Ideas | Innovative Income Investor

A Couple Issues Now Trading with Floating Rate

In the last couple of weeks we have had a couple of fixed-to-floating rate mREITs move into their floating rate periods.

The New York Mortgage Trust 7.875% (NYMTM) issue is now trading with at 3 month SOFR+.2616% plus a spread of 6.429% for a very juicy +10% yield. Additionally Two Harbors Investment has an issue that just went into the floating period with their 7.25% issue (TWO-C) which will float at 3 month SOFR+.2616% plus a spread of 5.011% for a +9% yield.

I hold a few of the mREIT floating rate preferreds–in the current environment they trade very steady and almost always around $25 as they become redeemable at the same time as they become floating which means there is always a call threat.

Watch all of the floating rate issues here.

If I Owned This Term Preferred I’d Sell It!!

Actually I did own this term preferred when it had a yield to maturity in the 8% area, but sold it all for $24.98 on 11/24/2024. The issue I am talking about is the Gladstone Lane 5% Term Preferred (LANDM) issue. Currently slated to be redeemed on 1/31/2026 and trading at $24.80–a less than 6% (more or less) yield to maturity is simply too little from a pretty marginal REIT.

Gladstone Land reported earnings for the quarter ending 9/30/2024 that were poor–a net loss of almost $6 million, although funds from operations of around $3 million. While the company is likely safe the reward of the term preferred is simply inferior to many other term preferred that are available.

If I was going to own a term preferred it would be at a current yield of around 7.75% to 8% of which there are a number available which are likely as safe as Gladstone Land. I do understand some of the attraction of the LAND issue–it is easy to understand versus a CLO owner like Eagle Point Credit Company (ECC). Maybe folks want to hold it as a ‘cash equivalent’?

Nothing Wrong With a Small Allocation to Fixed to Floating Preferreds

I have a couple mREIT fixed to floating rate preferreds in the portfolio–in limited quantity that have performed very well in the current environment.

Looking at the reduced potential for interest rate cuts from the FOMC this year these issues have good potential (at least relative to fixed rate preferreds). Markets are likely to be ‘dicey’ all year long so one just as well be paid for their invested dollars at the maximum available rate.

As a pretty conservative investor I don’t buy mREIT common shares—EVER, but the fixed to floating preferreds have the right risk/reward for me. I never go ‘all in’ to anything, but a modest allocation is quite comfortable.

I have a fixed to floating list with potential coupons on it which can be found here. Of course one never knows the exact coupon until the dividend determination date (the date that SOFR is observed for the coupon).

Gabelli Funds Asset Coverages Remain Solid As a Rock

I’ve been doing some ‘due diligence’ on the Gabelli family of closed end funds and thought I would remind those looking for an ultra safe dividend that is in some cases right close to 6%,

CEFs have to have a minimum asset coverage ratio of 200% on their ‘senior securities (preferreds) and the Gabelli family of funds, which includes the Bancroft Fund (BCV) and Ellsworth Growth and Income Fund (ECF) always provide very nice coverage ratios–in some cases up to 876% (GAMCO Global Gold–GGN).

But like all lower coupon, high quality issues the share price will move in the opposite direction of interest rates, so if you are sensitive to share price movement these probably aren’t for you. On the other hand if you want a solid dividend–ultra solid actually, one should be in some of the Gabelli Family preferreds.

I have a page devoted to CEF preferreds with the coverage ratios posted on it which can be seen here.

Also Gabelli posts their coverage ratios each month and one can watch the changes on the page linked below.

Click here is see the coverages.

Did You Know? General American Investors

I have held shares in the 5.95% General American Investors (GAM-B) for a long time–I think it has been years–certainly off and on for years.

GAM is a solid closed end fund with $1.6 billion in assets and the only leverage they use is this issue of preferred shares—they have a asset coverage ratio of 837% as of 6/30/2024.

The interesting item of note is that the Board of Directors has a buyback in place for the preferred shares anytime they are under $25/share. They have authorized up to 2 million shares being bought (original issue was 8 million shares)–thus far to date they have bought just shy of 400,000 leaving lots of dry powder for further purchases.

Does this buyback authorization help to keep this high quality modest coupon price above $25? Not positive of the answer, but I do know that it doesn’t hurt.