Observations and Sample of Recent Trades: HTGX, IPG, KGFHY, M, SLRA, SNR

Economy:

HNN-US hotel results for week ending 28 October (rising Y-O-Y)

In Eurostat's preliminary estimate, 3rd quarter GDP rose an estimated  2.5% for both the EU19 and EU29 Y-O-Y: Eurostat News Release

Calculated Risk: Update: Framing Lumber Prices Up Sharply Year-over-year

U.S. job openings stay close to record high - MarketWatch; Job Openings and Labor Turnover Survey News Release ("The number of job openings was little changed at 6.1 million on the last business day of September")

Home Price Index Highlights: September 2017 (national home prices increased 7% Y-O-Y through September)

However: CoreLogic US Home Price Report Reveals Nearly Half of the Nation’s Largest 50 Markets are Overvalued | Business Wire

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Market Commentary:

Five important reasons why a stampede into stocks may be just getting started - MarketWatch

Dow’s 1-year gain since Trump’s win is its biggest post-Election Day rise since 1945 - MarketWatch

Silver’s bullish underpinning — it’s an essential metal for these 3 growth industries - MarketWatch

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The GOP's "Tax Reform"- A Train Wreck About to Happen?: 

As an impression, rather than a fact or even an opinion, the GOP's push for tax reform looks like a repeat of their failed Obamacare repeal and replace effort. Another impression is that the plan was put to together in a haphazard manner.  

Even if the GOP gets its act together and enacts a "tax reform" bill into law, how many years will pass before the Democrats regain control and change the rules of the game for corporations and pass through entities. The problem now for business, looking out a few years, is that their chains are going to be yanked back and forth on major issues, including taxation environmental regulations and trade, since there is no longer any common ground. Almost all members of one political tribe (all in some cases) will vote to repeal and replace whatever the other side enacts into law with no meaningful bipartisan support. That kind of push and pull in opposite directions will ultimately hurt corporations in their future planning.  

So putting that though aside, can the GOP pass a meaningful tax cut bill that would increase the federal government's debt by $1.5 trillion over just the next ten years?

Any republican representative from one of the high tax states would likely become vulnerable after voting to repeal the state and local income tax deduction. An many are aware of that problem. 


There is a lot of push back building up.  

Multinationals Scurry to Defuse House Tax Bill’s ‘Atomic Bomb’ - Bloomberg

The Club for Growth has considerable sway among Republican politicians. That tax free organization opposes many facets of the "tax reform" bill since it does not go far enough in cutting taxes for the rich. Club for Growth: GOP tax bill 'fails the pro-growth test' | TheHill The proper translation for "pro-growth", as used by that organization, means even more tax cuts for the rich than currently contemplated in the House bill. That organization believes that the GOP's bill represents class warfare against the rich.  

Several GOP senators correctly surmised that the House plan raises taxes on several million middle class households initially and over time and want tax cuts for every single American by eliminating the individual mandate in Obamacare. Cruz: It’s a mistake for House bill to raise taxes | TheHill  I believe that kind of change would require 60 votes in the Senate but the GOP controlled House is likely to pass just about anything to say they passed something. 

House Moves Ahead With Tax Bill as Pushback Mounts - The New York Times ("On Monday, Republicans on the Ways and Means Committee approved a package of amendments to the bill, including one that watered down a proposed excise tax on foreign affiliates of multinational companies. Those amendments added more than $150 billion in lost revenue to the bill over the course of a decade".  emphasis added) 

I discussed in my last post the amendment that would accelerate the change in the inflation measure used to increase tax brackets and deductions from 2023 to 2018 which has the effect of increasing individual tax obligations. The Biggest Trojan Horse in the Republican Tax Plan | New Republic; Chained CPI Dangerously Increases Inflation Tax in GOP Tax Reform: Article Written by Rand Paul and published at NewsMax While most Americans will probably remain ignorant about this stealth attempt to raise their taxes, an increasing number of college educated independents, living in potentially competitive suburban congressional districts, are no doubt learning about this effort everyday now. Try explaining it to these Trump voters who are no longer reachable with accurate information: Trump supporters talk politics on election anniversary - CBS News. I have watched several hundred of these interviews and they are all the same even though the faces change. 

