AGENDA: Total Return Investing Seminar 5/17/16

Adenda - Seminar

Host: The Stanley-Laman Group, Ltd.

Place: The Union League of Philadelphia

Date: Tuesday, May 17, 2016

Agenda: 3:30 PM Presentation; 4:30 PM Cocktail & Dinner Reception

RSVP: Contact Nicole Tracy at or call 610-993-9100


Mary Talbutt is one of the most experienced Fixed Income Mangers in the Market today with experience in Corporate, Government and Municipal bonds.


David Gong is one of the most experienced Emerging Market Money Managers in the world.


Brad Stanley, CFA – Named CIO The Stanley Laman Group in 2016.


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Seminar Invitation 5-17-16

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In December, we opined that equities markets were overvalued and suggested that the slow pace of global growth and struggling energy industries would cause a market sell-off and potentially push the U.S. into a recession.

After dropping 10.5% by February, the S&P 500 recovered these losses by mid-March with many of the most beaten down Sectors: Energy and Commodity stocks leading the way. Currently, we believe that recessionary concerns have abated and offer the following regarding future market directions and opportunities for investors. Why the change?

We underestimated the lengths that Central Banks, including our own, would go to prop up their country’s economies and the massive amounts of stimulus they stood willing to inject:

U.S. Fed Reserve Board:

  • Announced that negative Interest Rates for the U.S. “are not off the table”
  • Signaled on Mar. 29 that interest rate hikes in 2016 are to be considered cautiously

Note: Denmark, Sweden, Switzerland and Japan have negative interest rates

The European Central Bank:

  • Reduced the rate on overnight bank deposits to minus 0.4 percent
  • Increased monthly bond purchases from $60 to $80 billion Euros
  • Will provide long-term loans to banks beginning in June
  • May pay banks to borrow money in the future

Peoples Bank of China:

  • China’s central bank injected CNY 100 billion ($15.2 bil.) in reverse repos on Feb. 2

Market observers question whether these actions have:

  1. Saved the world from recession and put the economy on course for economic growth?
  2. Distorted the course of natural market activity for a more dramatic future reckoning?
  3. Put us on course for stagflation, low returns and high volatility?

Nevertheless, despite central bank interventions, Economic Data remains mixed and markets appear to be in a general malaise.

The Good

Oil rebounded from $30 per barrel in January to $39 in March driven by: a) An implied agreement amongst OPEC and non-OPEC producers to limit production; b) Significant decline in domestic Drilling Rigs leading to expected future declines in U.S. production growth

Emerging Markets rebounded and have outperformed Developed Markets (+2.3% vs. -1.3% using MSCI indices)

U.S. employment growth remains steady with the three-month average of non-farm payroll growth through February at 238K and 242K over the past 24 months

Q4 2015 GDP revised from .7% to 1.4% with the consumption component rising 2.4% to offset a negative manufacturing read (Assuming 1.4% Growth is considered positive)

The US Dollar weakened against the Euro, Yen and Renminbi, thereby decreasing the cost for U.S. exported goods and services

The Bad

Durable goods fell 2.8% in February, the 3rd decline in four months

Profits of U.S. Companies fell 7.8% in Q4 2015 and 11.5% overall in 2015. However this included a $21 Billion settlement of the Gulf oil spill and the impact of energy sector declines

Shipping volume growth as forecasted by Maersk Lines will grow 0% – 1% in 2016

Recent reports indicate that Subprime car loans have fueled a portion of the auto recovery and delinquencies are at extremely high rates

Some forecasts suggest that 50% of U.S. Oil Exploration Companies will file for bankruptcy

The Dilemma

Raising U.S. interest rates could upset a fragile recovery by strengthening the dollar and causing outflows of capital form Europe, China and Emerging markets, pushing them into recession.

Thus, investors should expect periods of volatility followed by range bound trading and should utilize swings to selectively: (i) acquire stocks that have overshot on the downside, and (ii) sell into rallies on the upside.

The preceding represents the views and opinions of The Stanley-Laman Group, Ltd., a Registered Investment Advisor, and is not intended to be investment advice suitable for all investment objectives. Investment strategies involve the risk of loss of principal.  Investors are advised to consult with qualified investment professionals relative to their individual circumstance and objectives.

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STAG Industrial: Review


  • 7.4% dividend at current prices.
  • Leveraged to the bright spots of the U.S. economy, light manufacturing, warehousing and distribution.
  • Has underperformed peers over the past 12 months.

In a recent discussion, Brad Stanley, CFA, our CIO, asked my opinion of STAG Industrial (NYSE:STAG), knowing that I had direct experiences with them. My interactions included:

  1. Assisting a client in selling a class A warehouse to STAG.
  2. Negotiations with their acquisition team.
  3. Discussion with their tax and accounting team over structural options.

