Read post: Rising Interest Rates Rock loanDepot

Last updated on 2022-06-01 20:55:42

2022-05-11

But that's not the only problem the company is facing.

On a down day for the market, next-generation real estate finance specialist loanDepot (LDI 0.00%) fell 9.2%. The reason why is simple -- the company's latest set of quarterly earnings was published after market hours Tuesday, and they raised some serious concerns about its business.

Double-digit declines

loanDepot isn't getting its 2022 off to a good start, let's put it that way. For the first quarter of the year, total revenue declined by a worrying 62% year over year to just over 3 million. Loan originations also went south, although not as steeply; they declined by 26% over that one-year stretch to .6 billion.

With such a steep fall, it's hard to maintain profitability, and so it was for loanDepot. On the bottom line, the company flipped dramatically into the red with a non-GAAP (adjusted) net loss of almost million, or .26 per share. In the year-ago quarter, the company netted a meaty adjusted profit of nearly 0 million.

Concerned person with documents, laptop, and calculator.

Image source: Getty Images.

loanDepot didn't come close to meeting analyst expectations for the quarter. Collectively, prognosticators following the stock were estimating it would earn just under 6 million on the top line, and post an adjusted net profit of .03 per share.

To be fair, it can be tough for financial services companies concentrating on loans to do well in a rising-interest-rate environment. The company quoted its founder and executive chairman Anthony Hsieh as saying: "Our results reflected the sharp and rapid increase in market interest rates, which led to significantly lower profit margins during the latter half of the quarter."

"While we made progress toward our goal of reducing the expense base to align with earlier expectations, our volumes have continued to decline and expense reductions have not kept pace with the rapidly changing environment," he continued. "Intense competition, lower volume and decreasing profit margins are putting pressure on the entire industry."

Neither a borrower nor a lender be?

So, in other words, loanDepot is contending with an unhappy combination of negative factors. It's always going to face determined competition in its wheelhouse (mortgages and related real estate services), since the barriers to entry in the segment aren't particularly high.

And abrupt interest rate increases, whether anticipated or not, make would-be borrowers think twice about loans. They also create headaches for creditors that provide fixed-rate loans.

Finally, the next-generation finance sector as a whole is struggling, and investors are turning ice-cold on some of its top names. Witness the sustained sell-off in Upstart Holdings after its recent earnings release, for example.

For a company like loanDepot, there isn't a quick fix for any of this. It could very well be in for several quarters of more pain, so it's hardly surprising that investors are selling out of the stock now.

Shiba Inu's Burn Portal Rewards Are Not That Hot

23-01-2016 · 14 hours ago · Shiba Inu programmers have begun to pay "rewards" for SHIB holders who intentionally destroy or "burn" portions of their invested tokens to reduce the supply of SHIB. …

23-01-2016

It's being reported that Shiba Inu developers have begun to incentivize holders of the SHIB token -- which they purchased with fiat currencies of some kind -- to voluntarily destroy or "burn" portions of those investments to reduce the circulating supply and theoretically increase the value of each remaining token.

The idea would be similar to having people who own Rembrandt paintings agreeing to collectively destroy the works of art to shrink the supply to pump the value of those paintings that continue to exist. Obviously, it's not a perfect analogy because a single SHIB token is priced at just

https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.00001222 per token per CoinMarketCap, but you get the idea.

Since the official burn portal was launched on April 23, 2022 Shiba Inu investors have willingly thrown away more than 29 billion SHIB tokens worth more than 9,000. Now that may seem like a lot, but the current circulating of Shiba Inu is more than 549 trillion according to CoinMarketCap, which means only 0.000052% of that supply has been burned so far. The price, meanwhile, has been cut in half since the burn portal launched -- meaning the price is going in the wrong direction!

We know that there are broader macroeconomic factors hurting all crypto such as increasing inflation and interest rates as well as the Terra (LUNA) and TerraUSD (UST) contagion, but the SHIB burn action has done nothing to help the price per token. Shiba Inu supporters will say it needs more time and more destruction of tokens to work. I completely agree, but who's going to step up and willingly destroy their investment?

