DBRG preferreds under $24

Investment Analysis Clubs Jim Royal
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DBRG preferred stock Series H, I and J now trading under $24. With interest rates going up, that 7+% coupon isn’t enough?

Vince

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Yes, the coupon beats the heck out of any other comparable use of cash (bank account, most typical debt, CD, etc). I’ve been looking at some other preferreds that have really been dinged lately. I noted the PEB preferreds, in particular.

Yield on PEB-F right now is 7.2% and to get back to par adds another similar amount. If you think it takes 2 years to get back to par and inflation to come down, then you’d get a 14.2% annual return. If it’s 3 years, then you’d get 11.8% annual returns. The PSA preferreds, with much lower coupons, have been hit even harder, but it wasn’t long ago that they were at par, too. Doing the same exercise as above gets you 20+% annual returns over a couple years.

The market is worried about a lot of different things right now (recession, inflation, rapidly rising interest rates, etc). Meanwhile, preferreds are relatively illiquid. So we may get some serious dislocations if the market turns over.

Jim

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I am not buying anything. Preserving cash.

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Let me expand. DBRG is no longer going to be REIT and the cash that they earmarked for retiring the preferred’s are spend on the wafra deal. I don’t think the preferred’s are going to be redeemed anytime soon.

I think DBRG preferred at this time are high risk.

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Let me expand. DBRG is no longer going to be REIT and the cash that they earmarked for retiring the preferred’s are spend on the wafra deal.<<<

King,
Is that detailed anywhere?

Vince

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Their website!

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Vince, they explain the Wafra deal terms in their PR, and it’s close to 50/50 between cash and stock, with something like (IIRC) $390 mn in cash. That money could/would have gone to at least a partial redemption of some of the preferreds.

Best,
Jim

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the Wafra deal terms in their PR, and it’s close to 50/50 between cash and stock, with something like (IIRC) $390 mn in cash.<<<

Jim,
I saw that part - it was the part about not being a REIT that I couldn’t find in any press release.

Thanks!
Vince

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It is there. Wafra deal is going to require them to use the NOL and they are deciding not to elect REIT for the next filing year. I think the fee income part is going to grow to a level it will be difficult for them to be qualifying as REIT consistently.

This is basically morphing into old colony, with a significant fee income and all other associated issues.

For a moment, I thought this is going to be infrastructure REIT with some fee. They are more interested in managing other capital and using this structure to fund their commitments.