Small REIT Sotherly Hotels Refinances Some Debt

October 13, 2017

By  Tim McPartland

Tiny lodging real estate investment trust (REIT) Sotherly Hotels (NASDAQ: SOHO) has sold a new cumulative, redeemable preferred stock issue to refinance some of its current outstanding debt.

The small preferred issue of 1.2 million shares carries a coupon of 7.875%. This coupon is somewhat higher than preferreds being issued by most REITs now.

The reality that this new issue offers a higher coupon than the current norm speaks to the risk inherent in a small lodging REIT like Sotherly, even though Sotherly has had good funds from operations (FFO), which is a key performance metric for a REIT. The company’s FFO easily covers the 44 cents/share annual common distribution.

Sotherly will use the proceeds from this offering to call its 7% baby bond issue (NSADAQ: SOHOM), which is optionally redeemable on Nov. 15 and matures on November 15, 2019. Not unlike other REITs, Sotherly is rushing to float a new preferred issue to redeem a debt issue prior to maturity as we may be on the verge of higher interest rates.

It should be noted that Sotherly has another perpetual preferred outstanding that carries an 8% coupon (NASDAQ: SOHOB), which is trading at $25.30 and is optionally redeemable in 2021. There is little, if any, reason to prefer this new issue, except for the one additional year of call protection.

The new issue is trading under the symbol SOHPP on the OTC Grey market and changing hands at around $25.20.

Details of the new issue can be found here.

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Tim McPartland

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Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.

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