Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
Rich, you are not alone. I doubt there's anything particularly magical about GOOD's credit analysis comparatively speaking, although they do "specialize" in non investment grade tenancy, so from that perspective I see value versus shops that focus on gobbling up investment grade tenants at whatever cap rate they can get.
The higher implied cap rate on the Gladstone portfolio leads to better cash flows, but the deliberate, non-expansionary platform creates a capital stagnancy. And as others have pointed out, its capital stack is highly skewed toward debt, which could pose substantial issue in a rising rate environment.
Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
Hey rich... first on the AFFO issue... I never, never utilize mainstream data since I don't know where they are getting it from and can lead to fallacious conclusions... I go directly to company press releases or 10Q/K for specific financial information... I believe ARCP's last guidance for this year was 93 cents (don't quote) me which would equate to about 19 forward P/AFFO.
As to ARCP's valuation..... It's getting unattractive for a source of new funds in my opinion. So I'd perceive it as somewhat pricey, perhaps overvalued. Having said that, as long as rates stay low, operating performance will be good in REIT land and investors will gravitate to dependable income/equity situations regardless the operating multiple. So it wouldn't surprise me to see these things continue to run up.
GOOD is one of the few REITs I've looked at trading with a low teens FFO multiple. But as Dane admits, GOOD is not a great total return play, and as such its multiple probably won't expand much from here.
Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
Dane, nice write up on a somewhat disregarded, yet intriguing play in net lease given its attributes. From a fresh capital and point in time, defensive perspective, I'd go along with your recommendation of GOOD over O (and that's why I bought it earlier this year)... however, from a longer-term, total return perspective I suspect investment grade O will outperform despite its lofty current valuation.
Personally, I think ARCP provides the best risk-adjusted long-term return play in pure stand alone commercial net lease.
5 Investing Myths You Should Be Aware Of [View article]
WSM... I'm a bit more understanding of your position as well - I guess representative of the old "great company, lousy stock" axiom. Thanks for the clarification.
5 Investing Myths You Should Be Aware Of [View article]
WSM....you specifically mentioned Wal-mart's P/E ratio of '44' in 2000, and are telling us that it was a cue to avoid the stock then, so obviously you found use in the metric. P/E must mean something to you if you are using it as the basis to explain Wal-mart's past 'overvaluation.'
Even Though Ben Graham Would Not Buy This REIT Today, I Would [View article]
Just for the edification of those reading this thread, this is really a Catch-22 for SA contributors and one that we discuss amongst one another. Frankly, I like reading content from those that don't own stocks they write about, because of the objectivity as BHN mentions above. I have a lot of skin in the game in REITs, but value Brad's input, and while I don't agree with him all the time, I don't question his intentions.
Having said that though, I cringe when I read users say, "I bought that on your recommendation." I don't think anyone should be making decisions directly from an SA article... it should be a baseline to do one's own investigation, and there should be some counter thought to everything you read here.
It's one reason I've chosen to write mostly about general topics and offer ideas, rather than make b/s/h recommendations. I don't want people to be doing what I'm doing just because I am or to question my motives. Plus, I like providing counter arguments to things I read that I disagree with. It's probably not as interesting to many investors to not take a specific stand, but I think there's value in forcing investors to look in the mirror, rather than tell them what you think they should do.
5 Investing Myths You Should Be Aware Of [View article]
Dave, there's certainly an argument to be made that FCF should be the gold standard for investors to follow, rather than EPS. Unfortunately we are all susceptible to tricks of the trade, although the Enron, Worldcom, Adelphia era and Sarbanes Oxley has been somewhat of a quell on shenanigans.
And I would agree on the overthinking aspect of things - sounds like a good article topic for you! Obviously if one does what you have been doing through the years, a great long-term outcome is in store if you get attached to a great company at a decent price and maintain a long-term outlook on things.
5 Investing Myths You Should Be Aware Of [View article]
Dave... hope all's well and good post. I think I'd be willing to pay 21X if I thought that EPS would grow consistently in the mid teens range or higher. This would bring into discussion the PEG ratio, which, again, I think is a nice data point, especially for comparative purposes, and/or used in light moderation.
The problem is if you are wrong with your 21X EPS investment and earnings growth slows to upper single digits - then you will pay the price as your stock's valuation sinks to compensate for the lower than anticipated growth rate.
If you start with a lower EPS valuation to begin with, you provide yourself with a margin of safety unachievable with higher valued stocks unless you pare the buy with an option or another hedge, which I really don't like to do.
5 Investing Myths You Should Be Aware Of [View article]
obie...#1 warns about P/E ratios then #5 uses a specific P/E example as a talking point to show a circumstance where one shouldn't have bought a "great" stock.
I personally think there is point in time and comparative value in P/E ratios, but by no means should someone use it as a sole valuation analysis tool.
Even Though Ben Graham Would Not Buy This REIT Today, I Would [View article]
Blogging... on Feb. 28 ARCP announced....Amer Realty Cap Ppties Backs FY13 Adj FFO 91c-95c/Shr. If you take the midpoint of that range you come up with AFFO payout of 96.7%, as ARCP's current annualized payout is 90 cents a share. My guess Brad used the TTM divvy numbers to come up with 105%.
However, I think one should compare that number to Realty Income's AFFO divvy payout. Midpoint of O's AFFO guidance for this year is $2.35 and annualized divvy is $2.17 for a 92.3% AFFO payout. In essence it's not that higher than ARCP.
Compare those numbers to a company like LXP which is guiding AFFO to $1.02 this year with a current annualized payout of 60 cents. Or Whitestone WSR which had AFFO of 90 cents last year, yet paid out $1.14. (no 2013 guidance)
Having said all that... I would be the first to come to Brad's defense that there would never be deliberate intent to mislead.
