Tuesday, March 24, 2015

Bought 200 ACR_UN:CA at C$9.13/Sold 80 SANPRB at $21.81 (72.57% total return)

Stable Vix Pattern (Bullish):
Links to SeekingAlpha Instablog, Articles and Comments:

South Gent's Instablog | Seeking Alpha

South Gent's Articles | Seeking Alpha

South Gent's Comments | Seeking Alpha


Recent Developments:

CPI increased .2% in February and was unchanged Y-O-Y. Core CPI rose .2%. Consumer Price Index Summary

New homes sales in February rose at an annual rate of 539,000, the best month in seven years. The median sales price increased by 2.6%. The January number was revised up to an a 500,000 annualized rate. census.gov.pdfBloomberg

Markit's U.S. manufacturing flash PMI hit a five month high in March, rising to 55.3.


1. Sold 80 SANPRB at $21.81 (see Disclaimer): I reached the point where the profit was more important to me than the meager income.

Snapshot of Trade:

2015 SANPRB Sold 80 Shares at $21.81

Snapshot of History for this 80 Share Lot:

Dividends: $291.7

Snapshot of Profit:

2015 SANPRB 80 Shares +$561.77

Item # 2 Bought: STDPRB at $13 (8/10/11 Post)Item # 1 Added 50 STDPRB at $15.44 (11/1/11 Post)

This security formerly traded under the symbol STDPRB.

Total Return: $853.47 or 72.57%

Security Description: The Santander Finance Preferred S.A. Unipersonal Floating Rate Preferred Series 6 (SAN.PB) is an equity preferred stock that pays qualified and non-cumulative dividends at the greater of 4% or .52% above the three month LIBOR rate on a $25 par value Prospectus

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Prior Trades Include: 

Item # 1 Sold 100 STDPRB at $18.11 (8/26/2010)(profit snapshot=$265.01)-Item # 4 Bought 100 STDPRB at $15.3 (9/25/2009);

Item # 3 Sold 50 STDPRB at 19.64 in the Roth IRA (2/28/11 Post)-Item # 8 Added to STDPRB at 18.6 (3/10/2010 Post)

Item # 2 Sold 50 STDPRB at $20.2 (3/14/11 Post)-Fidelity Corrects Odd Lot Trade on STDPRB to $18.5 from $18.85 (April 1/2010 Post)

Item # 2 Sold 50 STDPRD at $20.34 (5/24/11 Post)(snapshot of profit includes previous trade= $143.16)-Item # 1 Added 50 STDPRD at $18.54 (3/9/2010 Post)

Item # 4 Sold 50 of 230 SANPRB at $20.77 (1/13/13 Post)(snapshot of profit=$124.58)-(no write up on the buy)

Item # 7 Sold 50 SANPRA at $21.72-ROTH IRA (4/23/13 Post)(profit snapshot=$225.47)-Item # 2 Bought 50 SANPRB at $16.93-Roth IRA (10/41/12)

Item # 1 Sold 50 SANPRB at $19.8 (1/28/14 Post)-Item # 6 Bought Roth IRA: 50 SANPRB at $19.35 (7/20/13 Post)

Item # 4 Sold Roth IRA: 50 SANPRB at $20.41 (4/18/14 Post)(snapshot of profit=$105.01)-Item # 4 Added 50 SANPRB at $18.24  (9/14/13 Post)

Total Realized Gains: $1,462.03  ($900.26 prior trades)

Rationale: I am satisfied with the 72+% total return in less than 4 years.

It does not appear likely that the minimum coupon will be increased for at least two more years.

Since I started buying this security in 2009, I have been presented with several buying opportunities, which are reflected in a ten year chart: SAN.PB Stock Chart

Future Buys: I am no longer interested in this security at a price above $20.

2. Bought 200 ACR_UN:CA at $C9.13 (Equity REIT Common and Preferred Stock Basket Strategy) and (Canadian Dollar (CAD) Strategy)(see Disclaimer)

Snapshot of Trade:

Prior Trades: None

Security Description: Agellan Commercial Real Estate Investment Trust (ACR.UN:TOR) owns office and industrial properties in the U.S. and Canada. As of 12/31/2014, this REIT owned 41 buildings in the U.S. containing 3.415M square feet of leasable space. The Canadian operation was smaller with 9 buildings containing 934,000 square feet of leasable space.

