Elon Musk Adds Larry Ellison to Tesla's Board, Fulfilling SEC Requirement–Sort of

Tesla announced today that Oracle co-founder and Chairman Larry Ellison, and an investor in Tesla, has been added to the Tesla board. Also joining the board is Kathleen Wilson-Thompson, global head of HR at Walgreens. 

The move fulfills the letter, although not the spirit, of Tesla’s agreement with the Securities and Exchange Commission, which sued the company after Elon Musk posted an inaccurate and ill-advised tweet saying he was planning to take Tesla private and had the funding to do so. The settlement required that Tesla name a new chair to replace Musk, and add two independent directors to the board. 

The company has now met both those conditions, though maybe not the way the SEC  wished. Robyn Denholm, Tesla’s new chair, lives in Australia, where she’s CFO of that country’s largest telecom company. She won’t move to California for at least another four months and maybe never. That might make it tough for her to oversee Musk, as the SEC wanted the new chair to do. She’s also a longtime member of Tesla’s board, which is famous for failing to oversee him, at least so far.

Ellison is certainly more local and more vocal. He has a lot in common with Musk–he’s another iconic entrepreneur who built a hugely successful enterprise but sometimes gets himself in trouble by publicly saying exactly what he’s thinking, for instance when he called cloud computing “complete gibberish” at a 2008 analyst conference. Perhaps most important from Musk’s point of view, he’s a good friend and a staunch defender of both Tesla and Musk. 

Case in point, an October analyst call, where Ellison momentarily diverged from the topic at hand to defend Musk. “He’s landing rockets on robot drone rafts in the ocean,” Ellison said. “And you’re saying he doesn’t know what he’s doing. Well, who else is landing rockets? You ever land a rocket on a robot drone? Who are you?”

Ellison may not be the truly independent voice the SEC was hoping for. And yet, his arrival is probably very good news for Tesla. Ellison is one of the world’s richest people precisely because he knows how to build a profitable company. He also has a proven track record as an outside director, particularly at Apple, where he helped guide that company’s legendary turnaround after Steve Jobs returned as CEO in 1997. He has skin in the game, having bought 3 million shares of Tesla earlier this year. And, while he’s obviously a big fan of Elon Musk, he’s clearly capable of standing up to him if Ellison believes Musk is headed in the wrong direction. 

Tesla’s other new director, Kathleen Wilson-Thompson, is  more in the mold of Denholm–an un-flamboyant executive who has spent decades working her way up the corporate ladder, first at Kellogg, then at Walgreens. Having a longtime HR executive on the board is another good move for the company, in light of complaints about working conditions, especially during the Model 3 production ramp-up

The SEC has not publicly commented on the choice of new directors. But the markets seem to approve. Tesla’s share price is up by more than 5 percent on a day when most of the market headed downward. 

Disclosure: I’m a contributor to Oracle’s magazine Profit.

Got a McDonald's or Burger King Coupon? Here's the Smart, Surprising Thing to Do With It. (You Only Have 3 Days)

This is a story about a smaller restaurant chain trolling McDonald’s, Burger King, and other giants of the business. And it’s kind of brilliant. Before the details, a quick explanation.

The fast food industry is a smart and fun one to follow no matter what business you’re in, and for two big reasons.

First, there’s the pure scale. Make a menu change at McDonald’s for example, and you’re upending the routines of hundreds of thousands of hungry Americans. You can learn a lot just by watching how they develop and test new products.

But second, there’s the marketing.

Think of McDonald’s, which spends $2 billion a year on marketing and ads. That’s half the entire value of its much smaller competitor, Wendy’s. It’s an incredible chance just to unpack what they do, and figure out why they think that various ideas will work.

Which brings us to some shoot-the-moon marketing campaigns that can actually turn the big chains’ efforts on their heads.

The only catch? You had to place the order from a McDonald’s restaurant. (Technically, just being within 600 feet was close enough to trigger the offer.)

Of course, Burger King isn’t small; just smaller than McDonald’s. But it shows how if you’re creative, you can use a competitor’s strength–in that case the fact that there are roughly twice as many McDonald’s in the U.S. than there are Burger King locations–to your advantage.

But what if you don’t have 1.7 million Twitter followers and a full time social media marketing operation, like Burger King, to get word of your deal out.?

What if you don’t even have a mobile app (or a burning desire to get people to download your app, which is what the Burger King promotion and so many others these days are all about)?

Ladies and gentlemen, I give you: Smoothie King.

Again: not exactly tiny, although very small compared to McDonald’s and Burger King. Smoothie King has close to 800 stores, heavily concentrated in warmer weather parts of the country.

It’s privately held, and even if you’ve never tried it, you might recognize the name from the $40 million naming deal it has for the NBA New Orleans Pelicans home arena (“Smoothie King Center“).

Now, like its bigger competitors, Smoothie King also has a rewards app, and it’s launched a contest to try to incentivize people to download and use it. (The “Change-a-Meal Challenge.”)  

But what attracted me to this whole thing is how Smoothie King is kicking off its promotion: By letting you use any coupon from any other fast food restaurant — McDonald’s or Burger King included — at Smoothie King.

It’s good for only one day, New Year’s Eve, and regardless of the competitor’s coupon’s value, it gets you $2 off a smoothie at Smoothie King on December 31.

And in truth, I don’t know how many people would take advantage of it. But that doesn’t really matter in a way; what matters in this social media age is whether you can find a truthful, fun way to troll your competitors and turn their strengths to your advangage.

As a marketing strategy, I think it’s brilliant.

As for the Smoothies, well, I don’t know. I’m writing this from New Hampshire, and it looks like the nearest Smoothie King would be a three hour drive away. You’ll have to let me know in the comments.

Hate Telemarketers? This Brilliantly Simple Legal Trick Totally Destroys Most of Them (Why Did It Take So Long?)

My fellow Americans, we live in a divided time. But there is one thing we all agree on.

It’s only getting worse. By next month, nearly half of all incoming cell-phone calls will be spam. Half! Sure, the government cracks down on a few of the worst offenders. But they’re fighting with a hand tied behind their back. Now, a small group of lawmakers wants to change that.

So here’s the problem, the reason why it hasn’t been fixed before — and why a laughably simple legal trick could very likely be the solution.

Surprise: it’s totally legal!

The scenario has to do with spoofed Caller ID. You’re at home, or at work, or wherever, and you’re suddenly interrupted by a call you don’t recognize. Only… it’s from the same area code and exchange as your cell phone. 

As an example, my phone number is (424) 245-5687. I might get a call from say, (424) 245-9999.

Now, the call isn’t really originating from that number — or likely from any real traceable number. It’s just set up that way to make it look like a local call, so I might be more likely to answer.

You might assume that doing this would be illegal. I mean, I’m a lawyer (not practicing, but still), and I was pretty sure people had been prosecuted for wire fraud for doing less.

But it turns out that’s not the case at all. In fact, the Federal Communications Commission says it’s only illegal to make this kind of spoofed Caller ID call if you do so “with the intent to defraud, cause harm or wrongly obtain anything of value.”

No provable bad faith or fraud? No problem, under the current law.

Welcome to Kentucky

It’s in this context that an unlikely savior might come to the rescue.

Meet Kevin Bratcher, a state legislator in Kentucky who introduced a bill to make it illegal to spoof a Caller ID for almost any reason at all.

It wouldn’t matter if you could later prove that, for example, “technically if the person jumped through all these hoops and paid these upfront fees they could get a free trip to the Bahamas.” 