Additionally, I served as the lead Independent Director for The New York REIT Board when STAG’s former CFO, Greg Sullivan, served as their CFO.

Brad is the most detailed money manager I know and holds a degree in computer science from Carnegie Mellon, and physically wrote the code for our Ad-Star System which can evaluate over 600 metrics for any security traded in the world.

He also knows that:

  1. I served as interim chairman and interim CEO of VEREIT (NYSE:VER) and oversaw the restatement of their financial statements.
  2. I have a very low regard for REIT managers that specialize in speaking in parables and half disclosures.

As such, he was surprised to hear me report that I consider the STAG team members with whom I had dealt to be straightforward, diligent and capable, and Sullivan is reflective of those traits.

Thus, we turned our attention to try to understand why the stock had declined 26% over the past 12 months, underperformed its peers and whether the stock offered value at current prices.

To start the process, I pulled some very basic data from four other industrial REITs to compare key metrics presented below.

Recognizing that the January sell-off was particularly unkind to smaller cap companies, I tried to compare several market caps within the industrial REIT space as outlined below.

STAG chart 1


Heavy manufacturing has taken a significant downturn driven by slow global growth and a strong U.S. dollar.

U.S. services, retail and light domestic manufacturing have remained reasonably resilient and continue to show growth driven by employment gains.

STAG has declined 26% while Monmouth Real Estate Investment (NYSE:MNR), which is similar in market cap, has declined 3.5% over a similar period.

  • Total debt-to-capital at 49% in mid-range of peers.
  • Put call ratio highest of group.
  • Return on invested capital reported as -0.88%, only negative in group.
  • 3-year dividend growth rate highest.
  • Current dividend percentage highest.

Other Noteworthy Issues

A new CFO was being appointed as of January 26, 2016.

Certain officers and directors manage and oversee STAG Investments II, LLC, a private equity real estate fund, currently liquidating.

Insiders have made several direct buys of stock over the past six months as reported by Vickers. And while not huge numbers, it is always good to see managers and board members invest.

STAG chart 2



  • +8.1% Core FFO per diluted share
  • $48.8M-$41.4M Cash NOI +18%
  • Acquired 14 buildings, 3.1M sq ft for $138M aggregate Cap. Rate of 8.8%
  • Sold four buildings 486,577 sq ft for $13M
  • Executed leases for 1.4M sq ft
  • Occupancy of 95.6%
  • Increase Cash +0.5% and GAAP rent +12.0%


  • Owns 291 buildings, 38 states, 54.7M rentable square feet
  • 223 warehouses/distribution, 47 light manufacturing and 21 flex offices
  • 226 tenants with highest single concentration, 3.3%
  • Same-store rental revenue decreased by$ 200K, 0.7%
  • Cash NOI +27.0% vs. FY14
  • Acquired 49 buildings, 8.7M sq ft. for $427M with an 8.4% aggregate Cap. Rate
  • Sold six buildings, 808,387 sq ft. for $22M
  • Executed leases for 5.7M sq. ft.
  • GAAP Cash +1.6%, Rent +7.1%
  • +69.8% lease renewal retention for 4.9M sq. ft.
  • GAAP cash +4.2%, GAAP Rent +8.4%
  • Agreed to pricing of a new $100 million private placement of senior unsecured notes

In short, at current levels, I am of the view that STAG offers investors value.


The company appears to be well diversified and offers an attractive dividend compared to peers. Thus, we would suggest that STAG might be a good addition in limited bites for income investors.


Some of the Stanley-Laman Group’s clients are long the stock of STAG.

The preceding represents the opinions of Mr. Stanley and The Stanley-Laman Group, Ltd., a Registered Investment Advisor, and are not intended to be investment recommendations.

Investing in any strategy involves the risk of loss of principal and may not be suitable for all investors. Investors are advised to consult with qualified investment professionals relative to their individual circumstance and objective.

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Finding Growth in a Growth Starved World

February 26, 2016 Leave a comment

For the past six months we have gone on record about our concerns with the economy and the eventual impact it will have on the financial markets.

Our updated views are as follows:

  • The stock market is in a relief rally, a typical event in a longer-term downward market.
  • This recovery will take longer than the 2008 Financial Crisis and 2000 Tech Bust.
  • The prospects of Saudi Arabia, Russia and Iran coming together to reduce or limit oil production are highly improbable due to the following:

Russian oil is transported through non-insulated pipes across frozen tundra and must flow to avoid freezing and avoid other structural damage

Saudi Arabia’s costs to produce a barrel of oil are estimated to range from $1 – $5 and thus they continue to profit at $30 oil

Iran has stated publicly its intention to recapture market share lost during the prior U.S. imposed embargo

  • Basic service consumer companies in Emerging Markets will outperform.
  •  Developed markets will show low or no growth over the next 12 months.
  •  High Yield Bond defaults will accelerate, providing opportunity for yield investors.


