Public Storage Prices New Preferred

Public Storage (NYSE:PSA) has priced their new preferred issue with a fixed rate coupon of 5.60%.

Of course the issue is perpetual, cumulative and NON qualified.

The issue is strongly investment grade with a rating of BBB+ from S&P and A3 from Moodys.

They will sell 11.4 million shares. The optional redemption period starts 3/11/2024.

The pricing term sheet can be read here.

PSA has 12 other preferred issues outstanding with coupons ranging from a low of 4.90% to a high of 6%.

The new issue will trade with the permanent ticker symbol of PSA-H when trading hits the big board.

The issue will trade immediately on the OTC Grey market under the ticker of PSALL.

Not Too Hot – Not Too Cold

Economic releases continue to show an economy that is just about right for income investors-but we all know too well that this can change in an instant.

Today GDP was released at a level that was slightly above estimates for the 4th quarter of 2018, but some below the 3rd quarter. This is after yesterday we had factory orders come in pretty weak, which is in contrast to the Chicago purchasing managers index which came in kind of hot today compared to forecast. All in all it is a Goldilocks economy.

As an income investor I like calmness–BUT after the excitement of December and January–and the ‘deals’ that popped up for a while it seems boring. Preferred stocks and baby bonds are now mostly treading water after the super gains of previous weeks.

I find myself in need of a bargain to use some available cash. We have peeled off parts of very profitable positions to lock in some gains that were more like ‘gifts’. For instance the GasLog Partners GLOP-C was partially sold after a strong rise in price. Same of American Homes 4 Rent AMH-D issue. We have considered a partial peel off the Brookfield Property REIT BPRAP issue as well, but have continued to hold the full position.

We have not done wholesale selling to lock down gains (the above sales mentioned were only sales of partial positions), because honestly we have no place to go with funds-although there are a few reasonable deals available (see below).

Just this morning we did buy some of the RLJ Lodging $1.95 (7.9%) issue at $25.09. This is a $25/share convertible. It will go ex-dividend late in March and is off 50 cents in the last 10 days of so. We had noted Gridbird (and others) yakking about the issue and he has been playing this issue for years so we followed him into the issue–for now.

Public Storage Announces New Preferred Issue

Giant self storage REIT Public Storage (NYSE:PSA) has announced a new issue of perpetual preferred stock.

Recall that PSA just called for redemption PSA-Y which had a coupon of 6.375%. PSA must sell more preferreds OR raise the dividend for the common shares in order to continue to pay out REIT required 90% taxable income to equity holders.

Preliminary information can be found here.

It will be interesting to see what this coupon will be since the company is BBB+ rated by S&P and A3 by Moodys. I think it will come in around 5.50%.

mREIT AGNC Investment Prices F-t-F Preferred-UPDATED

UPDATE–the floating rate portion will be 3 month Libor plus a spread of 4.332% beginning 4/15/2024.

The pricing term sheet is here.

mREIT AGNC Investment (NASDAQ:AGNC) has priced their new fixed-to-floating rate preferred with the lowest fixed coupon portion (from a mREIT) that we have seen in a year since Annaly (NYSE:NLY) sold a f-t-f issue with a 6.50% fixed portion in January, 2018.

The initial fixed rate coupon is priced at 6.875% which will remain fixed until 4/15/2024 at which point it will flip to a floating rate. The SEC document has not been filed as of tonight and the spread for the floating rate period was not announced in the company press release (what the hell–a press release without all the details)

The company press release, which announces the fixed rate portion of the new issue can be found here.

The preliminary prospectus can be found here.

The issues will be junk rated (not rated), cumulative and NOT qualified for preferential tax treatment.

The company will be selling 9 million shares and there will be 1.350 million shares for over allotment.

Shares will trade tomorrow on the OTC Grey market under the temporary ticker symbol of AGNCO. The permanent ticker symbol will be AGNCM.

We will post final SEC documents with further details in the morning (assuming they are filed).

mREIt AGNC Investment Corp to Sell F-T-F Preferred

mREITs have been very active in the equity markets in the last 30 days and now we see a new preferred issue from AGNC Investment (NASDAQ:AGNC).

AGNC will sell a new fixed-to-floating rate issue with an optional redemption in 2024.

The terms will be typical–cumulative dividends, but not qualified for preferential tax treatment (REITs do not pay qualified dividends).

Of course the issue is not rated as very few mREIT issues are rated.

