Hospitality may be down but not out, and this preferred stock will reap the benefits as the market recovers.
Hersha Hospitality Trust (HT-PD)
From Sound Advice
Hersha’s Preferred D (HT-PD) has tripled from its low-point, far out-pacing the common stock, and there is still tremendous upside potential. We recommend using limit orders to purchase this preferred stock because the float is relatively small.
The CARES Act provides aid for this industry under the small business provisions. The act defines each individual hotel as its own small business because hotel owners with several properties, if taken together, would not qualify as a small business.
In April, Hersha was able to restructure covenants regarding its debt which greatly enhances the company’s future. It was able to amend its bank credit facility by obtaining waivers on all financial covenants through March 31, 2021. These covenants required the company to sequester funds if certain financial ratios were not met.
Additionally, the company accessed an additional $100 million on its line of credit. To enhance liquidity, the company has also suspended all dividend payments for the balance of 2020. These events were critical to the company’s near-term survival prospects.
This preferred stock is cumulative, which means that all unpaid preferred dividends must be restored before dividends on the common stock can be resumed. The resumption and payment of unpaid dividends of $1.64 per share (annually) on the preferred D would provide close to a 15% annual yield based on today’s stock price. Of course, just the prospect of a resumption of the dividend would propel a steep recovery in the price of the preferred D stock.
The preferred dividend in 2019 amounted to 26% of the company’s FFO, which means that it will be much easier to restore the preferred stock dividends.
Gray Cardiff, Sound Advice, soundadvice-newsletter.com, 800-825-7007, April 30, 2020