Rotate from long-only equities to long-short strategies that are designed to buffer downside risk and profit from volatility.

Rotate growth allocations from glamour-momentum stocks to select consumer and basic service companies in the emerging markets, particularly India and China.

PIMCO recently described emerging markets as “The Trade of a Decade”.

A recent article in Barron’s quoted Katie Koch of Goldman Sachs Asset Management making a case for investing in India and offering the following:

  • India’s real GDP could grow from 7.5% today to 10% within the next several years
  • 1 million people will enter the workforce in India each month for the next 15 years
  • Funds that buy the index won’t experience the full benefit of the uptick
  • Prefer India’s smaller cap stocks, particularly consumer, e-commerce and infrastructure

And while the past several years have been particularly difficult for EM’s, we suggest investors also consider the following:

India and China are net oil importers, thus low energy is a benefit to their development.

EMs learned from the last credit crisis and have implemented greater controls.

Exceptionally high growth rates and low costs for equities exist in basic industries.


La Opala RG Ltd.

Indian manufacturer of tableware including plates and crystal glassware.

em post pic 1


Vietnamese producer of high yield seeds including rice, sesame and pineapple.

em post pic 2

In short, we believe that Developed Markets will be challenged to achieve growth, and that well-managed consumer companies serving Emerging Markets represent an excellent investment alternative compared to domestic high P/E glamour stocks.

The views expressed represent the opinion of The Stanley-Laman Group, Ltd. a Registered Investment Advisor. We further advise investors to consult with their investment advisors prior to implementing any of the aforementioned strategies, many of which are designed for High Net-Worth Qualified Investors only. Investing in any referenced strategy involves the risk of loss of principal.


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SLG’s Market Perspective Update

February 10, 2016 Leave a comment

Since July 2015, we have repeatedly gone on record voicing concerns over the equity markets and continue to believe that we are at the beginning stages of a U.S. recession.

The most recent casualties of the market sell-off are the most-loved glamour stocks, (including FANG) which had appeared to be unaffected by the problems of energy companies, commodity producers, banks, retailers, etc.

This bifurcation of market values represented an early warning sign in our view.

We believe that a major area of the market such as energy cannot be teetering on collapse without pulling down the entire market. We saw this with financials in 2008 and technology in 1999.

Another troubling statistic was provided in a recent Bloomberg article showing 394 dividend cuts in 2015 versus 295 in 2008.

In 2007, the industries that were overvalued included financials, luxury retailers and homebuilders, with much of the bubble being brought about by no-look mortgages, and a seemingly insatiable appetite by global investors to invest in these packaged, derivative instruments.

When investors realized that many people could not afford their no-look mortgages, the bubble broke and the gravitational pull brought down the entire market. This put the market into a near death spiral as leveraged investors needed to sell anything that had to a counter party to meet margin calls.

At the depth of the market sell-off in 2009, certain companies could be bought for the value of the cash they held on their balance sheets, with no assigned value to their operating businesses.

While the bubble stocks have stayed down and may never come back to 2007 values, the non-bubble constituents caught in the delivering backwash did come back. The wait, however, was painful for investors.

While we see some similarities with the current market sell-off, we see major differences:

First: The decline of energy producers was not brought about by the bursting of a bubble. Their decline is a product of new technology unlocking reserves in the United States and bringing an abundance of what was once thought to be a scarce and diminishing commodity.

Additionally, Russia, Venezuela, Iran and Nigeria, need to sell at virtually any price to avoid depression.

Second: The collapse of Bear Stearns and Lehman Brothers, the shotgun wedding of Merrill Lynch and BOA, and the would-be collapse of many other financial institutions, such as AIG, were able to be fixed or delayed with an injection of cheap cash from the Fed.

The Fed won’t pump cash into Chesapeake Energy, Conoco, or any other energy companies as they teeter. The energy complex will experience a period of recapitalization with bankruptcies, loan write-downs, suspended dividends, bond holder defaults, recapitalizations, etc. This distress will ultimately affect consumer behavior and the broader U.S. economy.

Oilfield, construction and other industrial jobs have been important catalysts for the job market, employment and wage gains in recent years. These jobs will be soon lost, causing a spillover effect to other consumer dependent industries.

While investors come to grips with the market volatility and the extent of the economic malaise, we are beginning to prepare for the next phase, which is taking advantage of the significant opportunities that we believe will be forthcoming over the next 12 – 24 months.

