Are These Companies Going Out of Business??

Are the lodging REITs going out of business? Obviously with all the turmoil in the world we never know for sure, but honestly I don’t think most of them are going bankrupt. Some will go bankrupt without a doubt–and I would think that Sotherly Hospitality (SOHO) and Ashford Hospitality (AHT) would be the weaker companies. They simply have too much debt and while some debt relief will be secured I am not sure it will be sufficient.

On the other hand it seems reasonable that most of the others will survive–after a year or maybe 2 of extreme turmoil.

Based on purely what seems a reasonable risk/reward proposition I bought 100 shares of Hersha Hospitality 6.50% cumulative perpetual preferred (HR-E) for $3.20/share. The company suspended dividends on the preferreds a few days ago and I think the wise companies are immediately suspending common and preferred payouts–they are realist. The preferred shares are priced for bankruptcy-maybe I will have a 100% loss–or maybe I will have a 800% gain.

Here are the lodging REIT stocks.

After looking at the lodging REITS I look over at the mortgage REIT preferreds–decimation. Two Harbors Investment 7.25% cumulative perpetual fell $7.25 today to close at $7.75. The mREITs have experienced massive stress as asset values had moved lower thus setting off some margins calls. I fully expect the mREITS to suspend common dividends this week with a likelihood of preferred dividend suspension as well. I didn’t buy any mREIT preferreds–but I am watching and may start some buying.

mREIT preferreds are here.

This may or may not be the start of a portfolio of decimated preferreds. When previously solvent companies see their preferreds down at $3 to $7 is it reasonable to believe some these companies will survive?

Even for a conservative income investors is the reward of 300% to maybe 1000% worth it. I think it may be – but only time will tell.

Just food for thought.

29 thoughts on “Are These Companies Going Out of Business??”

  1. One of the greatest companies in the world stopped paying the dividend.
    Boeing,,,I guess nothing is really safe now

      1. As I posted below, Boeing’s CEO will try to resist any financial assistance from the government if it means giving US taxpayer any equity stake. To me, that means they are not (yet) in dire straits.

        I am not suggesting that this is in the stimulus bill. But any company willing to give the Govt. some form of equity stake is truly in trouble. Others who have options should use them. I remember in 2007/2008 Goldman Sachs needed cash. They turned to Warren Buffet and got what they needed. Yes, it was a sweetheart deal for Berkshire but it didn’t cost the taxpayer any money. Of all the companies needing cash, Boeing may be able to find a source of private financing.

        I am all for saving US companies with taxpayer funds that truly need help and have no other option. I am also hopeful that they have to pay some above-average rates or premium in the future if they return to being prosperous.

  2. Under Bloomberg’s to news scroll, it said that Boeing’s CEO will try to resist financial assistance if the government wants an equity stake. Fine by me. Let’s keep government assistance to only those firms that have no choice.

    I do like the way, GM was handled the last time.

    To me, a similar model where the Govt gets more than just a fixed interest rate but get’s a better profit to help ultimately drive down the deficit.

  3. A sock drawer issue. Corteva, which is the agricultural business of Dupont has two preferreds – CTA-A and CTA-B. The B has a coupon at 4.5%. Selling at $86, the current yield is 6.28%. There is no call or maturity. CTVA can redeem the issue at any time at $120.

    1. JAG – Thanks for this one. Nice to see an option for some diversification on a BBB prfd that has protection from call. I’m calculating 5.3% effective yield for the B not 6.28%. Am I missing something on how the div is calculated for this one?

  4. Tim. .banc.prd less then 6 months ago they wanted to buy back the pref. for $26 ++ now free money from feds .priced now. $17. does not make sense ??

  5. Invseco just defaulted on margin calls. A ripple affect thru mreits. It’s a real disaster

  6. PBB is callable and PSEC is calling it for $17. but it is not due until 2024 and face value is 25. it is not cumulative. Does it make sense to hold it to maturity and get 25? i bought it in recent dump so i am not underwater. i know i get 0 if PSEC goes bk. wanted to know thought process what to do when company calls security well below par

    1. AA–they haven’t ‘called’–just a tender offer at 17. I have it and am holding. This is just in their own interest to buy debt in on the cheap if possible.

  7. A word of caution on holding mReit preferreds long term – mReits that have suspended their dividends are doing so because they can not meet their margin calls and are asking their lenders for forebearance agreements. They are likely to be granted these agreements because their lenders have little choice. However, I doubt these companies will be able to borrow money in the future without a government bail out. Without a government bailout, they will most likely be forced to liquidate leaving their preferred shares worthless.

    This is just my opinion, would like to here if anyone has more data on the viability of these mReits that can not meet their margin calls.

