Economy:
The core problem is inflation. Consequently, a slight drop in the February personal consumption price index produced a nice rally yesterday.
Annual PCE Price +5%, down from +5.3%
Annual Core PCE Price +4.6%, down from +4.7%
The Silicon Valley Bank collapse will cost the FDIC about $20B. FDIC spent $20 billion to handle Silicon Valley Bank collapse-The Hill Of that amount, $18B is attributable to insuring uninsured deposits. While admitting some inadequate regulatory response to a known interest rate risk management problem, the FED and the FDIC shifted almost all of the blame on SVB. The FED IMO was more responsible.
Fed calls SVB's failure a "textbook case of bank mismanagement" - CBS News; 5 takeaways from the Senate hearing on Silicon Valley Bank's failure : NPR
On 3/10/23, SVB suffered a $42B deposit withdrawal which was previously known, leaving the bank in a negative $958M cash position. ORDER TAKING POSSESSION OF PROPERTY AND BUSINESS The FDIC provided last week additional information that an additional $100B was in the queue for withdrawal on 3/11/23. $142 billion in 2 days: extent of SVB bank run comes into focus as U.S. regulators mull new rules | Morningstar No bank can survive that kind of withdrawal. Deposits are loaned out, with a loan-to-deposit ratio generally in the .9 to 1 range.
I have previously summarized the extremely irresponsible FED monetary policies that caused large unrealized losses in bank owned security portfolios as follows:
"The conditions creating the current crop of bank failures were created by the Federal Reserve which actions included the following: (1) the creation of excessive bank deposits through an a prolonged period of QE; (2) failure to address problematic inflation until the annual CPI was at 8.5% and then raising the FF rate by .25% off ZIRP in March 2022; (3) rapidly increasing the FF rate through 2022 that caused a substantial mismatch in what banks had to pay depositors and the yields on vintage securities owned by the banks; and (4) extending a rate suppression regime for more than a decade that left banks will no alternatives for credit risk free investments other than abnormally low yielding securities and have caused massive unrealized losses in bank owned securities." Federal Reserve approves first interest rate hike in more than three years, sees six more ahead (3/16/22)
The most fundamental cause was keeping ZIRP until annual CPI had reached 8.5% in March 2022 and then rapidly raising short term interest rates that resulted in huge mismatches between the cost of deposits and the yields on owned longer term securities.
Commercial real estate is in trouble. Why you should be paying attention | CNN Business; Commercial real estate could become a problem for midsize banks - The Washington Post (In this article, there is a reference to KBW report, published on 3/7, that predicts a 30% decline in office property values over the next 2 years. I would not lump all commercial real estate loans into one basket. The main problem is in multi-tenant office buildings, other than MOBs, that are located in certain major metropolitan areas where employers are cutting jobs and allowing employees to work from home even as the pandemic subsides)
Interest rates were in a dominant decline mode last month:
The rally in bonds in March 2023 would have reduced the unrealized loss numbers for bank owned securities. The ten year treasury yield declined 53 basis points.
The ten year breakeven inflation rate for the 10 year TIP closed at 2.32%.
The trend has been down since peaking in April/May 2022.
For the next Fed meeting on 5/3/23, the CME FedWatch tool now has a .25% FF increase at 48.4% and no change from the current 4.75% to 5% at 51.6.
The probability of rate cuts on or before the December meeting are high:
The probability that the range will be 4.5% to 4.75% or lower is at 89.5% and at 63.9% for at least 4.25%-4.5% or lower.
So the more probable than not forecast is that the range will be .5% lower than the current one by year end.
The lower forecasts for the FF range compared to one month ago are attributable to the banking crisis which increases the chances of a recession later this year. In the FED's last survey of senior loan managers for the 2022 4th quarter, released in January 2023, tightening of loan standards was already occurring to a limited decree. The Fed - The January 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices The March turmoil in the regional bank sector, including the quick and simultaneous collapse of 2 midsize banks due to deposit runs, will cause many banks to be more cautious since they can not trust their depositors with uninsured deposits to stick around. Even more tighter lending standards will retard growth and cause some borderline borrowers to fail.
