On February 29th we detailed the circumstances of 7 quarters accrued but unpaid dividends due on Felcor Lodging Trust's (FCH) series A and C preferred shares. On April 5th Felcor announced the sale of six hotels for approximately $103.0 million and that they would, at least partially, satisfy their stated intent to bring accounts current by paying a portion of the accrued dividends
Market response to the news was interesting/curious. The preferreds go ex-dividend on April 12th; shareholders of record on April 16th will receive $0.4875 and $0.50/share for the Series A and C, respectively. Today's press release implies that on July 31 the preferred shareholders will receive 3 of the 7 accrued quarters in addition to the 2nd quarter due. That's $2.00 on the C and $1.95 on the A. Each preferred has an identified value of $27.50 against an 8% yield over the next 90 days.
Furthermore, this valuation ignores the remaining $37 million of accrued preferred dividend. All told, with April and July current payments, added to 7 quarters accrued, the preferreds have an identified value of $29.50 against an 8% yield and a $25 redemption price.
Post press release FCH-A rose $0.66 (2.58%) to $26.24. FCH-C rose $0.65 (2.56%) to $26.05. FCH common sky-rocketed $0.68 to $4.28 (+18.89%). Wow!
Series A Cumulative Convertible Preferred Stock
Series C Cumulative Redeemable Preferred Stock
Ex- Dividend 04/12/12
Likely Div. 07/31/12
Accrued /Current Price
While it's obvious that a $67 million accrued and unpaid preferred dividend is a huge albatross around Felcor's neck, paying just half of it doesn't create progress for the common shareholders. Our perspective is that the preferred shares are still a value. The common shares are a work in progress and are probably now priced at a premium to their sector peers.
Disclosure: 2nd Market Capital Advisory and its affiliated accounts are long FCH-A and FCH-C at the time of this writing.