Simply “causing misleading information to be transmitted to users of caller identification technologies, or to otherwise misrepresent the origin of the telephone solicitation,” would result in a very significant fine: $500 for a first offense, and $3,000 for each subsequent offense.

There would be  few minor exceptions for things: things like if the recipient knew his or her true phone number or location, or friends playing an innocuous prank on one another.

But beyond that, it would be a strict law.

“I came up with this because I just had a campaign, and everywhere I went people were asking me, ‘Why can’t you do something about all these calls with fake IDs?'” Bratcher, a Republican who has been in office for 22 years, told me recently. “And I was receiving them too. Just a light bulb went off on my head: Why is anyone trying to give you a call with a fake ID? That needs to stop.:

A big part of the problem

I realized something after Bratcher and I talked: it’s not just the scammers who have latched onto this spoofing strategy. 

For example, Bratcher didn’told me about receiving spoofed Caller ID phone calls from a 501(c)(3) he supports, and that’s based in Washington, D.C. The calls looked like they were coming from Kentucky.

That’s also what he says to those who might suggest that anyone sophisticated enough to spoof a Caller ID might also be sophisticated enough not to get caught. For a big part of these calls — maybe even a majority — the fraud stops with the spoofed number.

Legitimate charities aren’t going to want to be tarred with this brush.

Why can’t the government work for us?

For now, if the law were only changed like this in one state, it would be a complicated and potentially expensive strategy for legitimate charities to risk fines and bad press for spoofing IDs in Kentucky.

But while the initial news coverage of Bratcher’s bill suggested it might be the first attempt like this in the country, I’ve talked with Indiana officials who say they’ve been doing something similar.

It’s hard to believe that other states and the federal government itself would be far behind.

I’ve written a lot recently about other ways to cut down on telemarketing calls. There’s the “Lenny” bot, which is truthfully one of my favorites from an entertainment standpoint, as it’s simply an Australian chatbot designed to waste telemarketers’ time.

And since Lenny hasn’t actually been widely released, I also suggested perhaps we could all team up to do a sort of “manual Lenny” — basically stringing telemarketers along, wasting their time, and driving up their employers’ costs so as to destroy their business model.

Those stories got a giant response. Because it’s a problem everyone faces.

And so, shouldn’t our government work for us, instead of us having to hack together ideas on our own to solve these kinds of problems?

It feels like a winner issue for any lawmaker who wants to run to the head of the crowd, and become known as a champion of the people. People seem to want this.  

3 Coaching Strategies To Help Your Employees Overcome Uncertainty

To keep a business running smoothly, managers need to train their employees on how to perform pre-prescribed duties on a consistent basis. It’s also every leader’s responsibility to hold their team accountable to a high standard of quality and to work with them on streamlining their processes to increase efficiency.

A big challenge, however, is in preparing teams to excel when circumstances take an unexpected turn. Uncertainty is a given in business interactions, whether with clients, partners or colleagues, and leaders must take steps to coach their employees on best practices for handling uncommon situations well.

At my company Amerisleep, we encourage our staff to approach unfamiliar problems with an inquisitive mind. Rather than get flustered by the introduction of new variables, our team members are expected to ask questions to identify the key issue, diagnose the cause, and research the best solution.

Below are three things other leaders can do to ensure their team is comfortable dealing with uncertainty — and that they are capable of thriving too.

1. Create contingency plans teams can use to guide next steps.

When you anticipate the possibility of alternative scenarios, you can pre-plan different ways to respond.

In sales, for instance, one of the most dependable strategies is creating a script that features curated response patterns a salesperson can use to guide conversations based on each client’s reaction. This reduces the negative impact of resistance and rejections because it gives the salesperson a model for how they can best overcome the situation.

When negotiating with vendors, too, you may encounter obstacles that could derail the deal. To prepare our managers for those situations, we walk them through the most common sticking points such as price and timeline. If the costs are too high, we seek ways to cut back on expected deliverables to decrease the overall scope and rework the engagement so that it fits our budget. If the delivery schedule is longer than expected, we dissect the process to discover which steps we can expedite.

As a regular part of the training process, department leaders should provide their team members with guidance for how they should process uncertainty and proceed with a solutions-based approach.

2. Train staff to identify elements under their control and act accordingly.

The unknown can be quite jarring for some people. It often causes those unprepared to abandon all hope of influencing the situation and to accept whatever happens. But participants always have some measure of control, even when the expected outcomes seem less likely to manifest.

Teach your employees to look for elements they can leverage — such as historical data, rapport with other team members or participants, and available tools and technology — to allow them to reestablish their composure. Otherwise, they may view new variables as an obstacle instead of an opportunity. This will also help them become more self-reliant, empowering them to independently push more projects through to completion.

Our employees at Amerisleep take this to heart. When website outages occur, rather than panic, our development team follows a pre-defined process for troubleshooting and resolving the issue. Additionally, they take this opportunity to identify ways to further strengthen the reliability of our online experience, mitigating the risk of future failures. Although it’s impossible for us to predict when our site may experience a bit of downtime, what’s certain is the fact that our engineers are both skilled and process-oriented enough to find the perfect solution in a timely manner.

3. Promote strong analytical and critical thinking skills.

When unforeseen circumstances disrupt a plan, it’s common for people to immediately begin thinking about the ramifications of the uncertainty on their future. In these instances, they’re focusing too heavily on the consequences when they should exert more energy finding meaningful solutions.

Those who excel at dealing with the unknown stay in the moment and follow a successful roadmap: prepare as much as possible beforehand; anticipate the unexpected; look for ways to make a difference; and act decisively.

By taking a structured and strategic approach to addressing unfamiliar scenarios, you maintain your ability to think through the problem rationally rather than reacting emotionally.

Ready, headset, go: Retailers racing ahead with VR for staff training

The circa 5,000 virtual reality (VR) videos viewed over two weeks by Costa Coffee staff, looking to understand how best to prepare the company’s Christmas drinks range, highlight the appetite for learning in the organisation using this technology.

That is the view of Laura Chapman, head of learning at Costa, who says festive-themed training videos were not mandatory for its workforce, but they really captured the imagination of its people at this busy time of year.

“It’s still early days for us, but feedback show us teams are motivated to learn this way,” she says, commenting on the recent introduction to over 1,500 Costa stores of Google Cardboard headsets and associated tools, enabling teams to access 360-degree footage of coffee-making tips and techniques.

The move was announced at the end of October, and was primarily a way of helping induct new staff in the ways and methods of Costa baristas ahead of the busy Christmas trading period. However, it’s a platform that can be used for training all year round.

Chapman says the VR element is embedded into what she describes as an already comprehensive training programme, and currently includes tips on how to make an Americano or the Black Forest Hot Chocolate which appears on the menu in December.

And as consumers continue to seek out more compelling experiences, expertise and different types of engagement during a trip to a retail or food and beverage outlet, there are several ways the Costa VR staff training tool is catering for these demands by preparing staff accordingly.

“We have a high volume of millennials in the workforce, so we wanted to be able to provide an engaging and innovative way of training them, one which would really excite them to learn,” says Chapman.

“The VR 360 videos we currently have provide a wider insight into the coffee growing process with footage of coffee plantations in Peru along with sneak peaks inside our state of the art roastery and coffee lab in Basildon.

“In addition to this, we also feature drinks tutorials on our key products, so teams can learn faster by immersing themselves in a real-life environment.”

Walmart is another big retail business that is well under way with its use of VR for operational gain. Facebook-owned Oculus Go VR headsets are being used by the grocer’s staff across the US, with the STRIVR-created content teaching people about technology and compliance, and aiding soft skill development like empathy and customer service.