As noted below, the Board has authorized management to explore selling all or substantially all of Agellan's Canadian properties in order to focus on the U.S. One Canadian property, 20 Valleywood Drive, was sold for $8.5M before closing costs. I believe that sum would be in CADs.

Brad Thomas published a Seeking Alpha article discussing this REIT last October.

The market cap at my purchase price was slightly over C$216M.

Net Operating Income by Property Type:

Properties/Occupancy Levels:

Occupancy improved to 93.1% from the prior quarter's 91.1%:

Properties/Occupancy Levels as of 12/31/14
Top Ten Tenants with Credit Ratings When Available:

Property Descriptions


In February 2015, Agellan announced that it had acquired 6 industrial properties in Atlanta for US$12.9M before closing costs. Agellan is acquiring those properties from the U.S. REIT First Industrial. The properties are known as the Oakbrook Technology Center and are currently 95% occupied with 28 tenants, but the occupancy level is expected to decrease to 91% on 3/1/15. The "purchase price represents a going-in capitalization rate of approximately 8.4%". Agellan funded the purchase with cash on hand and the net proceeds realized from selling a Canadian property (20 Valleywood Drive, Ontario) at a 5.9% in place capitalization rate.

In January 2015, Agellan entered into a 20 year lease with Porsche Cars of Canada at Parkway Place, Ontario. The dealer will lease space at a new constructed building expected to be completed in 2017. The Board also authorized management to explore the potential sale of all or a portion of Agellan's land at Parkway Place, which "represents the REIT's single largest asset". The proceeds from any such sale would be used to acquire property in the U.S.  The Board also authorized management to explore selling the Canadian properties located at  240 Bank Street in Ottawa, Ontario and 195-215 Bellehumeur Street, Gatineau, Quebec. I looked at those properties using Google Maps and would agree with the Board's decision. Both properties have some age. The Bellehumeur property is Agellan's only retail property, and it is a typical strip mall. Google Maps

Toronto Stock Exchange Webpage for Agellan

Distributions: Agellan has paid a monthly dividend of C$.06458 per unit since April 2013. Dividends

Agellan Announces March 2015 Monthly Distribution

At a total cost of C$9.13 per unit, the dividend yield at that monthly rate would be about 8.49%.  

The next distribution will be payable on 4/15/15 to shareholders of record on 3/31/15.

Distribution Withholding Tax: Canada will withhold a 15% tax on distributions paid by REIT irrespective of whether the REIT is held in an IRA or a taxable account. I consequently own all of my Canadian REITs in a taxable account since there is no way to recover a foreign tax when the distribution is paid into a retirement account.

A ran a test to confirm that Canada will withhold a tax on REIT distributions made into a retirement account, buying 100 shares of three different Canadian REIT in three different retirement accounts. In every case, the tax was withheld. I took a snapshot of the withholding for 100 Artis 100 units in a blog: Scroll to Artis REIT I waited until I could sell that 100 unit lot for a profit and then jettisoned the position.

This Schwab summarizes the particulars about claiming a tax credit for foreign taxes.

Chart: Since becoming a public company in 2013, the shares have traded mostly between C$8.25 to C$9.25 with a lot of up and down chop in that channel. ACR-UN.TO Interactive Chart

The market price has slid from C$9.85 close on 2/23/15 to C$9.1 on 3/17/15. A small part of that decline can be attributed to an ex-distribution on 2/25/15.

The 4th quarter results were released after the market's close on Friday 3/6/15. The shares closed at C$9.39 that day and at C$9.1 on the next Monday, or about a 2.5% decline.  Most likely, the decline was attributable to the earnings report discussed below.

Recent Earnings Report: All amounts are in CADs.

For the 2014 4th quarter, Agellan reported diluted AFFO per unit of $.207 per unit, up slightly from $.203 in the 2013 4th quarter.  For 2014, AFFO per unit increased to $.855 per unit from $.795 per unit, or a decent increase of about 7.4%. Agellan paid distributions of $.775 per unit during 2014.

The annual FFO was reported at $1.146 per unit vs. $1.106 in 2013. When there is a material difference between FFO and AFFO, I will use AFFO in a valuation and dividend analysis.

The following table shows the deductions from FFO to arrive at AFFO:

At a total cost per unit of C$9.13, the TTM P/FFO would be 7.97, and the TTM P/AFFO would be 10.68. Agellan is reasonably priced using either FFO or AFFO as the valuation metric. It is certainly cheaper than U.S. REITs who have an aggregate P/FFO of 19.4 as of 2/28/15, see page 3 of Lazard's monthly real estate report.

