Washington Prime Group: A View From The Perspective Of A Preferred Investor

| About: Washington Prime (WPG)
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Summary

WPG common stock has not performed well over the past two years, although it maintained its dividend.

However, WPG preferreds have performed rather well.

Unfortunately, at the preferreds' current prices and after looking at the recent company performance, I advise against a buy at present.

For those of you unfamiliar with my preferred investment philosophy, my article "The Basics Underlying Investments Viewed Through the Eyes Of A Preferred Investor" will explain how and why I became a preferred investor. More importantly, it will provide you the information necessary to fully appreciate and understand the process I utilize to research and determine whether or not I will invest in a particular company's preferred equities. What follows is that process.

When considering the acquisition of Washington Prime Group (NYSE:WPG) preferred shares, it's necessary that we view that company through a different set of eyes than we would were we interested in acquiring its common shares.

Consequently, unlike its common cousins, it's necessary that we first study the offering prospectus of the preferred shares we are interested in acquiring. To accomplish this, let's visit my favorite preferred search site, Quantum Online, which I set to open to WPG. Below is a snapshot of a slice of that page:

A quick review informs us that WPG is a retail REIT that owns and operates retail properties. It IPO'd with a market value of $2.5 billion, making it a moderately large company.

Let's click on Find Related Securities to examine any preferreds this company has to offer:

Here we learn that WPG offers two preferreds (WPG H & I), respectively initially offered at 7.50% & 6.875%, which indicates to me that WPG is perceived as a relatively safe company to invest in and investors are willing to lend it money at reduced interest rates.

Now let's click on WPG-H. Because this page contains more information than can be covered in a snapshot view, I suggest you open the page and view it as I discuss the information that most interests me:

  • I like that this preferred is cumulative, meaning in an event that payments are suspended, they accumulate and are owed to the shareholder, and will be repaid in full if and when the payments are restored. And they must be completely repaid before the common shareholder will be allowed to receive any further dividend payments. Additionally, there are probably more sanctions and restrictions placed on the company, and will remain so until the missed payments are repaid in full. As a rule, I only invest in cumulative preferreds.
  • These shares are callable on 8/10/17 at $25.00 plus any accrued interest owed.
  • It pays a dividend of $1.875 per share per year, or 0.46875 per quarter, to be paid 1/15, 4/15, 7/15, & 10/15 of each year.
  • At the time of its IPO, 8/1/12, these shares were rated WR by Moody's and BB by S&P, which really doesn't concern me but might concern a more conservative investor.
  • Dividends are not eligible for the preferential income tax rate of 15% or 20%. You should be aware of how these tax ramifications will affect your investment bottom line.
  • As usual, upon liquidation, preferreds rank senior to commons and junior to debt, both secured and unsecured.

However, simply knowing and understanding the preferred issues of a company in no way allows one to gauge a company's long-term health or to fully comprehend its business model. To better accomplish this, a knowledgeable investor should be able to dig down into the numbers and at least marginally understand a company's financial statements and conference calls.

Sounds reasonable, but extremely difficult for most investors, including myself. I often rely on interpretations by SA contributors who have proven more knowledgeable than myself. Unfortunately, the vast majority of their articles are written with the common shareholders' interests in mind, rather than those of the preferred shareholder - which, on occasion, might not be in alignment. Also, as I mentioned above, other SA members might view their conclusions in a different light. When this occurs, I simply try to figure out which argument sounds the most logical. Sorry, that's the best I have to offer.

Consequently, rather than attempting to digest and understand complicated financial statements, which I realize I won't be able to realistically accomplish with any degree of accuracy, I usually visit two websites to get an abbreviated, yet broad-based, view of the particular company I'm considering making an investment in. These are Yahoo Finance and FinViz. I have cued each to open to the financials of WPG.

Above is a screenshot of WPG's two-year chart. As far as I'm concerned, this is the picture of a company that has struggled along for much of the past two-years declining in price from $21.26 on 5/18/14 to its current $10.20, an $11.06 decline in value. Although, according to Dividend Investor.com, during the past two-years it has maintained its yearly common dividend of $1.00.

Above is a screenshot taken from a Finviz view of WPG's present financial highlights. The company's current market value is $1.89 billion, It lost $67.10 million on sales of $855.10 million. However, surprisingly year to date, it's up 5.61%. Its short- and long-term debt/equity 3.94.

Now let's see how its preferreds performed, as illustrated by the following MarketWatch charts:

It appears they have performed much better than their common sibling. Now, it's time to decide which is the best buy at these prices, should we decide whether or not they are a buy at all.

WPG Preferreds 12-23-16

Symbol Callable Yearly Dividend Price Dividend/Price Yield Best
WPG-H 8/10/17 1.875 25.63 1.875/25.63 7.32% Best
WPG-I 3/27/18 1.71875 24.54 1.71875/24.54 6.98%

H is a better buy because of its higher yield; however, because it is priced above par value and soon callable, if called, the holder stands to lose .63/share if called immediately, although he would receive at least three dividend distributions totaling $1.41. I chose the H as best because if uncalled immediately it will earn its holder the better yield that might continue to be paid for years to come.

However, as far as I'm concerned I really don't feel that, at these prices, either is a very good buy because I'm not impressed by the yields and I'm not overly impressed by the performance of this company over the past two years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.