Tuesday, September 29, 2009

Napco, First Industrial, Walgreens, Gannett? Case-Shiller Index Up More than Expected/Strategic Hotels

1. Iran On a Collision Course With Israel: The Iranians launched a long range missile capable of carrying a nuclear weapon to Israel yesterday. CNN.comThe Iranian Defense Minister said that Israel's days were numbered. CBS News Video It is hard to see how Israel will allow the Iranians to proceed and develop the capability of hitting Israel with a nuclear weapon. It would be hard to convince many sensible people that the leadership in Iran is rational.

2. Al Queda New Suicide Bombing Techniques: CBS News ran a story last night that an Al Queda operative hid a bomb inside a body cavity, and was able to activate it near the Saudi chief of intelligence without being detected by several screening techniques. He was able to get so close under the pretext of turning against Al Queda. Security

3. Case-Shiller Index: The Case-Shiller composite home price index for 20 metropolitan cities rose a greater than expected 1.6% in July. standardandpoors.com/pdf Minneapolis had the largest percentage gain at 4.6% from the June reading, while only two cities had modest declines in prices, Seattle at .1% and Las Vegas at 1.1%. A continued recovery in home prices will be the best tonic for sustainable economic recovery.

4. Strategic Hotels (own preferred stock-BEEPRA): BEE is a REIT that owns several luxury hotels. Strategic Hotels & Resorts I knew that I was skating on some thin ice when I bought 100 shares of BEEPRA at $7.55 in October 2008, one of Strategic's $25 par cumulative preferred stocks. BEEPRA: STRATEGIC HOTELS PREFERRED A I received one dividend before the REIT started to defer paying all of its cumulative preferred dividends, and has now deferred three payments in 2009. The coupon is 8.5%: Prospectus Supplement The price subsequently tanked to around $2 and has since recovered to over $9, closing at $9.65 yesterday. BEE-PA Prior to deferring the preferred dividends, Strategic eliminated the common dividend and the common was trading at around $1 in mid July 2009. It has been in a rally mode too since August, rising to $2.51 as of yesterday's close. I have not seen any news to account for the recent activity.

This is some of the relevant language from the BEEPRA prospectus about unpaid cumulative dividends:

"Notwithstanding the foregoing, dividends on the shares of Series A Preferred Stock will accrue regardless of whether: (i) we have earnings; (ii) there are funds legally available for the payment of such dividends; or (iii) such dividends are authorized by our board of directors. Accrued but unpaid distributions on the shares of Series A Preferred Stock will not bear interest, and holders of the shares of Series A Preferred Stock will not be entitled to any distributions in excess of full cumulative distributions as described above. All of our dividends on the shares of Series A Preferred Stock, will be credited to the previously accrued dividends on the shares of Series A Preferred Stock. We will credit any dividends made on the shares of Series A Preferred Stock first to the earliest accrued and unpaid dividend due. ....

We will not declare or pay any dividends, or set aside any funds for the payment of dividends, on shares of common stock or other shares that rank junior to the shares of Series A Preferred Stock, or redeem, purchase or otherwise acquire shares of common stock or other junior or parity shares, unless we also have declared and either paid or set aside for payment the full cumulative dividends on the shares of Series A Preferred Stock and all shares that rank on a parity with the shares of Series A Preferred Stock for all past dividend periods and the current dividend period, except by conversion into or exchange for other of our stock ranking junior to our Series A Preferred Stock as to dividends and upon liquidation.

So the dividends continue to accrue but without interest and have to be paid in full prior to the payment of a common dividend.

This is a link to the script used in the second quarter conference call: Script Used by the Spokesmen During the Second Quarter Earnings Conference Call

As of 6/30/2009, BEE listed over 1.3 billion in mortgage debt on its properties. (see page 19: Form 10-Q) The 10-q also goes into detail about some exchangeable notes in the initial principal amount of 180 million dollars that are senior to BEE's preferred stock (see pages 20-21). The debt maturity schedule is on page 24. I really do not see much of a positive nature in Strategic Hotels & Resorts report for the Second Quarter of 2009. This is a close call as to whether or not I want to keep my shares of BEEPRA, particularly after they have recovered from around a $500 unrealized loss to around a $200 unrealized profit. I already have a small tax headache with the accrued and unpaid dividends, and I may not want to continue that issue into 2010.

5. Walgreen (owned): I was too timid in buying Walgreens last October. I had developed a schedule to buy more on the way down, with my next target level being below 20. Since those targets were not hit, I ended up with only 50 shares.SARAH and the Cook Inlet Beluga Whales/WALGREENS AND REFINERS Late Friday Buys Walgreens reported earnings of 44 cents this morning, five cents better than the consensus estimate, on an 7.6% increase in revenues.

6. Gannett (owned): When Gannett was bought, a comment was made that it was one of the LB's value picks, and the RB called it a delusional value pick that only the LB could see and everyone else called it a value trap. The buys were at $7.75 and $10.68 with dividends reinvested to buy additional shares. LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA OLD GAMER HATCHES A PLAN AROUND 1 P.M TODAY GCI announced upside guidance for earnings at 39 to 42 cents excluding charges. Gannett

7. First Industrial (own common and preferred-LT on common): FR announced its intention to sell 12.5 millions shares of common stock. This caused my small position in its cumulative preferred to rise and my LT in the common to fall. The preferred shares have been bought and sold several times profitably, and the shares currently held have just about doubled in price.

8. NAPCO Securities (owned Lottery Ticket): Napco was bought at $1.02. ROK/Balancing Risk & Reward on SNTA/Buy 100 NSSC at $1.02/Electronic Medical Records & the Stimulus Bill/M & DKQ It reported 2nd quarter sales this morning of 18.79 million. The company reported a loss of 13.382 million or 70 cents per share which included some non-cash impairment charge and an amortization expense related to acquisitions of 10.58 million. The company did generate positive cash flow from operations of 2.7 million in the quarter and is making some progress in paying down the debt incurred in its Marks acquisition. Since this was bought at just $1.02, I am going to give it some slack.

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