GOP tax plan would increase federal deficits, new analysis shows: CNBC

East Coast Republicans pushed back against Trump's tax plan. Why didn't California's GOP? – LA Times

I did not previously notice that the House plan eliminates interest deductibility on home equity loans. What the GOP tax bill means for vacation homeowners: Morningstar; What the GOP tax bill means for vacation homeowners-MarketWatch ("the new provision would no longer allow taxpayers to deduct interest paid on home equity loans. Taxpayers currently can deduct interest on up to $100,000 in home equity indebtedness."); see also Republican tax plan could grind affordable housing construction to a virtual halt - MarketWatch

Trump repeated that he would be a "big loser" in the House tax plan. Trump claims he’d be ‘big loser’ from tax plan-MarketWatch (“The deal is so bad for rich people, I had to throw in the estate tax just to give them something”, as in never give a sucker an even break if you believe that nonsense: Never Give a Sucker an Even Break (1941) - IMDb)

Trump and Paul Ryan routinely lie about the impact of the estate tax on family owned businesses and farms. Lying is necessary to hide their true purpose for eliminating the estate tax. Simply put, their purpose is to allow the richest of the rich to avoid paying that tax, hardly people who are struggling as Paul Ryan has repeatedly claimed.  Who pays the estate tax? | Tax Policy Center TPC estimates that 5,460 estates will file an estate tax return this year and owe a tax. Only about 80 small business and farm owners will owe any estate tax. 

Why so few "struggling" small businesses? IRS Announces 2018 Estate And Gift Tax Limits: $11.2 Million Per Couple That $11.2M is exempt from the estate tax. Ryan calls the tax a "direct, job killing tax on family-owned farms and small businesses". Taxes | Paul Ryan Maybe he defines Koch Industries as a small business.  

The Koch brothers are certainly donating, directly and indirectly, huge sums to be so labeled as just another struggling small business. They are currently funding advertising campaigns through organizations like "Americans for Prosperity" and "Freedom Partners" about how much the GOP is going to help the middle class with their tax plan. {Big Ad Buys to Push Tax Reform; see generally Jane Mayer's Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right; ‘Dark Money,’ by Jane Mayer - The New York Times}

The Tax Policy Center estimates that 7% of taxpayers would receive a tax increase in 2018 under the current House plan, averaging about $2,100 per taxpayer, with that number rising to 25% in 2027 (with the same $2,100 increase) due to the sunsetting of certain provisions after five years, the substitution of a child tax credit which is not increased by inflation for personal exemptions that are indexed, and the inflation measure change. Preliminary Distributional Analysis of the "Tax Cuts and Jobs Act" | Full Report | Tax Policy Center The tax benefits grow for the 1% and shrink for the middle class over time. 

Contrary to Trump's claim that he is smacking it to the rich, the TPC found that the top 1% would receive 21% of the total tax cut. By 2027, taxpayers in the middle would be paying .4% more in the aggregate than under current law, while those in the bottom two quintiles would be relatively unchanged. Many of those taxpayers have no federal tax obligation under current law. The TOP 1% would have 50% of the total benefit by 2027.  


The TPC projections are similar to other tax experts. 

The TPC projections do not include the benefits derived by eliminating the estate tax, currently paid only by a small number of large estates. The general idea is to concentrate wealth among the descendants of the super wealthy.  

GOP tax cuts will not pay for themselves, add to US debt: Fitch report; Fitch: US Tax Plan Will Be Revenue Negative, Result in Higher Deficits

I read the Fitch report as a warning that a U.S. debt downgrade may be in the offing next year or in 2019 if the tax bill is passed in its current form.  Fitch sees a modest and temporary boost to GDP resulting from passage, which is what I have saying as well. 

As previously discussed, the GOP plan will hurt several important industry sectors; real wage growth will not be noticeably higher and possibly lower, which was what happened when the U.K. lowered its corporate tax rates; and publicly traded corporations will use the bulk of the tax savings to buy back stock, increase the dividends, increase management compensation and to buy other companies which results in job layoffs. The wealth gap will increase at a faster rate than in the past as well since most of the benefits, including higher risk asset prices, will be mostly captured by the top 10%. 