To indicate the scale of the technology’s usage, the plan is for four VR headsets in every Walmart “supercenter”, and two units to every neighbourhood market and discount store. In total, the retailer says 17,000+ headsets are in use at Walmart today.

VR training must run deep

Ed Greig, chief disruptor at Deloitte, agrees that some of the best cases of VR usage in retail are around staff training.

“If you want to change the behaviour of your staff, that’s something you can do with VR in a way you couldn’t do with text-based e-learning,” he says.

“Some organisations are still using paper-based learning, and these are organisations that in other areas are very technical, but VR can enhance this process.”

Greig backs VR’s ability to improve the soft skills of store associates to align them with company values or to provide a platform for helping more senior staff improve management and empathy, but ultimately he sees the biggest gains for retailers coming from its wider deployment by human resources departments.

Wider recruitment

He acknowledges the idea of VR being used as a staff training tool has opened up conversations with Deloitte clients about their wider recruitment and subsequent learning strategy. As retailers embark on widescale digital transformation, he sees VR playing a central role in improving store design, supply chain operations, and general processes.

“Our motto is ‘fall in love with the problem not the solution’,” says Greig.

“There is a real danger with a new tech like VR and the subsequent modifications to that tech that people can fall in love with the solution [and forget why they need it in their businesses]. If you’re going to use VR, it should be about reshaping your entire learning strategy and how you look to develop people throughout the organisation.”

“It’s really effective when it’s used as part of the recruitment process, providing a consistency of experience for employees right from the first moment they have contact with a certain company,” he says.

“If retailers can nail that, it gives them a whole load of additional time where they’ve got people thinking about their brand values, and they can hit the ground running once they’re on the team.”

In a future internet of things (IoT) environment, Greig predicts multiple ways VR could play a part in the “digital twin” process, where a retailer’s physical premises are effectively digitally cloned. One can imagine staff using VR in this format to remotely change a retail store’s lighting or signage setting in real time, he asserts.

VR as standalone entertainment

VR is cropping up in various guises across retail, be it Virgin Holidays using Google Cardboard in stores to help customers experience locations before they book them, or Tommy Hilfiger kitting out global flagships with WeMakeVR-loaded SamsungGear devices to showcase its catwalk shows to in-store visitors.

But some of the most impactful uses of it revolve around creating an event out of VR technology. At Westfield Stratford City in 2016, Samsung ran an in-shopping-centre pop-up, enabling around a quarter of a million people to try out its Gear VR to experience roller coaster rides in North America or holidays in remote destinations.

Judging by that success, it is perhaps clear why ImmotionVR, a company that designs content for VR and operates simulators in public places around the UK, is continuing to scale its business based on a similar cinematic-like premise.

With 12 locations across the country, including at Manchester’s Arndale Centre, Birmingham’s Star City, Intu Derby, and most recently, Wembley’s London Designer Outlet, the company is creating theme-park-like, family-friendly experiences starting from £5 in shopping centres around the UK.

Martin Higginson, CEO of Immotion Group, says his company is looking to help the wider retail industry not by selling it VR technology as an internal solution, but by setting up its simulators and VR installations deep within retail – in the aisles of shopping centres or in locations left behind by collapsed or down-sizing retail chains.

“We’re focused on delivering an out-of-home experience,” he says.

“Currently shopping in general needs to bring theatre, because without that retail will wither on the vine. The high street and shopping malls need to change and start creating more theatre be it additional dining spaces, VR or something else; there needs to be a unique mix that creates a ‘theme park’ within shopping centres.”

Incentivising shopping mall visits

Higginson argues that venues from ImmotionVR, which creates its own content from its Manchester studios and offers VR experiences covering scenarios ranging from roller coaster rides to swimming with sharks off the coast of Tonga, can give families an added incentive to visit a shopping mall.

There is also a focus within the business on providing VR-enabled destinations for work parties and educational trips for schoolchildren.

“We want to create Disneyland in Westfield or Lakeside, or wherever – shopping centre owners have massive challenges with the likes of House of Fraser and Debenhams going through turmoil,” he says.

“We can bring experiences to shopping centres and fill them with guests throughout the week, helping malls become leisure destinations rather than venues for straight-out shopping.”

Higginson also argues the continued growth of his brand will open up VR to the mainstream. As a result, the tech might become more widely used in the home and in the workplace. In short, society could be about to see more of it in its various forms.

Costa and Walmart are clearly on the start of their VR journeys, but the staff engagement it has resulted in, and – in the case of Walmart – the rapid extended roll-out of the technology to date, suggests further exploration and usage is imminent.

VR roll-out a reality

Walmart announced in September that its VR technology was set to be accessible for all employee training across its entire US store portfolio, following initial usage solely for staff development in Walmart Academies. More than one million Walmart associates will now receive the same level of training as those in the academies, the retailer said.

Meanwhile, all of Costa’s fully owned stores – as opposed to its franchise and concession partners – have a Google Cardboard headset that allows staff to experience VR. And Chapman acknowledges the business is looking to make them available to its partnerships and international stores, while additional ideas for its usage keep arising.

“We could provide ‘on-the-job’ experiences to potential candidates so they get an idea as to what it’s like working in one of our stores,” she says.

“The coffee growing process and following the coffee journey from bean to cup is also something that we feel would be useful for inductions for everyone in the Costa family both among our store teams and in our support centre.”

Treasury Secretary Mnuchin Raises Questions of Bank Stability: Hold Onto Your Hat

The entire financial system that everyone, including all businesses, depends on sits on the need for trust. And in a couple eof tweets, the Treasury Department and Treasury Secretary Steven Mnuchin may have shaken that trust loose.

The Treasury Department said that Mnuchin held a series of calls with CEOs of major banks: Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo.

The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations. He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly.

Equity markets have been rocky for various reasons, including tariff wars, general uncertainty, and the Fed increasing interest rates. No markets rise forever and we’ve seen a long run. A recent survey of global CEOs showed that chief financial officers overwhelmingly expect a recession by 2010 and many think 2019 will be the year.

In turbulent times, there are tremendous reasons for businesses to be wary and for governments to be concerned about basic banking issues like liquidity. Without enough money available, institutions can’t lend money and an economy can grind to a halt.

But aside from public inquiries like bank stress tests mandated by law, deep inquiries happen out of public views. No one wants to start a panic, undermine public confidence, and potentially start runs on banks, with people looking in total to take out more money than the banks actually have. (The lending business depends on institutions leveraging deposits, which means lending out many times more than they have on hand.)

Mnuchin’s move might have made sense if there were public concerns about bank stability. Bank stocks have been taking a hit with market oscillations. When people worry about the economy, they expect that banks may suffer. When things slow, fewer people and companies take out the loans that are the source of institutional income.

But there hasn’t been a lot of concern about underlying bank stability. At least, there wasn’t until Sunday evening when the tweets hit the fan. Particularly as Mnuchin was reportedly on vacation in Mexico.

While apparently intended to as a pre-emptive reassurance to investors, the tweet may have done just the opposite, stoking fears that the government is bracing for the worst.

MarketWatch then copied a number of investor tweets. Here’s one.

The substance was much of what I heard in my circle of financial people and business and economics reporters. One could only manage “WTF?”

It may be that all is well. But markets react to expectation and emotion and things have been shaken already. You now much reexamine your strategy in the wake of decreasing confidence in the economy and keep a close eye on new statements that could further shake things up.

