Lodging REIT Sunstone Hotel Investors Issues Preferred Stock

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Upscale hotel owner, Sunstone Hotel Investors (NYSE:SHO) has sold a new preferred stock issue with the intention of redeeming their only other preferred stock issue outstanding.  The new issue carries a coupon of 6.95%, while the old issue to be redeemed carries a 8% coupon.  This is what we call a “refinancing” issuance.


Like preferred issues from other REITs this new issue will be cumulative as to dividends (if dividends are not declared for any given quarter they will accumulate and must be paid in the future) and the issue has the typical optional 5 year redemption option. The shares have no maturity date (they are perpetual).

SHO is a hotel owner who barely escaped destruction in the 2008-2009 financial crisis to rise up as a strong operator.  From 2009 until 2013 the company paid no dividends on their common shares as they smartly worked on deleveraging the balance sheet.  The company has continued to manage very conservatively and has a cash hoard that is the envy of the industry.  SHO had $500,000,000 of cash on hand at the end of 2015.  Additionally the company has $3.2 billion in net investments and debt of only $1.1 billion.  Wow!! No other lodging company has this kind of equity.  The company now pays a regular 5 cent/share quarterly dividend as well as an annual “catch-up” dividend to fulfill the requirement of REITs to distribute 90% of their taxable income to shareholders.


Shares began trading on 3/7/2016 on the OTC Grey Market and are trading strongly in the $25 to $25.40/share range and we would be surprised to see this issue trade at any measurable discount to the $25/share issuance price.

Complete details of the issue can be found here.

For those who are interested in buying shares on the OTC Grey Market, I invite you to check out our “primer” to gain an understanding of the process


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Tim McPartland

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Tim McPartland
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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