82 thoughts on “PS Business Parks Tenders for Preferreds”

  1. I think a good part of the reason Blackstone was interested in PSB was because the preferreds represented nearly 40% of the equity capitalization of PSB. They knew that once the merger was announced, the market value of the preferreds would decline significantly opening up the opportunity for their tender offer at approximately 60% of the redeemable price. Thats why they did not buyout the preferreds out at the merger.

    It is my opinion that this is a good thing (for assuring the continued dividend) for those of us who are significantly upside down ( $9 per share ) and probably will not accept the offer. They are in effect purchasing a cash flow stream yielding around 8% as a common share dividend. This will assure that those of us who remain as Preferred shareholders will continue to get our quarterly dividend because the common dividend cannot be paid unless the preferred dividends are paid in full current and any arrears.

    Ultimately they don’t want us around and as such, as time goes on they may up the offer price to those who remain or they may just redeem us at par if the dollar amount is not too large.

    I agree that it will be hard if not impossible to trade the shares after the delist and remove SEC requirements but at least i think the dividend will be safe until such time as we get redemption or they sell out and we get redeemed through the sale.

    These are just my thoughts and look forward to other opinions

    1. Remember, the PSB preferreds we’re issued as strong IG rating thus the low par yield. These will never see 5% par again because the added leverage to the “new company” has made it a junk rated preferred. But junk rated does not mean it won’t pay forever, it can. It just won’t ever price as an IG issue again so $25 isn’t likely ever again.

      1. Agree. Will never see $25 in the open market. The $25 is a contractual obligation of the company. When/ if they decide to redeem it has to be at $25. At some point, unless the preferreds are tendered away at a lower price, some entity will have to redeem the shares at par. This may never happen and the dividend will just have to be paid in perpetuity.

  2. Hi , I own many shares of Psb-z at a purchase yield of about 8% .Can anyone confirm that they still would have to pay the dividends on the preferred before any dividend on the commons are paid ..even if it is delisted ..thank you ..

    1. Dont get confused with BX’s common dividend and PSB preferreds. These are not BX’s preferreds, they are the obligation of a separate subsidiary owned by BX. This is a distinction with a difference. Although the terms should still apply that this subsidiary cant upstream divi payments to parent if preferreds are suspended, its just one part of the BX empire. So they could easily continue paying dividends on BX common shares with a suspension of this preferred. Now that doesnt mean they will ever suspend as this would likely only occur if that subsidiary got in financial trouble. So that is an unanswerable question.

      1. Your point is important pointing out that suspending divs on PSB preferreds would have no impact on BX’s ability to pay dividends on its own common just because they own PSB. However I wonder the impact for BX if they actually did suspend BX preferred dividends. PSB will continue to exist, right? The difference will be that its shares will be 100% owned by BX…. The shares don’t go away, do they?….. Don’t many of these LBOs or equivalent get done so the LBO firms can essentially bleed the acquisition nearly dry to get as much of their original investment as possible returned while the company is still private while at the same time prepping it for eventual resale back to the public? Don’t they usually do that by paying themselves huge dividends? So if they actually suspended the preferred dividends, would they then be preventing themselves from having the ability to pay themselves those fat dividends on the common they now own 100$? Understand I don’t know the answer… Just wonderin’…. I’m not even sure one can generalize on this idea as I’m attempting to do or if I’m barking up the wrong tree entirely.

        1. Going by press release, it didnt say BX was tendering but used PSB title. So I dont know. And remember this can go two ways even if you know the source of tender. They can be redeemed and retired to treasury of subsidairy or held on the books of BX if they are the source and want to maintain majority vote. There are also some legalities to deal with in that too. So ultimately one needs to dig deeper to actually know anything.

    2. Robert, Grid and 2WR are much smarter and more knowledgeable than I am on these type questions, but I will give you my vote. Blackstone deceived investors when they implied all of the PSB preferreds would continue to trade. Then they pulled the rug out and said they would be delisted. Clearly NOT a PSB preferred holder friendly move. My two highest priority guesses are:

      1) Delist which drives the price down, then buy them back possibly via tender on any shares that are NOT tendered via the current offer. Once they are delisted, you have to assume the prices will go lower.

