Resource Capital Corporation (RSO), a REIT that specializes in various forms of debt, recently issued an 8.5% preferred. The preferred can be found under the following symbols, depending on your broker: RSO-PRA, RSO-PA, RSO-A.
The preferred began trading on the NYSE on June 15th. The liquidation value of the security is $25 a share. When the issue began trading on the 15th, it was well below the liquidation price the company set. Instead of trading around $25 or even close to it, the preferreds began to trade at a decent discount.
The preferreds were trading in between $21.50 - $22. This is around a 13% discount to the liquidation value of the preferreds. I initially thought this was mainly due to the market being pessimistic about the future of the REIT. However, the common stock pays a 14.5% dividend and the company has been in the black even through the recession. So the fact the market was discounting the preferreds did not make any sense to me.
For a profitable company's preferreds to see such a nice discount, is a rare opportunity. However, I believe income investors still have a nice opportunity to grab some shares before the window of opportunity closes. The market seems to have recognized it may have made a mistake in discounting the preferreds so low.
As you can see from the chart above, the preferreds seem to be getting closer to liquidation value. Investors should jump in as soon as possible. Not only will a lower cost mean a higher yield, but when the company calls the preferreds, investors will be able to profit from the spread of the liquidation value and the current marker price.
Resource Capital's new preferreds seem like a great investment for income investors. I encourage investors to considering taking a position in the preferreds.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long RSO-A.