PC industry suffers as Microsoft severs link between Windows and hardware refreshes

The global PC market is set to decline by almost 1.9% over the next two years, according to Ranjit Atwal, research director at Gartner. “PC shipments will total 258 million units in 2019, a 0.6% decline from 2018,” he said. “Traditional PCs are set to decline by 3% in 2019 to total 189 million units.”

However, Gartner’s latest forecast suggests that between 2018 and 2012, sales of ultramobiles will increase by almost 20%.

Atwal said it has taken a while for the PC industry to offer compelling features such as instant on and all-day battery life on these types of device, which often have a far higher selling price than standard laptops.

He said the PC market is effectively saturated, but businesses will continue to buy mobile PCs even though the smartphone tends to be users’ primary mobile device. “A laptop is the device you use to create content,” he said.

Given that businesses will continue to provide end-users with laptop PCs, Windows 10 remains the dominant platform on which content creation-type work will run. Gartner predicted that Windows 10 will represent 75% of the professional PC market by 2021.

Windows 7 support is scheduled to end in January 2020, and for businesses, the Windows 10 migration will continue to drive a PC refresh. According to Gartner, while the US is now in the final phase of moving off Windows 7, China is still a few years away.

“By moving the Windows 10 migration to 2020, organisations increase the risk of remaining on an unsupported operating system.,” said Atwal.

“We are seeing businesses across the word migrating to Windows 10. It is a modern operating system and allows organisations to run cloud applications and provide security much more effectively.”

End of support for Windows 7

Support for Windows 7 will end in January 2020, after which organisations will have to buy a custom support contract if they want their Windows 7 systems supported. This situation mirrors the Windows XP end-of-support deadline, which occured in 2014.

“When XP support was pulled, a lot of government organisations were left on XP,” said Atwal. “They had to pay extra for support. Businesses do not want to be in this situation again, where they have to pay for one-off support of Windows 7.”

He pointed out that there is no option for organisations to skip a version because there will not be a Windows 11. “From now on, organisations will get consistent upgrades to the Windows operating system,” he said.

So, the migration from Windows 7 to Windows 10 is the last time IT departments will have to take a forklift approach to upgrading their desktop operating system, said Atwal. Organisations need to move to Windows 10, or they will fall behind, he said. For instance, Microsoft has aligned the upgrades of its cloud productivity suite, Office 365, to Windows 10.

But the main benefit of Windows 10 to IT is its improved back-end management, said Atwal. “You can operate and manage Windows more effectively once you are on Windows 10,” he added.

One example is that Microsoft now manages upgrades, said Atwal. Many organisations do not have a team that is permanently set up to upgrade the Windows operating system, so embarking on a new Windows operating system upgrade is a major IT project.

Such Windows upgrade projects should become a thing of the past if organisations entrust Microsoft to update their PC estates automatically, he said.

PC refresh 

From a PC market perspective, Windows 10 disconnects the link between PC hardware and Windows operating system upgrades. Windows 10 is upgraded twice a year, which means business users will receive new operating system features every six months.

Atwal said he expected businesses to continue to upgrade PCs, but with more enterprise applications consumed as software as a service (SaaS), hardware upgrades are likely to be driven by wear and tear rather than the availability of a new PC operating system from Microsoft. “Given that the laptop is an important business tool, it will be upgraded,” he said.

JetStream DR cloud replication aims to make backup redundant

JetStream software has announced general availability for its JetStream DR product, which allows continuous replication – as opposed to periodic snapshots – of VMware virtual machines (VMs) and data to public cloud locations.

The product, aimed at service providers and enterprises, allows customers to failover to operations from the cloud in the case of an outage with an RPO (recovery point objective) of near zero.

JetStream DR also works with S3-based object storage and can continuously replicate that data from on-premise locations to public clouds.

JetSteam originated as FlashSoft and went through a number of acquisitions, with a formative period being one in which it developed technology used by VMware in its APIs for I/O filtering (VAIO).

At its core, this allows for any I/O stream to be intercepted between the VM and virtual disk in real time, with intelligence then being applicable to that flow of data.

So, for example, JetStream has a product called Accelerate, in which IO Filter can select whether data should be served/stored on cache or underlying storage, with claimed application performance of 3x to 5x.

Meanwhile, JetStream Migrate allows for data to be migrated in near real time from on-premise VMware deployments to the public cloud.

This can be carried out without shutdown during transfer because IO Filter can move the bulk of the VM and disk and then keep track of data written concurrently to build the VM and disk as soon as possible afterwards.

JetStream DR aims to allow for “data protection as a true cloud service”, said company president Rich Petersen.

“Data protection need to be elastic and dynamically consumable. So, for example, if you have Nutanix on-premise, you need to replicate to Nutanix in the cloud. It’s the same for other HCI providers and for [VMware] VSAN.”

Instead, JetStream DR allows users to replicate VMware VMs and data to any cloud service and to failover to it in case of a disaster recovery scenario.

Petersen contrasts his company’s product with backup in general and in particular with offerings from Veeam and Druva. Unlike those products, JetStream is continuous and not dependent on periodic snapshots or backups.

A similar service can be applied to on-premise S3 object storage data, although re-hydration of stored data will take longer than for VMs.

There are no plans to expand the product to support Hyper-V and KVM. That will be “years away”, said Petersen.

The Math of How Crickets, Starlings and Neurons Sync Up

When the incoherent claps of a crowd suddenly become a pulse, as everyone starts clapping in unison, who decided? Not you; not anyone. Crickets sing in synchrony; metronomes placed side by side sway into lockstep; some fireflies blink together in the dark. All across the United States, the power grid operates at 60 hertz, its innumerable tributaries of alternating current synchronizing of their own accord. Indeed, we live because of synchronization. Neurons in our brains fire in synchronous patterns to operate our bodies and minds, and pacemaker cells in our hearts sync up to generate the beat.

Quanta Magazine


author photo

About

Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation, whose mission is to enhance public understanding of science by covering research develop­ments and trends in mathe­matics and the physical and life sciences.

Objects with rhythms naturally synchronize. Yet the phenomenon went entirely undocumented until 1665, when the Dutch physicist and inventor Christiaan Huygens spent a few days sick in bed. A pair of new pendulum clocks—a kind of timekeeping device that Huygens invented—hung side by side on the wall. Huygens noticed that the pendulums swung exactly in unison, always lurching toward each other and then away. Perhaps pressure from the air was synchronizing their swings? He conducted various experiments. Standing a table upright between the clocks had no effect on their synchronization, for instance. But when he rehung the clocks far apart or at right angles to each other, they soon fell out of phase. Huygens eventually inferred that the clocks’ “sympathy,” as he called it, resulted from the kicks that their swings gave each other through the wall.

When the left pendulum swings left, it kicks the wall and the other pendulum rightward, and vice versa. The clocks kick each other around until they and the wall attain their most stable, relaxed state. For the pendulums, the most stable behavior is to move in opposite directions, so that each pushes the other in the direction it’s already going, the way you push a child on a swing. And this is also easiest for the wall; it no longer moves at all, because the pendulums are giving it equal and opposite kicks. Once in this self-reinforcing, synchronous state, there’s no reason for the system to deviate. Many systems synchronize for similar reasons, with kicks replaced by other forms of influence.

Christiaan Huygens’ sketch of an experiment with a pair of pendulum clocks (top), and his attempt to understand why they synchronize (bottom). “B has gone again through the position BD when A is at AG, whereby the suspension A is drawn to the right, and therefore the vibration of pendulum A is being accelerated,” he wrote. “B is again in BK when A has been returned to position AF, whereby the suspension of B is drawn to the left, and therefore the vibration of pendulum B slows down. And so, when the vibration of pendulum B is steadily slowing down, and A is being accelerated, it is necessary that … they should move together in opposite beats….”

