I’m coming over from the AOD board to help you understand why you should sell AWP now and choose another real estate investment vehicle. I sold AOD before the first div cut from .18 to .12. then I posted all year long to tell people to sell. Some listened and some didn’t. then the div got cut to .05. share price 20 to 5 over a couple years. Now AWP is NOTHING like AOD. But I see a few things that might interest you longs.
Does lieber/alpine have any experience with investing in real estate ? I remember looking at AWP when it first came out (I owned AOD and AGD at the time). I didn’t see any experience from the mgmt so I took a pass. Maybe I’m wrong.
MGMT TRACK RECORD:
Alpine has a horrible track record with respect to stock picking, just check AOD and AGD. I followed these for years. They are always in the wrong place at the wrong time. They bought energy when it was spiking, and lost. They were out of financials in early 09. Then financials went on a huge bull run. They missed it. Then this year, they went heavy on Europe. And got crushed. If you look at the NAV of these funds and add back the dividends paid, you can see they underperformed the market by a huge margin.
I posted an example on the AOD board (NAV is XAODX) using the period 4/1/08 to 3/24/10. i took the ending balance minus the beginning balance and added back dividends paid. The NAV was -34% for the period. This compares to -11% for the SPY’s and -13% for XBOEX (BOE is another CEF). When I posted this stuff everyone said I was a fool and a short, then AOD went down about 50%. Okay so who cares about AOD.
Later on this memo, I discuss performance and alpine had a choice of allocating funds to US real estate or international. They weighted it to international. Wrong choice (but pretty much standard for them). Read on.
I have no idea why AWP needs to use div capture to generate addtl yield. Real estate generally gives enough return via divs and cap gains such that you don’t need to try and juice yields. Plus dividend capture is a broken model. We can get into that another time. But let’s look at two div capture plays from AWP mgmt – per their 3/31/10 fact sheet.
Diamond offshore drilling (DO) – why is this in a real estate fund ? not sure. But go ahead and do a one year yahoo interactive chart. Click on events. Click on dividends. Right after each ex div date, DO goes straight down after 3 of the 4 ex div dates. There is not way they could avoid a capital loss larger than the div paid. And I’ll bring this up DO again later.
NLY – same drill as above. Same result. 3 of 4 qtrs no chance of getting the dividend w/o suffering a capital loss.
Now let’s take a look at RWR (US real estate) and RWX (international real estate). Per the AWP fact sheet, they had about 35% in US and 65% in international. Now do a 3 month chart with AWP, RWR, RWX, and DO (yes DO). Both RWR and RWX are above AWP. If you do a six month chart, AWP is pretty close to RWX. But in each case, AWP should be higher than RWX as it has 35% in US. Notice that RWR is well above AWP and RWX. So mgmt didn’t pick the right stocks somewhere. And the ex div date for DO was april 29. Notice how AWP breaks below RWX not long after that. DO went straight down after the div date and I’m guessing mgmt held for a week or so thinking they might get lucky on a recovery. A real bad choice – maybe this DO thing is just a type on their fact sheet.
i've looked at the financials for AWP, going to start a new thread as it might help to start off with a clean slate so to speak.
i'll comment on NAV/return of capital, the real yield of AWP, and why it is difficult to make the 10% year in and year out.
i think it is interesting information and it doesn't mean you can't make money TRADING AWP but i think it should make people realize why a long term hold, collect dividend strategy is really not a great one for AWP.
Thanks for your response. Perhaps I don't truly understand the nuances of return of capital, and why if the NAV falls that it means more of the dividend is return of capital. Maybe you can explain that to me. I would be appreciative. I'm happy you believe that the dividend won't be cut until the stock trades, but I definitely don't understand why you think that.
Given what is going on in such a back and forth market, I feel comfortable owning AWP and using the hedge of selling higher priced strike calls on IYR. While AWP has largely underperformed IYR, it does move generally in some correlation with the directional movement, and the premiums are rich enough on IYR to allow for a reasonable rally and not end up losing money in that rally because of those premiums. And AWP does appreciate for the most part with the rally in IYR, perhaps not quite as much sometimes but now that it's at such a steep discount to NAV again, I don't worry so much about it's further underperformance. Also there is that 16% exposure to Brazilian reits and with that then is also exposure to the same extent to the Brazilian Real. The worst of the panic selling in the Real seems to have taken place, and the Brazil story is still one I like unless the global economy falls into a recession. Also, one of those 15% yielders I found during my quick perusal of the holdings of AWP was a Brazilian reit.
