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Mid-America Apartment Communities Inc. Message Board

  • capt317 capt317 Mar 20, 2003 2:54 PM Flag


    Anyone know why preferred has performed better than common?

    Also,I have never bought preferred. I am considering a large you buy it just like stock or what and does the price vary?

    Thanks for any advice to a dumb old man.John

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    • Preferreds are bought just like the stock(though some brokers, like Fidelity, charge a higher commission for them).
      They are usually pretty hard to buy or sell in quantity: a few thousand shares a day is a big day.
      They are currently valued higher than common shares(based on yield) probably because of the general perception of less risk - the dividends are more secure because they get paid before the common.
      On the other hand, you have basically no upside(most can be called at par = $25), and you have no inflation protection(preferreds are more like debt than equity).
      The common does have less protection, in terms of dividend coverage, but, they represent equity in the underlying real estate.
      In the event of a buy-out/takeover, the assets underlying the common is what is being bought. The preferreds can get treated pretty shabbily in a takeover(don't get me started again on past bad experiences with this!)

      I used to own lots of MAA preferreds back a few years ago, when they were in the high-teens and yielding low-teens yield. Now that they have moved up to par and yield 8ish, I prefer the common. MAA common is intrinsically worth about $26+, the yield is pretty secure(give or take 15 cents a share, and assuming the economy and interest rates don't stay this low forever) and you could make a couple of bucks a share, or more, on a buyout. As real estate values go up, the common will follow.

      The preferreds aren't bad, they just aren't that good at current prices because you have no upside, only downside - and that, to me, is bad risk/reward.

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