++++
Allocation Shifts Discussed in this Post:
Treasury Bill Purchases: $3,000 in principal amount
FDIC Insured CDs: $5,000 in principal amount
Corporate Bonds: $2,000 in principal amount
Common Stocks: +$920.30
(second consecutive week of no sales)
Weighted Average Yield on Stock Purchases: 8.63%
Equity Preferred Stock: +$85.85 (yield at 10.7%)
Leveraged Bond CEF: $78.9
2023 Net Outflow Stocks/Stock Funds: -$32,077.39
+++
Putin and His Servile Orcs:
What a young woman student on Moscow’s most wanted list thinks of Putin and his war in Ukraine-YouTube The young woman, Olesya Krivtsova, criticized Russia's unprovoked invasion of Ukraine and was arrested for "treason". She was confined to her home pending her trial. Somehow, she managed to escape to a free and civilized country and is now on Putin's Most Wanted criminal list. I previously discussed her arrest by Russian Orcs. Denounced By Her Classmates, Anti-War Russian Teen Faces A Long Prison Term
Opinion | Why Do Russians Still Want to Fight? - The New York Times I frequently hear Russian Orcs defend their territorial war of aggression, crimes against humanity and war crimes committed in Ukraine as necessary to "protect the Motherland". Similar justifications were made by the Nazis at the Nuremberg Trials, except the phrase used by the Nazis was "protect the Fatherland". Both claims are nonsense of course, totally unhinged and severed from reality, common sense and sound judgment.
Russia sentences dad to two years after daughter’s antiwar art, but he flees - The Washington Post
Kyiv doctor's killing far from the front shows fallout of Russia's war - The Washington Post (3/26/23) The Russian missile strikes in Kiev that day hit far away from any military target. The Orcs targeted a playground, an office building and a downtown intersection where the Russians murdered a children's doctor on her way to work. Putin was just implementing his version of Russian traditional christian values.
'He's Satan': Russian Elites Call Putin Every Name in the Book on Leaked Call
Putin: Russia to station nuclear weapons in Belarus - BBC News; Putin says Russia will station tactical nuclear weapons in Belarus-NPR; Lukashenko welcomes Putin's plan to station Russian nukes in Belarus, accusing West of planning to invade (Just another absurd accusation by this Putin supported dictator); Belarus must end systematic repression, release detainees, UN Human Rights Chief says | OHCHR
Russian propagandists attack the U.S. simply by reiterating Trump claims about the 2020 election and the ongoing criminal investigations. The comments made in this video clip could have been written by Trump. Dimitri Simes says racism is to blame for Trump's prosecution - YouTube
Russian propagandist says Ukraine should be erased off the map - YouTube
The best 20th century comparison to Putin's propagandists is Joseph Goebbels.
All U.S. citizens, other than diplomats, need to leave Russia immediately as previously advised by the U.S. State Department. Russia arrests Wall Street Journal reporter Evan Gershkovich, accuses him of "spying" for U.S. - CBS News; ‘Leave now’: US official warns Americans in Russia - YouTube I suspect that arrest was made in anticipation of exchanging the WSJ reporter for recently arrested Russian spies including the GRU operative Sergey Cherkasov who was posing as a Brazilian student in the U.S. A Russian spy moved through Washington as a Brazilian graduate student - The Washington Post (3/29/23)
++++
Trump and His Party:
Donald called the Manhattan D.A. a "degenerate psychopath". Trump frequently externalizes his own personality flaws onto others.
Donald responded to his indictment in a predictable manner.
Donald Trump indictment response: See his Truth Social meltdown
Karen McDougal: Manhattan DA asks about hush money paid to former Playboy model
Donald Trump using antisemitic rhetoric to get political donations after indictment
How Freedom-Loving Florida Fell for an Authoritarian Governor - The Atlantic
Fact check: Trump repeats false claims during rally in Waco, Texas
Last Week in the Republican Party - March 21, 2023 - YouTube
Last Week in the Republican Party - March 28, 2023 - YouTube
Republicans Face Setbacks in Push to Tighten Voting Laws on College Campuses - The New York Times I have previously discussed several examples of republican controlled legislatures making it difficult for college students to vote since those individuals heavily tilt toward democrats.
The republican party is not helping its prospects in 2024 by defending Trump without even knowing the evidence that supports the recent criminal indictments. It is not going unnoticed by persuadable voters that republicans leap to Trump's defense no matter what he says or does which in effect looks like an endorsement of Trump's behavior to independent voters.
The 30+ counts of business fraud contained in the indictment are not currently known. There is no way to assess guilt or innocence without knowing the evidence supporting each claim and the criminal statutes allegedly violated by Trump. This has not stopped republicans from defending Trump and attacking the Manhattan D.A.
After the indictment is unsealed, probably on Tuesday, then I will pay some attention to republicans who defend Trump's actions described in the indictment. How many will come out and say that Trump did nothing wrong or will the republicans just continue attacking the D.A. and defending Trump with juvenile rhetorical flourishes.
As previously discussed, and based on what I know now, other criminal charges look more likely to result in felony convictions.
+++
1. Small Ball Buys:
A. Started CCAP - Bought 10 at $13.65:
Quote: Crescent Capital BDC (CCAP)
Cost: $136.5
This is a new name for me.
