Below are press releases from company’s that have preferred stock and baby bonds outstanding.
Fortress Biotech Reports Second Quarter 2022 Financial Results and Recent Corporate Highlights
LifeMD, Inc. Reports Second Quarter 2022 Results
Sotherly Hotels Inc. Reports Financial Results for the Second Quarter Ended June 30, 2022
FG Financial Group, Inc. Reports Second Quarter Financial Results
Chicken Soup for the Soul Entertainment Reports Q2 2022 Results
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There must be $4 or so of back dividends (preferreds are cumulative), so the upside is pretty good.
SOHO has three cumulative preferreds outstanding SOHOB, SOHOO and SOHON. SOHO was in the wrong industry at the wrong time: a REIT owning hotels. They suspended payouts on the preferreds after the 5/20 payment was made. So they have about 2 years of cumulative payments to catch up on. There was a question on today’s (8/11) conference call which the CEO/President answered:
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As I said on our last call or maybe the last 2 calls, we’ve had, we had to cure some of our balance sheet issues before we start looking hard at the preferred. Our intention is to start paying preferred dividends. But right now, I can’t give you a definitive date and/or amount of how we’re going to do that. But now that we’ve paid off the significant Kemmons Wilson note and its penalties, where we have exited that security and we’re looking at the preferred. So I would hope, relatively soon, we can have a more definitive answer for you. But the answer is — our goal is to get back to more normal operations where we would be paying a common dividend.
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I think it is a reasonable speculation SOHO is able to climb out of the hole and catch up on the preferreds. Not a lock by any means. And obviously if we have another COVID lockdown or something similar, SOHO like the rest of the hospitality sector could go bankrupt. The main metric hospitality uses is REVPAR(Revenue per available room) which is up +36% year/year and it only down -1.3% compared to pre-COVID 2019.
The three preferreds closed today ~ 21.00, up from pandemic lows of ~ 4.xx. So if they are able to resume payouts, most of the gain has already been gotten. But IF and it is a risky if, they are able to catchup, all three of these will trade closer to par, maybe 24.00-25.00.
If you are tempted, you absolutely, positively must perform due diligence to convince yourself they will recover. Obviously the downside is bankruptcy and worthless preferreds.
We do own a small amount of one preferred in one account and have NO open orders in any other account. I will probably add small amounts in some of the more risk tolerant accounts. Will NOT be adding any to the widows and orphans accounts.
Tex, SOHO’s debt is key here. Even pre-covid, their over-leveraged balance sheet and ultra short-term repayment schedule appeared to be a non-starter. They were financed for perfection, then the bump in the road happened; covid.
Their good intentions notwithstanding, appears to be a textbook case of high yield gone wrong.
SOHO booked a $30M gain on the sale of their Raleigh Hotel in June. As of 6/30/22, they are showing $25+ million in net income year-to-date.
The company has just forecasted (yesterday) REVPAR growth of 6.5% for the 3rd quarter versus what they did in 2019 (pre-pandemic). Since we are already half-way through the 3rd quarter, they should be very accurate on that prediction.
REIT rules dictate that REITs must distribute 90% of their net income to retain REIT status. They owe 10 quarters of preferred dividends now – or $20+ million. They have $24M in unrestricted cash on the balance sheet, even after fully paying of (in June) the $20M “loan-shark” financing they were forced to do during COVID.
Unless they sell one of their hotels at a huge loss before year-end, or choose to forego their REIT status (very unlikely), I see no way this company can get around paying at least part of the preferred dividend obligation at year-end.
I nabbed half a position in one of them after covid hit, not at the bottom, but not too far from the bottom, so am (potentially) enjoying a nice cap gain. However, the 8% cumulative divy is adding up as well.
How do cumulative dividends work, as for the ownership/timing? If (for example) I sold my shares now, would I still be owed the dividends for ~10 quarters (assuming they eventually get paid)? Or would the new owner of my shares get those dividends instead of me? Thanks.
If you sell your shares before XDate (when declared), you get no accrued dividends. The owner as of record date gets all past dividends.
Steve