Chicago based Strategic Hotels & Resorts, Inc. (NYSE:BEE) loudly boasts the most luxurious portfolio of high end properties in all of REITdom's lodging sector. Among BEE's trophies are The Hotel Del Coronado, London Marriott Grosvenor Square, The Westin St. Francis, and the Four Seasons Hotel, Washington D.C., just to name a few. BEE is now gaining some investor notice as it rebuilds from the devastations of the great recession.
The travel sector is staging a sustained recovery, and the luxury end of the hotel market is producing particularly strong results. Strategic Hotels is enjoying a surge in both occupancy and room rates, but the albatross around the neck of its common stockholders is the 12+ quarters of accrued but unpaid dividends on its A, B, and C series preferred stocks.
NOMINAL PAR VALUE
ACCRUED DIV. THRU 06/30/12
SHARES OUTSTANDING POST 11/11 TENDER OFFER
On Strategic's February earnings call, management basked in performance progress that should really be attributed to market trends, but BEE management deserves kudos for their pro-active address of the Preferred obligations. Back in November, Strategic launched a tender offer for purchase of preferred shares and succeeded in redeeming more than 3.2 million shares at a 15% discount to their liquidation preference values. Extrapolating this result, the carrying obligation to the preferreds is reduced by a similar 21.8%; an eventual benefit to holders of the common shares.
For investors considering a purchase of the preferred shares, it's a study of price and time. Since the February 23 earnings call, the A, B, and C series have traded as low as $29.37 and as high as $31.30. Depending on the series, with a par plus accrued valuation of $32.21 to $32.43, it could be argued that there is a small-dollar arbitrage here.
Disclosure: 2nd Market Capital Advisory and its affiliated accounts are long BEE-A, BEE-B, and BEE-C at the time of this writing.