Monday, March 12, 2018

Observations and Sample of Recent Trades: CIO, DOC, H:CA, LXP, NWH.UN:CA

Economy

The government reported last Friday that the economy added 313,000 jobs last month, much higher than the consensus of 222,000. The numbers for January and December were revised up by 54K. Hourly wages increased by 4 cents. The Y-O-Y increase in wages declined to 2.6% from 2.8%. Employment Situation Summary


U.S. economy gains 313,000 jobs in February; wage growth slows: Reuters 


This report guarantees that the FED will raise the FF rate by .25% next week IMO, which is not a news item. The Bond Ghouls are still not 100% sure however:  




Countdown to FOMC: CME FedWatch Tool


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Trump Signs Tariff Order on Metals With Wiggle Room for Allies-Bloomberg

The tariffs will take effect in 15 days from last Thursday. 


While the tariffs will not initially apply to steel and aluminum exports from Canada and Mexico, a continuation of the exemption is tied to progress in the NAFTA renegotiation. Trump says he will terminate NAFTA if he does not like the result.   


Trump sets steel and aluminum tariffs; Mexico, Canada exempted: Reuters (Mexican Economy Minister Ildefonso Guajardo told Reuters, "Under no circumstance will we be subject to any type of pressure.") 


The Canadian Foreign Minister, Chrystia Freeland, stated that Canada's approach to NAFTA would not be altered by Trump's attempt to link the tariffs to a revised NAFTA agreement acceptable to Donald.  


Trump Turns Steel Tariffs Into Nafta Bargaining Chip - Bloomberg



One former George W. Bush trade negotiator said that the linkage has the feel of an "extortion racket", possibly something Trump learned in the NYC construction business. 

For countries that do not win an exemption, the tariffs will be 25% for steel and 10 for aluminum. Those levels were given to the news media last week by Trump so there is no surprise there.   


China says it’s ‘strongly opposed’ to Trump’s tariffs - MarketWatch


I seriously doubt that Europe, China, Japan, South Korea, Brazil or the EU will win an exemption, which is apparently based on Trump's ad hoc approach to everything, but possibly Australia already has one. Japan and E.U. spar with U.S. in Brussels over trade and tariffs-The Washington Post So I am expecting retaliation measures by several countries before month's end. 

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Market Commentary and Markets:

Bank of America's two charts that show the bond bloodbath is ending: CNBC (technical reasons why the ten year treasury may decline in yield to retest the 2.6% level) 

Asia-Pacific nations sign sweeping trade deal without U.S.: Reuters Since the Trump refused to go along, U.S. meat producers will face a 38.5% tariff when exporting to Japan but the other signatories including Canada and Australia will not have to pay. 
U.S. Allies Sign Sweeping Trade Deal in Challenge to Trump - The New York Times 


The trans-Atlantic trade treaty, ex-U.S., covers 500 million people on both sides of the Pacific Ocean. Just one example of Trump making America great again. The Petersen Institute estimates that the treaty will generate for the signatories $147B in additional income per year. Page 7 Table at pages 14-15 Working Paper 17-10: Going It Alone in the Asia-Pacific: Regional Trade Agreements Without the United States (negative for the U.S.)

The Next Recession May Come as a Surprise - Bloomberg (opinion article arguing that a recession is possible late next year or just in time for the 2020 election). 

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Portfolio Management


My primary stock allocation at the moment consists of Vanguard and T.Rowe Price mutual funds. I have smaller positions in the Matthews Asia Pacific Tiger, Matthews China Dividend, and Permanent Portfolio mutual funds held in my Schwab account.   


For my T.Rowe Price account, where I now have my largest stock allocation, I am continuing my buy and hold strategy. 


Given the market's valuation, however, I am now taking the dividends in cash which has led to a build up in my cash allocation in that account. The year end total distribution last December was close to $8K. As I recall, I redirected only about $500 of those year end distributions back into the funds (two $250 additions)


My three Vanguard funds in order of size are the Vanguard Equity Income Admiral Class Fund (VEIRX); the Vanguard Health Care Fund Price (VGHCX), and the Vanguard Capital Opportunity Fund (VHCOX)


I am done paring my VGHCX and VHCOX positions. 


I am still in a controlled burn of the Vanguard Equity Income position where I will sell $1K when the value exceeds $51K. That is not likely to occur soon given the market's February decline and the fact that I am taking the dividends in cash. The current value is close to $48.5K. The quarterly cash dividend will be close to $400 late this month. My last pare was in January: Item # 5 Sold $1K VEIRX at $81.57 (1/28/18 Post) The market's move in January allowed me to do two $1K pares. Item # 5 Sold $1K VEIRX at $79.92 (1/18/18 Post).


I have still have over 200 commission free trades left in my Fidelity account and probably less than 100 in my Schwab account. I have to have a live chat with a Schwab representative to find out how many that I have remaining while Fidelity provides the number online in my account. 


I intend to use all of those trades buying small lots positions mostly in high yield stocks that have been shellacked in price due primarily to a rise in interest rates. Those common stocks buys are in the BDC, MREIT and Equity REIT sectors. 


I have also bought recently small odd lot positions in PG, XOM and CPB in response to price declines. I do not favor those three stocks, but will attempt to trade them from time to time. 


If I own less than 100 shares in July resulting from those small odd lot buys, I may round the position up to 100 shares or sell the odd lots if I can do so profitably. 


When making a decision whether to buy a short term treasury or a CD, I will compare yields. 


As an example, I bought last Friday a 1.25% Treasury that matures on 12/15/18. The YTM was then at 2%:  




I now own 5 bonds. 


Fixed coupon treasuries can be bought commission free at Schwab, Vanguard and Fidelity, either in the secondary market or at auction. This treasury was bought in the secondary market. 


Before I bought this treasury, I checked the CD rates for December and the best offer was 1.85%: 



At Schwab and Fidelity, I can buy original issue CDs without a commission and in $1K lots. At Vanguard, I have to buy $10K which I will not do currently in my ladder strategy that has a continuous flow of proceeds throughout the month.