AGNC has 2 other preferred stock issues outstanding. AGNCB has a coupon of 7.75% and is trading around $25.50. While AGNCN is a fixed to floating rate issue with a 7% current coupon–the issue is trading around $25.65.

Preliminary information on the new issue can be found here.

Thanks to Nomad and others for keeping us on our toes.

Cash Machine REIT Public Storage Reports Earnings

Yesterday the cash machine we call Public Storage (NYSE:PSA) reported earnings for the last quarter and for last year, ending 12/31/2018, and as we have come to expect PSA continues to churn out massive net income.

Public Storage had 2018 revenue of $2.74 billion, with a full $1.711 billion being reported as net income. If we add back non cash depreciation of $483 million we would have about $2.2 billion of free cash.

PSA paid out $1.4 billion to common shareholders with another $216 million paid out to preferred shareholders.. This is a true cash machine unlike any other REIT.

The company carries debt of just $1.4 billion against equity of $9.1 billion–wow!!

Of course PSA has 12 preferred stock issues outstanding right now (it was 13, but the company called for redemption of the PSA-Y 6.375% issue) as they have chosen to finance the business with equity instead of with debt.

The companies earning release can be read here.

Air Lease Prices New Preferred Issue

Air Lease Corporation (NYSE:AL) has priced their new fixed-to-floating rate preferred with a starting fixed rate of 6.15%. The rate will trade at 3 month Libor plus a spread of 3.65% beginning in 2024.

From my perspective this is ridiculously low for an issue that is also non cumulative.

Of course we are pretty conservative, but anyone older than 30 knows that when the economy heads south (someday-who knows when) that airlines and those that lend to them are at the front of the line for problems.

The pricing term sheet can be seen here.

Regardless of what I think there no doubt will be plenty of demand for the issue.

The issue is rated BB+ by S&P and BB+ by Fitch.

Giant Aircraft Lessor Air Lease Corp to Sell Preferred Issue

Aircraft lessor Air Lease Corp (NYSE:AL) will sell a new preferred stock offering of fixed-to-floating rate preferred stock.

AL has aircraft with current book values of about $16 billion being leased to airlines across the globe.

While aircraft leasing can be a lucrative business when global economies are strong it can be the inverse if we go into a global recession and airlines begin to experience pressure on their revenues and balance sheets. As with many similar types of businesses Air Lease is highly leveraged–they carry debt of almost $12 billion against equity of $5 billion.

The company currently pays a 13 cent/share quarterly dividend.

This issue will be non-cumulative, but should be qualified for preferential tax treatment. The rate will be fixed until 2024 after which it will float with a 3 month Libor spread.

Preliminary information can be found here.

Brunswick Corporation Prices Baby Bonds

Brunswick Corporation (NYSE:BC) has priced their new notes with a coupon of 6.375% which is about where we believed they would price based upon the other 2 issues they have outstanding.

The issue is investment grade with S&P at BBB- and Moodys at Baa2. The issue will mature in 2049 and has a optional redemption date starting 4/15/2024.

There will be 8 million shares (bonds) sold in this offering with another 1.2 million available for strong demand.

This issue will not trade on the OTC Grey market as it is a debt issue. The ticker is likely to be BC-C (although it has not been announced). Bonds will likely begin trading in the next 7-10 days.

The pricing term sheet may be read here.

Brunswick Corporation to Sell More Baby Bonds

Once again Brunswick Corporation (NYSE:BC) is entering the marketplace to sell baby bonds. The bond will mature in 2049.

Being debt there will likely be no OTC Grey market trading.

The company has 2 other outstanding issues of baby bonds, both of which are investment grade.

BC-A is a 6.50% coupon issue which matures in 2048 and is trading around $25.45, while BC-B, which carries a 6.625% coupon, and matures in 2049 is trading around $25.80.

I expect this new bond will price between 6.375% and 6.5%.

Preliminary documents can be read here.

Monday Morning Kickoff

Quiet–very quiet, is a good way to describe the last couple of weeks of income security trading. With the 10 year treasury trading in a range of 2.63% to 2.70% last week it is obvious with a glance that there hasn’t been market moving data being released.

The DJIA traded in a range of traded in a narrow range of 25,762 to 26,053 before closing at 26,032–just like interest rates, the trading reflected the lack of information that the market deemed important. The only news (or at least speculation) was progress on the China trade front.

