Since I finished writing this post a day early, I decided to go ahead and publish it.
Big Picture Synopsis:
Big Picture Synopsis:
Stocks:
Stable Vix Pattern (Bullish)
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Short Term: Market Needs to Correct
Intermediate Term: Slightly Bullish
Long Term: Bullish
The market sank some yesterday after Russian troops reportedly entered southeastern Ukraine. The pathological liar Vlad and his lap dog Sergey Lavrov deny any Russian involvement in Eastern Ukraine.
That farcical assertion was contradicted by the "Prime Minister" of the "Donetsk People's Republic" who acknowledged that regular Russian troops "on leave" are supporting the separatists. Apparently those regular Russian troops are taking their armored vehicles and trucks with them on vacation. NYT; WSJ
As I understand Putin's claim, putting just a little spin on it, those Russian troops, who are on vacation, were in route with their Russian military vehicles to Crimea for some fun in the sun. Unfortunately, there is no other land route to their vacation destination other than through Eastern Ukraine. Once fired upon they had no choice but to defend themselves.
Another criticism of the Shiller P/E can be found in this article: CNBC
Bonds:
Short to Long Term: Slight Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization
The market sank some yesterday after Russian troops reportedly entered southeastern Ukraine. The pathological liar Vlad and his lap dog Sergey Lavrov deny any Russian involvement in Eastern Ukraine.
That farcical assertion was contradicted by the "Prime Minister" of the "Donetsk People's Republic" who acknowledged that regular Russian troops "on leave" are supporting the separatists. Apparently those regular Russian troops are taking their armored vehicles and trucks with them on vacation. NYT; WSJ
As I understand Putin's claim, putting just a little spin on it, those Russian troops, who are on vacation, were in route with their Russian military vehicles to Crimea for some fun in the sun. Unfortunately, there is no other land route to their vacation destination other than through Eastern Ukraine. Once fired upon they had no choice but to defend themselves.
Another criticism of the Shiller P/E can be found in this article: CNBC
Bonds:
Short to Long Term: Slight Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization
That forecast is known as the break-even spread, the average annual rate of inflation for the owner of the 10 year TIP to break even with the owner of the non-inflation protected treasury.
The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates
From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates
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Recent Developments:
The government's estimate for second quarter GDP was revised up to 4.2% from the previous estimate of 4%. News Release: Gross Domestic Product The consensus estimate for the second revision was 3.8%. Real personal consumption expenditures rose 2.5%.
The S&P/Experian Consumer Credit Default Composite Index is trending near its historic lows, as is the St. Louis Fed's Financial Stress Index.
As of the 2012 4th quarter, slightly more than 35% of American households (109,631: in thousands) are receiving one or more means tested government benefits. The Census Bureau just released the data for the 2012 4th quarter: Economic Characteristics of Households in the United States
82.679M in Medicaid or 26.7% of total households
51.471M receiving Food Stamps or 16.6%
20.355M receiving SSI
22.526M " WIC
5.442M " TANF
49.5% of the total households receive one or more program benefits which would include SS, Veteran's Care, Unemployment Compensation and Medicare.
July sales of new single family homes were at a seasonally adjusted rate of 412,000, which was 2.4% below the revised rate in June and 12.3% above the June 2013 estimate of 367,000. census.gov/newressales.pdf
New single family home sales continue to trend near prior recession lows even though the last recession ended several years ago.
New One Family Houses Sold: United States-St. Louis Fed
Zillow reported that the negative equity rate "fell to 17 percent of all homeowners with a mortgage" which represents approximately 8.7M homeowners.
One long term secular force supporting a U.S. stock bull market is the move toward energy independence and an abundant supply of relatively low cost natural gas.
The U.S. Energy Information Administration provides information on both the consumption and production of fuels. U.S. Energy Information Administration (EIA) I clicked the line for natural gas and enlarged the production chart in order to take a snapshot:
The Case Shiller home price indexes for 10 and 20 metropolitan areas are still showing increases in home prices year-over-year, but the increase has slowed to the high single digits from the double digit pace last year. The 20 city composite index showed a 8.1% increase Y-O-Y in June. homeprice-release-08-26-14.pdf
Eurozone annual inflation fell to .3% in July. Euro area unemployment was steady at 11.5%. Eurostat Home Perhaps, the German austerity plan is not working out too well. There are certainly rumblings in several European countries to abandon that plan and to implement monetary fiscal stimulus. NYT There was a shake up in France's cabinet last week after the finance minister and other cabinet members criticized the austerity course. Those cabinet members are no longer in Hollande's administration. Bloomberg Hollande's approval rating was last reported at 17%. theguardian.com The European Central Bank is probably moving closer to some type of QE program.
Consumers cut spending by a seasonally adjusted .1% in July. The savings rate rose to 5.7% from 5.4%. News Release: Personal Income and Outlays Real disposable income increased .1% in July, down from .3% in June. Personal savings in July (disposable personal income minus personal outlays) was $739.1 billion in July, up from $709.4B in June (i.e. a higher month-over-month savings rate).
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The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates
From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates
************
Recent Developments:
The government's estimate for second quarter GDP was revised up to 4.2% from the previous estimate of 4%. News Release: Gross Domestic Product The consensus estimate for the second revision was 3.8%. Real personal consumption expenditures rose 2.5%.
The S&P/Experian Consumer Credit Default Composite Index is trending near its historic lows, as is the St. Louis Fed's Financial Stress Index.
As of the 2012 4th quarter, slightly more than 35% of American households (109,631: in thousands) are receiving one or more means tested government benefits. The Census Bureau just released the data for the 2012 4th quarter: Economic Characteristics of Households in the United States
82.679M in Medicaid or 26.7% of total households
51.471M receiving Food Stamps or 16.6%
20.355M receiving SSI
22.526M " WIC
5.442M " TANF
49.5% of the total households receive one or more program benefits which would include SS, Veteran's Care, Unemployment Compensation and Medicare.
July sales of new single family homes were at a seasonally adjusted rate of 412,000, which was 2.4% below the revised rate in June and 12.3% above the June 2013 estimate of 367,000. census.gov/newressales.pdf
New single family home sales continue to trend near prior recession lows even though the last recession ended several years ago.
New One Family Houses Sold: United States-St. Louis Fed
Zillow reported that the negative equity rate "fell to 17 percent of all homeowners with a mortgage" which represents approximately 8.7M homeowners.
One long term secular force supporting a U.S. stock bull market is the move toward energy independence and an abundant supply of relatively low cost natural gas.