Reproduced from Oeuvres complètes de Christiaan Huygens (1888); Huygens’ passage from Synchronization: A Universal Concept in Nonlinear Sciences (2002)

Another Dutchman, Engelbert Kaempfer, traveled to Thailand in 1690 and observed the local fireflies flashing simultaneously “with the utmost regularity and exactness.” Two centuries later, the English physicist John William Strutt (better known as Lord Rayleigh) noticed that standing two organ pipes side by side can “cause the pipes to speak in absolute unison, in spite of inevitable small differences.” Radio engineers in the 1920s discovered that wiring together electrical generators with different frequencies forced them to vibrate with a common frequency—the principle behind radio communication systems.

It wasn’t until 1967 that the pulsating chirps of crickets inspired the American theoretical biologist Art Winfree to propose a mathematical model of synchronization. Winfree’s equation was too difficult to solve, but in 1974, a Japanese physicist named Yoshiki Kuramoto saw how to simplify the math. Kuramoto’s model described a population of oscillators (things with rhythms, like metronomes and heartbeats) and showed why coupled oscillators spontaneously synchronize.

Kuramoto, then 34, had little prior experience in nonlinear dynamics, the study of the feedback loops that tangle together variables in the world. When he showed his model to experts in the discipline, they failed to grasp its significance. Discouraged, he set the work aside.

Five years later, Winfree came across a précis of a talk Kuramoto had given about his model and realized that it offered a revolutionary new understanding of a subtle phenomenon that pervades the world. Kuramoto’s math has proved versatile and extendable enough to account for synchronization in clusters of neurons, fireflies, pacemaker cells, starlings in flight, reacting chemicals, alternating currents and myriad other real-world populations of coupled “oscillators.”

“I didn’t imagine at all that my model would have a wide applicability,” said Kuramoto, now 78, by email.

But, as ubiquitous as Kuramoto’s model became, any illusions physicists had of understanding synchronization shattered in 2001. Once again, Kuramoto was at the center of the action.

Different Strokes

In Kuramoto’s original model, an oscillator can be pictured as an arrow that rotates in a circle at some natural frequency. (If it’s a firefly, it might flash every time the arrow points up.) When a pair of arrows are coupled, the strength of their mutual influence depends on the sine of the angle between their pointing directions. The bigger this angle, the bigger the sine, and therefore the stronger their mutual influence. Only when the arrows point in parallel directions, and rotate together, do they stop pulling on each other. Thus, the arrows will drift until they find this state of synchrony. Even oscillators that have different natural frequencies, when coupled, reach a compromise and oscillate in tandem.

But that basic picture only explains the onset of global synchronization, where a population of oscillators all do the same thing. As well as being the simplest kind of sync, “there are plenty of examples of global synchronization; that’s why people paid so much attention to that,” said Adilson Motter, a physicist at Northwestern University in Chicago, and a leading sync scientist. “But in 2001, Kuramoto discovered something very different. And that’s where the story of different states starts.”

Yoshiki Kuramoto, a professor of physics at Kyoto University, developed the famous Kuramoto model of synchronization in the 1970s and co-discovered the chimera state in 2001, again revolutionizing the understanding of sync.

Tomoaki Sukezane

It was Kuramoto’s Mongolian post-doc, Dorjsuren Battogtokh, who first noticed a new kind of synchronous behavior in a computer-simulated population of coupled oscillators. The identical oscillators, which were all identically coupled to their neighbors, had somehow split into two factions: Some oscillated in sync, while the rest drifted incoherently.

Kuramoto presented his and Battogtokh’s discovery at a 2001 meeting in Bristol, but the result didn’t register in the community until Steven Strogatz, a mathematician at Cornell University, came across it in the conference proceedings two years later. “When I came to understand what I was seeing in the graphics, I didn’t really believe it,” Strogatz said.

“What was so weird,” he explained, “was that the universe looks the same from every place” in the system. And yet the oscillators responded differently to identical conditions, some ganging together while the rest went their own way, as if not coupled to anything at all. The symmetry of the system “was broken,” Strogatz said, in a way that “had never been seen before.”

Strogatz and his graduate student Daniel Abrams, who now studies synchronization as a professor at Northwestern, reproduced the peculiar mix of synchrony and asynchrony in computer simulations of their own and explored the conditions under which it arises. Strogatz dubbed it the “chimera” state after a mythological fire-breathing monster made of incongruous parts. (Months earlier, Strogatz had written a popular book called Sync, about the pervasiveness of global synchronization.)

Two independent teams realized this chimera state in the lab in 2012, working in different physical systems, and more experiments have seen it since. Many researchers suspect chimeras arise naturally. The brain itself seems to be a complicated kind of chimera, in that it simultaneously sustains both synchronous and asynchronous firing of neurons. Last year, researchers found qualitative similarities between the destabilization of chimera states and epileptic seizures. “We believe that further detailed studies may open new therapeutic methods for promoting seizure prediction and termination,” said co-author Iryna Omelchenko of the University of Berlin.

But the chimera state is still not fully understood. Kuramoto worked out the math verifying that the state is self-consistent, and therefore possible, but that doesn’t explain why it arises. Strogatz and Abrams further developed the math, but other researchers want “a more seat-of-the-pants, physical explanation,” Strogatz said, adding, “I think it’s fair to say that we haven’t really hit the nail on the head yet” about why the chimera state occurs.

Good Vibrations

The discovery of chimeras ushered in a new era in sync science, revealing the conceivably countless exotic forms that synchronization can take. Now, theorists are working to pin down the rules for when and why the different patterns occur. These researchers have bold hopes of learning how to predict and control synchronization in many real-world contexts.

Motter and his team are finding rules about how to stabilize the synchronization of power grids and more stably integrate the U.S. grid with intermittent energy sources like solar and wind. Other researchers are looking for ways of nudging systems between different synchronous states, which could be useful for correcting irregular heartbeats. Novel forms of sync could have applications in encryption. Scientists speculate that brain function and even consciousness can be understood as a complicated and delicate balance of synchrony and asynchrony.

“There’s a lot of new vibrancy to thinking about sync,” said Raissa D’Souza, a professor of computer science and mechanical engineering at University of California, Davis. “We’re gaining the tools to look at these exotic, intricate patterns beyond just simple, full synchronization or regions of synchronization and regions of randomness.”

Many of the new synchronization patterns arise in networks of oscillators, which have specific sets of connections, rather than all being coupled to one another, as assumed in the original Kuramoto model. Networks are better models of many real-world systems, like brains and the internet.

In a seminal paper in 2014, Louis Pecora of the United States Naval Research Laboratory and his co-authors put the pieces together about how to understand synchronization in networks. Building on previous work, they showed that networks break up into “clusters” of oscillators that synchronize. A special case of cluster sync is “remote synchronization,” in which oscillators that are not directly linked nonetheless sync up, forming a cluster, while the oscillators in between them behave differently, typically syncing up with another cluster. Remote synchronization jibes with findings about real-world networks, such as social networks. “Anecdotally it’s not your friend who influences your behavior so much as your friend’s friend,” D’Souza said.

In 2017, Motter’s group discovered that oscillators can remotely synchronize even when the oscillators between them are drifting incoherently. This scenario “breeds remote synchronization with chimera states,” he said. He and his colleagues hypothesize that this state could be relevant to neuronal information processing, since synchronous firing sometimes spans large distances in the brain. The state might also suggest new forms of secure communication and encryption.

Then there’s chaotic synchronization, where oscillators that are individually unpredictable nonetheless sync up and evolve together.

