I exited my position in Sotherly a while ago and haven’t looked back. Since then, the preferred has dropped another $5/share. Based on financials the business just keeps struggling. With corporate and government travel continuing to be down and continuing to trend that way, I don’t see a near-term recovery story. The recent mortgage default at their Atlanta property is a big red flag, it signals cash flow stress. Now they’re selling off the parking garage tied to that same hotel to raise liquidity, which feels more like financial triage than a turnaround plan. Is their plan just to keep selling off bits of the company to manage their debt? That will keep lenders happy but doesn't enrich the common or preferred shareholder.
The common is down to 84 cents/share, now out of compliance with Nasdaq’s minimum bid requirement. Sure, a reverse stock split can fix that, but companies who take the RSS route are usually those who just keep tanking. What’s more telling is that insiders aren’t buying even at these bargain basement price. If management won’t put their own money in, given their insights, it seems to be telling a story that doesn't seem to have a happy ending.
On the preferred side, that 18% yield on SOHOB looks tempting, but to me it screams risk. The company is still paying its preferred dividends (which honestly is a surprise given their cash flow struggle), but yields don’t spike that high without the market pricing in serious concerns. If cash flow gets tighter, the preferreds are at risk too for another suspension of the dividend.
Bottom line: maybe management finds a way to stabilize things, but as they say the trend is your friend and this trend has been ugly. The 18% yield is screaming something loud a clear, the market is pricing in significant risk. I'll watch another quarter or two to see how earnings trend. Good luck. |