How Iceland Used Brilliant PR to Bounce Back from a Natural Disaster

In business, your reputation is just as important as the quality of your service.

So what do you do when that reputation is damaged? Take a page from Iceland‘s book, which rose to the occasion when its own reputation was damaged after a natural disaster.

In April 2010, a volcano in Iceland named Eyjafjallajökull (pronounced AY-yah-fyad-layer-kuh-tel) suddenly erupted, spewing ash and lava into the surrounding environment.

Over the next six days, the ash cloud the volcano created spread across all of Europe and grounded millions of travelers. It was the worst air traffic disruption since World War II.

Suddenly, any searches for Iceland brought up scary news reports of environmental damage and videos of black ash clouds and molten lava. Though the eruption wasn’t anyone’s fault, Iceland suddenly had a huge reputation problem on their hands.

Flash forward to today, and Iceland now sees more than two million tourists per year, and those numbers have never dropped–not even in the summer after the eruption.

So how did its leaders avoid disaster and transform a bad reputation into an overwhelmingly positive one? They used this five-step checklist:

1. Overtake the bad coverage with good.

To combat its negative online reputation at the time, the government of Iceland called on the public to write as many good stories about Iceland as they could. The idea was to flood out the negative press with good press.

More than 1.5 million stories were posted in the first week on social media and on the campaign’s dedicated website. This was the beginning of the PR campaign that would reverse Iceland’s reputation and reposition it as a popular travel destination.

Instead of spending time and energy responding to negative PR, sometimes time is better spent creating new and positive content for your business.

2. Leverage the power of word of mouth.

The name of that campaign is “Inspired by Iceland.” A survey of tourists at the time reported that 80 percent of tourists would recommend Iceland as a travel destination, the highest among any European country.

Brooklyn Brothers, a U.K.-based ad agency that worked on the campaign, realized that word of mouth would be a powerful force in turning the tide of public opinion. If enough everyday, relatable people sung the praises of Iceland, their friends and colleagues could change their opinions, too.

If you want to influence public opinion, get real, satisfied customers to speak out about your business. Testimonies from regular people are much more powerful than a slick ad campaign.

3. Get everyone involved.

To pull off such an ambitious rebranding effort, everyone needed to take part: government and public agencies, corporations, local businesses, people, celebrities, and tourists.

Iceland succeeded in pulling together people from diverse industries and uniting them in their love for Iceland to contribute to the campaign. It includes regular people and celebrities alike–even the president of Iceland.

When facing a big PR problem, reach beyond the PR team and get everyone on board. Your entire company be motivated to succeed, and you’ll be able to draw on everyone’s strengths.

4. Turn a negative into a positive.

To some, the idea of active, possibly-dangerous volcanoes is a negative aspect. To others, though, visiting a country with such a dynamic landscape is an exciting adventure.

Instead of pushing issues like active volcanoes under the rug, Iceland embraced its natural landscape and made it a central part of its brand.

Here’s how one ad agency expresses it: “Iceland is an active landscape constantly in flux…A volcanic island, our nation rose from the pristine Atlantic Ocean creating fertile pastures and some of the world’s most impressive natural wonders.”

Inspired by Iceland also makes the country’s beauty and adventurous aspect a focus of its campaign. The website lists over 400 “Nature” attractions including glaciers, mountains, cliffs, fjords, caves, islands, and waterfalls.

Through the eyes of this campaign, to visit Iceland is to experience true adventure. A characteristic that some people see as a negative can sometimes be rebranded as a positive.

5. Coordinate a strategic campaign with an authentic message.

Every year, the Inspired by Iceland campaign continues to create new, original content that sparks interest in the country, like a recent video entitled “The Hardest Karaoke Song in the World,” which teaches you Icelandic words at a dizzying pace.

At the same time, the messages of the campaign have always been authentic and in the voice of real people. It’s never had a slick, advertising feel, which is why it’s been so successful.

Both of these factors–strategy and relatability–are important in creating a positive PR campaign. Plan strategically for your PR campaign, but research your audience well to make sure the message is relatable. If you can, have everyday people deliver the messages for you.

Juul Accepts Altria Investment and Embraces Big Tobacco

Juul’s deal to accept a big investment from the maker of Marlboro cigarettes will snuff out its chance to take the high road with critics, but it will buy the embattled e-cigarette company time and credibility with regulators.

Juul said on Thursday it had accepted a $12.8 billion cash investment from Altria, one of the nation’s largest cigarette makers, for a 35 percent stake that values the three-year-old startup at $38 billion, according to Wells Fargo.

It’s tempting to see the financial tie to big tobacco as Juul selling out. The company has marketed itself as a way for smokers to transition away from cigarettes by satisfying their nicotine addiction without the hazardous byproducts produced by burning tobacco. When Juul launched in 2015, its mission was to design a better e-cig—one that gave consumers the same buzz and could fit in their pocket.

But Juul, which styles itself as a Silicon Valley startup, has always had a messianic philosophy around growth, arguing that persuading smokers to switch to vaping outweighs the potential dangers of encouraging new nicotine addicts. To that end, Altria’s marketing and distribution machine will vastly accelerate Juul’s reach. As part of the deal, Altria promised top-shelf placement in convenience stores next to its cigarettes, as well as ads inserted inside packs of cigarettes and sent through direct mail.

Juul’s growth-first strategy has been evident over the past year. Even as government agencies, public health advocates, and parents warned about an e-cigarette epidemic among teens, the company kept its popular fruit-flavored e-liquid pods, which have a notoriously high concentration of nicotine, on the market until the Food and Drug Administration cracked down this summer, following a raid of the company’s San Francisco headquarters.

“JUUL partnering with Altria, maker of the nation’s number one cigarette brand Marlboro, and adjudicated racketeers, proves they are not in the business of saving lives and never have been,” Robin Koval, CEO of the advocacy group Truth Initiative, said in a statement.

The perks of the deal certainly support a more cynical interpretation. Cofounders James Monsees and Adam Bowen could become the world’s first vaping billionaires, at least on paper. Juul’s hedge fund investors also have the prospect of making a killing. But the windfall that caught the public’s eye is a report from CNBC that Juul received a $2 billion bonus to be distributed among its 1,500 employees, depending on how much stock they have and how much is vested. Juul declined to comment on the existence of the bonus or whether it came with golden handcuffs, but that would be one way to placate employees who were reportedly unhappy when news of the talks with Altria broke in November, bemoaning Juul’s “deal with the devil.

Juul has annual revenue of about $2 billion, according to a report released Thursday by Wells Fargo senior analyst Bonnie Herzog, who noted that the deal requires antitrust clearance. Herzog says Juul appears to have had more leverage over the terms than expected, including limiting Altria’s stake to 35 percent for six years.

Chris Howard, general counsel for the vaping products company E-Alternative Solutions who previously worked as a legal representative for RJ Reynolds, says the deal is a big help to Altria because its own cigarette alternatives were flops. “If history is any guide, Altria will one day complete the acquisition. [Combustible] cigarettes may go away, but Altria won’t,” he says.

Howard says the investment is one of several bold moves by Altria to maintain its dominance, no matter what happens to traditional cigarettes. The company also recently acquired substantial stakes in marijuana growing company Cronos Group and Avail Vapor, a chain of vape shops. Add in Marlboro, and Altria’s got all its bases covered, he says. “Go back 10 years, Altria didn’t have much a message other than, ‘Keep smoking our cigarettes,’” says Howard. But as the popularity of e-cigarettes has grown the company altered its approach.

