This topic was last updated here: Update For Equity REIT Basket Strategy As Of 6/7/16 - South Gent | Seeking Alpha
I discussed reasons for maintaining an allocation to REITs here: Update For Equity REIT Basket Strategy As Of 7/24/15 - South Gent | Seeking Alpha (scroll to "Why Own Equity REITs")
I discussed interest rate cycles and REITs here: Update For REIT Basket Strategy As Of 8/11/15/Interest Rate Cycles And REIT Stock Prices - South Gent | Seeking Alpha (scroll to "Interest Rate Movements and REIT Stocks")
I am tracking realized gains and losses, along with annual dividend payments, here:Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy
Total Net Realized Gain Since September 2013 Inception: +$8,537.04 (of which $1,526.57 has been in REIT equity preferred stocks)
During the life of this basket, I believe that dividend income will swamp realized gains and will generate over 70% of my total return.
All of the Canadian REITs make monthly distributions as does BRG, IRT and STAG. The rest pay quarterly.
I do include REIT cumulative preferred stocks in this basket: Advantages and Disadvantages of REIT Cumulative Equity Preferred Stocks (9/25/2009 Post).
I may warm up to REITs based on the FED and other central banks continuing that massive manipulation of interest rates for longer than I previously expected, but my focus will be on smaller, higher than average yielding ones.
Since my last update, I have used the rally in REIT stocks to pare my highest cost STAG lot and to trim my LXP position again.
The REIT Basket Strategy is one my sector mini-funds. It is important for me to generate significantly more income than a comparable REIT ETF.
While I have not calculated the current yield of this portfolio exactly, based on 6/24/ closing prices, the portfolio yield would be close to 8%. The superior yield originates primarily from Canadian REITs and externally managed small apartment REITs (IRT and BRG) with several other positions having better than average yields for U.S. REITs (STAG, OHI, MPW, CBL, LXP, SNR, XHR)
Basket as of 6/24/16 :
Closing Prices REIT ETFs:
Rational: The three common stock trades discussed below are part of a normal trading system that I use in my sector basket strategies.
A typical trading strategy for me is to evaluate buying into dips, corrections and bear markets, wait for a meaningful rally, and then gradually sell my highest cost shares into the rally.
This strategy is designed to take advantage of the natural up and down stock movements. The underpinning is capital preservation and a desire to make the least amount of capital produce results. The objectives are (1) to harvest dividends in higher yielding stocks (2) to sell higher cost shares over time which is more tax efficient and lowers the cost of the remaining shares, and (2) to buy small lots during inevitable market downturns at lower prices that consequently generate more income for the dollars spent.
I own LXP in two ROTH IRA accounts.
1. Sold 100 LXP at 150 in Vanguard Roth IRA Account:
Trade Snapshot at $9.86+
Closing Price Day of Trade: LXP: $9.86 +0.05 (+0.51%)
Profit Snapshot: +$80.19
Dividends: $17 x. 4=$68
Total Return: $148.19 or 16.48% (holding period=almost 1 year)
Vanguard Roth IRA History:
I am likely to keep the 50 share lot bought at $7.6.
I have not reinvested the LXP dividends in the Vanguard account.
The bulk of my position is in my Fidelity Roth IRA where I have been reinvesting the dividends:
Prior Discussions: Item # 2. ADDED 50 LXP AT $7.73 ROTH IRA and 100 in IB account at $7.8: Update For Equity REIT Basket Strategy As Of 1/11/16 - South Gent | Seeking Alpha
I thereafter bought 150 shares including 100 at $7.38 and 50 at $6.95: Item # 4. Added 150 to LXP Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha
I also bought during the August-September 2015 plunge as well.
4. Averaged Down: Bought 50 LXP at $7.89-A Roth IRA Account: Update For REIT Basket Strategy As Of 9/8/15 - South Gent | Seeking Alpha This would be a purchase made in the Fidelity Roth IRA.
I was able to buy LXP shares at lower prices last January and did not have long to wait before the shares recovered sufficiently that I could profitably sell the highest cost lots.
I recently sold out of my LXP positions held in two taxable accounts account: 2. Sold 250 LXP on Ex-Dividend Date-Taxable Accounts: Update For Equity REIT Basket Strategy As Of 4/6/16 - South Gent | Seeking Alpha (profit snapshots= $224.65). That proved to be premature.
I had previously sold higher cost lots:
LXP Trading Profits to Date (higher cost lots)= $196.35
In the event LXP's price crosses $11 again, I may sell up to 200 shares held in the Fidelity Roth IRA. Otherwise, I am content to collect the dividend and to hold.