      2) Stop paying the dividends and leave investors with table scraps. They could even bankrupt this subsidiary without causing any harm to the parent. Yes, they might take a reputational hit with some investors, but other investors would cheer it on.

      Understand that nothing is certain here and all outcomes are possible. It is possible they will continue to pay the preferred dividends ad infinitem. If I am Blackstone management I quickly figure out the best method to NOT continue paying them via some method. I do not personally know anyone at Blackstone, but do know several people in the private equity/LBO space. They would sell their mother/spouse in a heartbeat to make a buck. 110% hope I am wrong and that they do continue paying dividends.

      We do not own any PSB preferreds in any account, nor will we be buying any of them before they get unlisted

      1. Ha, Tex.. Disagree strongly with your “smarter assessment” but certainly can’t argue with your assessment of the this PSB situation!

      2. Yes Blackstone is looking out for themselves. The premerger BOD of PSB are the ones who screwed us. They left us high and dry. Blackstone saw an opportunity with the sizable preferred equity position and our premerger BOD did nothing to protect us. As someone mentioned earlier, Wayne B. Hughes would be turning over in his grave about this.

        Blackstone is attempting to buy a cash flow yielding 8% to be distributed to them as common dividends. They will not get that dividend if they stop paying the preferred dividend.

      3. Bottom line: Do you really want to be in bed with management of this ethical character (or lack thereof)? Too many fixed income opportunities elsewhere. Made selling my PSB preferred an easy decision.

        1. Jerseyvinny…I agree. For me, I decided to stick with IG and was content to take a small reduction in cash flow. My PSB-x position was small, so it wasn’t a lot of $ difference. For those folks that want to maintain their cashflow, the yield of the PSB preferreds at the tender offer is approx. 8.5%. Some alternatives I see scrolling through my own high yield positions include: ABR-E, AIRTP, AGNCL, ARR-C, ATLCP, BWSN, CHMI-A, CIM-A CIO-A, DLNG-A, GLOG-A, GSL-B, HPP-C, HTIA, INN- E/F, KREF-A, etc., etc., etc. These yield approx. 8.5% or better. There is risk with all of these, so that brings me to my second point. By diversification among as many high yielders as possible for the amount of money available, and the same holds true for IG as well IMO, the impact of something like what happened to the PSB preferreds is minimized. The tickers mentioned are not recommendations, but examples of some of the “junk” I happen to hold. All positions are quite small, but there are many.

  3. Im confused here guys ..im a decent sized holder of Psb-z ..close to 10,000 shares currently with a average cost per share of $ 17.70 ..How are they able to delist if the call date is Nov 4 2004 ? and can this only happen when a acquisition of the original listing company has occurred ..Im not sure if i should hold these shares or not , any suggestions would be appreciated .Thanks .Bob ..

    1. When a company can redeem an issue and “delisting an issue” are separate and unrelated issues. False promises aside by company, this is a very normal occurrence to delist an issue, since the then listed company (PSB in this case) no longer exists.
      You own a preferred that does not resemble now what it was before being acquired. As its credit quality is considerably lower now, and more cloaked finances going forward. Also the ability to sell going forward could become very difficult or at lower prices being it in essence wont be buyable by the public after its delisted.

      1. delisting just means the particular shares are no longer traded on an exchange. The corporate entity still exists.

        The tender offer suggests that the shares may be traded on the pink sheets if market makers will get involved. But I agree, most likely no market to trade.

        1. They cant trade on OTC Pink Sheets if company is not releasing financials to them. Plus you have additional problem of some brokerages not even allowing any OTC trading ala Vanguard.

      2. Thank You for the information Gridbird ..I do remember seeing the news that Blackstone acquired Psb .I didnt realize that the rules that existed during the original listing were now not in effect and were legally eliminated because the company does not exist anymore .This is a valuable and costly lesson going forward .

        1. The company does exist. It is owned privately now. The contract associated with the Preferreds is still legally binding. They cannot just eliminate the preferred stock because its inconvenient. Yes, the trading issue is a big problem but at some point if they want the preferreds completly gone they will have to address it.

