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  • Digital Realty: Despite Turmoil, New Preferred Is Interesting [View article]
    The stock that I was referring to was Prime Group Pfd P.
    Mar 20, 2014. 11:43 AM | Likes Like |Link to Comment
  • Digital Realty: Despite Turmoil, New Preferred Is Interesting [View article]
    Very good information, thanks, southgent. I had a rotten experience with a Chicago office REIT (the name of which I have a proclivity to forget), that sounds just like the Innkeeper's experience that you describe -- I made a little on the common, but lost a bundle on the preferred. Its good to know about the new change of control provisions.
    Mar 20, 2014. 11:06 AM | Likes Like |Link to Comment
  • Digital Realty: Despite Turmoil, New Preferred Is Interesting [View article]
    Excellent analysis.
    Mar 20, 2014. 10:14 AM | Likes Like |Link to Comment
  • Exxon Mobil: A View Of The Company's Economic Characteristics [View article]
    coth, texirish is referring to Kurt Wulff's latest report on XOM (available at mcdep dot com). In it, Wulff estimates XOM's NPV at $102, made up as follows:

    North American Natural Gas: 8%
    Rest of World Natural Gas: 19%
    Oil: 57%
    Downstream: 19%
    (May not add because of rounding)

    On a BTU BOE basis, 1 barrel of oil is equivalent to about 6000 cu ft of gas. But North American gas is currently at a discount to oil this basis. So North American gas reserves are lower valued than oil reserves on a BOE basis. Relative costs of production are also a factor in the NPV calculation.
    Mar 19, 2014. 03:15 PM | 1 Like Like |Link to Comment
  • Exxon Mobil: A View Of The Company's Economic Characteristics [View article]
    I take issue with a couple of things in this article.

    First, there is the idea that somehow the deferred tax liability and the equity investments are not figured into the value of Exxon shares. Not true, in my view. The equity investments produce income that comes down to the bottom line. The deferred tax liability reduces the amount of shareholder equity required and enables the share buybacks, which reduce the share count. It all comes out as EPS. And, like it or not (and regardless of Warren Buffett), investors will weigh up PE (and compare with CVX, RDS, BP, etc) when valuing XOM.

    Second, you promise a DCF calculation, but never deliver. You state that the appropriate discount rate is 3.25%, the cost of Exxon's debt, and that the cost of equity is irrelevent. That is contrary to accepted financial theory. For instance, a portion of XOM's capital is allocated to buying back stock. In effect, XOM earns a return on the buyback, just as it does when it drills a well to develop an oil reserve. The return on the buyback is equal to the shareholder expectation of return. That return is also XOM's cost of equity capital. The appropriate discount rate is the Weighted Average Cost of Capital, WACC, not the cost of debt capital.

    Financial theory also says that companies should accept investment projects as long as the expected rate of return exceeds the WACC. But obviously XOM would never accept a rate of return as low as 3.25% -- and its obvious from its ROE that XOM's cutoff rate is much, much higher!

    The main difficulty with the DCF approach to valuation, is that the derived value is highly sensitive to the WACC discount rate, and the problem with WACC is that while the cost of debt is quite explicit, the cost of equity is not so simple. Below are 2 links to XOM's WACC. The first says that the WACC is 5.6%, the second says 9.5%. Quite a difference!

    Finally, you state: "Plugging their 3.25% cost of debt into a DCF produces a valuation in excess of the current market price, and substantially so, depending on the terminal growth rate assumption. Bear in mind, if growth is higher than the cost of capital, a DCF goes haywire and develops an infinite valuation." But the analysts' consensus mean target price for XOM is $100 (Yahoo Finance), just 5.6% above where the stock closed today, and anything but infinite!
    Mar 18, 2014. 11:45 PM | 1 Like Like |Link to Comment
  • Will Exxon Mobil Gush Over $100 Again? [View article]
    How do you get $150?

