The preferred shares of AmTrust Financial (NYSE:AFSI), a property and casualty insurer, have been getting absolutely hammered today–this after they had already fallen in the last couple of weeks by 10-15%.
Here is a chart for for the AFSI-B issue which is a 7.25% non cumulative preferred.
While we don’t have the time to do a full article on this situation we would caution investors to be careful with these shares. AmTrust is controlled by the Karfunkel family and these people have somewhat of a reputation for operating on the edge of the rules and regulations. While there is most likely an opportunity for a capital gain here only folks that have lots of spare cash and like Las Vegas should venture into this situation.
SPECULATORS buy while solid income investors watch from afar.
Teekay Offshore Partners (NYSE:TOO) is going to offer and new fixed-to-floating rate preferred which will have the permanent ticker of TOO-E.
TOO has a 7.25% issue and a 8.50% issue currently outstanding and each of them is trading under $25. They are not yet redeemable.
The new issue is cumulative and redeemable starting in 2025.
The company press release can be read here.
SEC documents are here.
Large shopping center REIT Saul Center (NYSE:BFS) will be selling a new preferred issue. Given the quality of the company we would expect that the coupon will be low (in the 5’s).
Details have not been announced except it will have the standard cumulative, redeemable perpetual terms.
Preliminary details are here.
The company has a 6.875% preferred issue outstanding (BFS-C) which becomes redeemable on 2/12/2018 and likely will be redeemed with the proceeds of this issue.
While BDC Great Elm Capital priced a new issue of baby bonds at 6.75% which was higher than expected there is little comfort in this rate given the issues that Great Elm has had with Avanti Communications.
Pricing details are here.
We are watching the REITs today as sellers continue to sell them off–they are a hated segment of the marketplace right now.
In particular we are watching Independence Realty Trust (NYSE:IRT) as it hit $9.56 a few minutes ago with a current yield of just over 7.50%. Only a couple of days ago it was selling around $10.10 with a yield of 7.07%.
If this selloff goes below $9.50 we are going to take a starter position (maybe 500 shares) as it will hit a current yield that is fairly tasty. While IRT isn’t the best apartment REIT it is by fair the most undervalued. The company is through a recycling of “C” class apartment communities into “A” and “B” properties which should bode well for the future.
REITs as a whole hit new 52 week lows today as the 10 year ticked 2 basis points higher. It is amazing to watch Realty Income (NYSE:O), Kimco (NYSE:KIM) and Tanger Outlets (NYSE:SKT) hit new lows. KIM is now yielding 6.67% and SKT is yielding 5.52%. These are on our watch list. The only question is when to buy–these are really solid companies that are unlikely to be affected either by interest rates or consumer preference in a major sort of way–but the market does what it does regardless of what we think.
This morning retail sales for December were announced as being fairly strong which moved the 10 year treasury up by 3-4 basis points. Additionally core consumer prices moved up by .3% the strongest gains in nearly a year. Overall the CPI moved up just .1%.
With rising fuel prices we could see these numbers come in a bit higher in the months ahead. Additionally with the tax cut there most certainly will be some strengthening in consumer spending in the spring.
As we noted yesterday we think rates will hang in the 2.54% to 2.60% area for the next week or 2, but we need to be mindful that if rates pop above 2.60% we will have some negative income securities-in particular in the REITs which are trading at 52 week lows right now.
Great Elm Capital (NASDAQ) is selling a new baby bond issue of 2,280,000 shares.
Great Elm Capital holds 24% of their assets in Avanti Communications and 36% of their investment income in the last year was “payment in kind” from Avanti. Avanti is a satellite operator and has had very significant difficulties and could fall into bankruptcy in the next year.
At this point in time this new issue has not been priced, but the BDC currently has a baby bond issue outstanding (NASDAQ:GECCL) with a coupon of 6.50% that is trading around $25.40/share indicating that this new issue should come to market in the 6.375% area.
Being a baby bond this issue will not trade on the OTC Grey Market prior to permanent exchange trading.
When further info is know we will post it here.
Preliminary information can be found here.
As we had written about on (expecting interest rate stabilization) Tuesday interest rates (10 year treasury) have stabilized and for the moment markets are settling down.
The 10 year treasury hit 2.60% on Wednesday and REITs and many baby bonds and preferred shares took 1-5% hits as some weak hands sold the spike. It is our belief that anyone selling preferred stocks and baby bonds made a mistake. By selling one puts themselves in a position to be uninvested and there are few good alternatives available–sellers like these “buy high and sell low”–the opposite of what this investing game is all about.