          1. Robert, Zotron is correct in that nothing has changed per terms of the issue. Just the circumstances around it, such as its credit quality and how it can trade going forward. Yes, they certainly likely cant eliminate dividend, but they can suspend payment until the cows come home. One can say that about any preferred, though and that has its consequences also if it would occur. If I owned going forward that wouldnt be my concern though. The impending experts market and the consequences that imposes on an issue would be my main immediate concern.
            Many people think preferreds sit in a superior position to common stocks. But that largely is just in theory. They sit on an island as nobody is a true protecter of them. They dont have the protections of a bond, above, and viewed as a nuisance by the common shareholders below. So they are susceptible to these types of occurrences. There is a reason why most preferreds dont have strong change of control clauses. Because people will buy them without it.

            1. Grid,
              In your opinion are preferreds issued by companies in regulated industries (banks, insurance & utilities) less likely to experience the type of actions that the PS Business preferreds are undergoing?

              Thanks
              RB

              1. razor,

                the core issue is that the terms of the preferred did not have a change of control provision like many preferred do. BX has bought out other reits and when that provision is in place they get 25 per share of preferred. Really that simple in my view. Any preferred without that provision which is taken private can have this situation take place.

              2. I concur with FC, Razor. But just overall banks tend to buy out and then merge them into same company thus making the preferred “on par” with the bank doing the acquiring. However if its a weaker quality bank the damage will be done anyways. If a private entity buys a ute, you get the present SJIJ situation. So damage could occur in any sector. And of course if you buy “big dog”company preferreds that lessons chances of that company being acquired, since they are the acquirers.

                1. Thank you FC and Grid,

                  I am aware of the change of control provisions being in some REIT preferred prospectuses particularly re the Waldenization event of some years back. I am not aware of such provisions being included in prospectuses of preferreds issued by companies in the regulated industries I referenced although I have by no means searched very many of them. I guess my interest is whether or not regulatory review of changes of control occur in such industries irrespective of a change of control provision in the prospectus and have any effect on the disposition of preferred securities. I take it from both of your responses that absent an explicit change of control provision in the prospectus, regulation does not influence the ultimate disposition of preferreds. Let The Good Times Roll.

                  Thanks

                  RB

                  1. One main takeaway from this whole discussion is that all preferred databases NEED to include whether an issue has a change of control clause or not. My database does NOT currently include that, so it will get added to the project list. Tracking 682 exchange traded issues, so it will take some effort, not to mention the $1k face issues. . .

                    Need more hours in the day. . .

                    1. Tex the 2nd–gee I know how you feel. I am going to start to add that data as I get the chance.

                    2. change of control would be helpful, it is often buried in the notes and sometimes hard to decipher. Some states are tougher to execute from what I remember maybe? Maryland? not sure.. not an expert on that for REITs anyway..
                      it would be a lot of work..
                      you have to wonder if the buyout activity will slow down because no matter how much the SA goons are pumping that BX , BAM et al have all this money to invest, I am not so sure.

    2. Robert…I am neither as smart nor knowledgeable as other contributors to this site, but since you asked for suggestions, I would add : I believe your computation of the yield at cost is incorrect. At $17.70, I think the yield at cost would be 6.89%. Perhaps that would be a factor to consider in your decision. After taking everything into consideration you are still undecided as to the best course of action for you, remember the decision does not have to be binary. You could sell some of your shares and keep some. Like many here have done, I sold mine at a loss, but that doesn’t mean it was the “right” move

      1. Thanks Lucky .I went back through all the buys i made the last 3 months and the cost per share was lower then $ 17.70 .Reading about this the last couple of days has thrown me into a bit of a loop considering this along with the X shares are two of my largest holdings .Choosing to sell or not is a heavy decision .It is true that nothing really is as good as it looks and this reinforces the fact most of us are just pawns in a game many levels above our level ..

  4. What is the general consensus of those who own this issue as to tendering or not? I’m undecided at this point. Going dark doesn’t worry me as much as the possible elimination of the dividend. I hold in both IRA and regular accounts. It seems hard to understand how debt and/or dividend payments can just be eliminated by a viable company.

      1. I also sold my shares for $15.58. I just want to avoid the drama. Now to figure out where to put those funds. Everything in fixed income is on sale compared to what we’ve experienced the last few years. It’s in a traditional IRA so I might just add to my BBN and NBB which are taxable muni funds paying 8% and 7% respectively. At least they won’t go dark on me.

