Small Lodging REIT Sotherly Hospitality Sells a Refinancing Preferred
By: Tim McPartland,
Upscale lodging owner Sotherly Hospitality (NASDAQ:SOHO) has sold a new preferred stock offering with a pretty inviting coupon of 8%. The company has announced they will be calling their 8% baby bond issue (NASDAQ:SOHOL), which becomes callable 9/30, with the proceeds.
SOHO owns a total of 12 properties with 3011 rooms all of which are in the upscale lodging sector. This makes them one of the smallest lodging REITs.
While SOHO is small the REIT has announced some decent financials in recent quarters. They recently announced per share net income of .19/share and .FFO (funds from operations–an important measure of REIT financial health) of .61/share for the 6 months ending 6/30/2016. Unfortunately SOHO is highly leveraged and thus ends up having to issue preferred stock with a high coupon.
The use of large amounts of debt by lodging REITs tends to serve to hold the prices of both common shares and preferred shares down at modest levels. This new issue offering a pretty good coupon of 8% would seem to ripe for purchase with hopes of capital gains after issuance, it is more likely the issue will trade just above par. We have seen this with Ashford Hospitality (NYSE:AHT). Their performance has been good, but high debt levels keep their common and preferred prices in check.
We would consider this issue a decent buy with this coupon. Sotherly should be a safe holding as long as the economy stays out of recession.
The issue is not yet trading and no OTC Grey market trading has been announced. The NASDAQ ticker will be SOHOB.
OTC ticker now announced to be SOHYP
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