2022 Annual Report (Risk factor summary starts at page 20 and ends at page 46; summary terms of investments starts at page 77)
CCAP Assessment of Loan Risks: Pages 37-38 Annual Report
Sun Life Financial Inc. (SLF) has a majority interest in the external manager. Sun Life completes majority acquisition of Crescent Capital Group LP | Sun Life
Crescent Capital BDC, Inc. - Investor Relations (90% first lien; 98.8% floating rate investments)
Management: External
Recent News: CCAP acquired First Eagle Alternative Capital BDC (FCRD) in March 2023. Crescent Capital BDC, Inc. Completes Merger with First Eagle Alternative Capital BDC, Inc. (3/9/23) ("Based on the merger exchange ratio, First Eagle BDC stockholders will receive the following, subject to previously disclosed election mechanics, in exchange for each share of First Eagle BDC common stock held at the effective time of the merger: (i) $0.29 of cash from Crescent BDC, (ii) 0.20635 of a share of Crescent BDC common stock (with cash payable in lieu of fractional shares), and (iii) $1.17 of cash as transaction support provided by Crescent Cap Advisors, LLC. The exchange ratio was determined based on the closing net asset value (NAV) per share of $19.91 and $4.40 for Crescent BDC and First Eagle BDC, respectively, as of March 7, 2023.")
Dividend: Quarterly at $.41 (regular only)
Crescent Capital BDC, Inc.-Dividend History
Special Dividends: Three $.05 special dividend distributions were made in 2021-2022.
Yield at $13.65 = 12% (regular only)
Net Asset Value per share history:
12/31/22: $19.83
12/31/21: $21.12, SEC Filing
12/31/20: $19.88
9/30/20: $19.07
It is my understanding that Crescent was a private BDC until it acquired the publicly traded Alcentra Capital (ABDC) in February 2020. Crescent Capital BDC, Inc. - Crescent Capital BDC, Inc. Completes Acquisition of Alcentra Capital Corporation; SEC Filing
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net Investment Income = $16.1M
NII per share: $.52
Adjusted NII = $.49 (adjustment is for an accrued capital gain incentive fee which may be payable to the external management company, management fees are discussed at pages 10-11; 59 of the Annual Report; "For the years ended December 31, 2022 and 2021 we (reversed) accrued $(6.3) million and $6.3 million, respectively, of capital gains based incentive fees.")
Net Asset value per share: $19.83 (Discount at $13.65 = 31.16%)
Non-accrual loans: 2% of total based on cost and 1.2% at current valuation marks
Number of portfolio companies: 129
Weighted Average Yield on Performing Debt Investments: 10.8%
B. Added to HTBK - Bought 25 at $8.41:
Quote: Heritage Commerce Corp.
Cost: $210.25
HTBK Analyst Estimates | MarketWatch
Investment Category: Regional Bank Basket Strategy
Last Discussed: Item # 2.J. Added to HTBK - Bought 5 at $8.78 (3/19/23 Post)
I discussed the last earnings report in this post: Item # 3.C. Added 5 HTBK at $11.88 (1/30/23 Post); SEC Filing
New Average cost per share: $9.75 (50 shares)
Dividend: Quarterly at $.13 per share
Yield at New AC = 5.33%
Last Ex Dividend: 2/8/23
C. Added 5 OCSL at $18.53:
Quote: Oaktree Specialty Lending Corp. (OCSL) - Externally Managed BDC
Cost: $92.65
Last Substantive Discussion: Item # 7.B. Added to OCSL - Bought 2 at $20.19; 5 at $19.55; 5 at $18.9 -Schwab Taxable Account (3/22/23) I discussed the last earnings report in that post. SEC Filed Press Release
New Average cost per share: $19.45 (20 shares)
Dividend: Quarterly at $.55 per share ($2.2 annually)
Yield at New AC = 11.31%
Last Ex Dividend: 3/14/23 (owned 15 as of)
D. Started UBFO - Bought 10 at $6.29:
Quote: United Security Bancshares (UBFO)
Cost: $62.9
There are no analyst estimates. The market cap at $6.29 is about $108M.
"United Security Bancshares (NASDAQ: UBFO) is the holding company for United Security Bank, which was founded in 1987. United Security Bank is headquartered in Fresno and operates 12 full-service branch offices in Fresno, Bakersfield, Campbell, Caruthers, Coalinga, Firebaugh, Mendota, Oakhurst, San Joaquin, and Taft, California."