"Over the past decade, the United Kingdom has slashed its corporate tax rate, in several steps, from 30 percent down to 19 percent", while real wages for U.K. workers declined during that period. Trump’s economists say a corporate tax cut will raise wages by $4,000. It doesn’t add up 


And it is not disputable that owner's have capture most of the income generated by their worker's increased productivity. There is "a great deal of data on productivity gains versus wage growth. The two were closely linked for decades, but since about 1980 they have diverged, with wage growth falling far behind productivity growth, for reasons having nothing to do with corporate tax burdens. This means investors are capturing an ever-increasing share of productivity gains at the expense of workers." (Quote is from previously linked article) That trend is not going to change by giving corporations even more money.  

The Productivity–Pay Gap | Economic Policy Institute

How wages fell in the UK while the economy grew: FT

Corporate tax rates can be lowered for all companies simply by eliminating most special interest tax brakes that have no broad economic purpose and are in the tax code due to hefty contributions (read payoffs) to politicians made by the select few receiving the corporate welfare tax break.   

The CBO currently estimates that the republican's tax plan would add $1.7 trillion to the nation's debt by 2027, assuming an effective date of 1/1/2018. H.R. 1: Letter Dated 11/8/17

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Just another stunning display of ignorance: Trump asks Japan to build cars in the U.S. It already does - Nov. 6, 2017 ("Try building your cars in the United States instead of shipping them over. Is that possible to ask? That's not rude. Is that rude? I don't think so")

Proposed bans on bump stocks have stalled in Congress - CBS News (not  one republican sponsor)

Carter Page Coordinated Russia Trip With Top Trump Campaign Officials - NBC News ("Page — after being presented with an email he sent to his campaign supervisors, and which he did not disclose to the committee prior to the interview and despite a subpoena from the Committee — detailed his meetings with Russian government officials and others, and said that they provided him with insights and outreach that he was interested in sharing with the campaign”) 

Russian officials and allies repeatedly signaled support for Trump to his campaign team - The Washington Post

'Open Sesame:' Lobbyists cheer warmer welcome in Trump White House: Reuters (no doubt, many Trump voters actually believed Donald when he talked about draining the swamp) 

Harvey Weinstein’s Army of Spies | The New Yorker (Just hold shine a light on Harvey and Donald)

I noticed that several Democrats defeated GOP incumbents in Virginia's state house of delegate on 11/7/17, and no Democrat incumbent was defeated. Democrats shocked themselves-and the GOP-with sweeping Virginia House victories 

In Georgia, there were three state house seats up for grabs in deep red districts that were won by Democrats. Democrats on pace to pick up 3 legislative seats in special elections 

When the republicans start losing state house and senate seats in the South, particularly in states like Georgia, then that is a clear warning shot to republicans nationally going into the 2018 election. The Democrats have a pulse. And, there is a Trump backlash that is growing among independents. 

Syria seeks to join Paris Climate Agreement, leaving US as the only non-member - CNN 

  

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Hercules Capital Inc. 6.25% Notes due 2024 (HTGX):

After trimming my position in this exchange traded, senior unsecured bond issued by Hercules Capital (HTGC), I still owned 100 shares in a Roth IRA.

I received notice that 29 shares are being called by the issuer at par value plus accrued and unpaid interest. Hercules has a bad habit of doing a series of small partial calls on its exchange traded debt securities.

Hercules Announces Intention to Partially Redeem its 6.25% Notes Due 2024 (NYSE:HTGC)

When the broker receives the call notice, the shares subject to the call will be listed separately:

Item # 3 Bought 100 HTGX at $24.98 in a Roth IRA Account: Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 5/10/16 - South Gent | Seeking Alpha

Hercules Capital recently sold $150M in 4.625% senior unsecured notes maturing on 10/23/2022. This bond has a make whole provision for an optional redemption and has a $1K par value with a minimum lot of $2K. Prospectus The use of proceeds section can be found at page 62. Retiring debt is listed as one possible use. 2022 Bond Detail I would want a price below 99 before even considering a purchase.

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Solar Capital Ltd. 6.75% Senior Unsecured Notes due 2042  (SLRA):

SLRA is another exchange traded baby bond that will be partially redeemed by the issuer. In this case, I own just 50 shares and will lose 13 to the partial call.

SLRA is not a "preferred stock" as shown in the preceding snapshot, but is instead a senior unsecured bond issued by the BDC Solar Capital Ltd. (SLRC).

South Gent's Comment Blog # 6: Bought 50 SLRA at $24.45.

Notice of Partial Redemption (redemption at the $25 par value plus accrued and unpaid interest of approximately 4 cents per share).


