Sotherly Hotels Finally Prices Preferred Issue

As Nomad had predicted the new perpetual preferred issue from Sotherly Hotels (NASDAQ:SOHO) has priced with a coupon of 8.25%.

The company will sell 1.08 million shares with an over allotment of 162,000 shares. The proceeds will be used to call the 7.25% baby bonds (NASDAQ:SOHOK) which had an early call date starting 2/15/2019 and a maturity date of 2/15/2021.

The new issue is unrated and will pay cumulative, non-qualified dividends.

The shares will have an optional early redemption, at the companies option, starting 4/18/2024.

Shares will trade on the OTC Grey market tomorrow with the temporary ticker of SOHEP.

The permanent ticker will be SOHON after grey market trading (in about a week).

The pricing term sheet for the new issue can be read here.

The full preliminary prospectus can be read here.

52 thoughts on “Sotherly Hotels Finally Prices Preferred Issue”

  1. RE: SOHON – In my apparently infinite capability to nitpick, I notice where SOHON’s first coupon payment on 7/15 will be short 18 days worth of divvy, implying a start date of accrual being 5/1/19. It says “The first distribution on the Series D Preferred Stock sold in this offering will be paid on July 15, 2019, and will be in the pro-rated amount of $0.41823 per share.” A full 90 days at 8 1/4% would be .51563. With settlement being 4/18, doesn’t that imply SOHO’s getting investor’s money for free for 18 days? I wonder if that implies a 5/1 call date on SOHOK? I’ve not seen a call date officially being announced yet….

    1. 2whiteroses, the SOHON/SOHEP first call date is 4/18/2024…I’m sure the initial lower quarterly payment and (less than 90 days) has to do with the ultimate settlement date.
      All the very best, Nomad

      1. Nomad – Sure I agree, but the final Prospectus shows settlement as 4/18. That’s 3 days difference from full 90 days, not the 12 or so you would suspect is the amount not accruing based on the .41 amount being set for the first divvy…. Yeah, I lied the first time – it’s about 12 days, not my fat fingered 18. Normally I think accrual begins on settlement date of new issues.. I realize this is very yawnable… apologies

  2. Wow! Got a buy limit filled today! Nine shares on a 300 share order of SOJA! Volume was 55,000. Have been pruning to some cash and placing ‘baskets’ under fruit (buy orders on about ten issues at my take price) that I would collect IF it falls AND would hold IF things immediately went to hell. I feel okay about placing about ten orders and waiting for a panic. I know it is probably NOT advisable with the conservative crowds here, but I use margin to place taxable account “quality-hairball” buy orders if someone needs to find a buyer in a thin market like prefs; this way my cash is not tied up. I don’t know if any others play it this way, but I’ll let you know…so start selling lower so I can report back!
    I have been shooting for some “good as cash” vehicles as mentioned by some folks a few days ago, gotta consider PSK and EPRF as a proxy for ‘fully-invested-in lieu of cash”. Should have loaded up on DUK-A (thanks god they did not symbol it DUK-E in the South) but was distracted. Yes, Spring is popping in the lower latitudes. MN was made for the Northstars!

    1. Joel did you get in on IPWLK today? I still have some DUK-A but have way more IPWLK buying 400 shares flipping a lot of my Krzyzewski preferreds to buy them. Keep an eye on PPX with payment coming. I have milked this cow a few times recently. Plus it has a few more basis points in the hip pocket than the NEE issues and such have.

      1. IPWLK does seem a bit of an odd preferred. Not too much info available other than the original prospectus linked by Quantum Online and a passing mention of it in the AES annual report. But 5.65% QDI from a utility is something I’m interested in. Is this issue hard to buy given it’s low volume ?

        1. Tim did you see my annual financial report link I gave A4I in Reader initiated thread? You really need to go to the IPALCO SEC filings not AES to get the more thorough info. The preferreds have very robust protections including taking over IPL board with 4 missed payments. Net income of IPL covers entire series preferreds by 40 times. They just got a recent rate increase protecting their profit margins. Historically Tim, its extremely hard to buy at a fair market price of par. There maybe has been one other time in past 6 years I have tracked it where any liquidity approached past two days. A fund or entity was doing a controlled sell.
          It closed with shares available at $99.95 so the liquidation process probably isnt fully complete.
          IPWLK usually trades maybe once or twice a week tops for 100-200 shares.

          1. Gridbird, thank you so much for flagging IPWLK. You are such a wealth of knowledge and I learn so much from you and others here. Entered yesterday at 99.75 and putting it in the sock drawer as its perfect for my conservative portfolio. Thank you again for bringing it to my attention.

          2. Sorry, I missed the entire exchange regarding IPWLK in the Reader Initiated Alerts thread. Thanks for the info in that thread … looks like I have some reading to do. I’ll definitely put this issue on my watchlist to try to pickup a few shares.

