Heads Up–Watch These Preferreds

This is just a ‘heads up’ on the preferred shares of REIT Arbor Realty Trust (ABR).

The company has improved their financials substantially over the last number of years, which of course means they are able to borrow money at pretty decent rates.

Recently, in a private note offering, ABR was able to borrow $110 million at a coupon of 4.75% due in 2024.

The company HAS NOT announced the intention to redeem any of their preferreds, but if you have 3 issues outstanding with coupons of 7.75%, 8.25% and 8.50% respectively you have to consider the possibility. All 3 issues are now redeemable.

The 3 outstanding issues can be seen here.

The company SEC filing on this note sale can be seen here.

8 thoughts on “Heads Up–Watch These Preferreds”

  1. Tim, Great post and a fair warning. Sure looks as though we’ll be seeing many more of these. Also as you’ve pointed out prices are getting “crazy”. Today I sold all of my AXO position at a ridiculous 26.86-26.90 which indicates a paltry YTC of 1.59%. I’d have been much happier with a more boring run with AXO but cannot justify holding anything that has the dividends so heavily front-loaded.

    1. I traded out of the preferreds and purchased the common. I will hold that until I see what AGR are going to do with the $100,000,000. I can always buy back in to the preferreds again.

  2. I held the ABR-A, B, and C until a few months ago when I sold all but 200 shares of the B, thinking the B’s would be the last to get called since it has the lowest coupon. It would not surprise me to see them issue a D series with a coupon of say 6.5 – 6.75 and then call the C’s first, then A’s, and lastly, the B’s. I’ve also got plenty of their common stock which has done very well and hope it continues to move up.

  3. Tim – interestingly the same could be said for IStar. They issued 4 3/4% bond due 10/1/24 in September now trading at 103 and have outstanding STAR-D, G and I, 8%, 7.65% and 7.50 preferreds all of which are callable now…. D seems somehow to be ruled out for being called as STAR already called in F and E 2 years ago and left D outstanding with its higher coupon, but still, there is similarities to what you say on ABR. In STAR’s case, they recently chose to call Istar 6.50% bond due 2021 at 101.625 rather than call the preferreds most likely choosing the financial flexibility of extending their scheduled debt over retiring the higher coupon perpetual preferreds. I don’t know whether ABR might have the same type of options open to them to pay down early maturities instead of calling the preferreds

    1. 2WR–yes I am thinking they like ‘perpetual’ even if coupons are high–as you say they then have more flexibility instead of constant maturities to dwell on. I actually would love to own some ABR or STAR preferreds, but NOT at these prices–both companies appear to have done decent the last few years,

      1. Tim
        ARB has an outstanding loan book and much of it is protected from redemption so that it is in a strong position. I too wanted to buy the preferred but not at these prices. The common is selling at well above book but I own a block bought long ago so can average up and the yield is good. They are a very good company. Another which is under appreciated is pfsi/pmt. PFSI does not pay anything but has a higher total return than PMT. Both are very interesting due to their hedging and books in a low interest rate environment.

    2. Thanks for the idea. I picked up some STAR-I at 25.55. Call risk should be pretty low and goes x-div next month. Will buy ABR preferreds as well if the price dips down in this range.

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