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1. Short Term Bond/CD Ladder Basket: 

A. Bought 2 People's United 1.2% CDs Maturing on 2/8/18 (3 Month CD): 

Holding Company: People's United Financial Inc. PBCT)
PBCT Analyst Estimates
People’s United Financial Reports Third Quarter Net Income of $90.8 Million, or $0.26 Per Common

B. Bought 1 Goldman Sachs Bank 1.5% CD Maturing on 11/8/2018 (1 year CD): 

C. Bought 2 Northpointe Bank 1.3% CDs (monthly interest payments) Maturing on 6/20/18 (7 month CDs):

Northpointe is a small privately owned bank headquartered in Grand Rapids, MI.

The bank has a 5 star rating from Bankrate: NORTHPOINTE BANK Review

Note the high capital ratios and low loan losses.

Sourced From: FFIEC Central Data Repository's Public Data Distribution (generate a Uniform Bank Performance Report for Northpointe located in Michigan)

The CD is FDIC insured.

The only reason to look at the financials is to form a judgment about bank solvency in the event the FDIC goes bust or the total deposit amount exceeds the FDIC insurance amount. I am nowhere near the later.

The FDIC only has sufficient assets, without a capital infusion, to cover insured deposits from one major bank collapse, where the senior unsecured bond owners scramble for 20 cents on the dollar from the holding company. At the end of 2016 the FDIC Deposit Insurance fund had $83.2 billion in assets: Page 83 2016 Annual Report.pdf

Citigroup would have collapsed IMO during the recent Near Depression without major aid packages from the federal government. BAC was close. 

This kind of purchase is easier to justify internally in my Schwab account which pays almost nothing on cash balances:

So 1.3% is better than .1% which is about all that I can say positive about either yield.

$5K Inflow into Short Term Bond/CD Ladder


2. Small Ball Trades:

With small ball trades, I can start with as low as a 10 share buy and then average down until I own 30 shares. I am buying out-of-favor stocks. This approach involves dumpster diving in an effort to find something that may have been thrown in the garbage too soon.

With some of the stocks bought, I have initiated a buy with ten shares and have already added either 10 or 5 shares using commission free trades.

These small trades do add up. These short term trading profits are a material part of my goal to harvest anywhere from $15K to $25K annually in short term net profits.

I have been prone to follow a variety of short term trading strategies since I retired and have no earned income anymore. I am still concerned about the tax rate difference between short and long term capital gains (15% cap for me), but I can knock my marginal tax bracket down to 25% from 28% (current law) by harvesting some capital losses and then reducing taxable interest income from the 25% tax bracket by switching some funds into federally tax free municipal bonds.

For many short term maturities now, the YTM for treasury bills is similar to most CD yields with similar maturities.

Tennessee does not tax interest received from CDs, so it makes no difference in after tax yield selecting a treasury over a CD based on state taxes.

Other investors may live in jurisdictions where the state tax would have a material impact on after tax return.

Another issue to take into account is how frequency of interest payments impacts effective yields. I will always select a CD with monthly interest payment when the yield from an acceptable bank is equal to or better than a coupon paid semi-annually or at maturity. When looking at CD rates I do see the monthly interest rate to be equal to or even superior to those that pay interest at maturity. Generally, however, the more frequent case is that the MI payments are at a slightly lower coupon (e.g. a 1 year 1.5% CD paid at maturity or a 1.45% CD with MI).   

Tax Brackets in 2017 - Tax Foundation

A. Eliminated Kingfisher (KGFHY)-Used Commission Free Trade: 

Profit: $40.38

Stocks, Bonds & Politics: Item # 5 Bought 100 KFGHY at $8 (7/8/17 Post)

Dividend: I will receive a semi-annual dividend payment: 

Call it a $49.38 total return or 6.17% based on my total cost (holding period 4+ months)

I will generally consider buying this stock now when the price is at $8 or lower. That is lower than my prior entry point of $10.44 back in September 2014. Stocks, Bonds & Politics: Item #1 Those shares were then sold at over $11 in May 2015 realizing a $65.57 profit.

Quote: Kingfisher (KGFHY)
1 ADR = 2 Ordinary Shares
Traded on the Pink Sheet Exchange (now called the OTC Markets)
London Quote In PENCE:  Kingfisher PLC (U.K.: London)

Website: Kingfisher plc
Kingfisher plc - About us - Company overview - Our history

Think of Kingfisher as the Lowes or Home Depot of the U.K., Ireland, and Parts of Europe.

