Tuesday, December 26, 2017

Observations and Sample of Recent Trades: GMRE, ORIT, SNR (Short Term Maturities in January 2018)

Economy:

Consumers dipped into their savings to fund spending last month: 



The personal savings rate fell to 2.9% from 3.2% in October. 

News Release: Personal Income and Outlays


In the last GDP revision for the third quarter, personal consumption expenditures were revised down to +2.2% from +2.3% in the prior estimate. That is a significant drop off from the 2017 second quarter when PCE was measured at 3.1%. Table 1 Line 2.pdf

It is important longer term for consumer spending to be supported by increases in disposable income rather than increases in debt. The end game for sourcing spending from debt was played out in 2008. It is also an unfavorable trend IMO that current spending is being sourced in part from savings and that is apparently happening now:



Personal Saving Rate-St. Louis Fed


A lack of real wage growth from the bottom three quintiles remains a major concern for the future.

U.S. durable-goods orders jump on aircraft but key number disappoints - MarketWatch

Consumer sentiment continued to slowly sink in December-MarketWatch


New Home Sales:


New Sales.pdf

The median sales price for new homes was $318,700 while the average price was $377,100. I suspect that some buyers of homes in the $750-$1M price range want to grandfather their mortgages before the effective date of the GOP's tax bill. There also may be rational concerns that mortgage rates will start to rise as well.


China likely to set M2 growth target at record low next year: China Daily

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Market Commentary and Markets

Calculated Risk: Goldman on "Fiscal Boost" (minor boost to GDP expected in 2018 and 2019, and then tapering off)


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Trump:

Ivanka has assured the nation that the GOP's tax reform and deregulation efforts will eliminate the U.S. government's debt eventually. Ivanka Trump: Tax cuts and deregulation will 'ultimately eliminate the national debt'Ivanka Trump flubs tax bill pitch on Fox News - Dec. 21, 2017 I feel a lot better now.  


Trump Promised to Protect Steel. Layoffs Are Coming Instead-The New York Times


We can all be grateful that Trump has put an end to the liberals' war against against those who wish to say "Merry Christmas".



The fact that there never was such a war is beside the point. 

The WP published an article about Trump supporters in Perry County Tennessee who supported Trump's tireless effort to end the assault on this "cherished and beautiful phrase". In a pro-Trump town, they never stopped saying ‘Merry Christmas’-The Washington Post 


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1. REGIONAL BANK BASKET STRATEGY


A. Bought 50 ORIT at $16.73 in Schwab Account-Used Commission Free Trade and Bought 50 at $16.7 in Vanguard Roth IRA:



Schwab Taxable: 



Vanguard Roth IRA: 


When placing the order in my Vanguard account, this message popped up: 


The spread at the time of my order was $16.65/$16.7 so I placed a limit order at $16.7. 

Quote:  Oritani Financial Corp.


Website: Oritani Bank : Corporate Profile (the bank has a main office and 25 branches in the New Jersey counties of Bergen, Hudson, Essex and Passaic) 


I decided to come back to this stock as a play on earnings being significantly increased by lower taxes. 


Effective Tax Rates


The effective tax rate is generally over 35%: 


Third Quarter: "Income tax expense for the three months ended September 30, 2017 was $7.1 million on pre-tax income of $19.1 million, resulting in an effective tax rate of 37.2%. Income tax expense for the three months ended September 30, 2016 was $5.7 million on pre-tax income of $16.3 million, resulting in an effective tax rate of 34.9%. The Company’s effective rate in the 2016 period was positively affected by the vesting of stock awards and the exercise of nonqualified stock options and disqualified incentive stock options. There were minimal such events in the 2017 period.  The 2017 period was also negatively impacted by certain changes in State tax rates."


Annual Numbers: 



Sourced from page 43 Annual Report for the F/Y Ending 6/30/17 


Trepidation: I have some trepidation due to a number of factors. 


(1) NIM has been in a major downtrend as noted below. There is no sign yet that NIM will start to expand meaningfully. 


(2) The bank is heavily dependent on mortgage originations in New Jersey. 


