What to Buy: Norbord Inc (TSX: NBD, OTC: NBRXF)

Why to Buy Now: Toronto-based Norbord Inc (TSX: NBD, OTC: NBRXF) primarily manufactures oriented strand board (OSB), a key material involved in homebuilding.

The company is among the OSB market leaders in US and Europe, and is leveraged to the continuing North American real estate recovery. But its shares have sold off over the past year due to a deteriorating financial performance.

However, analysts forecast that earnings will rebound by 120 percent next year, so the stock’s near-term swoon affords us an opportunity to purchase shares at an attractive price–currently down about 28 percent from last year’s high–before the market catches on.

The CAD1.4 billion company has a solid balance sheet and considerable institutional support: Infrastructure giant Brookfield Asset Management Inc (NYSE: BAM) currently holds 52.1 percent of shares outstanding.

Norbord trades on both the US over-the-counter (OTC) market as well as the Toronto Stock Exchange (TSX). While we always recommend using a buy limit when purchasing new positions, it is especially important to do so if you intend to pick up shares on the OTC, as the average daily trading volume over the trailing three-month period was just 2,100 shares per day.

With shares currently yielding 8.9 percent, Norbord is a buy below USD26. Set your limit order slightly below the market price to ensure you don’t overpay for shares of this thinly traded stock.

Ari: Toronto-based wood panelboard manufacturer Norbord Inc (TSX: NBD, OTC: NBRXF) is a turnaround play, which makes it somewhat of a departure from the securities we’ve recommended over the past year.

As you know, the investable high-yield equity space consists mostly of master limited partnerships (MLP) and other energy sector plays such as royalty trusts, along with mortgage REITs (real estate investment trusts), business development companies (BDC) and other specialty financials.

To be sure, these securities have considerable risk, since many firms operating in these areas employ considerable leverage to grow their businesses. But we’ve mostly concentrated on high-yield firms with moderate growth prospects and reasonable coverage of their payouts.

We’ve tried to rotate through each of these areas to ensure a diverse array of offerings. However, outside of the aforementioned sectors, we occasionally stumble across a more conventional security, and since it has to offer a minimum yield of 6 percent to satisfy one of our numerous criteria, that usually means its share price has taken a beating.

Khoa: Okay, what’s the damage here?

Ari: Well, Norbord is an interesting stock because we’re picking it up as a turnaround play, though it’s already been in the midst of a turnaround for the past two-and-a-half years. But this year, its financial performance is expected to weaken markedly, before a significant rebound in 2015.

As a result, the stock, which yields 8.9 percent, currently trades nearly 28 percent below its five-year high, which it hit last year in March. More recently, the stock sold off in sympathy with other wood products manufacturers when Louisiana-Pacific Corp’s (NYSE: LPX) bid for Ainsworth Lumber Co Ltd (TSX: ANS) was terminated due to its failure to secure approval for the deal under the Canadian Competition Act.

Desjardins Securities had previously tipped Norbord as a logical buyer of Ainsworth’s assets, so perhaps the market sees a potential acquisition down the line now that the earlier deal has been scuttled.

Dundee Securities Corp believes the recent selloff means that well-run Canadian lumber companies can now be cheaply acquired, particularly as their peers seek to expand via acquisition.

Although the stock has bounced about 3.8 percent from its year-to-date low earlier this month, the question remains whether the market has fully absorbed the company’s prospects for this year. After all, we don’t want to catch a falling knife.

Though we’re entering the position now, more cautious investors could wait until after the company reports its second-quarter earnings in late July before initiating a position.

Despite Norbord’s deteriorating performance over the past few quarters, the company has shrewdly managed analyst expectations by beating estimates for earnings per share in each of the past four quarters, while also exceeding forecasts for revenue in three of the past four quarters. In fact, the stock has rallied an average of 6.7 percent in the wake of each of its past four earnings releases.

Khoa: Alright, I can tell you’ve put a lot of thought into this from a trading standpoint. But I know you’re also a bit skeptical about how things are unfolding from a macroeconomic perspective. How does this pick jibe with that?

Ari: As one of North America’s leading manufacturers of oriented strand board (OSB), a wood product that’s used in home construction for walls and flooring, as well as furniture manufacturing, Norbord is highly leveraged to the performance of the real estate market.

Indeed, for every $10 increase in OSB prices, the firm expects to earn an additional USD36 million in EBITDA (earnings before interest, taxation, depreciation and amortization).

