American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
David White,
You said the following
"Unfortunately it contains many errors which make its conclusions suspect. Perhaps the most glaring is that it presupposes a continued downtrend in mortgage rates. If you look at the US Treasury long bond yield"
Where did I say mortgage rates will continue to go down??? You are saying I was wrong about something I never said. All discourse relating to future rates was phrased as a conditional. I do not know where rates will go and to be honest I don't think anyone does. We can, however, analyze them in the conditional context.
You also suggest that there are many other errors. Please point them out SPECIFICALLY and without putting words in my mouth so I can correct them.
Criticism of my work is always welcome, but please do it in a professional and HONEST way.
Investing In Industrial REITs Part 3: Lexington Realty Trust [View article]
Brad,
I used to own some ADC, but since the huge run-up I feel it is no longer a value. ARCP is also approaching full valuation. In my opinion, the triple-net opportunities going forward lie in LXP and LSE.
A Sustainable And Growing 8% Yield Is Driving NorthStar Realty Finance's Outperformance [View article]
Holthusen,
I have read that article and strongly disagree with it. He seems to be suggesting that the CDO repurchase at pennies on the dollar which has been massively accretive to shareholders was somehow underhanded or unethical. In my opinion, the primary job of public companies is to make money for their shareholders so opportunistic deals are very ethical.
He also suggests that NRF has "aggressive accounting" and applies negative and perhaps unethical connotations.
This too is wrong. The accounting used by NRF is standard and accurate. It is simply difficult to understand. NRF is a very complex company and as such necessarily has difficult accounting.
Essentially what I got out of his article was that he was confusing the difficulty of understanding NRF with it being a bad investment. I have no authority to state that he was wrong, this is merely my opinion.
A Sustainable And Growing 8% Yield Is Driving NorthStar Realty Finance's Outperformance [View article]
Texas,
That is a fair question. I believe much of it has to do with the timing of acquisitions and money raising efforts. While the costs are absorbed upfront, (therefore directly affecting the Q1 earnings) the profits from the acquisitions did not fully kick in for the first quarter. Therefore first quarter earnings reflected less revenue than should be reflected going forward.
I hope this helps to clarify and thank you for providing me the opportunity to clear this up.
Investing In Industrial REITs Part 3: Lexington Realty Trust [View article]
smurf,
well the rule is that REITs have to pay out 90% of TAXABLE income. For most REITs this is a very small or negative number so I'm fairly confident LXP's dividend is legally sufficient. I tend to work more with FFO for REITs as this is a better measure of their true cashflows.
American Realty Capital Properties: David Acquires Goliath [View article]
NTRanalyst,
You suggest that I am wrong for using the MFFO figure as it does not include the most recent acquisitions. Did you read my article???? I ask because I addressed that specific point. Please read the quote below that was in the article.
"There is another piece to factor in. CCPT3 had been making major acquisitions in 2012, so the nine month MFFO does not fully reflect its pro-rata earnings"
Before flaming an author, at least read his article.
Healthcare REITs Are Far Safer Than You Would Think [View article]
zver11,
You are bringing up some very interesting points for discussion. I'm just not quite sure what angle you are coming from, so it is difficult for me to address them.
1) Like I said in the article, it really is an unknown. It appears your view of our government is a bit more pessimistic than mine, but there may be something to it.
2) I agree that in some cases the contract will be terminated and the building returned to the REIT, but I have to disagree on the cascade you refer to. Such things may occur in other sectors, but for healthcare, the building rent is such a small portion of expenditure that relocation of operations would rarely be worth a slight decrease in rent. For example, rental expenses for Sun Healthcare Group were only $36.6mm in the third quarter compared to revenue of $460.5mm. The relatively low cost of rent and relatively high cost of relocation favors homeostatic contractual conditions.
3) "new investment drops, occupancy climbs" Please clarify what you mean by this. New investment in what? and occupancy of what? As far as I know, the healthcare REITs are mostly 100% occupied already as the entire buildings are obtained and rented simultaneously through sale-leaseback transactions.