The U.S. Energy Information Administration provides information on both the consumption and production of fuels. U.S. Energy Information Administration (EIA) I clicked the line for natural gas and enlarged the production chart in order to take a snapshot:
The Case Shiller home price indexes for 10 and 20 metropolitan areas are still showing increases in home prices year-over-year, but the increase has slowed to the high single digits from the double digit pace last year. The 20 city composite index showed a 8.1% increase Y-O-Y in June. homeprice-release-08-26-14.pdf
Eurozone annual inflation fell to .3% in July. Euro area unemployment was steady at 11.5%. Eurostat Home Perhaps, the German austerity plan is not working out too well. There are certainly rumblings in several European countries to abandon that plan and to implement monetary fiscal stimulus. NYT There was a shake up in France's cabinet last week after the finance minister and other cabinet members criticized the austerity course. Those cabinet members are no longer in Hollande's administration. Bloomberg Hollande's approval rating was last reported at 17%. theguardian.com The European Central Bank is probably moving closer to some type of QE program.
Consumers cut spending by a seasonally adjusted .1% in July. The savings rate rose to 5.7% from 5.4%. News Release: Personal Income and Outlays Real disposable income increased .1% in July, down from .3% in June. Personal savings in July (disposable personal income minus personal outlays) was $739.1 billion in July, up from $709.4B in June (i.e. a higher month-over-month savings rate).
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1. Sold 100 IAE at $13.49 (see Disclaimer): I am going to gradually substitute the low cost ETF VEA, discussed in Item # 4 below, for IAE. I can trade VEA without incurring a commission in my Vanguard brokerage account which allows me to buy small lots cost effectively.
Snapshot of Trade:
 |
| 2014 Sold 100 IAE at $13.49 |
Snapshot of History:
Snapshot of Profit:
Dividends: $96
 |
| 2014 IAE Sold 100 Shares +$32.98 |
Total Return: $128.98 or 9.85% (holding period 9+ months)
Security Description: The Voya Asia Pacific High Dividend Equity Income Fund (IAE) is a buy-write stock CEF.
Data as of 8/13/14:
Closing Market Price: $13.49
Closing Net Asset Value Per Share: $14.47
Discount: -6.77%
1 Year Discount: -7.9%
CEFConnect Page for IAE
According to CEFConnect, the last four quarterly dividends have not been supported by a return of capital but have been financed in part from short term capital gains.
Last SEC Filed N-Q: Holdings as of 5/31/14
Last Filed SEC Shareholder Report: Period Ending 2/28/14
Morningstar Page for IAE
Rationale: The performance was poor. Over the past one year through 8/13/14, the total return based on net asset value was 12.46%. Over three years, the annualized total return was only 7.24%.
Future Buys: Highly Unlikely
2. Bought 250 FAX at $6.11 Roth IRA (see Disclaimer):
Snapshot of Trade:
Subsequent to my purchase, FAX went ex dividend for its monthly distribution on 8/20/14.
Security Description: Aberdeen Asia-Pacific Income Fund
As of 4/30/14, the fund is weighted in investment grade securities (35% in AAA):
Page 6 Aberdeen Asia-Pacific Income Fund, Inc.
The current monthly distribution is $.035 per share. FAX Announces Record Date And Payment Date For Monthly Dividend Recently, that dividend has been supported in part by a ROC.
Assuming a continuation of that penny rate, the dividend yield at a total cost of $6.11 is about 6.87%.
The stock suffered from what I call a known CEF risk recently and last year, when the market price declined at a faster rate than the percentage decline in net asset value per share.
E.G. 7/29/114 Values
Net Asset Value per share=$6.89
Market Price: $6.29
Discount: -8.71%
The market price declined by 3% between 7/29 and 8/14, while the net asset value per share declined only by .58%. Although I do not know, I suspect that the slight decline in net asset value per share between those dates was due primarily or entirely to currency conversions. FAX is priced in USDs while it owns bonds priced in the currencies of several Asa-Pacific region countries.
Prior Trades: I currently own a position in a taxable account. Item # 4 Added: 150 FAX at $5.8 (February 2014 Post); Item # 2 ought: 200 FAX at $6.08 (10/24/13 Post); Item # 6 Bought 100 FAX at $6.35 (6/15/13). I have quit reinvesting the dividend.
As noted in the last linked post, I was able to buy this bond fund at a greater than 30% discount to its net asset valuer per share during the Dark Period. I purchased 200 shares at $3.39 in October 2008 and quickly sold those shares for a $241.81 profit (see snapshot in Item # 6 Bought 100 FAX at $6.35 (Prior Trades Section); Some Nibbles Got Filled: JZE, PJS, INZ and FAX (October 10, 2008 Post).
Rationale and Risks: The previous discussions, linked above, outlines the rationale and risks, so I will just highlight a couple of issues here.
Currency risk is at the top of my worry list for this fund. The fund has exposure to bonds in several different currencies.
AUD/USD Currency Conversion Chart (Australian Dollar)
USD/INR Currency Conversion Chart (India's Rupee)
USD/IDR Currency Conversion Chart (Indonesia Rupiah)
USD/MYR Currency Conversion Chart (Malaysia Ringgit)
USD/SGD Currency Conversion Chart (Singapore Dollar)
I intend to sell within the next year my position in a taxable account. I am transitioning this security to ownership solely in the Roth IRA. In anticipation of that future transition, I started a position in the Roth with this 250 share purchase. FAX will own bonds, and consequently its dividends will not be classified of course as qualified dividends. I prefer to own bond CEFs in a Roth IRA, but will own several of them in taxable accounts periodically for their income generation.
The goal for this security is to harvest dividends for a year or two and exit the position with a 5%+ gain in the shares after commissions. The objective is a 8% to 10% annualized total return, mostly provided by the dividend.
3. Bought 100 APTS at $8.75-Regular IRA (see Disclaimer): I thought that this REIT was a bit too risky for the IRA so I limited my purchase to only 100 shares and bought it in the Regular IRA. If the price declines by 10%+, I will consider transferring this stock to the Roth IRA or selling it for a loss.
Snapshot of Trade:
Security Description: Preferred Apartment Communities (APTS) is a relatively new REIT primarily focused on apartments with the intention of growing its retail assets to 20% of the total.
The company recently announced to acquire nine grocery anchored retail shopping centers in Miami, Orlando, Atlanta and Columbus GA., Nashville and Houston "areas". Two of those centers, representing an aggregate 127,157 square feet, are in Nashville, and both of those are anchored by Publix.
Key Developments Page at Reuters
APTS is currently paying a quarterly dividend of $.16 per share. Preferred Apartment Communities, Inc. Announces Third Quarter 2014 Common Stock Dividend Assuming a continuation of that rate, the dividend yield at a total cost of $8.75 is about 7.31%.