(3) The GOP has targeted home ownership in NJ for punishment. NJ is a high property tax and state income tax state. The new $10K limit on deductions for state and local taxes will negatively impact NJ home values and ownership rates. 


(4) The bank just paid out some of its excess capital in a $.45 share special dividend which I will not receive. Oritani Financial Corp. Announces $0.45 Special Dividend


Regular Dividends: The current quarterly rate is $.175 per share. Dividends


At that rate, the dividend yield is about 4.184% at a TC of $16.73 per share.


Last Earnings ReportOritani Financial Corp. Announces Dividend and Quarterly Results


Quotes: 


"Net income increased $1.4 million, or 13.1%, to $12.0 million for the quarter ended September 30, 2017, from $10.6 million for the corresponding 2016 quarter.  The primary cause of the increased net income in 2017 was increased net interest income of $2.3 million.  A portion of the increased net interest income was due to a $658,000 increase in prepayment penalty income.  Our annualized return on average assets was 1.16% for the quarter ended September 30, 2017, and 1.14% for the quarter ended September 30, 2016.


The Company’s primary strategic business objective remains the organic growth of multifamily and commercial real estate loans.


The Company recorded no provision for loan losses for both the three months ended September 30, 2017 and the three months ended September 30, 2016


The Company’s spread and margin have been significantly impacted by prepayment penalties."


End of quotes






The NPL and NPA ratios are good. 


Prior Trades: Only 1


Item # 4 Sold 50 ORIT at $12.49 (2/14/11 Post)Item # 3 Bought 50 ORIT at $11.58 (12/9/2010 Post) 


Historical Numbers


6 Stocks With Strong Book Values - GuruFocus.com


The efficiency ratio has historically been excellent, but NIM has been in a major downtrend: 





2. Small Ball in the Equity REIT Common and Preferred Stock Basket Strategy:

A. Added 20 SNR at $7.65-Used Commission Free Trade:


Quote:  New Senior Investment Group (SNR)


I regard SNR to be high risk. It is an out-of-favor REIT that is externally managed. The stock is a falling knife. 




Two Year History Schwab Account:




Schwab has not yet reinvested the last quarterly dividend. 


Trading Profits To Date: $468.18 (very hard to generate)

Last Discussed: Stocks, Bonds & Politics: Item # 4.A. Added 50 SNR at $8.2-Fidelity Account (11/9/17 Post)


I discussed the third quarter report in that post and have nothing to further to add. 


I was surprised that SNR did not cut its $.26 per share quarterly dividend when it declared its 2017 4th quarter dividend for the reasons discussed in that November post. I view it as likely that the dividend will be cut significantly soon. The last ex dividend date was on 12/7/17. 


For the small positions owned in my Fidelity and Schwab accounts, I will reinvest that dividend. I also currently own 100 shares in my IB account where I do not reinvest any dividends. 


Personally, if I was on the Board, I would vote to cut the quarterly dividend to $.18 per share, effective for the first quarter of 2018. Assuming that happens, and I do not know what will happen, the dividend yield would be about 9.41% at a TC of $7.65 per share. At the current $.26 penny rate, the yield at that TC number would be about 13.59% which tells you that this rate will soon be a memory. If continued at that rate, it would be reckless and imprudent.


Recent SNR article at SA: New Senior Investment Group: 13.3% Dividend May Get Cut, But There's Still Upside - New Senior Investment Group (NYSE:SNR) | Seeking Alpha


B. Bought 100 GMRE at Average Total Cost Per Share of $8.48-Used Commission Free Trades (two 50 orders filled at $8.2 and $8.72):


Two Year History GMRE This Account:




Quote: Global Medical REIT Inc. (GMRE)


Company Website: Global Medical REIT

Portfolio – Global Medical REIT

November 2017 SEC Filed Investor Presentation 


The stock went ex dividend shortly after my purchase.


GMRE is a relatively new externally managed REIT that is growing its portfolio through acquisitions of healthcare properties that are subject to triple net leases. The following excerpt from the last earnings reports summarizes the acquisitions made in the 2017 third quarter:



As of 9/30/17, this REIT owned 50 buildings leased to 38 tenants that contain 1.186+M net leasable square feet with a 100% occupancy rate.