As theorists explore the math underpinning these exotic states, experimentalists have been devising new and better platforms for studying them. “Everyone prefers their own system,” said Matthew Matheny of the California Institute of Technology. In a paper in Science last month, Matheny, D’Souza, Michael Roukes and 12 co-authors reported a menagerie of new synchronous states in a network of “nanoelectromechanical oscillators,” or NEMs — essentially miniature electric drumheads, in this case. The researchers studied a ring of eight NEMs, where each one’s vibrations send electrical impulses to its nearest neighbors in the ring. Despite the simplicity of this eight-oscillator system, “we started seeing a lot of crazy things,” Matheny said.

The researchers documented 16 synchronous states that the system fell into under different initial settings, though many more, rare states might be possible. In many cases, NEMs decoupled from their nearest neighbors and remotely synchronized, vibrating in phase with tiny drumheads elsewhere in the ring. For example, in one pattern, two nearest neighbors oscillated together, but the next pair adopted a different phase; the third pair synced up with the first and the fourth pair with the second. They also found chimeralike states (though it’s hard to prove that such a small system is a true chimera).

NEMs are more complicated than simple Kuramoto oscillators in that the frequency at which they oscillate affects their amplitude (roughly, their loudness). This inherent, self-referential “nonlinearity” of each NEM gives rise to complex mathematical relationships between them. For instance, the phase of one can affect the amplitude of its neighbor, which affects the phase of its next-nearest neighbor. The ring of NEMs serves as “a proxy for other things that are out in the wild,” said Strogatz. When you include a second variable, like amplitude variations, “that opens up a new zoo of phenomena.”

Roukes, who is a professor of physics, applied physics and biological engineering at Caltech, is most interested in what the ring of NEMs suggests about huge networks like the brain. “This is very, very primordial compared to the complexity of the brain,” he said. “If we already see this explosion in complexity, then it seems feasible to me that a network of 200 billion nodes and 2,000 trillion [connections] would have enough complexity to sustain consciousness.”

Broken Symmetries

In the quest to understand and control the way things sync up, scientists are searching for the mathematical rules dictating when different synchronization patterns occur. That major research effort is unfinished, but it’s already clear that synchronization is a direct manifestation of symmetry — and the way it breaks.

The link between synchronization and symmetry was first solidified by Pecora and co-authors in their 2014 paper on cluster synchronization. The scientists mapped the different synchronized clusters that can form in a network of oscillators to that network’s symmetries. In this context, symmetries refer to the ways a network’s oscillators can be swapped without changing the network, just as a square can be rotated 90 degrees or reflected horizontally, vertically or diagonally without changing its appearance.

D’Souza, Matheny and their colleagues applied the same potent formalism in their recent studies with NEMs. Roughly speaking, the ring of eight NEMs has the symmetries of an octagon. But as the eight tiny drums vibrate and the system evolves, some of these symmetries spontaneously break; the NEMs divide into synchronous clusters that correspond to subgroups of the “symmetry group” called D8, which specifies all the ways you can rotate and reflect an octagon that leave it unchanged. When the NEMs sync up with their next-nearest neighbors, for example, alternating their pattern around the ring, D8 reduces to the subgroup D4. This means the network of NEMs can be rotated by two positions or reflected across two axes without changing the pattern.

Even chimeras can be described in the language of clusters and symmetry subgroups. “The synchronized part is one big synchronized cluster, and the desynchronized part is a bunch of single clusters,” said Joe Hart, an experimentalist at the Naval Research Lab who collaborates with Pecora and Motter.

Synchronization seems to spring from symmetry, and yet scientists have also discovered that asymmetry helps stabilize synchronous states. “It is a little bit paradoxical,” Hart admitted. In February, Motter, Hart, Raj Roy of the University of Maryland and Yuanzhao Zhang of Northwestern reported in Physical Review Letters that introducing an asymmetry into a cluster actually strengthens its synchrony. For example, making the coupling between two oscillators in the cluster unidirectional instead of mutual not only doesn’t disturb the cluster’s synchrony, it actually makes its state more robust to noise and perturbations from elsewhere in the network.

These findings about asymmetry hold in experiments with artificial power grids. At the American Physical Society meeting in Boston last month, Motter presented unpublished results suggesting that “generators can more easily oscillate at the exact same frequency, as desired, if their parameters are suitably different,” as he put it. He thinks nature’s penchant for asymmetry will make it easier to stably sync up diverse energy supplies.

“A variety of tasks can be achieved by a suitable combination of synchrony and asynchrony,” Kuramoto observed in an email. “Without a doubt, the processes of biological evolution must have developed this highly useful mechanism. I expect man-made systems will also become much more functionally flexible by introducing similar mechanisms.”

Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation, whose mission is to enhance public understanding of science by covering research developments and trends in mathematics and the physical and life sciences.


More Great WIRED Stories

Omega Healthcare: The Dividend Is At Risk

Co-produced with Rida Morwa of High Dividend Opportunities

It has been over a year and a half since I first wrote about Omega Healthcare Investors (OHI), determining that it was a value trap. In that article, I predicted that the company would slow or stop its dividend raises, but had confidence that it would not be reduced. Two quarters later, OHI froze its dividend increases.

Since then, its AFFO has dropped. The company missed its guidance of $3.42 in 2017, which came in at only $3.30/share. Then, in 2018, AFFO dropped to $3.04. For 2019, guidance is for AFFO of $3.00-3.12; if met, that would make the REIT’s AFFO/share equivalent to its 2015 results.

Despite the drop in AFFO, OHI common shares have rebounded strongly.

Chart

Data by YCharts

Despite AFFO dropping almost 10%, the share price has increased by over 20%. It did take a dive initially when Orianna filed bankruptcy, but the bulls have been in control and are pushing the pedal to the metal. OHI is trading at 12x projected 2019 AFFO.

(Source: Company Filings, Chart Authors)

Looking at P/Guided AFFO on March 31st, we can see that OHI has consistently traded from 9x to 12x at this time of year. The current price is towards the upper end of that range.

This tells me that the market is confident that OHI’s troubles are behind it, and that the company will beat guidance or, at the minimum, provide better growth next year. Neither one is a safe bet.

Ignoring The Fundamentals

One of my consistent warnings about OHI has been that the tenants are suffering from declining fundamentals. The REIT has had problems with several of its top ten tenants.

(Source)

In addition to Orianna (formerly known as Ark) filing bankruptcy, OHI has reduced Signature’s rent by over $10 million, plus gave it a $10 million loan to pay for operating expenses. It has extended over $71 million in loans to Genesis Healthcare (GEN), with a substantial portion of the interest being paid-in-kind (PIK), which means that OHI is receiving warrants for GEN common shares.

Additionally, according to the 10-K, Signature and Daybreak combined are $18.3 million behind in rent, which has been deferred by agreement, while another unnamed operator has $5.4 million outstanding with no current deferral agreement. Per the 10-K:

Additionally, $5.4 million of the $33.8 million of contractual receivables outstanding – net of allowances as of December 31, 2018, relates to one operator that continues to pay, although at times less than the monthly contractual rent due. We continue to monitor this operator, including their contractual payments and their operational performance to determine if it will impact our revenue recognition in future periods.

These cracks are being completely ignored by the market.

Other REITs

The bullishness in OHI is especially surprising when other similar REITs have been rocked by tenant defaults. Sabra Health Care REIT (SBRA) dropped in November when Senior Care Centers defaulted.

Senior Housing Properties Trust (SNH) plummeted when it had to restructure its arrangement with Five Star Senior Living (FVE). SNH is taking much greater control of the properties and becoming a majority shareholder of the tenant. Blurring the line between landlord and tenant, SNH is now much more exposed to market fluctuations.

