3 Safe Income Picks Yielding 8%+ With Improving Fundamentals

Dec. 03, 2018 3:21 PM ETEnergy Transfer LP (ET), HT, HT.PE, NS, NSS, ET.PCNS.PA, NS.PB, NS.PC149 Comments
Fishtown Capital profile picture
Fishtown Capital


  • I present three fixed income securities that have declined in the past year despite improving fundamentals.
  • These securities offer well covered yields between 8-9.3% and potential upside in price, with options for both 1099 and K-1 tax treatment.
  • With Fed Chairman Powell now seeing current interest rate levels "just below" neutral, a major headwind for all fixed income might be ending in 2019.

1. Hersha Hospitality Trust

6.50% Cumulative Preferred Shares Series E (NYSE:HT.PE)

Current Price: 20.12

Current Yield: 8.07%

Callable: 11/7/2021

Tax Treatment: 1099

Hersha Hospitality Trust (NYSE:HT) is a real estate investment trust which owns and operates high quality upscale hotels in urban gateway markets and coastal destinations. The Company's 49 hotels totaling 7,730 rooms are located in New York, Washington, DC, Boston, Philadelphia, South Florida and select markets on the West Coast.

In 2018, Hersha had a transformative year, spending $80 million in CapEx to renovate and upgrade two hurricane damaged properties, the Cadillac Hotel & Beach Club in Miami and the Parrot Key Hotel & Villas in Key West, as well as renovate several others. These two properties are forecast to contribute $20-25 million of EBITDA and account for 10% of total portfolio EBITDA by 2020 according to the latest Hersha investor presentation.

Hersha already has one of the lowest dividend payout ratios in the sector at a 50% payout target. 2019 CapEx is planned at $30-35 million, with the excess cash flow slated to pay down debt.

From Hersha's President and COO Neil Shah on the latest earnings call:

We have been planning to use our free cash flow, our excess free cash flow in 2018 and the coming years to primarily to kind of pay down leverage and to pay down debt, while we had our EBITDA increase as well on the other side.

Here is a visualization of a bearish case for Hersha in 2019, where EBITDA stays flat at $172 million despite two major properties reopening, CapEx coming in at the high side of guidance, ignoring that some of the CapEx is for growth, and interest expense increasing slightly despite promises of paying down debt


Even in a bearish scenario, the preferred payout is very well

This article was written by

Fishtown Capital profile picture
Individual investor and family office principal with over 20 years of investment experience. I favor fundamental analysis and look for individual issues and asset classes that are out of favor and represent a good risk/reward trade off. I often employ options strategies, covered calls on companies I own that have gotten ahead of themselves, and writing puts on stocks that I'd like to own at lower prices.Educational background Finance MBA (NYU Stern) with Computer Science undergraduate.

Disclosure: I am/we are long HT, ET, NS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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