On Sunday (today as we write) President Trump announced a delay on any further tariffs on Chinese goods, which had been scheduled to increase on 3/1, as good progress is being made on the Chinese trade front. This likely will help stocks a bit early Monday, but since it was expected euphoria could fade fast.

The average preferred stock was up another dime to $24.40 while we see there are 215 $25 issues trading at $25 or below virtually unchanged from last weeks 216 issues.

Last week we posited the question of whether the FED had already started slowing the balance sheet run off as the previous 4 weeks showed a runoff of only $19 billion. Last week the question was likely answered as the runoff was a massive $47 billion which gives us a 5 week running total of $66 billion which actually is the largest 5 week runoff that has occurred.

Last weeks economic data releases continued distorted by the previous government shutdown. We had durable goods orders come in soft compared to forecast for December. The Philly Fed Index came in very soft at -4.1 as compared to 17 the month before and the 1st negative reading since 5/2016. The manufacturing Purchasing Managers Index-came in soft while the services Purchasing Managers Index came in a tad firmer last month. Existing home sales were softer than anticipated as the housing market continues in a tepid fashion. Leading indicators were released and it showed softness–but not certain why they bothered to release it as 3 of 10 components were missing due to the partial government shutdown.

All in all we would say the economy is far from overheating at this point in time and would think it would bode well to hold interest rates at current levels–certainly no chance of another interest rate hike by the FED in the next few months.

The economic calendar for the coming week is the largest schedule we have seen–maybe ever. Of course any number of the releases could again be delayed.

Key to the week will be testimony to congress from Fed Chair Powell on Tuesday and Wednesday.

Tuesday we have building permits, housing starts and the Case Shiller home price index. We also have what to us is ultra important and that is consumer confidence (of course everyone else yawns).

Wednesday we have pending home sales as well as factory orders.

Thursday we have the 1st and 2nd estimates of Q4 GDP–we have average forecast in the 2% area–BUT GDP Now from the Atlanta Fed has a forecast of 1.4% so we have a wide range of forecasts and they could be market moving. We also have the Chicago PMI on Thursday and Fed Chair Powell will be testifying before congress.

Then on Friday we personal income, consumer spending, core inflation, ISM manufacturing index, consumer sentiment, and motor vehicle sales.

So we have bunches and bunches of opportunities for traders to find an excuse to move markets in a violent manner–but who knows if anyone will get excited about the data this week or if we will see more shrugging of shoulders.

Last week we saw the new CMS Energy 5.875% baby bonds with a 2079 maturity begin to trade under ticker CMSD closing the week at $25.10.

CEF Priority Income Fund finally got their new term preferred launched with a coupon of 6.625% with a mandatory redemption date in 2024. The issue has a permanent ticker of PRIF-C, but is now trading under the OTC Grey Market PRNCP and last traded hands at $24.75.

Stifel Financial sold a new fixed rate preferred issue last week with a stingy coupon of 6.25%. For a non investment grade issue which is non cumulative and perpetual this seems kind of low. The issue is now trading on the OTC Grey market under temporary ticker SFEIP. Last trading was around $25.20.

Added Low Volume Tab

We had a listing called “$25 Preferred Stocks with High Volume”–we have now updated that page to be “$25 Preferred Stocks with High or Low Volume”. You can ‘toggle’ back and forth.

The page is here.

Whether this is meaningful or helpful remains to be seen, but since I am getting smarter about these things why not take 30 minutes and add the ‘tab’.

Stifel Financial Corp Prices Fixed Rate Preferred

Stifel Financial (NYSE:SF) has priced their new preferred stock with a coupon of 6.25%. The permanent ticker will be SF-B when it moves from the OTC market to the NYSE. Shares are rated BB- by S&P–non investment grade.

The terms are normal-quarterly payments, qualified dividends, non cumulative and a early redemption option available to the issuer starting 3/15/2024. They will be selling 6 million shares with over allotment shares available of 900,000 shares.

The pricing term sheet is here.

As mentioned earlier the issue will trade tomorrow (depending on the brokerage firm you use) under the temporary OTC Grey Market ticker of SFEIP.

CMS Energy 5.875% Baby Bonds Now Trading

The new issue of CMS Energy baby bonds with a coupon of 5.875% is now trading under the ticker of CMSD. They are trading in the $25.05-$25.10 area at this time.

