16.5% annualized returns over next 3 years

Ok, I’ve pointed out the PEB preferreds before, but pricing is starting to look really good on them, I think. Series E is $19.50 and Series F is $19.60, and the coupon is similar on both, at ~$1.58. That’s a yield of nearly 8.1% on cost today. If they move back to par (which they were at as recently as late January), then you’re looking at 16.5% annualized returns – about half of which is paid in cash.

You might think the common stock is getting absolutely hammered if the par is trading at less than 80% of par. While the common is down from its highs (about 18%), it’s basically about 5% above its lows over the last 52 weeks. And it’s still twice the price that it hit in March 2020. The market cap is still $2.85 billion here, so a lot of equity here still.

So the stock market doesn’t seem to indicate that PEB is some mall REIT or whatever. Projections for Q2 are down from 2019, but reasonable in context. RevPAR is projected to be 8-10% lower, for example. Same-property EBITDA is projected to be 11.7%-18.5% lower in Q2. Stellar perfomance? Nope.

But the company didn’t cut the dividend on the Series E of F during the pandemic. So it looks like few fundamental worries here. Instead, it looks like what’s happening is that these are being sold off with bonds and other fixed-income investments (because inflation). So when inflation is cured, hopefully without a recession, these should return to par.

Other thoughts on these?

Best,

Jim

4 Likes

Jim,

PEB is unprofitable. ST assets don’t cover ST liabilities. Debt level is high and increasing. They do have at least 3 years of runaway cash. But they’re going to need every bit of it as their would-be customers continue to be negatively impacted by the Democrats’ policies on covid, energy, wars, etc. In short, we’re several months into a bear market and beginning a multi-year recession. So, a company that provides non-essential services isn’t going to do well, if it even survives. Therefore, their pdfs aren’t “investments” by any reasonable definition of that term. In bond rating terms, their pfds are triple-CCC junk bonds whose failure rate can be predicted to be 55%.

That said, which seem the most promising? That depends on how one views ‘risk’. You favor PEB-E or PEB-F. I’d opt for PEB-H. Why? If they weren’t able to call E or F in a low interest-rate environment, they aren’t going to be able to do so now. The longer those calls get put off, the lower the YTCs until they are surpassed by PEB-H. Meanwhile, less money has been bet on the project, and the recovery rate from divs is higher.

Arindam

								
Symbol	Callable		CPN		Cur Yld	YTC		Last
PEB-E	06/12/22		6.38		7.78%	283.31%		$20.49 
PEB-E	06/12/23		6.38		7.78%	26.08%		$20.49 
PEB-E	06/12/24		6.38		7.78%	16.84%		$20.49 
PEB-E	06/12/25		6.38		7.78%	13.65%		$20.49 
PEB-E	06/12/26		6.38		7.78%	12.04%		$20.49 
PEB-E	06/12/27		6.38		7.78%	11.06%		$20.49 
								
PEB-F	06/12/22		6.30		7.89%	324.72%		$19.95 
PEB-F	06/12/23		6.30		7.89%	28.72%		$19.95 
PEB-F	06/12/24		6.30		7.89%	18.18%		$19.95 
PEB-F	06/12/25		6.30		7.89%	14.55%		$19.95 
PEB-F	06/12/26		6.30		7.89%	12.72%		$19.95 
PEB-F	06/12/27		6.30		7.89%	11.62%		$19.95 
								
PEB-G	05/13/26		6.38		7.72%	11.92%		$20.64 
								
PEB-H	07/27/26		5.70		8.00%	15.06%		$17.81 

their would-be customers continue to be negatively impacted by the Democrats’ policies on covid, energy, wars, etc. In short, we’re several months into a bear market and beginning a multi-year recession. So, a company that provides non-essential services isn’t going to do well, if it even survives

When you let your politics cloud your judgement, the chances are you are going to be wrong.

Fed is engineering a recession, to control inflation. Well fed cannot do anything on supply, so they are going after demand. Fed is complaining about record unemployment.

Once inflation comes down, FED will stop killing the economy and will turn dovish. Right now they are very hawkish and going to raise rates, etc.

So in an raising rate environment buying an interest bearing (I know preferred’s are dividend not interest, but stay with me) investment will result in the yield going up and price going down.

However, the part that FED is going to create a multi year recession and scores and scores of companies are going to go bankrupt are bordering conspiracy theory.

4 Likes

…in an raising rate environment buying an interest bearing …investment will result in the yield going up and price going down.

Sir,

That’s the whole explanation for price declines in debt instruments only when there are no other factors to consider. The prime example is Treasury zeros, which are pure bets on the level/direction of interest rates. When the issuer’s credit-worthiness has to be considered as well, then the instrument can easily be priced down for those latter reasons alone. This is easy to see with corporate debt. The higher the credit quality, the more their prices are driven by interest-rates alone, whereas solid, spec-grade debt tends to not get priced down as badly in a rising rate environment unless it’s in an industry that depends on the level of interest rates being favorable to it. Then it suffers a double whammy, which is my prediction for PEB.

As for the Fed/Treasury cartel being able to fix problems they themselves have created? No one has done it since Volker. The US economy is so bad that it can’t even service the interest on its debts from revenues. Worse, the US has already lost the currency war it launched as is witnessed by the fact that 2/3rds of the world’s economies are ‘dedollarizing’ as fast as they can. Can’t happen? Won’t happen? Even the US’s staunch Mideast ally, Israel, is reducing its holdings of $US and replacing them with rubles and yuan.

