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2nd Nibble On a Lodging REIT Preferred

So today I went ahead and bought a starter position in the 2nd lodging REIT preferred shares–to accompany the Pebblebrook (PEB) position from yesterday.

I bought the RLJ-A 7.90% convertible preferred issue from RLJ lodging. While this is convertible there is virtually no chance that a conversion will ever occur. Shares are now at $23.58 with a current yield of 8.38%. Once again I chose this issue because of relative performance of the company AND importantly one of the best balance sheets in the sector–debt to equity ratio of around 1.

So for now this is all I want in the sector—I may put in some GTC orders in for additions at much lower levels in case of a ‘dump’, but like the smaller banks I want relatively small positions to begin to lock in some high current yields–am I way too early? I may be too early, but no one can buy the exact bottom nor sell at the exact top so the small position sizes protect me from massive losses.

25 thoughts on “2nd Nibble On a Lodging REIT Preferred”

  1. Been having same thought process, Tim, just different issues. Small 100-200 share placeholder buys to possibly toe in more later. Not nearly in the mood yet to be aggressive.

    1. Probably not your cup of tea these days, Grid, although I know you bot it in the past, but there have been a couple of placeholder size trades the past two days on SLMNP at $845 if you have a broker who’ll allow you to buy it… I bot one of the placholders…. With the continuous put available at $848.27, even if you’re merely looking to park some coins for 3 months, if I calculated correctly, purchasing today at $845 and putting them back to LYB immediately after you receive the 8/1 payment generates an 8.10% annualized yield, essentially risk free unless you think IG rated LyondellBasell is going under in the next 3 months. 7.10% current yield if you just hold..That’s not quite ALL-B rate on a current basis but with upside potential B doesn’t have if rates go down I know we’ve mentioned this before but odd lot offerings at $845 on this $1000 liquidation preference issue have just been resurfacing again. I’m still bidding, but at a lower price for now, just to see what’s possible…

      1. 2WR, No its been quite a long while since I have been in it. Pre expert market maybe. I dont have any brokerage access that would allow me to get back in. For the near term ALL-B/GJT will continue to be one of my biggest holds along with TA bb’s and PGE perfs.

        1. Only 5 days left on TA before the vote…. Market’s acting as if we won’t have TA bb’s much longer than that….. The question is if 30 days notice has already been made…..

            1. ON TA: Section 6.8 p 58 of https://www.sec.gov/Archives/edgar/data/1378453/000110465923022894/tm237083d2_defa14a.htm Subject to interpretation???? I suppose………

              Treatment of Certain Indebtedness. Prior to the Closing, the Company shall, and shall cause its Subsidiaries to, (a) deliver notices of prepayment and notices of termination of commitments (including any certifications or calculations to be provided therewith), as applicable, with respect to the agreements related to indebtedness set forth in Section 6.8 of the Company Disclosure Letter and (b) at Parent’s request prior to Closing, shall use reasonable best efforts to deliver notices of prepayment and notices of termination of commitments (including any certifications or calculations to be provided therewith), as applicable, with respect to any other agreements related to indebtedness or notes of the Company or any of its Company (clauses (a) and (b), collectively, (the “Company Indebtedness”), in each case, within the time periods required thereby and as necessary to pay in full outstanding indebtedness under the Company Indebtedness by the Closing. The Company shall, and shall cause its Subsidiaries to, each use their reasonable best efforts to (i) obtain and deliver to Parent prior to the Closing payoff letters in customary form from the lenders (or their applicable representative) with respect to the Company Indebtedness stating the amounts required to pay in full all indebtedness thereunder at the Closing, (ii) obtain and deliver to Parent documents in customary form acknowledging the termination of obligations and release of Liens related to the Company Indebtedness that are in the form of notes from the collateral agent with respect thereto, (iii) arrange the payoff or prepayment in full, as applicable, of all such indebtedness as of the Effective Time, the termination of the Company Indebtedness and (iv) take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with Parent and Merger Subsidiary in doing, all things necessary in connection with the Merger and the other transactions contemplated hereby with respect to the indebtedness under the Company Indebtedness, including providing timely notice to the appropriate parties of the Merger and the transactions contemplated hereby, and, as promptly as practicable, making all filings and notifications and entering into all necessary agreements as reasonably requested by Parent or Merger Subsidiary.