So this CAD1.4 billion company is very much a cyclical play, and not a dividend stock that investors can buy and hold forever. Indeed, the company suffered a near total wipeout when the real estate bubble burst, so we’d probably want to exit this position when real estate prices are near their peak, perhaps before the stock hits its ultimate high for this cycle, to avoid the inevitable swoon.

While I remain deeply skeptical about the strength and duration of North America’s economic recovery, particularly since it seems so utterly dependent on the largesse of central banks, I have to acknowledge that the US housing market appears to still be in the early stages of a medium- to long-term rise.

Since the beginning of 2011, monthly housing starts have increased by roughly 100 percent. Largely driven by artificially low interest rates as the result of the Federal Reserve’s extraordinary stimulus, housing starts remain near this cycle’s high despite the central bank’s recent tapering.

Although the Fed is in the midst of withdrawing its stimulus, it’s clear that short-term rates will remain at historic lows for quite a bit longer. And that should help keep mortgage rates similarly low.

While there are obvious ways to play the boom in new housing starts such as homebuilders or building supply companies, a less obvious way is to look further up the supply chain at the timber and wood products companies that are the source of raw material for many of these new homes.

And as a Canadian company, Norbord should also benefit from a favorable exchange rate and relative proximity to its primary market. A big part of the reason why Canadian timber companies may have a leg up on their US counterparts is because the Fed’s recent shift in monetary policy has helped lower Canada’s exchange rate.

Until recently, the value of the loonie posed significant challenges for Canada’s manufacturing sector, particularly among exporters competing in an increasingly global marketplace. Indeed, the country’s manufacturing shipments are still 10 percent below their pre-Global Financial Crisis levels.

But with the lower exchange rate that now prevails, this situation could soon change. During much of the 1980s and 1990s, for example, the loonie’s persistent weakness actually helped insulate Canada’s manufacturers from the sort of deindustrialization that was underway throughout the developed world.

In fact, in a recent research report, economists with CIBC World Markets observed that during the currency’s long slide from USD0.88 in late 1991 to USD0.63 in early 2002, this sector’s share of gross domestic product (GDP) actually increased.

But as the loonie climbed above parity with the US dollar over the past decade, manufacturing’s share of GDP declined by 4 percentage points, to 12 percent. By comparison, US manufacturers experienced a similar erosion during the 1970s and 1980s, with their share of GDP relatively stable since then, at around 13 percent.

Meanwhile, during the past decade, the number of Canadian manufacturing firms fell by 20 percent, even as the number of companies in other sectors of the country’s economy rose by 10 percent.

In this leaner and meaner business environment, CIBC looked to see which areas of the manufacturing sector have adapted best to these macro factors and are, therefore, poised to outperform. Among their criteria were industries that have experienced productivity growth since the downturn, while operating in markets where foreign competitors face a disadvantage due to the weaker exchange rate.

So which subsector is tops? According to CIBC’s ranking, it’s the wood products industry, which has seen strong growth in productivity during the recovery and boasts a nearly 50 percent export penetration of the US market. The US absorbs about three-quarters of Canada’s exports, so Canadian manufacturers remain very much dependent on cross-border demand.

Interestingly, the relative fortune of Canada’s forestry products industry has also caught the attention of bond-rating agency Moody’s Investors Service. The credit rater notes that the Canadian dollar’s decline has been a boon for the industry because most of its products are priced in US dollars. The loonie currently trades near USD0.94, down about 12.3 percent from this cycle’s high in mid-2011.

Of course, certain currency-related expenses will also partially weigh on the industry’s performance, including higher prices for fuel, which is priced in US dollars, as well as financing.

Within the forestry space, Moody’s highlights pulp and wood products companies as being the biggest potential winners, with dollar-denominated expenses for these firms limited to chemicals used during the pulping process as well as freight fuel.

The makers of wood products, including lumber, plywood and other materials, not only benefit from substantial exposure to the US market, but their currency advantage means they’ll also face less competition from US exporters on the domestic front.

Khoa: Tell me more about Norbord’s operations in particular.

Ari: Norbord doesn’t just have exposure to the North American market, though that’s where it derives the vast majority of its revenue, it also has international operations, with 13 plant locations in the US, Europe and Canada.