The preceding represents the views and opinions of The Stanley-Laman Group, Ltd., a Registered Investment Advisor, and is not intended to be investment advice suitable for all investment objectives.  Investment strategies involve the risk of loss of principal.  Investors are advised to consult with qualified investment professionals relative to their individual circumstance and objectives.




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New York REIT – Start Spreading the News

February 1, 2016 Leave a comment


Co-Author William Stanley served as a director for NYRT from its inception and Lead Independent Director until his resignation in December of 2014.

Mr. Stanley’s resignation was prompted by his selection to act as Interim Chairman and CEO of ARCP now VER who board he joined on Jan. 1, 2014.

During his time at VER he oversaw the restatement of the company’s financial statements, participated in the search for a permanent CEO and restructure as well as other initiatives including strengthening accounting and reporting procedures, negotiating with lenders, moving the company’s headquarters to Phoenix, etc.

Mark Painter, CFA acted as leader manager of SEL Capital an entity that was retained by AR Capital to manage two publicly offered mutual funds. Both Funds are currently being liquidated and Mr. Painter has no other affiliation with AR Capital or any related entity.


New York REIT, Inc. acquires income-producing commercial real estate in New York City, primarily office and retail properties in Manhattan.

Their portfolio which included downtown New York Office Building, a Luxury Hotel and some very hot emerging retail locations with the plum being their investment in Worldwide Plaza.

Having served on multiple Net Lease Boards and several operational real estate boards, I find that the skill set to manage a diverse NY centric portfolio is simply a different animal than the Triple Net Lease World.

To this end, I believe that Mike Happel and his entire team are thoughtful, analytical and experienced real estate professionals.

They Aren’t Making any More of It

The old saying about real estate, that they are not making any more of it, is especially true in New York. And while Hong Kong has recaptured some land from the sea and Water Street at the tip of lower Manhattan may have indeed been under Water, I don’t envision much filling in of the Hudson or East River to support buildings anytime in the near future.

Thus this old axiom of not making more real estate is especially true in New York.

Manhattan is land-locked which has pushed the rapid development into the boroughs. I have real estate clients that are finishing up projects in Brooklyn and say that the opportunity to buy at attractive is long gone.

New York and London real estate are generally considered attractive places to park money for international investors. Long ago when Middle Eastern Russian and Brazilian Oil and Commodity Tycoons had money, they flocked to the Big Apple to buy Brick and Mortar as did Chinese Industrialists to the extent they could move funds out.

Years ago the buzz was the Japanese buying Rockefeller center. Well fast forward 3 decades or so and the Japanese are broke but Rock Center lives on.


Much has been written about the management structure of NYRT which is externally managed by entities controlled by AR Capital whose travails have been well documented in the financial press.

chart 1


G&A Expenses for the Quarter were $6,519 while fees paid to the advisor were $3,121 for the quarter ended 9/30/15.

Together they equal 21.6% of the Total Operating Revenue of $44,608, an excessive amount in our view.


The company owns 23 properties with the most significant being an investment in the entity that owns Worldwide Plaza (WWP).

WWP – Summary



chart 2

Debt Stack

A review of the debt stack shows that the company appears to be enjoying very good current interest rates through a combination of Direct Lending against properties and a credit facility consisting of a term loan and a revolver. A brief summary from the 9/30/15 10-K is as follows:


chart 3

The company showed a net loss of ($13,186) for the quarter of which ($20,284) was depreciation

Total Interest Expense for the Quarter ended 9/30/15 was ($7,172) or ($28,688) extrapolated for a full year.

A review of the maturity dates shows that virtually all of this debt will come due over the next four years.

And while it does not appear that we will see high interest rates anytime soon, the availability and cost of borrowing could be an issue if the U.S. slips back into recession.

chart 4


Recent Events

On October 1, 2015 the company announced that it retained Eastdil Secured to “evaluate potential strategic transactions at the asset or entity level.”

On Nov. 16, the company sold two “non-core” properties, a retail office building in Brooklyn and a retail property in Queens. Additionally, they announced a suspension of a search for a permanent CFO.

On Dec. 4, there were reports that SL Green Realty Corp was close to an agreement to acquire New York REIT.

On Jan 21, the REAL DEAL reported that SL Green isn’t in negotiations to buy New York REIT.

Stock Price – Peer Comparison

chart 5



A company with an interesting portfolio yet major structural and expense hurdles that appears to be searching for a direction.

We do not see a compelling reason for investors at this juncture.

The preceding represents the opinions of Mr. Stanley, Mr. Painter and SLG and are not intended to be investment recommendations.

Investing in any strategy involves the risk of loss of principal and may not be suitable for all investors. Investors are advised to consult with qualified investment professionals relative to their individual circumstance and objectives.

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