TSX:SOT.DB - Post by User
Post by
ownediton Jan 27, 2020 11:39am
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Post# 30603584
Why I like this REIT and you should too
Why I like this REIT and you should too Sorry to those who got burned when the dividend got cut last year. However to me that act really help clean up the balance sheet and make this a buy. With the recent property sales (yet to be closed), the company's debt situation will be fixed in the first half of 2020.
Dilution is hard at this price so they will have to start buying property, hopefully in Chicago, on new debt... Debt that can be got at a better interest rate than in 2018.
Many hate the fact that they are externally managed. I agree. However the Admin charges are quite good. That cost is around 3-4% of revenues. This is a third of what the robber barons at Brookfield charge in BPY.UN. This is also in line with admin costs of other REITs like SMU.UN (similar size) who are internally managed. Risk of course is they follow Brookfield's example. But this is unlikely. They have to rebuild trust in the market after the dividend cut last year.
Waiting as they reduce the debt, they are paying shareholder almost 7%. The Dividend is now rock solid at less than 60% FFO.
So how bad has this stock been punished by Bay Street? The market has assigned it the same P/B ratio as BPY.UN yet BPY.UN has 11% admin fee and a P/E of 12.6. Many REITs with SOT.UN's financial mix float around 10-11 P/E. SOT.UN's P/E is an eye-popping 5.7.
Eventually the market will rectify this mispriced situation.
Risks? The biggest is what pissed off investors in 2017-2018. Each time the stock started gaining some momentum they did a dilution financing, pinning it below it's NAV of 8.50ish. Again the low interest rate environment presently helps them avoid this temptation.
Currency of course is a risk but only a crazy person will expect the Canadian Dollar will appreciate against the USD, especially with the present clowns in Ottawa "running" our economy. That said recession risk in Canada to this REIT minimal since their dividend is well covered by FFO. Again a sit and wait situation when a correction hits the market.
Lastly, if Goldman etc are kicking the tires they will also have realized that this REIT is deeply discounted and is a buyout bargain. Say they offer a 30% premium to today's price, they will still be picking up the portfolio at a buck less NAV and sweet income stream.
My one gripe is that insiders do not buy. At least the new CFO is changing that a bit, but still very annoying the lack of conviction. Fire some of the board members. They are obviously driftwood.