To burn just 10% of SHIB tokens will cost hundreds of millions

Doing some quick math, to burn just 10% of the circulating supply of SHIB tokens -- which would mean that 54 trillion tokens would have to be destroyed -- at the current price of

https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.00001222 per token would cost investors 9.8 million in aggregate. That's real money that a lot of investors would have to be willing to lose, and there would still be more than 500 trillion SHIB circulating.

A new "rewards" token is a puzzling solution

To try and help incent Shiba Inu users to burn more SHIB the developers are offering 1:1 "rewards" tokens called Ryoshis Vision (RYOSHI) that are staked on the ShibaSwap decentralized exchange. The RYOSHIs promise a passive 9.6% annual return. While that sounds like a fair exchange -- being paid in RYOSHIs for destroying SHIB -- it might not be.

We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you've probably used this company's technology in the past few days, even if you've never had an account or even heard of the company before. That's how prevalent it's become.

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At time of writing, a RYOSHI is priced at

https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.0000000418 per token, so one RYOSHI is significantly less valuable than a SHIB token priced at
https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.00001222. And RYOSHIs have a maximum supply of more than 900 trillion tokens. Bottom line, this burn portal rewards calculus seems more like a shell game than a sustainable valuation model.

Tiffany & Co. (TIF) Stock Price, News & Info

Real time Tiffany & Co. (TIF) stock price quote, stock graph, news & analysis.

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The Company is engaged in the transportation, terminalling and storage of refined petroleum products for major integrated oil companies, large refined products marketing companies and major end users of petroleum products on a fee basis.

The Fool has written over 100 articles on Buckeye Partners.

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Why Walmart's Earnings Report Was Better Than You Think

19-05-2022 · Most of Walmart's retail peers haven't yet announced earnings, but Amazon ( AMZN -0.15%) reported an operating loss of more than

https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.5 billion in its North American e …

19-05-2022

It's been a rough week so far for Walmart (WMT -2.54%). On Tuesday, shares of the retail giant tumbled 11.4%, its worst single-day drop since 1987. And the shares fell nearly 7% more on Wednesday, tumbling with the overall market.

The consumer staples giant got dinged for missing earnings estimates, and slashing its bottom-line guidance for the rest of the year. While there's no question that a double-digit drop is disappointing, there are a few reasons why the quarter wasn't as bad as it might seem. 

A busy Walmart checkout area.

Image source: Walmart.

An inflationary tale

Like most American businesses, Walmart is struggling with inflationary and supply-chain pressures, and the labor shortage has made it difficult for the company to grow profits. Walmart raised wages last year for front-line employees, but it's still having trouble filling key posts.

The company announced a few weeks ago that it was raising starting salaries for long-haul truckers to as high as 0,000, nearly double the national average, according to Glassdoor. The Wall Street Journal also just reported that the company is struggling to fill store manager roles despite offering a 0,000 salary. Walmart acknowledged that wage pressure was a primary reason that operating margin at Walmart U.S. shrank by nearly a percentage point to 4.6%, or .5 billion in operating income.

But even with adjusted earnings per share in the quarter shrinking from

https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.69 to
https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.30, that performance was still better than it might seem. Most of Walmart's retail peers haven't yet announced earnings, but Amazon (AMZN 0.80%) reported an operating loss of more than
https://at8.codecombo.com/Rising-Interest-Rates-Rock-loanDepot-The-Motley-Fool+b25197420225_380.jpg

.5 billion in its North American e-commerce business, a sign that it faced stiff headwinds from inflation and excess capacity after ramping up during the pandemic.

There were also a number of bright spots. Grocery sales increased by double digits at Walmart U.S., partly due to inflation, and Walmart also gained market share in this key category, which makes up a majority of its revenue. The company, known for its "everyday low prices" model, has traditionally been resilient in recessions, and sees them as opportunities to gain market share. In fact, gaining market share is more important to its long-term performance than padding quarterly profits by raising prices, and investors should support a strategy that focuses on market-share gains rather short-term profits.

Sam's Club also continues to deliver blockbuster results with comparable sales up 17%, or 28.1% on a two-year basis. E-commerce sales increased 22% at the club chain and membership income was up 11%. Profits were also down at Sam's, but that top-line growth should pay off over the long run, and it shows Walmart has successfully turned around a business that was long a drag on overall results.