    1. I sold PSB-X at $15.58 today. If I correctly recall I would get $15.62 for the div + tender offer by waiting till the end, so giving up 4-cents to get my money now and move on is worth it, especially since I would owe taxes on the non-qualified div if I waited till the end. I had shares at $21 and more at $13, but still a net loss was realized in my taxable account, so I put the proceeds to work today in another beaten down preferred and will use the PSB-X loss on my 2022 taxes. Not the way I hoped this investment would play out but maybe it’ll all work out fine in the long run.

  5. Let’s not forget that pref stock does come with a level of ownership (senior of course to common that no longer trade) Even a 5% ownership stake in a company can be a pain in the ass to majority owner. That said, if BX (already playing hardball) can vote to strip dividends why hang around?

    1. I really question if they can strip the dividends. The initial public offering does not seem to grant these rights.

      Is there another company who has done this before? Remember BX is 105B market cap company. PSB was acquired by a wholly owned subsidiary of BX.

  6. I traded emails w the CFO when I was trying to find out where to get the 10Q. I jokingly said you should be buying back the preferred in the open market since it was trading 50 cents on the dollar. Little did I know they were hatching this plan. It would be very hard to stay in a non listed, non registered perpetual pfd with no access to any financial information.

    1. Scott:

      The tender offer truly sucks for anyone who held on to their PSB preferreds after the merger with BX (or bought them much higher), but many of us said recently that a tender offer was always a risk with these preferreds all trading down below $13 at one point in October. The big ETFs like PFF will get killed on their PSB holdings, as these formulaic and index-following chumps will likely dump them near the go-dark date.

      But if a reader on this site had stayed disciplined and waited for those juicy 9.75%-10% yields to show up before you bought, you just got an early Christmas present via a 20% return in a month. I was happy to see a nice valuation jump in my income portfolio this morning!

      But VERY disappointed in Blackstone choosing to delist them AFTER they had said they would stay on the NYSE as long as they had a combined market value of at least $75M. But I’m certain their army of lawyers knows they will have no problem getting away with this heinous act.

      I hope another REIT never sells out to these blood-sucking scumbags. I guess reputation does not mean anything anymore, although their investors in the real estate opportunity fund that held the PSB assets likely just saved nearly $300M on the price BX overpaid for PSB.

      Another lesson in staying skeptical, trying to keep an open mind, but truly trusting no company in this business.

  7. This saves them well over 7+ years in dividends. I own 2,400 shares of the flavors. Mine will go into the sock drawer. When they go dark and don’t trade, I can then transfer them to my Roth rollover in the future.

    1. Mr. C
      are you concerned about them not paying the dividend after going dark ?
      I’ve seen some people saying that they can stop paying the preferred ?
      not sure how they can continue paying the common divy and stop paying the preferred ?

      1. They can stop paying it but the commons can never receive a dividend until all back dividends are paid on the preferreds first. Remember, the preferreds have priority in a liquidation as well. Hard to imagine a company this size filing for bankruptcy, which could wipeout the preferreds. Might just be a sock drawer investment at this point.

  8. Here’s a question for the experts here – suppose you shorted PSB-Z here at $14.34…what would happen if it is delisted?

    1. Eventually you have to cover your short in a very illiquid market… That does not sound appealing being unable to buy what you require to cover. I am sure the broker would assist you eventually but at what cost?

      1. I am going to do 1 share just for $hit$ and giggles to see what happens. Blackstone will have no interest in call these shares – ever so they may just be there in the land of nothing forever.

    2. There was a HF in PA,TFS Cap, that shorted chinese companies that stopped trading. Totally gone. They could never close out the shorts. It forced the HF to fold.

      A good write up in Barron’s “Getting caught short” 4/6/2018

    3. If I am not mistaken, your broker would automatically cover the short on the date of the delisting.

      1. You are mistaken.

        One thing that could easily happen though is that you get the short cashed out at the buyback price, if you borrowed from someone who wanted out.

