2018 ended on kind of a high note with further gains Monday which when tacked onto gains from last Friday made our accounts look almost respectable.
As I had mentioned too many times I am awaiting Wednesday (January 2nd) to make any purchases for the new year and I am chomping at the bit to make a buy, but I plan to do it slowly–likely starting tomorrow.
I am determined to raise at least a couple of our portfolios (we operate 4 different IRA accounts and some are high quality, lower coupon issues only) yields somewhat in the new year and I will do this with perpetuals that are ‘decent’ quality with current yields in the 7% to 7.75% range. We will make these purchases with cash on hand which includes funds now in money market. We don’t really plan to do any selling right now on the shorter duration issues we own (i.e. term preferreds).
We already own ‘starter’ positions in some of these issues (CHSCN and AMH-D), but whether we start new positions or add to these starter positions isn’t known–we will see what tomorrow brings. Regardless of what we buy it is with the intention to hold the issue for the long term.
Here are the issues we have identified as being ‘sound’ issues.
Most of the issues from CHS (Cenex Harvest States), but in particular the Fixed-to-Floating perpetuals, CHSCM and CHSCN with current yields of 7.67% and 7.43%.
Everyone knows by know that CHS was hit with a charge of around $190 million last quarter to resolve some fraud from prior years. Just the same CHS is a massive ag cooperative and even with stress in the agricultural community the company will survive for a very long time to come.
The perpetuals AMH-D and AMH-E from single family residential REIT American Homes 4 Rent (AMH) with current yields of 7.22% and 7.17%. We had previously noted we were going to do a deeper dive into the company financials and write about it on here–we have done a deep dive, but haven’t found the time to write extensively here.
A couple of very important points to know though is that American Homes 4 Rent has about $9 billion in assets and just $2.5 billion in debt is a REIT with a very strong balance sheet. The company had $77 million in net income in the 9 month period ending 9/30/2018 with about $300 million in free cash. For the 1st 9 months around $45 million was paid in common dividends with $39 million paid in preferred dividends.
AMH has about 13% insider ownership and one of the insiders is B Wayne Hughes founder of cash machines Public Storage (PSA) and PS Business Parks (PSB). More important than B Wayne Hughes is Tamara Hughes Gustavson, who is B Waynes daughter. B Wayne has gotten up there in age (he is 85 now) and has managed to pass a lot of his wealth to Tamara. B Wayne now has a net worth of just $2.5 billion while Tamara is said to have a net worth of $5 billion. Why do I even mention these folks? I mention this because it never hurts to have billionaires in your corner with large shares of their net worth invested right along side you.
The monthly paying perpetual 6.70% VER-F from giant REIT VEREIT with a current yield of 7.08%. Recall that VEREIT is the old American Capital Realty REIT which was rocked by scandal and fraud way back in 2014. The company has been rebuilting ever since with new management and is a massive company with over $14 billion in assets. The company has survived in spite of massive payments made to prior shareholders for losses that came with the fraud. The company paid settlements of $85 and $42 million 2 months ago to settle claims and I expect that the company will continue to resolve lawsuits for the next year or two. With the exception of the litigation this is a stellar company.
The former General Growth Partners 6.375% perpetual preferred which is now a Brookfield Property REIT perpetual with a current yield of 7.21%. General Growth was purchased by Brookfield. Brookfield Property REIT is controlled by giant Brookfield Property Partners who has assets of over $111 billion. Recall that General Growth Partners was a mall REIT that got caught with no liquidity back around 2009 (just guessing on that date) and filed bankruptcy. They emerged from bankruptcy and then Brookfield came along and snapped them up.
While this is our list for the next few days or weeks we know that each and every investor has different ideas on what do to at this point and we don’t mean anything here to be a recommendation for anyone–they just seem to work for us right now. Additionally with CHS and AMH there are many issues outstanding and while we might buy a certain issue-there are others that are, in general, equivalent.