On Thursday the S&P 500 was down 0.3%. Toronto was down (again) this time down 1.0%.
Almost all of our stock picks were down but Liquor Stores N.A. was up 2.0%.
Toll Brothers was down slightly to $32.47 But earlier in the day it was as high as $33.52. This caused my order to sell a little at $33 to be filled. As noted yesterday i will sell a bit more at $34, $35 and $36. No plans to buy any but I suspect I will buy a little if it heads below $30 though with the amount I have I should probably not buy any more unless it heads to more like $28.
Yesterday I mentioned that entering orders above or below the market can take emotion out of the decision. More importantly it can make sure the sell or buy trigger is actually pulled. It’s one thing to make a mental plan to sell at $X or buy at $Y. It’s quite another thing indeed to actually do it. I mean it is not hard to buy or sell (although it can be tough to pull the trigger in real time) but I think we all make a lot more plans to buy or sell than what we actually carry out.
As of yesterday my own account is up 24% for this year, which is rather surreal (particularly on top of the 28% form last year). That kind of return is not sustainable but it does feel nice.
Yesterday, Kevin O’Leary commented on the Canadian Tire REIT and said he would not touch it because it was all one tenant and not diversified. I believe Amanda Lang even mentioned that it was possible that this REIT IPO will be a failure to launch.
I have not been much interested in REITs. I can never get very comfortable with entities that routinely distribute more than 100% of earnings (they distribute the non-cash depreciation expense). I have not given any thought to whether the Canadian Tire REIT will be a good investment. I am not interested in it.
As a Canadian Tire share owner I am interested in selling real estate to the REIT. I’d prefer if Canadian Tire would sell at least 49% of the REIT to the public, not the mere 10 to 20% that they plan.
But in order to sell any the REIT has to be attractive to REIT buyers.
In general there is no shortage of REIT investors.
But Kevin raises a valid concern about the attractiveness of this REIT. If I were into buying REITs, the single tenant would not bother me much, not when that tenant is very stable and profitable and well financed, as is the case here. What would concern me is the fact that Canadian Tire will own 80% or more of the REIT and manage it in addition to being the only tenant. In this scenario the REIT management may be always in a conflict of interest. But Canadian Tire is setting it up with long-term fixed leases so that eliminates much of the concern. (They can’t lese property to the stores at bargain rates). And I suspect the REIT management will be strongly incented to work for the REIT’s benefit, not for the the parent company’s benefit.
But the bottom line is that is some danger that this new REIT will not be well received. That would mean it fails to launch or it gets the properties at a bargain price (a high yield is required).
If the REIT failed to launch then Canadian Tire shares would fall in price. But that would be a buying opportunity. If the REIT is is initially priced too low (yield is too high) then that is not such a big deal since only 10 to 20% of the REIT is actually being sold to new owners. In that case the Canadian Tire shares would fall a little but probably not too much.
The bottom line for me is I am pretty satisfied to have sold some of ]my Canadian Tire shares on the way up but to still be holding a very large position. The stock price may rise or fall and I can react accordingly. (Sell on rallies, buy on dips). There is never certainty, but I am comfortable with this investment.