Check the terms of the preferred -- it's perpetual and callable, and the dividend *can* be suspended at the choice of the Board of Directors. All that allows the underlying note to be a deductible debt instrument for corporate purposes and equity for balance sheet purposes... It was really made popular as a vehicle by small banks (good for regulatory capital), insurance companies and utilities, but has also been embraced by REITs.. Note the special tax circumstances and heavy regulation on each of these types of companies.
Anyway, since they made 58.9% return on equity last year, I love it as a common shareholder anytime they can get new equity by promising to eventually pay 8% to 9%...and not dilute my holdings a bit. Note that if they defer the preferred coupon for too long, the preferred holders get to put people on the Board, and no common dividend can be paid until the prefered is brought current. I think some of the other REITs out there are up series J or K by now... (Istar Financial comes to mind).
Mr. Hill When I'm crunching the numbers for NFI, I am currently figuring $6,675,000 to pay the divy on the preferred. Currently this translates to about .27/common share/year. I am subtracting 27 cents per common share from my taxable earnings estimates. Is this correct or are the outgoing divys accounted for elsewhere? TIA