DGI Adventure – 09-25-2015 Impulse Purchase!!!!

Impulse Purchase! No
Investment Thesis Needed!

Okay there’s an investment thesis. But it doesn’t follow the
usual format.

Today I added to my position of VEREIT (VER) by buying an
additional 180 shares at $8.00 per share for a total investment of $1,446.95
($6.95 trade commission). This increased my total holdings to 400 shares,
bought over time with $3,794.64 (including trade commissions) which equates to
a cost basis of $9.49/share. VER goes ex dividend on Monday 9/28 (for the first
time as VER), for a dividend of $0.01375/share payable on October 15, 2015. I
had to buy today if I wanted to get in on that next dividend. That gives me a
5.8% invested yield which is a full percentage point below market yield. In
spite of that difference, I’m pretty excited about that dividend, and I decided
today that I wanted more shares to pay it. So I bought more shares dammit.

The first 120 VER shares I already owned started out as ARCP
shares. I bought into ARCP for $12.02/share on 10/20/14. Nine days later the
share price completely imploded due to accounting irregularities that were
disclosed. By “irregularities” of course I mean the CFO had cooked the books to
boost his bonus. It was bad.

I boldly bought another 100 shares for $8.98/share that day
and have been sitting on them ever since. I bought those additional shares
because the amount the CFO had cooked was not a lot. This wasn’t ENRON; he
wasn’t stealing hundreds of millions of dollars. He was making numbers slightly
better than reality so his bonus would be bigger. Okay. That’s kind of
stealing, but it’s a triple net REIT with a ton of really valuable properties
and a great occupancy rate. The rent checks, the theory went, would keep coming

ARCP paid a monthly dividend at the time, and they paid
November and December dividends in 2014 (both $0.0833/share), and that’s when
the party stopped. The whole C-Suite got shit-canned. Class action lawsuits for
people who turned imaginary losses into real losses by selling shares were
initiated. What remained of the accounting department locked themselves in a
closet with a case of red bull and cranked out revised financial statements
from the last several years since there were serious questions about anything
with the ex-CFO’s signature on it.

Fast forward to August of 2015. New CEO, new CFO, new CAO,
new board of directors…new name even! American Realty Capital Partners (ARCP)
was now VEREIT (VER)…which is supposed to be some kind of hybrid of the Latin
word for truth (veritas) and REIT (real estate investment trust). It’s pretty
stupid…but management is pretty darned committed to “rebranding” as much as
possible and I can’t say I blame them.  What
was really new and exciting in August though, was the company reported Q2 2015
financial results…as in they were reporting current results not recalculated
past results. The results were very solid. And they declared a dividend! A
dividend! Hot damn…

The amount of the dividend is almost half what ARCP was
paying out, and there are a lot of anonymous blog commentators on the internet
who are pissed about that. I’m not pissed. It’s a conservative dividend
(65%-ish of projected annual AFFO). The new CEO has a mission plan and he’s
sticking to it:

Reduce Debt

Reduce Debt

Reduce Debt

Okay that’s not really the whole plan…there’s more to it
than that, but the debt levels needed to come down, especially in the face of
potentially rising interest rates. They need to keep the payout percentage low
because to reduce debt they need to sell assets (read: properties from which
they collect rent), which reduces AFFO. Also they have a lot of legal fees that
they need to account for. It’s not an ideal situation, but I think the dividend
is safe for a while and this represents a big average down.

The new CEO believes so much in this plan he
bought 120,000 shares at $8.19/share on August 24. If he’s willing to put a
million bucks on his plan, I can probably afford to average down one more time
and ride along with him. Of course he’ll be getting a $16,500 dividend payment
on October 15

and I’ll only get $55.00…but I don’t have a million
dollars. Fair is fair.  

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