    Kurt Wulff, a respected oil analyst, figures NPV of XOM at $102, as follows:

    North American Gas: $9
    Rest of World Gas: $19
    Oil Production: $57
    Downstream*: $17

    *Includes Chemicals (for the analysis, go to mcdep dot com)

    As for spinning off chemicals, I don't think anyone is going to push XOM around. In this case, their hideboundness will protect them.
    Mar 18, 2014. 09:25 PM | 1 Like Like |Link to Comment
  • Exxon Has Upside Potential [View article]
    """According to our calculations, the company has an enterprise value of $408.34 billion, and from this, we can find a target price close to $94.5 per share, while currently, stock is being traded at $94 per share."""

    Basically, this statement is clueless. In this and other calculations by this "author", EV has been divided by shares outstanding to get a per share "value". But EV includes debt, which is attributable to the debt holders, not the shareholders, so no way is this approach a guide to stock value.

    This "author" has made similar calculations in similar articles about other stocks. This article, and those others, are so feeble that I have concluded that the only purpose of the articles is to draw attention to the author's website. I am surprised that SA has approved publication of these articles!
    Mar 18, 2014. 04:08 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Must-Know News [View article]
    GM: Contrarian Buy
    Citigroup Target Price = $48
    Mar 18, 2014. 09:08 AM | 1 Like Like |Link to Comment
  • Ukraine Crisis: U.S. LNG Can Help, But Not The Way People Think [View article]
    Very good and realistic article, but I doubt it changes the export potential for US LNG much. Making the argument that we, and/or the EU, should subsidize LNG to the Ukraine, commonsensical as it is, would not fly with most of our lawmakers. Plus, there are the new discoveries in East Africa and other places that will be developed in time.
    Mar 17, 2014. 11:41 AM | 1 Like Like |Link to Comment
  • Healthcare REIT: A Great Income Investment Despite Seemingly Mediocre Results [View article]
    Here are my rankings, with Yield, 5-Year FFO Growth Rate, and Total Return (%):

    SNH 7.0 4.7 11.7
    HCN 5.5 6.2 11.7
    VTR 4.8 5.7 10.5
    OHI 6.1 3.0 9.1

    plus a couple of other REITs that I like:

    HPT 6.8 6.0 12.8
    DLR 6.3 6.1 12.4

    Data Source (Yield and FFO Growth Rate): Yahoo.
    Mar 16, 2014. 01:16 AM | Likes Like |Link to Comment
  • Healthcare REIT: A Great Income Investment Despite Seemingly Mediocre Results [View article]
    I have 2 primary comments.

    First, it seems rather pointless to me to highlight charts that show rapid growth in revenue and EBITDA when such growth was achieved primarily through acquisitions and mergers that required very substantial issuance of new stock. The number of shares outstanding for HCN increased from 78.9 million (average) in 2006, to 288.3 million as of the latest quarter. When the data are expressed on a per share basis, historic growth has been far more modest. Dividends per share grew from $2.72 in 2009 to $3.06 in 2013, a CAGR of 3.0%. FFO per share grew from $2.77 in 2009 to $3.32 in 2013, a CAGR of 4.6%.

    Second, the table headed 'Operating Inefficiency' is a bit of a "mess". For one thing, the HCN symbol is missing on one of the rows. More to the point, OHI and HCN have very different business models. As a result, the relevance of comparable operating margins has to be questioned. Almost all of OHI's revenues are derived from rental income, which arises from the lease payments on OHI's real estate investments. OHI does not operate these facilities. On the other hand, over half of HCN's revenues are from "Resident Fees and Services", not from Rental Income. There is a considerable cost to providing these services, hence the lower operating margins -- HCN is, in effect, running a hotel, but OHI is leasing the hotel to an operator.

    Also, in the table, I would aver that ratios such as ROA and ROE are highly misleading for any company that has real estate as its main asset type. Under GAAP accounting, the accountants must write down the value of the assets through depreciation each year. Yet properly located and maintained real estate gains value over time. The book values are especially distorted for companies where the average age of the assets is older. The ultimate effect of depreciation is to understate the book values, which are the denominator in the ROA and ROE calculations. Thus, differences in ROA and ROE are more likely to arise from average age differences of the buildings than from "operating efficiency".