As I noted previously, Norbord is one of the world’s largest producers of oriented strand board (OSB). In addition to OSB, Norbord manufactures particleboard, medium density fiberboard (MDF) and related value-added products. More specifically, Norbord operates 11 OSB mills, two particleboard mills, one MDF mill and one furniture plant.

OSB accounts for 84 percent of Norbord’s capacity. OSB is an engineered wood particle board formed by adding adhesives and then compressing layers of wood strands, or flakes, in specific orientations. The material’s properties make it especially suitable for load-bearing applications in construction, such as sheathing in walls, flooring, and roof decking.

Norbord has a 16 percent share of the North American OSB industry, putting it just behind Georgia-Pacific (19 percent) and Louisiana-Pacific (22 percent). In Europe, Norbord ties for a distant third, at 12 percent of the market.

Norbord’s business strategy is focused entirely on the wood panels sector. And the company intends to pursue further growth in OSB by optimizing its North American operations, while potentially expanding its European operations, which currently account for just 27 percent of its capacity.

The company has a margin-focused operating culture and is a disciplined capital allocator. At quarter-end, Norbord had liquidity of USD459 million (the company reports in US dollars), comprising USD117 million in cash and cash equivalents, USD242 million in revolving bank lines, and USD100 million undrawn under its accounts receivable securitization program.

The stock also has strong institutional support, with infrastructure giant Brookfield Asset Management Inc (NYSE: BAM) currently holding 52.1 percent of shares outstanding.

Khoa: Wow, that’s quite something to have Brookfield’s imprimatur. What do analysts think about the company?

Ari: Among Bay Street analysts, the stock has strong bullish sentiment, at eight “buys,” one “hold,” and no “sells.”

The consensus 12-month target price is CAD32.25, suggesting potential appreciation of 19.3 percent above the current share price.

Norbord’s financial performance has improved significantly since its disastrous performance during the housing crash. Revenue has grown 14.6 percent annually over the past three calendar years, while net income climbed 106.2 percent annually over that same period.

However, this year is expected to be a period of retrenchment before another jump higher in performance, and that’s largely what’s afforded us a favorable entry point.

For full-year 2014, analysts forecast revenue to decline 7 percent, to USD1.25 billion, while adjusted earnings per share (EPS) are projected to drop 68 percent, to USD0.97. EBITDA is expected to fall 45 percent, to USD156.5 million.

Now before you flee in horror, the good news is that analysts expect the company’s fortune to improve significantly next year. Full-year 2015 revenue is forecast to rise 13 percent, to USD1.25 billion, and adjusted earnings per share are projected to jump 120 percent, to USD2.12. Meanwhile, EBITDA are expected to climb 62 percent, to USD253.4 million.

Khoa: What about the dividend?

Ari: Norbord pays a quarterly dividend of CAD0.60 per share, or CAD2.40 per share annualized, for a current yield of 8.9 percent.

Although the firm is committed to that level for the duration of 2014, it has a flexible payout policy.

Norbord had previously suspended its payout in late 2008 during the height of the Global Financial Crisis, and only reinstated it just last year, with five quarterly payouts since then.

Along with the reinstatement of the dividend, the board instituted a new variable dividend policy that targets the payout according to its expected future free cash flow through the cycle.

The company intends to pay a substantial dividend during the strong part of the cycle and, recognizing the cyclicality of the business, reduce the level of the dividend during the weaker part of the cycle.

Of course, our hope is to collect a substantial dividend while awaiting the rebound in the share price, and then bail on the stock before the cycle turns against us. Note carefully, that we’re not market timers, and we don’t expect to call a top in this stock.

Instead, we’ll likely exit the position before the peak in the housing market, meaning that we’ll likely leave some money on the table in the form of future share price appreciation. But we’d rather be safe than sorry.

Khoa: What about taxation?

Ari: Before proceeding, it should be noted that we’re not tax professionals, and that subscribers should consult their accountant or tax advisor to confirm the treatment of these dividends.

Our understanding is that thanks to the tax treaty between the US and Canada, the Canadian government withholds just 15 percent of the payout (as opposed to the 25 percent rate that would prevail without the agreement). Depending on their individual tax situation, investors should be able to offset some or all of that amount in the form of a credit at tax time by filing Form 1116.

The Canadian Revenue Agency (CRA) implemented a new rule in early 2013 that requires US investors to file Form NR301 through their brokers in order to receive the reduced rate of withholding. Follow this link to learn more about the form and its requirements.