MedEquities Realty Trust (MRT) dropped when OnPointe Health, one of its major tenants, went bankrupt, and the new tenant pays substantially lower rent. OHI is in the process of acquiring MRT now, which will add struggling operator Fundamental Healthcare to its roster.

OHI bulls seem convinced that it won’t happen to the company (again).

Genesis

Perhaps the single biggest warning sign for OHI investors ought to be GEN.

Chart

Data by YCharts

The market sees the risk of GEN as a company with shares trading at penny stock levels. GEN accounts for 7.5% of OHI’s revenues, making it even larger than Orianna was. The market is flashing a big red warning sign about GEN – a sign that is completely being ignored.

More critical for OHI is that GEN’s coverage ratio has continued to decline.

(Source: Company SEC Filings, Chart Author’s)

The decline since 2016 was steady, interrupted by substantial rent reductions, only to resume declining through 2018.

Lenders have been paying attention: GEN’s asset-based lending revolving facility is at LIBOR +600 bps, additionally the agreement comes with several protective features such as a “springing maturity” that makes it due 90 days prior if its Term Loan Agreements, Welltower Real Estate Loans or Midcap Real Estate Loans fail to be extended or refinanced. In other words, the ABL has to be paid first (before OHI gets its own).

The ABL also has a “swinging lockbox clause” which ensures cash goes through the lender:

The revolving credit facility includes a swinging lockbox arrangement whereby we transfer all funds deposited within designated lockboxes to MidCap on a daily basis and then draw from the revolving credit facility as needed.

These types of arrangements come from lenders who believe there is a strong possibility that GEN is going to default. As of December 31st, GEN only had a borrowing base of $436.9 million and $430.6 million in borrowings under the credit facility, leaving it with only $6.3 million in borrowing capacity and only $20.8 million in unrestricted cash. The bulk of GEN’s cash ($121 million) has been put in restricted accounts. Some of that cash is limited to paying insurance claims through its self-insurance program. Per the 10-K, the company’s total liquidity is only $93.8 million.

Any interruption of its operations, revenues or an increase in expenses could be catastrophic for GEN.

PDPM

There is a big change headed towards senior healthcare known as the “Patient Driven Payment Model,” or PDPM. This changes the model for Medicare reimbursements. The motivation for the government is to move away from a system which incentivizes volume to a system which is (theoretically) more centered on the needs of the patient.

There is a raging debate over what it means for skilled nursing facility (NYSE:SNF) operators. It is not really known what the impact is going to be when it is put into practice, and the impacts will likely vary from operator to operator depending on the particular mix of patients.

What is clear is that PDPM is going to force a shift in how SNFs do business. On its Q4 2018 conference call, GEN has quantified one expected impact:

We currently estimate that PDPM will reduce the top line of our rehab segment between 10% to 12%. This revenue contraction is related to the expected use of more cost-effective methods of delivery such as group and concurrent therapy. And will come with a corresponding reduction in operating costs that will substantially mitigate the impact of lower revenues.

The company’s rehab segment accounted for $889 million in revenue in 2018 and has one of the best EBITDA margins at 11.4%. The reduction might be offset by decreasing expenses slightly improving the margin, but the rehab segment was already trending down with a 9.2% decrease from 2017.

Additionally, the government has implemented the SNF-Value Based Purchasing program, which withholds 2% of Medicare payments and distributes it based on an SNF’s score (based on hospital “potentially preventable readmissions” within 30 days) relative to its peers. In its 10-K, GEN is predicting that it is a net loser in this program.

The FY 2019 SNF PPS Rules reiterate the SNF-VBP program instructions and affirm that effective October 1, 2018, skilled nursing facilities now experience a 2.0% withholding to fund the incentive payment pool. Simultaneously, based upon performance, skilled nursing facilities have an opportunity to have their reimbursement rates adjusted for incentive payments based on their performance under the SNF-VBP Program. Of the 2.0% withheld under the SNF-VBP Program, we expect to retain 1.3% based on performance.

This provides an opportunity for improvement, but it also introduces a risk of greater losses.

(Source: GEN Investor Presentation)

GEN’s average daily census has increased slightly and was up YoY from November 2018 through February 2019. This only tells part of the story – to really understand the issue, we also need to consider the “skill mix,” which is how many patients are being paid for with Medicare versus the much lower-paying Medicaid.

(Source: 10-K)

Along with the decline in admissions, the percentage of Medicaid days has increased. Medicaid only reimburses less than half of what Medicare reimburses. Management has been very vocal about the increase in occupancy in Q4, but it turns out that the increase in occupancy is driven by Medicaid patients. Per GEN’s CFO and Senior Vice President Tom DiVittortio on the conference call:

On the census, with respect to patient mix and occupancy, skilled days mix in 4Q, 2018 of 18.1% decline 60 basis points from the prior year quarter.

As a result, a 2% increase in occupancy would only result in approximately a 1% increase in gross revenues. By the time you factor in the much lower (sometimes negative) margins of Medicaid, an increase in occupancy could actually drive lower EBITDA.

Conclusion

OHI bulls have been in control of the share price. They have driven it up to historically high levels in terms of price/AFFO. This is occurring despite management guiding for lower AFFO in 2019, and despite OHI already making concessions for several of its top 10 tenants and three significant tenants that are behind in rent.

The fundamentals of the SNF industry are terrible. Operators are being pressured by long-term occupancy declines and a substantial shift from Medicare to the lower-paying Managed Medicare and Medicaid.

These pressures have caused several operators to go into bankruptcy, which rocked several of OHI’s competitors. There are several potential weaknesses in OHI’s portfolio, including Signature, Daybreak and, when it closes the MRT transaction, Fundamental Healthcare.

Perhaps one of the biggest potential hits would be GEN. With its ABL lender having a lockbox, a GEN default would mean an immediate loss of cash flow from its $71 million in outstanding loans. It would also risk the $59 million in annual rent – which, if history is any guide, could be expected to be reduced 30-40% upon transitioning to a new operator.

With OHI projecting to pay out nearly 100% of FAD in 2019, any disruption of cash flows puts the dividend at risk. A default from GEN would almost certainly necessitate a dividend cut. GEN accounts for more rent than Orianna did in 2016.

Looking at GEN’s finances, investors cannot be comfortable with the health of the company. There is a lot of risk, and PDPM or any other disruption might be the last straw. GEN is in a position where its liquidity is limited, and its revolver has tightened the leash. A continued decline of SNF fundamentals in an industry that has been declining since 2014 will render the company insolvent. GEN needs improvement now – it cannot afford to wait for the “Silver Tsunami.”

OHI is a very high-risk investment right now. What investors can see of GEN’s finances should terrify them, and it is likely that the financials of private companies like Signature and Daybreak are similar. It is impossible to say exactly when, but it is only a matter of time before OHI announces the restructuring of another major tenant.

OHI stock should be avoided, and at current prices, it is a great time to take profits.

High Dividend Opportunities, The #1 Service for Income Investors and Retirees

We are the largest community of income investors and retirees with over 2000 members. We recently launched our all-Preferred Stock & Bond portfolio to cater for conservative income investors.

Take advantage of our 2-week free trial to get instant access to our model portfolio targeting 9-10% yield, our preferred stock portfolio, and income tracking tools. You also get access to our report entitled “Our Favorite Picks for 2019

https://static.seekingalpha.com/uploads/2019/2/24/16392-1551036664748237.jpg

Disclosure: I am/we are short OHI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Beyond Saving is short OHI via January 2020 Put Options. HDO does not have a position.

