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.