One potential problem is that REIT needs to sell more stock in order to grow its portfolio. GMRE has a stock ATM in place to sell up to $50M in common shares: Prospectus


GMRE recently raised capital by selling an equity preferred stock whose owners have a superior claim to dividends compared to the common shareholders.


Global Medical REIT 7.5% Cumulative Preferred Series AProspectus


The preferred stock does not dilute the ownership interests of existing common shareholders since the preferred shareholders have no equity interest in the business. 


The last public offering of stock was in June 2017 when the company sold 3.5M shares, plus the standard underwriters' option for up to an additional 525K shares, at a $9 public offering price. The net to the company was $8.505 excluding the $350K in expenses paid by GMRE. Before the announcement, the stock price was $9.83. Prospectus


The recent weakness in the stock price may be due to investors anticipating another share offering soon. The price has declined from $9.75 on 11/24/17: Global Medical REIT Inc. Interactive Chart


The IPO offer price was at $10 per share. Prospectus (dated 6/30/2016)


External Manager Compensation: See pages 16-17 10-Q for the Q/E 9/30/17


The company ousted its CEO and CFO last August purportedly based on the Board wanting a change in leadership. Global Medical REIT Inc. Announces Management Change The Chairman assumed the role of CEO. Global Medical REIT Inc. Announces Appointment of New Chief Financial Officer ("Mr. Kiernan will succeed Donald McClure, who is pursuing other opportunities.")


Links to Some Prior Discussions (used commission free trades round-trip):


Stocks, Bonds & Politics: Item # 3.C. Sold 50 GMRE at $10.01 (5/23/2017 Post)


Stocks, Bonds & Politics: Item 3.A. Bought 50 GMRE at $8.36 (2/23/17 Post)


South Gent's Comment Blog # 7: Eliminated GMRE


South Gent's Comment Blog # 2: Bought 50 GMRE at $9.11


As expressed I do not regard this REIT as a viable long term holding until it covers its dividend with real cash flow with a 10% or so cushion and lightens up on acquisitions and stock offerings. 


A peek over $10 will now generate an elimination. I may sell my highest cost lot when and if the price exceeds $9.5. 


Dividend: Quarterly at $.20 per share-Fourth Quarter Common and Preferred Dividends


Using my current average total cost per share of $8.48, the dividend yield is about 9.434%.


The dividend is not yet covered by AFFO as shown in the following snapshot. I suspect that all or most of the dividends paid in 2017 will be classified as return of capital given the level of GAAP net income. There was a net loss using GAAP of $1.559+M as of 9/30/17, page 33.


Effective Federal Tax Rates on REIT Dividends Reduced:



Recent Earnings ReportGlobal Medical REIT Inc. Announces Third Quarter 2017 Financial Results




Other Recent NewsCompany Announces Closing of the Acquisition of the Central Texas Rehabilitation Hospital in Austin Texas; Closing of the Accordion Feature of its Revolving Credit Facility (9/9/2017)


Realized Gains To Date: $204.29 (very hard to generate)


I regard GMRE to be a high risk REIT.  

3. Short Term Bond/CD Ladder Basket Strategy:

Maturities in January 2018 (a non-cluster month):


2 Bank of India 1.2% CDs 1/10/18

2 Everbank 1.05% CDs 1/11/18
2 Citizens Bank 1.2% CDs 1/11/18
3 Vepco 1.2% SU Bonds 1/15/18
2 Treasury .875% 1/15/18
2 Bard 1.375% SU Bonds 1/15/18
2 Brown & Forman 1% SU Bond 1/15/18
2 Royal BK of Canada 1.5% SU Bonds 1/16/18
1 Deere 1.35% SU Bond 1/16/18
1 WFC 1.5% SU Bond 1/16/18
1 Statoil 1.2% SU Bond 1/17/18
2 Whitney BK 1.2% CDs 1/25/18
1 Compass BK 1.25% CD 1/28/18
2 Bank of China 1.4% CDs 1/29/18
3 Enterprise Bank 1.3% CDs 1/29/18
3 Banc of California 1.35% CDs 1/29/18
2 Centerstate Bank 1.4% CDs 1/30/18
1 Bank of China 1% CD 1/30/18 (a 1 year CD)
2 Merck 1.1% SU Bonds 1/30/18
1 Treasury .75% 1/31/18
2 Treasury .875% 1/31/18