Since its IPO in 2011, APTs has raised its quarterly dividend several times, starting with a $.125 dividend rate in 2011. (APTS) Dividend Date & History
I left one mostly meaningless comment to a recent Seeking Alpha article on this REIT. I just wanted to point out that the apartment complex that APTs was acquiring in "Nashville" was in Gallatin, TN.
Last Earnings Report: Due to the recently announced proposed acquisitions, the company as configured, prior to the closings of those acquisitions, is not that important or predictive of future results.
Preferred Apartment Communities reported second quarter FFO of $4.091+M or $.25 per share. Normalized funds from operations was given at $.26 per share. AFFO was reported at $.21 per share. Same store rental revenues rose 4.3% during the quarter compared to the second quarter of 2013, while NOI increased by 6.99% on the same basis.
The company discussed recent proposed acquisitions in this earnings press release.
For apartments, the company is in the process of acquiring 1,397 apartment units in four geographic areas that it describes as Nashville, Kansas City, Dallas, and Houston. The total purchase price is $181.7M which is a huge bite for such a small REIT. That acquisition cost is higher than the current market cap. I noted in a comment to a recent SA article that it is a bit of a stretch to call the "Nashville" acquisition as being in Nashville. As I mentioned in my comment to the SA article reference above, this apartment complex is near Nashville and may be inside what some would call the greater Nashville metropolitan market, but the address is 2325 Nashville Pike, Gallatin, TN. 37066. (see article about this acquisition in Multi-Housing News Online) That complex has 364 apartments and is located on 30.5 acres. It looks nice.
Google Map Showing Location of "Nashville" Apartment Complex: Stoneridge Farms At Hunt Club - Google Maps
Another apartment complex is near "Houston", but is actually located in Katy, Tx.: Vineyards Apartments - Google Maps; Katy,TX | Vineyards Apartments
The two other apartment complexes appear to be:
Estancia Townhomes in Dallas- Google Maps
Sandstone Creek Living Overland Park, Kansas- Google Maps (just outside of Kansas City); Overland Park,KS | Sandstone Creek Apartments
The other recently announced proposed acquisition involves nine retail shopping cents mentioned above. Retail Shopping
Rationale: Assuming this REIT can obtain favorable financing for these proposed purchases, and can earn an accretive cap rate after raising the necessary funds (partly through a stock offering), then some capital appreciation and dividend increases can be reasonably anticipated in the future.
At the current quarterly rate, the dividend yield is about 7.31% at a total cost of $8.65.
Risks: One substantial risk involves all of the recently announced acquisitions. Those acquisitions will more than double the REIT's size and will have to be financed successfully. Whenever a company grows this fast, there is always some danger that it will grow too fast or grow too much at the wrong time.
Future Buys/Sells: I may average down in 50 shares lots, but I doubt that more than 50 more shares will be purchased in the IRA due to risk considerations. There could be a downdraft when APTS announces a share offering to help for the previously discussed acquisitions.
4. Added 10 VEA at $41.35 (see Disclaimer):
Snapshot of Trade: I am able to buy this low cost ETF commission free in my Vanguard brokerage account.
Security Description: The Vanguard FTSE Developed Markets ETF (VEA) is a broad ETF that owns foreign stocks in developed markets, excluding the U.S. and Canada (e.g. Europe, Japan, Australia)
The expense ratios is just .09%. Vanguard
Some of the Top Holdings as of 7/31/14:
I will not be discussing most of these small ETF adds. I now own 20 VEA and future buys will be in the 5 to 20 share range and will probably not be mentioned here.
Rationale and Risks:
European equities have become unpopular again. I would note that most of the top European holdings are multinationals. The exposure to Europe explains the poor performance from 2006 to present. Since I have no idea when Europe will start to meaningfully contribute to worldwide growth, I will be adding only small lots, spaced out in time. Eventually, European equities will play catch up with the U.S. My exposure to this stock asset class (foreign stocks ex-Canada) is really light now. I am substantially underweighted in Japanese and European equities.
Through 8/15/14, the fund had a YTD return of just 1.5% and 11.78% over one year. The three year annualized total return was 10.63%. Vanguard FTSE Developed Markets ETF (VEA) Total Returns The relative underperformance to U.S. stocks is one reason for nibbling. Over the same periods, SPY was up 6.95% YTD, 19.95% over 1 year, and a 19.99% and 16.53% annualized total return over three years and five years respectively. SPDR S&P 500 (SPY) Total Returns The five year annualized return for SPY was 7.86% better than VEA. That is huge as an annual difference and really mounts up over a five year period.
Future Buys: I will periodically add to this position in small lots. Generally, I will add a small lot to one of my commission free and low cost ETF positions whenever there is a 1% or greater daily decline, preferably when the purchase would lower my existing average cost per share.
5. Added 100 CSG at $7.855 (see Disclaimer):
Snapshot of Trade:
Security Description: Chambers Street Properties (CSG) is a self-administered and internally managed REIT that focuses on acquiring, owning and operating net-leased industrial and office properties. A net lease requires the tenant to pay rent and expenses normally paid by the property owner including real estate taxes, insurance, maintenance, repairs and/or utilities. A single net lease will require the tenant to pay property taxes. A double net lease adds insurance costs to the tenant's obligations. In the triple net lease, the tenant is responsible for all costs normally paid by the owner. The rent would of course be lower than in a standard lease agreement for the same property.
Chambers owned or had a majority interest in 129 properties, including those owned in joint ventures, containing 35.9M rentable square feet (as of the day of my last purchase). Overview | Our Portfolio | Chambers Street Properties Those industrial and office properties are located in 20 states, Germany, the U.K. and France.
2nd Quarter Fact Sheet: CSG-pdf (more than 54% of the tenants are investment grade, with Amazon at 9.8% )
I just look at the pictures, mostly office and industrial properties. Properties | Our Portfolio | Chambers Street Properties
Prior Trades: Item # 3 Bought 100 CSG at $7.73 (April 2014); Roth IRA: Bought 50 CSG at $7.65 (December 2012); Item # 2 Bought: 150 CSG at $8.4 (November 2012);
Brad Thomas wrote an article about CSG that was published at Seeking Alpha (4/1/14).
Recent Earnings Report:
The occupancy rate (same store) was at 95.6% as of 6/30/14, down slightly from 95.8% as of 6/30/13.
2014 Second Quarter Supplemental Information.pdf
2014.06.30 8-K PR Earnings Press Release
Earnings Call Transcript | Seeking Alpha
Rationale and Risks: The payout ratio is improving, as shown in the preceding snapshot.