B. Bought 20 IPG Share at Total Cost Per Share of $18.73 -Used Commission Free Trades-two ten lot trades:

Interpublic Group of Companies Inc (IPG) Company Profile-Reuters.com

2016 Annual Report ("Through our 49,800 employees in all major world markets, our companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines. Our agencies create customized marketing programs for clients that range in scale from large global marketers to regional and local clients. Comprehensive global services are critical to effectively serve our multinational and local clients in markets throughout the world as they seek to build brands, increase sales of their products and services, and gain market share.")

The shares have been trashed this year which has driven the dividend yield up to about 3.74% and the P/E down to about 12+ based on the $1.56 consensus estimate for 2018.

IPG Analyst Estimates
Interpublic Group of Cos. Interactive Chart

The most recent trouble began when the company announced second quarter results. The stock closed at $25.57 (7/24) and at $22.16 the next day. The next move down was caused by the third quarter earnings report. 

Interpublic Group (IPG) Misses Both Q2 Earnings & Revenues - July 25, 2017 - Zacks.com

Interpublic (IPG) Q3 Earnings & Revenues Miss Estimates - October 24, 2017 - Zacks.com

The current quarterly dividend rate is $.18 per share, up from $.06 in 2011. Dividends | IPG At the current rate and a total cost per share of $18.73, the dividend yield is about 3.84%. 

Selected Information from Last Earnings Report: 

"Staff cost ratio, which is total salaries and related expenses as a percentage of total revenue, was 64.5% in the third quarter of 2017 compared to 63.9% a year ago, and was 67.5% in the first nine months of 2017 compared to 66.8% in the same period in 2016.

At September 30, 2017, cash, cash equivalents and marketable securities totaled $705.0 million, compared to $1.10 billion at December 31, 2016 and $894.6 million at September 30, 2016. Total debt was $2.10 billion at September 30, 2017, compared to $1.69 billion at December 31, 2016.

During the third quarter of 2017, the company repurchased 4.7 million shares of its common stock at an aggregate cost of $101.0 million and an average price of $21.69 per share, including fees. During the first nine months of 2017, the company repurchased 9.4 million shares of its common stock at an aggregate cost of $216.0 million and an average price of $22.92 per share, including fees."

I not recall owning this stock in the past. 

C. Bought 35 shares of Macy's at average cost per share of $18.15-Multiple Lots  -Used Commission Free Trades: 

I now own 35 shares, so I am not sweating bullets worrying about what may happen. I bought these odd 5 and 10 share lots before Macy's released its third fiscal quarter earnings report on 11/8, which is discussed below.   

So far at least, investors are responding positively to the report, which probably falls under the category "not as bad as feared". 

M $18.54 $+0.98 +5.52%: Macy's Inc as of 9:43 A.M. E.S.T.

No one would dispute that Macy's stock is a falling knife. Macy's down 50% this year, and it's about to get worse: CNBC (a technical analyst opines before earnings)

Institutional investors are in a herd sell mode. 

Analysts have been falling all over themselves downgrading the stock this year. 

In late October, Citigroup slapped a sell rating on the stock. Cramer on Citigroup Downgrade; Macy's stock plunges toward more than 5-year low after Citigroup downgrade-MarketWatch Citigroup has a $16 price target on the stock: Macy’s earnings: Analysts say the company isn’t making much money in retail-MarketWatch (several analysts quoted-all negative)

The chart is just horrific and shows no signs yet of a bottom. Around this time last year, the stock price was near $45. Macy's Inc. Interactive Chart

Box retailers are on the wrong end of a long term shift to online retailing. Longer term, survival probably depends on having an array of desirable and unique products that can not be bought elsewhere.  

Still, Macy's is probably a survivor and is making moves to adjust, including more attention to its online retailing. (e.g. Macy’s, Inc. Expands Same-Day Delivery Service to Cover 33 Markets; Why Department Stores Continue to Focus on Online Growth - Market Realist)

Macy's also owns some valuable real estate. Investors Are Still Overlooking Macy's Real Estate Potential

My enthusiasm is expressed in my 35 share purchase. 

