AFR Delays Call Amidst Sale Speculation

JENKINTOWN, PA-Weeks have turned into months as American Financial Realty Trust "continues to work diligently on ways to maximize shareholder value," says Lewis S. Ranieri, chairman, in a statement announcing the postponement of AFR's second-quarter conference call, originally scheduled for Aug. 8. At the June 1 shareholders meeting, Ranieri said the company would "not sit by idly as shares trade at current levels."

At that time, he said a review was under way and told shareholders there would be "more details in the weeks ahead," then repeated, "weeks." In the Aug. 8 statement, he said both a rescheduling of the conference call and a "set of strategic decisions" would be announced in "the near future."

Of the conference call postponement, Ross Nussbaum, analyst with Bank of America Equity Research, wrote in a report, "we take this as a clear sign that the company is focused on pursuing a sale of the company, rather than an operational turnaround." Nussbaum referred to Ranieri's earlier remarks and said he believed using a quote from Ranieri, a rare occurrence, in the second-quarter financials press release and the postponement announcement indicated that AFR "is sending the market a positive signal."

An AFR spokesman tells GlobeSt.com the use of Ranieri's comments meant "nothing beyond the fact that he took the initiative at the shareholder meeting." The spokesman declined to comment on "anything beyond the release today" in respect to the strategic initiatives under review or published reports of a potential buyout bid from a group that included Nicholas Schorsch, AFR's CEO.

Nussbaum also referred to the buy-out reports and suggested that a bid by Schorsch, another board member and financial backers Starwood Capital and Morgan Stanley "may have come undone over the weekend. If the deal did fall apart, we expect the sale process would now move to a more open formal 'auction'." He speculated that any such offer would be $13+ a share on the upside and in the $10-a-share range on the downside, "if a deal does not come to fruition." He also said it is unclear if Schorsch would head the company "if it continues as a going concern," and added, "we believe that outcome is unlikely."

On July 18, analyst Merrill Ross of Friedman Billings Ramsey, wrote, "we think the clock is ticking on possible initiatives, which include either a management-led privatization or the sale of the company to a third party." At that time, she anticipated that a "quick fix" management-led buy-out would be announced on Aug. 8, and also said the risk of buying shares at current levels included the possibility of no buy-out and that "strategic alternatives take over a year to be realized in the stock price."

Meanwhile, AFR reported a second-quarter net income of $13.4 million, compared with a loss of $25.2 million for the same quarter a year ago. Revenue reached $141.8 million, an 18% increase compared with $120.5 million in second-quarter 2005. Occupancy in the company's portfolio was stable at 86.5% and same store occupancy was 89.2%.Despite the profit, however, Nussbaum called the second-quarter results "messy, littered with $11.4 million of debt extinguishment costs [and] $63 million of gains on sale." While he reiterated an earlier net asset value of about $13 per share, he said his company's analysis is "under review."

By mid-afternoon on Aug. 8, shares of AFR were trading at $11.58 a share, up nearly 2.4% for the day. The 52-week high of $14.73 a share was reached on Sept. 16, 2005, and the 52-week low of $9.52 a share occurred on May 3 this year.