Arthaland board approves P3-B preferred shares sale

The Arthaland [ALCO 0.47, down 1.1%; 301% avgVol] [link] board of directors approved a follow-on offering of up to P3 billion worth of preferred shares at P500/share. The Po Family’s real estate development arm plans to sell at least 4 million shares, with an oversubscription option of up to 2 million shares. No other details were provided, but will presumably be available once ALCO files the necessary paperwork with the SEC.

MB bottom-line: Tis the season to sell prefs? We’ve already had three real estate developers sell prefs this year (Century Properties [CPG 0.27 unch; 27% avgVol], A. Brown [BRN 0.64, up 3.2%; 726% avgVol], and Cebu Landmasters [CLI 2.93 unch; 112% avgVol]), with several more deals seemingly in the works behind the scenes. As an investment, preferred shares are a decent fixed-income product, but you still need to be aware of the risks. The characteristic that makes prefs an attractive fundraising tool for companies (their flexibility) is the same characteristic that can make prefs risky to holders that only look at the dividend rate. The best example that we have of this is Dennis Uy’s Phoenix Petroleum [PNX 3.99, down 3.4%; 84% avgVol], which has repeatedly failed to make dividend payments on its preferred shares. I’m not saying that ALCO is in any danger of pulling a PNX, but I’m just saying that if push comes to shove, companies can defer dividend payments to preferred shares. Similar to the risks involved in purchasing a REIT stock, you’re also taking on some interest rate risk.

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