              The language was essentially repeated in the Proxy Statement – https://www.sec.gov/Archives/edgar/data/1378453/000110465923040431/tm239913-3_defm14a.htm p A-41

              1. It all depends on what “certain indebtedness” means. And remember this was referenced to “subsidiaries” not holding company which is what TA is….I havent studied the subsidairy structure to determine what would be in line for redemption. Im just taking the practical approach that is could be redeemed at merger completion. So at worst on one end I am using as a short duration high yield fund. At worst on the other end of duration I would assume the risk of delisting and hold until maturity.

                1. From Tims, headlines just posted, concerning TA…
                  The closing of the transaction remains subject to customary closing conditions and is expected to occur on May 15, 2023. Upon completion of the transaction, shares of TA’s common stock will be canceled and will no longer trade on the Nasdaq, and TA will become a wholly-owned indirect subsidiary of BP.
                  …..Without any info I can find, I think the likelihood of TANNZ and sisters of “going dark” in a week is a possibility that cannot be ignored. That means its possible it becomes untradeable ala WTREP or disappear for a period of time before appearing Lord knows where if anywhere. Or it could disappear and then get redeemed shortly also. Many unanswered questions without answers. I sent an email to IR but dont know if it was worth my time to try.

                2. Grid – you mean the capitalized term “Company Indebtedness” not “certain indebtedness, right????? I do remember looking up the definition of Company Indebtedness at the time and feeling relatively confident the bb’s were meant to be a part of the definition…. However, I also remember feeling not completely confident, thus leaving my positioning relatively small….. Guess we’ll find out shortly with shareholders now having approved and settlement intended for 5/15. All that being said, it was also unclear to me just exactly what the credit would be if these ended up remaining outstanding and TA is “a wholly-owned indirect subsidiary of BP.” That was another reason I left my position small…

                  1. TA is a holding company that has subsidiaries. Without studying the implications were some of these needed to be paid off at or prior to closing. The subsidary debt may not be related to holding co. Obviously this isnt pertaining to the holding co debt of TA or a redemption noticed would have been served already.
                    My assumption is the credit rating will be on the back of TA, not BP. Though BP can be a backstopper since it has paid for it. Being indirect my assumption is they are under no obligation though.
                    Here is an example for you…DPL owns Dayton Power and Light (AES Ohio). AES owns DPL. AES credit rating is higher than DPLs is. AES is just basically an equity contributor to DPL. If it was a direct subsidiary its credit rating would be the same or better.
                    I actually own quite a bit for me. BP has discussed synergies that led to efficiencies and also the purchase will be money good next year. One way to do that is reduce cost of capital. But rates are higher now, also.

                    1. Wish my mind wasn’t such a sieve these days, Grid, or I’d be able to name the example I’m thinking about but there’s one other possibility – that legally for the purposes of the 30 day rule, something they’ve done has already been the equivalent of the notice….. I know that happened just recently, I think it may have been for the IStar preferreds where I never received an actual notice of call….. Then the other possibility that happens at times is that the notice goes to the proper parties legally but is not published… That happens too…. I guess we’ll find out for sure early next week… Please do post if IR graces you with a reply. And based on your summation of other possible consequences, I’m surprised to hear you bulked up….

                    2. iStar, also clearly said they had intent to redeem also. I havent found anything. Most unusual. As just about every company being acquired has left a snails trail of what was likely happening or will happen. Except this. I dont know, 2WR. I think I am fine riding half of this worst case for five years and the other for 7 years at 8 pissent. I may cull the herd a bit, but certainly am not selling them all out.

