DiamondRock Hospitality Prices a Juicy Preferred Issue

REIT DiamondRock Hospitality (DRH) has priced the previous announced cumulative, non qualified preferred stock.

The coupon is 8.25%–a very juicy coupon from a quality lodging REIT–BUT like all lodging REITs you can be good–but you need some business. This one will be interesting to watch.

The issue will trade on the OTC grey market (as noted by aview a few hours ago) with the temporary ticker of DRHPP.

The pricing term sheet can be found here.

10 thoughts on “DiamondRock Hospitality Prices a Juicy Preferred Issue”

  1. Company is paying almost 9% for this money, not because they want to but because they have to.

    To my eye there are much better bets for the high risk bucket.

  2. If i’m going to gamble in the lodging sector, I would prefer PEB-D. Last trade at $21.50 yields about 7.4% with more upside and I believe a safer bet.

    1. Good luck on PEB-D. I’m gonna gamble a little on DRHPP with a small amount I picked up @ $24.82. I’m pretty skittish on the sector as a whole, but think I can squeeze out a single (using baseball terminology) on a short term trade with a small cap gain and possibly capturing the 9/30/20 div payment. My last two preferred trades were a triple and a grand slam in terms of annualized returns, so I’m feeling slightly emboldened or perhaps a little foolish? Only time will tell…

    2. Curious as to what aspects make you think PEB is a safer bet. I haven’t really looked at much, but did notice that PEB has more debt relative to assets than DRH.

  3. Tim .. no juice ..on Iberia bank and first Horizon merger…..? Both had preferreds …

  4. I would not buy into this sector, but I would say that I just booked my first airplane ticket for vacation in the US for 2/2021. I doubt I’m alone in this respect.

  5. Just today I sold my last RLJ and INN and now I have 0 exposure in this sector. This was largely my emotional reaction to the rise in unemployment claims, but generally I afraid that if the second wave of lockdowns goes, then hardly any of them will survive. And even without the second wave, it will be very difficult to return to profitability after such a blow. So I preferred to cash out my gains and sit on the sidelines. JMO now is a better to keep away from the Lodging industry.

  6. I don’t know the company, but I speak from the wisdom and pain of not exiting all my hotel preferreds fast enough.

    On the plus side, DRH is re-opening its hotels, 25/30 open. Overall there is a desire on the part of the public to get back to normal travel ( Sturgis is a recent example) so I think there will be a rebound in hotel chain revenues next quarter. I don’t think revenues will be back to pre-pandemic levels.

    As I see it, hotels will pick up local tourism (I would love to get out of the house.) Foreign and air tourism will continue weak. Corporate travel will be weak. I can’t see convention and corporate meetings getting back to normal for a while. Food and beverage revenue will be weak.

    Diamond Rock has waivers of covenants from its lenders until 1Q2021 and has extended a coupla mortgages for two years. So this preferred issue looks like a bet that DRH can turn itself around in two years.

    It’s a nice coupon and might be a nice short ride — the world is hungry for yield — but IMHO the coupon doesn’t compensate for the risk for a long term investor. In cases like this, if I was looking to make a bet on a hotel company (I’m not and I won’t), I would take the common over the preferred because the preferred has a limited upside.

    In any event, Diamond Rock has a recent detailed quarterly to look at here:

    Just my opinion.

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