Arindam

Fed is complaining about record unemployment.

Kingran, Care to share a Fed generated statistic regarding current “record unemployment”?

https://www.bls.gov/charts/employment-situation/civilian-une…

Perhaps you are looking backwards or mis-typed?

Cheers!
Murph
BL Home Fool

Frankly I don’t even know why I am responding anything from you. You are troll… yet, go and check Jay Powell’s statement on employement.

I believe Arindam is correct. The USA dollar as the only reserve currency may be where the pound sterling was in 1945. A drop from $5 per lb. to $1.23 today.It may be early, but Asia seems to be where the next century of business will thrive. Demographics and thirst for a better life is On their side.

Jk

Kingran, your post quoted unempolyment; not employment.

I posted US government facts which contradict what you said, and gave you the possible outs that you were mistaken or had mis-typed.

If that makes me a troll, so be it…but at least I can admit when I am wrong, and you obviously can not.

Sad, very sad.

Cheers!
Murph
BL Home Fool

3 Likes

Your inability to understand what I said doesn’t make me wrong. First listen to Jay P. BTW, you don’t admit you are wrong, you use your TMF and delete posts. Yeah you just troll me around boards.

Well fed cannot do anything on supply, so they are going after demand. Fed is complaining about record unemployment.

Kingran, How would any one interpret what you said above (my bolds) other thanas precisely what it says?!

Get over it…and quit trying to change the subject: you mis-quoted Jay P. and simply won’t admit you made a mistake. Instead, you deflect.

As to post deletions, I have not deleted a post you have made in more than two years, and the posts I deleted back then were blatantly political in nature on a board that said “no politics”…and many featured personal attacks…just as you attacked me and called me a troll

Now, you can have the last word. :wink:

Cheers!
Murph

Assuming a record means a record high is your ASSumption it can very well be record low too. If you don’t understand the context, you don’t get into a conversation.

As far the rest, as a troll what is the surprise that you lie.

Kingran, when I hear the words “record unemployment”, that usually means record highs. Now, if your point was “record low unemployment”, why not simply say so…without the character assassination and personal attacks?

I apologize for not knowing what you meant; a simple explanation would have avoided all this vitriol.

Sigh…
Murph

1 Like

that usually means record highs.
Either that are you are too filled with “emotions” to think may be I am mis-interpreting it. Anyone who read the post holistically would have figured out. Make an attempt to understand rather than argue, I doubt you are capable of that. Again, if you want to believe you are the next incarnation of Jesus, nah, you are still a troll.

Again, if you want to believe you are the next incarnation of Jesus, nah, you are still a troll.

OK, Kingran!

I tried an olive branch and got more personal attacks.

Read what others have posted about you/your style on numerous boards…especially the BRK board…then look in the mirror and see if you see what you pretend to abhor. I and MANY others do.

It’s called psychological projection…and man, do you have a bad case of that!

Grow up! Ridiculous!
Murph
(not responding to any more Kingran crap on this thread)

2 Likes

I tried an olive branch and got more personal attacks.

You call this an olive branch? you are troll. That’s all you are. how about you stop following me, how about stopping character assassination. Stay away from me, is that difficult? You don’t like me then why the hell you keep responding to my posts? That’s troll. You don’t have any thing to discuss except attack me… because of your TMF status you get away with all the BS you post.

TMF has to look at their employees predatory behavior. You can stay away from me, that’s an option, try that.

Hey guys, walk away. Nothing good will come of more back-and-forth between you two on this thread.

Chuck

5 Likes

Arindam–

Look at some of the results from other lodging companies, admittedly in adjacent verticals (h/t Andrew Walker):

There’s probably nothing more discretionary than gambling, and particularly heading to Vegas to gamble (or a company sending people to Vegas for a “work conference”). I reviewed most of the gambling / casino companies calls over the past few weeks, and you’re certainly not seeing signs of slow downs there. For example,

MGM saw continued strength in April and is seeing no signs of the consumer slowing down or changing behavior; in fact, they noted pricing power on hotel pricing / food and everage.

PENN reported record Q1 results driven by strength “across all segments” (they also noted some of their properties are currently doing more in EBITDA per quarter than they did a few years ago). They were also asked a variety of ways if they were seeing the consumer weaken, and they basically said “no” every time (in fact, they called out that some of their lower end consumers were moving into “mid-core” level consumers).

CZR was basically the same; in fact, they noted January and February were weak (driven by Omnicom), and as that subsided the business started to explode higher (they called out particular strength in March that continued to accelerate in April)

You can do this exercise for a bunch of companies. EXPE is probably my favorite in this category; they didn’t just note strong demand; they noted “a recovery that seems too strong to be held down” and were super bullish on the summer outlook.
https://yetanothervalueblog.substack.com/p/weekend-thoughts-…

If I’ve quoted too much from Andrew, I apologize. But the point is that there’s robust demand in the sector, and the PEB preferreds are getting blown up for technical reasons, not because the underlying business is that bad.

Yeah, the Series H might be a better bet, if total upside is the objective, and you still get to enjoy the ~8% current yield.

Best,

Jim

2 Likes