  8. You guys can feel free to “Criticize Me” but I have spent the last 2 weeks on and off reading everything I can get my hands on about “Enterprise Products Partners”-symbol is “EPD”. Its considered the 800 pound Gorilla in the pipeline business. I owned it about 15 years ago and for some reason sold out of it. I now own 4,200 shares but at a much higher price than current price of $13.29. Iam going to buy some more today and will round up to 5,000 shares. After reading everything including everything on the companys website I feel good about owning it. Throw in the “fact” that 3 insiders over the last 3 months have purchased over $40 million of the shares and it makes me even feel better. I could easily see in 2 or 3 years this stock returning to atleast a price of $20 but as you wait the “current yield” is 13.39%!!!!!! So they way I look at it even if in 3 years the stock is still stuck at $13 I still will be collecting a 13.39% distribution yield. All the other MLP’s I owned (4 in total) I have sold out of. Just keeping this Gorilla for the LONG HAUL.

    1. EPD is one of the strongest companies in the sector. Great assets and very strong balance sheet. No criticism deserved…might not be the bottom yet, but who knows when that will be. In the meantime focus on best in class assets like EPD.

      1. Anybody know how EPD will be impacted if oil production in the US slows to a crawl because of the lack of demand from the state lockdowns to combat coronavirus and the much cheaper Saudi oil flooding the market?
        I have to think that is going to drastically change the pipeline economics and routing.
        to be honest, I don’t know much about the pipelines, and the previous experience was back in the 1970’s before pipeline companies were publicly traded.

        1. Justin and Scott S ; Thank You for chiming in. Over the last 2 or 3 weeks I have spoken to EPD’s I R Mgr. twice. I was told that their payment distribution of $1.78 (.445 cents per Qtr.) is well covered. Ratio of 1.7 plus they just put out guidance recently talking about that. Justin you should visit their Homepage and read the whole thing in its “entirety”. I did that over the last 2 weeks because I now own 5,000 shares having bought another 800 just this morning. I keep going back to the “insiders buying over $40 million of their own stock” just over the last 3 months. That tells me quite alot right there. Plus they have “Forward Contracts” in place to cover that cash flow stream. There are of course “No Guarantees” in life or in investing but I do feel really good about my investment in this company. I get Morningstar I would encourage you to take out a subscription as its not expensive and read the analyists report on the company. Its a very positive report. Thank You.

  9. AATRL – this is my single worst bugaboo. I thought it was a “sock drawer” purchase but it has been virtually gutted recently. Discussion?

    1. Just my thoughts:
      This is a fairly large issue (10 million shares) but has a small float since it was originally a private placement. So one or two “dumps” can really depress the share price. Not to mention it trades on the pink sheets.

      Having said that, it is rated BBB by S & P. If one believes the parent AMG will survive it is an excellent buy. Current yield is 12.2% at 21 and goes ex March 31. Not to mention the yield to maturity in 2037 is 4.65% assuming NO dividends are paid. So total yield would approach 17%.
      I note good insider buying in the common; CEO recently purchased 10,000 common shares. Company is still making investments in boutique managers (new one just yesterday) so must have liquidity.

      Should only be bought in non taxable accounts.

      Best to all!

    2. yazzer–it is in my sock drawer–I see I paid 48 for it–now at 21 with a 12% current yield. That sock drawer account is only off a tiny amount–mainly because of this issue. I am going to look at the issuer today and consider buying a bit more.

      1. Tim, thanks for the feedback on AATRL. I have it in my sock drawer and was wondering if I should buy a bit more.

  10. What is interesting in the mReit space is Chimera Investment Corp. Insiders are buying heavy. Common and preferred. Appears they feel confident in their Biz.

  11. Thank your for pointing out HT yesterday. They have some wonderful hotels. Sure they can go bankrupt, but it is a – a 100% risk for an 800% gain as you point out. I cannot imagine that airlines and hotels will not get interest free grants or loans. To me, this is a generational opportunity that may not be seen again.

    Cruise lines are to me, a little more problematic. Should Princess, Royal Caribbean, and others who are based in places like Panama, Bermuda etc. and not on the US Exchanges get US taxpayer funds? This is why, I want oversight on the 500B fund in the stimulus package. These cruise ship lines are very important to the economy of FL, Alaska and states I may not be thinking of. I have true mixed feelings about our money being used this way without some real control and way to get our money back. I’d also like the transparency of what we are doing.

    1. SteveA,
      If your feeling brave look at MATX one of the few American based ship freight lines has exclusive rights for sure to get financial assistance. Held up very well for a shipper. If I had a lot more dry powder than I have I would put in a low bid to yield at least 3% then you get measly yield to go with possible price growth

  12. I’m nearly even on AGNC preferreds with arb trades recovering about $1 a day lately. Not as much on other REIT preferreds, I need more time before they go kaput. NLY- slower and steadier. CIM- and NRZ- were getting there until the prices fell too fast. TWO- a big loser I’m not finding the trades.
    Grabbed MITT-B at 3.86 and flipped an hour later but only bold enough to buy 100 shares.

    1. I have had better luck in higher quality / ratings ones such as DTY and USB/PRM with your strategy. Basically in $19-$22 trading prices and rated almost IG. These are ones I do not mind holding in case the next headline dries up the bids to make new lows

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