On the other hand let’s face it that the marketplace has “hated” REITS and shares are trading right at 52 week lows. While there are no fundamental issues with REITs investors have to understand that if the marketplace decides they dislike an investment class there is little any of us can do to change it. If you are a holder assuming the fundamentals are solid I guess it is probably best to hold on.
Interest rates were as high as 2.57% today before finally closing at 2.54% and for the moment we wouldn’t expect rates to move dramatically higher. Sure they might head back up to 2.60%, but investors should be expecting that by now and there should be fewer “knee jerk” reactions to moves to this level. If rates were to head up above 2.60% we could have a bit more “blood”.
BDC Saratoga Investment (NYSE:SAR) has announced earnings and while we have not combed through the earnings with a fine tooth comb they look like excellent results.
Saratoga has a nice 6.75% short duration baby bond outstanding with a current price of $25.97 for a current yield of 6.50%. 1st call date is 12/21/2019 with a maturity date of 12/30/2023.
We invite you to read the company press release.
Annaly Capital (NYSE:NLY) sold a 6.50% fixed to floating rate preferred yesterday which is trading weakly today in the area of $24.65/share.
It would appear that the timing of the issue is the culprit as it was sold just as the 10 year treasury ticked higher by 10-12 basis points.
Typically perpetual preferreds would trade weakly in a market of rising interest rates such as we have seen in the last 2 days.
Further info is here.
We would expect this issue to have very limited upside in the weeks and months ahead if interest rates remain at current levels.
The temporary ticker for the new GasLog preferred has been announced and it is GSLPF.
Shares will be trading OTC today (Wednesday).
Further details are here.
GasLog Partners LP (NYSE:GLOP) has sold a new 8.20% fixed to floating rate preferred issue.
The shares carry the 8.20% fixed rate until 2023 at which time the coupon will shift to floating rate.
GasLog Partners LP is a rare master limited partnership as the company has chosen to be taxed as a C-Corp thereby sending 1099’s to investors instead of the dreaded K-1.
GLOP has a 8.75% fixed rate issue (NYSE:GLOP-A) currently outstanding which is trading at a price of $26.55 for a current yield of 8.24%.
The OTC Grey market ticker has not been announced, but we would expect that it will be announced Wednesday for trading starting on Thursday. If you can pick up shares in the $25 area there should be an opportunity to at least garner a 50-75 cent “flip” for a short term gain.
Further details are here.
The 10 year treasury moved up a measly 7 basis points today which was enough to give a sound spanking to REITS and utilities.
Utilities moved lower by 1% today, with water utility Artesian Resources (NASDAQ:ARTNA) being the largest utility loser losing over 6%. Many other issues fell by 2-3%.
REITs took a severe shellacking with the average share falling by 1.5% with many individual issues falling by 2-3%. No particular sector was spared losses, but as we have come to expect the retail REITS took some of the largest losses.
1 of our favorite apartments REITS, Independence Realty Trust (NYSE:IRT) took a 3% loss today. We had sold our shares a few weeks ago locking down a nice capital gain, but if IRT was to sustain further losses in the days ahead we might be repurchasing shares.
While the average preferred stock sustained a loss of a couple of pennies today a few issues took outsized losses. GasLog 8.75% preferred (NYSE:GLOG-A) fell 64 cents after announcing a new preferred offering. Hersha Hospitality preferred HT-D and HT-E fell by 72 and 63 cents respectively.
We would encourage investors to take todays losses in stride as it is highly likely share prices of income issues will reverse course on Wednesday.
The 10 year treasury is moving higher today by 5 basis points recently trading at 2.53% which is the highest yield in the last 8 months or so.
As we have continually seen, when rates move higher, REITs take losses in the 1/2 to 1% range.
These minor rate movements are of little real consequence to the overall financials of REITs, but markets move as they do and the pain that occurs is real to investors.
With the FED now letting bonds roll off of their balance sheet we believe that there will be rate pressure all year as economic conditions remain firm not only in the U.S., but in Europe and Japan.
We think rates will move higher to the 3% area before the year is out and we just hope that they move in a slow and orderly fashion. Assuming they move slowly share prices will adjust and recover a bit realizing that there is little to no real affect on REIT financials from slow, small interest rate moves.