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A Couple Attractive Buys (at least for me)

I just wanted to note a few issues I have bought lately.

These, of course, are not recommendations, as I don’t make recommendations because only you can determine your risk tolerance.

Off of my watchlist I have started buying preferred shares of American Finance Trust (AFIN). The company has a 7.375% issue (AFINO) which is a fairly new and is trading at $25.07 right now. Early redemption isn’t until 2025 so there is no call risk.

AFIN is a triple net lease REIT with about $4 billion worth of properties (at cost) and they have $1.7 billion in debt against the properties. The most recent earnings release is here.

As with most REITs the company took some hits during the pandemic, but now they are collecting virtually all rents due. The company is losing money (typical REIT), but FFO (funds from operations) covers the juicy 8.7% common dividend. Honestly the common dividend is way too big and the company should chop it by at least 1/3rd–normal fluctuations of FFO means that at times they are not covering the dividend.

I would not be a buyer of the commons shares but I now own a position in the 7.375% preferred. At this time and under the current economic conditions it has a reasonable risk/reward.

The 2nd issue I want to highlight is the XAI Octagon Floating Rate & Alternative Income Trust 6.50% 2026 Term Preferred (XFLT-A) which is currently trading at $25.49. Early redemption on this issues starts in 2023.

These are shares from a closed end fund (CEF) and as such they have to have an asset coverage ratio of at least 200%. My calculations show them at around 300% right now.

What do I love? I love term preferreds–in this case a mandatory redemption in 2026 and at a 6.5% coupon it is a near perfect holding for me–but honestly this is a love/hate holding for me.

XFLT holds CLO’s (collateralized loan obligations)–I hate them–mainly because of the level 3 (value can’t be directly determined) nature of these investments. On the other hand I hold preferred shares or baby bonds in Eagle Point (ECC), Oxford Lane (OXLC) and Priority Income (not publicly traded) which all hold CLO’s.

Just like many issues I wouldn’t hold the common shares, but as long as the CEF can maintain a high asset coverage ratio (say at least 250%) I am happy to hold the term preferred.

28 thoughts on “A Couple Attractive Buys (at least for me)”

  1. If you don’t mind revealing, I’m curious about what price you were able to get for XFLT-A. I really wanted to load up on that one close to par but it popped right to 25.20 within minutes of trading. I couldn’t bring myself to pull the trigger and then ended up chasing it in the 25.40s but couldn’t really justify loading up on it at that price. My concern is this one only lasts roughly 3 years like PRIF-B in which case the YTC isn’t great.

    It’s a small issue and I’m hoping they do some ATM issuance to create an opportunity.

  2. You’re late to the party on AFINO. Several here bought at 25.01 before the 53 cent dividend. Now we’re negotiating an exit plan. if not sold already,
    I bought a little XFLT-A and sitting on a small gain patiently waiting for a larger gain that isn’t happening. A small spike this morning that I didn’t sell before it evaporated..
    Remember the old saying “sell in May and go away”? The prequel could be “stop buying in April”.
    Yes, I’m a pessimist who thinks we may be topped out.

      1. No wonder I cant make up my mind on what to do with AFINO, your looking to buy and Martin is looking more to sell. Bought it as a flip like Martin (his idea I tailed) and got what I expected (eventually). But, Im still sitting on them with no exit plan. Other than I should have sold already, but just cant seem to do it for what reason, I dont know other than I havent found a better replacement.

        1. Thats funny Grid. I have too much cash and unlike Martin I’m not so pessimistic if Chair Powell keeps shoveling wood onto the fire. Whether I am a long term holder or looking for 1-2% is yet to be determined.

        2. Not just sell, there may be opportunity to swap into AFINP and back. I was doing that for awhile before P took off, now it’s back in play.

          1. Martin, Im out as of this morning, as it jumped out of gate for whatever reason. I sold half at $25.30 and the other half at .34. This could break out and go higher who knows.

            1. HDO sent out a buy on AFINO today. Yesterday they had a sell on Farmland Partners Preferred.

                  1. Being a lot smarter IS a reason to subscribe.. You’d at least have a better idea on how best to capitalize on the recommendation….

              1. I cant imagine the cash they are making. Buy the investment, produce the marketing slicks, add in the math and logic (ex. 1 + 1 = 25. There is a 2 in 25, so that makes sense). Turn it over to your readers (especially the blind followers) for the gain.

                1. I suspect their best prey is like Boot Licking Phil. Probably has no real friends so he loves the attention he gets from them. And he trades cash for online friends. I heard one of the “experts” was asked to differentiate between a balance sheet and a balance beam. He answered “trick question, they are the same thing”.

                  1. I wouldn’t be surprised if booty lickin Phil from OKC was an alias. More than 1/2 the time he is the first imposter… I mean poster, and I can picture him waiving his pom pom’s around before and after he writes his usual snippet thanking Rida Moron for the article and another sentence praising the service. Maybe Shrinking Alpha gives you 10 aliases for every $10,000 in subscriber revenue you bring in. Sprinkle in some of those responses, and with the market going up every week, i bet the followers have already forgotten about all the losses and have already started asking for the next round of Kool-Aid.

            2. I did some of everything. Sold a little more, swapped some for AFINP at 25.47 and bought back 100 on the mini-dip. Still holding a fair sized chunk because I started with a huge amount.

            3. I sold 1/3 AFINO at 25.20, now looking hard at the remainder. How attached am I…? 25.50 is calling…..But then what do I replace it with?

    1. XFLT-A -getting a pop today- maybe helped by:https://seekingalpha.com/article/4420001-xflt-xflt-pa-new-6_5-preferred-kid-on-block?mail_subject=ads-analytics-xflt-xflt-pa-the-new-6-5-preferred-kid-on-the-block&utm_campaign=rta-author-article&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha

      Bought AFINO 12/15 @ 24.60 – not sure why it would be a sell, but I don’t collect nickels as many do ( mainly because I try to limit buys to 1-200 shs in this pricey time- better to come later, I hope).

      1. It’s only a sell if you’re a short term trader or momentum trader. Nice profit for a months work.
        I also bounced out of XFLT-A today. That’s not a sell either for a long term investor.

  3. Tim-
    TDJ, on the list, has been called.
    Am wondering how low of a target you have for ACR-C since it’s at 24.60? I’m already long on it.

      1. Fleas on ACR-C, yes, but have you ever seen another F/F issue that can only float UP not down???? It sure did flea out in March ’20, though didn’t it!

    1. Gary–I already own a few hundred shares. Now I am waiting to see if they can get their commercial stuff pointed in the right direction.

      Yes–the issues shaded yellow have been called.

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