This issue has a maturity date in 2079–and the company has another baby bond with maturity in 2078 with a 5.875% coupon trading at $25.50. This indicates that the new issue should trade maybe 35 cents higher than the current price.

SEC details of the new issue are here.

“Master List” Updated With Credit Ratings

As you all know we have many, many different lists on the site–everyone has a different need (or at least desire).

We have a listing titled “$25 Master List”. Previously it was simply a alphabetical listing of all issues we follow–around 630 in total (baby bonds, preferreds etc). We keep the permanent link on the preferred stock page.

If you click the link you get a spreadsheet that opens–you can make a copy or not–if you make a copy you become the person who gets to update your own sheet–if you just use it of course we update the sheet.

We have now added a ‘tab’ which you can find on the bottom of the spreadsheet titled ‘Investment Grade’. You can click this tab and and a list of investment grade issues will appear.

We continue to update credit ratings–it is a big job and we have found that the credit ratings on other sites do get out of date–it is inevitable as it is a big job. We have accounts at S&P and Moodys so we try to use the rating shown from their sites.

If either credit agency has an investment grade on the security we call the issue ‘investment grade’

The spreadsheet is here.

Stifel Financial Selling Preferred Issue

Financial services company Stifel Financial Corp (NYSE:SF) will be selling a new fixed rate perpetual preferred issue.

Few details are available at this moment, but the issue will be non-cumulative, pay quarterly dividends and will trade with the permanent ticker of SF-B. There will be an early redemption option for SF startng in 2024. Dividends will be qualified payments.

SF has 1 other preferred outstanding, which is the 6.25% issue (SF-A) which currently trades at $25.21.

Preliminary information on the new issue can be found here.

This issue will NOT be investment grade.

Priority Income Fund Finally Prices New Term Preferred Issue

We have been waiting for Priority Income Fund to price a new term preferred stock for about 2-3 months. The company initially announced the plan to sell a new issue, but market turmoil prevented the closed end fund from drumming up enough demand in December, at least at the coupon they wanted, and the new issue was ‘pulled’. Finally they have gotten the job done.

The issue priced at a coupon of 6.625% with 1.4 million shares being offered. There will be 210,000 more shares available for over allotment. The ticker for this new issue will be PRIF-C. The issue will trade on the OTC Grey market, but the temporary ticker has not yet been announced.

The new issue will have a mandatory redemption in 2024. The shares are unrated, but the company is organized as a CEF and as such is required to maintain a 200% asset coverage ratio. NOTE that they company had a 900% asset coverage ratio earlier in 2018, but with new term preferreds we estimate the coverage ratio will be at 406%.

The company has 2 current issues outstanding. The PRIF-A issue has a coupon of 6.375% with a mandatory redemption in 2025. This issue is trading at $24.74. The PRIF-B issue has a coupon of 6.25% and has a mandatory redemption in 2023.

We would expect the older issues to fall in price on the news of the new issue as they are now competing against a new issue with a superior coupon. Investors may have a chance at buying the older issues at equivalent current yields.

The Priority Income Fund is a non traded CEF and as such due diligence is a bit more of a challenge as compared to a normally publicly traded issue.

The company press release on the new issue is here.

The pricing term sheet can be read here.

We Added Prospect Capital Baby Bond to Portfolios

Reader Mike W sent us a note today because we had not added the newer Prospect Capital 6.875% baby bonds (NYSE:PBC) to the various lists–we have now added it.

Given that we have been trimming a bit in the perpetual preferreds we bought in December (and earlier) we were in the mood for a purchase and thus looked this issue over and determined for a investment grade issue, with a maturity in 2029 the $24.70 purchase price was pretty darned good. We bought a full position in personal portfolios.

Additionally there was enough cash in the Medium Duration Income Portfolio to also pick up 200 shares in that model. That is the first purchase in that seldom traded model in 6 months.

We are aware that over the years Prospect Capital has been criticized for poor management so prior to purchase we checked Scott Kennedy on Seeking Alpha (one of the few writers we have a good level or respect for) and he had a recent article on PSEC. The article is worth a read if interested in BDC Prospect Capital (or their baby bonds).

Scott Kennedys article is here.

Rebalancing a Bit In the High Yield Model Portfolio

As we had mentioned some weeks ago we needed to rebalance somewhat in the High Yield Model Portfolio as it was way too heavily weighted in LNG shipping stocks.

