Conversion Structure – Taking Advantage of Uncut Dividends

Conversion Structure Taking Advantage of Uncut Dividends auditory modality: Real estate investment funds that are implicated in fundamental strategies that are more innovative than the normal long/short. Example: AEW Capital Management Background: HRPT Properties Trust (ticker HRP) is a REIT that primarily owns office buildings in central business districts and suburban areas of major metropolitan markets in the United States. It has a man-sized concentration of properties leased to the U.S. Government and aesculapian related tenants. The cogency of HRPT to maintain their quarterly dividend of 21 cents has recently been subject to evidentiary scrutiny. Merrill Lynchs research analysts current forecast is for a 20%+ dividend cut. I quick evaluation of put bring down parity reveals that the market has already priced in at least(prenominal) a 33% dividend cut, before year end. My view is that in that respect is a significant non-zero probability that the dividend impart not be cut at all and that it is very likely that the dividend give not be cut by less than 33% percent. Structure: The appropriate vehicle with which to express this view is a conversion. The structure is simply long a stock, long a put and short a call of the same strike. This makes the tralatitious payoff diagram a flat line.

This structure give pay the difference flirtween the dividend and the streets bet on dividend, this difference is 7 cents if the dividend is not cut. The next devil dividend earningss are expected to be August 25th 2008 and November twenty-second 2008 (ex-dividend dates are one month before respective payment dates). Thus one may take advantage of this locating using the January 17th 2009 options struck at 7.50 (stock currently trades at 6.98). The cost of this position is currently 7.93. Fundamentals: Management has indicated that it will not reduce the dividend unless their payout ratio (AFFO/dividend) exceeds 175%, it is currently at 124%. HRPT also recently agreed to sell 48 medical office/laboratory... If you want to get a full essay, pose it on our website: Orderessay

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