I did not receive a 5% discount on the reinvestment price for my last LXP dividend paid into the Fidelity Roth IRA. I do not know why. I had been receiving that discount through Fidelity's indirect participation in LXP's dividend reinvestment plan.
LXP may have elected to refrain from giving that discount when the shares price sank during the first quarter or Fidelity may have ceased its participation in the Depository Trust dividend reinvestment program. I suspect that it was LXP's decision to avoid issuing shares at a discounted price to a discounted market price.
Brad Thomas published an article about LXP last May: Is There Light At The End Of The Tunnel For Lexington Realty? - Lexington Realty Trust (NYSE:LXP) | Seeking Alpha
Even though I own the stock, I have been less positive on this company and have emphasized the large differences between reported FFO and AFFO numbers due to the recognition of non-cash revenues through the straight line rent accounting rules.
Last Earnings Report: Lexington Realty Trust Reports First Quarter 2016 Results
Note the large straight line rent deduction from FFO to arrive at Funds Available for Distribution.
Pretend Cash is not available for distribution as Hard Cash.
Other authors here at SA have based their valuations on FFO even though FFO clearly and substantially overestimated real cash flow. There is just a big difference between FFO at $.3 and FAD at $.24.
The pretend cash created by the accounting profession through straight line rent accounting originates from long term lease tenant lease obligations. As I recall, and my memory is not as good as it used to be, LXP's land leases in NYC were a major source of that phantom revenue and LXP is going to sell those leases. When completed, LXP will suffer a decline in FFO but the FAD number which excludes straight line adjustments will be less impacted and may improve due to redeployment of cash ties up in those ground leases into higher cash flow generating real properties. One of those ground lease properties at 15 W.45th Street, NYC. was sold for $37.5M and at a 4.1% cap rate.
2. Sold 50 of 240 STAG at $22.74-Highest Cost Lot:
Closing Price Day of Trade: STAG: $22.72 +0.19 (+0.84%)
Profit Snapshot: +$48.31
Using FIFO accounting, I sold the highest cost lot purchased at $21.6:
I have quit reinvesting the dividend based on valuation.
Note that I last bought shares on 2/8/16 at $15.75 which translates into the $15.93 total cost number shown in the preceding snapshot. Item # 2 Bought 50 STAG at $15.75: UPDATE For Equity REIT Basket Strategy As Of 2/12/16 - South Gent | Seeking Alpha
Over just 4 months, the percentage gain to $22.74 was 42.75%. Which price is a reasonable one: $15.93 or $22.74 or neither? How will investors react when the next recession happens and REITs lose tenants and have to offer rent concessions to keep others?
After buying shares at $15.75, I would have considered buying more below $14.75.
My opinion is that $22.74 is slightly outside of a reasonable fair value range, and $15.75 is below that range. My current fair value range is $18.75 to $22.
The second most recent lot purchase was made on 8/27/15 at $17.38. A similar trading pattern is shown in LXP discussed above.
I also still own a 50 share lot bought in my IB account: 2. Averaged Down: Added 50 STAG at $17.55-Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha
Brad Thomas published an article discussing STAG earlier this month: Average Joe Likes This Smart Money REIT Yielding 6.3% - STAG Industrial, Inc. (NYSE:STAG) | Seeking Alpha
Trading Profits to Date: $173.58
2. Sold 133+ STAG at $19.61 (profit snapshot=$125.27): Update For Equity REIT Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha-Scroll to 1. Bought 100 Stag Industrial at $19.19: Update For REIT Basket Strategy As Of 8/24/15 - South Gent | Seeking Alpha; Scroll to 2. Added 30 STAG at $17.31: Update For REIT Basket Strategy As Of 9/8/15 - South Gent | Seeking Alpha
I now have less money tied up in STAG shares at a lower average cost per share and a higher dividend yield.
3. Sold 52 MPW-Highest Remaining Cost Lot in a Satellite Taxable Account: I own MPW currently in two taxable account. I pared the position in one of them again.
Snapshot of Trade:
Profit Snapshot: $112.02
Position Prior To Trade: Average Cost Per Share=$11.42+
Position After Trade: Average Cost Per Share=$10.757 (snapshot based on closing price 6/10/16)
Medical Properties recently increased its quarterly dividend to $.23 per share from $.22. At the new annual rate of $.92 per share, my dividend yield is now about 8.55% based on the total average cost per share of $10.757.