  9. Wow! I only had 100 shares of this at a speculative price at $15 (PSB-Z). Sold today – TODAY – for $12.40 to roll into something “better”. Impeccable timing with this one! Still I would have been in the red but, at $66 and not $260. Meh. Lesson learned – one of many.

    1. Well Yazzer, I sold my few hundred shares higher than their offer. Sounds good huh? Not so much as I bought them at a higher price than I sold them at ha.

  10. Black rock did some closed ends in the height of the market. BMEZ and BIGZ amongst others. They are down like 70%.

    I don’t think I’ll ever be associated with any Blackrock product ever again. I can’t wait till their rep comes around. They haven’t had the balls to call……

    1. I was really into blackrock funds back around 2000.
      They were the best fof the best fund managers and I was just getting into mutual funds bacause of advisors and co-workers. I was only 20 years old and thought having a investment portfolio made sophestigated.
      I got out of all of them around 2007 I think. And understanding the fee structure as I do now, I sure gained a lot more through single stocks and ETF before I got into this income stuff.
      I am also scratching my head and other parts trying to figure out why people would still invest in blackrock mutual funds with all these nose bleed fees.
      Advisors recomend them because they collect the 12-b fees to sell them to clients but wow, blackrock is a slow bleed of capital.
      So yeah, I also avoid those crooks ……….. I can lose money by making my own mistakes and not pay the fees.

    2. I’m not defending BlackRock for fund fees, performance, etc., but I fail to see how they got drawn into this discussion. It is Blackstone Real Estate that bought PS Business Parks and responsible for this tender offer, not BlackRock.

    3. I think the culprit in this case is Blackstone not BlackRock. I own both PSBprZ and BACprE which also came out with a low ball tender. Just lucky, I guess.

  11. The Cedar Realty-Wheeler preferred fiasco was bad and this is worse IMO. Really gives Blackstone a black eye, but obviously they do not care. Wayne Hughes, the founder of PSA related to PSB is spinning in his grave. No way they would have treated preferred holders this way. Has to be a life lesson for ALL of us that hold preferreds. They will ***** you in they can. . .

  12. Looks like someone got lucky after hours and managed to get 1000 shares of all three at least a point under the tender prices… I sure hope it was an III’er.

    1. I did get lucky adding 400 shares of PSB-X after hours 2WR roughly a point under the tender price. Someone was either very on the ball on those 1,000 share purchases or was tipped off in advance

      That helped ease some of my disappointment on them doing this gun to your head tender

  13. Criminal.

    That is the all I can type publicly.

    And this is an offer you can’t refuse. Well you can but then you are really screwed because if you don’t, enjoy them going dark:

    “We will seek to delist each series of the Securities from the New York Stock Exchange following the completion of the Offers regardless of the participation level by holders in the Offers. Following each such delisting, we will seek to terminate the registration of each series of the Securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to applicable Securities and Exchange Commission (the “SEC”) rules and we will no longer file reports with the SEC once all such terminations are effective.

    At least for me, based on my average cost, I will be getting a $1 per share premium based on the tender offer price but still. Utter thieves

    1. That’s the word Maverick61—criminal and thieves. While I am a little government guy this is one time when we might need some legislation.

      1. This is why they these companies at purchase say something to the effect of “intend to keep listed”. Every time that word is used its a code word that means they wont. At least with the SJI merger they were honest and flat out put in filings stating SJIJ will be delisted at merger so you know the risk holding.

        1. Yes Grid–but they are setting up a situation where each time there is a merger/purchase everyone dumps shares and they trade at these silly prices. This from a company that was just investment grade a month or two ago. Pisses me off–although I have no dog in this particular fight–what’s next?

          1. Precisely, Tim. If a company is a candidate for buyout (many are) they are running a risk of this happening. Stronger covenants aka LTSA, would eliminate this problem. But until buyers balk it wont happen. Even if the company discloses intent, its too late for the retail buyer to get out without a bare butt whipping as the market already starts pricing it.

            1. Thanks for that observation. I’d love to be able to compile a list of these so we can adjust our portfolios accordingly. I have a lot of preferreds across many sectors and most are IG – but that doesn’t seem to matter in the end?

