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On June 29th Strategic Hotels and Resorts (NYSE:BEE) will clear a big hurdle with payment of all dividends, accrued and current, due holders of its three series of preferred stock. June 15th holders of record for the A, B, and C Series will each receive a whopping 14 quarters of dividends (details in table below), for a total payment of more than $84MM.

ISSUESeries ASeries BSeries C
TICKER SYMBOLBEE-ABEE-BBEE-C
NOMINAL PAR VALUE$25.00$25.00$25.00
ANNUAL DIVIDEND$2.125$2.0625$2.0625
ACCRUED DIV. THRU 06/30/12$7.4375$7.21882$7.21882
06/15 CLOSING PRICE$24.36$23.93$23.85
CURRENT YIELD8.72%8.62%8.65%
DISCOUNT TO CALL2.56%4.28%4.60%
SHARES 06/15/20124,148,1413,615,3753,827,727

So what remains?

If you are not a recipient of that $7 bounty, maybe you can take respite in the Treasury Department's windfall at ordinary income rates. Time to move on.

With yields above 8.5% at discounts to call, this $290MM basket of bond like equities deserves at least some small measure of consideration. To start, we want to consider whether or not to invest in the lodging sector. Next, we have to get comfortable with BEE.

As to the lodging sector, Smith Travel Research has been reporting year-over-year, mid-single digit RevPar growth for the whole of the lodging sector. They describe that the luxury component, BEE's realm, has been even stronger.

To fund payment of the accrued preferred dividend, BEE issued 18.4MM shares at $6.50/share. On the first quarter conference call, an analyst asked whether management would consider redeeming any of the expensive preferred shares; management replied that they would only retire preferred shares under discounted terms resembling 2011's tender offer.

At his REITWeek presentation, CEO Lawrence Geller effusively described BEE's out-performance and near-term prospects. He forecast a common share dividend. We're not quite that enthused.

At this writing, we are long the preferred B and C and anticipate a twelve month total return of 11%.

Disclosure: 2nd Market Capital Advisory and its affiliated accounts are long BEE-B and BEE-C at the time of this writing.