HTIA (REIT) prospects until rate cuts begin

Good morning, afternoon, evening.

I’ve been holding HTIA stock as an income play for 2-3 years, paying a healthy dividend all the way (>7%). It has always been quiet on the message boards as it is a small, thinly traded stock. Now, I find myself down 20% on the stock price, wondering how long HTIA can continue paying such dividends. The financial discussion doesn’t discuss such a ‘burn rate’ (not sure I would want to if I were CFO). There have been negative discussions regarding its common stock which seem to be related to inability to get out of the stock. The negativity appears independent of the current interest rate cycle, as the comments date back more than a year. Are there other places to go for information relating to how to understand what the next couple of years might hold for a high yielding preferred REIT stock?

HTIA IPO’d on 12/5/19, has a coupon rate of 7.375% and doesn’t appear to have any credit ratings. HTIA Search Results - Considering that other fixed rate preferred stocks issued at the same time (including one from the now failed First Republic Bank, issued 11/25/19) had coupons in the 4.7% - 5.25%, it appears that it was a junk preferred from the beginning, and if the price has dropped because of the increases in interest rates, it’s probably still a junk preferred. If you knew that going in, and were willing to take that risk, that’s okay. If you didn’t understand that, and bought HTIA because of the yield without understanding the risk, I would suggest that you might want to change your processes for picking stocks.

When research preferred stocks, I use a lot. (The link above is the page for HTIA from that site.)

If you are looking for analysis from others, can be an interesting source, although separating the wheat from the chaff on that site can be a challenge. I haven’t really looked at it, but here’s the most recent article on HTIA from Seeking Alpha Preferred Arbitrage With HTIA (NASDAQ:HTIA) | Seeking Alpha

And there’s always the financial filings for the common stock. Here’s part of the management discussion from the 2022 10-K that shares some concerns. (You can get to all of the filings by going to the investor relations part of the HTI website.)

The negative impact of the pandemic on our results of operations and cash flows has impacted and could continue to impact our ability to comply with covenants in our Credit Facility, and the amount available for future borrowings thereunder. For example, we would have been in default of a covenant contained in the Credit Facility requiring us to maintain a certain minimum fixed charge coverage ratio for the fiscal quarter ended June 30, 2022 of 1.50 to 1.00. As a result, we entered into the Fourth Amendment to our Credit Facility on August 11, 2022, in which the lenders agreed to reduce this covenant to permit us to avoid any Default or Event of Default. Specifically, this covenant was reduced to (a) 1.20 to 1.00 for the period commencing with the quarter ended June 30, 2022 through the quarter ending June 30, 2023, (b) 1.35 to 1.00 for the period commencing with the quarter ending September 30, 2023 through the quarter ending December 31, 2023 and (c) 1.45 to 1.00 for the period commencing with the quarter ending March 31, 2024 and continuing thereafter, among other changes (see Liquidity and Capital Resources section below and see Note 5 — Credit Facilities, Net to our consolidated financial statements included in this Annual Report on Form 10-K for additional information).

Prospectively, based upon our current expectations, we believe our operating results through June 30, 2023 will allow us to comply with these covenants. However, we believe our operating results may not be sufficient to comply with the increased Fixed Charge Coverage Ratio, which increases from 1.20:1.00 to 1.35:1.00 commencing with the quarter ending September 30, 2023 and thereafter. Absent a waiver or modification from the lender group, failure to comply with the Fixed Charge Coverage Ratio would constitute an Event of Default and the balance of the Credit Facility would be due and payable. We have obtained such waivers and modifications from the lender group in the past, but there can be no assurance that such a waiver or modification will be granted in future periods. Additionally, we are exploring long-term secured financing opportunities, utilizing some or all of our properties as collateral, the proceeds from which we believe will be sufficient to repay all amounts outstanding under the Credit Facility, which was $180.0 million as of December 31, 2022 ($200.0 million including the $20.0 million drawn subsequent to December 31, 2022, see Note 17 — Subsequent Events for details). There can be no assurance these opportunities will result in definitive agreements on favorable terms, or at all.



Thanks much for this AJ, especially the link. I’ve never been to the site, but it looks to be a great resource. I have been to seeking alpha. You’re right, I’m not sure what to think about the article, essentially discussing a trade between two preferreds from the same issuer for a point or so of yield. The discussion of the structuring of the portfolio in the Seeking Alpha article was useful to revisit, but your selection from the annual report, combined with the current (short and medium term) interest rate environment is a bit too uncertain for me. Earlier today I sold my position. I figure that the dividends I’ve received bring my losses from 20% to closer to 10%, which hurts a bit less.

Thanks again for the great discussion and resources…