The current quarterly dividend is $.377 per share. Macy’s, Inc. Board Declares Quarterly Dividend

Assuming a continuation of that rate, which I would not do, the dividend yield at $18.15 (my average total cost per share) would be be about 8.31%. I would expect a dividend cut with a continuation of recent profit and revenue trends or when necessary to preserve the current Baa3/BBB- bond rating.

I have owned for several years one Macy's 7.875% bond bought at par value maturing in 2030. Bond Detail. This bond was originally issued by The May Department Stores Company that was acquired by Federated Department Store's in 2005 for $11B in cash and stock. Press Release - Macy’s, Inc. Federated then owned Macy's and Bloomingdale's and later changed its name to Macy's. I highlighted that 2005 price since it is noteworthy compared to Macy's current market capitalization of $5.3B. What is now known as Macy's is a collection of department store chains including the following chains: Bloomingdale's, Bullocks, Famous-Barr, Filene's, Foley's, Hecht's, Kaufman's, Jordan Marsh, Macy's, Marshall Fields Meir & Frank, Strawbridge-Clothier,  and The Jones Store. 

(Department stores have changed owners many times. In Nashville for example, a department store chain called Mercantile Street acquired the Middle Tennessee department store chain known as Caster Knott. Dillard's acquired Mercantile Street in 1998. Dillard's turned around and sold 5 CK stores to Saks who rebranded the stores as Proffitt's. May Department Store then bought those stores in 2001 from Saks. May was then bought by Federated who renamed itself Macy's. There is now only 1 Macy's store in Nashville, located in Green Hills area and another store located near my residence in Franklin, TN. So Macy's is just barely hanging on here)


Earnings Press Release Fiscal 2nd Q/E 7/29/17)(comparable store sales declined 2.8%; the number of transactions fell 5.5%)

Annual Report for 2017 FY: Real Estate Matters 

(1) "As of January 28, 2017, the operations of the Company included 829 stores in 45 states, the District of Columbia, Puerto Rico and Guam, comprising a total of approximately 130 million square feet. Of such stores, 382 were owned, 330 were leased, 113 stores were operated under arrangements where the Company owned the building and leased the land and 4 stores were comprised of partly owned and partly leased buildings. All owned properties are held free and clear of mortgages. Pursuant to various shopping center agreements, the Company is obligated to operate certain stores for periods of up to 20 years. Some of these agreements require that the stores be operated under a particular name. Most leases require the Company to pay real estate taxes, maintenance and other costs; some also require additional payments based on percentages of sales and some contain purchase options. Certain of the Company’s real estate leases have terms that extend for a significant number of years and provide for rental rates that increase or decrease over time." 

(2)  In 2016, 

(a) "the Company completed a $270 million real estate transaction to recreate Macy's Brooklyn store. The Company continues to own and operate the first four floors and lower level of its existing nine-story retail store, which is currently being reconfigured and remodeled. The remaining portion of the store and its nearby parking facility were sold to Tishman Speyer in a single sales transaction. As the sales agreement required the Company to conduct certain redevelopment activities at Macy's Brooklyn store, the Company is recognizing the gain on the transaction, approximately $250 million, under the percentage of completion method of accounting over the redevelopment period. Accordingly, $117 million has been recognized to-date and the remaining gain is anticipated to be recognized over the next two years.

(b) the Company had property and equipment sales, primarily related to real estate, totaling $673 million in cash proceeds and recognized real estate gains of $209 million. This includes the sale of its 248,000 square-foot Union Square Men’s building in San Francisco for approximately $250 million in January 2017. The Company will use part of the proceeds to consolidate the Men’s store into its main Union Square store. The Company will lease the Men’s store property for two to three years as it completes the reconfiguration of the main store. The Company is expected to recognize a gain of approximately $235 million in January 2018."

(3) in 2017, 

(a) the Company finalized the formation of a strategic alliance with Brookfield Asset Management, a leading global alternative asset manager, to create increased value in its real estate portfolio. Under the alliance, Brookfield has an exclusive right for up to 24 months to create a “pre-development plan” for each of approximately 50 Macy’s real estate assets, with an option for Macy’s to continue to identify and add assets into the alliance. The breadth of opportunity within the portfolio ranges from the additional development on a portion of an asset (such as a Company-controlled land parcel adjacent to a store) to the complete redevelopment of an existing store. Once a "pre-development plan" is created, the Company has the option to contribute the asset into a joint venture for the development plan to commence or sell the asset to Brookfield. If the Company chooses to contribute the asset into a joint venture, the Company may elect to participate as a funding or non-funding partner. After development, the joint venture may sell the asset and distribute proceeds accordingly.