            1. Tim, I would have linked it for you again, but I didnt want to try and find it in the thread either, ha. That would be almost as hard as digging out the IPALCO filings from the SEC. 🙂
              SunnyFlorida, it should fill its roll of reliable income for us, provided it doesnt get redeemed and under par that eliminates call loss risk. I assume you live in Florida? I own another ute preferred that owns some utilities in Florida; the being Emera.

              1. Grid, no worries. I was able to find the link in the other thread without too much trouble. Thanks for sharing your wealth of knowledge.

              2. So Girdbird, let me see if I understand Emera and the Canadian dollar impact

                ERRAF, it is currently trading for $15.23. I assume that is US currency. It pays a dividend of 0.224 per quarter, that is $0.896 per year or a yield of 5.88%. I assume this is also US currency.

                It is callable. If called it is $25Cad which right now is $18.76US. So the gain if called would be $3.53 cents or about 23%

                Now if the exchange rate between US and Canada changes to say 0.80 cents on the dollar, then it would be called at $20 per share or a gain of 4.77 per share which is about 31%.

                Is this correct?

                If so, some of my holding tank dollars (currently PSK ETF) belong in this offering. I saw your prior post about $300 in dividends and the tax ramifications.

                  1. So I guess I do understand ERRAF. If I buy it in Canadian dollars on the Canada exchange, It pays the same 5.8% and offers the same 23% upside. So why would I do this? I would need to setup a Schwab global account. No issue to do but is there an advantage to not using the OTC US symbol?

                    1. Steve, my preference would be to buy off TSX. But I dont have that option and I am not opening up another brokerage account to do so, as that is the last thing I need. To be honest I think we get plucked a tiny bit on buying OTC. But not enough for me to bother over since I am not a trader on this or most of my other TSX issues I have. I know you inferred taxable, but I personally would not own this in a tax differed account as this one has shown itself to have brokerages withhold the 15% despite it being in tax free. It interested in it, I would think eating the 15% and filing to get it back would be the best way to avoid problems.

                1. Steve, I go by Canadian numbers and work from there. TMXMoney has it as 29.5 quarterly at $20.31 closing for a 5.81% yield. I didnt check to nearest 10th but currency conversion is about .75 to USD. But yes it appears your knowledge is correct compared with what I know anyways concerning all the math.
                  A few comments to add, these resets can only be redeemed at reset date, so its good until 2023 anyways. These resets kind of eliminate a need for redemption unless the kicker is too high. This one is at 2.64% or so I believe. That may eliminate a desire to ever redeem unless their capital structure is changed for some reason. And I know you well know the currency conversion could go against us, too. If rates ever really crater one could be caught with a considerably lower yield on next reset.
                  Of course that is why I like to also own fixed perpetuals also as a counterbalance.
                  Enbridge and Altagas have some USD denominated CAD issues that are resets if those companies are in your personal comfort zone.

                  1. I had a long conversation with Schwab about them violating a treaty between the US and Canada and what gave them the right to do so. Specifically AQNA and EBGEF. It took me 6 attempts to get a real answer. Here is what I learned. The dividends come from a 3rd party to Schwab. AQNA dividends had no Canadian withholding taxes in my IRA with Fidelity. Schwab customers had no withholding taxes either in their IRA. I will validate this on 4-17 when those AQNA dividends come due from Schwab. If they did not give me the straight scoop, I will move AQNA back to Fidelity. These dividends are paid by Depository Trust Corp(DTC). DTC has the infrastructure to differentiate on IRA accounts. EBGEF was too new, but those dividends come from Citibank. Citibank does not have the infrastructure to differentiate between Tax deferred and taxable. Other Enbridge OTC’s Citibank is paying dividends for are withholding Canadian dividend taxes on IRA accounts. So I sold EBGEF from my IRA and moved it to a taxable account. If you pay taxes in your IRA, you get no IRS offset. If you pay them in a taxable account, you should get some tax benefits. The trick seems to be, insisting that the fixed income desk checks other IRA accounts they have to see if they are honoring no withholding of Canadian dividends for IRA’s. This may give you an option of putting some of these into an IRA account if you want to hound the fixed income desk before you buy them. Even with new issues, you should be able to get them to research whether the 3rd party they get the dividends from is honoring the treaty.

                    1. I love utility companies (not that I will be undiversified). 5.8%+ is as good as I see for most US firms that are high quality. Emera’s utilities are of equal quality. Sure, anything that floats can go down. 2023 is a far time off. I will take that risk because, over time, interest rates should return to historic norms. Call risk exists for all preferred issues, for most US utility companies, you risk losing money. I will happily risk making money if in 2023 these are called in.