Three 7% To 10% Yielders Beating The Market In 2019, But Still Selling At Discounts – No K-1s

Want to “have your cake and eat it too”?

With the market on a roll in 2019, is it possible to find outperforming income vehicles which are still selling at a discount?

As a matter of fact, it is. You just have to look in the nooks and crannies of the market. In this case, we visited the world of closed-end funds – CEFs, which can sell for a premium or a discount to their net asset values, or NAV.

Our journey took a few twists and turns – we began by looking for utilities which might be undervalued, being inspired by the resurgence of this sector in 2019, thanks to the Fed becoming increasingly dovish in its rate hike stance.

But rather than stake a claim on just three individual utility stocks, we checked out CEFs to see if we could find some undervalued proxies for that sector.

The three we came up with are: Duff & Phelps Global Utility Income Fund (DPG), the not very succinctly named Macquarie/First Trust Global Infrastructure Utilities Dividend & Income Fund (MFD), and the Macquarie Global Infrastructure Total Return Fund (MGU).

DPG is the largest of the three funds, with ~$900M in net assets. It also has the highest concentration of US equities, at 55.5%, but the lowest concentration of utilities, at 38.8%. Like the other funds, DPG’s second highest sector concentration is energy-related.

DPG also uses leverage, of 30.92%, to goose its returns, and its expense percent is at 2.97%, very close to MFD’s 3.04% ratio.

MFD is the smallest of the group, with $137M in net assets, but it has the highest concentration of utilities, at 44.09%, with oil and gas being its second highest sector, at 29.14%.

MGU has $465M in net assets, with a 40% concentration in utilities, followed by a ~29% Pipelines concentration. It has a 52% concentration in US equities, and the lowest expense ratio, 2.6% of the group:

Portfolio Holdings:

DPG’s top holdings are spread out into four sectors – utilities, oil and gas storage/transportation, telecoms, and infrastructure. Utility heavyweight NextEra Energy (NEE) is in the top spot, followed by Spanish multi-national Iberdrola Canadian stock Emera (OTCPK:EMRAF) and US-based AEP (AEP) and Evergy (EVRG).

Canada makes up 17% of DPG’s non-US country allocation, followed by Europe, at ~15%, and Australia, at 7%:

Source

MFD has more UK stocks in its mix, 17.72%, with Australia, 16.13%, and Canada, 13.67%, all comprising the bulk of its non-US holdings.

Source

MFD’s top 10 includes UK water utilities Severn Trent (OTCPK:SVTRF) and United Utilities Group (UUGRY) and National Grid (NGG), which also owns US assets. There are also Australian infrastructure companies in the mix, such as Spark, Sidney Airport, and Transurban Group (OTCPK:TRAUF), as well as US midstream giant Enterprise Products Partners LP (EPD):

(Source: MFD site)

MGU has a sizable chunk of infrastructure assets in its mix, with toll roads, 15.4%, and airports, 11.1%, comprising 25.5%. Like DPG, MGU has significant to exposure to Europe, at 17.9% of its country mix:

Source

MGU’s top 10 holdings include some of the same UK and Australian companies as MFD, such as Transurban, National Grid, Sydney Airport, and Severn Trent, but in different percent allocations – Transurban heads the list, followed by US stocks, Cheniere Energy (CQP) and Sempra Energy (SRE):

(Source: MGU site)

Distributions:

MFD has the highest yield of the group, at 10.88%, followed by DPG, at 9.26%, and MGU, at 7.49%. These certainly aren’t big dividend growth plays – five-year dividend growth ranges from -2.86% for MFD, to just 3.86% for MGU. All three funds pay quarterly.

MFD has the next upcoming ex-dividend date, on ~5/22/19, with DPG and MGU both going ex-dividend on ~6/14/19:

Taxes:

MFD had the highest percent of tax deferral in its 2018 payouts, with 21.53% return of capital, followed by MGU, at 12.91%, while DPG had no return of capital. All three funds issue 1099s to investors at tax time.

Valuations:

We’ve often seen CEF’s selling at a discount to NAV in the past, but they’ve also had negative returns on NAV since their inception. This isn’t the case with these three funds, which have returned 6.09% to 7.41% on NAV since their inceptions.

DPC has the highest return on NAV over the past year, at 21.49%, vs. 12.42% for MGU, and 7.63% for MFD.

However, all three funds are currently selling at a discount to NAV – from -3.75% for MFD, to -10.74% for DPG, to a -14.45% discount for MGU, whose current discount to NAV is a bit higher than its one-year average discount of -14.10%:

Performance:

All three funds have outperformed the S&P 500 in 2019 by a wide margin and also outperformed in the past six months, which includes the Q4 2018 pullback, with MGU and DPG up the most during the half year. Over the past month, DPG and MGU have performed the best, while MFD has lagged the market.

Summary:

We rate MGU as a buy, based upon its higher percent of US equities, much larger discount to NAV, (MGU’s discount is slightly higher than its one-year average). MGU also has a positive $.1404 undistributed net investment income – UNII – of $.1404, the highest in the group, vs. a -$1.09 UNII for DPG, and the lowest expense ratio, 2.60%.

But, as you can see from the table below, it’s not a clear case for picking MGU over MFD and DPG – they all have some positive attributes. MFD has a much higher yield, at 10.88%, and positive UNII, but a smaller NAV -3.75% discount. DPG also has a higher yield, the best return on NAV, and the best YTF performance, but negative UNII.

Disclosure: I am/we are long MGU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: CLARIFICATION: Our www.DoubleDividendStocks.com investing site, has been increasing subscribers’ yields via selling options on high dividend stocks for over 10 years.

Retail Properties Of America: A High Quality 5% Dividend With Potential 20% Return

The retail industry has always experienced disruption in one way or the other, but now the industry is facing a permanent disruption in the way consumers are shopping. The change in consumer preferences and the evolution of eCommerce has impacted the retail industry and has stimulated major retail REITs to rethink their strategies for survival. As the competition from e-Commerce increases, only the agile and skillful retail REITs are in a position to survive in a market where store closures and retail bankruptcies are routine. It has now become critical for all the retail REITs to adapt to the changing environment and thrive in an on-demand world where online ordering is linked to in-store pick-ups and returns.

With a focus on thriving in the new retail environment, major retail REITs are refurbishing their portfolios by improving the quality of assets and selling away low-quality assets. They are also positioning their assets as mixed-use properties and community gathering centers.

Retail Properties of America, Inc. (RPAI) acquires and redevelops properties to position them as mixed-use assets. RPAI’s strategy is to create long-term shareholder value by acquiring and redeveloping Class A assets. Over the past five years, the REIT has been able to keep pace with consumer preferences and adapt to the rapid changes in the retail sector.

Real Estate First Approach

RPAI has always adopted a “real estate first” approach for improving the quality of its assets and for attracting a diverse mix of tenants. Since 2013, RPAI has reduced the number of shopping centers in its portfolio by half with a view to own fewer but higher-quality assets.

Instead of establishing its presence throughout the USA, RPAI preferred to focus on the Seattle-Texas corridor in the West Coast and the New York-Atlanta corridor on the East Coast. Besides localizing its business, RPAI also focused on achieving retail densification: the practice of incorporating food, fitness, healthcare and entertainment facilities within the existing shopping center environment.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

The key idea behind this transformation was to provide a high-quality consumer experience. As of now, RPAI is acutely focused on developing its retail properties into mixed-use locations where consumers can live, work and play.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

Besides looking out for growth opportunities within its existing portfolio, RPAI has identified potential development, redevelopment, expansion and pad development opportunities for adding standalone buildings and developing additional commercial gross leasable area (GLA) at existing properties.

