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No. of Recommendations: 6
The search for yield in my opinion is creating some trading opportunities. My goal is to maintain my income stream as best I can as the number of quality REIT preferred issues drops along with their yields.
The highest quality REIT Preferred might be those of PSA but most of them have a yield to call in the order of 2%. PSB is only a small stop down from PSA but PSB-Z has a yield to call of over 4% and is not callable until 2024
NNN-F is another very high quality preferred but its yield to call is also only about 2%. I have a big position here and am switching to PSB-Z, UBP-K and UMH-D among others.

I am really interested in buying more RPT-D but can only find scant information on RPT other than it has survived since 1989. I would be buying RPT aggressively if I could only find more information!!!

Martin
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No. of Recommendations: 6
Marting
What would you like to know about RPT?

Mergent on-line has a boat-load of info on this small equity REIT.

RPT Realty is a real estate investment trust. Co. owns and operates a national portfolio of open-air shopping destinations principally located in U.S. markets. Co.'s property portfolio consists of shopping centers (including shopping center owned through a joint venture). Co. conducts substantially all of its business through its operating partnership, RPT Realty, L.P. (the Operating Partnership). The Operating Partnership, either directly or indirectly through partnerships or limited liability companies, holds fee title to all owned properties. As the sole general partner of the Operating Partnership, Co. has the power to manage and conduct the business of the Operating Partnership.

I don't really have any interest in a $1.18B market cap REIT that hasn't grown its dividend since 3Q16. Revenue's are not showing a very good progression....

1Q17	67,825
2Q17 67,062
3Q17 65,931
4Q17 64,264
1Q18 62,718
2Q18 69,967
3Q18 64,217
4Q18 63,720
1Q19 59,708
2Q19 57,361
3Q19 58,921


However, this may be an ideal preferred. Not-too-healthy but sound-base financials with a so-so share price history is often a great preferred stock. RPT-D's non-redeemable convertible preferred is selling at a $8.88 premium to its $50 issue price but is yielding 6.1%, which is not bad considering today's yield climate. The only other issue I think I'd look at (but haven't) is the conditions for conversion. But assuming this doesn't look like a conversion anytime soon, you could do a lot worse with a 6%+ current yield.

BruceM
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No. of Recommendations: 2
Bruce,

If I am reading Quantum online correctly RPT would have to trade over 18 for a forced conversion. If a forced conversion were to occur event though this preferred is trading above par one would still get a small capital gain.
What concerns me is that I find no evidence that the big boys Fidelity or Cohen and Steers are owners.

What I really need to know is are they over leveraged. It their debt load is reasonable I will buy more RPT-D

thank you
Martin
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No. of Recommendations: 8
Martin
Ok....I downloaded 10Q of operational interest expense (the cost of their debt) and 10Q of CFFO, from which I calculate the trend in the ratio [Interest Expense]/[CFFO + Interest Expense], using rolling 4Q. This will tell you how much of their operational cash generated from they investments they've made (much of it funded with debt) as a % of their operational cash BEFORE the interest expense is deducted.


4Q17 27.6%
1Q18 27.1%
2Q18 26.8%
3Q18 28.5%
4Q18 29.0%
1Q19 31.8%
2Q19 32.2%
3Q19 30.1%


this is not a good progression in their REIT's cost of debt. In my travels, anything above 25% = a flat dividend. Anything over 30%, a cut to the common dividend is a definite possibility.

But this will likely not affect the preferred dividend...unless this ratio starts pushing 40%, as the company at that point is going to have to start retaining all cash to meet their debt obligation.

You can do the same calcs if you have access to Mergent.

BruceM
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No. of Recommendations: 20
Do I get an "yes-you-told-us-so" from any old timers on this board?

I've been banging the drum to nail down yields and minimize call risk for the past 20 years. Remember when many on this board a few years ago were running for the exits on preferreds (and REITs in general) because of Fed rate increases? I explained then that long rates don't always follow short rates, and this time would be a case in point.

Raising short rates foolishly, when the economic strength and inflation threat weren't there to justify the raise, was bullish, not bearish, for long-dated fixed income investments.

