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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.

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