There is no reason IMO to buy a CD that yields 1.85% when a treasury maturing at about the same time has a 2% yield. While the difference in income is immaterial of course for a $1K lot, it does add up when spread over my entire fixed income portfolio and over time. 


While liquidity is not a factor for me, CDs are basically illiquid, whereas treasuries can be sold whenever the market is open. Even if a buyer could be found for a CD, the investor would probably have to take a hit. The bid/ask spreads for treasuries are generally narrow even for 1 bond lots.  


When I bought this 12/15/18 treasury, I also looked at the yield of other treasury securities maturing at about the same time. 




Of the fixed coupons maturing in December 2018, the 1.25% maturing on 12/15/18 gave me the highest YTM. I would have been fine with the 1.5% maturing on 12/31 that had then a 1.911% yield due to the higher current yield. 


Another minor factor in favor of the 12/15 maturity is that short term interest rates are rising; and I will be able to reinvest the proceeds 16 days sooner compare to the treasury maturing on 12/31. In a period where short term rates are likely to decline, I would prefer the longer maturity. 


Generally, I would go with the short term CD when it has the same or greater YTM as the treasury but makes monthly interest payments. An example was this purchase last Friday of a 2.5% Wells Fargo CD maturing on 3/15/20 which pays interest monthly



The treasuries maturing in March 2020 paid less and their payments are made semi-annually: 




The best YTM in that grouping 2.288%. That treasury has a 1.375% coupon so a considerable amount of the YTM is represented by the spread between cost and par value at maturity. The current yield would be about 1.4%

So another consideration is the current yield being meaningfully higher in one security compared to another maturing at about the same time and with the same or similar credit risk. 


All other considerations being equal, I would prefer the meaningfully higher current yield in percentage terms, even though the YTMs are similar.  

My income strategy is focused on generating a continuous, almost daily, cash flow where I can aggregate the cash flow and then reinvest in whatever looks good to me at the moment taking into consideration my financial objectives that tilt strongly to capital preservation. 


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Trump

So Donald is going to be the first sitting U.S. President to meet with the North Koreans, apparently without any firm or even loose agreement on basic items of an agreement


There are very high, very scary stakes in the Trump-Kim faceoff - CNN 


North Korea Nuclear Timeline Fast Facts - CNN (NK had agreed in the past to get rid of its weapons, but would not permit an inspection to verify and dragged its feet, see entries for April 2005, September 2007, and October 2008)


Maybe this time will be different, but I would not view that result as likely. I do not view Trump's attendance at a meeting to be advisable until the Secretary of State and other officials meet with their counterparts in NK to determine whether an agreement acceptable to the U.S. is likely. A ‘Hail-Mary moment,’ a ‘bad idea’: Foreign-policy experts weigh in on Trump-Kim meeting - MarketWatch


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Draghi Asks Who Needs Friends Like These Amid Trump Threat - Bloomberg (“If you put tariffs against what are your allies, one wonders who the enemies are”) 

Trump’s Hard-Line Take on Trade Plays Into China’s Hands - Bloomberg


It would not be reasonable for any foreign leader, whose country is impacted by Trump's tariffs, to rely on Trump's good faith. Trump Says U.S. to Be Very Flexible on Tariffs He’ll Sign Today - Bloomberg


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While the GOP's claims about Uranium One and Hillary were always spurious, the following linked memo, which summarizes an interview with the foundational source of the GOP's false claims, demolishes that sources credibility and his failure to substantiate this particular GOP hatched conspiracy theory. The republicans of course refused to release a transcript of the interview, much preferring instead to hide the information from the public. 2018-03-08.Interview Summary of Campbell Interview for Members-2.pdf



The remaining part of the memo summarizes that this "confidential" source could not support any of the claims made by Trump and other republicans on this matter.


The republican politician referenced in the memo is Ron DeSantis, who represents Florida's 6th congressional district. DeSantis is retiring from Congress to run for Governor. I view him as a Devin Nunes clone with a deeper suntan. 


The republicans will continue to resurrect Hillary as their bogeyman simply because it works with their base and distracts from Trump's problems. 


Informant had no evidence Clinton benefited from uranium sale: Reuters


The Hillary Clinton Russia Uranium One Conspiracy Theory Doesn’t Make Any Sense: Newsweek

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1. Equity REIT Common and Preferred Stock Basket Strategy:


A. Added 100 Northwest Healthcare Properties at C$10.58 (C$1 Commission at IB)




Quote: Northwest Healthcare Properties Real Estate Investment Trust (Canada: Toronto) 


Website: NorthWest Healthcare Properties

Property Map  

Northwest released its 2017 4th quarter report last Friday morning, which I discuss below. The market reacted favorably to it: 


Closing Prices 3/09/18:


Toronto Listed Shares:  NWH-UN.TO C$11.07 +C$ 0.18 1.65%

U.S. Grey Market: NWHUF US$8.56 $0.26 3.11%

The CAD rose in value against the USD last Friday.


NWHUF is the USD priced ordinary shares traded in the Grey Market. Volume is sporadic in that market and limit orders have to be used after converting the CAD ordinary share price into USDs. A symbol ending in "F" indicates ordinary shares rather than an ADR. 


Technically, this security is described as a unit rather than a share. Distributions are not described as "dividends" but as "distributions". The distributions paid by a Canadian REIT, a pass through entity, are not exempt from the Canadian withholding tax when owned in a retirement account. I will buy Canadian REITs only in taxable accounts since there is no way to recover a withholding tax when the distribution is paid into a U.S. retirement account.   