Interesting perspective ar.... I thought for the past 18 months up until very recently that a calculated, moderate shift from fixed income to equity was a prudent move.... now with the recent runup I think that trade is over. Now there is seemingly no where to hide.
And I can see how trying to convince a client to move from long paper into something shorter might be tough, or as you say next to impossible. Tough to teach an old dog or a stubborn one new tricks.
aretail... I agree on keeping maturities short from a strategic perspective, given rate risks... obviously if someone strays into intermediates and a tightening bias of extended duration occurs, one will get hurt. If you go long you will get slaughtered. If someone has a ladder, one may not care one way or the other. I'm not seeing the tightening bias anywhere on the near horizon, but then I'm not Nostradamus, noone is.
While you point to a problem of fixed income investors becoming lackadaisical in bonds - and that may be true... there are others that are shifting short-term money into the stock market to gain more yield, which could end up being a worse decision then wading into longer-term fixed income.
We are in uncharted waters fiscal policy wise. Investors need to keep their eyes on the ball.
sris... thanks for commenting.... I agree that now is not a bad time for aggressive income investors to be considering them given ZIRP, as you can gain higher yield compared to straight debt. The main downside for many preferreds, for those that don't know, is perpetual maturity that most have, meaning if rates go higher, and the preferred's price starts to weaken, you might never make your money back. If you buy one, you should completely understand its characteristics and be prepared to bail if a higher rate environment falls upon us.
Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
The higher implied cap rate on the Gladstone portfolio leads to better cash flows, but the deliberate, non-expansionary platform creates a capital stagnancy. And as others have pointed out, its capital stack is highly skewed toward debt, which could pose substantial issue in a rising rate environment.
Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
As to ARCP's valuation..... It's getting unattractive for a source of new funds in my opinion. So I'd perceive it as somewhat pricey, perhaps overvalued. Having said that, as long as rates stay low, operating performance will be good in REIT land and investors will gravitate to dependable income/equity situations regardless the operating multiple. So it wouldn't surprise me to see these things continue to run up.
GOOD is one of the few REITs I've looked at trading with a low teens FFO multiple. But as Dane admits, GOOD is not a great total return play, and as such its multiple probably won't expand much from here.
Optimizing Triple Net Lease REIT Investment Part 2: Dividends With Gladstone Commercial [View article]
Personally, I think ARCP provides the best risk-adjusted long-term return play in pure stand alone commercial net lease.
Long GOOD, ARCP
5 Investing Myths You Should Be Aware Of [View article]
Regards, AA
5 Investing Myths You Should Be Aware Of [View article]
Even Though Ben Graham Would Not Buy This REIT Today, I Would [View article]
Even Though Ben Graham Would Not Buy This REIT Today, I Would [View article]
Having said that though, I cringe when I read users say, "I bought that on your recommendation." I don't think anyone should be making decisions directly from an SA article... it should be a baseline to do one's own investigation, and there should be some counter thought to everything you read here.
It's one reason I've chosen to write mostly about general topics and offer ideas, rather than make b/s/h recommendations. I don't want people to be doing what I'm doing just because I am or to question my motives. Plus, I like providing counter arguments to things I read that I disagree with. It's probably not as interesting to many investors to not take a specific stand, but I think there's value in forcing investors to look in the mirror, rather than tell them what you think they should do.
5 Investing Myths You Should Be Aware Of [View article]
And I would agree on the overthinking aspect of things - sounds like a good article topic for you! Obviously if one does what you have been doing through the years, a great long-term outcome is in store if you get attached to a great company at a decent price and maintain a long-term outlook on things.
5 Investing Myths You Should Be Aware Of [View article]
The problem is if you are wrong with your 21X EPS investment and earnings growth slows to upper single digits - then you will pay the price as your stock's valuation sinks to compensate for the lower than anticipated growth rate.
If you start with a lower EPS valuation to begin with, you provide yourself with a margin of safety unachievable with higher valued stocks unless you pare the buy with an option or another hedge, which I really don't like to do.
5 Investing Myths You Should Be Aware Of [View article]
I personally think there is point in time and comparative value in P/E ratios, but by no means should someone use it as a sole valuation analysis tool.
5 Investing Myths You Should Be Aware Of [View article]
Even Though Ben Graham Would Not Buy This REIT Today, I Would [View article]
However, I think one should compare that number to Realty Income's AFFO divvy payout. Midpoint of O's AFFO guidance for this year is $2.35 and annualized divvy is $2.17 for a 92.3% AFFO payout. In essence it's not that higher than ARCP.
Compare those numbers to a company like LXP which is guiding AFFO to $1.02 this year with a current annualized payout of 60 cents. Or Whitestone WSR which had AFFO of 90 cents last year, yet paid out $1.14. (no 2013 guidance)
Having said all that... I would be the first to come to Brad's defense that there would never be deliberate intent to mislead.
Long ARCP, LXP, WSR
The Absurdity Of A Bond Bubble [View article]
And I can see how trying to convince a client to move from long paper into something shorter might be tough, or as you say next to impossible. Tough to teach an old dog or a stubborn one new tricks.
The Absurdity Of A Bond Bubble [View article]
While you point to a problem of fixed income investors becoming lackadaisical in bonds - and that may be true... there are others that are shifting short-term money into the stock market to gain more yield, which could end up being a worse decision then wading into longer-term fixed income.
We are in uncharted waters fiscal policy wise. Investors need to keep their eyes on the ball.
The Absurdity Of A Bond Bubble [View article]