Hersha Hospitality Trust (HT) Preferred Series C shares, like the underlying stock and the series B shares, are going ex-dividend on December 27th, so if you move quickly you can get this quarter's dividend and lock in a 7.4% yield and a nearly 9% yield to call. First a little background on the company and then the numbers on why I recommend the series C preferred instead of the stock or the series B.
Hersha Hospitality Trust is an owner of upscale hotels in large markets throughout the U.S. that are sometimes referred to as "urban gateway markets" such as New York, Los Angeles area, Miami, San Diego and similar major cities. Its hotels operate under the major hotel chains. Recently, Hersha closed the sale of 12 non-core properties (news here) and purchased two hotels in South Beach, Miami and a property in Santa Monica. The company plans to pay down mortgage debt with the proceeds of this sale. The sale of 4 other non-core properties is in the works and the company states it will either continue paying down debt or engage in a stock buy-back with those proceeds.
There are currently three options to invest in Hersha Hospitality for the dividend investor. They are buy the common stock, buy series B preferred or buy series C. Here are the pros and cons:
- Common stock ownership simplicity and rights
- Low price ($5.62 closing price 12/23) and widely traded
- 4.3% yield (both a pro and con compared to preferred yield)
- 7.4% yield (7.5% coupon at par)
- Trading above par at 25.40
- Callable in May 2016-Note: Hersha called the series A at par
- Thinly traded
- Trading below par at 23.22 (again, close 12/23)
- 7.4% annual yield (6.875 coupon at par)
- Callable in March 2018 with yield to "call" of approx. 9%
- Thinly traded
Recommendation: When I first became aware of Hersha Hospitality Trust, it was purely as a common stock play as a solidly yielding REIT. As I researched more, I came across contributor Kraken's post which peaked my interest in the preferred series B shares. However, the fact that the series C is trading below par at the same yield makes it the better option. I recommend either buying it ASAP to capture this quarter's dividend, and if that cannot be done, if it drops once it goes ex-dividend - picking it up if the price drops approximately $.42 (or more) matching the dividend amount.
Additional disclosure: I may initiate a long position in HT Preferred Series C over the next 72 hours.