In Defense Of American Capital Agency [View article]
Albert Alfonso,
I appreciate your professionalism in the citations when quoting my work. I would, however, like a chance to defend my article. As the author of the original piece I feel I deserve the opportunity to do that. I ask that you do me the favor of making this reply an "author's pick" such that those viewing your article can actually see it rather than it getting lost in a 100 comment stream. This would more accurately represent the sort of debate discourse between our articles.
There are a few aspects of your article I would like to respond to.
1) Regarding the share issuance, I used a 03/08/13 SNL Financial exclusive to get the data. I had, unfortunately misread it. The $2.06B offering was from 2012 rather than 2013. This is a clear oversight and I apologize for the mistake. Thank you for finding and correcting this.
2) In regard to interest rate hyper-sensitivity. Your article doesn't really refute what I argued. You simply suggest that we cannot know what will happen to interest rates. I said the VERY SAME THING in my article. The fact of the matter is AGCN is very sensitive to interest rate changes.
Such sensitivity is amplified by its leverage which is very high, and even high compared to other agency mREITs. Due to the extreme premiums at which it acquires its assets, (around 105%) it is also very sensitive to prepayment which can be accelerated by fluctuating interest rates.
AGNC themselves admits to being particularly sensitive to interest rate changes.
I do not doubt that AGNC hedges much of this risk, but doing so is very expensive. The more risk they need to hedge, the more it costs to do so.
3) In regard to dividend sustainability
I agree that net spread ROE is a decent measure for this subject, but a 12.27% net spread ROE will not cover a 15% dividend. You also mention that they can pay the dividend using previous undistributed income. Yes, they probably can. I did not argue that they couldn't pay the dividend. My argument very carefully stated that the dividend was not SUSTAINABLE.
What specifically does this mean? Well, for something to be sustainable the rate of replenishment must be equal to or greater than the rate of depletion. Let us look at an example. There are enough oil reserves to fulfill all human need for at least the next few years. Does this mean continuing using oil at the present rates is SUSTAINABLE? Of course not. We all know that oil is not a sustainable resource.
This is exactly the situation with AGNC. They have enough cash on hand to pay the dividend, probably for a while even, but it is not sustainable. The rate of replenishment in this case as you point out is the 12.27% ROE from the spread. The rate of depletion is the 15%+ dividend. I know equity and market value are not the same so we cannot directly compare these numbers. But when it is presently trading so near book value equity and market cap are VERY CLOSE to the same. Thus, the 15%+ depletion is greater than the 12.27% repletion and the dividend is therefore not sustainable.
This was my conclusion. Suggesting that I said they could not pay would be incorrect as that was not my argument. The "impending cut" as I called it could happen this next quarter or a year down the road, I do not know what management will decide but it is not sustainable so it seems it will have to come at some point.
While we disagree on many points, I do think your article was very well written. You also legitimately corrected a couple of errors that I made. Thank you for doing that and thank you for furthering the discourse on this fascinating company.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
skyraider,
Its funny that you mention that. 35 comments popped up within 3 hours of its public release. I'm trying my best to defend the article, but this comment stream is overwhelming.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
Chazzie,
I disclose all positions on companies I write about. As for AGNC I have no stake on either side of the issue. The goal of the article was to be an unbiased analysis. You seem to forget all the good things I said about AGNC.
A Golden Opportunity For Dividend Investors And Traders Alike: American Realty Capital Properties [View article]
Bob,
I agree that the rate of dividend growth is slow, but it is a VERY large yield. The larger a yield is, the more difficult it is to grow as a %. You will get paid larger dividends overall with a slow growing high yielder than a fast growing low yielder.
We must consider both magnitude AND rate to get the full picture.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
You said the following
"Unfortunately it contains many errors which make its conclusions suspect. Perhaps the most glaring is that it presupposes a continued downtrend in mortgage rates. If you look at the US Treasury long bond yield"
Where did I say mortgage rates will continue to go down??? You are saying I was wrong about something I never said. All discourse relating to future rates was phrased as a conditional. I do not know where rates will go and to be honest I don't think anyone does. We can, however, analyze them in the conditional context.