(b) the Company sold its downtown Minneapolis store and parking facility for $59 million of proceeds and a gain of approximately $47 million that is expected to be recognized in the first quarter of 2017. The downtown Minneapolis store will close in early 2017."

Sourced from Page 18 Annual Report

Macy's has been closing underperforming stores for about 5 years now.

Macy’s, Inc. Completes Sale of Downtown Minneapolis Property

However, it is necessary to balance the fair market value of the owned real estate with the high level of debt and the poor operating trends in the retail business. As of 7/29/17, long term debt stood at $6.3B down from $6.597B as of 7/30/16. However, cash was down $217M Y-O-Y. 

The last bond offering was in December 2015 when the company sold $500M in 3.45% SU notes maturing in 2021. Final Prospectus Supplement In November 2015, the company sold $550M of 4.5% SU notes maturing in 2034. Final Prospectus Supplement

Long Term Debt as of 1/28/17: Page F-20 Annual Report

The total was reduced to $6.297B as of 10/28/17

3rd Fiscal Quarter Earnings:

Macy’s, Inc. Reports Third Quarter 2017 Earnings Above Prior Year and Re-affirms Full-Year Guidance; Macy's reports third-quarter earnings beat, revenue miss - MarketWatch


Q/E 10/28/17Adjusted E.P.S. of $.23 vs. consensus of $.19
Same Store Sales Decline of 4% vs. consensus of 2.9%
Revenues +$5.281B vs. consensus of of $5.307B
Full Year Estimated Revenues Down 3.2% to 4.3%
Full Year Same Store Estimated Decline  2,2% to 3.3% 
Cash: $534M
Long Term Debt $6.297B 

Full Year Adjusted E.P.S. Range Estimate $3.38 to $3.63 (which excludes the impact of the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases."

"Excluding the impact of the anticipated fourth quarter gain on the sale of the Union Square Men’s building in San Francisco and the anticipated settlement charges, restructuring and other costs and net premiums and fees associated with debt repurchases, adjusted earnings per diluted share of $2.91 to $3.16 are expected in 2017.". The "settlement charges" reference refers to "non-cash retirement plan settlement charges", which was $22M in the quarter. Another excluded item from GAAP E.P.S. to arrive at adjusted E.P.S. is restructuring charges (e.g. store closures and voluntary separations) that amounted to $33M in the last quarter. 

Reconciliation of GAAP and Adjusted E.P.S.: 

Kohl's is declining on its report released earlier today.  Kohl's Corporation Reports Third Quarter Financial Results ($.70 down from $.8, consensus at $.72; "Excluding the impact of the tax settlement, the Company expects diluted earnings per share of $3.60 to $3.80, compared to its prior guidance of $3.50 to $3.80 per diluted share.")

I thought that the Kohl's report was better than the one delivered by Macy's. At least there was an increase in same store sales (+.1%) KSS $38.91 -$1.88 -4.61%: Kohl's Corporation as of 9:48 E.S.T. on 11/9/17.  

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4.  Equity REIT Common and Preferred Stock Basket Strategy:

A. Added 50 SNR at $8.2-Used Commission Free Trade:

This is a risky REIT stock. I would say that the risk has increased some since I last discussed all of the negative issues.  

In my prior posts, I have pointed out a variety of materially negative issues. I do not view this stock to be an investment; and it is probably not suitable for most individual investors. I will keep my position small and will trade the position. My consider to buy and to sell ranges are declining. 

Quote: New Senior Investment Group Inc.

Closing Price Day of Trade (11/3/17): SNR $8.17 -0.68 -$7.68%

With this trade, I am simply buying back 50 of the 100 shares sold in this account on 7/27/17: Stocks, Bonds & Politics: Item # 4.A. In that post, I noted that there was nothing to like in the second quarter report.

Net Realized Gain To Date = $468.18

Business Segments:

Page 9 2016 Annual Report

Third quarter results were released on 11/3/17. Investors did not like this report and for good reason, though I suspected that the carnage was slightly overdone after reading the earnings call transcript and assuming management had at least some credibility.