Dividends: Monthly at C$.06667 per unit or C$.80 annually 


Northwest Healthcare Properties Real Estate Investment Trust Announces February 2018 Distribution


Distribution Yield at C$10.58: 7.56%


Current Position: 400 Units of CAD Priced Ordinary Shares


Total Average Cost Per Unit: C$10.115 


Current Distribution Yield at Average Cost 400 units7.909%


Last Purchase DiscussionsItem # 1.B. Sold 100 NWHUF at US$8.79  (8/21/17 Post)(profit snapshot= +$106.98)-Item 5.A. Bought 100 at $7.72 (1/27/17 Post)(U.S. Grey Market Exchange)


Item # 6.A. Added 100 NWH.UN at C$10.62 (8/13/17 Post)(Toronto exchange) 


Last Earnings Report: Q/E 12/31/17 released after my last purchase


NorthWest Healthcare Properties Real Estate Investment Trust releases strong fourth quarter 2017


2017 Highlights: 

Financial Data:   



Properties by Type and Country: 




Other Prior Trades


I sold 1000 CAD priced shares in my Fidelity account and immediately converted the proceeds into USDs. Stocks, Bonds & Politics: Item # 1.A. (USD profit snapshot = $606.31).


Item # 1  Added 100 NWN.UN at C$9.58Update For Equity REIT Basket Strategy As Of 5/5/16 - South Gent | Seeking Alpha

Bought 300 NWN.UN at C$ 7.68 Update For Equity REIT Basket Strategy As Of 7/24/15 - South Gent | Seeking Alpha


I also discussed a purchase in my Comment Blog # 6 (on 12/4/2016 at 11:06 A.M. discussing a purchase at C$9.6).  


Realized Profits to DateUS$713.29


News Releases


NorthWest Healthcare Properties REIT Provides Update on Vital Healthcare Property Trust's Strong Half Year Results (2/26/18)("25% interest in Vital Trust. Vital Trust is also managed by a wholly owned subsidiary of the REIT."; Vital Healthcare Property Trust(New Zealand: NZX) )


NorthWest Healthcare Properties Real Estate Investment Trust Announces Significant Acquisition, Disposition and Refinancing Activity (2/1/18 Press Release):




NorthWest Healthcare Properties REIT Announces Intention to Redeem Two Series of Convertible Debentures Totalling $40 Million with a Weighted Average Interest Rate of 7% (11/9/17) 


NorthWest Healthcare Properties REIT Announces Successful Completion of Previously Announced Bought Deal Equity Offering (10/13/17 Post)(sold 13.1333M units at C$10.95)


NorthWest Healthcare Properties Real Estate Investment Trust Provides Update on Australian Leasing. Acquisition, Development, and Financing Activities at Generation Healthcare (9/27/17 Release)


Northwest Healthcare Properties REIT Successfully Completes Acquisition of Generation Healthcare REIT (7/17/17 Press Release)(" Combined with its NSX-listed Vital Healthcare Properties platform, the REIT now controls nearly $2.0B of Australasian healthcare real estate comprising 53 properties located in the major markets of AucklandBrisbaneMelbourne and Sydney and characterized by long-term inflation-indexes leases, stable occupancies and high quality healthcare tenants.")


I owned Generation Healthcare REIT shares bought on the Australian Stock Exchange. Item # 4.A. Bought 700 GHC:AU at A$1.91 (3/6/17 Post) 


NorthWest Healthcare Properties REIT announces successful completion of previously announced bought deal equity offering and full exercise of over-allotment option for gross proceeds of approximately $97.8 million (4/6/17 Press  Release (sold 9.1793 units at C$10.65)


NorthWest Healthcare Properties REIT announces successful completion of previously announced  unit offering (1/31/17 Press Release)(sold 8.5445M units at C$10.1) 


NorthWest Healthcare Properties REIT Provides Portfolio Update Reflecting Continued International Growth (1/10/17)


NorthWest Healthcare Properties REIT Successfully Completes Brazil Hospital Acquisition (10/24/16) 


NorthWest Healthcare Properties REIT Executes on $145 Million of Brazil Hospital Acquisitions (July 2016)


NorthWest Healthcare Properties REIT Announces Successful Completion of Public Offering of Trust Units and Convertible Debentures for Aggregate Gross Proceeds of $146 Million (July 2016)


NorthWest Healthcare Properties REIT announces acquisition of strategic interest and management rights to ASX Listed Generation Healthcare REIT (Generation Healthcare is an Australian REIT that exclusively invests in healthcare properties, Generation Healthcare REIT)


Northwest Healthcare Properties REIT Announces $100 Million Bought Deal Financing to Support $325 Million of Accretive International Acquisitions (July 2016)


NorthWest Healthcare Properties REIT Provides Update on Vital Healthcare Property (June 2016)


NorthWest Healthcare Properties REIT Announces Exercise of Over-Allotment Option in Connection with Recent Equity Offering For $80 Million in Aggregate Proceeds (April 2016)



NorthWest Healthcare Properties REIT Completes Acquisition of German Medical Office Building (April 2016).



Northwest was a small REIT when I first bought shares and is growing fast through acquisitions financed in part by public unit and convertible bond offerings. There is always a danger that this kind of buying spree can end badly, but I do not see any evidence of that happening yet. It can also end up being a worthwhile transition to a much larger business. 

The acquisitions in Brazil are potentially riskier than the ones in Germany and Australia. Hard to say, but there is a very long history of capital confiscation or punitive laws by Latin American countries. Countries like Argentina and Venezuela are just the worst examples.  


Small Ball Trades-REIT Basket Strategy: In these small ball trade discussions, I will discuss the last earnings report when there was no prior discussion of that report. Any subsequent discussion prior to the next earnings report will simply link back to the prior discussion.   


B. Bought 10 CIO at at $10.19-Used Commission Free Trade




Quote: City Office REIT Inc. (CIO)


This purchase starts a "10 share buying program" in this office REIT.


Closing Price Last Friday (3/9/18):  CIO $11.23 +$0.21 +1.91%


Website: City Office REIT


Properties (owns 48 office buildings in 8 cities with approximately 5.2M square feet of net rentable area).