$39K Maturing 


Since I do not pay a commission when buying U.S. treasuries in 3 brokerage accounts, I will frequently buy 1 bond several times, usually when the YTM goes up from the prior purchase and the yield is competitive with CDs maturing at about the same time.  


As of last Friday, the probability of a .25% hike after the FED's meeting in  March was at 57.3%. 


The greater than 50% probability of two .25% hikes does not arise until the September meeting, currently at 61.6%. Those odds increase to 72.9% on or before the December 2018 meeting. Countdown to FOMC: CME FedWatch Tool Those probability numbers will impact my clustering of maturities and when I will reinvest proceeds from maturing securities. I currently have $71K in principal amount maturing in February and March

A. Bought 2 Bank of Montreal 1.5% SU Bonds Maturing on 7/18/19


Finra Page: BondDetail

Moody's at A1 
S & P at A+ 
Fitch at AA-
DRBS at AA


Bought at a Total Cost of 99.239 
YTM Then at 1.975%
Current Yield at 1.51%

B. Bought 1 Goldman Sachs Bank 1.55% CD Maturing on 9/6/18 (9 month CD):




C. Bought 1 Volunteer State Bank 1.5% CD (monthly interest payments) Maturing on 9/21/18-A Roth IRA Account (9 month CD):



The Volunteer State Bank is headquartered in Portland, TN.

This bank has a 4 star rating by Bankrate: Volunteer State Bank Bank Reviews and Ratings - Bankrate.com


D. Bought 2 Volunteer State Bank 1.4% CDs (monthly interest payments) Maturing on 6/22/18 (6 month CD):






E. Bought 1 American Express BK 1.9% CD (semi-annual interest payments) Maturing on 12/5/19:




F. Bought 1 Treasury 1.375% Coupon Maturing on 9/30/18-A Roth IRA Account:

YTM =1.546%




G. Bought 1 Treasury 1% Coupon Maturing on 11/30/18:

YTM = 1.611%



H. Bought 1 Beal Bank 1.45% CD Maturing on 7/18/18:




I. Bought 1 Brand Banking 1.45% CD (Monthly Interest) Maturing on 7/30/18:




Four Star Rating: The Brand Banking Company Bank Reviews and Ratings - Bankrate.com


J. Bought 3 Banc of California 1.35% CDs Maturing on 1/29/18 (1 month CD-discussed out of order due to short maturity)




4. Intermediate Term Bond/CD Ladder Basket Strategy:

I am continually to pare my allocation to intermediate term corporate bonds. Most of the proceeds now are being used to buy high quality corporate bonds maturing in 2018-2019.  


A. Sold 1 JPM 2.295% SU Bond Maturing on 8/15/21:




Interest rates rose meaningfully on 11/29/17. I noticed that day that a two year CD maturing in November 2019 had a 1.9% coupon (see Item # 3.D above).


I am expecting a continued rise in short term rates in 2018 and thought the odds were favorable that a two year CD would have a 2.3% yield before 6/30/18. This is just more small ball.


If that prediction proves prescient, I may be able either to buy this bond back at less than 97 within a few months or to buy a CD that has a shorter term and a current yield close to this bond.


Profit Snapshot: +$8.64



FINRA PAGE: Bond Detail

Sold at 99.306

YTM Then at 2.492%
Current Yield: 2.311%

Bought at a Total Cost of 98.432

Item # 2.C. (2/4/17 POST)
YTM at TC = 2.866%
Current Yield at TC = 2.33%

B. Sold 2 Ventas 3.5% SU Bonds Maturing on 2/1/25




Profit Snapshot: +$39.3



FINRA Page: Bond Detail

Issuer: Operating Partnership of  Ventas Inc. (VTR)

Credit Ratings | ventasreit

I sold my highest cost 2 bond lots and kept the lowest cost 1 bond lot. 