Dividends are paid monthly. I am reinvesting the dividends to buy more shares currently.
The current valuation is reasonable at P/FFO of 11.55 based on the 2014 estimate of $.68 and assuming a price of $7.86.
At the current monthly rate of $.042 per share, the dividend yield is about 6.41% at a total cost per share of $7.86. CSG Analyst Estimates
REITs generally have unimpressive dividend growth and will frequently cut their dividends during recessions. I would not expect much dividend growth from Chambers. The current rate has been constant since the October 2013 distribution.
FFO is estimated to be minuscule between 2014 at $.68 to $.7 in 2015 or just 2.94%.
A slightly better growth rate over the next 18 months, coupled with at least one small dividend boost, may be prerequisites for the share price to hit my first purchase price of $8.4 within 12-18 months. Based on the subsequent market action, I paid too much for that first 150 share lot, even though that price was down significantly from a $10 top back in June 2013. CSG Interactive Chart
Perhaps the market is wrong given the current yield and valuation in today's abnormally low interest rate environment.
Since 90%+ of the net income has to be paid out in dividends, cash is not being retained to grow the business. Share issuances are used to raise new capital.
Chambers has a number of short term mortgages on their properties. While the current rates are low, commercial mortgages are relatively short in duration and will need to be refinanced continually. Income generation can be hurt by higher refinancing costs.
As of 6/30/14, Chambers had the following liabilities listed at page 1 of its last filed 10-Q:
The maturity schedule of the $652.166M in secured debt can be found starting at page 17. Some of the higher cost mortgages maturing before 12/1/2015 are likely to refinanced at lower interest rates:
What goes around, comes around. While near term debt is likely to be refinanced at lower rates, the already refinanced mortgages may easily have to be refinanced at higher rates when they mature.
The unsecured loan facilities are priced at a spread to Libor:
At some point, it might be wise to de-emphasize that kind of lending in exchange for longer term fixed coupon debt.
Investors have a tendency to view REITs as bond substitutes. Consequently, the price will frequently be driven down when interest rates rise.
The company details risks factors starting at page 5 of its 2013 Annual Report: 2013.12.31 10-K
6. Bought Back 100 ARCP at $12.88-Regular IRA (see Disclaimer):
Snapshot of Trade:
Security Description: American Realty Capital Properties (ARCP) is a REIT that owns single tenant, free standing commercial real estate that is net leased to corporate tenants that are "primarily" investment grade. The IPO for this company occurred in September 2011.
Company Website: American Realty Capital Properties
A map showing the properties can be found at American Realty Capital Trust. In Tennessee, the company owns 47 properties that are leased to such companies as Wendy's, IHOP, Walgreens, Dollar General, Hardees, and FEDEx.
Dividends are paid monthly: Dividends | American Realty Capital Properties
Link to recent Seeking Alpha discussing recent developments and the last earnings report.
Since my last discussion, ARCP closed its acquisition of "approximately" 500 Red Lobster restaurants in a sale-leaseback transaction. I thought the use of approximately in this context was somewhat humorous. Does it mean that ARCP does not know the precise number of restaurants that it purchased and leased-backed to Golden Gate Capital which acquired those stores from Darden Restaurants Inc. (DRI). ARCP asserts that the transaction was completed "at a cash cap rate of 7.9% and a GAAP cap rate of 9.9%". The weighted average lease of this portfolio is in excess of 24 years, with the master leases including "2% annual compounded contractual rent escalations".
As I have noted in several comments at Seeking Alpha, I did not care for the large share issuance at $12 which occurred shortly after I bought a 300 share lot at $12.74. The President had asserted unequivocally in February 2014 that such a large issuance at that price would not happen.
Prior Trades: I currently own 300 shares in a taxable account: Item # 7 Bought 300 ARCP at $12.69
I have bought and sold 100 ARCP in an IRA account: Item #10 Sold 100 ARCP at $13.35 (5/17/14 Post)(profit snapshot=$45.07)-Item # 4 Bought 100 ARCP at $12.74-Roth IRA (12/31/14 Post)
Related Trades: I have bought and sold out of my position in the American Realty Capital Properties Inc. 6.7% Cumulative Preferred Series F Stock (ARCPP)
Item # 9 Sold 50 ARCPP at $23.75 (6/7/14 Post)(profit snapshot=$107.22)-Item # 1 Bought ROTH IRA 50 ARCPP at $21.33 (2/13/14 Post)
Item # 7 Sold 100 ARCPP at $23.43 (5/10/14 Post)- Item # 2 Bought 100 ARCPP at $22.76 (4/15/14 Post)(profit=$51.04)
Recent Earnings Report: I thought that this report justified a repurchase of the 100 shares previously sold in an IRA account. For the 2014 second quarter, American Realty Capital Properties reported AFFO per share of $205.3M or $.24 per share and established a "pro forma" AFFO run rate at year-end of "$1.18-$1.2" per share. Portfolio occupancy was reported at 99.8% with a weighted average lease term of 12.2 years. The total number of properties was 4,429 occupying 99.1M square feet. Investment grade tenants, based on revenues, were at 46%.
ARCP 6.30.2014 10-Q
Rationale and Risks: Assuming ARCP hits its forecasted 2014 AFFO number, the valuation is reasonable.
Dividends are paid monthly which is always a plus.
The current dividend rate is $.08333333 per share. ARCP Dividend History
Assuming a continuation of that rate, the dividend yield is about 7.76% at a total cost of $12.88 per share.
I am still not going to get too enthusiastic about this stock.
The then CEO Nicholas Schorsch told investors in February 2014 that ARCP would not sell stock at $12 (page 7 Earnings Call Transcript | Seeking Alpha: "We said we weren't going to see equity no matter what anybody said at $12") In May, ARCP sold 120M shares at $12. SEC Filed Press Release That creates a serious trust issue, at least for me.
JMP Securities gave several reasons for downgrading ARCP back in May 2014 including his dismissal from American Financial Realty Trust in 2006. I explored that history in detail before that Forbes article was published in my SA comments. I am naturally weary of real estate wheeler dealers.
Forbes ran a negative article about Schorsch last June, going into his past history.
The share price has not done much since the IPO at $12.5. Prospectus
A scathing letter was sent to ARCP by the hedge fund Marcato Capital Management back in June, and I agreed with many of their criticisms.
In the last election, a unusually large number of votes were withheld from several directors, indicating institutional dissatisfaction with the company. SEC Form 8-K
The company discusses risks incident to its operations starting at page 14 of its last SEC filed Annual Report. ARCP 12.31.2013 10-K
Future Buys/Sells: I will not buy more ARCP. My next trade would likely be a 100 or 200 share pare of the 300 share position held in a taxable account.