While pursuing its development projects, RPAI is poised to benefit from the country’s macroeconomic environment and demographics. Within the US, commercial real-estate fundamentals are strong due to a strong economy, 90 consecutive months of job growth, and 18 year low unemployment.

In addition to a robust economy, 2 demographic trends are benefitting RPAI. First, the affluent and the rapidly retiring baby boomer generation prefers to retire to high-end mixed-use centers. Second, the millennial generation’s collective spending power is growing and it will be reaching 1.4 trillion by 2020. These demographic trends will be the primary drivers that will usher the growth of “live-work-play” real estate environments in the perceivable future.

Growth opportunities within the portfolio

As of now, RPAI’s portfolio is comprised of 105 assets and approximately 80% of these assets are neighborhood community and lifestyle mixed-use centers. RPAI has over 425,000 square feet of GLA and almost 1,200 multi-family rental units contained in its announced redevelopments and expansions.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

All of these projects are located within the REIT’s top five MSA (metropolitan statistical areas) markets, namely Dallas, Washington D.C. – Baltimore, New York, Chicago, and Seattle. These markets represent approximately 65% of the REIT’s average retail annualized base rent (ABR).

Source: RPAI, Fourth Quarter 2018 Investor Presentation

While executing its business strategy, RPAI has exited multi-tenant retail operations in Alabama, Colorado, Louisiana, New Mexico, and Ohio. The company believes that a geographically focused portfolio allows it to optimize its operating platform and enhance its operating performance. The markets identified by RPAI possess five main characteristics, namely strong barriers to entry, a strong demographic profile, well-diversified local economy, conducive regulatory environment, and operational efficiency. Through its lifestyle centers, RPAI aims to target and reach a broader audience and not just retail shoppers.

Along with transforming its portfolio, RPAI has also strived to improve its tenant mix by curating the right types of tenants. In 2013, the REIT’s top 20 retailers made up 38 percent of its asset portfolio. As of today, the top 20 retailers make up 29 percent of the portfolio and no single tenant is greater than 3 percent of the company’s annual base rent. The company is also parting ways with commodity-based retailers that do not have an online presence. on Instead, RPAI has opted to lease spaces to omni-channel retailers that have both physical and digital presence. Additionally, RPAI prefers to have tenants with differentiated assortments and a capability to deliver a compelling customer experience.

Recently, RPAI launched RPAI 2.0, a new strategic initiative that has helped it to reposition its portfolio and adapt to the megatrends affecting the retail industry. The REIT is uniquely positioned to take advantage of the changes in the retail landscape and numerous densification opportunities within its predominantly mixed use and community center portfolio. The densification opportunities within RPAI’s portfolio will pave way for long-term growth as the opportunities will help the REIT achieve accelerated expansion and redevelopment pace over the next few years. Until now, RPAI’s business strategy has paid off as its acquisition activities and its leasing volumes are in line with its guidance.

Acquisitions and Dispositions

RPAI is right on track with regard to its acquisition and disposition strategy. In 2018, RPAI disposed of 9 assets from its portfolio which represented 1,831,000 square feet of GLA. In the fourth quarter, RPAI exited the state of Connecticut with the disposition of Orange Plaza for $8.5 million. In all of 2018, RPAI disposed of assets worth $201 million and it acquired assets worth $100 million.

The acquired properties include the $25 million worth One Loudoun Uptown in Loudoun County, Virginia. The property comprises of approximately 58 acres and is currently entitled for 2.3 million square feet of commercial GLA. In Loudoun County, RPAI is extremely focused on building a dynamic community anchor that offers an ultimate live, work, play experience in rapidly growing market. The acquisition of One Loudoun Uptown was closed in the fourth quarter and the property is located adjacent to One Loudoun Downtown, a property that is already owned by RPAI. The two properties are located in a region that has a high population density of 187,273 within a 5-mile radius. Besides integrating these 2 properties, RPAI will also focus on the expansion of pads G & H of One Loudoun Downtown. The expansion includes the construction of 378 residential units and up to 80,000 square feet of commercial space. RPAI will be executing the expansion project along with Cutler, its multi-family partner. One Loudon is an extraordinary mixed-use community that is located in the heart of D.C.-Baltimore MSA. On further development, the property will bring a diverse collection of shops, restaurants, corporate offices, homes and entertainment options to the consumers.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

Expansion and redevelopment projects

Most of RPAI’s expansion and redevelopment projects are in the D.C.- Baltimore area and the REIT is uniquely positioned to take advantage of continued infrastructure growth and migration to this region. Due to its balance sheet and sound liquidity position, RPAI does not need to depend on external sources of capital to fund its development projects. In the fourth quarter, RPAI completed the redevelopment of Reisterstown’s Road Plaza located in Baltimore MSA. The redevelopment included reconfiguration of the existing space and the renovation of façade. The property has now been brought back into RPAI’s operating portfolio and it is 100% leased. Just like RPAI’s other assets, the Reisterstown’s Road Plaza is located in an area with high population density. The property houses major tenants like Home Depot, Marshalls, Burlington Coat Factory, Giant Foods and Shoppers World. The redevelopment project was completed on-time and on-budget and RPAI expects that it will generate a return of 10.5% to 11%.

In fourth quarter, RPAI has also started the development of Plaza del Lago, a multi-family rental unit in Chicago that was bought by the REIT at the beginning of 2018. The acquisition was a part of RPAI’s broader strategy to buy properties located in a stronger metro area. The high-quality property is located in the heart of a wealthy neighborhood as the average household income within a two-mile radius of the property is $213,000. As a part of the redevelopment, the interior of the apartments was demolished to expand from 15 to 18 units. The estimated project commercial GLA for the Plaza del Lago is 20,600 square feet and the property is expected to create value by delivering multi-family returns at about 8% to 11%.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

Further, RPAI continues to progress with the redevelopment of Circle East property that is located in Baltimore MSA. The asset will be redeveloped as a mixed-used lifestyle property that will include double-sided street level retail with about 370 third party owned multi-family rental units. The development of the street-level retail continues to be on track and the project will be completed by early 2020.

Carillon, a mixed-use property located in D.C. – Baltimore MSA, is being redeveloped by REIT to enhance the experience for all types of uses – residential, office, medical, retail, restaurants, and entertainment. RPAI has planned to construct a regional medical center adjacent to the Phase I of Carillon and the project is on track for 2021 opening. The redevelopment of the Carillon is an example of the type of experience that RPAI plans to deliver to the consumer.

Strong Leasing Activity

RPAI continues to focus on achieving long-term stability and revenue growth by increasing its annual contractual rents and by building an increasingly diverse rent roll. Since the last three quarters, RPAI has achieved sequential increases in both the total number of leases and GLA signed in. For the entire 2018, the REIT has leased 17% of its total portfolio GLA and the leasing is reported to be the highest since its IPO in 2012. In 2018, RPAI has achieved 186 base points of contractual annual rent growth on new leases. The 3.4 million square feet of total leasing in 2018 demonstrated the pricing power of RPAI’s portfolio.

In the fourth quarter, RPAI completed about 1.1 million square feet of new and renewal leases. This area represents 5% of the REIT’s GLA. The new leases executed in the fourth quarter represent a significant spread of 34.9%. RPAI ended the fourth quarter with 94.8% lease which has increases by 80 basis points in comparison to the third quarter. In the fourth quarter, small shop percent lease decrease normal 20 points and the decrease was due to the impact of the Mattress Firm bankruptcy.

Previously, Mattress Firm had leased 24 locations within RPAI’s portfolio and now the retailer has 17 stores remaining in the portfolio. The lease for one of the locations expired while the lease for the remaining 6 locations was rejected due to bankruptcy proceedings.