Azim Chowdhury, a partner with Keller and Heckman who leads the firm’s tobacco and e-vapor practice, believes the deal was largely motivated by Juul’s concerns around the FDA’s compliance process. Altria has been living under the FDA’s microscope for years. “Altria is not going to market to kids. They’re not going to do anything that puts that kind of target on their back. They will be responsive to FDA requests, they will not market to minors.”

Chowdhury has noticed Altria and FDA officials speaking at similar conferences. “I think the relationship is professional, It’s copacetic. I think there’s mutual respect, again from the FDA’s standpoint.”


More Great WIRED Stories

Apple: Beware The January Curse

Negative Media Coverage Is Not Something To Be Trivialized

It was only in August when Apple Inc. (AAPL) became the first company in history to claim a trillion dollars in market capitalization. Up until early November, Apple retained its trillion-dollar status. However, weeks of correction has brought the market cap down to around $784 billion. It’s still a huge sum no doubt but there’s no hiding the fact that hundreds of billions of dollars evaporated.

Source: YouTube screengrab

Recently, the humiliation has been exacerbated as the media rubbed salt on investors’ wounds by harping the fact that for the first time in eight years, the market cap of Microsoft Corp. (MSFT) surpassed that of Apple’s. News outlets around the world rushed to highlight the misfortune.

Apple market capitalization falls below that of Microsoft

Source: FastCompany

Headlines on weak iPhone performance dragging down Apple share price

Source: Forbes

In the past few trading days, the gap has widened. Given the prevalence of algorithmic trading, it is possible that such negative media coverage has had a damaging impact on the share price of Apple.

Chart

MSFT Market Cap data by YCharts

There have been studies reflecting the domination of algorithmic trading in recent years. By 2012, the percentage of algorithmic trading had reached 85 percent, representing the lion’s share of market volume, according to certain sources. High-Frequency Trading (“HFT”), a branch of algorithmic trading, was estimated to account for more than half of all equity trades. HFT relies on pre-programmed software to look for certain keywords or data and execute trades based on the triggered trading strategies, all happening in milliseconds. There are no hard feelings as humans are usually not involved in real-time.

The rise in Algorithmic trading as percentage of the market volume

Source: Rick Verheggen

The Typical ‘iPhone Production Slowdown’ Rumors To Happen In January?

Unfortunately, regardless of the long-term prospects of Apple, the drag on the investors’ sentiment on Apple would result in a near-term weakness in its share price. What’s concerning for shareholders is that next month, there is the possibility that rumors of iPhone production slowdown return with a vengeance. The following snapshot of an article from MarketWatch sums up the issue succinctly.

Apple iPhone production slowdown happens every year and AAPL stock selldown every time (ALT Perspective for Seeking Alpha)

Source: MarketWatch

The bugbear for Apple management must be the perennial ‘iPhone sales/production slowdown’ speculations that seem to recur sometime in January every year. A Google (NASDAQ:GOOG) (NASDAQ:GOOGL) search with the keywords ‘iPhone sales slowdown’ for news around late January turns up plenty of news articles regarding the topic (see the following snapshot).

Snapshot of Google search results for news using

It could be supplier guidance or comments from analysts with regards to their iPhone shipment estimates. Whatever the case, to dismiss the rumors for what they are would be ignoring the consequence to the share price. This year, the iPhone company saw its share price slumped around 10 percent over the period when the sales/production slowdown topic was trending. A 10 percent drop means a loss of $78 billion in market cap based on the current level and around $100 billion if Apple regains its ‘trillion-dollar’ crown by then. This is certainly not a trivial amount.

Chart

AAPL data by YCharts

Value Destruction With Ill-Timed Buybacks?

Thanks partly to the generous Republican tax cuts, listed companies have launched aggressive share buyback programs this year. The passage of the Tax Cuts and Jobs Act dubbed the Trump Tax Reforms last December resulted in the reduction of the statutory business tax rate from 35 percent to 21 percent and granted companies a limited period reprieve on returning foreign cash holdings to the United States.

The five US tech companies with the largest cash piles – Apple, Alphabet, Cisco (CSCO), Microsoft and Oracle (ORCL) – spent more than $115 billion in the first three quarters on buying back their own stock. For Apple, in particular, the company kept up with its share repurchase even as its share price climbed to a record. On a trailing twelve-month basis, Apple stock buybacks jumped to $72.07 billion, more than doubling the around $30 billion level in the prior year.

While it, of course, took more money to repurchase a single share as the price went higher, it should be noted that there was an acceleration in the share repurchase at the same time. In the process, the outstanding share count is reduced to 4.7 billion.

Chart

AAPL data by YCharts

‘No one can accurately foresee the bottom’ is the common excuse for retail investors who bought into a stock only to see the share price go below the buy price. The next best alternative is probably ‘I bought it with a long-term perspective’. Should we hold the management to a higher standard when they execute share buybacks? After all, don’t they have a better understanding of the demand for their products? Otherwise, shouldn’t we be worried?

With the apparently ill-timed buybacks, Apple executives might have disappointed shareholders due to the fewer shares the company repurchased when the price was near the peak. This raised the question if the management had been over-confident of the iPhone demand. To what extent should we rely on their guidance then?

Are Analysts Similarly Over-Confident?

I believe avid Seeking Alpha readers are familiar with the General Electric (GE) story the past two years. We have seen how the analyst price targets keep chasing the share price downwards.

Chart

GE data by YCharts

Now, I don’t mean to imply that Apple will follow in the footstep of GE. Instead, I question whether analysts will continue to revise their price targets on Apple downwards in response to the large disparity with the prevailing share price, a typical phenomenon. If that happens, what follows is perhaps a vicious cycle where market sentiment turns more bearish, the share price falls further and necessitating more price target cuts. ‘Low’ P/E ratio is not the perfect answer to whether the share price has appreciation potential or not, as Micron Technology (MU) shareholders are well aware of.

Chart

AAPL data by YCharts

Investor Takeaway

An article from MarketWatch noted how news related to a slowdown in iPhone sales or production tend to crop up every year in January. There is no guarantee that the phenomenon will recur in 2019 but when it does, Apple share price could take a hit like it did in the past.

The apparent ill-timed share buybacks by Apple hint of an over-confident management or a misjudgment of the demand of iPhones. Either way, that doesn’t give much confidence to the market in terms of their future guidance. Besides the destruction of value from the shares purchased at peak prices, the disappointment comes from knowing that Apple executives seemed no better at predicting the fortunes of their company. What else do we expect from the analysts?

I asked in November whether it’s time to revisit the bullish thesis for Apple. At that time, Apple share price was still trading above $200. I received plenty of brickbats in the comments section ostensibly from those who long the stock. I harbor no ill will against Apple shareholders. I wish to reiterate my earlier suggestion that shareholders consider strategies to limit their downside given the potential headwinds and the one-off nature of several catalysts which pushed up the stock prices previously.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AAPL, GOOG over the next 72 hours. 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.

My Top Sleep Well At Night REITs For 2019

Who doesn’t like “sleeping well at night”?

I don’t know about you, but there are plenty of things that keep me up at night, ranging from snowstorms, to a stuffy nose, to newsletter deadlines (which I am suffering from now). In fact, I’m constantly stressed out over worldwide events such as trade wars with China, decelerated inflation, and a looming government shutdown.

When it comes to picking out stocks, I have always been a big believer in owning the safest REITs, and specifically, the ones that are least likely to experience a loss of principal.

In a Seeking Alpha article, I explained that “the flight-to-quality phenomenon occurs when investors sell what they perceive to be higher risk investments, and purchase safer investments. This is considered a sign of fear in the marketplace, as investors seek less risk in exchange for lower profits.”

