Thursday, June 3, 2010

Bought 50 CBLPRC at 21.87/Updated Information on P/E 10

I only had one fill from yesterday. Several buy orders, placed under the market bid, did not fill. I am not inclined to chase this market up, and will simply wait for it to come back down to meet the price that I am willing to pay.

1. Bought 50 CBLPRC at $21.87 (see Disclaimer): This is a cumulative preferred stock issued by the REIT, CB & L Properties. I discussed purchasing CBLPRC during the Near Depression period at $10. I have done well with the common shares bought as a LOTTERY TICKET, with shares bought in the $3 area. Since then CB & L has recovered some and recently raised its common stock dividend from five to twenty cents per quarter. CBL The common closed yesterday at $14.34.

CBLPRC has a $25 par value and has a 7.75% coupon. At a total cost of $21.87, the yield is around 8.86%. Dividends are cumulative. This security has a typical stopper provision that prohibits CBL from deferring the dividend on CBLPRC while continuing to pay dividends on its common stock. As long as common stock dividends are being paid, as now, I will receive the preferred dividend. This is a link to the prospectus: Preliminary Prospectus Supplement The stopper provision is on page S-11.

I have a general discussion of the advantages and disadvantages of REIT preferred stocks in this post: REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages I view them as a disfavored sub-asset class and will only invest small amounts in them. Notwithstanding my predisposition toward them, they have treated me extremely well so far. I still own several purchased during the Near Depression period that are yielding 15% to 25% based on my cost (doubling or tripling in price), and one that has not missed a payment at a 75% per annum yield based on my $2.9 cost, GRT-PF , now trading at around $23. GRTPRF: A WALK ON THE WILD SIDE/ KTN add RB said that that it wanted to buy a million of that one.

I have been familiar with CBL for a long time. It is one of the largest owners of retail malls in the U.S and is based in Chattanooga, Tennessee. It owns several retail malls in Middle Tennessee, including the large complex located near HQ called Cool Springs. Although I have been reviewing its quarterly reports, I had not read an analyst report on CBL for several months. I did read the S & P report before buying CBLPRC yesterday. S & P has it ranked 5 stars with an $18 price target. I also read a note in Barrons summarizing the opinion of the GS analyst Jonathan Habermann who rates CBL as a buy, apparently based on his view that it has a fairly cheap valuation.

Traditional preferred stocks will be junior to all debt issues and this REIT has a lot of debt. (see page 3 of the last 10-Q: form10q.htm) While this REIT has a lot of hard assets too, I would never want to own its preferred stock in the event CBL was not able to rollover its secured and/or senior debt. In a forced liquidation type of situation, there may be something left for the preferred shareholders after paying off the more senior obligations, but I doubt that it would be much. That is why I am being paid almost 9% to own this paper now and almost 20% when I bought shares in November 2008.

After the close CBL declared its regular preferred and common stock dividends: CBL & Associates Properties Declares Common and Preferred Stock Dividends This is a link to the firm's web site: Home Page - CBL & Associates Properties, Inc.

2. Updated Information on P/E 10: P/E 10 is my shorthand for the inflation adjusted monthly average daily closing prices of the S & P 500 divided by the 10 year average of real S & P 500 earnings. See ITEM # 2 Over-Reliance on Current 10 Year Average of S & P 500 Earnings/India GDP In that later post, I was critical of those gurus who placed undue reliance on P/E 10 to justify their bearish predispositions. This is not to say that the number is irrelevant once it is place in proper context. I view the P/E 10 number as most important when the number hits the 23- 25 range after several years of a bull run. I would sell some stocks into that kind of rally and would not pay any attention to those arguing that this time is different. I am less concerned about a reading of 20 made near the end of a severe recession, particularly when that recession was the second nasty one in the ten year period. So I view the context of the number as critical to its interpretation. The pessimists who savor this number will invariably miss every cyclical bull move, arguing that a 14 number needs to be at 7, or a 20 number in the early stages of an economic recovery is too high.

I referenced a good discussion of P/E 10 by dshort in the aforementioned post, who has updated his discussion subsequent to my earlier reference. He includes in this update the use of the inflation figures from ShawdonStats, rather than the government's CPI numbers, and that revision has a much lower P/E 10 of 14.5.

3. National Debt Surpasses 13 Trillion: It was not that long ago that the national debt crossed 12 billion, just last November in fact. The latest debt numbers equals about 89.4% of GDP: National Debt Tops $13 Trillion For First Time - Political Hotsheet - CBS News So, maybe we should not be throwing stones at Greece and Spain (Spain's debt is at 65% of its GDP and it is cutting spending, - NYT.) Obama recently signed legislation increasing the debt ceiling to 14.3 trillion, which will have to be raised again in about a year. Assuming there are around 300 million people residing in the U.S., this works out to be about 43 thousand per person. I would like to assign my share of that debt to BP or possibly those two Blue Jays that are eating all of my Sunflower seeds in a bird feeder.

4. BP: This link summarizes the 10 major mistakes that BP made before the rig explosion. Tony Hayward is tired of dealing with the Americans. He wants his life back. YouTube - BP CEO Tony Hayward: 'I'd Like My Life Back'

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