Mortgage Debt/Maturities


Agellan Fourth Quarter 2014 Results

Management_Discussion Q4_2014 Final.pdf

Agellan_Commercial_REIT_Q4_2014 Consolidated Financials.pdf

Rationale: The price is reasonable based on a TTM P/AFFO or P/FFO.

The dividend yield is good, particularly in a world without risk free yield.

I am funding this purchase from a CAD stash that is otherwise earning nothing.

If the ordinary shares priced in CAD go up, and the CAD's value sinks against the USD, I will increase my CAD stash by selling at a CAD profit while reducing my reportable profits for tax purposes. For tax purposes, profit and losses are calculated by converting the cost and proceeds from CADs into USDs, so there is less of a taxable gain for a U.S. taxpayer when the CAD falls in value against the USD after the purchase until the security is sold, using CADs to pay for the purchase and receiving CADs as proceeds. It would also be possible to have a CAD profit and a reportable tax loss, or a CAD loss and a reportable tax profit. The I.R.S. does not want U.S. taxpayers reporting gains and losses in foreign currencies, but only in USDs.

The practical implications, involving two sales, can be found in Items 1 and 6 at SOLD: 300 HLP-UN:CA at C$14.17 and 300 AX-UN:CA at C$15.71 (9/26/14 Post)

Risks/Issues: I am a long term holder of Canadian Dollars, primarily for diversification purposes. I do not want all of my assets denominated in USDs. Consequently, I am not concerned about the up and down fluctuations of the CAD/USD exchange rate.

CAD/USD Interactive Chart

Given the weakness of the CAD over the past two years or so, it is cheaper now for a U.S. investor to convert their USDs into CADs to buy securities on the Toronto exchange.

The owner of a USD priced Canadian security has experienced a substantial headwind compared to the ordinary shares priced in CADs and traded in Toronto.

This can be seen by drawing a one year  chart comparing the USD priced Canadian stock with its the ordinary  shares priced in CADs.

I will illustrate that point by linking a comparison chart showing the relative performance of Suncor (SU), priced in USDs, and Suncor (SU.TO) priced in CADS over the past two years:

The only difference in SU and SU.TO is the currency in which the stock is traded.

If the CAD starts to rise against the USD, then the USD priced SU shares would outperform the ordinary shares traded in Canada and priced in CADs.

A continued decline in the CAD would result in the USD priced ordinary shares to underperform the CAD priced ordinary shares.

It does not matter whether the U.S. investor buys SU on the NYSE using USDs or converts those USDs into CADs to buy in Toronto and then convert the CADs back to USDs after selling SU.TO.

The only difference would be any fees charged by the broker for the currency exchange and any difference in broker commissions connected to international trading. Fidelity would charge me C$19 for a Toronto exchange trade and $7.95 for a U.S. exchange trade. If I did not already own CADs, I would have to pay a 1% conversion fee to buy CADs with my USDs in order to complete a trade in Toronto.

The Agellan ordinary shares trade on the U.S. Grey Market, a dark market, where bid and ask prices are not displayed and liquidity is unfavorable. Limit orders are a necessity. ACRVF Agellan Commercial Real Estate Investment Trust If I was inclined to trade in that market, and I try to avoid it, I would first convert the ordinary share price into USDs and then set a limit price.

The daily average volume for ACRVF is 213 units, but 3,300 traded on 3/20/15. The prices were in a narrow band between $7.2398 to $7.2645, with a closing price of $7.2645. The ordinary shares closed at C$9.19 which converted into about US$7.2357. The Grey Market price was a little high, but close to the ordinary shares priced in CADs. The price may be even closer by taking the CAD/USD exchange rate at the time of closing.   If one CAD could buy 1 USD last Friday, then ACRVF would have been priced closer to $9.19, the closing price in Canada, than at $7.26.

Since this Canadian REIT is weighted in U.S. properties, there is also a currency risk for it.

Agellan is an externally managed REIT and completed an IPO during 2013. C$134.6 Million IPO at C$10 per unit 

Agellan discusses risks incident to its operations starting at page 33 of its last earnings report: Management_Discussion_Analysis.pdf

Future Buys/Sells: I am not likely to buy more. I do not have a target price. I would be content to harvest a 10% annualized total return based on CADs. Most of that total return can originate from the dividend.