Brookfield Sells Longview Fiber and Timber Holdings

BrookfieldEarlier this week Brookfield Asset Management announced the sale of two of it’s Northwest assets; Longview Fiber and 645,000 acres of timber.

In 2007 they purchased Longview Fiber and it’s assets for $2.15 billion.  Over the last 6 years they restructured the manufacturing business and separated the timber holdings culminating in 2 concurrent but unrelated sales this week to Weyerahauser (645,000 acres of Northwest timber for $2.65 billion ) and KapStone Paper and Packaging (the manufacturing business for $1.025 billion).

The deals are interesting in that they involve regional companies (Longview Fiber and Weyerhauser) and significant timber sale from a company (Brookfield) that has been very adept at profitably acquiring and selling assets of this type.

Only time will tell who made the wiser decision.

The Brookfield Press Release

110228 KBS REIT 1

If you are an owner of KBS REIT 1, you may have or will likely receive a letter from CMG Partners.  The purpose of this letter is to encourage investors to sell shares at a heavily discounted price in exchange for liquidity.  While I concur that the commercial real estate market has had it’s difficulties and KBS has experienced some challenges associated with market conditions it is my recommendation to hold the shares and ignore the offer.

CMG Partners is in a class of funds whom I have not so affectionately termed “Vulture Funds.”  It is a moniker I’ve given as a result of their propensity to prey on investors at inopportune times for excessive profits.  In the case of the current KBS offer they make several statements as a pseudo justification for the ridiculous offer of $1 per share or, an 86% discount to the recently completed December 2010 value.  I’ll respond to their statements here:

KBS REIT is not listed on any exchange…”
Agreed, it is by design a non-traded REIT and is in fact one of the reasons I used it in portfolios.  Investor behavior is a key variable in determining investment returns and many retail investors buy or sell as a reflection of their emotions about the market or a given investment.  This has historically been a poor indicator of future performance and a chief obstacle to achieving the buy low, sell high goal of investing.  Reasons for this dynamic are quite simple: buying low is generally done during a time of turmoil and therefore doesn’t “feel” good.  Conversely, selling high typically comes at the opposite end of the emotional spectrum when doing so may give the appearance of missing out.  Like many things in life, doing the right thing doesn’t always feel good in the moment.

“…our price is not reduced by any commission or fees…”
No reduction was necessary, the $1 per share offer leaves plenty of opportunity to profit after transaction expenses.  Knights in shining armor they are not.

“Even though KBS was supposed to have listed their shares in 2012…”
KBS like many firms did not anticipate the near collapse of the financial markets in 2008 nor the subsequent recession we’ve endured.  To expect any company to dogmatically hold to guidance made prior to such historic events is either foolish, uninformed, or both.  Naturally, an initial public offering (IPO) or other liquidity event, if all had gone as planned, would be welcome.  However, in light of present circumstances attempting to do so now would be ill advised and probably not accomplish what patience and little time may afford us.

“…it was the only non-traded REIT to purport to have an increase in share value from 2009 to 2010…” Two points here: Firstly, they didn’t purport anything, the share value assessment isn’t an arbitrary figure and report would have been a far more accurate term.  Second, the increase is likely a result of the “house cleaning” they did in 2009.  KBS management indicated that any questionable asset or investment would be written down for the initial share value assessment in an effort to provide a conservative valuation and avoid an annual repeat of charge offs.  At the time they also indicated that some of these accounting maneuvers would likely be reversed resulting in subsequent improvements in share value.  Combine this with leases made to companies such as Coca Cola and G & C foods as well as other operational improvements and a share value increase can easily be justified.

Lastly, they made a (hopefully) critical error in their offering price.  By offering only one dollar they created a rational reason for investors not to sell.  In making the risk to return ratio severely asymmetric (an 86% loss if sold) investors are likely to assume (and correctly so) that there isn’t much more to lose, but a whole lot to potentially gain.

Please contact me with any suggestions regarding this matter, otherwise shred the letter from CMG Partners and get ready for spring.

110307 Wells REIT 2

When it rains it pours…or so I thought when my inbox alerted me to the presence of the latest Wells REIT 2 message.  It seems like anytime a sponsor attempts to communicate with investors directly it usually means I have to translate their “communication” into something people not employed in the financial services industry can comprehend.  This time however, I was pleasantly surprised.

The letter you will be receiving is well written, to the point, and should be easily understandable.   And, as if a well written letter wasn’t enough, they also recorded a short video with Chairman Leo Wells himself explaining what they did and why.  The buttons below will take you to a copy of the letter (in case you haven’t received it yet).

Investor Letter
Leo Wells Video

As always, if you have questions please contact me and we can discuss them.

Pay It Forward

Given our current economic predicament it’s easy to forget how fortunate we are to live in America; a place where what we frequently consider to be challenges are down right trivial if compared with those in many countries. It can be difficult to imagine an environment where hard work at best yields a meager existence and something as fundamental as safe drinking water is difficult or impossible to obtain. Unfortunately this is the sad reality for much of the world.

Shortly after founding Joseph Graves Capital Management I began looking for practical ways to impact this inequity and recently discovered a simple way to support those working to improve their lot through entrepreneurship by providing microfinance loans. Microfinance was pioneered by Nobel Prize winner Muhammad Yunus and has proved to be an effective means of combating extreme poverty while increasing the living standards of entire communities.
I’ve created a group here: WorldVision Group Managed by World Vision, a not for profit humanitarian organization in Federal Way, WA making it easy to partner with me in this immensely important and personally satisfying endeavor (they even allow you to login with Facebook should you desire).
For less than the cost of a meal at Burgerville you can improve the lives of people in desperate need and in addition to being a tax deductible donation it’s also a great opportunity to do well by doing good.

Please join me in making a real difference in someone’s life; we have 30 days to exclusively fund our first loan to Justine Nibakure a woman from Rwanda to purchase rice, beans, and sugar for resale in her shop.

For more on how it works, go here: Microfinance Explained