Sotherly Baby Bonds Move Slowly Lower

For those with an interest in the rather new Sotherly Hotels 7.25% baby bond with a maturity date of 2021 (and early call date of 2/2019) the share price has moved slowly lower after trading recently in the $26.55 area.

Shares closed at $26 recently for a current yield of 7%. Of course if the bonds are early called next February you will realize just a 4% gain (3% plus a early redemption bonus of 1%).  If they run to maturity in 2021 you will realize around 6% annually.  The bonus 1% is paid if called anytime prior to maturity so a call in year 2 depending on timing could be a YTC of 6.25%.

We are personally going to put in a good til cancelled order for a few hundred shares at $25.75 for the balance of March.  Recall we did buy 200 shares (all we could get at that price) at $25.55 just after the IPO.

11 thoughts on “Sotherly Baby Bonds Move Slowly Lower”

  1. I think we mostly agree on things. I stay pretty much away from shippers and BDCs but I do have quite a load of Gladstone Capital and Gladstone Investment 9both BDCs) term preferreds. David Gladdstone has been around a long time and I have a bit more comfort with him. On most BDCs ‘just trust me’ doesn’t mean much.

  2. Grid–relative to RAS debt–I went through their financials a few weeks ago to see if there was any reason to ‘take a flyer’–NOT – I think they could literally go belly up. It is a rare REIT to be as poorly managed as RAS–when they got rid of their stake in Independence Realty Trust we found out that the emperor has no clothes.

    1. Tim, I take it one step further….I refuse to invest in any MReit with the lone exception of ABRN which I will hold until maturity. Shippers are on my banned list too. I got lucky on some in and out trades with them. And missed the shipper calamity totally. Looked in the mirror and realized it was no skill, but sheer luck I made money on shippers…Same thing happened with BDCs. Also got lucky there. Never buying anything to do with a BDC either. Dont trust what they think the junk they invest in is worth what they say it is.
      Bottom line is I simply dont need money bad enough to buy things I dont trust or dont want to trust.

  3. Hi GW–Given that it is debt I suppose you could say it is cumulative (although not in a technical sense). These baby bonds would have the protection of the common dividend and all preferred dividends needing to be ended prior to them having an issue paying on these.

    1. Very true… If you were to see both the common and preferred payments terminated, the value of these bonds would be significantly impacted and one would be selling at quite a major loss of capital. Pennies on the dollar depending on how deep the red was.

      1. GW, I am not touching this issue. But debt issues typically trade stronger than the companies preferreds when company is a bit on the ropes. Look at dump outfit RAIT… Compare current price of its baby bond RFTA which trades over $21 and its sister preferred stock RAS-A which now is trading at $6.49…They both are $25 par.

      2. HI GW–I reviewed the last quarter financials and they were actually decent enough–looking at it in terms of FFO (AFFO) which is the normal metric for a REIT. They had to take a 1 time charge because of the new tax law change which made things look worse than normal.

        I am very comfortable with this holding unless we head into recession in which case I will be going in a new direction on a lot of my holdings.

        Good luck.

        1. Understood. I wasn’t trying to be super negative on SOHO. Part of my due diligence is to inspect the underlying company and share some stats with others that may be helpful to the conversation.

  4. GW–The attraction of course is the short maturity dates. I think the fundamentals will come around if no recession arrives in the next year. It would be very rare for a REIT to default on an issue like this–energy MLPs have done so, but very rare on a REIT.


  5. SOHO has missed earning for the past 3 quarters in a row.

    When it reported about a week ago, the company said it had a loss of $3.9 million, or 29 cents per share. They posted revenue of $38.2 million in the period.

    It lost considerably more money in this last quarter of 2017 that the loss it incurred at the same time in 2016.

    That plus the rate hikes crushing REIT’s is probably coming together to cause this issue to drop like it is.

    Interesting call, though Tim – to lowball it. Sounds like a decent strategy but they need to stem the flow of red ink over there…

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