Investment category: Regional Bank Basket Strategy
Owned Securities Available-for-Sale as of 12/31/22:
 |
| Maturities |
FHBL: Federal Home Loan Bank
UBFO's FHLB borrowings will be from the Federal Home Loan Bank of San Francisco. About the Federal Home Loan Bank of San Francisco
Dividend: Quarterly at $.11
Yield at $6.29: 7%
Next Ex Dividend: 4/5/23
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net Income = $5.343M
E.P.S. = $.31, up from $.20 in the 2021 4th Q
NIM: 4.44%, up from 3.08%
Efficiency Ratio: 44.34%
Charge Off Ratio: .19%
NPL Ratio: High at 1.52%
NPA Ratio: High at 1.5%
Coverage Ratio: 68.1% (much prefer over 100% when buying)
ROE: 19.24%
Tangible Book Value per share = $6.33, down from $6.8 as of 12/31/21
As with other banks, book value was adversely impacted by owned securities going down in value last year.
Deposits:
Non-interest bearing: 41.32% of the total
E. Added to STWD - Bought 1 at $17.56; 1 at $16.59; 1 at $16.29:
Quote: Starwood Property Trust Inc. (STWD)
Cost: $50.44
STWD is a complicated hybrid REIT. By hybrid, I am referring to owning both paper investments and real assets.
2022 Annual Report (risk factor summary starts at page 15 and ends at page 56; Debt summary discussion starts at 136 and ends at page 144)
The company has 4 business segments:
 |
| Annual Report at page 4 |
Commercial and residential lending segment:
 |
| Annual Report at page 8 |
There are currently heightened concerns about commercial lending, most particularly in the office property sector excluding MOBs.
Property Segment:
 |
| Annual Report at page 11 |
 |
| Annual Report at page 10 |
 |
| Annual Report at page 12 |
Management: External
Last Discussed: Item # 5.D. Bought 5 STWD at $21.29 (12/6/22 Post)
Average cost per share this account: $19.22 (24 shares)
Dividend: Quarterly at $.48 per share ($1.92 annually)
Effective for the next payment, I have changed the dividend option to reinvestment.
Yield at New AC = 9.99%
Last Ex Dividend: 3/30/23 (owned all as of)
SU Debt: Rated at Ba3/BB- (low Junk ratings)
Finra Bond Detail for 4.75% SU maturing on 3/15/25 (actively traded)
Last Earnings Report (Q/E 12/31/22):
Distributable E.P.S. = $.53
On 3/14/23, Keefe, Bruyette & Woods lowered its PT to $22 from $23 and kept its outperform rating.
Last Sell Discussions: Item # 3.I. Pared STWD -Sold 5.105 at $25.43 (5/14/21 Post) (profit snapshot = $32.18); Item # 1.O. Sold 5 STWD at $25.22 (3/20/21 Post)(profit snapshot = $27.84); Item #1.N. Pared 7 STWD at $23.74 (3/13/21 Post)(profit snapshot = net at $14.56); Items 2.C. Pared STWD in Vanguard taxable-Sold 10 at $20.44 and 2.D. Pared STWD in Fidelity Taxable-Sold 10 at $20.95 (3/6/21 Post); Item # 1.A. Sold 10 STWD at $25.96 (2/16/2020 Post)(profit snapshot = $47.74)
Goal: Any total return before any ROC adjustments in excess of the dividend paid.
Fidelity Taxable Account: The somewhat larger STWD position is in my Fidelity account (29+ shares at a $14.26 AC) The current yield for those shares is about 13.46%. I have reduced the AC in that account b profitably by selling my highest cost shares. The lowest price paid was $8.5 for a 3/20/20 purchase. Other lots bought at less than $10 in March 2020 were purchased at $8.76 and $9.06.
Vanguard Taxable Account: 13 shares with a $13.99 AC per share.
I am currently maintaining duplicated positions in STWD but will only buy more shares in my Schwab account where I am currently reinvesting the dividend. I will not reinvest the dividends in the other two taxable accounts. My maximum share add per purchase is now at 2.
Other Buy Discussions: Item # 1.H. Added STWD in Fidelity Taxable Account-Bought 2 STWD at $17.18; 2 at $16.91; 1 at $15.24, 1 at $10.36; 1 at $9.3; 1 at $8.74; 1 at $12.45 ( 4/18/20 Post); Item # 1.C. Added to STWD in Fidelity Taxable Account-Bought 1 at $15.66, 1 at $15.12, 1 at $14.82; 1 at $13.74 (7/25/20 Post); Item # 2.D. Added to STWD in Fidelity Taxable-Bought 1 at $14.29 (12/5/20 Post)
Purchase Restriction-Schwab Account: 1 to 5 share lots with each subsequent purchase required to reduce my AC per share.
