8% Yields Worth A Buy From These 3 Preferred Shares


  • That market is punishing equity REITs and their preferred shares.
  • PREIT is currently a buy, but the preferred shares are a strong buy.
  • All three preferred shares are trading at a huge discount to the call value of $25.
  • The preferred shares from PEI are a good fit for investors willing to take on more risk.

The market has punished preferred shares from PREIT (PEI).

Over 8%. All of them.

Investors have a good opportunity to get all 3 preferred shares from PREIT.

For investors following my preferred share ratings, here ismy guide to preferred shares.

Common stock

PREIT isn’t as strong as Simon Property Group (SPG), but they do have some great properties.

Source: PEI investor presentation

PEI’s top 5 properties are fantastic. However, as you can see, they do have properties that aren’t nearly as good. This puts PEI in an interesting position. They are actively improving the portfolio.

Source: PEI investor presentation

The company has a significant amount of operating income coming online by 2019 and 2020. This is a nice move, but it does require a significant amount of capital as they continue to have redevelopment spending.

Source: PEI investor presentation

As these new properties come online, PEI’s leverage multiples should decrease naturally due to higher net operating income. Currently, PEI is carrying higher leverage than I would like to see for an equity REIT. It would be nice to see a reduction in their leverage over the next few years, but the ratios may expand in 2018 and early 2019 due to the expenditures on redevelopment. In 2020, I expect the leverage multiples to be improving. Despite this leverage, I believe PEI deserves a buy rating. They are attractively priced and the dividend continues to be covered. Management indicated they were comfortable with the current level and they expect increases as redevelopment plans come online.

Another risk, and the biggest risk for the preferred shares, is that a huge amount of PEI’s equity comes from preferred shares. Despite that, the preferred shares are trading at a massive discount.

Preferred shares

PREIT has 3 series of preferred stock.

Source: CWMF’s subscriber spreadsheet

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This article was written by

Leader of The REIT Forum
Most of our subscriber articles never go to the public side.
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Disclosure: I am/we are long SPG, CBL, CBL-D, CBL-E. 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.

Additional disclosure: No financial advice. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints. CWMF actively trades in preferred shares and may buy or sell anything in the sector without prior notice. Tipranks: No ratings in this article.

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