Words to steer you away from an investment

I’ve been doing some stock research on the Canadian side and have been doing a little in the REIT sector and generally finding very little. However, of note was this press release from BTB REIT (TSX: BTB.UN) which caught my attention. Note the bolding of font below is theirs and not mine:

BTB’S payout ratio stronger than ever!

MONTREAL, Aug. 13, 2013 /CNW Telbec/ – BTB Real Estate Investment Trust (TSX: BTB.UN) (“BTB” or the “Trust”) releases today its financial results for the second quarter ended June 30, 2013, and announces the following highlights:

HIGHLIGHTS OF THE SECOND QUARTER OF 2013

66 properties
Over 600 tenants
4.5 million sq2 of leasable area, rental income growth of 24%

Improvement of:

Payout ratio to 76.7% from 92.5% in 2012
Weighted average contractual rate for mortgage loans payable, from 5.15% to 4.67%

The message here is “Our payout ratio is higher, invest in us!”

I will leave it as an exercise to the reader why I would not invest in BTB.

Game of Chicken – US Debt Ceiling

The current game of chicken going on in the US Congress is good for media and may be financially profitable. I think most participants going into this negotiation concerning the debt ceiling thought that it would be a foregone conclusion that there would be some sort of settlement on the matter, but both parties seem to be sufficiently entrenched in their positions.

There is about a weeks’ worth of time before the US Treasury runs out of room to borrow money (via extraordinary measures), and then another couple weeks before they run out of cash entirely. This undoubtedly would create a market crash if this occurred and would result in a very large buying opportunity.

In other words, now is a good time to pick candidates for purchase in the event they are wholesale-dumped into the marketplace when other institutions realize that their T-Bills aren’t going to actually mature at par value.

It will likely not happen, but one can always hope – it is only at times when institutions and funds are forced to liquidate holdings that you can make the greatest gains from the market.

Short term investments

A friend of mine asked me one day… I’ve got $X to invest, over the next two years, and I was wondering what is out there where I can get a better than 3% return with liquidity and relatively little risk.

I asked them if they were interested in investing in 30-year government bonds, which yield a tad over 3%, and certainly fits the liquidity criterion. They were strict on the 2 year limit.

So I pulled up a list of Canadian debentures that were maturing over the next couple years. I couldn’t find anything acceptable. I did do some research on Ag Growth International (TSX: AFN.DB) which would give roughly 5.6% or so, but was strongly conditional upon them obtaining refinancing. With their equity prices as high as they were, this should not pose much challenge at present, but who knows what it will be like in half a year?

Every institutional manager on this planet is trying to squeeze a few more basis points out of their short term portfolios and this competition is quite evident in the public marketplaces.

I also looked at split share preferred shares, but those equally have risks that I won’t bother getting to in this post.

I face the same dilemma myself – there is relatively little that is striking my attention in the marketplace at present. The only purchases I have made are really special situations that would otherwise be very difficult to pick up on a typical screen.

Blackberry / Prem Watsa

The whole investment world knows about what is going on with Blackberry. They reported their quarterly result today and it indeed was the disaster the company signalled last week, which wasn’t a surprise to the marketplace. Indeed, optimists that were wearing glasses with a very deep hue of rose could pick out some elements that did not lead to total despair, but the pickings are slim.

My post is a very simple one – Prem Watsa’s very conditional US$9/share offer is genuine. There is a whole bunch of speculation why it will fall through, and these are legitimate (mainly there needs to be other CANADIAN backers in this offer other than Fairfax, who have already been badly singed with the acquisition of their 10% stake in the firm). However, one risk that media brings up which I do not believe to be a risk is the genuineness of Watsa’s intentions. I have been following Fairfax for over a decade, and it simply does not pay from a reputational standpoint for Watsa to be playing “games” on this one. It would harm his company’s future ability to pull off similar acquisitions.

With Blackberry trading at about $8/share, this would leave about 12-13% upside over a two month time frame. There is an outside chance (I’d weight this as roughly 25% at present) of other bidders coming into the foray, which would likely not be in the form of a clean takeout offer.

Watsa also has to consider if this deal falls through what he will do with his 52 million share stake in Blackberry, still worth around $420 million at current market value. He has about as much of an incentive to see something happen with his stake as the rest of the shareholders do.