        2. Grid-
          I’m trying to calculate the GJT rate- using today’s 3 mo is 5.25% ( if it was the weekly ave) & add the .80% = 6.05% x25.00 = 1.5125 / 21.28 (currently) =
          7.11% . Correct? The reason I ask, is that etrade shows 4.83%, Bigcharts = 6.58%, CNBC – 5.%
          The April pmt was the first decline, even tho it looks like the Apr ave was higher than March’s –odd.

          1. Gary, you cant really go by what brokerages say the annual yield is because they are using past interest payments, not present one. The method used to determine 30 day yield is a bit nuanced being it is tied to counter party swaps and the times this all occurs. So it is always going to be a bit higher or lower than our eyeball look. And if the 3 month Tbill would collapse in yield, you know what happens next, ha.

          2. Gary, Slow to get back here, but my sports betting has been good and my research is focused more there for now,ha. Anyhow, I noticed through Fidelity that end of month counterparty swap monthly interest payment off the 2036 AllState senior note for end of this month is .1265. Quite a bit more than last months.
            FWIW, here is the monthly SEC filing for it for last month. The upcoming payment wont be SEC posted until early next month.

            The Bank of New York Mellon, as Trustee for the STRATS(SM) TRUST FOR ALLSTATE CORPORATION SECURITIES, SERIES 2006-3, hereby gives notice with respect to the Scheduled Distribution Date of May 1st, 2023 (the “Distribution Date”) as follows:

            1. The amount received from Wachovia Bank, N.A. (the “Swap Counterparty”) on May 1st, 2023 was $85,318.75 and was distributed to Certificate holders as interest. The above amount was calculated by applying an interest rate of 5.6100% to a notional amount of $18,250,000, pursuant to a swap agreement dated as of April 28, 2006 between the Trustee and the Swap Counterparty (the “Swap Agreement”).

            Fidelity has posted next months. So its about 7% off current last trade which is a bit higher than when we discussed it. I added a few hundred more when it dipped into the lower .40s several days ago.

  2. Hotels are cyclical, but RLJ has been one of the better run hotel operations from what I’ve seen since 2020. Like a few others, I added my largest position in RLJ-A back in 2020.

  3. There’s a typo up there – RLJ-A is a 7.8% issue, not 7.9%

    P.S. I usually just look for Nespresso – at least they can’t mess it up.

  4. I have owned this one since 2019. I even managed to get some shares at $17.65 in March of 2020. They never stopped paying the preferred dividends. This one has been a real winner for me.

  5. @Gary ,

    It’s been years, but next time you’re in Paris, try Korczacz in the Marais. Good coffee and good pastries, served by a beautiful girl.

    1. David-
      Paris is one and done for me. (Maybe a seventh or eighth trip to the UK/Ireland/Scotland). Too much civil strife- messed us up on several levels of travel.- plus- pretty much saw everything I had hoped for.
      I’m not seeing that your recommendation would have specialty coffee- but sounds like you had a couple other reasons to like the place 😉

      1. Gary, We just started planning for our trip up the Danube from Germany, Austria and Budapest for this fall. Back to my best guide, Rick Steves who has years of experience there.

        1. CM, Rick Steves offers downloadable (to your phone) narratives of major sites – we used them for the Louvre and Palace of Versailles. They are literally step-by-step guides – “skip this, see this, go up the stairs, around to the right” – that level of detail. And if you don’t have them, recommending air pods pro (or equivalent). Game -changing. Good luck with your planning.

        2. Charles-
          I relied heavily on his France guide- for the most part it’s quite accurate and helpful. Crowds were insane already.
          Safe travels.

  6. I’m with you, Tim. I’ve been nibbling earlier in the year- hoping for a big drop /recession effect- which I think is still in play. So, I am doing small bites to enlarge or start positions.
    I was out of action from 4/17 to 5/4 while on a trip – took one of my sons to France & a bit of Spain. Guess what- it’s almost impossible to get good coffee- such as a pour over, single origin, etc– who’da thought? The rest of it is like machine coffee.
    Glad to be back, but sooo much catching up to do.
    As Jefferson in HAMILTON said- “What did I miss?” 😉

    1. Gary–glad to have you back–but who could miss out on a great trip? I though great coffee there would have been a given.

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