7. Bought 50 AFSIPRB at $24.79 (see Disclaimer):
Snapshot of Trade:
Quote Before Trade:
The yield information is incorrect. This security had its IPO during the quarter and the dividend rate of $.3726 is the rate for a partial quarter. The entire quarterly rate will be $.453125 per share ($25 x. .0725=$1.8125 annually per share dividend by 4 quarters=$.453125 per share).
Security Description: The AmTrust Financial Services 7.25% Non-Cumulative Preferred Series B Stock (AFSI.PB) is an equity preferred stock that pays qualified and non-cumulative quarterly dividends at the fixed coupon rate of 7.25% per annum on a $25 par value.
Prospectus
The prospectus contains a typical "stopper" clause that is the legal means for enforcing the preferred shares preference right to income compare to "junior" securities which means common stock in this case.
The issuer has the option to call at par plus accrued dividends on or after 7/1/19.
The issuer is the controversial AmTrust Financial Services (AFSI) who has been criticized and questioned about its accounting practices. Several of those articles were written by The GeoTeam who has a long position in AFSI puts. Barron's has also published a negative article.
AFSI Key Statistics (forward P/E 8.47)
Consensus E.P.S. Estimates: $4.89 (2014) and $5.27 (2015)
This security is not rated.
Prior or Related Trades: None
Recent Earnings Report: AFSI 2Q Earnings Press Release
AFSI 6.30.2014 10Q
Link to Zacks.com discussion of this earnings report.
Rationale: The only reason to invest in this security is to generate income. This preferred stock pays qualified and non-cumulative dividends.
At a total cost of $24.79 per share, the dividend yield is about 7.31%.
This security went ex dividend on 8/27/14 after my purchase.
Risks: The company discusses risks incident to its operations starting at page 38 of its 2013 Annual Report: AFSI 12.31.2013 10K I do not have the training or the background to render any opinion about the merit of the accounting issues raised by The GeoTeam.
As a general rule of thumb, I will buy an equity preferred stock issued by a leveraged financial institution knowing that the security would likely become worthless in a BK, just like the common stock.
Future Buys/Sells: I will need an 8% yield to average down. I will consider making that purchase in an IRA account for its income generation. Given the accounting issues raised by others, I will not be adding more than another 50 shares. A more likely outcome is that I will simply flip this 50 share lot after collecting one or more dividends, shooting for a total return of 8% to 10%.
8. Sold 100 SSRAP at $13.4 (see Disclaimer):
Snapshot of Trade:
Snapshot of Loss:
Bought 100 SSRAP at $17.25 (TC-Underlying Bond from Sears Acceptance)(December 2010 Post)
I had a positive total return given the annual interest payments of $181.26:
2013 Interest Payments:
The total interest paid was $634.41 resulting in a total return of just +$233.48.
Related Trades: I have successfully trades a Sears Acceptance secured bond maturing in 2018, but will stay away from that one going forward. SOLD 3 Sears 6.625% Senior Secured Bonds Maturing in 2018 at 95.002-ADDED 2 Sears Holding Senior Secured 6.625% Bonds Maturing 10/15/2018 at $89.75; Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25 That bond is currently rated B- by both Moody's and S & P.
I do currently only one of the Sears 2018 secured bond, and would sell it when and if I see a buyer willing to take just one.
I have never owned the common. SHLD Interactive Chart
Security Description: The MS Structured Asset Corp. SATURNS Sears Roebuck Acceptance Corp. Deb Bkd Series 2003-2 Cl A-1 (SSRAP) is an Exchange Traded Bond in the Trust Certificate legal form of ownership. The underlying bond is an unsecured senior Sears bond maturing in 2032.
Underlying Bond Prospectus: SEC
SSRAP Prospectus
When I sold this security, the underlying bond was rated Caa2 by Moody's according to FINRA.
Sears reported a $573M loss for its F/Y Q/E 8/2/14. Adjusted EBITDA was a negative $313M. The consensus E.P.S. estimate for the current fiscal year is -$9.5. SHLD Analyst Estimates. The company has been spinning off its better assets depriving bondholders of future claims on the profit producing assets. Seeking Alpha (see also article in TheStreet discussing this latest dismal report)
Rationale: I gave up on Sears surviving to pay off this note. In addition, I have already booked a lot of gains this year, and this loss will reduce my tax bit some.
Data as of 8/13/14:
Closing Market Price: $13.49
Closing Net Asset Value Per Share: $14.47
Discount: -6.77%
1 Year Discount: -7.9%
CEFConnect Page for IAE
According to CEFConnect, the last four quarterly dividends have not been supported by a return of capital but have been financed in part from short term capital gains.
Last SEC Filed N-Q: Holdings as of 5/31/14
Last Filed SEC Shareholder Report: Period Ending 2/28/14
Morningstar Page for IAE
Rationale: The performance was poor. Over the past one year through 8/13/14, the total return based on net asset value was 12.46%. Over three years, the annualized total return was only 7.24%.
Future Buys: Highly Unlikely
2. Bought 250 FAX at $6.11 Roth IRA (see Disclaimer):
Snapshot of Trade:
 |
| 2014 Roth IRA Bought 250 FAX at $6.11 |
Security Description: Aberdeen Asia-Pacific Income Fund
As of 4/30/14, the fund is weighted in investment grade securities (35% in AAA):
Page 6 Aberdeen Asia-Pacific Income Fund, Inc.
The current monthly distribution is $.035 per share. FAX Announces Record Date And Payment Date For Monthly Dividend Recently, that dividend has been supported in part by a ROC.
Assuming a continuation of that penny rate, the dividend yield at a total cost of $6.11 is about 6.87%.
The stock suffered from what I call a known CEF risk recently and last year, when the market price declined at a faster rate than the percentage decline in net asset value per share.
E.G. 7/29/114 Values
Net Asset Value per share=$6.89
Market Price: $6.29
Discount: -8.71%
The market price declined by 3% between 7/29 and 8/14, while the net asset value per share declined only by .58%. Although I do not know, I suspect that the slight decline in net asset value per share between those dates was due primarily or entirely to currency conversions. FAX is priced in USDs while it owns bonds priced in the currencies of several Asa-Pacific region countries.
Prior Trades: I currently own a position in a taxable account. Item # 4 Added: 150 FAX at $5.8 (February 2014 Post); Item # 2 ought: 200 FAX at $6.08 (10/24/13 Post); Item # 6 Bought 100 FAX at $6.35 (6/15/13). I have quit reinvesting the dividend.
