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NYRT - New York REIT


Guest MikeTheCannon
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Anyone else following New York REIT's liquidation? Currently trades ~$9.50 but I've seen NAV estimates hanging around $11 to $13. I've bought some for my (small) portfolio.

 

Here's the VIC write up: https://www.valueinvestorsclub.com/idea/NEW_YORK_REIT_INC/139227

 

And one from seekingalpha: https://seekingalpha.com/article/4054483-new-york-reit-timing-everything

 

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jesus, this again? this is like the most pitched name of 2017.

 

one comment here - every single write up i see on this name is using optimistic (and in my view unrealistic) cap rates.

 

for anyone who's going to put together a liquidation model for this - do yourself a favor and be conservative with the cap rates you use. or even better, use a cap rate based off actual transactions that have occurred in the last 3 months.

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Totally agree that everyone knows about this name. 

 

FWIW, I think very highly of the people involved.  I don't think highly of the assets that they own.  The cap rates are low and they are likely market rate.  But if the cap rate were to increase by 50bps to 100 bps, it can have very significant impacts to the NAV.  The leverage plays a big role here as well. 

 

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one comment here - every single write up i see on this name is using optimistic (and in my view unrealistic) cap rates.

 

for anyone who's going to put together a liquidation model for this - do yourself a favor and be conservative with the cap rates you use. or even better, use a cap rate based off actual transactions that have occurred in the last 3 months.

 

~4.75 seems more appropriate

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Thanks for all the thoughts!

 

A quick (rookie) question about the cap rates: the Fed is looking at a June interest rate hike. Would this be built into the cap rates being offered in the market today? I would imagine it is, but my experience is rather limited in this field.

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Thanks for all the thoughts!

 

A quick (rookie) question about the cap rates: the Fed is looking at a June interest rate hike. Would this be built into the cap rates being offered in the market today? I would imagine it is, but my experience is rather limited in this field.

 

All these pension funds and real money guys are risk adverse. They just keep buying fixed income. We've had three rate hikes since the end of 2015, and the TLT is flat. You would think it is priced in and that the markets are efficient, but is it?

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well, the news out today of the $9.25 liquidation value is why i suggested using a more conservative cap rate.

 

Management's previous guidance was $8.49 to $11.26. With that in mind, is this revised $9.25 guidance really that earth shattering? That's an honest question, not some snarky remark.

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Management's previous guidance was $8.49 to $11.26. With that in mind, is this revised $9.25 guidance really that earth shattering? That's an honest question, not some snarky remark.

 

I don't think so. But there are two things I think impacting the market here. One is that the midpoint of the range you listed was $9.875 vs. the new guidance of $9.25.  So the market will likely price in that 6% reduction in value + more due to the uncertainty of future reductions.  Second is that, I think people were hoping that management would guide their estimate of value upwards. Every pitch and write-up I've seen on NYRT has liquidation values from like $11 to $14. So most people I think were assuming management would bring their estimate up closer to that range, which obviously didn't happen.

 

I think anyone who was rightfully conservative on the name probably wasn't very surprised, but unfortunately there were a lot of people out there building a lot of optimism into their models.

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That was the previous management's guidance. The new management team campaigned on assertions of much higher NAV. That said, I don't think the previous management's range was unrealistic, and given the state of NYC real estate, this isn't that surprising. The cap rates they used in their activist letters seemed pretty aggressive. The Winthrop guy has a history of being slightly conservative, so maybe this new estimate is on the lower end, but his previous liquidations all came during times of falling cap rates. I bet this estimate is pretty close to being accurate. Probably not a lot of downside (unless Cravath, the big tenant in their main asset, leaves). But not much upside either.

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Management's previous guidance was $8.49 to $11.26. With that in mind, is this revised $9.25 guidance really that earth shattering? That's an honest question, not some snarky remark.

 

I don't think so. But there are two things I think impacting the market here. One is that the midpoint of the range you listed was $9.875 vs. the new guidance of $9.25.  So the market will likely price in that 6% reduction in value + more due to the uncertainty of future reductions.  Second is that, I think people were hoping that management would guide their estimate of value upwards. Every pitch and write-up I've seen on NYRT has liquidation values from like $11 to $14. So most people I think were assuming management would bring their estimate up closer to that range, which obviously didn't happen.

 

I think anyone who was rightfully conservative on the name probably wasn't very surprised, but unfortunately there were a lot of people out there building a lot of optimism into their models.

 

Thanks for the insight!

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That was the previous management's guidance. The new management team campaigned on assertions of much higher NAV. That said, I don't think the previous management's range was unrealistic, and given the state of NYC real estate, this isn't that surprising. The cap rates they used in their activist letters seemed pretty aggressive. The Winthrop guy has a history of being slightly conservative, so maybe this new estimate is on the lower end, but his previous liquidations all came during times of falling cap rates. I bet this estimate is pretty close to being accurate. Probably not a lot of downside (unless Cravath, the big tenant in their main asset, leaves). But not much upside either.

 

Ah I didn't consider that old management gave the previous guidance. :/

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I'm no real estate expert, but it seems clear that management has a clear incentive to under-promise and over-deliver. I find it tempting to see the $9.25 estimate as a floor below which management is pretty confident they will not go (unless, of course, the real estate market really turns sour before they're done liquidating).

 

In any case, the notes to the 10Q still point to considerably higher potential. See e.g. page 33 which estimates total sales proceeds of $3.6b and sales costs of $126m. Subtract net debt of $1.15b from that and you arrive at a net asset value of $2.3b, which should work out to about $14 per share.

 

 

 

NYRT_10q_p33.thumb.jpg.e61674eac9ffe4f9747e6c951ecaa5db.jpg

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The call was actually pretty good, basically no way they get $11...was a pretty bagholder-ish call. 

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