Immediately after posting the below, I see that Blackstone posted a Form 15-12g, which appears to mean delisting these three securities and/or end reporting requirements. So I guess that’s a wrap on those!
I’ve run across these three REIT preferreds - PSB-X,-Y and -Z. Due to price crashes, these @5.5% coupons are yielding over 10%. Found a nice analysis on these over at SA in trying to find out what’s up with these. TLDR version:
1.) Public Storage split into two subsidiaries some time ago, PSA and PSB (business parks)
2.) PSB issued these a few years ago
3.) Blackstone bought PSB in April '22, immediately canceled the common of PSB but…
4.) rolled the preferred into some new entity they call Sequoia.
5.) The amount of funding/capital structure of Sequoia is unknown & invisible.
So, the price of these preferreds has crashed. That 10% yield is enticing, and the price represents a nearly 100% CG opportunity if BX redeems them at even 20. I don’t think they have to retire them at the $25 original call due to the acquisition
The original rating of the PSBs was BBB, which is still attached to them but obviously irrelevant now.
I’m thinking of a opening a 1 to 2% position in one of these. Opinions?
As I said in November in this post PSB Preferreds getting screwed by BX - #3 by aj485 what you need to worry about is the preferreds being Waldenized. The entity legally responsible for the dividend payments is Sequoia, not Blackstone. That said, if BX is to get any dividends from Sequoia, the preferred dividends would be in line ahead of those payments. If you presume that BX wants to extract value from Sequoia, that would make you feel that it’s less likely that the preferreds will be Waldenized.
However, the elephant in the room is that BX already extracted a big chunk of value from Sequoia by obligating Sequoia on a mortgage secured by the PSB property. The mortgage, being senior secured debt, takes precedence over the preferreds. Considering that many commercial mortgages are variable rate, that means in the current environment, the payment obligation on that mortgage is going up, so there is less money available to service the preferred debt.
Since Sequoia is a private entity, you’re going to have to do a lot of digging to find specifics of the cash flow from the property to see if it’s going to be able to support both the mortgage obligation and the preferred dividends.
Outstanding information AJ… I’m curious how you determined all of that capitalization / mortgage obligation behavior detail… I’m asking in a “teach a guy to fish” way. i.e. that original press release you linked to in November doesn’t show up in Fidelity “research” or yahoo finance except in a few comments. Thank you for all you share here, you really are a treasure chest.
Except as set forth in the preceding sentence, unless full dividends on the Preferred Stock have been paid for all past dividend periods, no dividends (other than in Common Stock or other shares of capital stock issued by us ranking junior to the Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment, nor shall any other distribution be made on the Common Stock or on any other shares of capital stock issued by us ranking junior to or on a parity with the Preferred Stock as to dividends or upon liquidation.
That’s a pretty common condition in the preferred space and says to me that dividends on common stock can’t be paid unless the preferred dividends have been paid.
The prospectus also gives terms of redemption, and what happens if there is a change in control. The way I read it, the change in control does not change the terms for redemption, but it also doesn’t prohibit the new owner from highly leveraging the buyout, by, for instance, placing a mortgage on real property.
Based on my experience in the retail mortgage industry, both in taking out mortgages myself and helping manage customer service processes, I know that mortgages secured by property claim first position on the property and cash flow/rents from the property. I have only looked at taking out a commercial mortgage once (and ultimately did not take it out), but it had clause giving it first claim on the rents. I can’t imagine any commercial mortgage not laying first claim to the property rents, but I suppose it’s possible.
I originally found that link in the other TMF thread I linked to, which was about the tender offer. However, I will say that if you are looking at preferred stocks, www.quantumonline.com is a great resource. The quantumonline pages on preferred stocks (here’s one for one of the PSB preferreds: PSB-X Search Results - QuantumOnline.com ) are pretty good at providing notifications of things like calls and tender offers. Once you find that there’s been a tender offer, you should be able to find a news release using your favorite search engine. I always check the quantumonline page for any preferred I’m considering purchasing.
There are a lot of economic engineering that can be done so that BX can extract $ from Sequoia without paying themselves any dividends.
They screwed the PSB preferred holders with the “tender offer” and delisting thread and I see nothing in their behavior that suggests that they will concern themselves with screwing the preferred holders some more.
Won’t go near these.
Preferreds are 10% of my portfolio.