What did you sell? What might you sell? (2017)

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Re: What did you sell? What might you sell? (2017)

Post by FinEcon » 13 Sep 2017 21:13

Thegipper wrote: it encourages me to sell this stock. You are making a lot of assumptions with your back of the envelope calculations. I guess you have a lot of first hand dealings with dealing with insurance companies after a major flood. It's far from a slam dunk process. Business interruption is another can of worms. I live in High River and could tell you lots about the assumptions you are making.
I've not quoted our earlier posts to keep the thread more readable.

Whether or not you buy or sell is your capital allocation decision but it's the reasoning behind an action that is worth discussion so that others may benefit. And more importantly, an attempt to quantify the decision as opposed to making decisions based on a whim or on media footage of a large scale disaster that may or may not have any bearing on the specific properties.

I know nothing about dealing with insurance companies after a flood. I imagine its a hassle but fortunately, we don't need that knowledge for valuation purposes. We can simply can come up scenarios that cover a range of outcomes with the goal of getting an idea of how bad the situation might or might not be. Think of it this way, we're just looking at people and discussing whether or not they're fat, we don't need to know exact weight or BMI.

There are a ton of assumptions in my asset impairment scenarios in an earlier post but option 1 is pretty pessimistic, it assumes no insurance on structures or business interruption and the properties go from stated value to land value immediately. Using Pure's valuations and assuming a 50:50 land to building ratio puts the impairment between 4% and 5% of the total portfolio. We're now got both Houston properties reduced to land value with zero insurance coverage but it does assume there is not a full recourse mortgage on what is now a couple of soggy lots with structures that need demo and disposal. Even with this dire scenario, we're only at mid single digit impairment. If we were convinced this was the case and were bothered by it, further consider the tax loss this event generates mitigates the impact even further. But we don't want to got there because that takes us from asset base impairment to financial modelling the impairment, which is real work. Option 1 was just trying to ballpark a pretty bad scenario.

Option number 2 is much less dire. It says the structure is not significantly impaired or assumes insurance remedies structural impairment but not business interruption, your typical rebuild scenario. Hopefully, the reason we can look to the NOI of these properties and knock off a year or two is obvious, the asset (earning power) will be rebuilt and the NOI foregone is the business interruption the firm is on the hook for in the meantime. There will be a moderate to significant impact on near term financial results but not much effect on the asset base as a whole, this is because the portfolio's value comes from capitalization (of the income streams) in perpetuity and the scenario assumes the asset is impaired but only for a year or maybe two.

I think these two scenarios, reasonable and dire, illustrate how small the small impact this event is to Pure's total asset value. If anyone can come up with better scenarios for bracketing the event's effects, please share.
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Re: What did you sell? What might you sell? (2017)

Post by Thegipper » 14 Sep 2017 09:51

FinEcon wrote:
13 Sep 2017 21:13
Thegipper wrote: it encourages me to sell this stock. You are making a lot of assumptions with your back of the envelope calculations. I guess you have a lot of first hand dealings with dealing with insurance companies after a major flood. It's far from a slam dunk process. Business interruption is another can of worms. I live in High River and could tell you lots about the assumptions you are making.
I've not quoted our earlier posts to keep the thread more readable.

Whether or not you buy or sell is your capital allocation decision but it's the reasoning behind an action that is worth discussion so that others may benefit. And more importantly, an attempt to quantify the decision as opposed to making decisions based on a whim or on media footage of a large scale disaster that may or may not have any bearing on the specific properties.

I know nothing about dealing with insurance companies after a flood. I imagine its a hassle but fortunately, we don't need that knowledge for valuation purposes. We can simply can come up scenarios that cover a range of outcomes with the goal of getting an idea of how bad the situation might or might not be. Think of it this way, we're just looking at people and discussing whether or not they're fat, we don't need to know exact weight or BMI.

There are a ton of assumptions in my asset impairment scenarios in an earlier post but option 1 is pretty pessimistic, it assumes no insurance on structures or business interruption and the properties go from stated value to land value immediately. Using Pure's valuations and assuming a 50:50 land to building ratio puts the impairment between 4% and 5% of the total portfolio. We're now got both Houston properties reduced to land value with zero insurance coverage but it does assume there is not a full recourse mortgage on what is now a couple of soggy lots with structures that need demo and disposal. Even with this dire scenario, we're only at mid single digit impairment. If we were convinced this was the case and were bothered by it, further consider the tax loss this event generates mitigates the impact even further. But we don't want to got there because that takes us from asset base impairment to financial modelling the impairment, which is real work. Option 1 was just trying to ballpark a pretty bad scenario.

