Tuesday, October 28, 2008


I mentioned the other day that I bought 50 shares of a cumulative preferred issue from First Industrial (FRPRK).  It would be fair to say that the common stocks of Real Estate Investment Trusts are crashing and their respective preferred issues are following suit.  (see post OLD GAMER HATCHES A PLAN AROUND 1 P.M TODAY)  I thought that this $25 par value preferred stock of a large industrial REIT  had just been demolished when I bought it at $11.10.   After I bought this security, the CEO was let go. Yahoo! Finance  After reading the S & P report on FR today, it appeared the Board of Directors wanted a change in direction from the former CEO's approach of selling properties to generate capital gains rather than just holding onto the better ones for their income generating potential.  S & P expects a common stock dividend cut.  Cutting the common dividend is in my opinion good for a preferred stock shareholder since there is then more money available to pay them.  

The FR common fell yesterday to 5.92 and my preferred shares, FRPRK, fell late in the day to 9.51.  At that price, the preferred dividend yield is over 19% and that dividend is cumulative.  Book value is  21.7  FR: Key Statistics for FIRST IND RLTY INC - Yahoo! Finance  Last month's short interest is over 30% of the float.  Total debt is as of the last quarter 1.96 billion.  I checked the last 10-q and found that 1.53 billion of that debt is senior unsecured which has precedence over my preferred shares in the event of bankruptcy (see note 4).  Only a 1.6 million is due the remainder of this year as of 6/30/08, and 133 million in 2009 and 15.5 million in 2010.  Maybe someone can enlighten me but I do not see a problem.  While it is true that First Industrial can no longer support its common stock dividend by selling property, this will mean a dividend cut for the common shareholders, but at 5 and change any new shareholder at the current price would accept that as a fait accompli.   So I can at least justify to myself now buying back the common shares that I just sold at close to 29 a month ago, or the other 50 shares of the preferred to round out the lot to 100 shares.  

I view part of the problem is coming from hedge funds driving down the price of all REITS by shorting the stocks on downticks, which is now permitted, and forced liquidation by funds that invest in REITS that are highly leveraged.  Look at the chart for SRO and SRQ, two closed end funds that are leveraged, which invests exclusively in REITS and their preferred issues. (a link to the sponsor's web site,DWS Investments : Closed End Funds: Prices & Performance) At least three other closed end funds are large holders of FR.FR: Major Holders for FIRST IND RLTY INC - Yahoo! Finance (see link to Neuberger & Berman NRO which has about 40% leverageNeuberger Berman - Closed End Funds  ); Nuveen Real Estate Fund (leveraged over 30%-JRS - Nuveen Real Estate Income Fund); & ING CLARION Global Real Estate (IGR)-ING Clarion Global Real Estate Income Fund - ING Real Estate.  This last one is the largest closed end investment fund shareholder in FR and it is leveraged over 50% according to its last SEC filing. nvcsrs  It does not own any FR preferred but I happened to notice that it was a big shareholder in all three preferred issues from Strategic Hotels (BEE) which is not good for the recent 100 shares of BEEPRA that I bought.     That may explain the recent weakness in those shares.  This ING closed end REIT fund was down almost 16% yesterday to 4.17.  While it is impossible to know for sure, it seems like the short sellers are forcing these leveraged funds into a slow burn to oblivion.  If true, this creates an artificially low price for the REITS as a class and I suspect that the shorts have way overplayed their hand.  This is just a theory of mine.  REITs would have been week this year regardless of any extraneous factor.  The combination of leveraged owners of these securities, falling prices and aggressive shorting on downticks has taken many of them to levels that would be hard to justify unless a depression is around the corner.

Another preferred security that I have recently sold, both in 100 shares lots, was bought back yesterday with a below market limit order for 50 shares.  The security is Cousins Preferred B (CUZPRB).  The order was filled at 11.  It is a $25 par value cumulative preferred with a 7.5% coupon.  That gives me an effective yield of 17.05% annualized paid quarterly, with ex dividend on 10/30/08.  I had previously bought the CUZPRA on separate occasions this year and selling it at over 20 both times.  It has a slightly higher coupon at 7.75%.  But yesterday, the CUZPRB was yielding more based on the price so I bought it.  I am finding that odd limit orders placed well below the market are being filled late in the day, as the market swoons into the close.  This is a link to the yahoo profile on Cousins Realty.CUZ: Profile for COUSINS PROP INC - Yahoo! Finance and a link to the last earnings release-Cousins Properties Reports Results for Quarter Ended June 30, 2008: Financial News - Yahoo! Finance

I am not a financial advisor but an individual investor trying to navigate my way through a mind field. In these posts, I am acting as an unpaid financial journalist and an occasional ornery political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.    

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