It appears that the form must be filed for each company for which you’d like to receive the more favorable withholding rate. The forms expire after three years from the end of the calendar year in which the form is signed and dated, so if you’re still holding the security at that juncture, then you’ll have to renew the filing.

Finally, since Norbord is organized as a corporation, individual retirement accounts (IRA) and other tax-advantaged retirement accounts should be exempt from the Canadian government’s withholding. It’s not entirely clear whether filing form NR301 is sufficient to qualify for this treatment or whether a letter of exemption must be obtained.

If the latter, the page at this link instructs you on how to proceed, and also provides a searchable database for entities that have already received the exemption (in case your tax-advantaged account happens to fall under one of those entities).

Norbord trades on both the US over-the-counter (OTC) market as well as the Toronto Stock Exchange (TSX). While we always recommend using a buy limit when purchasing new positions, it is especially important to do so if you intend to pick up shares on the OTC, as the average daily trading volume over the trailing three-month period was just 2,100 shares per day.

Norbord is a buy below USD26. Set your limit order slightly below the market price to ensure you don’t overpay for the shares in this thinly traded stock.

Portfolio Updates

Artis REIT’s (TSX: AX-U, OTC: ARESF) first-quarter funds from operations (FFO) rose 6.4 percent, to CAD47.6 million, or CAD0.36 per share, compared to the first quarter of 2013.

Adjusted FFO rose 4.1 percent, to CAD40.5 million, from the prior year’s quarter. The FFO payout ratio rose 3.9 percentage points to 75 percent from 71.1 percent last year.

First-quarter occupancy remained strong, at 95.5 percent, though slightly lower than the 95.8 percent occupancy rate during the prior year’s quarter.

The REIT announced it raised CAD125 million in a public offering of senior unsecured debentures, which gives the firm additional cash to fund its operations or finance potential acquisitions.

Artis is a buy below USD16.

Bonavista Energy Corp (TSX: BNP, OTC: BNPUF) reported first-quarter production volumes rose 2 percent, to 73,936 barrels of oil equivalent per day (boe/d), compared to a year ago.

During the quarter, Bonavista divested CAD101.2 million in non-core assets, representing about 2,500 boe/d (mostly heavy oil assets), while acquiring about 1,000 boe/d in natural gas assets.

Revenues rose 38 percent, to CAD315 million, as higher commodity prices contributed to the robust quarter.

Realized FFO rose 46 percent, to CAD160.8 million, or CAD0.80 per share. The company’s payout ratio stood at 26.3 percent of its FFO.

Bonavista expects to spend between CAD580 million and CAD600 million for its exploration and development program in 2014, drilling about 130 to 135 gross wells. About CAD370 million to CAD380 million will be devoted to activities in the West Central region of Alberta and about CAD160 million to CAD170 million to the Deep Basin.

The company is targeting year-over-year growth of 6 percent to 8 percent, before dispositions. It expects production to range between 75,000 boe/d and 77,000 boe/d in 2014.

Bonavista is a hold.  

BreitBurn Energy Partners LP (NSDQ: BBEP) reported first-quarter production rose 37 percent, to 3.2 million boe from the first quarter of 2013. Oil and natural gas liquids (NGL) production rose 71 percent from the same period a year ago, to 2.1 million boe.

Along with higher production volumes, higher average West Texas Intermediate (WTI) and Brent crude prices helped boost revenues in the first quarter, which jumped 86 percent to $225 million.

Management believes the company is on track to meet its full-year production guidance of 38,400 boe/d to 40,400 boe/d.

The partnership hasn’t announced any acquisitions so far this year, but said it will target $600 million in acquisitions.

First-quarter distributable cash flow (DCF) rose 88 percent, to $60.3 million, or $0.51 per unit, with a 1.02 coverage ratio. The partnership recently boosted its distribution by 4.7 percent year over year, for a quarterly payout of $0.4974 per unit.

BreitBurn is a buy below 21.

Capital Product Partners LP (NSDQ: CPLP) reported first-quarter earnings of $11.2 million, or $0.08 per unit, compared to $25 million, or $0.28 per unit in the first quarter of 2013. The $0.20 differential was due to a $17.5 million one-time benefit realized last year.

Revenues for the quarter grew by 18 percent year over year, to $47.4 million, due to the partnership’s expanding fleet and improving day rates.

Distributable cash flow came in at $0.31 per unit, equating to a sound coverage ratio of 1.3x of its announced distribution of $0.2325 per unit.

