Unpriced REIT Question [Why can't I redeem my shares of preferred stock?]

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bertilak
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Unpriced REIT Question [Why can't I redeem my shares of preferred stock?]

Post by bertilak » Sun Feb 10, 2019 4:41 pm

I have an unpriced REIT (BRE SELECT HOTELS CORP) that, although "unpriced," has a "liquidation preference" of $1.90 per share, as shown in the company's 8-K filing. The shares now are paying 11% on that price. As the 8-K specifies, this is up from the initial 7% after 5 years (now passed). Seems very good! The shares are redeemable by the Company at any time at the liquidation preference price.

Here is a link to the 8-K: https://www.sec.gov/Archives/edgar/data ... 220d8k.htm. The above terms are discussed in the first couple of paragraphs.

My question is, why do they not redeem my shares? Shouldn't they be able to borrow at considerably less than 11% and save themselves some money by buying back my shares? I'm not complaining because I don't think I could do better that 11% with the money they would pay me. Just wondering.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

talzara
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Re: Unpriced REIT Question

Post by talzara » Sun Feb 10, 2019 7:30 pm

bertilak wrote:
Sun Feb 10, 2019 4:41 pm
My question is, why do they not redeem my shares? Shouldn't they be able to borrow at considerably less than 11% and save themselves some money by buying back my shares? I'm not complaining because I don't think I could do better that 11% with the money they would pay me. Just wondering.
BRE Select Hotels has limited ability to borrow because of their mortgage loan covenants:
On July 7, 2017, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company ... obtained an $800 million mortgage loan ... The Loan contains various representations and warranties, as well as certain financial, operating and other covenants that will among other things, limit the Company’s ability to:
  • incur additional secured or unsecured indebtedness;
https://breselect.gcs-web.com/static-fi ... 4a3dfb1d2c
When they refinanced their mortgages in 2014 and 2017, they cashed out some equity and used it to redeem preferred stock. They'll probably do it again the next time they refinance. They've already redeemed 55% of the preferred shares, and that was when it was yielding 7%. Now it's yielding 11%.

Code: Select all

Year    Series A preferred shares
2012            97,032,848
2013            97,032,848
2014            72,382,848 
2015            72,382,848 
2016            72,382,848 
2017            43,821,901 

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Re: Unpriced REIT Question [Why can't I redeem my shares?]

Post by LadyGeek » Sun Feb 10, 2019 7:53 pm

This thread is now in the Investing - Theory, News & General forum (theory). I retitled the thread for clarity.
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Re: Unpriced REIT Question

Post by bertilak » Mon Feb 11, 2019 12:09 am

talzara wrote:
Sun Feb 10, 2019 7:30 pm
BRE Select Hotels has limited ability to borrow because of their mortgage loan covenants:
On July 7, 2017, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company ... obtained an $800 million mortgage loan ... The Loan contains various representations and warranties, as well as certain financial, operating and other covenants that will among other things, limit the Company’s ability to:
  • incur additional secured or unsecured indebtedness;
https://breselect.gcs-web.com/static-fi ... 4a3dfb1d2c
Thanks for that -- it answers my question perfectly!

I'll enjoy my 11% until they take it away from me.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: Unpriced REIT Question

Post by bertilak » Sun Apr 07, 2019 5:15 pm

bertilak wrote:
Mon Feb 11, 2019 12:09 am
talzara wrote:
Sun Feb 10, 2019 7:30 pm
BRE Select Hotels has limited ability to borrow because of their mortgage loan covenants:
On July 7, 2017, certain indirect wholly-owned subsidiaries (the “Borrowers”) of the Company ... obtained an $800 million mortgage loan ... The Loan contains various representations and warranties, as well as certain financial, operating and other covenants that will among other things, limit the Company’s ability to:
  • incur additional secured or unsecured indebtedness;
https://breselect.gcs-web.com/static-fi ... 4a3dfb1d2c
Thanks for that -- it answers my question perfectly!

I'll enjoy my 11% until they take it away from me.
I just got the following notice from Vanguard:
  • BRE SELECT HOTELS CORP SER A PFD, 05578K205, in the brokerage account, is scheduled for a partial redemption on 2019-05-01. A quantity of 973 will be redeemed at $1.90 for a total of $1,848.70, with 1,059 remaining within the account.
Simultaneously, my shares were split into two:
  • BRE SELECT HOTELS CORP SER A PFD — 1,059.000
    BRE SELECT HOTELS CORXXX PARTIAL CALL 05578K-20-5 — 973.000
I'll be interested to see how this is reported on a 1099. I think it should be as return of capital.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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