So STAR is being acquired, but its preferreds now trade quite a bit below par. Transaction is expected to close in late Q4/early Q1, though the roil in the markets may be upsetting things. The preferreds are scheduled to be redeemed as part of this process. So there’s probably one more dividend to be paid, in mid-December. STAR common has declined heavily from earlier this year.
Jim
Jim,
good to see you 'round these parts! It took some doing, but I’m slowly finding my way around the new boards. Looks like several of the old gang have found your board here as well.
Best,
Andy
CMFGouldberg
Thanks, Andy! Likewise!
Best,
Jim
Hi Jim,
Posting a follow-up in part just to try to figure out these new boards!
I looked at the STAR preferred available and found D, G, and I, paying 8.34%, 8.24%, and 8.07% respectively. Last closing prices were $24, $23.20, and $23.22, respectively.
My attempt to profit from the expected buyout of the DBRG series of preferreds didn’t work out as I expected. I’m trying to gauge the risk of these preferred actually being retired. I’m expecting the fed to keep raising interest rates and wondering at what point management might decide funds would be better off spent elsewhere rather than closing these out.
I assume they would buyout D first, with the highest interest rate which might explain the higher recent closing cost for this issue, but by this logic, why would the G have the lowest recent closing price?
Also any purchases would have to be in a tax sheltered account as that’s where I currently have available cash.
Ok this practice post has meandered long enough. Thoughts & opinions of all are welcome. Hopefully I can find my way back to this board to check on any responses!
David
Hi, David,
So the issue with the STAR preferreds is that they’re supposed to be redeemed as part of the merger. That’s in contrast with some of the DBRG preferreds, which management had suggested (but not stated definitively) that it would redeem. So the difference here is that the slated STAR merger closes out these preferreds. Now, there may be legitimate questions about whether that merger gets done, given the state of the market, etc. I haven’t looked closely for a couple months at what might derail the merger or whether it might still make sense, etc.
Best,
Jim
Thanks Jim,
I recognized the significant difference from DBRG preferred but couldn’t really find much on what might derail the buyout and subsequent retirement of the STAR preferred
other than the rapidly changing economic pictures and rising interest rate environment.
I’m in an age range where I’m always looking for some income generating ideas to balance out the wild Rule Breaker and SA recs. I will keep an eye on these preferred.
David
STAR preferreds back to par, as this deal ties up some of the last bits of financing. I expect one more dividend, in mid-December, before these are ultimately closed out.
Jim
Jim,
This special SAFE distribution - this is necessary because they don’t want to run afoul of REIT distribution laws, correct? And it just sweetens the return thesis you originally posed - we now get this special capital gains distribution in addition to normal 8% per annum dividends and appreciation to par on the shares?
As always, thanks for scoping out these opportunities.
Vince
Vince, the special dividend is only for the common shares, not the preferreds. If you owned the common, this special dividend comes off the top (goes ex-div) like any other in-kind distribution and then the share count is further diluted, which is a not especially attractive way to receive it, though it’s typical in REIT-land when they’re trying to meet the letter of the law on distributions.
My thesis was simply that because the company said that these preferreds were going to be redeemed when the two companies merged, then the preferreds would go back to par plus whatever unpaid dividend was left. I still expect there to be one more distribution. And the preferreds now trade at par. So it’s been a pretty nice ostnesibly safe return in the last 6 weeks or so.
Best,
Jim
Jim,
It’s a wonder I have made even a penny investing, given my faulty conclusions, thanks for the clarification. 4% appreciation and 2% dividend in 6 months works for me. As you said, the appreciation has mostly occurred.
Vince
Ha! No worries, Vince!
Best, Jim
Just a thought, if you have got most of the profits, I would take the money and move to sidelines. Don’t wait for the last penny or dividend. Things could change, deals are falling through. I don’t know anything about this situation, use your own judgement.
King,
I have thought the very same thing. Today, I can grab a little more than 5 of the total 6% available. In this crazy market, that sounds pretty good.
Vince
As an update, STAR preferreds have traded in the mid 24s this month, although I saw a spike in the D series for a short time to over 25 this week. Looking at another entry point in the high 23s or low 24s before the next ex-dividend date.
And the STAR preferreds are being closed out as of today, as part of the STAR/SAFE tie-up. Holders will get par value of $25 plus any accrued but unpaid dividends. I’m estimating those unpaid dividends on Series G at $0.16, given the prior record date of March 1 for the March 15 payout. We will see shortly.
Jim
Looks like my Star preferred are being redeemed in my brokerage account. Picked up most of these shares in October for around $22.30 and also received a dividend payment 12/15 and 3/15.
So return of about12% plus two dividends of around 2% each in about five months. Not bad for a pretty safe investment.
Thank again Jim. Really sorry TMF ever closed the SpecialOpps service but appreciate hearing about your continuing ideas.
David
Sorry for the duplication. Didn’t see Jim’s earlier post until now. I forgot about the accrued dividends in my calculations. Even better return!
David
Yeah, this trade worked out well in an uncertain environment. Thanks, David!
Jim