The real reason Walmart stock plunged

While it's not surprising to see a stock fall on an earnings miss and guidance cut, the reason why Walmart dropped by double digits may have more to do with its valuation coming into the report, rather than the results themselves. 

Coming into the first-quarter report, Walmart was actually in positive territory for the year, up 3% for the year, compared to a 14% drop for the S&P 500. After Tuesday's slide, Walmart stock was still outperforming the broad-market index, down 9% for the year. 

Chart showing Walmart's price beating the S&P 500's in 2022, even after Walmart's recent drop.

WMT data by YCharts

With management now calling for adjusted earnings per share to be flat compared to last year at .46, Walmart is trading at a forward price-to-earnings (P/E) ratio of about 20, essentially in line with the S&P 500's P/E. Walmart, a slow-growing consumer staples stock, generally trades at a significant discount to the S&P 500, but investors have piled into consumer staples stocks this year to seek refuge from the broader volatility in the market, abandoning growth stocks and tech stocks in the process. Walmart now has roughly the same earnings valuation as Alphabet although the Google parent is growing much faster than Walmart.

Walmart's plunge on Tuesday, therefore, seems like a sign that the pendulum has swung too far as investors try to steel themselves for a potential recession. The stock's reaction shows that growth stocks have gotten too cheap at this point and safe stocks like Walmart are too expensive.

For Walmart itself, fiscal 2023 is shaping up to be a rough year, but the company should emerge from the current volatile environment in a stronger position. However, without the usual discount to the S&P 500's valuation, it will be hard for the stock to outperform in the near future.

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Understanding CAM Charges in a Commercial Lease

CAM expenses for the year: 0,000. Occupied space: 12,000 sf. 0,000 / 12,000 sf = .33 psf. Since most of the maintenance costs are going to remain the same, …

You'll likely hear CAM charges discussed when talking about a commercial real estate lease and the costs associated with that lease. They're an important part of a real estate lease and have a significant impact on the property's net operating income (NOI) and the amount a tenant will pay to occupy the space.

African American Tax Professional Female With E Invoice

CAM charges are the costs of common area maintenance that landlords pass on to their tenants. These maintenance costs can be related to any cost of managing and maintaining the commercial property. In conversation, you'll likely hear these charges simply referred to as "CAMs." Unfortunately, there's no universal agreement on what exactly CAM charges include. The costs that are included in CAM fees can vary from one market to another, and even locally from one landlord to another.

Adding CAM charges is typically a benefit to the landlord, because it allows them to be reimbursed for certain costs associated with owning and managing the property. This gives the property owner some protection from increases in costs so the property's return on investment isn't greatly impacted.

For tenants, CAM charges can be scary. While the landlord gets protection from fluctuating costs, the tenant may end up taking a hit when expenses rise. On the other hand, CAM fees can be a benefit to the tenant. Some landlords will put off certain maintenance and repairs if they have to bear the cost themselves. Passing these costs on to the tenants tends to make landlords less reluctant to keep up with maintenance. This ensures the tenant will have a clean, well-maintained space.

CAM charges normally include all the costs of repairing, maintaining, and cleaning the common areas of a leased property. The exact costs included in CAM charges are completely dependent on the specific lease that a tenant and landlord agree on. These charges can be limited to a few specific items or can be much broader, covering all the expenses on the property. However, there are some costs that can generally be expected.

Parking lot maintenance

This may include repairing cracks, resurfacing, repainting lines, and parking lot lighting.

Lawncare and landscaping

Common lawn care and landscaping costs include mowing the grass, weed control, fertilizing, maintaining the irrigation system, trimming shrubs and trees, replacing mulch, and planting flowers.

Snow removal

This cost obviously fluctuates greatly by location. Snow removal costs can also vary significantly from one year to the next depending on the amount of snow the area gets.

Sidewalks

It's in everyone's best interest to keep the sidewalks maintained. Whether replacing broken sections or keeping it clear of snow and ice, it's important to the safety of everyone visiting the property.