Maximum Position All Accounts: 100 shares (viewed as high risk given the high debt levels, the increase in debt financing costs, and the turmoil in the office property sector)
F. Added 5 HPPPRC at $9.55:
Quote: Hudson Pacific Properties Inc. 4.750% Cumulative Preferred
Cost: $47.75
Investment Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks
Last Discussed: Item # 2.B. Added 5 HPPPRC at $11.4 (3/19/23 Post)
Issuer: Hudson Pacific Properties Inc. (HPP)
Website: Hudson Pacific Properties: A West Coast Real Estate Group
Security: Prospectus
Par value: $25 (IPO in November 2021, public offering price $25)
Dividends: Paid quarterly, cumulative and non-qualified
Placement in Capital Structure: Equity preferred stock, senior only to common stock.
Average cost per share = $13.28 (115 shares)
Yield at AC = 8.94%
Yield at $9.55: 12.43%
Last Ex Dividend: 3/17/23 (owned 110 as of)
Last Dividend Payment (110 shares):
For HPP to defer the preferred stock dividend, it must first eliminate the cash common stock dividend, which is currently at a $1 per share annual rate paid in quarterly installments, and refrain from using cash to buy back common stock.
For the 2022 4th quarter, the common stock dividend was comfortably covered by AFFO. SEC Filed Press Release and SEC Filed Supplemental (see discussion at Item #4.A. noting that AFFO per share, equivalent to CAD, was at $.435)
G. Added to NBB - Bought 5 at $15.78:
Quote: Nuveen Taxable Municipal Income Fund Overview -Leveraged Bond CEF
Cost: $78.9
This CEF owns taxable municipal bonds issued under the Build America program that expired in 2010. Build America Bonds (BABs) Those bonds generally have long maturities and consequently have gone down a lot in price over the past year. The decline was aggravated by the fund's considerable leverage. Buying bonds using borrowed money that decline in price is not an optimal practice. I do not own any individual BABs.
It probably makes more sense to own a taxable municipal bond fund in a retirement account. To receive the tax related benefits of federally tax free municipal bonds, it is of course necessary to own them in a taxable account. I will generally own close to $300,000 in principal amount of Tennessee federally tax free municipal bonds spread over 3 taxable accounts.
Investment Category: Monthly Income Generation
Sponsor's Website: Nuveen Taxable Municipal Income Fund
Leveraged: Yes at 39.75% as of 2/28/23.
Number of Holding as of 2/28/23: 151 with an effective maturity of 19.53 years
Last SEC Filed Shareholder Report - Semiannual for the period ending 9/30/22.
Last Discussed: Item # 3.L. Restarted NBB - Bought 10 at $16.9 (5/19/22 Post)
Average cost per share: $16.53 (15 shares)
Dividend: Monthly at $.072 per share ($.864 annually)
Dividend History: Unfavorable
The dividend was at $.1085 for the October 2022 payment and was cut to $.0925 effective for the next payment. The penny rate was then cut to the current rate effective for the February 2023.
I do not attribute the dividend cuts to mismanagement but is caused by the rapid rise in short term borrowing costs. The cuts appear to be necessary to avoid ROC support.
Yield at New AC = 5.23%
Last Ex Dividend: 3/14/23
Credit Quality:
Data Date of 3/27/23 Purchase:
Net asset value per share: $16.74
Closing Market Price: $15.77
Discount: -5.79%
Average 5 year Discount: -2.05%
Source: NBB-CEF Connect
Net asset value per share has suffered from a Double Whammy consisting of a significant rise in short term borrowing costs and the decline in long duration bonds resulting from a rise in interest rates. NAV per share was at $21.53 on 2/28/22. The percentage decline from 2/28/22 to 3/27/23 was 22.25%. At the current dividend rate and yield, that percentage decline wipes is equivalent to more than 4 years of dividends which highlights the total return risk.
I am very hesitant to own many shares until there is a longer and dominant trend down in both short and long term interest rates.