See post 80497 (2016) for example: "My advice is the same as it has been for years: Worry more about reinvestment risk than the risk of rising rates." Earlier in that same thread I laid out the Macroeconomic case for that advice. (Reinvestment risk is the risk inherent in NOT buying long-term securities -- if rates go down your income goes down instead of your asset value going up. A holder of short-term securities must continually find new investments. If rates go down, as investments come due and are rolled over into new investments, income goes down. People seem keenly aware of the risk of capital loss when rates go up, but relatively blind to reinvestment risk. Minimizing reinvestment risk has been my guiding light).

Or post 80513 soon after "There will be a bottom to this long-rate yield cycle but I don't see evidence we have hit it yet. It's been going on since 1980 and has been quite a ride."

When PSA-D came out at 4.95%, many were amazed at a below-5% REIT preferred and called that the bottom on yields, predicting it would never be called. Brad Thomas was one. I (and a few others on this board) bought. Now it sells above par and faces a 2021 call date. It's time to harvest my capital gain, once again, and reinvest in the most call-protected things I can find.

Thanks, Martin, for doing some of the legwork.
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Jim, thanks for your perspective. I always enjoy reading your posts.

Jim
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Jim says>>>>>>>>>Do I get an "yes-you-told-us-so" from any old timers on this board? I've been banging the drum to nail down yields and minimize call risk for the past 20 years. Remember when many on this board a few years ago were running for the exits on preferreds (and REITs in general) because of Fed rate increases>>>>>>>>>>>>>>>>>>>>>

I'm one of those old timers who worried about inflation/increased rates that found your mostly singular drum beat convincing and am thankful I listen, although I never went all in and bought the sub 5% PSA prfd! Back then your position was contrary to what most, like me, were thinking, how to position our portfolio for the inevitable next cycle of inflation and interest rate increases, are Reits good inflation hedges etc.

Also props for you bringing QTSPRB to our attention last year now up over 30%. And thanks to Martin for bringing these new issues to our attention.

It seems that now most of the investing world (including me) are complacent about the risk of inflation and long term rate increases... could this be a negative indicator? When was the last time folks were talking about inflation hedges as part of a well diversified portfolio? Just musing, as someone here used to say.

Cheers
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No. of Recommendations: 3
RLJ-A, broken convertible, cannot be called, yielding 6.7%
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No. of Recommendations: 5
"Do I get an "yes-you-told-us-so" from any old timers on this board?"

No, not really. The Barclays Aggregate Bond Index (BABI)has had negative returns in two of the last 8 years. Why negative? Because bond prices fell in 2013 and 2018 by more than their yield. Why did bond prices fall? Not credit risk, but higher interest rates, so there has been interest rate risks in the last 8 years. Figure in taxes and inflation and they have provided a negative real after tax returns in four of last 8 years.

Neither interest rate risk or reinvestment risk would be largest risks for fixed income. What would be is inflation and taxes. Yes inflation has been low recently, but interest rates are so low even mild inflation eats the majority of their returns. Inflation rises and fixed income will be hurt bad.

To me buying REIT preferreds today is like picking up nickels in front of a bull dozer

PSA-D is trading at $25.91 with a call date of July 2021. If it is called subtract that 91 cent premium from the $1.86 in dividends that you would receive in the interim. In late 2018 PSA-D sold as low as $20.95. Should you buy today and sell at $20.95 in a couple of years, the two years of dividends you would receive would pay for only half of your capital loss.

Too many ways to lose and so little to win if you win.

I will finish with a couple of my favorite investment quotes.

“Risk means more things can happen than will happen.” – Elroy Dimson

“An investor that has all the answers doesn’t even understand all the questions.” – John Templeton
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Thank you very much for bringing RLJ-A to my attention.
I have been very biased against owning hotel REITS.
However in this low yield environment this looks very attractive and I am going to take a small position.
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No. of Recommendations: 5
I do not agree with Valuemonger's response.

Jim's point was (and has been) that interest rates were in a long-term, secular downtrend. Therefore, he argued, keep your bond investments long-term.

In response, Valuemonger has pointed out that a bond index, which includes all bonds with maturities of one year or more, has had some down years. But Jim wasn't advocating for a mix of long and short term bonds but was arguing that the bonds you have should be long-term.

So let's look at the performance of BND, which is Vanguard's equivalent of the Barclay's index, and BLV, which is Vanguard's long-term bond etf.

