REITs Yielding Over 7% Where The Common Didn't Eliminate The Dividend

Includes: CDR, CLNS, EQC, LXP
by: Valuematters

Having written a couple of articles about preferred stocks (pure floating rate and fixed-to-floating rate securities) or exchange traded debt, it is clear I think preferred stocks (or other similarly traded exchange traded debt or trust shares) can offer some compelling values for the individual investor. Not that they don't for the institutional investor, but the illiquid nature can allow individual investors to buy these on the open market without impacting the price. The lack of liquidity can also be a cause to allow preferred stocks to trade at compelling values (or un-compelling values, whatever the case may be).

In the table below (using preferred symbols under the same method as Yahoo Finance) there are five REITs (Real Estate Investment Trust) which fall within similar parameters. They are all yielding 7%, they all are trading at or under par, and they all have an underlying common stock that kept paying a dividend in the recent financial crisis (I am considering all the way from 2008 through 2010). The last point is the main differentiator between these shares and other available securities, as there are many that yield over 7% and trade under par. None of the common shares kept their dividend fully intact, but they all kept some level of dividend payments. While these are not all cumulative shares, I still find comfort in the fact that the common shares kept paying dividends.

REITs Yielding 7% Where The Common Wasn't Cut

Symbol Price Dividend Yield Par Yield Par
LXP-PC 44.6 3.25 7.29% 6.50% 50
NRF-PA 24.5 2.19 8.93% 8.75% 25
NRF-PB 23.4 2.06 8.81% 8.25% 25
CWH-PD 22.3 1.63 7.29% 6.50% 25
CDR-PB 23.25 1.81 7.80% 7.25% 25

LXP-PC - These are issued by Lexington Realty Trust (NYSE:LXP) and have a 6.50% stated yield on a $25 per share par value. These are non-cumulative and not callable (there is a forced conversion provision, if trading above the conversion price) and are convertible. However, the conversion feature is "out of the money" at this point by a great deal. The underlying stock paid a quarterly dividend of $.33 per share in fall of 2008, which was reduced as low as $.10 per share. Currently, it pays $.125 per quarter and is yielding 5.80%. At that yield, it doesn't exactly say the market thinks the common dividend is in trouble, but neither does it indicate it is extremely safe either.

NRF-PA - These are issued by North Star Realty Finance (NRF) and have a 8.75% yield on a $25 per share par value. These are cumulative and callable after 9/14/2011 at the par value, but are not convertible. In the fall of 2008, NRF paid up to $.36 per share, per quarter for a common dividend. More recently, the company raised the common dividend up to $.15 per share (quarterly), which obviously is still far less than the levels of 2008. The company is currently yielding over 11% on the common shares.

NRF-PB - This offering is similar to the one above (the A series) as it is cumulative and callable at $25 per share, but only on or after 2/7/2012 (already callable). These were issued to yield 8.25% at par, but are currently yielding about 8.81%. See above for information related to the common shares.

CWH-PD - Issued by Common Wealth REIT (NYSE:CWH), these shares were issued to yield 6.5% at par, but are currently yielding 7.29%. These are cumulative and non-callable (except for some conversion provisions), but they are convertible. The conversion is relatively far out of the money as the common shares have not performed well. The common shares saw the dividend peak at $.84 per quarter and get cut as low as $.48 per quarter during the financial crisis. Currently the common shares are paying $.50, which is above a 10% yield. The common shares leave a lot to be desired in terms of their management structure and how the shareholders can often times seem like they are not the priority. However, I don't see these being any risk to the preferred share dividends. In fact, I believe the company will be run well enough to stay around to continue supporting the current structure, even if the common dividend gets cut.

CDR-PB - Issued by Cedar Realty Trust, Inc. (NYSE:CDR), these shares yield 7.25% at par, but are currently yielding 7.74%. These are cumulative and callable at $25 per share, on or after 5/22/2017. The common stock is currently yielding 3.8%, which is based on an annual dividend of $.20 per share. At a peak, before the impact of the crisis, the company paid $.90 per share, per year.

This list should be meant to serve as a starting place, not a final destination. In other words, any investor should dig further into the companies and make a determination based on more information. The good thing with all these preferred shares is that you can monitor, research, and evaluate the underlying common shares to have a better feeling on the preferred. All of these securities could be negatively impacted by interest rates increasing, so the investor's interest rate expectations are a critical component of the investing process. However, for the convertible options where the conversion option is in the money, you could see some benefit from an increase in inflation (which could coincide at some level with rising rates) as people look at real estate as an inflation hedge.

Disclosure: I do own NRF-PA, LXP-PC, and CWH-PD.

Disclaimer: This article should not be taken as investment advice, and is for informational purposes only.

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