Author: neoneohedge

Theater Contraction is Inevitable

I have been openly short and down on the movie theater business on Stocktwits since May 2017. I’ve been asked by a number of people both online and in real life about why I have this opinion so I am going to detail my basis for the theory that will, in my opinion, lead to the title of the article.

My landing on movie theater companies was due to a couple of situations. I had already made 650% earlier this year on National Cinemedia, (NCMI), June $10 puts, (this was detailed in my posts on Stocktwits real time), which made me wonder if the advertising revenue in theaters dropping maybe was the canary in the coal mine for the whole industry. I was also short a number of Mall REITS and I was looking for a second level to the trade, something that wasn’t so prevalent in the headlines. What I discovered became  my current biggest position, owning puts on Regal (RGC), and Cinemark (CNK).

(For all intents and purposes if I refer to being “short” I am referring to being long puts, which as you most all know typically appreciate in value as the underlying equity depreciates in value.)

I thought that Regal and Cinemark’s charts should look just like Mall REIT charts, all basically a downward funnel towards the bottom right of whatever chart you look at, however what I found wasn’t anything at all like that. (This is as of May 2017 btw, and all these stock quotes are estimated).

Regal had gone from $21~ a share to about $22 from 5/1/16 to 5/1/17, so not only did it fail to look like an ugly Mall REIT chart it went up nearly 5% for the preceding 12 months. Cinemark was even more shocking, it went from $35~ a share to about $43.50 a share in the same time frame, which is a gain of almost 25% that 12 months! That was my first indication that I was ahead of the masses on the trade, and it made me look much more closely. I also reviewed IMAX and AMC too, but I felt that their balance sheets were stronger than Regal’s and their stocks had already been punished more than Cinemark’s or Regal’s which led me to start with Regal puts.

After careful review of Regal’s balance sheet, they had an estimated shareholder equity position of -$800m, they had declining box office attendance, a lot of debt, and a 17.9% ownership of the common stock in NCMI. I felt that Regal’s ability to handle any rocky spots financially was the lowest of all it’s peers so Regal became my main target.

My first purchase was $20 Oct puts in early May, Regal was almost $22 a share then, and the puts were only $.85. I added Jan $17.50 puts for $.50, (now @ $3.30), on an up day for Regal in June, then once I felt like the wheels were partially coming off just a few weeks ago I added Jan $15 puts for believe it or not $.35 a share. In the past week when Regal spiked up a bit I took off between 30-50% of each of those three put positions and rolled most of the funds into Cinemark $25 puts for March, and $12.50 puts for Regal for both Oct and April expiration.

With regard to my Cinemark holdings, I bought March $30 puts for $.85 in mid August, and just last week added the March $25 puts from my Regal proceeds. The profit from my original Regal positions have netted me what is now close to a free roll, meaning almost my entire theater short position is from the profit on those first 3 batches of Regal puts.

Now if you made it this far you are going to get the good stuff…The fundamental reasons why I loved this short to start and love it even more now are…

  1. Malls and strip malls have less traffic than ever, and lots of theaters are in these places. Not good.
  2. There is an epic assault on the theater concept, Amazon Video, Youtube, Netflix, Apple TV, Hulu, and on and on. The movie goer has a finite amount of time and money and the theater has more competition than ever.
  3. Raising ticket and concession prices is an unsustainable model. You cannot simply raise prices on a decreasing audience indefinitely, see Economics 101 at your local college.
  4. Regal owned 27,600,000~ shares of NCMI at the end of Q2. This position has lost $57,408,000 just since the end of Q2 on June 30th! This will wipe out about a whole quarters profits and they need to address this instead of burying it on a 10-Q!
  5. Cinemark owns even more as of their last 10-Q, 27,871,862 shares. That means Cinemark has lost $57,973,000~ just this quarter on it’s NCMI holdings.
  6. Both Regal and Cinemark will have to quantify these, at the moment, on paper losses and if you look at what happened to AMC when they quantified their NCMI losses I am expected a 20-25% drop in a day for Regal and Cinemark when they do that.
  7. Some of my reasons were technical on the charts. Both Regal and Cinemark would find little support if they did break through their recent lows in my opinion and that is exactly what has happened.

