8/30/2008
Strategic Hotels and Resorts (Ticker for common shares: BEE)
Cumulative Redeemable Preferred Shares–Series B
$25.00 Issue Coupon 8 1/4%—Current Yield 12.89% Callable After 1/31/2011 at $25.00
AND
Cumulative Redeemable Preferred Shares–Series C
$25.00 Issue Coupon 8 1/4%—Current Yield 12.88% Callable After 5/17/2008 at $25.00
General Economic Assumptions
The general economic assumptions used in our decision to highlight these preferred issues at this time are as follows–
—–Economic weakness for the 3rd and 4th quarter of 2008, continuing through the 1st quarter. Improvement starting in the 2nd quarter of 2009.
—–Gasoline prices between $3.00 and $4.00 with corresponding oil prices of $100 to $140/barrel.
—–Unemployment rates ticking up only modestly (not more than 3/4% in aggregate) from present levels (5.7%).
Significant deviation from the above assumptions may result in more favorable/unfavorable results than those assumed. Original Offering Prospectus Series B Shares Original Offering Prospectus Series C Shares Earnings Press Release from August 7, 2008 Adblock
Investor Profile
—–This security is most appropriate for the very well diversified investor, looking for some capital gain on top of the dividends. We believe this security should compose no more 2% of a portfolio.
Target Investment Results
—-Our target for the next 12 months is a 10% capital appreciation on top of the current yield of 12.88% for a total of approximately 23%.
Investment Discussion
We have mentioned numerous times that we do not believe that it is time to buy the REIT's. Most of them have been well slaughtered in the markets already, but there is no use trying to be a hero and buying before we have a better handle on the economies direction. Additionally, most of the REIT's simply do not provide adequate reward for the risk to be taken.
STRATEGIC HOTELS AND RESORTS (Ticker: BEE) provides us an opportunity to invest in some preferred stocks that do provide adequate reward for the risk taken.
BEE is a REIT composed of very high end properties including the following brand names—Fairmont, Intercontinental, Westin, Ritz-Carlton, Four Seasons and others. After a recent sale of a property in Phoenix they have interests in 19 properties including properties in the U.S., France, Britain, Germany, Czech Republic and Mexico. Of course this gives them good global economic diversification.
BEE does show net income which is always our preference in a REIT (versus a REIT paying all their common dividends from FFO (depreciation)).
The company, in its recent earnings announcement showed that domestic revenue per room was off slightly while the international properties had significant growth over the prior year. We believe that the global diversification is a healthy position for this or any REIT.
The company understands that difficult times may be just ahead and has liquidated 1 property (Phoenix) and has instituted cost control measures to deal with the possibilities of a general economic slowdown in their marketplaces.
For the 3rd quarter the company has issued recent guidance with Revenue per Available Room (RevPar) slightly down to slightly up with stable earning and Funds From Operations.
For the full year (2008) the company is projecting Revenue per Available Room at -1/+1% with reasonable net income and FFO.
It is our belief that if our Economic Assumptions above are anywhere near correct that the Preferred Shares of BEE stand a great chance of a gain of at least 23% in the next year—and possibly even more. Our target investment results assume a gain in the shares of only 10% (from $16 to $17.60)–while a strengthening economy, resolution of the current credit issues and concurrent bolstering of consumer confidence could surely make the gains much higher. It should be noted that the shares traded above $20 as recent as June and near par in 2007.
Research Items Below
—-Prospectus's for Both B and C Series Shares —-Latest Earnings Announcement —-Latest SEC 10Q filing —-Interview with Laurence Geller - Strategic Hotels CEO
CAUTION–the preferred shares of BEE are thinly traded. LIMIT ORDERS are highly preferred.
This is not a recommendation to purchase any shares, but is meant to stimulate thought and further research.
The publishers are not investment advisors and all investments an individual makes should be weighed carefully for there suitability for investments goals.
All information published by The Yield Hunter is believed to be correct–but it can not be quaranteed. NOTE–PAGE LOADS SLOWLY Latest SEC Filing of 10Q for Quarter ending 6/30/2008 Recent Interview (8/18) with BEE CEO