Option number 2 is much less dire. It says the structure is not significantly impaired or assumes insurance remedies structural impairment but not business interruption, your typical rebuild scenario. Hopefully, the reason we can look to the NOI of these properties and knock off a year or two is obvious, the asset (earning power) will be rebuilt and the NOI foregone is the business interruption the firm is on the hook for in the meantime. There will be a moderate to significant impact on near term financial results but not much effect on the asset base as a whole, this is because the portfolio's value comes from capitalization (of the income streams) in perpetuity and the scenario assumes the asset is impaired but only for a year or maybe two.
You are right the hurricane has not significantly effected the Houston properties. This is a small cap and there isn't a lot of coverage by analysts so it isn't easy to get third party information. It now seems clear that the hurricane has minimal effect on it's operations. It's to bad that the market didn't understand this.
I think these two scenarios, reasonable and dire, illustrate how small the small impact this event is to Pure's total asset value. If anyone can come up with better scenarios for bracketing the event's effects, please share.

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Re: What did you sell? What might you sell? (2017)

Post by Thegipper » 14 Sep 2017 10:02

I agree that the hurricane has not significantly effected Pure Multi- Residential operations . Unfortunately the market hasn't been very efficient in this respect and the stock price has been hurt. Not sure about holding on to the stock. All the properties are in the USA . I bought this stock when the Canadian dollar was at .74 and now it is a .82. Some how I have the feeling that this is not a good trend for this stock.

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Re: What did you sell? What might you sell? (2017)

Post by AltaRed » 14 Sep 2017 10:32

I've never been fond of REITs primarily focused on ex-Canada holdings (nor LPs, nor fixed income for that matter), because of the currency exposure. There is just not enough room for these businesses to outperform to offset currency headwinds. But once in, why sell now? The loonie has probably topped, at least within an 82-84 cent range.
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Re: What did you sell? What might you sell? (2017)

Post by Shakespeare » 28 Sep 2017 09:55

Exited POW for a 10% gain since the end of May. I'm not a fan of holding insurance companies; the model is too opaque.
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Re: What did you sell? What might you sell? (2017)

Post by brad911 » 28 Sep 2017 10:33

MIGHT (very likely, almost certain, 5% doubt) sell all of my AltaGas (ALA-T) position in the next few days. I'm just not feeling this one any more and despite their aggressive acquisition I'm also not certain it will be as accretive as they might hope. It is notoriously difficult to go East-West vs. North-South in acquisitions.
I'll also not like that the small capital loss matches nearly exactly my capital gains for the year which would be convenient. Raising cash for some tax-loss selling opportunities to start in the next 1-2 months doesn't seem like a bad idea. Why give Prince Justin any more taxes then he wants to take anyways!
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Re: What did you sell? What might you sell? (2017)

Post by westcoastfella » 06 Oct 2017 12:45

Exited position in Wells Fargo (WFC). This was an old holding that I had exited previously, and then gotten back into earlier this year when they appeared to be beaten down. However, the one scandal has turned into more, and expensive lawsuits are pending... there will be a lot of pressure on them in coming months/years. I was happy to get out for just above my ACB, thanks to some averaging down, plus dividends.

I will reinvest in the US financial sector, but haven't decided where. Rather than try to pick a single winner, I've been contemplating using an ETF for this sector, and am looking at VFH; 400-odd holdings, .10 MER, pretty diversified across different types of financials.

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Re: What did you sell? What might you sell? (2017)

Post by Shakespeare » 06 Oct 2017 14:32

Trimmed TRP down to base level (i.e. I trade around a central position). Added to RioCan.
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Re: What did you sell? What might you sell? (2017)

Post by CROCKD » 06 Oct 2017 17:50

Along with brad911 I will probably sell all of my AltaGas (ALA-T) position after owning it for nearly 2 years. I have a capital loss. According to my Quicken record accounting for dividends I have a small (very) gain.
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Re: What did you sell? What might you sell? (2017)

Post by kenwood » 07 Oct 2017 09:20

Sold all my Riocan. I had this for many years. I don't see any earnings growth in owning retail malls with many struggling retailers. Plus the chance for another rate hike later this year or earlier next week is bad for REITs in general.

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Re: What did you sell? What might you sell? (2017)

Post by CROCKD » 11 Oct 2017 15:27

Sold all my Altagas (ALA-T) and all my Exchange Income Corp. (EIF-T).
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Re: What did you sell? What might you sell? (2017)

Post by brad911 » 13 Oct 2017 14:19

"And there she goes......."