 

In closing I wanted to say that I literally have two net short positions in my portfolio, and they are the two ones mentioned above. I am an optimist, I am a cup half full type of guy. I have numerous long positions, and if you look at my original posts of Stocktwits I accurately called a number of bullish situations too. This movie theater situation is just a Goldilocks scenario to be short in my opinion. In five years will there be more movie theaters or less? Can theaters be profitable enough to pay 4%+ dividends like they do now? Will the average family fork out $60-100 for a trip to the movies when they can get an entire month of Netflix for ten bucks with all you can eat and drink at home?

I know that there might be a pop, or even a run up in RGC and CNK, and this may turn into a bad trade. The only thing I may be missing is the timing, for without any question in the world, Movie Theater contraction will occur, it is a certainty. Good luck out there-

 

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Ambient Water Announcement

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Ambient Water Announces Sale of Industrial Atmospheric Water Generation System for over $1M
Company’s generates first sale of its Ambient Water 20K system; industrial atmospheric water generator will ship to buyer in Middle East for installation within 20 weeks

SPOKANE, WA – August 14, 2017 – Ambient Water (OTCQB: AWGI), a leading provider of atmospheric water generation systems for extracting water from humidity in the air, today announced that it has received an order to purchase one of the Company’s Ambient Water 20K atmospheric water generation systems, branded as Next Generation Water Generator (NGWG 76000) in the Middle East market, for approximately $1M. The purchase order was received through the Company’s distribution agentNext Generation Oilfield Equipment Trading LLC, a family business in Oil & Gas and Renewable Technologies based in Abu Dhabi, United Arab Emirates, and represents the first commercial sale of the Company’s industrial atmospheric water generation technology.

The Company will begin manufacturing of the 20K unit immediately and anticipates shipment to the buyer in approximately 20 weeks. The equipment will be manufactured by Applied Cryo Technologies in Houston, Texas, who also manufactured the Company’s AW800 system that has been demonstrated to multiple parties from around the world.

The approximately $1M purchase price for the water generation system will be made by an irrevocable Letter of Credit with milestones for payment upon shipping, installation, and verification of operation. Additional orders are anticipated once the 20K has demonstrated its effectiveness in the region where it will be installed.

“We are pleased to announce the first commercial sale of one of our industrial atmospheric water generation units to a buyer in the Middle East. This sale was secured through the exemplary efforts of the Next Generation team; Farhana (General Manager), Shaf (CTO), Haad (Head Advisor) & Hassan Saeed (CEO). We are confident that our system will perform well in the region, where humidity levels are elevated, providing yet another proof of concept for our technology,” said Keith White, CEO of Ambient Water. “Securing this first sale, and the revenue that it generates, is a crucial milestone for our Company but we believe it is only the beginning. Our client has expressed interest in purchasing additional units once the first is up and running. We continue to have positive conversations with other parties in water scarce regions around the globe, providing further opportunity to generate additional revenue and bring value back to our shareholders.”

“The advent of the NGWG 76000 in the Middle East is the cornerstone for Atmospheric Water Generation as it signifies the potential of this technology in providing a cost effective, reliable, viable and sustainable solution for water production. This sale marks the inevitability of Water from the Air technology replacing traditional forms of water production such as desalination and reverse osmosis which are not only expensive to maintain but also have a severe ecological and environmental impact on our planet,” said Shaf Hassan, CTO of Next Generation Abu Dhabi.

Ambient Water Inc. patented atmospheric water generation technology literally makes water out of thin air, transforming humidity into an abundant source of clean water near the point of use. With multiple systems already commercially available or in-development, the Company’s technology produces clean and fresh water for a host of commercial industries, including oil and gas exploration and farming, while also providing fresh drinking water for homes, offices, and communities.

About Ambient Water Corp.

Ambient Water Inc. has pioneered atmospheric water generation technology for extracting water from humidity in the air. Drawing from the renewable ocean of water vapor in the air we breathe, the Company’s patented technology cost-effectively transforms humidity into an abundant source of clean water near the point of use. The scalable and modular systems can be configured for a number of water-sensitive applications ranging from oil and gas exploration to vertical farming. The systems can also be configured to produce high quality drinking water for homes, offices, and communities. For a thirsty planet on the verge of a water crisis, Ambient Water makes clean water out of thin air. To learn more about Ambient Water, visit our website at http://www.AmbientWater.com.

 

Safe Harbor Statement

Matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These risks include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, products, and prospects for sales, failure to commercialize our technology, failure of technology to perform as expected, failure to earn profit or revenue, higher costs than expected, persistent operating losses, ownership dilution, inability to repay debt, failure of acquired businesses to perform as expected, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently and other factors detailed in reports filed by the Company.