You also suggest that there are many other errors. Please point them out SPECIFICALLY and without putting words in my mouth so I can correct them.
Criticism of my work is always welcome, but please do it in a professional and HONEST way.
Investing In Industrial REITs Part 3: Lexington Realty Trust [View article]
I used to own some ADC, but since the huge run-up I feel it is no longer a value. ARCP is also approaching full valuation. In my opinion, the triple-net opportunities going forward lie in LXP and LSE.
A Sustainable And Growing 8% Yield Is Driving NorthStar Realty Finance's Outperformance [View article]
I have read that article and strongly disagree with it. He seems to be suggesting that the CDO repurchase at pennies on the dollar which has been massively accretive to shareholders was somehow underhanded or unethical. In my opinion, the primary job of public companies is to make money for their shareholders so opportunistic deals are very ethical.
He also suggests that NRF has "aggressive accounting" and applies negative and perhaps unethical connotations.
This too is wrong. The accounting used by NRF is standard and accurate. It is simply difficult to understand. NRF is a very complex company and as such necessarily has difficult accounting.
Essentially what I got out of his article was that he was confusing the difficulty of understanding NRF with it being a bad investment. I have no authority to state that he was wrong, this is merely my opinion.
A Sustainable And Growing 8% Yield Is Driving NorthStar Realty Finance's Outperformance [View article]
That is a fair question. I believe much of it has to do with the timing of acquisitions and money raising efforts. While the costs are absorbed upfront, (therefore directly affecting the Q1 earnings) the profits from the acquisitions did not fully kick in for the first quarter. Therefore first quarter earnings reflected less revenue than should be reflected going forward.
I hope this helps to clarify and thank you for providing me the opportunity to clear this up.
Investing In Industrial REITs Part 3: Lexington Realty Trust [View article]
well the rule is that REITs have to pay out 90% of TAXABLE income. For most REITs this is a very small or negative number so I'm fairly confident LXP's dividend is legally sufficient. I tend to work more with FFO for REITs as this is a better measure of their true cashflows.
American Realty Capital Properties: David Acquires Goliath [View article]
You suggest that I am wrong for using the MFFO figure as it does not include the most recent acquisitions. Did you read my article???? I ask because I addressed that specific point. Please read the quote below that was in the article.
"There is another piece to factor in. CCPT3 had been making major acquisitions in 2012, so the nine month MFFO does not fully reflect its pro-rata earnings"
Before flaming an author, at least read his article.
The Pursuit Of Mediocrity - Fallacy Of Dollar Cost Averaging And The Abuse Of Indexing [View article]
You make a valid point about typical timings. Thanks for continuing the discussion
Healthcare REITs Are Far Safer Than You Would Think [View article]
You are bringing up some very interesting points for discussion. I'm just not quite sure what angle you are coming from, so it is difficult for me to address them.
1) Like I said in the article, it really is an unknown. It appears your view of our government is a bit more pessimistic than mine, but there may be something to it.
2) I agree that in some cases the contract will be terminated and the building returned to the REIT, but I have to disagree on the cascade you refer to. Such things may occur in other sectors, but for healthcare, the building rent is such a small portion of expenditure that relocation of operations would rarely be worth a slight decrease in rent. For example, rental expenses for Sun Healthcare Group were only $36.6mm in the third quarter compared to revenue of $460.5mm. The relatively low cost of rent and relatively high cost of relocation favors homeostatic contractual conditions.
3) "new investment drops, occupancy climbs" Please clarify what you mean by this. New investment in what? and occupancy of what? As far as I know, the healthcare REITs are mostly 100% occupied already as the entire buildings are obtained and rented simultaneously through sale-leaseback transactions.
thank you for furthering the discourse.
Raising A Yellow Flag Over REIT Valuation [View article]
Examining The Dividend History Of Legacy Commercial Mortgage REITs In Times Of Crisis [View article]
The survival is relative to its peers. It is the only one to have fully recovered with positive total returns over the timeframe.