Chart: On the day of my purchase, the shares were trading well under their 50, 100 and 200 day SMA lines after doing a swan dive from a $13.05 close on 12/28/17.


List of Properties as of 9/30/17: Form 10-Q at pages 21-22


Management: Internal


The company internalized management in February 2016: Form 10-Q at page 7


Dividend: Quarterly at $.235 or $.94 annually


Dividend Yield at $10.19 TC = 9.05%


Tax Treatment of 2017 Dividends (significant ROC support):




City Office REIT Announces Tax Treatment of 2017 Distributions


Last Earnings Report: Q/E 12/31/17


City Office REIT Reports Fourth Quarter and Full Year 2017 Results




I would not get too excited by this report. 

The current quarterly dividend exceeds the cash available for distribution. 


There is a meaningful difference between "core FFO" and "AFFO" which is the more accurate cash flow number.


2018 Guidance:


This report was released after my purchase. The market responded favorably to it: Closing Price 3/1/18: CIO $10.52 +$0.48 +4.78%


The price rise was notable in that the DJIA closed down 420+ points that day.


CEO James Farrar on Q4 2017 Results-Earnings Call Transcript | Seeking Alpha


Recent News:


City Office REIT, Inc. Announces Closing of Upsized Public Offering of Common Stock and Full Exercise of Underwriters' Option (12/21/17)(sold 5.75M shares at a public offering price of $12.6); Final Prospectus Supplement



City Office REIT Announces the Acquisition of $174.5 Million Portfolio in San Diego ("acquisition is anticipated to generate a combined pro forma net operating income yield of approximately 7.4%")


Trades:


My last trade was in 2016 when I eliminated my small position:


Item # 8 Sold 100 CIO at $13.5: Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha (profit snapshot= $207.97)-Item # 5 Bought 100 CIO at $11.4 at Update For Equity REIT Basket Strategy As Of 4/6/16 - South Gent | Seeking Alpha


Prior Round Trip


Item # 1. Sold 50 CIO at $12.38Update For Equity REIT Basket Strategy As Of 3/7/16 - South Gent | Seeking Alpha (profit snapshot $61.04 plus one dividend)-Scroll to 2. BOUGHT CIO at $11.12Update For REIT Basket Strategy As Of 11/24/15 - South Gent | Seeking Alpha


The lowest previous buy price was $11.12 and that was in 2015.


Trading Profits to Date: $269.01


I have also bought and sold CIO Series A equity preferred stock:  


Item # 3.A. Sold 50 CIOPRA at $25.21 (1/27/17 Post)(profit snapshot=$146.97)


City Office REIT Inc. 6.625% Cumulative Preferred Series A Stock (CIO.PA)


At the current prices of the common and preferred shares, I would prefer buying the common shares. The common shares have a higher yield and represent an equity interest in the business. That opinion can change when the yields narrow and there is at least some questions about the REIT's ability to maintain the common dividend at current levels. The preferred shares have a superior claim on profits and their dividend can not be eliminated, though payment can be deferred provided no cash dividend is paid on the common shares.



C. Added 5 DOC at $14.7-Used Fidelity Commission Free Trade



Quote: Physicians Realty Trust (DOC)


Closing Price Last Friday (3/9/18)= DOC $15.09 +0.07 +0.47%


Brad Thomas recently raised his rating to a strong buy (3/5/18 SA article) SA articles now disappear behind a pay wall after a short period of time. What's Up DOC? - Physicians Realty Trust (NYSE:DOC) | Seeking Alpha


For the reasons discussed in prior posts and this one, I would rate DOC as a weak buy at the current price.  


Chart: Bear Trend


1 Year Chart


Currently trading below its 50, 100 and 200 day SMA lines, but possibly showing some stabilization in the $14.37 to $15 range at the moment.  The 2015 bottom was near $14.


Using a two year YF chart, there does appear to be a double top near $21.8 (September 2016 and June 2017) 


Dividend: $.23


Dividend Yield at $14.7: 6.26%


Total Average Cost Per Share This Account: $15.11


Current Position all Accounts: 115 shares


Recent Earnings Report:


Physicians Realty Trust Reports Fourth Quarter and Full Year 2017 Financial Results




The earnings report reflects more of the same. 


DOC is engaged in empire building that has no discernible positive impact for its shareholders. 


In 2017, it proudly proclaimed $1.4 billion in investment activity. It did not proudly proclaim or even proclaim the debt and share offerings used to finance that activity;


Diluted Shares Outstanding:


12/31/17 185,272,236

12/31/16 139,602,349
32.71% Increase in Shares Y-O-Y

"Normalized FFO" Per Share:

12/31/17: $.27
12/31/16: $.27

Funds Available for Distribution (a more accurate real cash flow number than Normalized FFO): 


12/31/17  $.238

12/31/16  $.2448
Decrease of 2.78%

Quarterly Dividends Per Share: $.23


FAD excludes from Normalized FFO non-cash revenues created by the accounting profession and certain actual cash expenses. A cash dividend can not be funded with non-cash revenues. Money used to pay cash expenses are not available to support the dividend. It is just that simple. Best to avoid thinking about it too much.


There is no room for a dividend increase assuming the Board acts prudently. Arguably, the dividend needs to be cut as being too tight with FAD per share.


It remains to be determined whether this empire building will benefit shareholders. A lot depends on unknowables, including the future course of interest rates, occupancy levels, operating costs and capitalization rates. 


Cap Rates Hold their Ground as Interest Rates Move Higher | Nareit


TIAA: Real Estate the Impact of Rising Interest Rates.pdf


D. Added 10 LXP at $7.95




This brings me up to 90 shares in this account. I have modified my plan to increase the possible total purchase to 130 shares from 100. The requirement for each subsequent 10 purchases is that the price most be below the last purchase price. 


