Retail REIT National Retail Properties Sells a Stingy Preferred Issue
By: Tim McPartland,
National Retail Properties (NYSE:NNN) has sold a huge preferred offering with a rock bottom stingy coupon of 5.20%. Obviously the company is just doing their job for their shareholders by selling low coupons shares, but as income investors we have no interest in a perpetual preferred with this low coupon.
NNN is a triple net lease REIT with over 2,200 properties in 47 states in their portfolio. The company has stellar financials which makes them worthy of investment grade ratings.
The problem we have with these low coupon REIT preferreds is they will be hit very hard, when and if interest rates begin to move higher. For those that are looking for a safe income stream these issues (low coupons) may be acceptable. They may not care if their $25 share trades down to $15 or $20 as long as they have locked in a safe dividend payment. If this was a term preferred issue or a “baby bond” with a low coupon it would be acceptable to us, but it is perpetual and highly likely to never be redeemed.
NNN has 2 other preferred issues outstanding which become redeemable in 2017 and 2018. The NNN-D issue has a coupon of 6.625% and likely will be redeemed in February, 2017, while the NNN-E issue has a coupon of 5.70% and is redeemable in 2018. The yield to worst (the yield that would be received if redeemed on the first available redemption date) on these issues is 2.51% and 3.84% respectively. You can look at these issues side by side on our swaps page here.
The new issue has the typical terms–optionally redeemable in 5 years, cumulative and non qualified for favorable tax treatment.
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