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Author: Reitnut Big red star, 1000 posts Top Favorite Fools Feste Award Nominee! Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77235  
Subject: Re: BFS-C Date: 2/10/2013 7:52 PM
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I haven't provided an opinion on the new BFS pfd for two reasons: (a) I haven't been to our Board for two weeks (except for a quick post or two) - blame the SuperBowl, and (b) I really haven't followed BFS for a long time.

There is nothing of value that I can add to the discussion regarding the merits of BFSpC. Just looking at a BFS chart, the stock doesn’t seem to have done as well as its peers, e.g., RPT, REG, KIM or WRI – but that doesn’t tell us very much. Most importantly, I don’t know the properties or the management, which are really important.

Other metrics: Debt looks to be about 50% of total market cap, which seems about right for a 6.85% yield – so I don’t think the pricing is terribly rich or terribly cheap, on that basis.

But, I kinda like the new GGPpA (trading in the pinks as GGPYP). I was able to buy a few thousand shares on Friday, all at prices below par. It’s got more debt leverage than I would like, at about 55%, and a debt/ebitda ratio of 9x. However, mall owners, particularly those owning high quality malls such as GGP, have very stable cash flows; the new management team is getting good grades from dedicated REIT investors.

I think their new pfd is pretty safe. They have free cash flow of close to $850MM, and their annual pfd dividends will be only about $16MM ($250MM at 6.375%). That is really good coverage. And their dividend payout ratio is only 54% of estimated AFFO.

I have wondered about why these new pfds are often available in the pinks at less than par, as has been the case with GGPpA. In thinking about this, I realized that the underwriters are paying well below par; for example, if there is a 3% underwriting discount, they are buying the stock from the company at $24.25. Thus they can flip the stock to longer-term investors like us at, say, $24.80 and still make quite a few bucks.

Ralph
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