The model had 2 different GasLog Partners issues in it which totaled 600 shares as well as 400 shares of TeeKay LNG Partners which in total were almost 25% of the modestly sized portfolio.

We sold the Gaslog Partners 8.2% f-to-f preferred (GLOP-B) issue booking a capital loss on the shares of around $500. In place of this issue we purchased the Arbor Realty 8.25% perpetual preferred (ABR-A).

We have been impressed by the turnaround that Arbor Realty has in place now. While we could have purchased the 8.50% issue it becomes redeemable next month. The issue we purchased already is redeemable, but it seems logical at this point in time that they would call the 8.50% issue prior to any threat to the 8.25%. We really doubt they will redeem either of the issues.

The model portfolio can be seen here.

This leaves the model portfolio with around 13% cash.

It is noted that this is an educational model portfolio meant to show newer investors the results of investing in high yield preferreds. Of course high yield means high risk and this may or may not be suitable for many investors.

Tuesday Morning Kickoff

After a booming week last week for common stocks, with the DJIA up over 700 points it will be interesting to see what excitement the coming week brings.

The DJIA traded in a range of 25,009 to 25,883 and closed at the high of 25,883. This based upon the government not shutting down and a potential deal coming soon with China trade. The 10 year treasury traded in a range of 2.64% to 2.71% before closing the week at 2.67%. Seems everyone is convinced that rates have peaked and this 2.60% to 2.70% range is just about right for the time being.

The average preferred stock closed the week at $24.40 as the party goes on as this is up 37 cents in a week. While we thought shares had peaked virtually everything we own continues to creep higher–guess we’ll take the gains, but it is too far, too fast. There are 216 $25/shares preferreds trading at $25 or below compared to 228 last week which reflects continuing march upward. This remains a long way off from the crazy prices last year when we had some weeks with just 70 issues trading at or below $25.

Last week the Fed Balance sheet GREW by $2 billion. The last 4 weeks has seen a runoff of total of $19 billion. Has the FED already started to back off on the ‘runoff’? Who knows, but it is possible–on the other hand we might see a huge runoff in the coming week.

Last week we had the Job Opening and Turnover report come in at 7.3 million which is a strong report. Then we had the Consumer Price Index come in at a flat reading–0 change, although the core rate (without food and energy) came in at a plus .2%–as forecast. Consumer Credit rose for the 18th consecutive month. Subprime auto loans which are seriously delinquent kept rising which shows a little stress–no giant surprise at this point in the economic expansion.  Retail sales for December showed a massive 1.2% drop which of course everyone, upon reflection, decided this must be a bad number–plus it bolsters low interest rates so it must be ‘good news’–it remains to be seen if this was a total fluke.  We do know that we have seen forecasts for the 4th quarter being reduced drastically to as low as 1.5% according to the Atlanta Fed–down from 2.7% the week before.  Their forecast is here.

For the coming week who knows what economic news will be released as numbers continue to be screwed up because of the government shutdown.  Some of the items we may see are housing starts and building permit numbers.  Durable goods orders may be released and existing home sales.

All in all it would appear that retail sales is giving the most dire signal of economic problems.  If the GDP released the end of the month is as dire as the Atlanta Fed forecast common stock prices are too high.

Last week we didn’t have any new issues come to market.  We await trading of the CMS Energy 5.875% baby bonds which was sold 10 days ago, but has not as of yet traded.  We see the issue in the database at eTrade with ticker CMSD, but we show no trading as of yet.  This issue has a maturity in 2079.

Closed End Fund Preferreds Dividends-Updated

Long time reader Larry M brings up the question of whether CEF dividends are qualified or not.

Currently we have 1/2 of them marked as YES–QUALIFIED. We have done a bunch of research tonight and since they are organized as RICs (registered investment companies) and thus pay no income taxes we believe we are WRONG and will be changing all of the pages of those individual issues to NOT QUALIFIED.

As near as we can tell–and we are now 90% convinced – that they pay ordinary income and ROC (return of capital). Of course the ROC is not an issue for most investors but the ordinary/qualified distribution question affects those holding these securities in taxable accounts.

Unfortunately the topic is maybe not as cut and dried as it may seem as we have found a few CEFs that claim some portion of there distributions as “qualified”–but yet they pay not income taxes which would seem to preclude any qualified distributions.

It is our recommendation that investors consider CEF dividends as ordinary income unless confirmed otherwise directly with the particular CEF.

We have corrected security pages to non-qualified.