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Strategies & Market Trends : REITS - Buying 1 - 2 weeks before going ex-dividend -- Ignore unavailable to you. Want to Upgrade?

To: Paxb2u who wrote (2256)	2/14/2002 10:11:40 AM
From: Richard Barron	Read Replies (1) \| Respond to of 2561

Peter, Originally with Walden and actually with G&L Realty, the common stock was bought out, but the preferred stock was essentially left in place, instead of being bought out also. The G&L preferred stock is still public and dividends are being paid by the new owners. If these owners leverage up and borrow from a bank (or whoever) 80-90% of the value of the properties, and then real estate values drop, the bank could collect the full value of the property before the preferreds get a penny. Most people feel preferreds are more secure than common, since the common dividend has to go to 0.00 before they can cut one cent from the preferred dividend, and if the company is forced to liquidate, the preferreds are ahead of the common shareholders. The issue is during a buyout, additional debt doesn't require public scrutiny, just the current owners, who could benefit from taking out the cash value if the bought it cheaper than the cash they take out. Richard

To: Paxb2u who wrote (2256)	2/14/2002 4:28:16 PM
From: zebraspot	Read Replies (1) \| Respond to of 2561

In the Walden case, an arm of Hicks, Muse(still very much in business) bought out Walden Residential, and like Richard posts, structured the buyout -initially- to leave the preferred shareholders hanging-out of the deal. Imagine owning a preferred stock that would no longer be traded publicly, could be leveraged, etc.. The effect would have been awful, and the price of Walden preferreds dropped immediately from mid-20s to about 14(as I recall). The market soon figured that REIT preferreds, as a class, were likewise vulnerable, most/all such shares dropped, typically from the low 20s to the mid-teens. Eventually, Hicks, Muse backed-off and modified their deal with Walden(after a class-action suit was filed)and as the cloud eventually lifted, preferred shares recovered to where they are today(helped, too, by the drop in interest rates over the same period). From everything I have been told by various REIT CEOs, an aggressive buyer could still try to do this type of deal again. Since the matter never got to court, sorting out the rights of preferred shareholders in this regard was never resolved. From what I hear, in court, the preferred shareholder may well have not prevailed. That's why preferreds, in some respects, may be riskier than common. IMHO. All things being equal, at least a hostile buyer HAS to buy out common shareholders.