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Once upon a time....Not far away but just around the corner there was a ten story commercial property. On the first two stories they had retail stores and food cafes. The next six stores were offices for lawyers, accountants, real estate agents and insurance companies. The last two stories were high quality apartments. This was just one of 148 properties of Sleep Well Investments which had their IPO over six years ago. All of their properties were copy cat copies of the same plan. Ninety-two percent was the average occupancy rate. Year one.... the stock was $25--$30 with a $1 dividend creating a yield 4.0%--3.34% There the building stood just around the corner. The people daily coming and going about their business and life was good. The market for REITs was fine and the long term outlook good. Year two... the stock was $30-$40 with a $1.20 dividend creating a yield of 4.0%--3.0% The building was unchanged and still just around the corner. Some businesses moved out and were replace by new arrivals. The food cafes remodeled their decor and business was good. There was no turnover in the apartments. The market for REITs shares was so so but the real estate industry was doing better than average. Year three .. the stock was $22--$33 with a dividend of $1.50 creating a yield of 6.81%--4.55% The building was the same and business was good but on Wall St. there were rumors that the Fed was going to raise the interest rates. But the renters at the building were either not aware or unconcern about this and went ahead with their plans and lives as usual. Year four... the stock was $18--$25 with a dividend of $1.80 creating a yield of 10%--7.2% New rental contracts were 12% higher as demand for this prime location was strong. The granite facing remained in prime condition and the glass and marble interrior gave a classic appearance of quality and endurance. The renters loved their location and life was good. But the rumors caused a fear of the FED raising rates had the stock reacted by falling back even though the rate hike never happened. Year five... the stock was $18--$22 with a dividend of $2.00 creating a yield of 11.10%--9.09%. Under normal times a doubling of the dividend in five years would show up with the stock price doubling also. But the fear of the pending rate hike by the Fed had caused all income stocks to be sold off. And what was this rate hike suppose to be?... the dreaded a quarter of one percent with more hikes expected.... but only if business and the job market was doing well. The businss of renting out property was doing very good as new property projects were being delayed and the supply side was trailing the demand side. But then there was another fear that even if business was good that soon a bunch of building projects would flood the market and then real estate would slump into a recession until this expected gult was absorb by the long term growth. Year six... the stock price was $22--$25 with a dividend of $2.25 creating a yield of 10,23% -- 9.0%. The common knowledge pointed out that a high dividend rate showed danger and the stock avoided... but the stock showed signs of wanting to go up. Meanwhile back around the corner, the ten story building was fully rented and the contracts at higher rates. The landscape was maturing and looking good. The rentors were happy and not going to move . The cash flow increased again. The new projects were slowly being done but not keeping up with demand . There were rumors of a rate hike which still had not been done for the last six years but well advertised. At the beginning of year seven the stock on rumors of a buy out zoomed up and traded $42-$50/ The $2.25 dividend was then creating a yield of 5.36%-- 4.5%. Common knowledge pointed out that this yield showed that the stock must be a "safe" choice and a BUY. But a hedge fund bought the company out at $55 before anyone could take advantage of the BUY recommendation. Proving once again you already have to own the stock to benefit from a surprise takeover offer. But this story shows you that the business with the ten story building that kept doing well and growing revenues, and its stock price that was affected by outside fears of a rate hike by the FED had two different results. And it took another firm who knew the business to buy the building at an attracive price vs the real value in the property. Looking at the business, its assets and how well management has run the company is old school textbook but today many just look at the stock action and dividend yield without in depth understanding of the business. Many a time the fears and rumors prevents the overly cautious to miss true bargains and opportunity to buy good assets a low prices. Only in looking back in time do these misopportunities show all the signposts that should of been heeded. ***PinewoodsBear*** |
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Msg # | Subject | Author | Recs | Date Posted |
4795 | Re: Once upon a time.... | gjunk3 | 0 | 7/2/2015 8:00:40 AM |
4798 | Re: Once upon a time.... focus on current news. | PinewoodsBear | 3 | 7/8/2015 6:32:59 AM |