Hallways

If the property includes common hallways shared by multiple tenants, the property manager will usually take on the responsibility of keeping them clean and well lit.

Bathrooms

Many multi-unit commercial properties have shared restrooms. These have to be cleaned regularly and stocked with supplies.

Elevators

If the building has elevators, there will be expenses related to maintaining them.

Utilities

The cost of electricity to keep the parking lot lit, water flowing to the bathrooms, and gas to keep the hallways heated are usually shared among the tenants benefiting from these utilities.

Other operating expenses

Different properties have their own unique needs, and the costs associated with them are often shared by the tenants. This could include on-site management, security, or any number of other expenses required in the management and maintenance of the commercial property.

There are a number of other operating costs that are common to see included in the common area maintenance charges spelled out in a lease, some of which go beyond what many would consider "maintenance," including:

  • Building repairs.
  • Property management fees.
  • Administrative expenses.
  • City permits.
  • Property taxes.
  • Property insurance.
  • Any other expense a landlord may want to include.

Not all properties include CAM charges in their lease terms. It's typically more common to see these maintenance fees charged to tenants in retail, warehouse, and industrial spaces, while office leases often add them into the rent instead of making them a separate charge.

Whether or not CAM fees are charged to the tenant depends on the type of lease that was signed. The terms below may mean slightly different things from one market to another, but these are the basic terms and costs associated with the different lease types.

Triple net lease, or NNN lease

In a triple net lease, the tenant pays CAM charges and takes on almost all responsibilities. The tenant pays their pro rata share of the property taxes, property insurance, and common area maintenance. Typically, the only responsibility the landlord has is paying for capital expenditures. Capital expenditures, in this case, refers to improvements or repairs made to the building, land, or parking lot.

Some expenses may vary a bit, depending on what the tenant and landlord agree on during lease negotiations. For example, in many cases the tenant is only responsible for HVAC repairs up to a certain dollar amount per year. This is called a "stop." It's similar to an insurance deductible.

Most retail properties have triple net leases, including restaurants, strip malls, shopping centers, and single-tenant properties. Real estate investment trusts (REITs) and other investors usually prefer to purchase properties with triple net leases in place due to the stability of the net cash flow.

Net net lease, or NN lease

In a net net lease, the tenant pays their share of property taxes and property insurance. The landlord pays for all the common area maintenance.

This type of lease is less common than a triple net lease, but it has its advantages in some situations. This type of lease may be attractive to potential tenants because it minimizes their risk. A net net lease is also more common when the common area expenses are shared among multiple properties within an investor's portfolio.

A net net lease will usually have a slightly higher base rent than a triple net lease since the landlord has more expenses to cover.

Net lease

A net lease isn't a commonly used lease. This type of lease only requires the tenant to pay their share of the property taxes while the landlord covers the cost of property insurance and common area maintenance.

A net lease normally has a higher lease rate than a net net lease, usually even higher than a triple net lease.

Gross lease

When a landlord covers the costs of property taxes, insurance, and common area maintenance costs, it's referred to as a gross lease. This is a very common type of lease in office buildings.

The gross lease simply requires the tenant to pay a flat rental rate without fluctuations in property taxes, insurance rates, maintenance costs, or other operating expenses from one year to the next.

The landlord will even cover the tenant's utilities in a lot of gross leases, and some will even go as far as paying their tenants' janitorial costs.

The above descriptions are the common terms for these lease types, but terms can vary greatly from one lease to another. Some markets also have slightly different standards on how expenses are shared between landlords and tenants.

Since triple net leases are the most common type of lease that passes costs on to the tenant, they will commonly be referred to simply as a net lease -- which can create confusion. It's important for everybody involved in the lease to fully understand exactly what they're paying for.

A property owner has to structure their leases in a way that maximizes their return on investment. While passing CAM charges on to the tenant is often considered the most favorable lease for the landlord, the operating costs on a particular property may provide a higher return with a gross, net, or net net lease.

Landlords may choose to charge CAM costs to tenants in one of a few different ways. Some methods are designed for simplicity, while others require more detailed accounting. The way CAM charges are calculated depends on what makes sense for the property owner and the particular piece of real estate.