Sold out of ALA this afternoon completely.
Reason was really to offset CG's for the year as I had a small non-reg loss for ALA that zero'd most of the gains I've captured in 2017.
Other reason was a lot of "oh sh*t" moments over the past 8 months with the company and just not getting the sense their moves are all that shareholder friendly. Yes great yield, but I read Buffett's annual letter twice a year (just finished it a second time) and there wasn't a single check mark on his comments that related to this company.
Still on the watchlist, but for now the yield is not enough to keep me in.
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Re: What did you sell? What might you sell? (2017)

Post by AltaRed » 13 Oct 2017 14:31

Sold REF.UN for a considerable gain this past week (have some carryforward losses to take care of that) and increased my holdings of XEF to boost my International allocation.
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Re: What did you sell? What might you sell? (2017)

Post by Descartes » 13 Oct 2017 15:51

I don't really see why you guys are bailing from ALA now as opposed to when the WGL acquisition was announced.

Perhaps I'm not looking closely enough but I don't see any management move since then that is inconsistent with what they intended to do when they made that announcement. Are you just reacting to market sentiment?

For what it is worth, I'm still holding.
That $34 price it once had a distant painful memory.
ALA is my only losing position ..although I think I'm in the green when you count the dividends over the years.
I couldn't possibly digest another helping of this stuff but I still think they will recover once the WGL deal is behind them and I am patient..
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Re: What did you sell? What might you sell? (2017)

Post by AltaRed » 13 Oct 2017 16:08

Agreed. I am down about 12?% from my own purchase price and I suspect we will see that recovered come April or May, and/or perhaps even see renewed growth when we get the first quarterly result post-acquisition. In the meantime, the dividend yield of over 7% is more than enough to wait it out. A decision can easily be made thereafter.
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Re: What did you sell? What might you sell? (2017)

Post by 2 yen » 13 Oct 2017 16:46

Descartes wrote:
13 Oct 2017 15:51
I don't really see why you guys are bailing from ALA now as opposed to when the WGL acquisition was announced.

Perhaps I'm not looking closely enough but I don't see any management move since then that is inconsistent with what they intended to do when they made that announcement. Are you just reacting to market sentiment?

For what it is worth, I'm still holding.
That $34 price it once had a distant painful memory.
ALA is my only losing position ..although I think I'm in the green when you count the dividends over the years.
I couldn't possibly digest another helping of this stuff but I still think they will recover once the WGL deal is behind them and I am patient..
Same boat as you. Hanging in there.

2 yen

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Re: What did you sell? What might you sell? (2017)

Post by Pickles » 13 Oct 2017 17:00

I sold half my position of enb.pf.a at its 12 month high price for a 45% profit over two years. I'm not sure when rising interest rates are going to affect the price of perpetual preferred shares but decided to capitalize my ill-gotten gains to spend on a vacation.
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Re: What did you sell? What might you sell? (2017)

Post by JaydoubleU » 14 Oct 2017 07:43

Descartes wrote: ↑13 Oct 2017 15:51
I don't really see why you guys are bailing from ALA now as opposed to when the WGL acquisition was announced.

Perhaps I'm not looking closely enough but I don't see any management move since then that is inconsistent with what they intended to do when they made that announcement. Are you just reacting to market sentiment?

For what it is worth, I'm still holding.
That $34 price it once had a distant painful memory.
ALA is my only losing position ..although I think I'm in the green when you count the dividends over the years.
I couldn't possibly digest another helping of this stuff but I still think they will recover once the WGL deal is behind them and I am patient..
Same boat as you. Hanging in there.

2 yen
That makes four of us. ALA has had a bad year, but to some extent I think the stock price weakness is unjustified. Quarterly reports have been good; as Descartes says, there is nothing in there that is inconsistent with what management is saying and doing. Lack of confidence seems to be already reflected in the price, and my perspective is that there is a helluva lot more upside than down over the next 18-24 months.

I could be wrong, but then I've been wrong about a few that I impatiently sold too soon, only to watch them rebound spectacularly when the company recovered. I will continue to hold ALA.

Edited to add: perhaps they should consider a name change post acquisition. Is it "Alberta" or "gas" that makes people nervous? Among analysts, there seems also to be some misunderstanding that ALA is an Alberta-focused, commodity price dependent company, whereas they are quite a bit more diversified than that.

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Re: What did you sell? What might you sell? (2017)

Post by brad911 » 14 Oct 2017 10:12

My justification was pretty simple....

