Here Come the Dividend Cuts

As some have probably noticed lodging REITs Pebblebrook (PEB) and Park Hotels and Resorts (PK) have already announced dividend suspensions on future payments for their commons shares (after some which have already been declared are paid).

This is a smart move–anyone who tries to be a hero on their common dividends will pay the price–in particular in the REIT segment where dividends are high (relatively speaking). If there are lodging REITs that have not suspended–they are fools.

Of course there are many preferreds in the lodging REIT arena and they have been ‘creamed’. I would not yet try to be a ‘hero’ in this segment at this point in time–maybe in the future.

Additionally companies in all segments in the U.S. will probably cut their dividends–they will never miss an excuse to cut dividends–and this may be prudent.

29 thoughts on “Here Come the Dividend Cuts”

  1. Pebblebrook has odd language in there.
    so they cut it to $.01 and didn’t suspend it entirely.

    Pebblebrook Hotel Trust (NYSE: PEB) (the “Company”) today announced that due to unprecedented uncertainty from the rapidly evolving impact of COVID-19 on the travel industry and hotel demand, its Board of Trustees has decided to suspend the Company’s regular quarterly common dividend for the first quarter. The Board authorized, and the Company has declared, a quarterly cash dividend of $0.01 per common share of beneficial interest, to be paid on April 15, 2020 to shareholders of record as of March 31, 2020 (the “Record Date”).

  2. Any opinion about EQH-A? Hurt by the drop in equities, but one of the less sensitive among peers to interest rates. Cut in half, stil investment grade, several insider bought the stock. Another example of preferred doing worse than common.

    1. Hi Gabriele; I also own EQH+A and will just say Iam very shocked at how much it has dropped. I went to their website and spent alot of time there before buying this issue. But in all honesty you can TODAY buy Goldman Sachs, Morgan Stanley, and Wells Fargo preferreds all WAAAAAAAY BELOW PAR. So I guess its just the nature of panic selling. I just bought both “GS+K” and “MS+K” a few minutes ago. I TRULY CAN’T BELIEVE HOW THEY ARE THROWING THE BABY OUT THE 8TH FLOOR WITH THE BATH WATER RIGHT NOW. BARGAINS GALORE.

      1. Totally agree Chuck. Absolutely amazing and love the bargains I’ve been getting (7% for investment grade under par all over the place) just as you do.

  3. For you wimps (like me) I made a purchase that I promised myself I would if it got to 30 so it did…Venerable trust debt from utility Peco Energy has standing bid of $30. I bought a relative bunch for me between 29.88-29.98. Backing out 5/6 of accrued interest payment going exD next month you are looking at about 6.15% YTM on a 2028 uncallable issue at $27.10 maturity. Split BBB-/A3 credit rating. This has been around since 2001 (the actual subordinated debt in the trust was issued in 1998. The actual bond is trading on bond desk at last trade 3/12 of $116 for a 4.93% YTM.
    It really has been a rock star. KTH lowest price it ever went to market in 2003 was $25 in 08-09 crisis…I need me some comfort food, so I bought it and ate it, lol. I have owned it many times through the years. Buy it say I will hold it, then flip for a nice cap gain, and then regret selling it every time, ha.
    Added note…Taxing issues held in taxable though…

      1. The underlying bond was issued at 7 3/8 in 1998, but the trust was formed with these bonds at a lower price as the trust came 3 years after the bond was issued. This is also in part why the maturity price is 27.10 not $25 and the trust issued price yield is higher.
        I call it phantom tax issues, but its pretty prevalent in trust debt issues. I used to be able to explain it a couple years ago, but I cant keep it straight anymore. Justin who posts here explains it pretty good. Maybe he will see this.

        1. Essentially, the bond was issued at a discount to par so it doesn’t have an issue price of 100, it has one of 92.25. (25/27.10 )
          This bond also has the right to defer without being in default, (like our recently called old friend Old Second Cap)
          Depending on the price paid, it could have acquisition premium, market discount or bond premium.

          1. as an add on to the above. I am just waiting for a bond to defer payments (See down below, Ford did this in 2009 as well)
            The prices on deferred debt can fall off a cliff, and there are occasions where the price doesn’t catch up until a few days after they announce that they are resuming their payments with a huge catch up payment.

            1. Justin, I missed your comment. Thanks for the added color on the tax situation.
              There are quite a few outstanding deferrable subordinate debt issues out there. Hard to tell which one will be a leading candidate yet. I really doubt it will be PECO though. Its 22 years into this one with 8 more to go. They just got a rate request increase 15 months ago and are Pa biggest T&D electric and gas ute.
              Its hard to find these types that dont have maturities out 40 to 50 years.

  4. I think the real risk is that the Government does a complete lockdown. The President has mentioned that there’s no need to stock up on supplies, and at this point I have not done this prepper mentality, however; if there is a heavy lockdown and I am seeing news of a curfew, that would only induce even more panic. The fact that CNBC is saying the markets should be closed is ridiculous.

    The Phillippines stock market has been closed until further notice.

  5. Tim, the symbol for Pebblebrook is PEB. Agree div cuts are prudent for common.

    MAC also cut their dividend.