Quote: Lexington Realty Trust  (LXP)

Website: Welcome to Lexington Realty Trust 
Portfolio Map

Brad Thomas published an article today discussing SA. He is not a buyer at $8.1. Lexington Realty Yields 8.8% And I'm Still Not A Buyer - Lexington Realty Trust (NYSE:LXP) | Seeking Alpha (again, I would note that SA articles are available without a subscription for a few days after publication. I believe the basic "PRO" subscription is $35 per month. I am not a subscriber. I might be at $35 per year) He points to relatively flat FAD Y-O-Y, which doesn't bother him with his strong DOC buy recommendation (see Item # C above, where DOC experienced a Y-O-Y decline in FAD). He also points to uncertainties about lease rollovers and tenant losses, which is invariably a matter of concern.  Those  issues are generally applicable to all REITs with a significant number of properties where leases are renegotiated annually and tenants are lost. 


LXP has meaningful negative issues that has caused its stock to meander in a narrow price range for years. The range is mostly between $8 to $11 range with occasional spurts higher and lower. 5 Year Chart I have discussed those issues in prior posts and will summarize some of them here.


Average Total Cost Per Share This Account: $8.95


Dividend: Quarterly at $.1775 per share Dividends | lxp.com


Dividend Yield at TC Per Share for the 90 Shares in this Account = 7.933%


Recent Earnings Report-Q/E 12/31/17


Lexington Realty Trust Reports Fourth Quarter 2017 Results 

Quarterly Supplemental Information.PDF 

The main problem remains a lack of cash flow growth. When looking at LXP's reports, it is important to keep in mind that the funds available for distribution are meaningfully lower than the FFO and AFFO numbers. And, FAD was down slightly in the quarter compared to the 2016 4th quarter:




Used the data provided, I calculated the FAD per share at $.2368 in the 2017 4th quarter compared to the AFFO number of $.26. 


Still the current dividend is comfortably below the FAD per share number and the P/FAD is a reasonable number.   

CEO Will Eglin on Q4 2017 Results - Earnings Call Transcript | Seeking Alpha ("we expect more than half of our revenue to come from industrial properties by year-end 2018. . . we expect to sell an additional $250 million to $300 million of office in other assets in 2018 as part of our ongoing disposition program. ..Our portfolio was 98.9% leased at year-end with a weighted average lease term of 9.1 years. .. We do believe that the share price is attractive and we have an existing share repurchase authorization. So, I think that at these levels, you should expect us to be active at stock out of circulation.")


During the conference call, LXP mentioned that Sears was going to stop paying rent on a warehouse located in Memphis as of 3/1/18 that contains 780K square feet and is situated on 47.1 acres, claiming some kind of out in the lease. The property generated $1.7M in cash rent last year. Sears, Roebuck and Co. - Memphis, TN | Lexington Realty TrustTranscript at page 5


LXP disagrees with Sears' interpretation. I have no way of knowing who has the better case since I do not have access to the lease or the legal arguments being made by the parties. With all of the store closures, Sears probably does not need this space and some clever legal beagle was told to come with a reason for leaving the premises.  


The main point is that LXP will not be receiving the cash and may not be able to lease the party to another tenant at the Sears' rental rate or to anyone given the age of this structure originally built in 1973. By the time LXP could receive a final judgment for back rent, Sears may be in bankruptcy. 


There is also a potential problem with a FEDEX lease on a 529K square feet office building in Memphis: ("Their current lease is through June of 2019 and represents about a third of 2019 office lease roll. If we secure a long-term lease extension with them, we would expect a decrease in rent from what they are currently paying." FEDEX may buy the property)


It appears to me that these kind of problems are routine issues for REITs that own a large number of properties. 


When a lease comes up for renewal, the tenant will frequently play hardball, demanding rent concessions or they will vacate the property. A tenant that falls into financial difficulty will file for bankruptcy or manufacture an argument for breaching a lease agreement.


Nonetheless, I would be critical of LXP's managers in keeping that Sear's warehouse for so many years, particularly since it has been generally known for a long time that Sears was in a downward spiral and this property was old. Moreover, the areas looks run down with what seems to be at least one major vacant warehouses nearby. 3456 Meyers Rd Memphis, TN - Google Maps It also raises an issue, which I can not answer, about how many junky properties are in the portfolio, sort of like an investor's portfolio that may have more than a few weeds that need to be pulled and thrown in the garbage.     


Federal Express Corporation-Memphis, TN | Lexington Realty Trust (built in 1982 and acquired on 12/31/2006).


LXP Trading Profits to Date: $800.94 (hard to generate)


With my current approach, I am lowering the average cost per share in my Fidelity account by averaging down in small lots and through dividend reinvestment at or near current prices. Eventually, this will hopefully enable me to exit the position profitably after collecting several dividends. When the dividend yield is close to 8%, I do not require much of a price gain to harvest a 10% average annual total return.  


2. Added 50 Hydro One at C$21.01-Averaged Down:




Quote: Hydro One Ltd. Stock Quote (Canada: Toronto)


Dividend: Quarterly at C$.22 per share



Dividend Yield at C$21.01: 4.19%


Last DiscussedItem  #3.A. Bought 100 Hydro One at C$22.39 (12/4/17 Post)


I have received to date one quarterly dividend on that 100 share lot.


Last Earnings Report


"Net income attributable to common shareholders for the quarter ended December 31, 2017 of $155 million is an increase of $27 million or 21.1% from the prior year. Excluding the impact of costs related to the Avista acquisition, net income for the quarter increased by 32.8%."






Hydro One Reports Positive Fourth Quarter Results


"On January 16, 2018, Hydro One and Avista received approval from FERC on the merger application filed on September 14, 2017. This approval comes as the two companies make progress in obtaining the necessary regulatory approvals to close the transaction in the second half of 2018."


3. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 1 Wells Fargo 2.6% SU Bond Maturing on 7/22/20:




FINRA Page: Bond Detail (prospectus linked)

Issuer: Wells Fargo & Co. (WFC)

WFC Analyst Estimates

Credit Ratings:




Fitch Downgrades Wells Fargo & Company to 'A+; Outlook Stable

Moody's affirms Wells Fargo's ratings (holding company senior at A2); outlook changed to negative from stable (2/6/18)

Bought at a Total Cost of 99.562

YTM at TC Then at 2.789%
Current Yield at 2.6114%

B. BOUGHT 2 HCP 2.625% SU Bonds Maturing on 2/1/2020:





FINRA Page: Bond Detail (prospectus linked)


Issuer: HCP Inc. (HCP)- A Healthcare REIT

HCP SEC Filings
2017 Annual Report
2017 4th Quarter Results

Credit Ratings:


Fitch Removes HCP from Rating Watch Negative; Affirms 'BBB'


Bought at a Total Cost of 99.713

YTM at TC Then at 2.778%                    
Current Yield at TC = 2.6326%

On the purchase date for this bond, the two year treasury note closed at a 2.25%.


C. Bought 2 Church & Dwight 2.45% SU Bonds Maturing on 8/1/22-A Roth IRA Account




FINRA Page: Bond Detail (prospectus linked)


Issuer: Church & Dwight Co.  (CHD)

CHD Analyst Estimates
Church & Dwight Reports Q4 and FY2017 Results
SEC FILINGS
10-K 2017 Annual Report (debt listed at page 57)

Credit Ratings: 



Bought at a Total Cost of 97.524   (with $4 Vanguard Commission)
YTM at TC Then at 3.052%
Current Yield at TC = 2.5122%

Before interest rates started to trend up last September, this bond was selling slightly over par value. 


D. Added 1 NextEra Capital 1.649% SU Bond Maturing on 9/1/18-A Roth IRA Account




FINRA PAGE: Bond  Detail (prospectus linked)


Issuer: Wholly owned subsidiary of NextEra Energy Inc. which guarantees the note


Credit Ratings: 



Bought at a Total Cost of 99.711
YTM at TC Then at 2.224%
Current Yield at TC = 1.6538%

I now own 8 bonds.  


E. Added 1 DTE Energy 1.5% SU Bond Maturing on 10/1/19



FINRA Page: Bond Detail

Bought at a Total Cost of 98.287 (with $2 brokerage commission)  

YTM at TC Then at 2.613%
Current Yield at 1.5261%

I now own 4 bonds, but this is the first one in this account. 


F. Bought 2 Walgreen's 2.7% SU Bonds Maturing on 10/18/19




Finra Page: Bond Detail (prospectus linked)


Issuer: Walgreens Boots Alliance Inc. (WBA)

WBA Analyst Estimates

Credit Ratings: 




Bought at a Total Cost of 99.910

YTM at TC Then at 2.753%
Current Yield at TC = 2.7024%  

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

YTM 1.925%




I now own 3 bonds. 


When I bought this bond, the best CD rate for maturities between 11/16/18 through 12/24/18 was a 1.85% CD issued by The First N.A. maturing on 12/14/18. There is no reason to purchase a bank CD when the treasury rate provides a higher current yield and YTM, unless the CD provides a filler in my ladder and is very close to the treasury YTM. The treasury is liquid and can at least be easily sold if the funds are needed for whatever reason.  


4. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Added 1 Ventas 3.125% SU Bond Maturing on 6/15/23:




FINRA PAGE: Bond Detail (prospectus linked)                


Issuer: Ventas Inc (VTR)- A Healthcare REIT 

Ventas Reports 2017 Fourth Quarter and Full Year Results 

Credit Ratings: 




Fitch Rates Ventas' 2028 Notes 'BBB+'; Outlook Stable


Bought at a Total Cost of 98.466          

YTM at TC Then at 3.443%
Current Yield at TC = 3.1737%


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. 

11 comments:

  1. Oclaro, Inc. (OCLR)
    $9.78 +$1.93 (+24.65%)
    As of 9:36AM EDT.
    https://finance.yahoo.com/quote/OCLR?p=OCLR

    OCLR was a recent purchase in what I would describe as my Lottery Ticket basket strategy involving makers of thingamajigs.

    Monday, January 8, 2018
    Item 1. B. Bought 30 OCLR at $6.88-Used Commission Free Trade:
    https://tennesseeindependent.blogspot.com/2018/01/observations-and-sample-of-recent_8.html

    I mentioned that OCLR was a potential buyout candidate for Finisar in Item 1.C to that same post.

    My hunch was right on the buyout but wrong on the buyer's identity. The acquirer is Lumentum Holdings Inc. (LITE) who is offering $5 in cash and 0.0636 Lumentum common shares for each OCLR share.

    https://www.marketwatch.com/story/oclaros-stock-soars-after-lumentum-buyout-deal-valued-at-18-billion-2018-03-12?siteid=yhoof2&yptr=yahoo

    Apparently, investors like the deal since LITE shares are up:

    Lumentum Holdings Inc.
    $71.97 +$3.00 +4.35%
    Last Updated: Mar 12, 2018 at 9:45 a.m. EDT
    https://www.marketwatch.com/investing/stock/lite?mod=MW_story_quote

    ReplyDelete
  2. TriplePoint Venture Growth BDC (TPVG):
    https://www.marketwatch.com/investing/stock/tpvg

    On light after hours volume, TPVG is currently up 1.78% at $12.01 and rose 1.29% during the regular session.

    The company reported after the close today:

    https://www.businesswire.com/news/home/20180312006103/en/

    I am currently up to 70 shares with the last 10 shares bought at $11.6 which will be discussed in a week.

    My last discussion was in Items 1.B. and 1.C here:
    https://tennesseeindependent.blogspot.com/2018/02/observations-and-sample-of-recent_26.html

    I would note the following. Net investment income was $.3 per share but there was also a realized gain of about $.1265 recorded during the quarter. Spillover income from 2107 that could be used to support the dividend amounts to $.06 per share.

    The Board declared a regular quarterly dividend of $.36 per share.

    There was a decline in net asset value per share to $13.25 as of 12/31/17 from $13.51 as of 12/31/16.

