New Preferred Issues Keep On Coming
By: Tim McPartland,
The flow of new preferred stock issues coming to market in the last week or two has picked up as companies hurry to lock in favorable rates prior to a possible December Fed Funds rate hike.
There are 3 new issues now trading on the OTC Grey Market that we have not covered. They are from REIT Public Storage (NYSE:PSA), specialty finance company Eagle Point Credit Company (NYSE:ECC) and apartment REIT Bluerock Residential Growth (NYSE:BRG).
As most of you know Public Storage is the largest issuer of preferred shares and only a couple of months ago they broke the 5% floor in coupons with a 4.95% issue. With this new issue they dropped the coupon even further with a coupon of 4.90%. PSA is an investment rated REIT involved in self-storage. PSA virtually prints money, with both net income and funds from operations of over 1 billion dollars annually.
These shares have the normal REIT preferred terms, being cumulative, optionally redeemable in about 5 years and non qualified for preferential tax treatment.
This new issue is now trading on the OTC Grey Market under the ticker PBSRP and is trading around $24.60/share.
Potential investors should remember that while the coupon on this issue is meager if we see interest rates move higher the price will fall and the current yield will rise. One could take a small position to being with and then add more when/if the current yield improves.
You can compare the various PSA issues outstanding on our Swaps page here.
Further details of this issue can be found here.
Eagle Point Credit Company has sold a new 7.75% term preferred issue. Being a term preferred issue the issue has a mandatory redemption date of 10/30/2026.
The issue has some of the typical preferred stock terms being optionally redeemable in about 5 years and dividends are cumulative. Dividends are non qualified for tax purposes. ECC is a closed end management company and qualifies as a regulated investment company (RIC) which means the company must derive 90% of their income from qualifying sources, such as dividends and interest. Being a closed end management company also subjects the company to meeting the leverage rules, meaning that they must have 200% asset coverage on their outstanding preferred stock. This is a measure of safety for preferred stock holders. Additionally there is a penalty rate that applies to this issue if either a dividend is not paid or the issue is not redeemed on time. The penalty rate is an additional 2% annually.
ECC is a complicated company as the majority of their holdings are in CLOs (collateralized loan obligations). CLOs are complicated debt and equity instruments and we advise that anyone considering investment in ECC issues read and understand the prospectus for this issue. You can find it here.
ECC currently has a 7.75% preferred issue outstanding (NYSE:ECCA) which has a maturity in 2022 which is trading at $25.87/share. Additionally they have a 7% baby bond outstanding (NYSE:ECCZ) which matures in 2020 and is now trading at $25.50/share.
Shares will be trading on the OTC Grey Market with a temporary ticker of ECRPO.
Further detail on this issue may be found here.
Bluerock Residential Growth REIT (NYSE:BRG) has sold a new issue preferred with a coupon of 7.125%. This issue has all of the typical terms of preferred stock issued by a REIT. It is cumulative in respect to dividends, optionally redeemable in about 5 years, perpetual and non qualified for preferential tax treatment.
BRG is somewhat of a hybrid apartment REIT as they not only own outright apartment complexes, but they also act as a lender to others who are building apartments, typically with an option to purchase the project when completed.
Bluerock has 2 other preferred issues outstanding. BRG-A which is a 8.25% coupon issue trading at $26.45 and BRG-C which is a 7.625% issue trading at $26.31. Please note that these issues differ in important ways from the new issue. The older issues contain penalty coupon rates that will be applied if the issue is not redeemed by a given date. Additionally the company must maintain a 200% asset coverage ratio and investors are able to “put” (require the company to purchase the shares) the shares back to the company at $25 plus accrued dividends after a given date. These are important differences that potential investors should consider if you are interested in these shares.
Shares are now trading on the OTC Grey Market under ticker BLRKP at around $24.57/share.
Further details of this issue are available here.
For investors that are not familiar with buying on the OTC Grey Market we have a short primer describing the process here.
To get more information on preferred stocks, screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.