NBB Realized Gains to Date: $516.65
Prior Sell Discussions: Item # 1.F. Eliminated NBB - Sold 35 at $20.17 (6/20/20 Post)(profit snapshot $53.53)-Item # 2.B. Restarted NBB-Bought 20 at $19.4, 5 at $18.5; 5 at $17.74 5 at $16.67 (4/11/20 Post); Item # 3 Sold 50 NBB in Roth IRA: Update For CEF Basket Strategy As Of 2/26/16 - South Gent | Seeking Alpha (profit snapshot = $62.98)-Item # 1 Bought 50 NBB at $19.51 in a Roth IRA: Update For CEF Basket Strategy As Of 10/21/15 - South Gent | Seeking Alpha; Item # 2 Sold 100 NBB at $21.25 (Roth IRA)(2/27/15 Post)(profit snapshot $101.7)-Item # 1 Roth IRA: Added 100 NBB at $20.1 (6/14/14 Post); Item # 2 Added 50 NBB at $18.55 (6/29/13 Post); Item # 1 Bought 50 NBB at $20.73-ROTH IRA (6/8/12 Post); Item # 1 Sold 100 NBB at $20.13-ROTH IRA (11/22/2011 Post); Item # 3 Sold 100 NBB at $20.07 (11/4/11 Post); Item # 1 Sold 50 NBB at $19.24 in the Regular IRA (12/3/2010 Post)- Item # 5 Bought: 50 NBB at $18.4 (11/18/2010 Post)
H. Added to RTL - Bought 2 at $6.08:
Quote: Necessity Retail REIT Inc. (RTL)
Cost: $12.16
As of 12/31/22, RTL "owned 1,044 properties, comprised of 27.9 million rentable square feet, which were 93.7% leased, including 935 single-tenant net leased commercial properties (897 of which are leased to retail tenants) and 109 multi-tenant retail properties. Based on annualized rental income on a straight-line basis as of December 31, 2022, the total single-tenant properties comprised 48% of our total portfolio and were 67% leased to service retail tenants, and the total multi-tenant properties comprised 52% of our total portfolio and were 42% leased to experiential retail tenants, defined as tenants in the restaurant, discount retail, entertainment, salon/beauty and grocery sectors, among others."
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
2022 Annual Report (Risk factor summary starts at page 4 and ends at page 30)
Website: Necessity Retail REIT
Interactive Property Map — Necessity Retail REIT
Management: External and poorly regarded IMO
As previously discussed there is an ongoing proxy fight between entrenched management and a hedge fund who wants to elect two new directors and amend the bylaws to make it easier to internalize management. Blackwells Capital Releases Presentation and Announces Website Exposing AR Global’s Value Destructive Management of Global Net Lease Inc. and The Necessity Retail REIT Inc. RTL is attempting to secure a court order blocking Blackwells proxy alternative. I have not seen any recents news on that litigation. If a Court allows Blackwells to proceed, I view it more likely than not that the bylaw changes will pass and the two Blackwells Board nominees will win which is why the external manager wants to keep shareholders from even voting.
Last Discussed: Item # 3.C. Added 4 RTL at $5.93 (1/10/23 Post) I discussed the third quarter report in that post.
Recent News: The Necessity Retail REIT Completes $70M Stop & Shop Disposition (2/28/23)
5 Year Chart:
Average cost per share: $7.04 (209+ shares)
Dividend: Quarterly at $.2125 per share
I am reinvesting the dividend for as long as the purchases lower my AC per share or there is some material adverse event.
Yield at New AC per share: 12.07%
Last Ex Dividend: 1/12/23
I have not seen an announcement yet for the next payment.
Last Earnings Report (Q/E 12/31/22):
SEC Filed Press Release and Supplemental
AFFO per share: $.27, up from $.21
Net Income to FFO to AFFO Calculations:
93.7% Leased
Percentage of debt at fixed rates was at 83.6% as of 12/31/22.
Debt is discussed at pages F-24 to F-28, Annual Report Mortgage debt totaled $1.808+B and generally has favorable coupons and maturities, but $253M matures in April-December 2023.
There is borrowings under a credit facility and a $500M 4.5% SU note that matures in 2028. Borrowings under the credit facility in 2022 were at a spread to the Libor rate, stood at $478M as of 12/31/22 with an interest rate than at 6.51%. RTL borrowed money to fund the purchase of 81 properties in 2022. I suspect that the amount outstanding will be paid down with the proceeds received from the recent property sales.
I. Added to FULT - Bought 2 at $13.83:
Quote: Fulton Financial Corp. (FULT)
FULT is a bank holding company that owns Fulton Bank which had, as of 12/31/22, 209 financial centers (91 owned) located in Pennsylvania, New Jersey, Maryland, Delaware and Virginia.
Cost: $27.66
FULT Analyst Estimates | MarketWatch
Available for Sale/Held to Maturity Securities as of 12/31/22:
Deposits as of 12/31/22:
 |
| Noninterest bearing at 33.9 of the total |
Last Discussed: Item # 4.G. Added to FULT - Bought 3 at $14.69 (6/28/22 Post)
Average cost per share = $16.08 (22+ shares)
Dividend: Quarterly at $.15 per share
FULT Dividend History | Seeking Alpha
Yield at AC = 3.73% (regular dividend only)
A special dividend of $.06 per share was paid in December 2022. Special dividends at variable rates have been paid every year starting in 2014.
