Most of the “convertible” REIT preferreds we discuss assume that they will NOT be converted to common shares. The market tends to price these as preferred issues only, based on prevailing interest rates.It is rare to see a company that DOES convert preferred shares into common shares. It happened yesterday (2/26/13). Digital Realty Trust (DLR) converted all shares of its preferred series D aka DGRDP into common shares. It was a heck of a good deal in hindsight. Unfortunately Yoda was not smart enough to determine that in advance.This issue IPO’ed back on 2/1/2008 @ $25.00 with a 5.5% coupon. Yesterday each share was converted to 0.636 common shares of DLR. With the DLR common currently trading ~ 66.00 per share, each preferred share is worth ~ 42.00This works out to an IRR of ~ 15.4%! Not bad for a convertible with a 5.5% coupon.We can only hope that more common share prices rise enough to force conversion on some of the other convertibles.Thanks,Yodaorange
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