                    2. Wow, Steve… What a mess. Comments like this keep me smiling with Merrill Edge for all these years. Never ever had them screw up a foreign divvy – no matter which of the 4 types of accounts I have held foreign securities in.
                      The other aspect of losing the 15% foreign tax and then waiting until tax time to reclaim it that I don’t like is you lose the ability to have that money working and compounding for you for all of the time Uncle Sam or whomever has it. I guess if you have no choice but to purchase the security in a taxable account, you have to grin and bear it – but that’s more than I am personally willing to do. I want to see as much of my $ compounding as often as possible.

                    3. A4I, the witholding works good for me, because I always owe money now, and next year have to pay a penalty if I owe too much next tax season. So this credit will help keep me under the threshold. Im not messing with that quarterly payment crap, so this will help me avoid the penalty.

                    4. Steve – I also went through all of this with Schwab….. at great length….. when I was working to get them to connect with FINRA to assign the EBGEF ticker. I was told that only DTC would pay attention to the tax treaty and not withhold the 15% for an IRA. I had them check a list of about five tickers including CDUTF, FTRSF, ERRAF, EBNA….And one other E bridge pfd that I can’t remember the ticker of… And only EBNA was with the DTC and would not have had the 15% withheld. All of the other ones,…. I would’ve been out of luck if held in an IRA.

                    5. Amy it appears to be a disorganized broker to broker thing. TD withheld Emera in my tax free but did not withhold FTRSF despite being in same account.
                      I didnt have the energy, but another friend of mine who also owns ERRAF in tax free was like Steve and doggedly stayed on them about it through multiple phone calls. Thanks to him, three weeks later there was an adjustment in my account with TD crediting me back the 15% withheld.

                    6. Well Amy, at least we got the same answer from Schwab that DTC honors the contract so we know for the future. If they don’t honor this with AQNA which comes from DTC on Wednesday, will let everybody know).

                      A4I, I am in the same situation as Grid (not a bad place to be), I need to pay ahead of time anyway to avoid a tax penalty. So the 15% taxable amount doesn’t hurt me if it comes from a taxable account. If it comes from an IRA, the money is flushed down the drain. It’s like reducing the dividend by 15%

                    7. Steve, you have zero concerns of an AQNA withholding, It is listed on NYSE. The domiciled location of headquarters will have no impact on it since it has been registered and traded on NYSE.

              3. Interesting Gridbird, yes…live on the lovely but hurricane-prone space coast of Florida. Didn’t realize that Emera owns some FL utilities, very interesting. Thank you.

  3. Why would a company issue 8.25% preferred to pay for a call on a 7.25% bond? I see Public Storage do it constantly in reverse if the timing is right.

    1. I love Grid’s previous answer to this question on Tim’s initial post when SOHO initially announced the issue: “Im a simpleton….So I call it hiding debt on the capital side of the ledger. Wanna get rid of some debt? Issue some preferred stock and magically the debt has become capitalized. Accounting is magic!”

      1. 2WR, here is what I think about accounting…I remember taking a graduate accounting course…First day instructor had all over wallboard financial statements of Company A and Company B. One showed a profit of a million and the other a loss of a million for the year. Then he asked us which company would we rather be CEO of…Well of course we all raised our hands for the one that earned a million….Fool us he did….It was the same damn company! Both examples were using GAAP accounting. Its just which ever way they wanted to categorize things and move the numbers…Hence accounting has a lot of “art” to the “science”. I dont fully trust the “art” part.
        That is why my income focus is more on monopolies, captive rate payers with little say in the matter, lobbyists that can line the pockets of someone to get protections and rate increases for the companies. And when they screw up, they get rate increases to pay for them. Look at train wreck PCG. They are in bankruptcy, the 6% preferred hasnt paid in almost a year and a half and the darn thing is still trading at over $23 today ($25 par). They might weasel out of this $30 billion dollar problem yet!

        1. Grid – Just catching up on this reply now. As an unrelated aside on the Canadian withholding issues with individual brokers, my experience with TDA on any issues such as this that cause agita but have ultimately been worked out, has been that if you ask for compensation for the aggravation in the form of free trades, you’ll most likely be given some.