Sold at 100.8

YTM Then at 3.369%
Current Yield at 3.472%

 bought these two bonds in 1 bond lots. 


Bought 1 at TC  99.073

Item # 2.F. (5/28/17 Post) 
YTM Then at 3.628%

Bought 1 at TC of 98.397

Item 2.A. (7/7/17 Post) 
YTM Then at 3.741%

I still own 1 in my IB account which I am likely to keep unless the price goes over 102. 


Bought 1 at TC of 97.484

Item # 1.A. (3/28/17 Post)
YTM Then at 3.873%

My next transaction will more likely be a buy below 97.  


C. Sold 1 GATX 3.25% SU Bond Maturing on 9/15/26




Profit Snapshot: $2.21





FINRA Page: Bond Detail


Sold at 97.543

YTM Then at 3.579%
Current Yield at 3.332%
Net at 97.453

Bought at a Total Cost of 97.222

Item # 1.B. 
YTM Then at 3.604%
Current Yield at 3.343%

I still own 1 GATX 3.25% SU bond maturing in 2025: Item # 1.E. Bought at 97.095 


DisclaimerI 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. 

8 comments:

  1. For those in high tax brackets, there has been a change in how REIT dividends are taxed that is summarized in this GMRE press release.

    https://www.businesswire.com/news/home/20171226005072/en/Effective-Federal-Tax-Rates-REIT-Dividends-Reduced

    The change does not impact the non-taxation of the return of capital component in each dividend.

    Starting in 2018, "individual shareholders will receive a deduction equal to 20% of REIT dividends received (resulting in a maximum 29.6% effective federal income tax rate on ordinary REIT dividends for individual taxpayers in the top 37.0% tax bracket"

    Except for the ROC component of a REIT dividend, all or virtually all REIT dividends are taxed at ordinary income rates since there is no taxation at the corporate level in pass through entities. Consequently, many high tax bracket investors will own them in retirement accounts. The tax law change makes the taxation of REIT distributions more favorable for those high tax bracket investors but the dividend would still be taxed at a higher rate than qualified dividends.

    See also Page 3:

    http://www.willkie.com/~/media/Files/Publications/2017/12/Tax_Cuts_Jobs_Act_Conference_Agreement.pdf

    ReplyDelete
  2. For myself, I would not buy an ETF like the Horizons Marijuana Life Sciences Index ETF (CA:HMMJ), but I did buy 100 shares in one of Left Brain's screwy Christmas gifts for a youngster.

    Quote:
    https://www.marketwatch.com/investing/fund/hmmj?countrycode=ca

    I did not buy this ETF for him but will instead "gift" to him any profit expressed in USDs. The decision on when to sell is up to him. 100% of the loss, if any, is absorbed by me. So he has to keep track of both the ETF's price and the CAD/USD conversion rate when making a decision on when to sell.

    Of the stocks owned by this Canadian ETF, I would not personally buy any of them. The only profitable company is probably SCOTTS MIRACLE-GRO and I view that stock as too expensive to buy.

    Sponsor's page:

    https://www.horizonsetfs.com/hmmj

    I would not defend the price of this ETF but would only note that it is up more than 50% since it was launched at C$10 in April 2017.

    ReplyDelete
    Replies
    1. After looking into this ETF some more, I noticed that another ETF apparently started trading in the U.S. today.

      https://www.marketwatch.com/investing/fund/mjx

      https://www.businesswire.com/news/home/20171226005062/en/ETF-Managers-Group-Announces-MJX-Live-Trading

      Sponsor's website:

      http://www.mjxetf.com/

      Possibly some of the price rise today relates to that new fund buying stocks.

      Delete
    2. Compared to crypto currencies, cannabis is obviously the better bet. What a long strange trip it's been.

      Best wishes for the New Year SG!