 

Press Contact:
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matt@FischTankPR.com

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Ongoing inverse Money Multiplier in Mall REITS

This entry will detail my position that the Mall REIT category is in significant jeopardy of potential massive losses of shareholder value in the foreseeable future, and why I am long on puts and shorting a few names within the category.

Please forgive any slightly incorrect term usage or otherwise semantic errors as it has been a long time since my undergrad studies.

My motivation for this entry is twofold…

#1 I have already placed my bets and I want them to be publicly on record. I am short CBL, GGP, PEI and WPG. I am also long the puts on CBL Sept 2017 $7.50 strike, the GGP Jan 2018 $14.74 strike, the PEI July 2017 $13 strike, and the WPG July $7.50 strike.

#2 Regularly I see people making posts about how they are buying these names because they are so undervalued and they are a great bargain with a great yield, a position I strongly disagree with and if I can save one person some money on this failed logic I’ll be very happy I made this post.

Any Econ 101 student should be familiar with the concept of the money multiplier. IE More demand for XY or Z =more jobs = more money for consumers= more consumption = more need for jobs, and so on and so forth. I believe that in the Mall REIT sector you are going to experience the exact opposite of this phenomena in the coming years, and potentially decades.

At this point it is clear that in general retail is having a hard time, there is a massive shift to online shopping in full effect, a shift to discount retailers, and a situation where many people even when they do go to the mall will spend less due to their targeted shopping which is a result of the research that they did on, ….you guessed it, the internet.

You combine the 600 lb gorilla in the room of the tariffs POTUS Trump has been threatening, the general protectionism that has been a theme from day 1 with Trump, and the certainty of a rising interest rate environment, and you already have retailers closing their door with an unprecedented urgency.

Retailers have the luxury of opening and closing stores based on profitability,  traffic, expectations, etc. That is a luxury that Mall REITS do not have, once they build the mall they can’t, (or at least not nearly as easily as an individual store), close it. They are for lack of a better term, the “bag holder”.

I have heard on numerous occasions, the primary reason to buy and hold the Mall REITS is the great yield that they have, as though it as good as an FDIC bank savings account interest rate, or buying a U.S. Treasury bond. People buying these Mall REITS are proposed a yield in excess of 10% in many cases, and they think these are as good as gold.

***I am not implying that any REIT has made that implication, only that many investors perceive the yield as “set”, or “fixed”, even though the prospectus for all REITS would obviously contradict that concept.

The yields on REITS are not fixed, not at all. They are a disposition of 90%+ of their earnings, which affords them the tax benefits of being a “REIT”. By the very definition of this concept the dividends are not guaranteed, and in the thesis I am proposing they are more likely going to be reducing dividends than keeping them the same over the coming years.

What is happening is the retailers, (with a few exceptions), are under dramatic pressures, slimmer margins, less customers, less average per sale, and less profitability, all while facing the potential for an increase in costs, ie tariffs, or trade wars. This is forcing retailers to become more efficient, which will directly result in them closing stores. For example…

JC Penny closing 138 stores

Macy’s closing 69 stores

Sears and Kmart closing 150 stores

HH Gregg closing 88 stores

Abercrombie and Fitch closing 60 stores

Crocs closing 160 stores

The Limited closing 250 stores

Payless Shoes closing 400+ stores

and on and on.

My forecast for what will happen is as follows.

This is just the tip of the iceberg with the challenges all Mall REITS are facing now. The inefficiencies of a consumer buying a t-shirt at a fancy high cost real estate location are being eliminated. Basic Economic Law teaches us that free markets always will internalize external inefficiencies and that is exactly what is happening. Unfortunately for Mall REITS, you are in for a tough, tough time, that is just starting to happen.

Now that the Big Box, “cornerstone”, stores are starting to close, it will set off a chain reaction of lower mall traffic, lower sales, lower profit, lower rent, etc that will ultimately lead to lower revenue revisions, lower earnings revisions, consolidations within the Mall REIT industry, dividend cuts, lower share prices for Mall REITS across the board, and ultimately a few bankruptcies in the industry.

This is my personal opinion on this subject, I have stated my goals and interests in the beginning of this entry. I don’t think that the Mall is going away, I love Malls personally, I just think they are severely over saturated and facing some of the most massive headwinds an industry has ever faced. Good luck out there.

-neoneo