G’day reggie,Enjoy your posts, thanks. But on this occasion I...

G’day reggie,

Enjoy your posts, thanks. But on this occasion I must disagree on a couple of points. I do not think there will be a div for quite some time. I posted on this recently, but they have already made a large taxable loss for last year. This from their annual report:

“Distributable Income per security 13.25c
Distrb. Per security 1.40c”.

This is the full ANNUAL report/accounts, so CER clearly hasn’t distributed its available distributable profit as you say they must as a trust. Reason is their tax loss, caused by the big write downs. Even bigger write downs expected this year, so I expect again a taxable loss & no need to pay any div. If what you say about trusts & divs was correct in this case, why didn’t they pay out the full 13.25c as they must do to avoid tax IF it was taxable profit?

Two of their entities including the large Super have also been forced to stop paying CER any distribution until tight loan covenants are met.

I sincerely HOPE your optimism is well founded & things improve. I don’t share that view. I think the USA is a basket case & can only get worse from here. Below is Bobby Gottleibsen’s Jan 15 piece. Key bit is:

“In US and the UK the problem starts with the banks. The estimated losses in the sector total about $3,000 billion give or take $500 billion. That’s a huge chunk of the world’s banking capital. However, less than $1,000 billion has been recognised, so we are not even half way.”

Plus we haven’t even scratched the surface of the looming US$600 Trillion OTC derivatives problem. Warren Buffet called them “the weapons of mass financial destruction”.

My previous post was on CER’s rising vacancy rate, with ALL 16 Circuit city stores to close, not the 3 out of 16 previously reported. Plus ALL Linen n Things. That’s US$11.7m revenue GONE. OK only small %, but this is just an indication of what’s happening right across USA.
One would expect many more of their tenants will follow, PLUS those remaining are demanding rent relief. If they don’t get it, they may move to where rents are better.

Don’t get me wrong, I’m a CER holder, although as I’ve posted I have taken some profits off the table. I WANT them to succeed, but we must be realistic in assessing their prospects going forward & divs are just not probable imho, nor is a quick turn around in the deepening US recession.

Cheers,

Ned.

PS
What we really need is better guidance from the company on store closures, rent reduction demands, etc. Also is their debt around $2 billion or $6.1 billion BIG diff.


Commentary
8:06 AM, 15 Jan 2009
Robert Gottliebsen
What's worrying Wall Street
We all need to understand the forces that are brutalising the 20 per cent-plus rise which took place in American and European stock markets during the six weeks leading up to the beginning of 2009. The big question is whether President-elect Obama can reverse those forces. The message from the share market in the week before he takes office is that while he may mitigate the forces, they have developed such a momentum that the US is in for a long hard haul.

In Australia our great advantage is that, unlike the US, Europe and to some extent Asia, our banks have a much better asset book. As a result, the combination of the Rudd package, lower interest rates and a lower dollar have boosted consumer demand and helped resource companies. While conditions are very tough and our share market will fall with the world, so far we have been able to protect ourselves from the dire situation facing the US and the UK.

In US and the UK the problem starts with the banks. The estimated losses in the sector total about $3,000 billion give or take $500 billion. That’s a huge chunk of the world’s banking capital. However, less than $1,000 billion has been recognised, so we are not even half way. The good news is that the banks have raised the required capital to cover the losses so far disclosed, albeit with the help of government money.

The lowering of interest rates to virtually zero means that the banks are generating profits which are helping with the rescue. But their shares continue to be hit because they have not come clean with their asset losses. Their financial problems mean the banks are holding back their lending to reduce the need to raise capital to cover the losses.

However, this makes the problem worse. The resulting credit squeeze slashes the value of property and forces business to contract and, of course, causes massive unemployment rises. In turn this boosts bank losses. This has led to a massive reduction in borrowing by the whole global community – the so called 'deleveraging' process.

One of the most important issues I have highlighted this year is the enormous goodwill on US balance sheets (Goodwill evaporates, January 12). Massive write-downs will be required which will force many groups to raise capital in a tight market.

The combination of all these forces means that American companies are going to announce bad results and a clear market pattern emerges – although shares have already fallen on anticipation of bad results they will fall further when these results are announced. This is partly because many highly paid analysts on Wall Street have not caught up with what is happening in the real world.

So far, most of the rescue packages have been designed to keep the banks alive because we saw with Lehman that the world financial system is endangered if another major bank falls over. Obama is now planning a massive injection to kick start US consumer demand.

In Australia a less ambitious package has had a real impact on consumers because although our banks have tightened credit they have not shut up shop.

Whether the US package will have a real impact while bank balance sheets remain in a mess remains to be seen, but it will help.

For what it's worth I believe that this crisis started in the banks and will not pass until the banks are lending again. But it will pass. Whereas Australia is being helped by the lower local dollar, the US is being burdened with a rising American dollar, thereby making the rescue even tougher.

The UK and Europe faces a similar set of forces. The 20 per cent-plus rises to the beginning of 2009 indicated that the share markets expected that the rescue packages would work. More than half that gain has gone as markets have second thoughts. We are in grave danger of experiencing yet another a dead cat bounce.