Why are you buying this?
The company is only marginally profitable.
The costs of operating as a public company (SEC filing costs, securities lawyers, audited financials, etc.) are too high for the company's size.
Management is sucking a very large percentage of revenues out as compensation.
The lawsuit involves issues about which you can have no advantage in knowledge.
The product has been exposed as a commodity item where the brand name does not contribute to profitability. As a result, despite a larger and larger portion of revenues generated by proprietary products, neither margins nor revenue have increased substantially.
What exactly is it that you think is so great about CYAN?
Not only do I like your handle, but your argument is exactly on target.
On both the 13Q4 and the Spin conference calls, management emphasized their intent to improve their balance sheet. leverage IS quite high but they were assigned credit ratings at the bottom of the investment grade range and were specifically NOT given ratings in the Junk category.
Management issued a very large offering of bonds to close the recent deals and the bond issuance was, in my view quite successful. The company has said that intends to become a "regular" issuer in the corporate bond market, and to significantly reduce the number of properties encumbered by mortgages.
You are correct that NNN and O have stronger finances:
NNN Baa1 at Moody's, BBB/OP at S&P
O is Baa1 and BBB+ with Stable Outlooks.
ARCP is TWO rating notches lower at Baa3, and BBB-.
Still, ARCP and NNN 10-year bonds trade with a yield difference of only 42 basis points.
the bonds of O trade at the same level as those of NNN, about 40bp tighter than ARCP.
By contrast, the equity yields are 275bp apart for NNN and 225bp apart for O.
I can see those equity yield differentials shrinking by 75bp to 100bp over the course of a year IF ARCP can execute and demonstrate good cash flow. A 75bp to 100bp reduction in yield represents a very nice return combined with the yield itself.
My main concern is that ARCP has been involved in the "private REIT" industry, a business that is, I think, somewhat unsavory. it will take some time for the company to become "seasoned" and to trade at a better valuation. I am willing to wait.
Earnings are typically around the 5th to the 8th of May in recent years.
As noted above, the CEO sold a slug of shares (40,000) around the beginning of March in a price range of $31.99-$32.43 according to the SEC filing. It was the first time he had sold any shares of which I am aware.
Other executives also sold shares around the same time period.
Typically there is a window allowed by the company during which transactions are permitted when the company is not in a "black-out period" for which there are multiple possible reasons, typically having to do with the timing of earnings or other announcements or the pendency of M&A activity.
The stock had been a "25-bagger" from the absolute low on 31 March 2009, so there are PLENTY of profits to be taken.
In addition, it simply is not "cheap" any longer on a statistical basis, as it was for quite a few years after that low.
Still, if they can grow the revenue base to say, a $400 million run rate by the end of the June 2015 fiscal year via some additional M&A and organic growth (current Last 12 month figure is $309 million), and be in a position to earn a 6 percent net, after-tax margin on that revenue, then $3.20/share in e.p.s. (6% of $400 million divided by roughly 10 million shares), then neither is the stock particularly expensive.
Still, there's many a slip between lip and cup.
I have been puzzling over WHY the company has decided to proceed with this taxable spin-off at this time.
There seems to be no pressing business need to do the ARCM spin-off.
It is only 10% of the business.
Senior executives get compensated via a combination of salary plus stock options and stock grants.
Suppose senior executives suspected that the announcement of a rare "taxable spin-off" would depress the stock price.
If they know or strongly suspected such a thing, they could go forward with such an activity and artificially depress the stock price, providing the company with an opportunity to grant stock and/or options at an artificially depressed level.
The $12.20-$13.00 range is serious technical support on the chart.
The stock traded in that range from the start of September through the middle of January, 3.5 months.
Perhaps you forgot about that point when you chose the starting point of your post?
There are limits on what time of day companies can buy their own stock and the amounts they can buy.
The yield has just dropped below 5%. Hard to believe it should be more than 4.5%.
of course, they increased the quarterly dividend payout from 41 cents per quarter to 42 cents per quarter.
A year ago it was 38 cents per quarter.
The difference in leverage between O and NNN on the one hand and ARCP on the other hand is not so great that the dividend yields should be in the hundreds of basis points. The differential in their bond yields is substantially smaller. Of course, dividends are what's left over after bond interest payments.
Agree that this sell-off likely reflects fear and confusion on the part of retail investors about the taxable spin-off. If the spin represents 10% of assets, the hit may be about 2.5% of the value of ARCP.
The stock price already has declined WAY more than 2.5%.
These are real assets with real cash flow.
Remember: Buy low, Sell High; As the price drops, the amount of value available to buyers increases.
Remember, too: Stocks trading at very high dividend yields point to a higher-than-normal possibility that the dividend itself is unsustainable at the current rate.
Because they enter into LT leases (20 years is not atypical), the leases themselves typically incorporate either annual or periodic (Year 6, Year 11, and Year 16) rent increases. Every lease is different. In addition, of course, the tenant is responsible for "normal maintenance and repair" expenses, as well as all utilities and taxes. So, the triple net lease is a form of Long-term bond, with the property representing the "security" for the payments.
A key thing to watch is the percentage of rent with leases expiring in any given year. It is good to see this number in the 5%-7% range, which means that the company does not have outsized leasing exposure to any given year if it is a bad year for rents/leasing. So, if you had 50% of your leases expiring in 2009, you had a big problem. But if it was 6%, you had only a very modest problem.
Of course, you want your customers to make money. That's why having "credit tenants" is so good.
The issue here is that the shares of ARCM that you get in the spin-off will represent the equivalent of a taxable dividend to the shareholder of ARCP. You will have no say in the matter if you own ARCP shares, unless, of course, your shares are held in an IRA (or equivalent) account.
There is nothing good about this.
It is a continuing string in screw-ups.
Hard to believe that with so much lead time on this order, the manufacturer couldn't deliver.
Even though I did not get a good price when I sold my shares, I am glad I am not in the stock right now.
It's interesting that there has been no reaction in the stock to this news.
Well, they said they are "targeting the end of the second quarter" for the spin and would file a Form 10 with the SEC. Typically, these things take a long time to get done, but most of that time is used getting IRS approval for the tax-free status. The are not spending time on that.
By the way, the Bank of Montreal analyst has written that institutional investors are not pleased that ARCM (the spinco) will have a management contract and will not be internally managed. Said institutional investors severely frown on that, so it sounds as if the deal will trade cheap at first, minimizing the tax hit.
It wouldn't suprise me to see them subsequently change ARCM to internally managed and let the price rise be part of a future capital gaain rather than part of the taxable spin.
It does not defy logic at all.
If you only want to buy stocks that are going up TODAY, then you should get the Monday edition of Investor's Daily and just buy a handful of the names on their weekly list. Don;t expect to get any dividend income, though.
In general, investors do not want to pay taxes.
Some of them are selling their stock in order to avoid having to pay taxes on the distribution.
At the same time, there was substantial management buying in the open market after that announcement.
Sell-offs that do not relate to the fundamental underlying value of the business represent opportunities to buy something for less than it is worth.
The company has said that the dividend will remain at $1.00/share annually after the spin.
With the stock at $13.50 currently, if the spun-off entity has a valuation of $1.00 share (that would be a 7% yield based on the dividend for that entity that they already announced), then thiesse shares will be effectively trading for $12.50.
With a $1.00 annual dividend, that is equivalent to a yield of 8.0%. I am confident that this name will not continue to trade at an 8% yield and that it will, some time later this year, return to a 6.5% yield, or about $15.00-$15.50 per share.
You should probably sell immediately and invest somewhere else because you don;t seem to understand the nature of value.