No. of Recommendations: 10
Hi Bobcatkitty, here is the status of your three preferreds. I would NOT consider your purchase price in making a buy/sell decision. If the REIT is going to call the preferred, your cost basis will not make any difference to them. The REIT will pay $25.00 plus the accrued dividend in all three cases.

1) BRE-pD was callable as of 12/9/2009, so it call be called at any time. I do NOT have any detailed information on BRE, but I would assume this will be called shortly. The coupon yield is 6.75%. In 2011, BRE called the –pC which also had a 6.75%. So my guess is that BRE could call this issue and get lower cost funds. BRE-pD closed last Friday at 25.64. It has a scheduled dividend of $.4219 on 6/28/13. If they called the issue today, its price would drop to about $25.44, so you would lose about 20 cents. This is compared to what you could sell it for today, NOT compared to what you paid for it originally.

This is a classic tradeoff that we often have. You can continue to hold BRE-pD and receive the 6.75% coupon yield. They MIGHT not ever call it, they do NOT have to. On the other hand, if they do call it tomorrow, you will have a potential loss of 20 cents.

2) CBL-pD was callable on 12/13/2009, so it is also callable at any time. It has a $.4609 dividend payable on July 1st, 2013 for a 7.375% coupon. It closed at 25.77 last Friday, so the risk is about 27 cents. CBL called its –pC last November and it had a 7.75% coupon. So, once again it would not be surprising if it was called any day now.

3) O-pF has a first call date of 2/15/17 and a 6.625% coupon. Its yield to first call (YTFC) is 3.75% due to its 27.48 closing price.

This is the other classic tradeoff that we often have. Let’s consider the three possible outcomes:

a) Interest rates continue to fall until 2017. O-pF is called. If this happens, you would have been better off selling it today and re-investing the proceeds in an issue with a higher YTFC.

b) Interest rates remain the same until 2017. O-pF might or might not be called, it is not knowable at this point in time.

c) Interest rates rise until 2017. O-pF likely will NOT be called. The value of O-pF will fall, because investors can buy newly issued preferred shares with higher coupon yields.

As you can see, the decision to buy/sell/hold is essentially making a forecast of future interest rates in 2017. So there is NO, exact, provable answer. Personally I would sell O-pF ASAP as I generally would not continue holding any preferred with a YTFC of 3.75%. It is OK to for each investor to come to a difference conclusion and hold O-pF. Under NO circumstances would I buy additional shares though.


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