We’re less than two weeks away from a New Year, and as I reflect on 2018, I am reminded of my preference for owning the highest quality REITs. Around a year ago I published my top 10 “ sleep well at night” REITS for 2018, and a few days ago I explained that “ these 10 SWANs returned an (equal-weight) average of 10.6% year-to-date, beating ALL of our model portfolios (in the newsletter), as well as the DAVOS Index (+9.3% YTD).”

In a few days, I plan to provide my 2019 REIT Outlook on Seeking Alpha, which is essentially my crystal ball forecast. Without giving away my secrets here, it’s somewhat obvious that the U.S. economy will see deceleration in GDP growth in 2019, but I’m confident that equity REITs can stay the course with broader equities and beat the S&P 500. How do we prepare for volatility?

By investing in the most defensive names, and by preparing for the next market disruption, investors can see a portfolio and decide if it’s low risk or high risk.

To help you to find and select the safest REITs, I decided to dig into my “Intelligent REIT Lab” (part of the Forbes Real Estate Investor newsletter). Within our list of more than 125 REITs, I filtered for those best-positioned to mitigate global uncertainty and deliver the promise of protecting principal at all costs. Thank you for reading my “top 10 SWANS for 2019” article.

Before we get started, I have summarized my top 10 SWANs for 2019 below. As you can see (below), I sorted these 10 REITs based on their variance from current price to fair value. The color-coding illustrates the narrowest margin of safety (green) to the widest (in red).

To narrow down the top 10 SWANs, I used a variety of metrics and I relied heavily on dividend safety and growth potential. The chart below provides a snapshot of the “top 10 SWANs” and their forecasted FFO/share growth. It’s true that several of these picks aren’t exhibiting much growth, but as I will explain, these REITs offer deep value and/or catalysts that support my “sleep well at night” objectives.

To help you sort out these 10 REITs, I will provide commentary, starting with the lowest growth names to the highest growth companies. Let’s get started….

Photo Source

My Top Sleep Well At Night REITs For 2019

SWAN Pick #1: Ventas, Inc. (VTR) is a diversified healthcare REIT with an excellent portfolio mix of around 1,200 assets in nearly every healthcare sub-sector, with only modest (1%) exposure to skilled nursing. With locations in the U.S., Canada, and United Kingdom, Ventas has successfully built a solid strategic vision, with foresight, innovation, proactive capital allocation decisions, rigorous execution and a stable, expert team.

On the third quarter earnings call, CEO Debra Cafaro explained, “… we are very encouraged with the recently reported continued improvement in senior living starts, which are at a five-year low. Importantly, in primary markets, net absorption in assisted living in the third quarter of 2018 was the strongest third quarter for net demand on record.”

If current trends continue, the current supply demand equation will most likely reverse… and that’s why Ventas’ senior housing assets continue to be so highly valued. Their best-in-class senior housing portfolio is second to none.

Also, Ventas has a fortress balance sheet, including a war chest of liquidity – nearly $3 billion – and worthy of a credit upgrade (from BBB+ to A-). In 2018, for the third time this year, Ventas improved its full-year outlook for normalized FFO per fully diluted share, now forecast between $4.03 and $4.07. We maintain a STRONG BUY, and we find this REIT attractive based on its highly defensive revenue generators and discounted valuation; shares trade at 15.4x P/FFO and yield 5.1%.

Source: FAST Graphs

SWAN Pick #2: Kimco Realty (KIM) is a shopping center REIT and considering the company’s transformation over the last five years, it’s even more obvious that this open-air Shopping Center REIT is “ dirt cheap.”

Kimco’s 2010 portfolio included 816 properties scattered across the U.S., and today, KIM counts 450 properties across 78 million square feet of leasable space, primarily in the top 20 U.S. markets, which provide 80% of ABR (annual base rent). Those markets project a population growth of 6.3 million within the next 5 years.

Kimco has been actively managing risk by focusing on retailers that are thriving: 56% are service-oriented and 39% are omni-channel players. Around 75% of ABR is generated from grocery anchored centers. Kimco has essentially debunked the “retail apocalypse” narrative by focusing on a tactical strategy of owning the very best shopping centers in the very best markets.

Kimco has around $800 million of redevelopment projects underway, expected to generate around $50 million of net operating income (or NOI). Of note, its multi-phase mixed-use redevelopment Pentagon Centre property (a 55/45 JV with the Canada Pension Plan Investment Board) is across the street from Amazon’s (NASDAQ:AMZN) newly-announced National Landing HQ project (with future phase entitlements already secured to allow for additional residential, retail, office and hotel space).

I’ve suggested Kimco is awaiting a credit upgrade that could put the company in the elite A-rated club. The company’s balance sheet and liquidity position are in excellent shape; their weighted average debt maturity profile is 10.7 years, one of the longest in the REIT industry. And Kimco has over $2 billion available on its unsecured revolving credit facility, which provides a significant liquidity for any opportunistic funding refinements.

Remember, too, that Kimco owns 9.74% of private grocer, Albertsons, a company that itself expects over $1 billion in free cash flow over the coming year that could help support a 2019 IPO (we believe this represents ~$500 million in value, KIM share).

With KIM’s share price at a hefty discount to the company’s 4-year trailing P/FFO, the company has been one of the most unloved REITs these past 4 years… but with a growing FFO per share in 2019 and 2020, it indicates to me the dividend is getting ever-safer. We maintain a STRONG BUY based on Kimco’s recycling, redevelopment, and strong balance sheet. Shares trade at 11.2x P/FFO with a dividend yield of 6.6%.

Source: FAST Graphs

SWAN Pick #3: W.P. Carey (WPC) has been in business for over 45 years and is one of the largest owners of net lease properties and ranks among the top 25 REITs in the MSCI US REIT Index. WPC’s enterprise value is approximately $17 billion of “mission critical” commercial real estate, including 1,186 properties covering approximately 133 million square feet.

Its portfolio of high-quality single-tenant industrial, warehouse, office and retail properties is subject to long-term leases with built-in rent escalators. Assets are primarily in the U.S., with 30% exposure in Northern and Western Europe; and well-diversified by tenant, property type, geographic location and tenant industry.

The company recently expanded after closing on its strategic $5.9 billion merger with CPA:17 (non-traded REIT) which improves W.P. Carey’s earnings quality, enhances diversification, and increases size and scale. Carey also exited its non-traded retail fundraising, which will ultimately lead to more stable and predictable earnings. The company just increased its dividend, and we believe share prices remain attractive based on the P/AFFO multiple (of 13.1) and dividend yield of 5.8%. We maintain a BUY.

Source: FAST Graphs

SWAN Pick #4: Tanger Outlets (SKT) is headquartered in Greensboro, North Carolina, and operates and owns (or has an ownership interest in) 44 upscale outlet shopping centers in 22 states, coast to coast and in Canada, over approximately 15.3 million square feet, leased to over 3,100 stores, operated by more than 530 different brand name companies. Tanger has over 37 years of experience in the outlet industry. The company reports annual traffic of more than 189 million shoppers.

While department stores across the country account for more than 350 million square feet of mall space (per an article by daughter Lauren Thomas), Mall REIT Tanger has zero department store exposure. And even though Tanger’s 2018 total return (so far), is less than I’d like, I still strongly favor Tanger as an investment.

Why? Well, Tanger’s not really a Mall REIT. Sure, the company leases space to many mall tenants, but there are two obvious differences:

(1) Outlet centers are not enclosed and therefore occupancy costs are much lower for outlets than malls.

