By my calculation, the new price will be
$7/8 with almost 100 more shares received upon
conversion of the preferred(first window) for every 100
shares you had today. However since today's 1 3/4 price
is probably somewhat arbitrary relative to
fundamental value it may not work out exactly that way. If
the 7/8 is a good number and holds thru the second
conversion window, you would get about 140 more shares for
each 100 held today.But the price should drop to 5/8
Also it appears that if the
preferred stays above $17.50 then converting is not the way
to go.Even if the preferred drops considerably below
that, it's still probably better to hold than the stock
due to the dividend(even if the dividend is in
flipper, you seem to be the expert here. Am I in the
The conversion of Pref to common based on the 10
trading days prior to the conversion will give the Pref a
market value approximately the same as it's face value.
The preferred is like getting a voucher to buy
nor iron bars a dividend, Sandman. Of course,I
would expect management to paint the bar gold and have
them delivered in a Brinks truck. Then you could
figure your tax bill and PZN could pay more big fees to
consultants and investment advisors.
PIK is payment in kind. Just like the PZN shares.
The dividends are paid in additional
is actually the second time CMM
has done it. It
issued the CMM preferred "F"
for last FY's income. It
was PIK also.
What does PIK stand for? How do we know that the
CRIIMI stock will satisfy IRS rules? They are just now
doing this like PZN? Do you have an example that is old
enough to prove the IRS accepted it?
I can find
only one exception that can qualify the distribution
as a property distribution. The issuer has the right
to redeem and at the issue date it is more likely
than not that the right will be exercised. I don't
know how a company or the IRS could prove this either
way. Company can say sure we intend to redeem and
later say circumstances have changed which make
No. Distributions of PIK securities DO satisfy
IRS rules even if they look like splits to
Other REITS have done it also. See the attached
From IRS pub 542:
"Any part of a distribution
from current or accumulated earnings and profits is
reported to the shareholder as a dividend.Any part of a
distribution that is not from earnings and profits is applied
against and reduces the basis of the stock in the hands
of the shareholder."
I think this means that your
basis in the common will be reduced by the value of the
distribution.. So if you sell it you will have more taxes to pay
or less of a tax loss than you thought.If the
distribution holds up as a dividend then essentially you will
pay double tax on it. Doesn't sound right does it?
Leads me again to believe that it's really a
non-taxable stock dividend. That would be consistent with the
above tax code.Basis of the original shares would be
adjusted down for stock received as in a stock split.
The IRS might challenge it. It would bring in
about the same amount of tax dollars if PZN had to pay
it(assuming no bankruptcy). I think they might challenge
because this is basically a non-taxable stock dividend.
For the preferred dividend to be counted a property
dividend it must result in property or cash to some
shareholders and an percentage interest(ownership) increase to
others.Just being a convertible preffered won't do it. In
fact it might pay some stockholder to challenge it to
eliminate their tax on the distribution.
Need High Yield writes
"The IRS may not
challenge this since it brings in more taxes. They don't
challange OVERPAYMENTS! I would like to join others in
protesting paying taxes on $24.00+ per share of preferred
when I have gained NOTHING!!!!"
precisely why I've believed and continue to believe that if
you're going to invest at all, the preferred A is the
way to go.
Good to see you back.
I haven't done the
research, but I tend to agree with you. I thought at one
point (almost a year ago) we collectively decided that
a REIT qualifying dividend had to be paid either
with a) something other than stock or b) a choice of
securities that would change respective equity interests. In
fact, the company at one point said that if a PIK were
to be paid, it would involve a choice between two or
I doubt that they are ignoring
previous counsel. Someone has probably advised them that
the conversion features do in fact disrupt the
proportionate equity interests. In any event, you (and all
shareholders) will get a 1099 for the dividend.
issue I've puzzled over is how this dividend pays out
the accumulated E&P. I believe it only counts as
reducing E&P to the extent of its fair value. Seems that
the IRS could easily say, as the market has, that the
Pfd B is worth less than face value.
discussion is meaningless. The tax on the $24+ value is like
a forced capital contribution. The alternative was
for the company to pay tax as a disqualified REIT,
which probably would have led to bankruptcy. Of course,
the best alternative all along (at least since the
spring of 1998)would have been to sell the stock.