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iStar Financial Inc. Message Board

  • trash_can000 trash_can000 Feb 16, 2011 7:42 PM Flag

    Preferred Shares - Risk/Reward

    The D shares hit $21.00 today for a yield of 9.52%. Further capital appreciation is possible of up to 19.04% to $25.

    However, is anyone considering lightening up on their preferreds as the yield dips lower in the single digits? There are a lot of bond/preferred funds running at 6-7% yields right now and with some DD I bet 8% yield could be had fairly easily on another dip or retracement.

    I am as LONG and STRONG iStar as anyone else. I believe they will get solid terms on their refinance and the preferreds will keep paying until called.


    But how much risk does it add to my portfolio to keep this one company's preferreds, as opposed to buying a fund for safety for perhaps 1-1.5% less yield? Wait for the next grand opportunity?

    These are some of the thoughts I'm wrestling with. Obviously, everyone's portfolio is different and there is no one answer.

    So what is iStar's risk worth in percentage points of yield to you?

    FYI: There are no dang covered calls on preferred shares. Leave them the heck out of this thread.... please. Start your own if you want to advertise the next greatest LEAP sale.

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    • An additional reward for taxable accounts is that preferred dividends will be considered a return of capital for tax purposes until SFI has taxable income. Rather than paying income tax currently on your dividends, you decrease your cost basis by the amount of the dividends, which means that they will be taxed at capital gain rates if and when you sell your shares.

    • <What are you going to do if they suspend the preferred dividend? The thing will tank right back to the low price you bought it at>

      Ahem, I guess that's a hypothetical we don't have to worry about for a while, given that they just announced PFD divys a few days ago. Why would you even suggest that mere days after they just reaffirmed???

      Personally, I think they would have been much more likely to suspend PFDs divvys at $3 or $4 compared to today. Now with CRE values rising and the stock price in the $9 range, there is much more cushion for the PFDs.

    • I have the HPS and JPS Preferred Funds that are yielding 8.3% and 8.2%. I have a lot of the SFI Preferred, but at this level there is no desire to add any more. I bought more common a couple of months ago.

    • trash

      you are correct on your risk being pretty low now but the reward is also capped at about 30% in total at par but only a single digit return until then.

      taxes are a factor for you but if you think that sfi will survive the refinace ok you might want to consider this 100% 2 year return if the stock is at least $10 by then

      buy the stock long at $9

      sell the 2013 $10 covered call for an immediate $2.85 cash back

      that gets your share net cost at $6 with a possible 66% gain if taken.

      you get your 100% by also selling the $5 puts naked for $1.15 so your long shares actually cost you $5.00 net

      your double if taken at $10 that way.

      want to boost it even more..

      sell the $15 leaps naked for $1.40 to $1.50 so you have a $3.50 net cost and a triple if taken at $10

      if you do the naked $15 just be sure to repair the position if the stock hits $12 by buying a few more long shares.

      jim

    • I have been wondering the same thing. However, unfortunately/fortunately my gains on the D are significant. Selling D would be a taxable event. Then, I would need to find someplace to invest the after tax dollars.

      And, I think we have room to go.

    • Let us not over-think the situation.

      The preferred series D have an 8% coupon so when they get to par $25 you get 8%. Oh they might trade a little over par, but par it is! And 8% is a good yield in todays market... a move from today's price of $21 to $25 is a 16% appreciation over an unknown time sale... but as Marty Whitman (the value guru) has noted, at $25 they can only go down... no appreciation potential... as for the common shares, they can go where-ever Mr. Market decides... at this point, this is where the "action" will take place....

    • when you say lighten up on the pref - that sounds to me like a question for someone who already owns the pref (?)

      would I buy the pref at todays price and yield?
      not me because I bought them on sale

      but if I had some cash I didnt know what to do with then I might

      am I selling the shares I own? - nope

      what am I missing in your question?
      *I am no expert but just trying to clarify*

      LONG AND STRONG
      1700 pref D
      3400 common

      • 1 Reply to haoleboy1967
      • You're missing the bottom line.

        Is there any point at which the risk of being in a single company (iStar) is outweighed by the benefits of diversity in an income fund.

        The benefit of holding iStar preferred is approximately 3% of additional "risk premium" now to other options.

        Just curious how others viewed that risk/reward option, especially as it decreases moving forward.