      Delete
    3. Horizons Marijuana Life Sciences Index ETF (HMMJ:CA)
      C$21.20 +C$ 2.27 +11.99%
      Last Updated: Jan 2, 2018 4:54 p.m. EST

      https://www.marketwatch.com/investing/fund/hmmj?countrycode=ca

      As is common with Old Geezers, my memory is starting to get fuzzy, brain is turning to mush, soft in the head so to speak. Did I give a Christmas gift of the HMMJ profit?

      Delete
  3. Fortress Biotech, Inc. (FBIO)
    $3.46+0.19 (+6.13%)
    As of 12:48PM EST
    https://finance.yahoo.com/quote/FBIO?ql=1&p=FBIO

    National Holdings Corporation (NHLD)
    $3.16+0.23 (+7.85%)
    As of 12:52PM EST
    https://finance.yahoo.com/quote/NHLD?ql=1&p=NHLD

    I own both stocks as Lottery Tickets. Yesterday, I added 50 to FBIO at $3.33 and will discuss the trade in about a week. That was an average down from a 50 share purchase discussed here:

    Item #3.B.
    https://tennesseeindependent.blogspot.com/2017/07/observations-and-sample-of-recent_25.html

    I bought 100 NHLD earlier this year and have an unrealized profit at the moment.

    As I discussed in that post, FBIO has a majority interest in NHLD which is used to take public FBIO's small biotech companies that it incubates. FBIO's current ownership percentage is 56.6% of outstanding shares and approximately 51.4% of NHLD's issued and outstanding shares of common stock on a fully-diluted basis.

    I thought that FBIO was declining in price in part to tax loss selling but that is impossible to determine. Just guessing here.

    I decided to buy another 50 shares after looking at NHLD's recently filed annual report and FBIO's December 2017 investor presentation.

    I doubt that NHLD will come close in the current F/Y to its $1 per share in earnings for the F/Y ending 9/30/17.

    Page 25
    https://www.sec.gov/Archives/edgar/data/1023844/000102384417000014/nhld930201710-k.htm

    NHLD has some legal problems that are still be litigated and settled (see page 21)

    The market cap at a $3.12 price is about $39M.

    FBIO Investor Presentation:

    https://www.sec.gov/Archives/edgar/data/1429260/000114420417063589/tv481322_ex99-1.htm

    Three of the subsidiaries have been taken public and the noteworthy one is probably Mustang BIO (MBIO) which has 2 products in Phase 1:

    https://www.marketwatch.com/investing/stock/mbio

    The other two are CKPT and ATXI which are struggling in the two single digits:

    https://finance.yahoo.com/quote/CKPT?p=CKPT

    https://finance.yahoo.com/quote/ATXI?p=ATXI

    Looking at the list of compounds at pages 9-12, there seems to be a lack of focus which is important for clinical startups given the cash burn rates. I have no idea whether any of these incubator companies will be successful.

    ReplyDelete
  4. There is a meaningful downdraft in intermediate and long term treasury yields today:

    iShares 7-10 Year Treasury Bond ETF
    $105.52 +$0.435 0.41%
    Last Updated: Dec 27, 2017 at 2:02 p.m. EST
    https://www.marketwatch.com/investing/fund/ief

    The SPDR S&P Regional Banking ETF is down slightly.

    I can not assign any reason for the decline today other than the decline in European government bond yields:

    Germany 10 Year Government Bond
    0.383% -0.036
    Last Updated: Dec 27, 2017 6:02 p.m. CEST

    There is a period before the "3" in that yield quote.

    U.S. interest rates are not set as if nothing exists outside of the U.S. The CB manufactured, abnormally low rates throughout foreign developed markets creates demand for U.S. treasuries at a time when the U.S. FED is still hogging supply, though slowing winding down its holdings:

    https://www.newyorkfed.org/markets/soma/sysopen_accholdings.html

    The yield curve will compress whenever U.S. intermediate and long term rates decline as the FED continues to increase short term rates.

    The ECB has a negative .4% benchmark short term rate and is still buying a lot of bonds, creating artificial shortages.

    https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html

    ReplyDelete
  5. I have published a new post:

    https://tennesseeindependent.blogspot.com/2017/12/observations-and-sample-of-recent_30.html

    ReplyDelete