Have you considered that AWP could rally significantly as EWZ recovers?
the reason i think the dividend will be cut is they can't earn 10% on their NAV/investments. the good news is, i don't believe they will cut the dividend until AWP trades at a premium to NAV. so as long as investors sell before the premium appears, they can expect to receive the current dividend level.
i'm sure the next question is why don't you think they can earn 10% on their NAV. yes, there are some high yielders in there, i think the 15% are mortgage REITs like NLY and AGNC. yahoo shows 16% for NLY and 21% for AGNC and that one is on the june 30 fact sheet as a dividend capture holding.
but one has to take into account the potential capital loss and net that against the 15% to 20% yield. sometimes that can be a net gain of only 10% for NLY or 15% for AGNC. alot of other regular REITs yield btwn 3% and 4%. so when you blend some high with the low (i think AWP alot more on low side than the high side), you may be looking at an income stream of 6%. so they'll need some profitable investments (gain of 4%) in order to make the 10%.
then one might say, NAV was up 36% for the 12 months ended june 30, 2011 so the 4% should be easy. but that gain evaporated and the NAV went from 8.40 to 6.40 in just over 3 months (down 36%). then you get to the dreaded math of getting back to even on a 35% loss. you need a gain of 53% to get back to even.
they started with an NAV of $19 and an annual div pay of 1.52, or 8%. they couldn't pay that, had to cut. understandable given what occurred over the last couple years. but i'm not confident that they can earn 10%.
i had a debate with a guy on the AOD board back when i was long AOD in 2007. he said they'd never be able to pay the 10% each and every year and the NAV would eventually reach zero. i said there was no way that could possibly happen. they would adjust the payout if the NAV went down and it was clear they couldn't make the dividend. his handle was/is 'gentle rhino' and he was right. it isn't at zero but i never thought it would be south of 10.
this isn't going to collapse like some madoff ponzie scheme. it will be a slow motion train wreck and each time there is a huge down draft in the market, another car goes off the tracks. so there is alot of time to go here and i could be wrong. but it was sad to see the commentary on the AOD board. people were in serious denial when it went to a premium. claimed all was well when it wasn't. as long as people know to SELL when it AWP and XAWPX are approx. equal, they'll survive.
as far as return of capital, i don't get into the fancy accounting methods of calculation for that. to me it is real simple. if they start the year with 8 in NAV and payout .60 they need to end with NAV of 8 or more. that means they earned the dividend. if they start at 8 and end at 7.40, they returned capital.
some might argue with this given the discount btwn XAWPX and AWP. since you paid less for AWP, return of capital can't happen until the two trade at roughly the same level.
Couple of comments:
1) Per your comment "why does AWP own DO?", it's listed as part of their dividend capture portfolio per their 3/31 report. My other real estate fund, CGMRX, has both ANR (coal) and FCX (copper) as part of it's holdings, both at 5% of the total. If you read the prospectus for both funds, they invest ~ 80% in real estate related stocks, leaving 20% for capital appreciation stocks.
2) I plotted AWP, CGMRX, RWR, RWX, and the DOW on Morningstar, and ALL of them plummeted from 5/3 to 5/7. Blaming AWP's drop on the post DO div effect is incorrect.
3) Both AWP and CGMRX have turnover ratios of 160%-170%, and AWP lists their top five dividend capture HOLDINGS, which haven't drastically changed from their 9/31/09 holdings. They do not employ a "dividend capture" strategy like AOD, which churns stocks purely to get the divs then dumps the stock (we've seen where that led them), rather they own divvy payers and keep them for the most part.
4) Lastly, AWP's NAV has held up nicely since recovering from the March '10 market bottom. I don't claim to understand why the discount is so high, but I do think it's a fantastic bargain at -20%.
so how does everyone feel now ? this is alpine mgmt at its best. they had a choice to invest in US real estate or Intl real estate. guess which one they decided to overweight........the one that goes down the most.
and what is with the dividend INCREASE in early july. the NAV (XAODX) started the year at 8.39 and never really increased during the year. so that means the dividend was just about right as of june 30 (XAODX at 8.40 equal to NAV on jan 1). but mgmt increased the dividend and then the market tanked. so now they have to reduce the dividend immediately or much of the dividend will simply be return of capital.
i remember some chatter on the AOD board about mgmt compensation being tied to the level of the dividend. they increase the dividend so their pay goes up.
there have been much bigger losers this year than the folks at alpine. that is the good news for them. but they just can't do anything to generate returns for investors (bad news).
i suggest selling AWP and buying RWR and RWX (70% RWR/30% RWX) with the proceeds.
It was thoughtful of you to post your conclusions on AWP.
However, for my purposes AWP serves as a completely different animal from AGD and AOD - a diversified fund of 80 or so RE equity positions across several countries selling through AWP at well below NAV.
I think the long-term dynamics of the RE market make such a holdings profile attractive. I am not an expert on the dividend recapture play, but do accept that it works in either sideways or up markets. We have had very little of either as far as RE is concerned over the last two years or so.
But I do subscribe to the SEC (bless their hearts) statement that past performance does not guarantee future performance.
I do like the monthly divies in AWP which are being paid at an approx. 7% rate based on the current price of AWP. Last year, my positions also benefitted from an extra divi which brought the dividend yield to about 10%. That's enough for me.
So, thanks for the concern. I hope you are wrong.
I am long AWP.
I simply invested long AWP due to the dividend and discount vs NAV while at the same time shorted AOD due to everyone in the world talking about a "double dip" and AOD trading at such a premium to NAV. I have made an OK amount on the AWP long but nailed the AOD short as I shorted the day before AOD ex-div date.
The author of the thread is correct in "Alpine" basically lets just call it as it is... they suck.. so what gives them a right to demand a premium to NAV. AWP is a different animal though as the CEF pays a decent dividend and at the same time is at a discount... can't go wrong.