    [I once owned shares in a REIT that had a negative book value. The REIT was Town and Country Trust, a Baltimore area apartment REIT. How did the book value get to be negative? Over time, the property values were written down through depreciation. Also, over time, the rents went up, and so did the property values. TCT was able to maintain a high dividend, not only from its internal funds from operations, but also from periodically refinancing its long term debt. In time, the book value went negative, with no more retained earnings and dividends paid out as a return of capital. Eventually, TCT was taken out in a merger for over $30 per share.]
    Mar 15, 2014. 05:53 PM | 1 Like Like |Link to Comment
  • Minerals law opposed by Exxon, BHP adopted in South Africa [View news story]
    Investment in the mining and resources sector in South Africa has already slowed down, not due to lack of resources. The reasons include the inability of the government to get a restrain the unions and get a grasp on the labor situation, plus the general incompetency of government officials and their tolerance of corruption. The result: economic growth has almost stagnated and unemployment, primarily among the black underclasses, remains at 25%+. Ironically, these people are prime supporters of the ANC government. The outlook for South Africa is not encouraging, and many of the companies founded there or based there, are looking for growth elsewhere. These include Anglo American, Gold Fields, Sasol, and SABMiller.

    This latest piece of legislation puts another nail in the coffin.
    Mar 13, 2014. 02:05 PM | 1 Like Like |Link to Comment
  • Omega Healthcare Investors: The Fastest Growing Medical REIT Trading At A 28% Discount [View article]
    There is a fatal flaw in this analysis of OHI, which is that all of the charts and growth projections are without regard to the number of shares outstanding.

    The average shares outstanding increased from 65.9 million in 2006 to 122.4 million at the latest count. In other words, the there was not sufficient debt + internal capital available for all of the acquisitions, and a lot of new shares had to be issued.

    The analysts consensus estimates of growth for OHI are much more realistic, even though they are based on a limited number of analysts (4 or 5). The analyst estimates (taken from the Yahoo 'Analyst Estimates' page and the 'Analyst Opinion' page) are:

    2013 FFO: $2.53
    2013 FFO: $2.73
    2013 FFO: $2.79
    FFO Growth 2013 to 2014: 7.9%
    FFO Growth 2014 to 2015: 2.2%
    5-year projected Growth Rate: 3.0%
    Mean Target Price: $31.00 (12 month)

    Even the 7.9% growth for 2014 appears to be overstated, as OHI actually reported 2013 FFO of $2.56, while the $2.53 number appears to represent AFFO. In this case, 2014 projected growth would only be 6.6%.
    Mar 13, 2014. 08:44 AM | Likes Like |Link to Comment
  • Oil Investing In 2014 And Top Ideas [View article]
    A very sloppy article with only a sophomoric understanding of the oil industry.

    It is not true that ""China is currently the leading consumer of crude oil . ."". China is not even the largest importer of crude oil. The US remains both the largest consumer and the largest importer. See:

    Noble is a much different company than CVX and XOM. It also sells at the highest P/E among the companies compared -- a definite high risk factor -- though this is the ttm PE, not the forward looking 2014 or 2015 PE, which would look much better.

    The main purpose of the article was probably to draw attention to the contributor's website.
    Mar 12, 2014. 01:48 PM | 4 Likes Like |Link to Comment
  • Tanger Outlets: Nobody Does It Better [View article]
    Tanger is a great company. My spouse gives them great support by shopping frequently at the Riverhead, NY location (730,000 sq ft). I get most of my clothes and shoes there. The Riverhead location is just outstanding: right at the last exit on the Long Island Expressway (I-495). Its almost as if the expressway were built to bring everyone on Long Island to Tanger, and many people stop off at Tanger on their way between New York and the Hamptons.

    The question is whether SKT is a great stock? The dividend is skimpy at only 2.6%, which is less than the 10-year treasury bond, and suggests to me a greater sensitivity to higher interest rates than some higher yielding REITs.

    Growth in the future is unlikely to be as great as in the past. Online sales are one issue. The idea that America is over-stored is another (how much longer will Sears, Penney, and RadioShack be around?). Granted outlet stores are a special niche and Tanger does them extremely well, but the 5-year consensus FFO growth rate is 5.9% (Yahoo, based on only 3 analysts), and FFO growth from 2013 to 2015 is estimated at 6.7% p.a. ($1.94 to $2.21).

    Certainly a better buy at $32 than at $35.
    Mar 7, 2014. 02:48 PM | Likes Like |Link to Comment