Brookfield Office Properties Inc T.BPO.PR.C

RE:RE:RE:3.012%

[SONOFFERGUS]

Hi Pierre.

Hoo boy, the move in interest rates has been fast.  Nice call on the Ts!  IMHO it has gone too far and will give back a good chunk when equity markets settle.  US markets were looking for an excuse to sell off and Intel's terrible earnings were the trigger.  I don't think that the US economy is broken or a liquidity crisis exists and we'll see a choppy rotation to companies that will benefit from lower rates (hello BN and friends) in short order.

I agree that there could be an inflection point where lower rates are bad for prefs.  That is what I love about the BPO complex -- lower rates are bad for reset rates but good for credit risk and could well be a net positive on price.  Compare our situation to holding prefs of a "good" issuer trading in the $20s, like many of the positions held by ZPR/TPRF -- lower rates are straight bad news.

I continue to lean on the series that have the highest reset spreads in terms of price vs. the Ts, being, in order, R, N, P and E (ranging from 8.4-8.1%).  The Es have a minimum dividend (now 10.44% in terms of Ts) and that should support the price if the put gets closer to strike, so they may have more value than R/N/P.  I haven't figured out how to quantify the value of the put to my satisfaction, but it's a thing.

I like to think of fixed resets as annuities with four components: fixed spread, reset GoC5, short call, and long put (for minimum dividend issues).  The only component known over the long term is the fixed spread.  The BPO complex offers fixed spreads that are far higher than the YTW available from the universe of P-3 and higher-rated straight perpetuals (6.25% per James at prefblog), without call risk at current levels and with a sweet GoC5 kicker on par/price gearing.  As long as BPO pays, they will provide massive outperformance.  Let's not talk about if BPO doesn't pay lol.

Good luck to all of us!