Last Ex Dividend: 3/31/23 (owned all as of)
Most Recent Acquisition:
Fulton Financial Merges Its Prudential Bank Subsidiary Into Fulton Bank, N.A. (11/7/22); Fulton Financial Corporation and Prudential Bancorp, Inc. Announce Merger, Strengthening Fulton’s Presence in Philadelphia (3/2/22)
Last Earnings Report (Q/E 12/31/22): SEC Filing
GAAP E.P.S. $.47
Non-GAAP E.P.S. = $.48
NIM: 3.69%, up from 2.77% in the 2021 4th quarter
Efficiency Ratio: 58.1%
NPL Ratio: .85%
NPA Ratio: .66%
Charge off ratio: .23%
Coverage Ratio: 157%
ROE: 13.7%
ROTE: 18.59%
2022 Diluted GAAP E.P.S. = $1.67
TTM P/E at $16.08 AC = 9.63
2022 Diluted Non-GAAP E.P.S. = $1.76
Non-GAAP E.P.S. excludes merger related expenses.
J. Added to WBSPRG - Bought 2 at $19.05:
Quote: Webster Financial Corp. 6.5% Preferred A Stock
Cost: $38.1
52 Week Range: $17-$25.69
Issuer: Webster Financial Corp. (WBS)
WBS 2022 Annual Report (2022 net income available to common shareholders was $628.364M) We have now learned that a profitable bank, with low charge off and non-performing loan ratios, can go bankrupt in two days.
I would emphasize that a bank holding preferred stock will become worthless, or very close to it, when and if the FDIC seizes the operating bank. This recently happened with the SVB Financial preferred stock after the FDIC seized Silicon Valley Bank and the holding company filed for bankruptcy.
Last Discussed: Item # 5.E. Bought 5 WBSPRG at $22.8 (11/8/22 Post)
Average cost per share: $21.73 (7 shares)
Par Value: $25
Yield at Average cost: 7.48%
(computation: .065% coupon x. $25 par value = $1.625 in annual dividends ÷ $21.73 AC per share = 7.48%, rounded)
Dividend: Non-cumulative, qualified and paid quarterly.
Last Ex Dividend: 3/30/23 (owned all as of)
Stopper Clause: Standard
Optional Call: On or after 10/15/22 at par value + accrued and unpaid dividends.
K. Added to OPI - Bought 2 at $11.48; 1 at $11.38:
Quote: Office Properties Income Trust (OPI)
Cost: $34.34
As of 12/31/22, OPI's "wholly owned properties were comprised of 160 properties containing approximately 21.0 million rentable square feet". The "properties were leased to 274 different tenants, with a weighted average remaining lease term (based on annualized rental income as defined below) of approximately 6.6 years. The U.S. government is our largest tenant, representing approximately 19.7% of our annualized rental income as of December 31, 2022." 2022 Annual Report
Top Tenants as of 12/31/22:
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| Page 48, Annual Report |
Management: External and poorly regarded as reflected in a long term price chart. IMO, the REIT is not managed for the benefit of its shareholders as reflected in this REIT's acquisition history which I have previously summarized.
10 Year Chart: Children-Avert your eyes since this chart is obscene
SEC Filed Investor Presentation -March 2023
Last Discussed: Item # 5.S. Added to OPI - Bought 1 at $12.35 (10/25/22 Post)
Average cost per share: $16.33 (35 shares)
Dividend: Quarterly at $.55 per share
Yield at New AC = 13.47%
Yield at $11.38: 19.33% (at 19.33%, money doubles before taxes and inflation in about 3.92 years The Rule of 72 (with calculator) - Estimate Compound Interest, an estimate that may change up or down depending on the prices paid for shares bought with the quarterly dividends and assuming no dividend cut)
The assumption that is built into the 19.33% is IMO a 100% chance that the dividend will soon be slashed, possibly by at least 50% or more. I do not have the decree of certainty but would view a cut to $.40 to be prudent now.
Last Ex Dividend: 2/16/23
SU Debt: Rated at BBB- by S&P, but trades at YTMs that would be consistent with a low level junk rating. Moody's downgraded the SU debt from Ba1 to Ba2 on 3/8/23. In July 2022, Moody's reaffirmed the debt at Baa3, the lowest investment grade level.
E.G. Office Properties 2.4% SU Maturing in 2027
Last Earnings Report (Q/E 12/31/22): SEC Filed Earnings Press Release
Normalized FFO per share = $1.13
CAD (cash available for distribution) per share: $.20
% Leased: 90.6%
CAD was unusually low in the 2022 4th quarter due to a substantial increase in recurring capital expenditures:
Net Income to FFO to CAD:
Significant Redevelopment Costs:
At the current YTMs of OPI's senior debt, I do not view issuing new SU debt to repay maturing bonds to be an option. OPI will need to add more property specific mortgage debt, draw down its credit line, and/or sell properties to refinance bonds at maturity, assuming yields are anywhere near where the SU debt is trading now.
