Sometimes You Get Spanked

As some readers have noted today both Whitestone REIT (NYSE:WSR) and Atlas Financials Holdings (NASDAQ:AFH) are taking hard poundings today.

WSR announced earnings last night–and obviously the market doesn’t like what they saw-or heard. Shares fell as low as $10.68, before starting a recovery to the $11.00 area now (1 pm CST). We reviewed the financials and didn’t see anything that really frightened us. WSR has been marginal in terms of net income and FFO for many years and it continues-no giant surprise to us. We have owned shares off and on since the company came public. We simply like the strategy of holding quality properties in upscale markets that rent to small tenants.

On the other hand we may have too much bias in WSR. For us we have liked it since day one and maybe we should be scrutinizing it harshly. Sometimes getting ‘wed’ to a particular company can be painful. Of course most REITs have gotten slaughtered and in particular shopping mall and shopping center so their is little reason to believe that WSR should be immune.

We hold these is the High Yield Portfolio and personally–fortunately they are small positions.  Being a new portfolio we hate to take hits this soon–we hate to lose (oh I forgot–per Seeking Alpha articles you only lose when you sell).

Additionally Atlas Financial Holdings 6.625% baby bonds (NASDAQ:AFHBL) took a hit today as the company decided they need to reserve more for old claims–prior to 2017.  The common shares got hammered lower by $7/share, but even the baby bonds are off 65 cents.  The company claims that taking these reserves will put them on track to report $2/share earning for 2018 and for now we have to take them at their word.  Obviously any time an insurance company pulls one of these stunts you have to question their credibility.  The company didn’t announce all the specifics of the reserves and claims to have things totally under control. Typically when insurance companies experience higher claims  premiums move higher which is beneficial to the future–we hope this is the case here.

The baby bonds are the only debt the company has ($25 million) and as such we are not compelled to sell–BUT they will be on a short leash until they prove they are moving in the right direction.  We hold shares in the Moderate Duration Portfolio as well as in personal accounts.

8 thoughts on “Sometimes You Get Spanked”

  1. Tim, I just dont trust those insurance outfits. I guess that is my problem. I own PFX as a flyer, and that is the only insurance for me. Isnt ironic the companies who issue preferreds with the most suitable attractive terms and features are the ones I am most opposed to investing in, lol…I dont have insurance on my banned list with shippers, Mreits, and BDCs. But it seems to be nestled closely to it though.

    1. Hi Grid–most of the big insurance outfits are ok–allstate etc., but I agree these smaller one have the ability to be a bit dicey–maybe a bit too aggressive with their underwriting.

      I don’t have any banned list, but I am definitely more careful with some issuers–the dry bulkers cured most of us of being too heavy in the shipping (or out of it altogether).

      1. About 5-6 years ago when I first started buying preferreds, Tim I had an AllState issue I bought and milked until it was called. The yield was closer to 7% and long gone.

  2. TIm, while I don’t invest much at all in the insurance sector, the bonds by Atlas appear to only have a moderate amount of risk. As you mention, the company has no other debt and the issue matures in about four years. Obviously when an insurance company does this, it does raise concerns about how they are booking claims. I certainly would not want to be an owner of the common stock, but may take a small position in the baby bonds next week on the price weakness.

    1. Hi kaptain–they are now on a ‘short leash’. No more surprises allowed out of them.

  3. On the Floating Rate Preferred list… can’t seem to find ALLY+A ….LIBOR plus 5.785%…has been a floater since Feb 2016. May not be looking in right spot.
    Last reset mid Feb . Thanks.

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