Sotherly Lodges (SOHO) (~$108MM totally transformed market cap) is a lodging REIT with 10 lodge properties positioned primarily within the southeastern a part of the USA. The REIT is technically internally managed however every of the motels is below a administration settlement (bear in mind, lodging REITs cannot truly handle their motels’ operations) with a associated celebration owned by the administration crew making a battle of curiosity. For that motive and others, SOHO has usually traded at a reduction to friends. Their motels:
Upon a change of management (as outlined in our constitution), holders of our Most well-liked Inventory can have the appropriate (except, as supplied in our constitution, we’ve supplied or present discover of our election to train our particular non-obligatory redemption proper earlier than the related date) to transform some or all of their shares of most well-liked inventory into shares of our frequent inventory (or equal worth of different consideration). Upon such a conversion, holders will likely be restricted to a most variety of shares equal to the share cap, topic to changes. Every holder of Collection B Most well-liked Inventory is entitled to obtain a most of 8.29187 shares of our frequent inventory per share of Collection B Most well-liked Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation desire of the Collection B Most well-liked Inventory. Every holders of Collection C Most well-liked Inventory is entitled to obtain a most of 8.50340 shares of our frequent inventory per share of Collection C Most well-liked Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation desire of the Collection C Most well-liked Inventory. Every holder of Collection D Most well-liked Inventory is entitled to obtain a most of seven.39645 shares of our frequent inventory per share of Collection D Most well-liked Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation desire of the Collection D Most well-liked Inventory. As well as, these options of our Most well-liked Inventory could have the impact of inhibiting or discouraging a 3rd celebration from making an acquisition proposal for our Firm or of delaying, deferring or stopping a change answerable for our Firm below circumstances that in any other case might present the holders of shares of our frequent inventory and shares of our Most well-liked Inventory with the chance to understand a premium over the then present market worth or that stockholders could in any other case imagine is of their finest pursuits.
There is a bit more work concerned right here, you may should name your brokerage agency and elect to transform your most well-liked shares to frequent after the merger (if you happen to do not, you may get orphaned).
Discover to Holders of Most well-liked Inventory
With respect to every sequence of the Firm Most well-liked Inventory, pursuant to the Constitution, the Firm will, inside 15 days after the closing of the Merger, present discover to the holders thereof that the closing of the Merger has occurred (the “Most well-liked Discover”). The Most well-liked Discover will embrace sure particulars with respect to the Merger and specify a date (to be a minimum of 20 days nor greater than 35 days after the date of the Most well-liked Discover) by which the holders of the Firm Most well-liked Inventory could elect to train a proper to transform some or all the Firm Most well-liked Inventory held by such holder into the appropriate to transform, topic to the phrases and circumstances contained within the Constitution, together with the share cap as outlined therein, into Firm Widespread Inventory and obtain the Per Firm Share Merger Consideration.
The frequent inventory trades at solely a 12% IRR unfold (assuming the deal closes 3/31, within the press launch they guided to a Q1 shut) indicating the chance of this not closing is fairly low (strong financing, fairly low cost worth being paid too) given the illiquidity premium a micro cap arb state of affairs deserves. The unfold on the popular shares is way wider (I am nonetheless utilizing a 3/31 shut date, if you wish to get extra precise, embrace a delay for the conversion to shut):
Why may this be? The preferreds are possible held by retail holders, they’re comparatively illiquid, there’s an additional step concerned and preferreds notoriously get screwed in offers like this one. Associated, the firm has deferred the beforehand introduced This fall most well-liked dividend and is suspending future most well-liked dividends, already creating friction. That is one you may want to watch and never neglect, the consumers are incentivized to make changing your shares tough. However at a 30+% IRR, looks like a fairly engaging danger/return to me.
Disclosure: I personal shares of SOHOB and SOHOO (simply which of them my purchase order crammed, once more, does not actually matter which class you choose)