As noted in the last linked post, I was able to buy this bond fund at a greater than 30% discount to its net asset valuer per share during the Dark Period. I purchased 200 shares at $3.39 in October 2008 and quickly sold those shares for a $241.81 profit (see snapshot in Item # 6 Bought 100 FAX at $6.35 (Prior Trades Section); Some Nibbles Got Filled: JZE, PJS, INZ and FAX (October 10, 2008 Post).
Rationale and Risks: The previous discussions, linked above, outlines the rationale and risks, so I will just highlight a couple of issues here.
Currency risk is at the top of my worry list for this fund. The fund has exposure to bonds in several different currencies.
AUD/USD Currency Conversion Chart (Australian Dollar)
USD/INR Currency Conversion Chart (India's Rupee)
USD/IDR Currency Conversion Chart (Indonesia Rupiah)
USD/MYR Currency Conversion Chart (Malaysia Ringgit)
USD/SGD Currency Conversion Chart (Singapore Dollar)
I intend to sell within the next year my position in a taxable account. I am transitioning this security to ownership solely in the Roth IRA. In anticipation of that future transition, I started a position in the Roth with this 250 share purchase. FAX will own bonds, and consequently its dividends will not be classified of course as qualified dividends. I prefer to own bond CEFs in a Roth IRA, but will own several of them in taxable accounts periodically for their income generation.
The goal for this security is to harvest dividends for a year or two and exit the position with a 5%+ gain in the shares after commissions. The objective is a 8% to 10% annualized total return, mostly provided by the dividend.
3. Bought 100 APTS at $8.75-Regular IRA (see Disclaimer): I thought that this REIT was a bit too risky for the IRA so I limited my purchase to only 100 shares and bought it in the Regular IRA. If the price declines by 10%+, I will consider transferring this stock to the Roth IRA or selling it for a loss.
Snapshot of Trade:
Security Description: Preferred Apartment Communities (APTS) is a relatively new REIT primarily focused on apartments with the intention of growing its retail assets to 20% of the total.
The company recently announced to acquire nine grocery anchored retail shopping centers in Miami, Orlando, Atlanta and Columbus GA., Nashville and Houston "areas". Two of those centers, representing an aggregate 127,157 square feet, are in Nashville, and both of those are anchored by Publix.
Key Developments Page at Reuters
APTS is currently paying a quarterly dividend of $.16 per share. Preferred Apartment Communities, Inc. Announces Third Quarter 2014 Common Stock Dividend Assuming a continuation of that rate, the dividend yield at a total cost of $8.75 is about 7.31%.
Since its IPO in 2011, APTs has raised its quarterly dividend several times, starting with a $.125 dividend rate in 2011. (APTS) Dividend Date & History
I left one mostly meaningless comment to a recent Seeking Alpha article on this REIT. I just wanted to point out that the apartment complex that APTs was acquiring in "Nashville" was in Gallatin, TN.
Last Earnings Report: Due to the recently announced proposed acquisitions, the company as configured, prior to the closings of those acquisitions, is not that important or predictive of future results.
Preferred Apartment Communities reported second quarter FFO of $4.091+M or $.25 per share. Normalized funds from operations was given at $.26 per share. AFFO was reported at $.21 per share. Same store rental revenues rose 4.3% during the quarter compared to the second quarter of 2013, while NOI increased by 6.99% on the same basis.
The company discussed recent proposed acquisitions in this earnings press release.
For apartments, the company is in the process of acquiring 1,397 apartment units in four geographic areas that it describes as Nashville, Kansas City, Dallas, and Houston. The total purchase price is $181.7M which is a huge bite for such a small REIT. That acquisition cost is higher than the current market cap. I noted in a comment to a recent SA article that it is a bit of a stretch to call the "Nashville" acquisition as being in Nashville. As I mentioned in my comment to the SA article reference above, this apartment complex is near Nashville and may be inside what some would call the greater Nashville metropolitan market, but the address is 2325 Nashville Pike, Gallatin, TN. 37066. (see article about this acquisition in Multi-Housing News Online) That complex has 364 apartments and is located on 30.5 acres. It looks nice.
Google Map Showing Location of "Nashville" Apartment Complex: Stoneridge Farms At Hunt Club - Google Maps
Another apartment complex is near "Houston", but is actually located in Katy, Tx.: Vineyards Apartments - Google Maps; Katy,TX | Vineyards Apartments
The two other apartment complexes appear to be:
Estancia Townhomes in Dallas- Google Maps
Sandstone Creek Living Overland Park, Kansas- Google Maps (just outside of Kansas City); Overland Park,KS | Sandstone Creek Apartments
The other recently announced proposed acquisition involves nine retail shopping cents mentioned above. Retail Shopping
Rationale: Assuming this REIT can obtain favorable financing for these proposed purchases, and can earn an accretive cap rate after raising the necessary funds (partly through a stock offering), then some capital appreciation and dividend increases can be reasonably anticipated in the future.
At the current quarterly rate, the dividend yield is about 7.31% at a total cost of $8.65.
Risks: One substantial risk involves all of the recently announced acquisitions. Those acquisitions will more than double the REIT's size and will have to be financed successfully. Whenever a company grows this fast, there is always some danger that it will grow too fast or grow too much at the wrong time.
Future Buys/Sells: I may average down in 50 shares lots, but I doubt that more than 50 more shares will be purchased in the IRA due to risk considerations. There could be a downdraft when APTS announces a share offering to help for the previously discussed acquisitions.
4. Added 10 VEA at $41.35 (see Disclaimer):
Snapshot of Trade: I am able to buy this low cost ETF commission free in my Vanguard brokerage account.
 |
| 2014 Bought 10 VEA at $41.35 |
The expense ratios is just .09%. Vanguard
Some of the Top Holdings as of 7/31/14:
I will not be discussing most of these small ETF adds. I now own 20 VEA and future buys will be in the 5 to 20 share range and will probably not be mentioned here.
Rationale and Risks:
European equities have become unpopular again. I would note that most of the top European holdings are multinationals. The exposure to Europe explains the poor performance from 2006 to present. Since I have no idea when Europe will start to meaningfully contribute to worldwide growth, I will be adding only small lots, spaced out in time. Eventually, European equities will play catch up with the U.S. My exposure to this stock asset class (foreign stocks ex-Canada) is really light now. I am substantially underweighted in Japanese and European equities.
Through 8/15/14, the fund had a YTD return of just 1.5% and 11.78% over one year. The three year annualized total return was 10.63%. Vanguard FTSE Developed Markets ETF (VEA) Total Returns The relative underperformance to U.S. stocks is one reason for nibbling. Over the same periods, SPY was up 6.95% YTD, 19.95% over 1 year, and a 19.99% and 16.53% annualized total return over three years and five years respectively. SPDR S&P 500 (SPY) Total Returns The five year annualized return for SPY was 7.86% better than VEA. That is huge as an annual difference and really mounts up over a five year period.
