14 Responses to “August 17, 2023”

1. fsabbagh says:

   August 18, 2023 at 2:10 pm

   Hi Guys,

   Just wondering how many distinct preferred shares you guys own. As a subscriber to James’ newsletter, I’ve racked up 25 names. I was hoping to go from 5% preferred shares to 10%. Contemplating if I should keep adding to the names or just buy more of the ones I have (many are down over the past few months). Just wondering how you guys handle it.

   Ferris

2. Rod says:

   August 19, 2023 at 4:21 am

   I have 20% in prefs. 18 of that is in one: BPO.PR.R

3. CaddilacMan says:

   August 19, 2023 at 9:25 am

   Hi Rod
   BPO.PR.R is an interesting one. Can you elaborate on why you chose it?
   Are you not concerned that Brookfield will somehow “offload” the BPO prefs given the very weak office/commercial market? These are trading at prices reflecting the perception of a high risk of default.

4. CaddilacMan says:

   August 19, 2023 at 9:36 am

   Fsabbagh
   25 names seems like a lot to keep track of for just 5-10% of your portfolio.
   It should be plenty to achieve diversification and laddering as is.
   Myself, I have about 10 pref share names at any given time.
   We’ll see if others feel differently.

5. Yomgui says:

   August 19, 2023 at 10:57 am

   I know it isn’t wise etc. but for many reasons, my portfolio is pretty much 100% preferred shares… and it makes up about 20% of my net worth.

   I may have about 40 different issues since I believe in 1) diversification and 2) spread the reset dates.
   Plus, I know it is dumb for most of you but I own some perpetuals because 6.5%/7.0% forever is not too shabby I believe and higher than I ever thought I could get (maybe it will be 8% in a few months ah ah).

   Right now, my biggest position is Brookfield (parent company and infrastructure).
   Somehow, I feel like they offer the best opportunities for rate reset… even minimum reset are very appealing since they got crushed last week.

   Enbridge also have some pretty enticing RR but the risk is obviously higher even though it is a big name.

6. Rod says:

   August 19, 2023 at 11:33 am

   CaddilacMan,
   I am not worried about BPO defaulting. I just look at Brookfield’s “Core” office and retail, which is their trophy properties, modestly leveraged, with high occupancy. Two-thirds of the equity is in the Core. If the Core continues to do well then the BPO prefs are safe. It doesn’t really matter what happens with Brookfield’s lesser properties since the debts are non-recourse.

7. stusclues says:

   August 19, 2023 at 11:33 am

   “BPO.PR.R is an interesting one.”

   BPO.PR.R and .N are the two best priced in the BPO family according to IVT. BPO.PR.P is 3rd.

8. fsabbagh says:

   August 19, 2023 at 3:24 pm

   Hi stusclues, What is IVT?

9. stusclues says:

   August 20, 2023 at 8:08 am

   “What is IVT?”

   Implied Volatility Theory. James’ major contribution to valuation of FRs and the theory behind all of his convert (or not) recommendations.

   “I am not worried about BPO defaulting.”

   Me neither. For Rod’s reasons and the implicit Brookfield guarantee. The BPO series are probably the most grossly undervalued preferred shares in a grossly undervalued market. Why isn’t BN/BAM buying these?

   “I know it isn’t wise etc. but for many reasons, my portfolio is pretty much 100% preferred shares”

   Well maybe 100% is steep, but a very high % is not crazy.

   Take a look at the FR-5 Yr GOC blowout chart in the post “MAPF Performance: July, 2023.” dated Aug 15, 2023. [James, how can we mere commenter’s post links?]

   This time is not different. This chart will revert to a more “normal” relationship. When is a mugs’ game (eg. bitcoin is still non-zero) but I don’t think we are waiting years for it. When it does, we are looking at 50%-100% gains across some of the more heavily discounted series.

10. jiHymas says:

    August 20, 2023 at 9:00 am

    [James, how can we mere commenter’s post links?]

    Use regular HTML code. E.g, Implied Volatility Theory is (replacing the angle brackets, “<" and ">” with square brackets, “[” and “]” so the browsers don’t get confused) is produced by writing [a href=”https://prefblog.com/?p=32354″]Implied Volatility Theory[/a]

    The other link you want is MAPF Performance: July, 2023.

    Most, if not all, browsers have a “View Source” (or similar) command on their menus. So if you see something you want to emulate, click that command on your browser and the HTML code will be displayed. Since WordPress (the software used as the basis for this site) has many layers of sophistication, it’s wise to remember a phrase in the post you’re looking for and search for it (usually “[CTRL] F”) in the page of source code.

11. Uub says:

    August 21, 2023 at 12:33 pm

    Isn’t the market pricing Brookfield’s BPO office property as a high risk of bankruptcy and little no claim left over for stock holders, with most BPO issues trading <60% of par?

12. stusclues says:

    August 21, 2023 at 12:36 pm

    “Isn’t the market pricing Brookfield’s BPO office property as a high risk of bankruptcy and little no claim left over for stock holders”

    Yes. And it is wrong.

13. Uub says:

    August 21, 2023 at 1:15 pm

    Stusclues, that’s a strong conviction you have.

    Has there been any update on the progress of the Brookfield’s debt renewal relating to BPY/BPO so far? I can’t seem to find much pub, free available info on that. They have ~$24B up for renewal between 2023-24. And much of their debt is variable for some reason…

    Combo of WFH + higher for longer rates + looming recession now and to come seems to have made CRE investments almost uninvestable for now.

14. stusclues says:

    August 21, 2023 at 1:42 pm

    ” I can’t seem to find much pub, free available info on that.”

    Yes, it is hard work to try to understand the financials.

    From the BN second quarter results …

    “Strong leasing momentum within our real estate business drove NOI growth of 8% in our core portfolio compared to the prior year. Although cash flows continue to be impacted by interest rates in the near term, we have deep conviction in the value of our real estate portfolio over the long term.”

    The core portfolio is ok.