In Defense Of American Capital Agency [View article]
I appreciate your professionalism in the citations when quoting my work. I would, however, like a chance to defend my article. As the author of the original piece I feel I deserve the opportunity to do that. I ask that you do me the favor of making this reply an "author's pick" such that those viewing your article can actually see it rather than it getting lost in a 100 comment stream. This would more accurately represent the sort of debate discourse between our articles.
There are a few aspects of your article I would like to respond to.
1) Regarding the share issuance, I used a 03/08/13 SNL Financial exclusive to get the data. I had, unfortunately misread it. The $2.06B offering was from 2012 rather than 2013. This is a clear oversight and I apologize for the mistake. Thank you for finding and correcting this.
2) In regard to interest rate hyper-sensitivity. Your article doesn't really refute what I argued. You simply suggest that we cannot know what will happen to interest rates. I said the VERY SAME THING in my article. The fact of the matter is AGCN is very sensitive to interest rate changes.
Such sensitivity is amplified by its leverage which is very high, and even high compared to other agency mREITs. Due to the extreme premiums at which it acquires its assets, (around 105%) it is also very sensitive to prepayment which can be accelerated by fluctuating interest rates.
AGNC themselves admits to being particularly sensitive to interest rate changes.
I do not doubt that AGNC hedges much of this risk, but doing so is very expensive. The more risk they need to hedge, the more it costs to do so.
3) In regard to dividend sustainability
I agree that net spread ROE is a decent measure for this subject, but a 12.27% net spread ROE will not cover a 15% dividend. You also mention that they can pay the dividend using previous undistributed income. Yes, they probably can. I did not argue that they couldn't pay the dividend. My argument very carefully stated that the dividend was not SUSTAINABLE.
What specifically does this mean? Well, for something to be sustainable the rate of replenishment must be equal to or greater than the rate of depletion. Let us look at an example. There are enough oil reserves to fulfill all human need for at least the next few years. Does this mean continuing using oil at the present rates is SUSTAINABLE? Of course not. We all know that oil is not a sustainable resource.
This is exactly the situation with AGNC. They have enough cash on hand to pay the dividend, probably for a while even, but it is not sustainable. The rate of replenishment in this case as you point out is the 12.27% ROE from the spread. The rate of depletion is the 15%+ dividend. I know equity and market value are not the same so we cannot directly compare these numbers. But when it is presently trading so near book value equity and market cap are VERY CLOSE to the same. Thus, the 15%+ depletion is greater than the 12.27% repletion and the dividend is therefore not sustainable.
This was my conclusion. Suggesting that I said they could not pay would be incorrect as that was not my argument. The "impending cut" as I called it could happen this next quarter or a year down the road, I do not know what management will decide but it is not sustainable so it seems it will have to come at some point.
While we disagree on many points, I do think your article was very well written. You also legitimately corrected a couple of errors that I made. Thank you for doing that and thank you for furthering the discourse on this fascinating company.
Dane Bowler
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
WOW! In this entire stream of over 100 comments this has to be the most ignorant and belligerent. You say
"C'mon Dane, are you really so afraid of commenting on any of the many many people who have shown you to be an obvious shorter? "
How can people have shown me to be a shorter when I AM NOT SHORT. I diligently disclose my position in EVERY stock I have ever written about.
Do you realize you are accusing me of breaking the law?
It is a shame to see you bring such unprofessional idiocy to SeekingAlpha discussions which are otherwise very enlightening.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
Its funny that you mention that. 35 comments popped up within 3 hours of its public release. I'm trying my best to defend the article, but this comment stream is overwhelming.
Thanks for the humor, you made my day.
American Capital Agency: Negative Catalysts Portend A Dividend Cut [View article]
I disclose all positions on companies I write about. As for AGNC I have no stake on either side of the issue. The goal of the article was to be an unbiased analysis. You seem to forget all the good things I said about AGNC.
A Golden Opportunity For Dividend Investors And Traders Alike: American Realty Capital Properties [View article]
I agree that the rate of dividend growth is slow, but it is a VERY large yield. The larger a yield is, the more difficult it is to grow as a %. You will get paid larger dividends overall with a slow growing high yielder than a fast growing low yielder.
We must consider both magnitude AND rate to get the full picture.