Current market conditions and low interest rates make it possible for companies to redeem high-yield securities in favor of cheaper sources of capital. On April 4, Brandywine Realty (NYSE:BDN) announced the redemption of all 2,000,000 shares of its Series C 7.50% Preferred. The redemption was funded by the issuance of 4,000,000 shares of its Series E 6.90% Preferred. Hospitality Properties (NYSE:HPT) redeemed HPT-B using available funds and a low-interest credit line. These refinancing efforts epitomize the market trends, which are causing high-yield opportunities to disappear. However, for yield-seeking investors, some options remain.
Recent Price $
Annual Dividend $
Annual Yield %
Many of the securities listed above are beyond (or nearly beyond) their call dates. Viability of investment is retained among the stocks that trade below the redemption price as investors will not lose money if they do get redeemed. While yield seekers can squeeze some remaining dividends out before these options potentially disappear, it would be wise to consider the following companies for longer-term yield potential.
Ashford Hospitality Trust (AHT)
AHT is a well-run company specializing in brand name hotels in prime locations. With strong growth potential and underpriced securities AHT is certainly worth looking into. AHT-A is already beyond its call date, but AHT-D and AHT-E have some guaranteed duration left with call dates of 7/18/12 and 4/18/16 respectively. A more complete analysis of Ashford can be found here: Ashford Hospitality Trust
Hersha Hospitality (HT)
HT-B remains nicely under par and presents investors with an opportunity for better than 8% yields until 5/18/16. As a very thinly traded issue, it may be tricky to obtain in sufficient volume.
Pebblebrook Hotel (PEB)
PEB consists of upper upscale hotels in urban locations and has particularly notable debt coverage with a projected EBITDA/interest ratio of 4.4 to 1. An astute investor will notice the pareto superiority of PEB-B over PEB-A. In addition to being available for a lower price, it has a higher dividend and more time before its call date.
While the yields of SPPRP and SPPRO are tantalizingly high, one must be cautioned about the stability of the company behind them. Supertel is in a financially fragile condition at the moment making it somewhat riskier. Take a look at the capital structure of the company to get a better idea as to the risks.
Winthrope Realty Trust (FUR)
With yields of greater than 9% FUR-D seems bountiful. With a wide mix of properties from parking spaces to buildings scattered throughout the country, it becomes difficult to decipher the company's direction.
Before investing in any of these securities, further analysis (which goes beyond the scope of this article) of their respective companies is prudent. It should also be noted that in current market conditions, growth from high-yield preferred stocks will likely be insignificant. With dwindling opportunities for yield, knowledge of those that remain becomes essential.
Disclosure: 2nd Matket Capital and its affiliated accounts are long AHT-A, AHT-D, AHT-E, CDR-A, GRT-G, HT-B, LSE-A, SPPRP, and SPPRO.