Future Buys: I will periodically add to this position in small lots. Generally, I will add a small lot to one of my commission free and low cost ETF positions whenever there is a 1% or greater daily decline, preferably when the purchase would lower my existing average cost per share.
5. Added 100 CSG at $7.855 (see Disclaimer):
Snapshot of Trade:
Security Description: Chambers Street Properties (CSG) is a self-administered and internally managed REIT that focuses on acquiring, owning and operating net-leased industrial and office properties. A net lease requires the tenant to pay rent and expenses normally paid by the property owner including real estate taxes, insurance, maintenance, repairs and/or utilities. A single net lease will require the tenant to pay property taxes. A double net lease adds insurance costs to the tenant's obligations. In the triple net lease, the tenant is responsible for all costs normally paid by the owner. The rent would of course be lower than in a standard lease agreement for the same property.
Chambers owned or had a majority interest in 129 properties, including those owned in joint ventures, containing 35.9M rentable square feet (as of the day of my last purchase). Overview | Our Portfolio | Chambers Street Properties Those industrial and office properties are located in 20 states, Germany, the U.K. and France.
2nd Quarter Fact Sheet: CSG-pdf (more than 54% of the tenants are investment grade, with Amazon at 9.8% )
I just look at the pictures, mostly office and industrial properties. Properties | Our Portfolio | Chambers Street Properties
Chambers Street Properties Profile Page
Chambers Street Properties Key Developments Page
September 2013 Investor Presentation
Chambers Street Announces Investment Grade Issuer RatingChambers Street Properties Key Developments Page
September 2013 Investor Presentation
Prior Trades: Item # 3 Bought 100 CSG at $7.73 (April 2014); Roth IRA: Bought 50 CSG at $7.65 (December 2012); Item # 2 Bought: 150 CSG at $8.4 (November 2012);
Brad Thomas wrote an article about CSG that was published at Seeking Alpha (4/1/14).
Recent Earnings Report:
The occupancy rate (same store) was at 95.6% as of 6/30/14, down slightly from 95.8% as of 6/30/13.
2014 Second Quarter Supplemental Information.pdf
2014.06.30 8-K PR Earnings Press Release
Earnings Call Transcript | Seeking Alpha
Rationale and Risks: The payout ratio is improving, as shown in the preceding snapshot.
Dividends are paid monthly. I am reinvesting the dividends to buy more shares currently.
The current valuation is reasonable at P/FFO of 11.55 based on the 2014 estimate of $.68 and assuming a price of $7.86.
At the current monthly rate of $.042 per share, the dividend yield is about 6.41% at a total cost per share of $7.86. CSG Analyst Estimates
REITs generally have unimpressive dividend growth and will frequently cut their dividends during recessions. I would not expect much dividend growth from Chambers. The current rate has been constant since the October 2013 distribution.
FFO is estimated to be minuscule between 2014 at $.68 to $.7 in 2015 or just 2.94%.
A slightly better growth rate over the next 18 months, coupled with at least one small dividend boost, may be prerequisites for the share price to hit my first purchase price of $8.4 within 12-18 months. Based on the subsequent market action, I paid too much for that first 150 share lot, even though that price was down significantly from a $10 top back in June 2013. CSG Interactive Chart
Perhaps the market is wrong given the current yield and valuation in today's abnormally low interest rate environment.
Since 90%+ of the net income has to be paid out in dividends, cash is not being retained to grow the business. Share issuances are used to raise new capital.
Chambers has a number of short term mortgages on their properties. While the current rates are low, commercial mortgages are relatively short in duration and will need to be refinanced continually. Income generation can be hurt by higher refinancing costs.
As of 6/30/14, Chambers had the following liabilities listed at page 1 of its last filed 10-Q:
The maturity schedule of the $652.166M in secured debt can be found starting at page 17. Some of the higher cost mortgages maturing before 12/1/2015 are likely to refinanced at lower interest rates:
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| Partial List |
The unsecured loan facilities are priced at a spread to Libor:
At some point, it might be wise to de-emphasize that kind of lending in exchange for longer term fixed coupon debt.
Investors have a tendency to view REITs as bond substitutes. Consequently, the price will frequently be driven down when interest rates rise.
The company details risks factors starting at page 5 of its 2013 Annual Report: 2013.12.31 10-K
Snapshot of Trade:
Security Description: American Realty Capital Properties (ARCP) is a REIT that owns single tenant, free standing commercial real estate that is net leased to corporate tenants that are "primarily" investment grade. The IPO for this company occurred in September 2011.
Company Website: American Realty Capital Properties
A map showing the properties can be found at American Realty Capital Trust. In Tennessee, the company owns 47 properties that are leased to such companies as Wendy's, IHOP, Walgreens, Dollar General, Hardees, and FEDEx.
Dividends are paid monthly: Dividends | American Realty Capital Properties
Link to recent Seeking Alpha discussing recent developments and the last earnings report.
Since my last discussion, ARCP closed its acquisition of "approximately" 500 Red Lobster restaurants in a sale-leaseback transaction. I thought the use of approximately in this context was somewhat humorous. Does it mean that ARCP does not know the precise number of restaurants that it purchased and leased-backed to Golden Gate Capital which acquired those stores from Darden Restaurants Inc. (DRI). ARCP asserts that the transaction was completed "at a cash cap rate of 7.9% and a GAAP cap rate of 9.9%". The weighted average lease of this portfolio is in excess of 24 years, with the master leases including "2% annual compounded contractual rent escalations".
As I have noted in several comments at Seeking Alpha, I did not care for the large share issuance at $12 which occurred shortly after I bought a 300 share lot at $12.74. The President had asserted unequivocally in February 2014 that such a large issuance at that price would not happen.
I have bought and sold 100 ARCP in an IRA account: Item #10 Sold 100 ARCP at $13.35 (5/17/14 Post)(profit snapshot=$45.07)-Item # 4 Bought 100 ARCP at $12.74-Roth IRA (12/31/14 Post)
Related Trades: I have bought and sold out of my position in the American Realty Capital Properties Inc. 6.7% Cumulative Preferred Series F Stock (ARCPP)
Item # 9 Sold 50 ARCPP at $23.75 (6/7/14 Post)(profit snapshot=$107.22)-Item # 1 Bought ROTH IRA 50 ARCPP at $21.33 (2/13/14 Post)
Item # 7 Sold 100 ARCPP at $23.43 (5/10/14 Post)- Item # 2 Bought 100 ARCPP at $22.76 (4/15/14 Post)(profit=$51.04)
Recent Earnings Report: I thought that this report justified a repurchase of the 100 shares previously sold in an IRA account. For the 2014 second quarter, American Realty Capital Properties reported AFFO per share of $205.3M or $.24 per share and established a "pro forma" AFFO run rate at year-end of "$1.18-$1.2" per share. Portfolio occupancy was reported at 99.8% with a weighted average lease term of 12.2 years. The total number of properties was 4,429 occupying 99.1M square feet. Investment grade tenants, based on revenues, were at 46%.