              1. You are correct, IG doesnt matter. It depends on quality of company doing the buying or the subsidiary it assigns it to. Plus obviously if the financials will continue to be published be it through SEC or OTC. The SEC has compounded the problem by having issues put on “experts market”.
                You would have to read each of your prospectus to see if a “change of control” triggers a redemption opportunity. Very few I suspect do. Some old preferreds have the right to take over the Board if dividends have been suspended for 4 quarters. But even that does nothing to protect against delisting or a weaker credit profile entity buying out a stronger credit one.

              2. yazzer , This is one of the reasons I am not interested in ATCO preferreds. I had people point out on SA that they have promised not to delist and one of the group’s involved in the buyout holds a large share of the preferred and is collecting a large income from them.
                One, they would still have to file financials to meet stock listing requirements I would think and why do that when your a private Co? Although I know a few CEF are the same, so maybe I am wrong. Second, If they do delist they can still make payments to holders but it will drive the preferred prices down to where they can buy them on the cheap.

                1. The power and fate is all in the companies hands concerning release of financials. They can even be not be registered with SEC and still be ok with little effort provided they want to.
                  Look at NSYC (National Stockyards). It is only simply a stockyard in Oklahoma and some land in East St. Louis with only 43, 000 shares outstanding. Its shares arent even registered on an exchange and yet they provide their financials to OTC which then allows them to trade on the pink sheets for the benefit of the few shareholders.
                  Look at their financial statement. So simple even a nincompoop can read it.
                  https://www.otcmarkets.com/otcapi/company/financial-report/351040/content

      2. Tim – what specific legislation did you have in mind? The preferred holders should have certain rights prior to delisting/deregistration and prior to the cancellation of future dividends.
        Also, wonder if there are any institutions that own PSB- X,Y, Z that have a cost basis substantially above the tender price that are now at risk????

  14. We will seek to delist each series of the Securities from the New York Stock Exchange following the completion of the Offers regardless of the participation level by holders in the Offers. Following each such delisting, we will seek to terminate the registration of each series of the Securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to applicable Securities and Exchange Commission (the “SEC”) rules and we will no longer file reports with the SEC once all such terminations are effective.

    —-

    I might just hold my shares out of spite. Pay me 25. I can wait.

  15. Do you think once they are delisted or soon thereafter that only so-called experts will be able to trade them or alternatively only these experts will be able to purchase the preferreds as has occurred with the AmTrust preferreds?

    1. Stephen–we don’t know that they will trade publicly under any circumstance–we’ll see if someone ‘sponsors’ the listing.

    1. Yes Porky–they all want something for cheap–at least you can reject the BAC offer without a threat of delisting.

          1. If like most preferred they own more than 67% of outstanding from the tender, they can vote to eliminate the dividend.

            1. Can they really vote to eliminate the dividend? The preferred would be worth zero?
              Very interesting to think they can just choose to stop paying dividends?

            2. Grid,

              I know since the 1940s after the great depression the courts determined they could vote not to pay cumulative dividends as there were so many companies who owed a ridiculous amount. I can easily dig up those old court discussions by law professors and I have read a couple myself. We are talking like 70 dollars per share in unpaid dividends which would cripple a corporation for decades if they tried to pay it.

              Now we have a private entity, no common, who has money to pay the current dividends, obviously can acquire enough preferred if they so desired, and possibly vote to make the preferred dividend disappear.

              This is not exactly the case of a cedar/wheeler. Is there a case of this happening more closely aligned with this buyout?

      1. Tim,

        Do you think Federal regulation of banks helps prevent a screwing like PS Business is doing? I.E. are regulated industries such as banking, insurance and utilities a tad (very small if any) safer than non regulated ones like REITs particularly in a buyout situation? After the acquisition of PS Business Parks by Blackstone, I reviewed the prospectuses of PSB preferreds and noticed there were no change of control provisions for preferred redemptions like some REITs offer. I was hoping for the best but trying to be prepared for the worst. Looks like the worst has arrived.

        Thanks
        RB

    2. Ha, you would think they would add BACRP to the list just to see if they can get people who hold it unlike Grid, who will give it up only after you pry it from his cold, dead hands….

      And PFF is taking a beating on these shares (30-40% loss) on the 2.5 million shares they own across 3 securities, but it is barely a rounding error because the fund is so large.

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