          1. Just want to report thatTDAM at first withheld 15% on the ALTGF dividend but then I had a credit this past Friday in the amount of the 15% marked as ALTGF dividend. I did not pursue it, they must have caught the error. Account is an IRA.. not quite a steak dinner but a few happy meals

  4. Tim, great reporting on this Sotherly IPO D preferred. The other info I just got was that the CUSIP is 83600C509; some brokerage firms (like TD) ask for the CUSIP to load the Grey Sheet symbol in their system and I was told there was HUGE interest in the deal so they priced it at the lower end of the 8.25%-8.50% range.
    Please practice safe flipping, Nomad

    1. 192,000 share volume already before market open. Close to 20% of the offering already sold. Sure looks like it will be a robust demand

      1. I just got a partial fill of small lot at $25.01 at TD. Last trade is $25.00. Issue is trading strongly as many expected

      2. Fred, me too. As I recall SOHO’s market makers are the greediest based on my experience with their SOHOB and SOHOO. I use Fidelity Active Trade PRO. They show the last trade and the volume. The volume was around 230,000 shares in early trading with bid of $24.85. Then most bidders changed to $24.90, I quickly followed. Then it gapped up to $25.15. Now it comes down to $25.06 bids with just 100,000 shares. I suppose this is not ridiculous. On the other hand, NGL-C, which I missed to swap my NGL-B is currently at impasse, with bid of $25.05 ask $25.15. Zero volume at this time. NGL with early bad reputation however seems to be doing much better in recent times. I believe both SOHO and NGL have perhaps similar risk levels, although in two completely different industries. Over leveraged luxury hotel with hurricane climate change risk vs. natural gas and pipeline (perhaps much better than Rida’s MLP dirty oil). LOL.
        BTW, FIDO will not let me buy NGL-C. I told them that Ned Johnson is crazy listening to the backroom person, who probably did not pass the bar exam. Many in all complained. They will let you buy NGLPP. They fail to realize that NGLPP is the same as NGL-C. Their excuse “the volume of this stock cannot be determined.” I may do some selling of SOHOO in Vanguard and go with a little more NGL with the new coupon making sure that I do not exceed the $1,000 income limit for IRA.

        1. BTW, can’t get a quotation for NGLPP or NGL/PRC or NGL+C either. I am holding onto my SOHOO and SOHOB. Not worth the effort. On the sold SOHOB, I will change the bid to $25. Current bid is $25.06. I may change it to $25.06, $16 with my upcoming glaucoma eye surgery on Monday.

          1. I gave up. Apparently, Market makers for SOHO preferreds do not have good rapport with FIDO for whatever reason. All my SOHOB nd SOHOO were bought with significantly above par at IPO or when the price came down earth much later when it went to NYSE. However, Nic Pehar of Active Trade group did spent considerable time to open up NGL-C. I was then able to place a Good’till cancelled order with proceeds of sales from SOHOO and SOHOB on NGL-C at $25.05 good till cancelled. I made sure that the income from the NGL-B and C will not exceed the $1,000 limit to avoid the awful UBIT. Fido is very strict on the UBIT and they will issue one to IRS and to the account holder.

            1. I raised my bid and got an order filled at $@25.10 at Fidelity. Were playing for a good fish dinner today since its the Lenten season

              1. The market makers seem to be more reasonable. Last trade was at $25.02. It is possibly that many find find this IPO challenging to place a good order, SOHOB price actually moved up to $24.82. So, I sold my SOHOB at Schwab IRA account and place an order for SOHEP. I was trying to get it at $25.05. Then it is just too much work. I also tried to test the dividends classified as Section 199-A dividend to see if this section may have tax benefit over NGL for example. On Turbo tax, I added an artificial $200 of total dividend and $200 to the Section 199A. The tax increased a whopping 20% for the Feds. Then I believe that my model is WRONG, because the entire dividend from SOHOB and SOHOO have been already classified by Schwab (with their 4th “correction”) as Section 199A Hence, there is no common dividends I suppose. My order was executed immediately. I believe for those who have not bought should be able to pick it up around $25.03 – $25.06, depending on the volume, which can only be seen in Fido Active Trade Pro. I will leave my SOHOB and SOHOO alone at Vanguard IRA, Vanguard brokerage seldom has Section 199A or even return of capital etc. I bet most of their clients just buy their mutual funds.
                Fred, enjoy your fish dinner. I eat frozen fillets, Sockeye Salmon or Alaska Wild Pacific Cod from Costco at least 4 times a week. I read somewhere that these two wild fish contain some metal which prevents mercury poison, despite FDA guidance. Fish is so much healthier than red meat IMHO.

            2. NGL-B had zero UBTI. “C” will certainly be the same. But always check, some MLP preferred are 100% UBTI. Most company websites will tell you how distributions have been classified in past years.

  5. Tim- I just saw the Minnesota weather on the evening news. Are you and your family doin ok?

    1. I live in Tim’s neck of the woods in Minneapolis area. High winds, snow, hail, sleet, etc. We are used to snow and this weather. It would be bad if it was during the winter season and -20 to -30 degrees. But was a pleasant 35 degrees today. The only down side was the extremely heavy wet snow to shovel.

    2. Bigbear–as Mr Lucky mentioned it is more irritating than anything else. Lots of power outages today in my area–we lucked out though in my rural location and as long as I have electricity and my computer I am fine.

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