The next SU maturity is a 4.25% bond that matures on 5/15/24, originally issue by Select Income REIT that was acquired by OPI. The principal amount outstanding is $350M. I own it, having purchased those bonds when the outlook was much better than now. The bond is actively traded, frequently in large lots.
Credit Facility, SU Debt and Mortgage Debt: |
| In Thousands |
L. Added to WASH - Bought 5 at $34.7:
Quote: Washington Trust Bancorp Inc. (WASH)
Cost: $173.5
Investment Category: Regional Bank Basket Strategy
This was an average up from a 2020 five share purchase. I noted that the stock had declined on 3/30/23 more than the quarterly dividend which went ex on 3/31 and the stock had significantly retreated from its 52 week high of .
2022 GAAP E.P.S. = $4.11
TTM P/E at $34.7 = 8.44
Dividend Yield at $34.7: 6.46%
Last Discussed: Item # 2.G. Restarted WASH - Bought 5 at $29 (5/30/20 Post)
Last Round-Trip: Item # 2. Eliminated WASH-Sold 50 at $61.53 (6/25/18 Post)(profit snapshot = $2,309.25)- Item # 3 Bought 100 WASH at $15.26 (1/14/2010 Post)
Average cost per share: $31.85 (10 shares)
Dividend: Quarterly at $.54 per share, last raised from $.52 effective for the 2023 first quarter payment.
Dividend History: Good
Yield at New AC = 7.03%
Last Ex Dividend: 3/31/23
Last Earnings Report (Q/E 12/31/22): SEC Filing
Net income of $16.6M or $.95 per share
NIM = 2.65% (needs to go up)
Efficiency Ratio: 60.5% (needs to come down)
NPL Ratio: .25%
NPA Ratio: .19%
Charge off ratio: Net Recovery
Coverage Ratio: 296.02%
ROE: 14.96%
ROTE: 17.74%
Tangible Book Value per share: $22.42
"The securities portfolio totaled $994 million at December 31, 2022, up by $11 million, or 1%, from September 30, 2022, largely reflecting an increase in the fair value of available for sale securities due to changes in interest rates. Purchases of U.S. government-sponsored mortgage-backed securities were offset by routine pay-downs. The securities portfolio represented 15% of total assets at both December 31, 2022 and September 30, 2022."
Owned Securities:
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| Page 87, Annual Report (unrealized loss at $172.682M as of 12/31/22) |
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| Of the $1.051+B total, $104.5M Mature in 1 year or less |
Deposits:
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| Page 110, Annual Report |
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| P. 77 Annual Report |
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| P.99 Annual Report |
Non-interest paying deposits: 26.11% of the total
2. CDs -FDIC Insured: $5,000
A. Bought 2 Cadence Bank 5.35% CDs Maturing on 12/29/23:
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Issuer: Cadence Bank (CADE)
Interest Paid at maturity.
B. Bought 1 Enterprise Bank & Trust 5.25% CD Maturing on 3/29/24:
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Interest paid at maturity.
Operating bank for the bank holding company Enterprise Financial Services Corp. (EFSC)
C. Bought 1 Zions 5.4% CD Maturing on 9/27/24:
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Interest paid at maturity.
D. Bought 1 Webster Bank 5.05% CD Maturing on 10/5/23:
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Interest Paid at maturity.
I have a small ball position in the bank holding company Webster Financial Corp. (WBS)
I do not recall seeing Webster offering brokered CDs prior to this one.
3. Treasury Auction Purchases:
A. Bought 3 Treasury Bills at 3/26/23 Auction:
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Mature on 6/29/23
Interest: $35.45
Investment Rate: 4.81%
4. Corporate Bonds:
The following senior unsecured bonds were purchased through the Fidelity Corporate Notes offerings. Those bonds are initial offerings and purchased at par value.
I am replacing in advance 2 GS bonds that are about to mature:
I did not buy any bonds in 2021. The 2.4% SU bond maturing on 4/28/23 was purchased on 3/28/22. The 2.7% SU maturing on 5/29/23 was also a 1 year bond. MM rates were still near zero when I made those purchases.
I may buy newly issued GS bonds to replace the 1 bonds that mature on 6/13, 6/20 and 9/29 when I am closer to those maturities.
The GS SU bonds are rated A2/BBB+.
A. Bought 1 Goldman Sachs 5.35% SU Maturing on 6/6/24:
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B. Bought 1 Goldman Sachs 5.45% SU Maturing on 10/4/24:
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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 sale 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 my family members.
