Glimcher Realty Trust: Are Preferred Redemptions Imminent?

Mar.18.12 | About: WP Glimcher (WPG)

With an annual dividend yield of 8.75%, the Glimcher Realty Trust (GRT) preferred F series may seem like a good pickup for the long term portfolio. However, rewards of this magnitude tend to come with risks. The risk for GRT-F comes in the form of potential redemption.

Since the F series became redeemable on 08/25/08 it is simply a matter of GRT management having the desire and capacity to redeem the shares.

Desire

GRT has incentive to redeem the F series as the high yield on 2.4 million shares is very costly. 8.75% annual yield is well above the market average with many other REITs issuing new preferreds yielding around 6%.

Capacity

Glimcher has plans to reduce debt and fundraising efforts are underway. In May of 2011 GRT launched an equity offering program which issued 15,591,033 shares of common stock at an average price of $9.15 per share. Some of the $140mm offering proceeds was used to pay outstanding debt. While this does not directly support redemption of the F series, it serves as evidence that GRT is attempting to minimize their cost of funds. Clincher's steadily improving financial status facilitates their ability to structure funding for redemption.

As of 03/16/12 there has not been announcement of a redemption, but the potential does exist. The F-series should certainly be considered for investment as it provides strong steady yield, but in the event of redemption the investor would lose an amount equal to the disparity between market price and the redemption value of $25.00. Presently, the investor is protected from this loss by a dividend declared on March 8th to be paid to shareholders of record as of 03/30/12. This quarterly dividend of $0.5469 per share is greater than the aforementioned price disparity and thus prevents losses at potential redemption. After the dividend has been paid out, investors might be wise to seize any opportunity to sell their F series shares at any price above $25.00.

Glimcher Realty Trust is a shopping mall REIT which has recovered nicely from the crisis in 08. The outlook of the company is strong and with the high yield preferreds currently offered, investors have good options.

ISSUE

GRT

GRT-F

GRT-G

SHARES OUTSTANDING

115,975,420

2,400,000

9,500,000

RECENT PRICE

9.91

25.39

24.50

ANNUAL DIVIDEND

.40

2.1875

2.03125

CURRENT YIELD

4.03%

8.61%

8.29%

DATE CALLABLE

n/a

08/25/08

02/23/09

Click to enlarge

The safer alternative within the Glimcher family is the series G preferred. With shares recently changing hands at $24.50 the G series can be had for an 8.29% yield. One may notice that the G series is also callable since 02/23/09, but this is of lesser concern as the market price is well below the redemption price, so redemption would be to the benefit of the investor.

In the current market conditions it is conceivable that GRT will redeem both the F and the G series through substitution of a lower yield preferred.

Disclosure: As of 03/16/12, 2nd market capital and its affiliated accounts are long GRT-F and GRT-G.