The beginning of 2019 has seen many small store bankruptcies including that of ShopKo, Gymboree, Beauty Brands, Things Remembered and Charlotte Russe. Even though RPAI remains relatively unaffected by these bankruptcies, the REIT assumes that a small number of tenants on its watchlist will not renew certain locations in 2019. Despite the challenges faced by certain tenants, RPAI is confident about addressing future tenant distressed scenarios due to the strength of its portfolio. From a tenant risk perspective, RPAI has zero exposure to tenant bankruptcies as it has witnessed a rapid resolution of matters from the bankruptcies. The resolution has resulted in unanticipated termination fee income that will contribute to the REIT’s increased 2019 outlook for earnings.

Financials and Guidance

For RPAI, 2018 was a pivotal year strategically and operationally as its position was strengthened due to the improved footprint and also due to strong leasing activity. The operating FFO per diluted share was $0.26 for the fourth quarter and $1.03 for the full year 2018.

For the fourth quarter, the same-store NOI increased 2.5% over the same period in 2017. The growth was primarily driven by the base rent growth of 160 basis points. The base rent growth was due to contractual rent increase and releasing spreads. The growth in same-store NOI was also caused by a decrease in property operating expenses that largely stemmed from the company’s property-level management expense reduction efforts. For full-year 2018, RPAI’s same-store NOI increased by 2.2% driven primarily by base rent growth of 140 points and a decrease in property operating expenses net recoveries of 90 basis points.

In the fourth quarter, RPAI remained active in its share repurchase program as the REIT repurchased nearly 3.8 million shares at a weighted average price of $11.57 per share for $43.8 million. For the full year 2018, RPAI repurchased more than 6.3 million shares at an average price of $11.80 per share for a total of $75 million. Also during the fourth quarter, RPAI amended its $200 million term loan to reduce its credit spread by 50 basis points. The interest rate savings due to the 50 basis point credit reduction was offset by the impact of two interest rate swaps that the REIT had locked in September 2018. The purpose of the interest rate swaps was to fix the REIT’s interest expense through the November 2023 term loan maturity.

At the end of the fourth quarter, RPAI’s weighted average interest rate was reported to be 3.98% which is an increase of 16 basis points from the third quarter. The increment is due to change in interest rate on the term loan and a 28 basis point increase in the cost of the REIT’s LIBOR-based revolver. RPAI’s balance sheet has been bolstered by several factors. Firstly, RPAI’s net debt to adjusted EBITDA stands at 5.5 times. Secondly, availability under its revolver measures $577 million. And thirdly, RPAI holds no debt maturities in either 2019 or 2020.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

RPAI expects its 2019 operating FFO per diluted share to fall in the range of $1.03 to $1.07. The $0.02 increase in full year guidance can be attributed to the REIT’s Q3 and Q4 share repurchase activity. The increase can also be attributed to the increase in expected termination fees that has resulted from the Mattress Firm bankruptcy. RPAI expects its 2019 same-store NOI growth percentage to fall in the range between 1.75% and 2.75%. The expected same-store NOI growth in 2019 will be primarily driven by base rent increase.

Source: RPAI, Fourth Quarter 2018 Investor Presentation

For achieving its redevelopment and expansion goals, RPAI will be taking advantage of attractive interest rate environment by issuing $200 million to $300 million of unsecured debt. The proceeds from this issuance will be used to reduce borrowings on the REIT’s $850 million revolver which will enhance access to liquidity. Moreover, RPAI expects to maintain leverage levels in the 5.5 times to 6 times area. In 2019, RPAI expects to achieve additional milestones with regard to expansion and redevelopment projects.

Our Take

We haven’t mentioned it quite yet but it’s been deduced from the information provided: RPAI has as high if not higher quality properties than Federal Realty Trust (FRT) and Regency Centers (REG). By some measures, it indeed has the highest quality portfolio. In the State of White America, 1960-2010, Charles White refers to those zip codes with the highest income per capita as SuperZips – zip codes with median household income of $120,000 and where 7 out of 10 adults have college degrees.

By those metrics, RPAI has the highest quality portfolio of any of the Shopping Center REITs, with 37% of the portfolio located within Superzips.

On a valuation basis, we don’t necessarily think the stock is cheap right now. However, analysts are estimated AFFO growth of 13% in 2019 plus the stock pays a 5%+ dividend yield. That results in a potential return of 18% and upside potential.

There are some concerns about a high payout ratio and the sustainability of the dividend. However, there are quite a few shopping center REITs with payout ratios above 85%.

Source: Author calculations, Company SEC Filings

We realize that the payout ratio for RPAI recently reached 108%, but with AFFO growth in 2019 and 2020, we expect it to drop back down to the mid 90% range initially, and continue to decline thereafter. We should see a slight increase in the dividend in 2020 with more aggressive increases in 2021 and beyond.

Source: Author calculations, Company SEC Filings

We hold RPAI in our Low Vol REIT portfolio.

ROI provides REIT ideas, high return opportunistic investments, and income generating ideas in dividend growth stocks, MLPs, BDCs, baby bonds, ETFs and Closed-end funds.

Take a peek at our Market Dashboard – a Google Sheet with a live feed that will give you a quick take on what’s going on in the markets.

Start a free trial now.

Disclosure: I am/we are long RPAI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is meant to identify an idea for further research and analysis and should not be taken as a recommendation to invest. It does not provide individualized advice or recommendations for any specific reader. Also note that we may not cover all relevant risks related to the ideas presented in this article. Readers should conduct their own due diligence and carefully consider their own investment objectives, risk tolerance, time horizon, tax situation, liquidity needs, and concentration levels, or contact their advisor to determine if any ideas presented here are appropriate for their unique circumstances.

LinkedIn Just Announced the 50 Top Companies for 2019 (Is Your Company on the List?)

LinkedIn looks at billions of actions taken by its members around the world to uncover the companies that are attracting the most attention from jobseekers and then hanging onto that talent. According to LinkedIn, “this approach looks at what members are doing — not just saying — in their search for fulfilling careers.” 

  • Companies emphasize values over perks: Companies are emphasizing company values over office perks, even as their values evolve with the times. Disney (No. 17) is paying full tuition even for its part-time workers; Slack (No. 23) is running a coding skills program within prisons; Lyft (No. 19) is offering free therapy to employees and their dependents; WeWork (No. 13) has all-vegetarian cafeterias; Goldman Sachs (No. 21) has relaxed their once-strict dress code, and WPP (No. 39) has banned drinking in their ad agency offices.
  • Tech companies, old and new, dominate rankings: Tech continues to be the fastest growing industry in the U.S., and more than half of this year’s top companies are from the tech industry. Traditional tech stalwarts such as Oracle (No. 9), Dell (No. 10), Cisco (No. 12), and Intel (No. 37) are competitively ranked alongside more recently founded companies including Airbnb (No. 8), Netflix (No. 11), Splunk (No. 39), and Snowflake Computing (No. 49).
  • Nearly 40 percent of companies are new to the list: Of the 50 companies on the list, 19 are new to the rankings. Newly recognized Top Companies to work for include Bank of America (No. 18), Citi (No. 22), Slack (No. 23), Wells Fargo (No. 25), Pinterest (No. 29), Coinbase (No. 35), and others. 

Published on: Apr 3, 2019

Verizon Just Launched Its 5G Wireless Service a Week Earlier Than Expected

Verizon has flipped the switch on wireless 5G in Chicago and Minnesota, launching the service a week earlier than it had previously announced it would.

The move, which caught many by surprise, will give the customers who have 5G equipped phones access to wireless service with speeds of up to 1 Gps, roughly 10 times the peak speed of 4G.

