Algonquin Power raises cash

  On September 4,2014 Algonquin Power announced a secondary offering of 16.86 million  shares at $8.90 a share.There was also an overallotment of about 250,000 shares.This blog considers that $8.90 is a reasonable price for Algonguin Power to raise cash.The money was raised in 12 days-a good sign that demand is strong for Algonquin shares.This will increase the number of shares from 207 million to 224 million.Ordinarily this would dilute earnings and drive the price of shares down but Algonquin had a good first half and has new operations that will increase earnings for the second half.Consequently even with 17 million new shares , earnings per share will rise.Investors know this and have bid the price up to almost $9.00.It is likely to soon surpass the 52 week high of $9.15.
      Another acquisition
  Algonquin also acquired in Sepember another American utility in a kind of auction from Carlyle Infrastructure for US $327 million.The sale is conditional on approvals from American regulators.It is expected to close in the second half of 2015 and will not affect the balance sheet until then.Yahoo Finance points out that this is the eighth American utility acquired by Algonquin since 2010.It has picked up utilities in Georgia, Arizona and Arkansas along with these new Carlyle utilities in California and Montana.Most have gotten recent rate increases that have increased revenues and earnings.Earnings went from $.16 per share in the first half of 2013 up to $.22 in 2014.This with  new earnings coming onstream from Cornwall and Bakersfield, California in the second half  of 2014 .An earlier blog predicted earnings of $.47 to $.50 per share for 2014.This still seems reasonable with the new shares as net earnings seem on track to hit $100 to $120 million for the year;  they reported $51 million for the first half and new earnings about to be delivered.The question is whether the new properties can deliver as the existing properties did in the first half.And the bigger question is can they keep getting generous rate increases from American regulators like they did in early 2014.
         Forecast for 2015
  This blog sees an increase in earnings for 2014 to $.47 to $.50 per share from $.34;this is an increase of more than 40% and should send the P/E ratio down to 21 or 22 from the present 26.This blog sees little resistance at it's 52 week high of $9.15 and it may head towards $10.00 per share by late November.But 2015 may see small or no rate increases from American regulated utilities and earnings growth will stall.Algonquin has a nice portfolio of assets but more future purchases must come from northern properties.It appears that Algonquin is better at buying distressed properties than building them. 

A Reit in the north

  Lanesboro Reit posted their second quarter results on August 18.They are not widely followed because they do not have a huge amount of assets and much of their assets are in the Canadian  north.They trade at about $1.15 per share now but have traded at $1.50 per share recently;they sold some non-core assets in 2013       and made a good gain.This quarter they made a net loss of $.21 million before extraordinary items while net operating income decreased by $.16 million compared to Q2 2013.Their occupancy rates are rising but still below industry standards.But they did make some gains on the financing side.In particular, they received  a $9 million repayment of two mortgage loans on Clarington Senior's residence in central Ontario.
    Financial details
   The main item here is the repayment of two mortgage loans for $9 million.They also increased a mortgage on one property and got proceeds of $1.6 million.Also they refinanced a $16 million loan that was subject to a covenant breach and got a better interest rate.They have no loans that are in breach of loan covenants and this brings a better interest rate on all mortgage loans.They also got an extension on their series G Debentures.Lastly they expect their warrants will be exercised in 2015 and will use proceeds to pay off more debt.
  Conclusion
   It has many properties in the Fort Mcmurray tar sands area.Incomes are not yet stable here and Lanesboro has suffered low occupancy rates in the past.Occupancy rates are up but rental rates have fallen somewhat.They need to raise rental rates and occupancy and the increase in the price of heavy oil should help  by stabilizing incomes.It did have a small loss this quarter but the financing gains help to offset.The second half should be slightly better but they need to diversify their portfolio perhaps into Edmonton or Fort St.John in British Columbia.Still they are more solid than many small Reits as their shareholder equity is about $120 million and total assets of about $475 million.The price should stay in a range  this half between $1.00 to $1.25 per share.However they would make an excellent takeover candidate for a bigger operator like Holloway Lodging or Interrent Reit if it can be obtained at the right price.With their financing situation improved Lanesboro will be a little more expensive this quarter.