    The most interesting piece of news is the announcement that a TPVG portfolio company, Ring, was going to be acquired by Amazon. I knew that since an announcement was made in late February. I did not know that RING was a TPVG portfolio company or did not remember. Reuters thought the price was over $1B.

    I looked at TPVG's portfolio list before I bought shares but I probably could not tell you a single name on that list a day later.

    I did look again at TPVG's investments in RING a few minutes ago which can be found in its recently filed 2017 annual report.

    https://www.sec.gov/Archives/edgar/data/1580345/000156459018005312/tpvg-10k_20171231.htm

    At page 90 there are three loans listed in the total principal amount of $50M, valued then at 49.479M with a cost basis of of $49.434M. I doubt that Amazon will want to fool with keeping that loan once its acquisition is consummated. I do not know whether there are any pre-payment penalties.

    The only other substantive reference to RING is at page 92 which deals with what TPVG calls "warrants". Note that the "warrants" are generally common stock or preferred stock. TPVG is shown owning 288,530 "preferred shares" valued as of 12/31/17 at $753K with a cost basis of $525K. I have no idea what that is worth now. I doubt that the terms are a matter of public information. I suspect, but do not know, that this is some kind of convertible preferred issue.

    When looking at the portfolio again, I do see at least one company that I recognize, "Pill Pack". The only reason that I know about it is that the company frequently runs commercials on TV.

    https://www.youtube.com/watch?v=Oi2o567zY-8

    ReplyDelete
    Replies
    1. TPVG's management was asked during the conference call whether their last mark on the RING equity investment was meaningfully above or below RING's value assigned in the Amazon acquisition. The company declined to answer since no public disclosure has been made of the price.

      Page 7
      https://seekingalpha.com/article/4155739-triplepoint-venture-growths-tpvg-ceo-jim-labe-q4-2017-results-earnings-call-transcript?page=7

      Delete
  3. Hello South Gent.

    It sounds like some people are beginning to recognize the immediacy of inflation. Sort of like you referred to in today's market commentary section that recession may happen in 2019 or 2020.

    https://www.bloomberg.com/news/articles/2018-03-12/bond-enforcers-reawakening-as-deficits-and-inflation-risks-build Any thoughts ?

    Sam

    ReplyDelete
    Replies
    1. Sam: I read that article a few minutes ago and it is a worthwhile read.

      There has been a resurgence in TIP buying, possibly due to a fear that inflation will be increasing more than the recent historical averages.

      However, as I have pointed out in several blogs when discussing TIPs, the TIP is only a better investment than the comparable maturity non-inflation protected treasury when the average annual inflation rate over the bond's life turns out to be greater than the break-even spread priced in the TIP.

      The TIP or the comparable maturity nominal treasury may turn out to be bad investments when nominal interest rates increase. If that increase is due solely to an increase in inflation and inflation expectations, then TIP would outperform the nominal fixed coupon treasury, assuming both were bought at the same time in the past.

      Both may go down in price.

      The TIP's real yield would be increasing in that scenario which causes a vintage TIP with a lower real yield to go down in price to compensate for the yield difference until there is an equalization.

      Yields could also rise due to interest rate normalization where there is no material change in the inflation rate, but the market is simply adjusting to a more normal spread between yields and the anticipated inflation rate (e.g. 2%+ in the nominal ten year treasury + average annual inflation rate anticipated over the next ten years)

      The government will be reported CPI for February tomorrow. The January CPI report was a tad hot. The consensus is for a .2% rise in both headline CPI and the core CPI.

      https://www.marketwatch.com/Economy-Politics/Calendars/Economic

      Delete
  4. Hello southgent,

    Thank you for your answer. I thought the article was pretty awesome for someone who doesn't really understand the bond market. I was wondering what your thoughts are on an impending trade war.

    I see the 10 year treasury is actually down a little bit today to 2.861%. Whether this is to an expected CPI number or not is unclear to me. It seems like the numbers have been persistently below 3%.

    The article that I placed on your blog suggests that an impending trade war would cause US bonds to become a safe haven and I wondered what your thoughts were on what happens to the 10 year bond around the 22nd or before when this issue becomes news?

    Thanks a lot

    Sam

    ReplyDelete
    Replies
    1. Sam: I am not sure whether anyone understands the appropriate pricing for longer duration bonds now, since there are so many competing variables including, importantly, central bank manipulation of interest rates to abnormally low levels.

      I have mentioned that the yields on European sovereign debt will act as a headwind for the ten year treasury rising in yield. The German ten year yield has stagnated below .7%:

      https://www.marketwatch.com/investing/bond/tmbmkde-10y?countrycode=bx

      The abnormal monetary policies by the ECB, other European CBs (Nordic countries and the SNB) and the BOJ are still in existence.

      A trade war may cause a flight to quality but that depends on other variables including the strength or weakness in the USD and U.S. equity markets. In addition, it is generally known that a "tariff" trade war can increase inflation, particularly when it extends to a number of products that are used to make other commonly used products like steel and aluminum.

      Then, there is the concern that U.S. interest rates will rise even if inflation remains tame due to (1) interest rate normalization and/or (2) excessive supply of U.S. treasuries as the federal government issues hundreds of billions of new debt in order to retire maturing debt and to finance current budget deficits.

      The CPI report released this morning was as expected. Y-O-Y, headline CPI rose 2.2% with core CPI up 1.8%.

      https://www.bls.gov/news.release/cpi.nr0.htm

      Back in September 2017, the headline CPI number was up 2.2% Y-O-Y and yet interest rates were much lower then.

      What has changed is the market's anticipated inflation rate that is reflected in the break-even inflation rates embodied in the TIP pricing.

      The anticipated annual CPI rate over ten years was around 1.8% last September and is near 2.12% now.

      https://fred.stlouisfed.org/series/T10YIE

      I would emphasize that the bond ghouls are just guessing about the future inflation rate.