“Verizon customers will be the first in the world to have the power of 5G in their hands,” said Hans Vestberg, Verizon’s chairman and chief executive officer in a statement.

The number of people who can actually take advantage of that service will be limited at first. Only one phone on the market—the Motorola Z3—supports 5G. Later this year, Samsung’s Galaxy S10 5G model, which will be exclusive to Verizon customers for a short period, will join that club.

The 5G service launched today will be limited to certain areas of the cities, Verizon warned.

In Chicago, 5G coverage is concentrated in areas of the West Loop and the South Loop, around landmarks like Union Station, Willis Tower, The Art Institute of Chicago, Millennium Park and The Chicago Theatre. Customers also have 5G Ultra Wideband service in the Verizon store on The Magnificent Mile and throughout The Gold Coast, Old Town and River North.

In Minneapolis, service is concentrated in the Downtown area, including Downtown West and Downtown East, as well as inside and around U.S. Bank Stadium, the site of this weekend’s NCAA men’s basketball Final Four. Verizon 5G Ultra Wideband service is also available around landmarks like the Minneapolis Convention Center, the Minneapolis Central Library, the Mill City Museum, Target Center and First Avenue venues, The Commons, areas of Elliot Park and in the Verizon store in The Mall of America.

Verizon’s launch comes as the carrier feuds with AT&T, which has launched a service it calls “5G E” that is not actually connected to a 5G network. The company ultimately plans to roll out 5G mobile service to 30 U.S. cities. AT&T did launch a mobile 5G device to customers in December, though it came with some caveats, such as the required use of a mobile Wi-Fi hotspot.

Late last year, Verizon launched 5G home service in four cities, testing the technology in smaller environments.

Customers who want the 5G service will pay a $10 per month premium on their unlimited data plans, the company announced last month.

4 Strategies to Identify and Recognize Invisible Wins

At the core of Entrepreneurs’ Organization (EO)‘s mission is an unrelenting commitment to helping entrepreneurs learn and grow in every stage of business. Adopting an attitude of gratitude in recognizing employee wins is a critical component of success. We asked Tom Turner, CEO of BitSight, about the importance of uncovering and recognizing invisible wins. Here’s what he shared:

Building a strong company culture is fundamental to success. When employees are happy, engaged and enjoy coming to work every day, they work harder and care more about your company. A key element in creating that environment is celebrating your employees’ successes.

I’ve always believed that building a company is a team sport, and just like in any game, you should celebrate the wins. It’s easy to cheer for what you see, like leading a new product development initiative or converting a new customer. What is equally important, however, are the things you don’t see: the team member who fixed a laptop glitch moments before a pivotal demo, or the one who went the extra mile to onboard a new employee.

In every company, people are working hard behind the scenes, creating a collection of little victories that shape a company and drive it forward; and they should enjoy equal credit for their wins as those who visibly score. These small, “invisible wins” drive big results.

What is an invisible win?

Recently, our company moved its headquarters from Cambridge, Massachusetts, to Boston’s Back Bay neighborhood. The move entailed an incredible amount of work, much of which was never seen by employees. In celebrating the move, the most obvious (and admittedly highly warranted) person to thank was our facilities coordinator, who developed the layout, thoughtfully designed the space and purchased state-of-the-art furniture. This is a visible win.

But what could be overlooked was the work done by our VP of Finance, who coordinated the early-build stages of the office, ensured permitting was correct, accepted furniture deliveries and corralled the crew into action. This is an invisible win.

Our company made sure we celebrated both. Neither of the two possesses the skills of the other or owned the same responsibilities throughout the process, but without both of them, we would not have the beautiful new office we sit in today.

Four ways to identify and recognize invisible wins

It’s often not easy to identify invisible wins and the team members behind them. Doing so involves a combination of listening, engagement and setting up processes specifically designed to find and celebrate the range of wins in your company.

Here are four strategies to help you uncover more invisible wins:

  1. Ask questions. Finding invisible wins involves asking the right questions and listening for anecdotes. Ask managers how their teams are performing and who is impressing them lately―challenge them to consider the small, day-to-day victories that would otherwise go unnoticed.
  2. Be engaged. You won’t see the small wins unless you’re present and paying attention. I’ve learned from our chairman to walk around the office and drop in to different meetings, which enables me to gain a sense of the various teams and what they’re working on, both big and small.
  3. Encourage recognition. Create processes that allow everyone in the company to acknowledge wins of all types. When we get a new customer, for example, we ask the sales team to write a win report to recognize those who contributed. We also encourage people to write anonymous note cards recognizing others who have recently helped them.
  4. Acknowledge publicly. Wins big and small deserve to be recognized beyond one-on-one meetings and within individual teams―whether that’s in a company-wide email or at your regular all-hands meeting. During each of our company meetings, we choose someone to read employee acknowledgment note cards and the names of the people who received them. These note cards have become a point of pride for employees, who often showcase them on their desks–transforming the invisible into the visible.

As you work to improve the ways you appreciate and motivate employees, you will no doubt continually learn new things about the people you employ and the recognition that drives them. Of course, compensation and benefits are significant and always will be. But recognizing wins–both the obvious and the more subtle–should become an essential part of any company culture.

My Aha! moment along this journey was the realization that it’s the peer-group recognition that genuinely makes employees proud, excited to work hard, and continuously motivated to make our company grow into the best it can be.

When to declare cloud application migration failure

One of the hip terms that you hear a great deal in Silicon Valley is “fail fast.” This means to find out what does not work so you can move on to what does. It’s solid advice, for the most part.

However, failing in some enterprises’ IT shops may get you put out of the organization, so many IT pros avoid failure at any cost—or at least never declare failure, even if it means spending millions of dollars in dealing with ineffective systems that are costly to run or even hurt the business.

For the cloud, you need to know when to declare a “fail,” when to hit the reset button and start from the beginning when doing migrations.

I bet if you look at your cloud migration projects now around the company, at lwast 20 percent are in big trouble. While the reasons for running into trouble that can lead to outright failure vary, these are the big three that I’m seeing:

  • Lift-and-shift is not working.
  • Data integration is an afterthought.
  • Compliance or security issues have not been addressed.

The biggest issue with migration of applications is the false belief that if it runs on premises on platform A (say, on Linux with four cores), provisioning virtual platform A on a public cloud using the same configuration means the application should work there as well. Umm, often no.

The result of such assumptions is that IT organizations run into issues around communications with systems that have not moved to the public cloud yet, or that their cloud bills are 300 percent higher than expected.

The reason: These lifted-and-shifted applications aren’t optimized for the cloud platform, either for functionality or costs. They don’t use native cloud features, so the value of moving to the cloud has gone out the window; indeed, it may cost you much more.

When that happens, there is nothing you can do other than declare failure and go back to the migration drawing board, this time refactoring to use cloud-native systems, as well as optimize it for the target cloud platform.

The other two issues—data integration, and compliance and security—are less frequent causes of outright failures, but they are still big issues.

Not considering the data integration needs before migration means that you’re not going to find the issue before you can do anything to fix it quickly. In many instances, the latency between on-premises systems and the cloud can’t be corrected. In such cases, you need to move back to the data center—after declaring failure.

Compliance and security issues often require systemic changes to the applications and databases in the cloud, and so need a lot of upfront planning. In a worst case, you end up with compliance or security failures so grave that you must start over.

It’s important to understand that failure is a part of cloud migration; after all, most organizations are still learning. So expect mistakes and build the fact of failure into the migration efforts. But do more than that: Also make sure you learn from the failures and thus continuously improve your practices, tools, and skills.