I had a capital gain I had zero interest in paying tax on.
I suspect management to not be as effective in the future as they have been in the past (speaking as a shareholder)
Their debt will become more difficult to service I anticipate
I do anticipate they will have more difficulty with their acquisition of WGL and the market has priced that in
Its been a great income stock for me for over 10 years, but that doesn't mean I need to be married to it.

I'm not suggesting there is a better alternative at this present time. For me I've been contemplating a reduction or exit for some time. When I put on my portfolio manager hat though holding onto it was simply because I liked the income and had no replacement. To me that's not the best long-term reason to hold a company. I might re-enter at $35 or $25 and I'm ok with that. For the moment this move served my purposes and may not serve anothers.

Sometimes I just get that "bad feeling" which many times has been premature or not necessary, but in others saved me a lot of money. Sobey's would be one example and I'm glad I exited when I did.
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Re: What did you sell? What might you sell? (2017)

Post by JaydoubleU » 14 Oct 2017 10:50

Those are sound enough reasons brad.

I guess for me the signal to sell would be an outright lie or deception on the part of management. When they paint a picture of a rosy future but fail to follow through or even come close. I think of Grenville Strategic Royalty: what a fiasco. Or others that swear the dividend is rock solid and then cut it (Just Energy). OTOH, AFN (Ag Growth International) will tell you they expect crop yields to be lower and therefore revenue, and that's just what happens. I'm fine with that and appreciate the honesty. So far, ALA management has been pretty good about delivering on what they have promised. For instance, early 2016 they forecast 20% growth in EBITDA for that year and that's just what they achieved. For 2017 they predict low double-digit EBITDA growth (guidance raised from earlier low single digits) and I have no reason to doubt that this is what they'll do. Should they fail by a wide margin to come close to this objective, I'll have to question management ability and honesty.

The point about debt is a valid one, but this will hold true for the entire utilities/pipelines/midstream space. The glory days of cheap money may be ending, and when it does, all stocks in these sectors may suffer, including ALA.

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Re: What did you sell? What might you sell? (2017)

Post by JaydoubleU » 14 Oct 2017 11:13

Speaking of ALA and management, another to have an eye on is AD, Alaris Royalty. They've had some issues with partners the last two years, and while they've sorted some of these, new problems seem to keep coming. As mentioned, so far management has been forthright about the issues, but I am watching closely and looking forward to positive developments. Lots of upside if AD can get it together again.

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Re: What did you sell? What might you sell? (2017)

Post by AltaRed » 14 Oct 2017 11:14

I suspect ALA is being punished mostly because it took a highly viable, high growth, smallish company focused on gas/midstream processing and niche power generation and convulsed it into something that will have a tumor the size of an elephant attached to its hip. IOW, ALA is completely changing the nature and character of the company arbitrarily. I do agree it continues to meet its targets and shareholders may be quite forgiving once the acquisition is completed and the first post-acquisition numbers come out. At the moment, it is just treading water because it can't do anything significant to change company dynamics/strategy pending regulatory approvals of the acquisition. The first post-acquisition MD&A should be interesting.
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Re: What did you sell? What might you sell? (2017)

Post by Taggart » 14 Oct 2017 11:19

No plans to sell Sobeys a la Empire. At least they've increased their dividend again this year. The new management may be getting a handle on their troublesome purchase of Safeway. I don't go very often but was in Whole Foods the other day and if there's supposedly lower prices since Amazon bought them out, then my wife and I didn't notice anything different. Empire may survive yet. We'll see.

I don't own ALA, but i do note they haven't increased their dividend in 2017, so that alone precludes me from even considering buying in until they do so.

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Re: What did you sell? What might you sell? (2017)

Post by AltaRed » 14 Oct 2017 11:37

Taggart wrote:
14 Oct 2017 11:19
I don't own ALA, but i do note they haven't increased their dividend in 2017, so that alone precludes me from even considering buying in until they do so.
If they did increase this year, it would be a reason to actually sell them, not buy them. It would be stupid for them to bleed even more cash on those subscription receipts (to help pay for the acquisition) until that money is actually doing something for them. Indeed, I think it is counter-productive to the existing business that so much cash is being paid out on what is, so far, just a loan 'anticipating a purchase'.
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Re: What did you sell? What might you sell? (2017)

Post by JaydoubleU » 14 Oct 2017 11:44

we may have some clarification on that issue Oct. 19th when they release Q3 numbers. Last quarter they said, "Due to the strong performance of our projects under construction and several new opportunities we see this year, we are excited about the remainder of 2017. As we continue to build on this momentum, the Board will make a decision on the increase to the dividend in the fourth quarter. We are committed to driving value for our shareholders.”

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