      If an investor believed that the average annual inflation rate would end up being 3% over the next ten years, and they needed for some reason to buy either a 10 year TIP or 10 year nominal treasury today, they would probably buy the TIP when the break-even rate is 2.12% or buy the nominal treasury if they believed the rate would be lower than 2.12%, something like 1.5%.

      My point in the previous comment was that both may turn out to be bad investments in that 3% average annual inflation scenario. The reason for the non-inflation protected treasury being bad is obvious when looking at real total returns before and after taxes. The 10 TIP would simply do better than the nominal treasury when bought with a 2.12% break-even inflation rate when the annual average inflation turns out to be 3%. The TIP still may have a negative real return, at least when bought in the secondary market, or a slightly positive one due to the price going down to compensate for a rise in real yield (coupon/ current yield numbers) The TIP real yield numbers throughout the maturity spectrum have been rising with the increases in nominal rates.

      Delete
  5. Immune Design Corp. (IMDZ)
    Last Trade at $4.05
    As of 2:39PM EDT.

    This stock has popped since my last purchase at $3.09 on 2/28/18:

    Thursday, March 8, 2018
    Item 3. A. Added 20 IMDZ at $3.09-Used Commission Free Trade:
    https://tennesseeindependent.blogspot.com/2018/03/observations-and-sample-of-recent_8.html

    These spurts come and go. I had close to a 100% gain on this one and now have an unrealized loss which is narrower than it would have been because of that buy and that is not the path to riches.

    This press release was published before the market opened yesterday:

    https://globenewswire.com/news-release/2018/03/12/1420475/0/en/Immune-Design-Reports-Data-Update-for-Lead-Immunotherapy-Programs-Improvement-in-Survival-for-CMB305-Monotherapy-in-Sarcoma-and-Increased-Objective-Responses-for-G100-pembrolizumab.html

    The price spurt however started after IMDZ closed at $2.9 on 2/28/18. While trading volume has picked up some, it is not that much higher than the average volume of 558+K.

    I have zero expertise in medicine.

    I did unfortunately look at the current price of Nektar Therapeutics (NKTR) yesterday and saw that it was trading at over a $100 per share.

    I did pretty good for an idiot by harvesting $527.22 in 70 NKTR shares that were bought and sold last year:

    I eliminated the position on 10/17/17 by selling the remaining 20 shares at $23.89:

    7. Small Cap Biotech Lottery Ticket Basket:
    A. Sold 20 NKTR at $23.89:
    https://tennesseeindependent.blogspot.com/2017/10/observations-and-sample-of-recent_19.html

    I had previously sold 50 shares at $22.53:

    Item 5.A.
    https://tennesseeindependent.blogspot.com/2017/04/observations-and-sample-of-recent_11.html

    ReplyDelete
  6. First Hawaiian Inc. (FHB)
    $29.55 +$0.92 +3.21%
    https://www.marketwatch.com/investing/stock/fhb

    The price rise today is due to Keefe, Bruyette, & Woods upgrading the stock to outperform with a $34 price target. This upgrade has some importance since that firm specializes in regional banks. I do not have access to the analyst report.

    I believe that I currently own 80 shares, but would need to check since the position is held in two accounts and my memory generally lacks clarity on details now.

    This was my last discussion:

    Item # 1.A. Added 10 FHB at $28.4 and 5 shares at $27.7-Used Fidelity Commission Free Trade:
    https://tennesseeindependent.blogspot.com/2018/02/observations-and-sample-of-recent.html

    ReplyDelete
  7. After closing at a 2.9% yield on 3/8/18, the ten year treasury yield has been drifting down and closed today at 2.81% which is where it was on 3/1.

    Bonds did rally today.

    iShares 7-10 Year Treasury Bond ETF
    $102.52 +0.19 +0.19%

    LQD, which is an ETF owning investment grade corporate bonds and has a similar duration as IEF, did slightly better than IEF today:

    iShares Investment Grade Corporate Bond ETF (LQD)
    $116.51 +0.26 +0.22%
    https://www.marketwatch.com/investing/fund/lqd

    I do not own any bond ETF and am at a loss to explain why an old post on Bond ETFs is the most popular post now.

    I prefer to own individual bonds.

    The small downdraft in longer term rates did cause me yesterday to make my first Tennessee municipal bond purchase in 2018. I am basically adding to that allocation using interest payments received from all TN municipal bond positions that owned in three different taxable accounts.

    I bought yesterday 5 Tennessee Housing Development Agency 2.8% bonds maturing in 2029. The total cost with Vanguard's $10 commission was 95.234 which produces a YTM of 3.232%.

    The bond is rated Aa1 and AA+. I have discussed this issuer in the past.

    https://emma.msrb.org/SecurityView/SecurityDetails.aspx?cusip=A8887D7E46F17F5BAD291B48609E0CEE9

    This kind of bond is not liquid and I will own it when it matures. This brings my allocation in this sector to $275K in principal amount and about $3K less than that number in total cost with $8,149 in annual tax free income. When I get that number over $10K, I will quit buying until I receive redemption proceeds. The first maturity is in 2026.

    The Stock Jocks are periodically now suffering mild anxiety attacks that are probably being caused by trade war concerns.

    Possibly they are starting to realize that there is just no telling what the Chaos Monkey will do next.

    The term Chaos Monkey is not a derisive term as originally used to describe Silicon Valley entrepreneurs:

    https://www.amazon.com/Chaos-Monkeys-Obscene-Fortune-Failure-ebook/dp/B019MMUAAQ

    Those disruptors are at least knowledgeable and informed people in their fields.

    The Chaos Monkey in the WH is neither knowledgeable nor informed and will act on mercurial whims and gut feelings based on his own reality creations.

    Is he about to launch a major trade war with China? There are several news stories that he is currently mulling $60B in tariffs applied to China's products imported into the U.S.

    ReplyDelete
  8. I have published a new post:

    https://tennesseeindependent.blogspot.com/2018/03/observations-and-sample-of-recent_15.html

    ReplyDelete