Well they DIDN'T cut the dividend and I don't think they will. I have done a cash flow analysis on several of C&S CE funds and they can support the dividend. I have not done a cash flow analysis on this fund but have no reason to believe it's any different then the other reit funds.
(1) I believe the Cohen and Steers funds have already declared dividends for Feb and March.
(2) It sounds to me like in most cases the auction failures have only resulted in a small incrimental increase in the interest paid on the AMPs. Based on the Blackrock Q&A (see links at very bottom), it sounds like the prior auctions were already setting prices near the maximum. The DWS Scudder Q&A (see links at very bottom) gives a table showing the interest on their AMPs prior to the failures and after the failures which backs this up. So, if these were close to the maximum rate already, then hitting the maximum and having the auction fail might actually prevent a dividend cut by helping limit further increases in the interest cost of the AMPs.
(3) A dividend decrease made to cover a leverage cost increase would cause a hit to the stock price, but would not effect the NAV. This would cause the price per share to diverge from the NAV, which would attact activist investors. (See the news for RTU.) The activist investors would be a big annoyance, both to Cohen and Steers and also to long term investors. Given that these funds have had such large year end dividends, I would bet Cohen and Steers would look to taping that before decreasing the regular dividend (assuming there are any capital gains built up by April).
(4) It looks like the maximum rates are tied to LIBOR or AA paper/bond markets. So, if LIBOR or the AA market interest rates go down, that could actually decrease the AMP maximum. It looks to me like that would both decrease the leverage cost while at the same time making it more likely that future auctions would fail (because of the lower maximum).
(5) The other possibility is that LIBOR and the AA market go up. If I understand it correctly, it seems like an increased maximum would decrease the chance of failure at future auctions. But if LIBOR and AA market rates did shoot up, and future AMP auctions still failed, that seems to me like it would present the greatest risk.
(6) The funds do have the ability to hedge interest rate exposure. However, I'm not sure how much is currently hedged. If you listen to the recent Cohen and Steers conference call from late Jan, it sounds like they thought interest rates were going down. So, they may have less hedging right now.
Here are some links to the pages where you can get AMP info. I liked to the pages that had the info rather than linking directly to the info, just in case they post more info. Unfortunatly this means you need to hunt for the right AMP link on these pages:
That means they WILL cut. He also said it would be "temporary, for a few months" - whatever that means. A divi cut is not totaly unexpected. We will take a price hit for sure but it could be an opportunity to buy more for the long term.