(2) Outlet centers have no department stores, and this means they’re much less capital intensive when it comes to redevelopment.

When a department store closes or vacates, the landlord must spend upwards of $20 million to redevelop the box, and densification projects could cost up to $50 million. In addition, in-line mall rents average significantly more than an outlet property.

The two primary advantages for outlets: Cap-ex spending is much more predictable, and, occupancy costs are more attractive. Being a low-cost provider in the retail brick and mortar sector is an important competitive advantage enjoyed by Tanger.

Tanger’s balance sheet is also strong. While the company hasn’t needed to redevelop a Sears store, the company must maintain adequate resources to re-tenant vacant space, and maintain the properties. Most notable is Tanger’s strict capital market discipline, and the 94% of square footage not encumbered by mortgages – this provides the company with superior flexibility and access to liquidity.

As for being moat-worthy, Tanger is the only “pure play” outlet company. Some peers have outlet centers, and some are even joint ventures (including with Tanger), but Tanger has an exclusivity and focus on outlets that attracts me, when assessing a Top 10 REIT. Tanger is a STRONG BUY as shares trade at 9.7x P/FFO and a dividend yield of 5.9%.

Source: FAST Graphs

SWAN Pick #5: American Campus (ACC) is the largest owner, manager and developer of high-quality student housing communities in the U.S. The company is fully integrated, self-managed and self-administered, with expertise in design, finance, development, construction management and operational management of student housing properties.

At the end of Q3-18, the company owned 168 student housing properties containing approximately 103,500 beds. Including its owned and third-party managed properties, ACC’s total managed portfolio consisted of 202 properties with approximately 131,900 beds.

While ACC underperformed in 2017 (-14%), we saw the opportunity for shares in this best-in-class REIT to rebound in 2018, and here, close to year-end, I’m quite pleased with ACC’s total return.

At the start of the year, there were only two publicly-traded, “pure play” campus housing REITs: ACC and Education Realty Trust (EDR). But by October, EDR had been sold for $4.6B to privately-held Greystar (the largest operator of apartments in the U.S., with operations in over 150 markets globally, managing over 480,000 units/beds, with an aggregate estimated value of over $80 billion)

So now, ACC remains the only publicly-traded “pure play” campus housing REIT.

ACC reported Q3-18 FFOM per share of $0.44 per fully diluted share or $60.6 million (versus $0.45 and $62.1 million at Q3-17). The decline was primarily due to capital recycling activity completed in Q2-18 and construction of an on-campus development project with the University of California, Irvine in the prior year period. Q3-18 occupancy was 97.0 % (versus 95.4% for Q3-17).

And earlier this month (December), ACC started construction on an approximately $630 million residential community for participants of Disney Internships & Programs at Walt Disney World Resort (FL), as developer, manager and owner of the new purpose-built housing via a 75-year ground lease.

Overall growth in the specialty campus housing sector is driven by strong demographic trends – primarily college enrollment trends. Between 2009 and 2020, college enrollment is projected to increase by 13% to approximately 23 million students, and with it, a strong demand for campus housing.

Analysts forecast ACC’s FFO/share to grow by 9% in 2019 and 5% in 2020. And the company has been averaging 5% in dividend growth each year. One of the big reasons that I tout ACC is because I believe the company is the best capital allocator. We maintain a BUY as shares trade at 18.8 P/FFO with a dividend yield of 4.2%.

Source: FAST Graphs

SWAN Pick #6: Public Storage (PSA) built its first self-storage facility in 1972 and today operates thousands of unique and diverse company-owned locations in the U.S. and Europe, totaling more than 142 million net rentable square feet of real estate. Public Storage is among the largest landlords in the world.

The size and scope of PSA’s operations have enabled the company to achieve high operating margins and low level of administrative costs relative to revenues, through centralization of many functions, such as facility maintenance, employee compensation and benefits programs, revenue management, and development & documentation of standardized operating procedures.

The absence of new supply after the 2008/2009 financial crisis, along with weak job growth were “tailwinds” for the self-storage business. In 2016, PSA’s revenue growth declined for the first time in six years to 5.8%, and, in 2017, decelerated to 3.0%. Construction of new properties has increased significantly over the past three years.

PSA’s financial profile is characterized by strong credit metrics, including low leverage relative to total capitalization and operating cash flows. And PSA is one of the highest rated REITs – by major rating agencies Moody’s and Standard & Poor’s. The company’s senior debt has an “A” credit rating by S&P’s and “A2” by Moody’s.

The “Public Storage” brand name is the most recognized and established name in the self-storage industry, due to its national reach in major markets in 38 states, its highly visible facilities, and facilities’ distinct orange-colored doors and signage. We maintain a BUY based upon PSA’s financial muscle and valuation: shares trade at 193x P/FFO with a dividend yield of 3.9%.

Source: FAST Graphs

SWAN Pick #7: Physicians Realty Trust (DOC) is a REIT focused on the Medical Office Buildings (or MOB) healthcare sector, the company has exploded out of the gate since its Q2-13 IPO of approximately $124 million, to now, with a Q3-18 portfolio of $4.3 billion, 250 healthcare properties across 30 states; comprising approximately 13.5 million square feet, about 96.0% leased; with a weighted average remaining lease term of approximately 8 years.

The strong occupancy ratio illustrates DOC’s ability to attract and lease space to additional physicians within its facilities. In turn, this contributes to a robust referral ecosystem that helps healthcare partners reach their clinical and business goals.

Eight of DOC’s top ten tenants have an investment grade rating, and the other two have very strong balance sheets without a credit agency report. Nearly 90% of DOC’s portfolio was located either on campus with a hospital or other healthcare facility… or strategically located and affiliated with a hospital or other healthcare facility.

Nearly 93% of the annualized base rent payments are from triple-net leases (where the tenant is responsible for operating expenses relating to the property, including real estate taxes, utilities, property insurance, routine maintenance/repairs, and property management).

In my opinion, MOB’s are mispriced, given their strong operating fundamentals, compared with other office REITs. Also, rent growth is strong (compared to net lease REITs), and DOC has been transitioning to investment grade rated tenants.

In addition, DOC’s average building size has increased substantially since the IPO; the company’s average building size is just over 54,000 square feet.

Rapidly increasing demand and consumerism will require care to be provided in a more efficient and convenient manner. Outpatient MOBs offer convenience to consumers, while allowing providers to efficiently integrate care in a single, efficient location. The highest revenue generating services can be executed off-campus – reducing cost and increasing provider profit.

Given the favorable demographics driving healthcare (per-capita healthcare spending by individuals aged 65 and over is nearly 3x that of other groups on an annual basis), we believe DOC is well-positioned to grow.

The company’s balance sheet remains in great shape; the dividend getting safer and safer as a result of the declining payout ratio. The company has maintained discipline, and we believe the management team is doing an excellent job in the MOB sector – one of the most desirable healthcare sectors. We maintain a STRONG BUY based on DOC’s valuation: P/FFO is 15.8x and dividend yield is 5.3%.

Source: FAST Graphs

SWAN Pick #8: STAG Industrial (STAG) stands for “Single Tenant Acquisition Group.” The company precisely targets industrial properties, adhering to a relative value investment model, and by developing operational expertise in its target markets, STAG has consistently delivered both income and growth to its shareholders. The company’s asset selectivity is very good, and the prospect for continued pipeline fulfillment looks promising.

There’s certainly been price volatility along the way, but the predictability of dividend performance (and monthly payments) has given me the confidence to know any short-term fluctuations would average out.