BND / BLV (NAV returns from Morningstar, evening of 2/21)
9.98%% / 23.96% 1 year
4.66% / 6.55% 5 years
3.82% / 8.25% 10 years

People who have used bond ladders have been finding their income dropping as the bonds mature and have to be reinvested. That was the risk that Jim pointed out and he correctly identified the best solution, or rather amelioration, which was to stay long-term as practical.

It should be noted that Jim has not (to my knowledge) ever abandoned equities in favor of bonds. Bonds are just a part of his amazingly diversified portfolio.
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No. of Recommendations: 7
Valuemongeragain

I have no answers.
Yes my REIT preferred stocks will get creamed with inflation and rising interest rates.
I certainly do not want to buy REIT preferred issues giving a yield to call much below 5%.
However, I do want to maintain my income stream, being retired and living off of my investments.

When will interest rates rise again? Beats me, but they could stay low during my remaining life-span.

One needs to balance his asset mix in his portfolio so that one will get by whether or not rates rise.

One would be very ill advised to prepare only for a scenario of rising interest rates. What we may see is rising inflation with interests rates held low which is why hard assets make up a portion of my portfolio.

Respectfully,
Martin
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No. of Recommendations: 3
To consider only today as your ending date for various periods is somewhat cherry picking. Of course bonds look good when bonds yields are hitting record lows. We started these debates 5-10 years ago when rates were similar. In between they have been higher. If you are funding retirement those in between years are/were just as important as today.

So BND annualized returns ending Feb 20, 2020 for 1, 5, & 10 years were 9.98%, 4.66%, & 3.82%.

What if you used 1, 5 & 10 year returns, but ending not 20 Feb 2020, but 20 Feb 2019?

I do not have total returns for those ending dates, but do have capital appreciation or loss amounts.

Over 1, 5 & 10 years the annualized gain/loss amount would be (2.09%), (0.62%) & 1.37%. I guess you would add in about 2% for the yield. So a year ago the 1 year would be a lot lower and the five year considerably lower as well. For the ten year period only about a half percent difference between the two different ending dates.

In forty years the Barclay's Bond Index (BABI)has had 4 years with negative annual total returns. They were 1994, 1999, 2013 and 2018. Note two of them are in the last 7 years. Its not that bonds haven't lost value before, but previously higher yields buffered the decreases in values.

Throw in inflation and it is even worse.


It is not so much what bonds have returned for the last 1, 5 or 10 years because if it is then equities were where you should have been. What is important is what bonds or equities will return over the next 1, 5 or 10 years.

To say that long-term bonds are where you should have been based on today's values are like saying tech stocks is where you should be invested based on recent history in say Feb 2000.
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Are actually arguing that over the past, oh, fifteen years (longer, but we are using jimluckett's prescient call as the non-cherry-picking baseline), the best strategy for bond investments was not to keep them long-term? Based upon some negative years for a different bond strategy (BND etf)? And choosing a couple of years is not cherry-picking, while using today as the end point is?

Or are you simply arguing that bonds have not been all that great an investment? Because if that is your point, you have just won an argument against a straw man.
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Do I get an "yes-you-told-us-so" from any old timers on this board?...
See post 80497 (2016) for example

So I have read your posts in that thread..

On post 80452

If the Fed would cut rates and promise to keep them down, then the market would expect a vigorous economic expansion and revival of inflation and revival of demand for capital, with the result that long term bond prices would fall (long rates would rise) and preferreds would follow long bonds (prices would drop, yields would rise).

Your thesis if Fed cut rates and keep it down, long-term yield will raise didn't happen, actually opposite had happened, we are having the absolute low yield on the long-term treasuries. WRONG.

I predicted Quantitative Easing starting would have little effect and stopping would have little effect and I was right.

Again, totally wrong. Fed QE started the bull market. When they started shrinking the balance sheet the market went nowhere. Again, in the name of intervention in REPO market, fed pumped $500 B and on cue market started having this great bull run. BTW, it is not just for bull market, you can see the same is true for long-term bonds' too. The bond prices rose and the yield went down along with Fed action.

WRONG

The long bond market is too massively huge, too liquid, too global and too enmeshed in the closely related markets for all kinds of long-dated assets for Fed action to directly move it just through adding or subtracting its incremental demand for long securities.

In short, your argument is bond market is too big Fed's incremental actions cannot influence. In fact, the taper tantrum of 2013 should have demonstrated your statement is wrong. Recently, when Fed was shrinking its balance sheet and raising rates, the UST rates also went up and along with the cut and repo liquidity injection, you are having all time low in long-term interest rates or high in bond prices.