CPLP is a buy below 11.50.

Crestwood Midstream Partners LP (NYSE: CMLP) reported first-quarter EBITDA (earnings before interest, taxation, depreciation and amortization) of $98.9 million, compared to $39.4 million a year ago.

Distributable cash flow (DCF) came in at $70.3 million, or $0.33 per unit, up from $27.8 million in the first quarter of 2013. Its coverage ratio for the quarter was 0.83x.

Both EBITDA and DCF reflected the full-period contribution of its Bakken Arrow gathering system, which it acquired in November 2013.

Management expects capital spending and joint venture contributions for 2014 to total between $425 million and $450 million.

Crestwood is a buy below 25.

Exchange Income Corp (TSX: EIF, OTC: EIFZF) reported first-quarter revenues grew 17 percent, to CAD257.5 million.

The strong growth was driven by the company’s infrastructure segment, which grew 16 percent, to CAD156.5 million. In particular, WesTower Communications is benefitting from its turfing contract with AT&T (NYSE: T).

The company’s Aviation segment grew by 25 percent, to CAD78.3 million, mainly due to the acquisition of Regional One, a provider of aircraft and engine aftermarket parts. Regional One provided about CAD14.7 million in revenue to the segment.

The Manufacturing segment generated a 5 percent increase, to CAD22.8 million, due to organic growth.

Free cash flow grew 6 percent, to CAD14.3 million, or CAD0.65 per share. Management reaffirmed its target payout ratio of between 70 percent to 80 percent for full-year 2014.

EIF is a buy below USD22.

Leisureworld Senior Care Corp (TSX: LW, OTC: LWSCF) reported third-quarter revenue rose 14.8 percent, to CAD138.3 million. Adjusted EBITDA was CAD26.7 million, up 3 percent from a year ago.

Earnings rose 44.4 percent, to CAD2.6 million, or CAD0.03 per share, up from CAD1.8 million, or CAD0.02 per share for the same quarter in 2013.

The firm’s adjusted funds from operations (AFFO) came in at CAD11.7 million, or CAD0.323 per share, compared to CAD8.18 million, or CAD0.279 per share in the prior year’s quarter.

As a result of the improved AFFO, the company’s dividend payout ratio fell to 69.7 percent during the quarter, compared to 80.6 percent a year ago.

Average total occupancy stood at 98.5 percent, down slightly from 98.7 percent the prior year.

Leisureworld is a buy below USD11.85.

Lightstream Resources (TSX: LTS, OTC: LSTMF) reported first-quarter production fell 10 percent, to 43.959 barrels of oil equivalent per day (boe/d) from the same period in 2013. The lower production was due to 1,700 boe/d worth of dispositions completed during the quarter, as well as elevated early-2013 production.

First-quarter funds from operations (FFO) fell 1.1 percent, to CAD175 million, or CAD0.88 per share.

Due to the firm’s reduced quarterly dividend, its first-quarter payout of CAD0.12 per share (down from CAD0.24 per share) represents a payout ratio of just 14 percent, compared to 2013’s payout ratio of 27 percent for the same period.

Lightstream is expected to divest another CAD300 million in assets during 2014 and a total of CAD600 million by the end of 2015.

Lightstream is a hold.

LRR Energy LP (NYSE: LRE) reported average net production of 6,367 boe/d in the first quarter, up slightly from 6,233 boe/d in 2013. Production was negatively impacted by flaring at LRR’s Red Lake field, as well as by winter storms and other delays.

First-quarter distributable cash flow (DCF) rose 50 percent year over year, to $13.3 million, with a distribution coverage ratio of 1.02x.

Total revenues rose 46 percent, to $26 million, due to improved oil and natural gas volumes. During the quarter, oil sales grew 30.5 percent, to $20.1 million, while natural gas increased 31.7 percent, to $8.01 million, and natural gas liquids sales rose 50.5 percent, to $3.364 million.

LRR is a buy below 18.

Memorial Production Partners LP (NSDQ: MEMP) reported average daily production grew 29 percent, to 166.1 MMcfe in the first quarter. Adjusted EBITDA rose 29 percent, to $55 million.

Distributable cash flow (DCF) came in at $23.4 million, or $0.38 per unit in the first quarter, down from $34.4 million, or $0.57 per share in the fourth quarter.