  6. Chuck- Hard to sell Bonds in this market.. no buyers. I always go back to if you think the company is at risk of default/BK then selling is OK even at a loss.. otherwise hold until the bond market has more liquidity if you feel uneasy. The hard thing now is not buying bonds I think are a great value.

  7. Tim; I fully agree. I own Ford and also Darden bonds. Not preferreds. Does anyone have an “Opinion” on holding those 2 companies bonds??? I’ve thought about selling but just not sure if I should. They say the Ford F-150 is the best selling pickup in the country but like my old partner use to say “well that and a nickel will get you a cup of coffee”. LOL

    1. Chuck P, My 2 cents on this which might be worth 1 cent. When I’m holding bonds or notes it’s for their relative safety. That objective might be undermined if the underlying was mired in uncertainty. Now I do believe F is viable as a going-entity and the yield on F-bonds may reflects their current risk profile. Comes down I think to one’s objective, tolerance and where it sits in your own stack.

      1. One thing to keep in mind is that during 2008 recovery the GM bond holders were screwed. They were supposed to be at the front of them line but the government stepped in and decided to reward others with that money instead.

        Unfortunately, I had a front row seat.

        Hopefully this will be a shorter downturn since there were no fundamental problems with the economy before the virus hit.

    2. I am trying to sell a Ford bond as we speak. No buyers coming out for it. We could be in for a decline somewhere between the Great Recession and Great Depression because our leaders seem to think we can shut the country down as long as it takes to reduce the virus threat. I would rather take the chance of getting this stupid virus and have things go back to normal versus being homeless. And I am over 65.

      1. TEF – I question the terminology of corporate default for Ford in 2009. S&P must be defining Ford’s “bankruptcy” by their having taken Fed bailout money, not by bond default. Do you know for sure if Ford bondholders failed to receive payments in those days because my memory was that Ford accepted Fed bailout money at that time solely for competitive purposes and very vocally declared they didn’t need the bailout, but didn’t want to be placed at competitive disadvantage to GM and Chrysler by not accepting it. I don’t think Ford bond holders suffered as they would in a true default situation but I could be wrong…. GM bondholders, on the other hand, got O’Bama’d when Feds decided to eschew existing bond law and put unions ahead of bondholders..

        1. 2wR, Something isnt ringing right here unless my memory is fogged. Ford never went into Bankruptcy during crisis. And didnt accept TARP. Just govt loans.
          Although Ford did not receive TARP funds, it did receive government loans.4 These were critical because banks were not lending during the financial crisis. It requested a $9 billion line-of-credit from the government. In return, it pledged to spend $14 billion on new technologies.
          The Big Three automakers asked Congress for help similar to the bank bailout. They warned that General Motors Company and Chrysler LLC faced bankruptcy and the loss of 1 million jobs. The Ford Motor Company didn’t need the funds since it had already cut costs. But it asked to be included so it wouldn’t suffer by competing with companies who already had government subsidies.

          1. Ha – Grid, you must have read my post before I put the same link in you posted… I forgot to include it originally but Tim’s 5 minute timeout saved me….

        2. On the Ford Bonds, 2whiteroses you are correct! Our then Senator Bob Corker earned the everlasting hatred of the auto unions when he strongly opposed the auto bailout at the expense of the remaining auto mfgs bondholders. Ford bondholders came out ok.
          Corker never recovered from this. The unions opposed him every term and then when he went into the twitter sphere the two were enough for him to wave the white flag.
          On the same train of thought (Govt. picking winners and losers), what are your thoughts on the taxable muni funds? A large portion of these hold large retail spaces (ex. Hudson Yards, NYC). These large public/private financing will certainly be impacted. You know better than most the risk herein, would you please share you thoughts with us?

          1. Uh oh, TNT, you’re putting too much faith in me to know this kind of stuff just because of my career was in the muni bond business. That, however ended 25 years ago…. I’ve not kept up with details on taxable munis per se to be of much help but it’s a good question… Back then, we had industrial revenue bonds where projects were issued by a municipal entity to capture the tax exempt interest rate but they were the sole responsibility of the project’s owner which was a private or public corporation….That’s no longer allowed hence this taxable muni approach. There was also the occasional hidden corporate payor actually paying for the muni debt issued by a municipality directly such as Kissimmee, FL which when you delved deep into the weeds you discovered it was essentially 100% the responsibility of Disney…. But I don’t know how Hudson Yard is set up as far as being a taxable muni… it just doesn’t interest me as much to find out these days, much of that having to do with a continuing personal low tax rate… So I’m afraid I’m not going to be of much help, OR I could pontificate with blowhardiness as the minions sit at my feet, but, then again, I’m not an SA author so I’d prefer not to.. Sorry ’bout that..

        3. S&P is not saying Ford went bankrupt in 2009. However, Ford DID default by not meeting original terms of a number of bond agreements. In 2009 Ford renegotiated the terms. (i.e. if you are a little guy they offer you new terms and you either accept or you can take them to court. If you are a bigger entity (and capable of hiring $500/hr attorneys), you have more bargaining power and say in what the new terms are).

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