Again your statements are not supported by the facts and market reality. WRONG.

Your predictions and how economic forces are going to work are completely wrong. Your let us lock-in the rates now, ended up being correct. Your process, and the reason are wrong just the conclusion you drawn ended up correct, is just a happenstance, not a product of your process.

I mean at the end who cares about being right and wrong, as long as you got what you desired. So congratulations you were able to lock-in those 5% yields.
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I think this may be mischaracterizing or misunderstanding what Jim was preaching way back when. Your first quote from 80452 that predicts prefered prices would drop/yields increase sounds like the prevailing wisdom of experts at the time, the opposite of Jim's predictions. I am most likely wrong:)
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predicts prefered prices would drop/yields increase sounds like the prevailing wisdom of experts at the time, the opposite of Jim's predictions.

Please re-read, I did say his conclusion of locking the yield ended up correct, but his reasons for that were wrong. The reasons he cited why you should lock up yield were WRONG, so even though the opposite had happened because his original hypothesis was wrong the conclusion turned out to be correct.
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No. of Recommendations: 13
My advice is being proven right again, this week and last.

My reasons are, and have been, correct: Yields are, and have been, in a long-term downward trend because we live in a world awash in savings and deficient in demand. A world of excess supply. A world with very little, and diminishing inflation, because of the aforementioned. I've been saying this since I came onto the AOL version of this board in 1998 and urging people to nail down the yields on offer and protect themselves from call risk. I've done it myself, and I'm a happy camper as a result.

When the Fed tightened and raised short rates, it just reinforced the underlying trend to lower rates by stifling demand when it was not warranted. That's what I said at the time.

If you're a trader, would this advice have made you money in every year? No. I play the long game.
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Jim I will give you a victory lap about the longer term decline in rates. We now have financial repression like no one could have ever imagined. I'm talking about the street inflation that we as consumers experience not the government's lower published numbers. Does this financial repression continue to become more extreme?

We also have to navigate the credit risk that I believe we are not being compensated for in these markets. REIT securities are basically like junk bonds; maybe a tad more secure because of the real estate business model. The pretty buildings are only as good as the tenants that pay rent(in some cases for only a day or 2 at a time). Assigned real estate values have increased as a result of the debt terms available from this financial repression.

I wonder what Reitnut would have say about these markets.
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No. of Recommendations: 4
Ziggy,

The way I see it. For those speculating in bonds, the largest risk is interest rate risk. For long term holders of fixed income the greater risk is inflation. If you buy a bond at x% interest rate and hold it to maturity, barring the normally small credit risk of default, that is what you get at maturity. The big risk is how much the recurring payments are in real purchasing power and how much the principal will be worth at maturity again in purchasing power.

CPI has averaged about 2.1% for the last four years.
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No. of Recommendations: 5
Valuemongeragain wrote "The big risk is how much the recurring payments are in real purchasing power and how much the principal will be worth at maturity again in purchasing power. "Also..."CPI has averaged about 2.1% for the last four years."

One of my points...how do you define real purchasing power? Has your cost of living only went up by 2.1%/year for the last four years? I would be jumping up and down with relief if my cost of living had only increased by that amount. Your purchasing power is been further reduced by the difference between "street inflation" and the government telling you inflation is only 2.1%. The increases in replacement cost of real estate is probably close to the inflation we as consumers experience in our daily lives. The low interest rates(financial repression) relative to even the government's number for inflation and even more so relative to increases in replacement cost has been a tremendous tail wind for real estate values.

Does this discrepancy continue or become even more extreme and create a larger tail wind for real estate values? I.E. do we have a risk of a bubble?
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For long term holders of fixed income the greater risk is inflation
This is true for individuals. Often other entities like insurance companies that match future payment with today's purchase, it is pretty much a wash.

Often these institutions are source behind buying low coupon bonds.
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It could be that current rates are partially the product of a very long secular trend. The post WW II era may have been an anomaly in the trend.

Eight centuries of global real interest rates, R-G, and the
‘suprasecular’ decline, 1311-2018

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been “stable”, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging “back to historical trend” – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of “nonhuman wealth” over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the “virtual stability” of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.


https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3485734

Best,
Bob
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