, 2009

Analysis of:S&K to Close 30 Stores | blog.retailtrafficmag.com

During the Savings & Loan bubble and again during the Tech bubble, there was not the constant media cry that "The Sky Is Falling".  I was intimately involved and enriched by the aftermath of the S&L crisis and unfortunately was made poorer by the bursting of the Tech bubble. In neither instance was there half the media attention to the decline in Retailers and/or retail sales. It is my strong opinion that the constant focus of media attention on the retail real estate aspects of the current financial crisis due to the Housing bubble is causing this sector's woes to be distorted and exacerbated.

Watch The Dominoes Fall

January 23, 2009

Analysis of:Reversals of Fortune | retailtrafficmag.com

In addition to the widely understood decline in commercial  real estate activity, this article details some of the lesser known ramifications this decline has had on the inexorably intertwined construction activities as well as the resulting impact on the finances of contractors, architects and the prices of construction materials. I thought it would be of interest to the GLG reader because of an example  used that illustrates a little known aspect of the shopping center industry in a recession.

Don't Tell Me This Was A Surprise To Any Prudent Investor

January 15, 2009

Analysis of:Wave Of Bankruptcy Filings Expected From Retailers in Wake of Holidays | online.wsj.com

The WSJ is telling us to expect a new wave of retailer bankruptcies due to "GE, CIT Group and Wachovia , (among others) tightening up their lending practices.  When this next round of bankruptcies is announced, the GLG readers will see CEOs blaming the lack of credit or the unreasonable lenders for their failures. I predict that not one will admit it was their own fault for over expansion, over borrowing, lousy performance or simply not being as smart or as good as their competitors.

Chickens Are Coming Home To Roost

January 13, 2009

Analysis of:As Vacant Office Space Grows, So Does the Crises for Lenders | www.nytimes.com

Office vacancy rates are rising rapidly and now have reached 10% in virtually every major city in the country. As the recession worsens the vacancy rates are expected to rise even further and cause a wave of bankruptcies, business failures and property give-backs that will permeate the portfolios of banks and private equity lenders for many years to come.

An Excellent Leading Indicator For Values Of Troubled Malls

January 12, 2009

Analysis of:Glimcher Sells Mall For $9.5 million Less Than Mortgage | blog.retailtrafficmag.com

This article provides an excellent current "comp sales" figure for all the GLG clients who are grappling with the problem of attempting to place a value on the portfolios of troubled mall REITs such as GGP.

Controversial Headlines Sells Newspapers

January 2, 2009

Analysis of:Projection: Up To 3,000 Retail Properties to Close | blog.retailtrafficmag.com

This article is important in my opinion because it typifies the kind of silly sensationalism that is adding to the turmoil in the real estate investment industry and the retail real estate industry in particular. The article is so poorly written and the research so fraudulently conducted that neither bothers to define what they mean by "retail property". A careful reading of the article reveals that a retail property could mean anything from a 350 square foot "pushcart" or "kiosk" space in a mall, to an entire 1 million SF mall containing hundreds of small and large stores! While I agree that as many as 3,000 kiosks and/or small retail stores could easily close by 4/09, it is silly to even think that 3,000 malls or strip shopping centers could close by that time.

FFO vs. NOI vs Reality

January 2, 2009

Analysis of:REIT Rebound Hinges on Credit Thaw, Recession's Depth | online.wsj.com

The Dow Jones Equity ALL REIT Index is the subject of this article which tries to predict where the index will be in 2009. Although the WSJ reporter managed to assemble some of the truly "best and brightest" minds in the REIT industry for his article, he failed miserably when it came to asking them meaningful questions. Not one of these REIT owners or analysts commented on the coming barrage of bankruptcies or space reductions being discussed openly in trade journals by the major space users in almost all sectors of the REIT industry. For example, David Simon, CEO of the Simon Property Group and Steven Roth, CEO of Vornado Realty Trust, totally ignored the impact on 2009 FFO and NOI the previously announced closing of hundreds of anchor department or discount stores will have in their malls and/or shopping centers.  

Terrible Performance Clouded By Terrible Explanation

January 2, 2009

Analysis of:Real estate write downs plague Morgan Stanley results | www.privateequityrealestate.net

This article which purports to explain a 76% decline in net revenues from Morgan Stanley's merchant banking division from 2007 and a write down of $355 million, sends about as garbled a message as any I have read in recent weeks. Whenever I see such an ambiguous article coupled with a CFO's blaming of "general market conditions" for such a lousy performance, I immediately suspect a cover up for incompetence or worse.

No Surprise, The Bubble Has Burst

December 28, 2008

Analysis of:Circuit City's Failed Auction Indicates Developing Excess Space | www.printthis.clickability.com

Circuit City has 715 stores just prior to their bankruptcy. They had 155 leased stores that were losing money, apparently losing more than the rental costs, so that closing them would save money for the stock holders.  To give an "insiders" look at the mindset of the current management, one of their seniormost officials reasoned that there would be enough other retailers (bigger fools?) that would be interested in paying a premium to take over their old, unsuccessful stores that it made sense to hold an auction.  Surprise! The day before the auction, they called it off due to lack of bidders. What a waste of corporate resources and what an embarrassment to spotlight how misguided the current management has been when it comes to their real estate strategy.

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