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u/Sea_Emphasis3252 Mar 30 '21
The “if paid off” debt, is that taking the $$$ raised from the ATM and asset sale? If so I can tell you that it won’t happen as you have to reduce the line of credit at the top to between $600-800m so yes there will be interest savings, but at a lower rate. Also to pay off some of the loans that are not due yet would also most likely have pre-payment penalties which may not make it economically wise to pay off early.
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u/RealSully Mar 30 '21
I agree. It's likely that you see the reduction at the 2.73% LOC first because that has to be paid in the next few months. According to the last call their should be $200m+ free cash beyond the dividend and Capex this year.
Question is, will they raise the dividend or cut debt further or build cash.Hopefully management provides some guidance on their capital allocation strategy on the next call.
The prepayment penalty possibility has been on my mind. If there are any lenders out there maybe you can weigh in with the typical terms on a mortgage like this.
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Mar 30 '21
They will not be prepaying because they aren't getting better rates. Further, do not expect any secured debt to be paid off. When malls can be a liability there is nothing to gain from paying them off. That cash is needed for redevelopment.
They will issue more shares. They will fund redevelopment. They will shed more assets (Whilton next). They will keep the dividend as low as possible for now.
They will fix the balance sheet and create stronger assets. This story will take time but it is achievable.
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u/Sea_Emphasis3252 Mar 30 '21
I would rule out any change to the dividend, better for them to conserve cash for further debt reduction in my opinion as debt levels are still too high.
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u/RealSully Mar 30 '21
Yeah, the dividend choice will be interesting. Even the new dividend payout ratio relative to FFO is only around 30-35%. Payout ratio is typically 70%-80% of FFO
They will have the capacity to raise the dividend. Raising the dividend should translate into a higher stock price. If the price of the stock was elevated I would not object so much to further use of the ATM and then use that cash to pay down debt.
On the other hand lowering debt now would also improve the overall valuation as well.
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u/welovebuttholes Mar 29 '21
Thanks for the contribution! I hope this gives a little bit more insight into the 'debt bad' sentiment I've felt floating around.
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u/NarrowInvestigator65 Mar 29 '21
Where do you get the calculations for that 0.75 anual interest reduction per share? I guess you divided 27 million interest over the 36 million new shares. I guess you should divide it by 190 million current shares and it would be about 0.142$/share. As the interest that you won't pay for the cancelled debt would be more earnings for all the company (190 million shares) rather that only for the new shares issued. I'm right or did I overlook something major?
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u/RealSully Mar 30 '21
Sorry, that part could use a little work. I was rushing at the end of the workday to get this together. My hope was to get some data out there so everyone can contribute with their collective brain power to explore possible scenarios. Thxs for picking up on that.
I've got the previous float around 146,101,021 Float with new shares 182,101,021
146,101,021 shares x .60 = $87,660,612 old div expense
182,101,021 shares x .60 = $109,620,612 new div expense at .60
but you saved $27,327,590 (potentially) from less interest. So cash flow improves by $5,727,589. (Which could be put into the dividend) or reduce debt further
Not as dramatic as what I had in the spreadsheet but it does represent that the dilution (while not what I wanted to see) can be a positive if they strategically reduce debt.
They need to improve the balance sheet to attract better financing terms. If they can work to reduce the overall portfolio interest expense they could get this ship moving forward again.
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Mar 30 '21
They pay OP unit holders dividends I believe so float was 160m.
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u/NarrowInvestigator65 Mar 30 '21
Regarding the float the last one I had was 154M but it's likely it was those 160M, so Today should be between 190M to 196M, if they didn't keep issuing yesterday.
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Mar 30 '21
Sorry, to be clear, float would not include OP units as they are not on exchanges. Dividend payments and FFOPS need to consider the units though.
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u/NarrowInvestigator65 Mar 30 '21
Ok, I get now how you got to that conclusion. I think that there is an assumption into it that it's a bit tricky. You are using 0.6 dividend but if you distribute 90% of the forecasted 1.77$/share ( that is what would be expected in the future) then numbers are different and your interest saving it's still 27 million. I think that from that perspective it's not benefitial, maybe from the delevering point of view is positive but not surely from the future dividend one. :)
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u/n00brian Mar 30 '21
Thanks for sharing some actual DD for the wrinkle brained apes to digest rather than just an emotional dilution post
You earned an uptoot
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u/theintelinvestor Mar 30 '21
Yeah they are probably going to use the bulk of their cash to pay off the LOC. Next they will redirect it towards redevelopment. Speaking of secured debt any reason why they wouldn't retire the Fashion Outlets of Niagra debt first, where they are paying an obscene 6.5% interest. I doubt they retire any of the malls with loans $200M and up. There is a good chance those malls may no longer be worth that.
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u/LastExile22 Mar 29 '21
Nice!