While I was expecting a dividend cut from the current $.26 per share, the Board maintained that quarterly rate for now. This penny rate exceeds Funds Available for Distribution ("FAD"), and needs to be cut IMO. I am expecting one.

Assuming the continuation of the $.26 quarterly dividend rate or $1.04 annually, which I would not do, the dividend yield at $8.2 is about 12.68%. If you cut that in half to $.13, which I would do if I had a vote, the dividend yield would be 6.34%, still well above the REIT average rate. The dividend yield on the Vanguard REIT ETF (VNQ) is slightly above 4%.

Results: 

FAD = $.23 per share or $18.796M
Dividend =$.26 per share 

FAD decreased from $.26 per share (or $21.127M) in the 2016 third quarter. FFO declined from $25.269M to $20.587M

The main problem is the managed portfolio segment:

Managed Portfolio Properties:

Holiday is the most important manager and it is owned by affiliates of SNR's external manager.

"Pursuant to a management agreement (the “Management Agreement”), we are externally managed and advised by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), which is a leading global investment management firm with approximately $70.0 billion of assets under management as of December 31, 2016. Fortress, through the private equity funds managed by its affiliates, is a large investor in the senior housing sector. Our Manager (or its affiliates) also manages private equity funds that currently own a majority of Holiday. Blue Harbor is an affiliate of our Manager."

Sourced Page 1 2016 Annual Report (see also page 12 "Conflict of Interest" section and pages 25-28 under "RISKS RELATED TO OUR MANAGER")   

The third quarter numbers were bad, but not as bad as they look on the surface. There was an unusual expense item of $1.484M, related primarily to rehabilitating certain properties damaged by Hurricane IRMA which hopefully will remain an exceptional expense item. Apparently, that was not covered by insurance, but I am not positive on that point. 

New Senior Announces Third Quarter 2017 Results | Business Wire

The disposition of 15 properties will improve occupancy and net operating margin some:

It is my understanding that the external manager will take some of the proceeds as compensation for buying the underperforming properties, just another negative for this REIT:  

Sourced: Pages 12-13  10-Q for the Q/E 6/30/17 

Management claimed in the conference call that part of the downtrend in the was due to Holiday's change in its operating model that was completed in the 2017 second quarter which negatively impacted 90% of SNR's independent living portfolio:

 "Since completion of the conversion in April, our same-store IL portfolio has realized occupancy increases every month, with a total increase of 160 basis points from April to September. We continue to believe that this model change will positively impact property performance over the long-term." (emphasis added) Page 2 CEO Susan Givens on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha

She may or may not be blowing smoke longer term, just no way for me to tell one way or the other. 

Some additional negative items:

(1) Interest expense increased by $.8M primarily due to higher interest rates on SNR's floating rate debt which represents 40% of the $2.1B total. The disposition of 9 assisted living properties located in Florida for $109.5M was closed on 11/1/17; and $79M of the proceeds were used to reduce debt.

As of 9/30/17: 

Sourced: Page 22 Supplemental.PDF

At the moment, the floating rate debt is still cheaper than the fixed rate coupon date, but that will change soon. 

(2) G & A management fees increased $300K in a bad quarter.

(3) Total expense for the quarter was up 4% Y-O-Y. Labor cost per resident increased 3.6%.

(4) The last quarter had a straight-line rent add to revenue of $4.394M which was deducted as a non-cash revenue item from normalized FFO to arrive at AFFO which is the correct way to treat that non-cash revenue item created by the accounting profession. Routine capital expenditures of $1.765M are then subtracted from AFFO to arrive at FAD. Some firms, and it is impossible for me to know who and how much, may include "routine capital expenditures" in the category of capital expenditures that improve the value of the property, thereby inflating FAD.

Other Discussions: 

Stocks, Bonds & Politics: Item # 4.A. Bought 50 SNR at $9.57 

Item #6. Sold 108+ SNR at $11.76 and Item # 7. SOLD Highest Cost Lot SNR Lot in Another Taxable Account-Sold 50 at $11.85: Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha

Item # 5. Added 50 SNR at $8.41+: UPDATE For Equity REIT Basket Strategy As Of 2/12/16 - South Gent | Seeking Alpha

In my SA Comment Blog # 3, I discussed buying a 50 share lot, which is still owned, in a Roth IRA account here. 

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.