ARCP 6.30.2014 10-Q
Rationale and Risks: Assuming ARCP hits its forecasted 2014 AFFO number, the valuation is reasonable.
Dividends are paid monthly which is always a plus.
The current dividend rate is $.08333333 per share. ARCP Dividend History
Assuming a continuation of that rate, the dividend yield is about 7.76% at a total cost of $12.88 per share.
I am still not going to get too enthusiastic about this stock.
The then CEO Nicholas Schorsch told investors in February 2014 that ARCP would not sell stock at $12 (page 7 Earnings Call Transcript | Seeking Alpha: "We said we weren't going to see equity no matter what anybody said at $12") In May, ARCP sold 120M shares at $12. SEC Filed Press Release That creates a serious trust issue, at least for me.
JMP Securities gave several reasons for downgrading ARCP back in May 2014 including his dismissal from American Financial Realty Trust in 2006. I explored that history in detail before that Forbes article was published in my SA comments. I am naturally weary of real estate wheeler dealers.
Forbes ran a negative article about Schorsch last June, going into his past history.
The share price has not done much since the IPO at $12.5. Prospectus
A scathing letter was sent to ARCP by the hedge fund Marcato Capital Management back in June, and I agreed with many of their criticisms.
In the last election, a unusually large number of votes were withheld from several directors, indicating institutional dissatisfaction with the company. SEC Form 8-K
The company discusses risks incident to its operations starting at page 14 of its last SEC filed Annual Report. ARCP 12.31.2013 10-K
Link to ARCP SEC Filings: EDGAR
7. Bought 50 AFSIPRB at $24.79 (see Disclaimer):
Snapshot of Trade:
 |
| 2014 Bought AFSIPRB 50 Shares at $24.79 |
Quote Before Trade:
The yield information is incorrect. This security had its IPO during the quarter and the dividend rate of $.3726 is the rate for a partial quarter. The entire quarterly rate will be $.453125 per share ($25 x. .0725=$1.8125 annually per share dividend by 4 quarters=$.453125 per share).
Security Description: The AmTrust Financial Services 7.25% Non-Cumulative Preferred Series B Stock (AFSI.PB) is an equity preferred stock that pays qualified and non-cumulative quarterly dividends at the fixed coupon rate of 7.25% per annum on a $25 par value.
Prospectus
The prospectus contains a typical "stopper" clause that is the legal means for enforcing the preferred shares preference right to income compare to "junior" securities which means common stock in this case.
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| Page S-26 Prospectus |
The issuer is the controversial AmTrust Financial Services (AFSI) who has been criticized and questioned about its accounting practices. Several of those articles were written by The GeoTeam who has a long position in AFSI puts. Barron's has also published a negative article.
AFSI Key Statistics (forward P/E 8.47)
Consensus E.P.S. Estimates: $4.89 (2014) and $5.27 (2015)
This security is not rated.
Prior or Related Trades: None
Recent Earnings Report: AFSI 2Q Earnings Press Release
AFSI 6.30.2014 10Q
Link to Zacks.com discussion of this earnings report.
Rationale: The only reason to invest in this security is to generate income. This preferred stock pays qualified and non-cumulative dividends.
At a total cost of $24.79 per share, the dividend yield is about 7.31%.
This security went ex dividend on 8/27/14 after my purchase.
Risks: The company discusses risks incident to its operations starting at page 38 of its 2013 Annual Report: AFSI 12.31.2013 10K I do not have the training or the background to render any opinion about the merit of the accounting issues raised by The GeoTeam.
As a general rule of thumb, I will buy an equity preferred stock issued by a leveraged financial institution knowing that the security would likely become worthless in a BK, just like the common stock.
Future Buys/Sells: I will need an 8% yield to average down. I will consider making that purchase in an IRA account for its income generation. Given the accounting issues raised by others, I will not be adding more than another 50 shares. A more likely outcome is that I will simply flip this 50 share lot after collecting one or more dividends, shooting for a total return of 8% to 10%.
8. Sold 100 SSRAP at $13.4 (see Disclaimer):
Snapshot of Trade:
Snapshot of Loss:
 |
| 2014 SSRAP 100 Shares -$400.93 |
Bought 100 SSRAP at $17.25 (TC-Underlying Bond from Sears Acceptance)(December 2010 Post)
I had a positive total return given the annual interest payments of $181.26:
2013 Interest Payments:
The total interest paid was $634.41 resulting in a total return of just +$233.48.
Related Trades: I have successfully trades a Sears Acceptance secured bond maturing in 2018, but will stay away from that one going forward. SOLD 3 Sears 6.625% Senior Secured Bonds Maturing in 2018 at 95.002-ADDED 2 Sears Holding Senior Secured 6.625% Bonds Maturing 10/15/2018 at $89.75; Bought 1 Sears Holding 6.625% Senior Secured Bond Maturing 10/15/2018 at 83.25 That bond is currently rated B- by both Moody's and S & P.
I do currently only one of the Sears 2018 secured bond, and would sell it when and if I see a buyer willing to take just one.
I have never owned the common. SHLD Interactive Chart
Security Description: The MS Structured Asset Corp. SATURNS Sears Roebuck Acceptance Corp. Deb Bkd Series 2003-2 Cl A-1 (SSRAP) is an Exchange Traded Bond in the Trust Certificate legal form of ownership. The underlying bond is an unsecured senior Sears bond maturing in 2032.
Underlying Bond Prospectus: SEC
SSRAP Prospectus
When I sold this security, the underlying bond was rated Caa2 by Moody's according to FINRA.
Sears reported a $573M loss for its F/Y Q/E 8/2/14. Adjusted EBITDA was a negative $313M. The consensus E.P.S. estimate for the current fiscal year is -$9.5. SHLD Analyst Estimates. The company has been spinning off its better assets depriving bondholders of future claims on the profit producing assets. Seeking Alpha (see also article in TheStreet discussing this latest dismal report)
Rationale: I gave up on Sears surviving to pay off this note. In addition, I have already booked a lot of gains this year, and this loss will reduce my tax bit some.