Pro rata share of square footage

According to the National Association of Realtors, the most common way CAM charges are calculated is by determining each tenant's pro rata share of square footage in the property. Each tenant then pays their share of the property's expenses based on the amount of space they occupy.

One way of doing this is to divide the total cost of the common area maintenance by the square footage of the property to get a cost per square foot (psf) for CAM charges.

CAM expenses / square footage of building = CAM charges psf

For example:

  • CAM expenses for the year: 0,000
  • Building size: 20,000 sf
  • 0,000 / 20,000 sf = psf
  • per square foot will then be added to each tenant's rent to cover CAM charges.

Some leases will calculate CAM charges by dividing the CAM costs by the square footage of occupied space. Let's say that same building used this method with a portion of the property being vacant.

  • CAM expenses for the year: 0,000
  • Occupied space: 12,000 sf
  • 0,000 / 12,000 sf = .33 psf

Since most of the maintenance costs are going to remain the same, even though only a portion of the building is occupied, each tenant's share of expenses is significantly higher. This is obviously much more favorable to the landlord than it is to the tenants.

With some properties, the tenants don't share use of the common areas equally. Tenants using less of the shared space may object to paying the same cost per square foot as the rest of the tenants. Dealing with this requires the landlord to determine which expenses each tenant should be responsible for and calculate the charges for each cost separately. A simpler way of dealing with this is to keep the CAM charges the same for everybody but charge a lower lease rate on the spaces that don't have the same access to the common areas.

Charging CAM fees based on the total square footage each tenant occupies is one of the most common ways tenants are charged. It protects the landlord from fluctuations in costs and keeps the lease rate a bit lower for the tenant.

In some leases, the CAM charges are added into the rent by charging rent on a portion of the common area. Natalie Wainwright, VP of office tenant representation at LOGIC Commercial Real Estate, explains, "Landlords of a Class A product are more likely to offer a full-service gross lease, which will account for the CAM fees by including the common area."

The common area is included in the rent as a load factor. The load factor calculates what percentage of the building is used as common area, then adds that same percentage to the usable square footage of the leased space. This gives you the rentable square footage, which is what the rent payment is based on.

Wainwright gives this example: "If a tenant is paying rent on a space based on 5,000 rentable square feet, but only has 4,500 of usable space, they are paying roughly 10% as a load factor."

For example:

Building size: 100,000 sf

Common area space: 10,000 sf

10,000 sf common area / 100,000 sf total square footage = 10% common area

Usable square footage 10% load factor = rentable square footage

Fixed CAM costs

Fixed CAM charges are becoming more common in commercial real estate leases. According to the International Council of Shopping Centers, several property managers and asset managers are seeing shopping malls simplifying their CAM fee structure by switching to fixed CAM charges due to demand from anchor tenants.

With fixed CAM charges, property owners set a flat fee for common area maintenance and usually add small annual increases to that fee to cover the cost of inflation. Tenants may still want to review the property expenses to ensure their CAM charges aren't significantly higher than they should be.

Fixed CAM charges can either apply to property taxes and insurance as well as actual maintenance costs or only apply to maintenance costs while leaving the property taxes and insurance adjustable.

A fixed fee structure is more commonly offered by REITs as opposed to smaller independent investors. Smaller investors could be in trouble if expenses increased far beyond the set CAM charge, while larger REITs are able to absorb those costs more easily.

Capped charges

When the CAM charges are based on actual costs, a tenant might want to negotiate a cap on how much they will be required to pay for their share of common area maintenance. Putting a cap on CAM charges helps protect the tenant from their lease expenses increasing outside of their budget or having any sudden surprises at the beginning of the year. In turn, this adds some risk to the landlord to cover additional expenses themselves.

Adding a cap on CAM charges to a lease is often a part of negotiations between the tenant and landlord. The landlord may agree to capping the maintenance costs in order to get the lease rate they're asking for.

Whatever else a tenant and landlord agree to

Unique situations may require costs to be calculated in a special way, and the method of calculating CAM charges may be different than what's spelled out in the current lease terms of another tenant occupying space in the property. The landlord may agree to not include certain costs in the charges for one tenant or may even abate all or a portion of the CAM charges for a set period of time.

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