I have now pare this position twice this year. The other pares was discussed here:
Item # 1. Sold 250 of Remaining 550 MPW: Update For Equity REIT Basket Strategy As Of 5/19/16 - South Gent | Seeking Alpha
Total MPW Trading Profits To Date: $855.37
The remaining 200 shares in the another taxable account have a total cost of $10.74 (see snapshot in preceding linked post), so those shares now have a 8.55% yield as well.
As with the other REITs discussed above I bought shares during the most recent market swoon which helps me to increase my dividend yield and to lower my average cost per share:
Item # 4. Added 50 MPW at $9.84-Satellite Taxable Account: UPDATE For Equity REIT Basket Strategy As Of 2/12/16 - South Gent | Seeking Alpha
Item # 3. Averaged Down: Bought 100 MPW at $10.42: Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha
Closing Price 6/10/14: MPW: $15.10 0.00 (0.00%)
When implementing this strategy, I do not expect to ever hit the lowest low price when buying or the highest high price when selling. The strategy works for me when I am in the ballpark.
I am not reinvesting the dividend now.
In addition, the stock is nearing its previous high hit during a parabola price spike starting in June 2012 and terminating in May 2013: MPW Interactive Stock Chart: 5 Years
There are always concerns lurking in the background for smaller community hospitals that are linked to government reimbursement rates.
A few weeks ago, for example, hospital stocks and REITs that lease properties to them fell after a federal judge ruled that the government could not subsidize premium payments without a specific congressional spending authorization. Hospitals, Insurers Drop on Ruling Against Obamacare Funding - Bloomberg The judge was a GOP partisan and her ruling was to be expected. Decisions by the "independent" judiciary on Obamacare issues have been predictable by the political affiliation of the judge, except for Justice Roberts swing vote upholding the "fine" as a "tax". NATIONAL FEDERATION OF INDEPENDENT BUSINESS v. SEBELIUS, SECRETARY OF HEALTH AND HUMAN SERVICES If the Federal District decision is affirmed after exhaustion of all appeals, it would be a blow to both hospitals and REITs who lease to them.
4. Sold 50 RNP at $19.7-Roth IRA:
Profit Snapshot: +$91.03
Item # 1. Bought 50 RNP at $17.6-Roth IRA:Update For CEF Basket Strategy As Of 11/30/15 - South Gent | Seeking Alpha
RNP went ex dividend for it $.37 quarterly dividend shortly before I sold this lot: RNP Historical Prices
Dividends= $55.55 (three $.37 per share quarterly dividend payments)
Total Return: $146.58 or 16.52% (holding period about 7 months)
5. Sold 50 CORRPRA at $23-ROTH IRA: The CorEnergy Infrastructure Trust Inc. Preferred Series A (NYSE:CORR.PA) is an equity preferred stock that pays cumulative and non-qualified dividends at a 7.375% fixed coupon rate on a $25 par value. Prospectus
This preferred stock traded near $14 earlier this year: CORR.PA Stock Chart
Loss Snapshot: -$111.53
Total Return: $12.42
This equity preferred stock became an inappropriate ROTH IRA investment based on events occurring subsequent to my purchase.
This REIT owns energy infrastructure assets. Two of its lessors have filed for bankruptcy. While payments are still being made under the lease agreements and CORR maintains that the infrastructure assets are necessary for operations, the BK proceedings are too unpredictable for me to own this security in a ROTH IRA after the price has significantly recovered from a substantial plunge.
"Grand Isle Gathering System: On April 14, 2016, the parent company of our tenant of the GIGS, Energy XXI Ltd, and substantially all of its directly and indirectly owned subsidiaries filed for Chapter 11 reorganization. Our tenant, Energy XXI GIGS Services, LLC has not filed for bankruptcy and continues to make timely payments of rent."
Pinedale LGS: On April 29, 2016, the parent company of our tenant of the Pinedale LGS, Ultra Petroleum Corp., filed for Chapter 11 reorganization. Our tenant, Ultra Wyoming LGS, LLC was included in the filing. We have received no indication that during the bankruptcy process it will seek to reject the current lease agreement. Ultra Wyoming has continued making timely payments of rent."
Then there is this less important issue:
"Salt Water Disposal Financing Notes: CorEnergy's financing revenue did not reflect any interest payments from the Black Bison Loans for the first quarter of 2016. The Company, as previously announced, foreclosed in the first quarter on 100% of the equity of the borrower of Black Bison, which is now categorized as "Held for Sale."
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 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.
Disclosure: I am/we are long LXP, STAG, MPW.