Since going public, STAG has grown from 105 buildings to 381 buildings in 37 states, with approximately 75.4 million in rentable square feet. STAG owns standalone (free-standing) buildings, with an average size around 215,000 square feet. That’s important because it makes STAG the 2nd largest industrial REIT based on that metric.

When assessing moats (competitive advantages), we pay close attention to the sustainability of the dividend, gleaned from the company’s economic profits and potential dividend growth.

STAG defines Class B (secondary markets) as “net rentable square footage ranging between approximately 25 million and 200 million square feet, and located outside the 29 largest industrial metropolitan areas.” Because of its secondary market industrial investment rationale, the company enjoys low capital expenditures and lower tenant improvement costs (relative to other property types).

Also, its Class B tenants tend to stay longer, since moving costs and business interruption costs are expensive relative to relocating a “critical function” facility. And secondary market rent growth has performed in‐line with primary market rent growth over the past ten years.

STAG refers to its model as a “virtual industrial park,” with a highly diversified set of geographic and industry assets, giving it a level of protection should negative trade impacts start to be evidenced.

Retention is a bigger risk for STAG because the company has shorter-term leases (than O). However, the company has built impressive scale that enables more predictable tenant retention; 77% in Q3-18 on 1.3 million square feet expiring in the period; and 83% year to date.

Over the years, STAG has become a better REIT in part by the company’s disciplined balance sheet management practices. With debt to EBITDA below at 5.1x at the end of Q3-18, the balance sheet continues to strengthen after an active few months in the capital markets. No debt is maturing until September 2020.

While STAG hasn’t obtained an A-rating (like Realty Income (O)), the company enjoys an investment grade balance sheet (Fitch BBB/Stable Outlook) and maintains a low cost of capital – which provides the company with a large and persisting opportunity to acquire mispriced industrial real estate assets.

I consider this monthly-paying REIT to be well-positioned to generate impressive growth in 2019. The company has proven it can operate a nationwide platform, and because of enhanced scale and improved cost of capital, STAG should be able to continue generating steady and reliable earnings and dividend growth. We maintain a BUY as STAG trades at 14.5 P/FFO with a dividend yield of 5.5%.

Source: FAST Graphs

SWAN Pick #9: Simon Property Group (SPG) owns, develops, and manages premier shopping, dining, entertainment and mixed-use destinations. As of Q3-18, the Mall REIT owned or held an interest in 207 income-producing properties in 37 U.S. states and Puerto Rico: 107 malls, 69 Premium Outlets, 14 Mills, 4 lifestyle centers, and 13 other retail properties. Internationally, Simon had ownership interests in 19 Premium Outlets in Japan, South Korea, Canada, Malaysia, and Mexico; and eight Designer Outlet properties in Europe, plus one in Canada.

The company also held a 21.2% equity stake in Klépierre SA, a publicly traded, Paris-based real estate company that owns, or has an interest in, shopping centers in 16 European countries; plus investments in Aéropostale, Authentic Brands Group, and HBS Global Properties.

Simon’s portfolio is well-diversified from a geographic, tenant, and revenue by real estate sector perspective. Simon’s largest mall space tenants include The Gap (GPS) (3.4% of base rent), Ascena Retail Group (ASNA) (1.9% of base rent), L Brands (LB) (2.2% of base rent), Signet Jewelers (SIG) (1.5%), and PVH (PVH) (1.5%).

Simon does an excellent job releasing space to new tenants, and it possesses pricing power given its high-quality properties. The company has reasonable debt levels with a balanced debt maturity schedule and a solid fixed charge coverage ratio. Simon’s debt ratings are among the best unsecured debt ratings in the REIT industry, and this underscores the balance sheet strength.

Simon’s current liquidity is $7 billion, and the company continues to have excess cash flow, which it can reinvest in the business. Simon is the only mall REIT with an A and A2 rating, providing it with superior operating financial flexibility to continue to create long-term value for shareholders.

Simon has delivered exceptional dividend growth. Last quarter, Simon announced a dividend of $2.00 per share, an increase of 11.1% year over year. The company will pay at least $7.90 per share in dividends, an increase of more than 10% compared to the $7.15 paid last year. At the end of October, Simon raised its full-year FFO guidance to $12.09 to $12.13 (compared to the original guidance of $11.90 to $12.02). And this new range is a growth of approximately 7.9% to 8.2% (compared to reported FFO in 2017).

Simon is the overall best retail REIT, armed with a fortress balance sheet and best-in-class tenant roster. We believe the company is positioned to deliver strong returns in 2019, and the recent earnings guidance helps indicate SPG’s enhanced value, long term. We maintain a STRONG BUY as shares trade at 15.1x P/FFO with a dividend yield of 4.4%.

Source: FAST Graphs

SWAN Pick #10: CyrusOne (CONE) rounds out our Top 10 SWAN picks for 2019. The company specializes in enterprise-class, carrier-neutral data center properties, providing “mission-critical” data center facilities that protect and ensure the continued operation of IT infrastructure for approximately 1,000 customers, including more than 200 Fortune 1000 companies, via more than 45 data centers worldwide.

Quick story: when I recently learned that self-driving cars will be generating around 4,000 GB (4 terabytes) of data a day – 2,500 times the amount of data the average person generates today, I got very excited about the future for Infrastructure and Data REITs.

Over the years that we’ve covered CONE, I’ve seen this Data Sector REIT continue to become stronger, and part of my evidence is the recent credit upgrade. On Sept. 26, S&P Global Ratings raised its issuer credit rating on CONE to ‘BB+’. The outlook is stable.

At the same time, S&P raised the issue-level ratings on CONE’s senior unsecured credit facility and senior unsecured notes to ‘BBB-‘. The recovery rating remains ‘2’, indicating S&P’s expectation for substantial (70%-90%; rounded estimate: 80%) recovery for lenders in the event of a payment default.

Those upgrades follow CONE’s added common equity offering and S&P’s “expectation that the company (CONE) will use the proceeds to pay down debt and reduce debt to EBITDA to the mid- to high-5x area by year-end 2018.” It was earlier this year that CONE raised approximately $150 million in equity, under less attractive capital market conditions. These transactions demonstrate CONE’s commitment to a prudent funding strategy and commensurate with its financial policy.

CONE had a solid Q3-18 as shown by year-over-year growth in revenue of 18%, EBITDA growing 16%, and normalized FFO up 10%. The company’s NOI grew 15% in Q3-18 driven primarily by the increase in revenue and Normalized FFO grew at a slightly lower rate than adjusted EBITDA driven primarily by an increase in interest expense to fund the development pipeline and acquisition activity, while normalized FFO per share was flat year over year as a result of equity issued to fund growth and manage leverage.

CONE’s revenue backlog as of the end of the quarter was $89 million – the highest quarter-end backlog in the history of the company, and second straight quarter at a record level. This backlog sets up CONE for continued strong growth into 2019, as analysts forecast growth of 10% in 2019 and 2020, which means the company should easily sustain its dividend growth record going forward. We maintain a STRONG BUY as shares trade at 18.2 P/FFO with a dividend yield of 3.1%.

Source: FAST Graphs

Author’s note: Brad Thomas is a Wall Street writer and that means he is not always right with his predictions or recommendations. That also applies to his grammar. Please excuse any typos and be assured that he will do his best to correct any errors if they are overlooked.

Finally, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking.

Disclosure: I am/we are long O, SPG, VTR, SKT, ACC, DOC, STAG, WPC, CONE, KIM. 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.