The lower DCF was related to adverse weather conditions affecting its Permian Basin assets, as well as lower realized natural gas prices, which fell to $6.18 per Mcfe from $6.41 per Mcfe a quarter earlier.

DCF provided a coverage ratio of 0.70x of the partnership’s quarterly cash distribution of $0.55 per unit.

Memorial expects 2014 adjusted EBITDA to range from $355 million to $375 million. DCF is estimated to range from $183 million to $203 million. This will equate to a sound annual DCF coverage ratio of about 1.1x to 1.2x.

MEMP is a buy below 20.50.

Natural Resource Partners LP (NYSE: NRP) reported first-quarter revenues fell 15 percent, to $80.3 million, from last year mainly due to the continued challenges to the coal industry.

However, NRP was able to offset some of this weakness due to its expanding soda ash and oil and gas business.

DCF for the quarter fell 12 percent, to $38.9 million, but was offset by the addition of $11.4 million in distributions from NRP’s investment in OCI Wyoming.

For the quarter, coal production fell 10 percent, to 12.2 million tons, with the average royalty per ton falling about 17 percent, to $3.55. Total coal related revenues fell 33 percent, to $52.3 million.

The company’s other businesses, aggregates and industry minerals revenue grew 32 percent, to $13.1 million, while oil and gas revenue surged 471 percent.

The MLP maintained a 0.99x distribution coverage ratio of its $0.35 quarterly dividend.

NRP is a hold.

Navios Maritime Partners LP (NYSE: NMM) announced first-quarter revenue rose 14.4 percent, to $57.5 million, while EBITDA jumped 86.3 percent, to $69 million. Operating surplus rose 82.1 percent, to $56.8 million.

The company received $50 million in cash from the termination of a third-party credit default insurance.

Navios maintained its quarterly cash distribution of $0.4425 per unit, and is committed to the current distribution level through 2015.

Available cash for distribution rose 18.6 percent, to $35.47 million, compared to the prior year’s quarter. This equated to a 1.09x coverage ratio of the quarter’s total cash distributions of $32.57 million.

Fleet utilization for the quarter stood at 99.88 percent.

Navios is a buy below 17.70.

QR Energy LP’s (NYSE: QRE) distributable cash flow (DCF) for the first quarter fell 2.5 percent, to $30.9 million, compared to the same period in 2013. This equated to a coverage ratio of 0.97x.

Average daily production was 18,900 Boe/d, up about 5.6 percent from a year ago, despite downtime related to bad weather in East Texas and the Permian Basin.

QR Energy saw higher hedged prices compared to the prior year, which helped the firm realize higher revenue of $122.6 million, up from $119.3 million the previous year.

QR Energy is a buy below 21.

Spyglass Resources Corp (TSX: SGL, OTC: SGLRF) reported first-quarter funds from operation (FFO) of CAD16 million, or CAD0.13 per share, a 40 percent increase from the fourth quarter of 2013. And FFO more than doubled from a year ago.

The strong quarter was driven by higher commodity prices and cash netbacks.

Production for the first quarter averaged 14,560 boe/d, down 8 percent compared to the fourth quarter of 2013. The reduced production was due to the impact of cold weather and non-core asset dispositions during the quarter. However, compared to the corresponding quarter in 2013, production was up 20 percent.

Management expects average production for 2014 of about 14,750 boe/d.

Spyglass’ 2014 capital program is expected to total about CAD60 million, with CAD40 million allocated for drilling about 19 gross development wells mainly in Southern and Central Alberta.

Spyglass is a buy below USD2.25.

Starwood Property Trust (NYSE: STWD) reported core earnings rose to $121.5 million, or $0.60 per share, compared to $58.1 million, or $0.43 per share in the first quarter of 2013.

The company’s lending business generated $1.7 billion in originations, and by year-end it’s expected to surpass the record $3 billion it generated in 2013.

With 98 percent of new investments comprised of LIBOR-based floating-rate loans, the firm remains well positioned to benefit from a rising-rate environment.

At quarter-end, the carrying value of the Lending segment’s total investment portfolio stood at $5.6 billion. About $5.1 billion of this total represents the company’s target portfolio, which is expected to generate annualized leveraged returns of 10.9 percent to 11.5 percent.

The company reaffirmed its 2014 core earnings guidance of $2.00 per share to $2.20 per share.

Starwood is a buy below 24.50.

We sold Windstream Holdings (NSDQ: WIN) via an email alert issued on June 9.