Sotherly Accommodations (SOHO) (~$108MM absolutely transformed market cap) is a lodging REIT with 10 lodge properties situated primarily within the southeastern a part of the US. The REIT is technically internally managed however every of the motels is below a administration settlement (keep in mind, lodging REITs cannot truly handle their motels’ operations) with a associated get together owned by the administration staff 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 popular Inventory may have the correct (until, as supplied in our constitution, now we have supplied or present discover of our election to train our particular optionally available redemption proper earlier than the related date) to transform some or all of their shares of most well-liked inventory into shares of our widespread inventory (or equal worth of different consideration). Upon such a conversion, holders shall be restricted to a most variety of shares equal to the share cap, topic to changes. Every holder of Collection B Most popular Inventory is entitled to obtain a most of 8.29187 shares of our widespread inventory per share of Collection B Most popular Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation choice of the Collection B Most popular Inventory. Every holders of Collection C Most popular Inventory is entitled to obtain a most of 8.50340 shares of our widespread inventory per share of Collection C Most popular Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation choice of the Collection C Most popular Inventory. Every holder of Collection D Most popular Inventory is entitled to obtain a most of seven.39645 shares of our widespread inventory per share of Collection D Most popular Inventory, which can outcome within the holder receiving worth that’s lower than the liquidation choice of the Collection D Most popular Inventory. As well as, these options of our Most popular Inventory could have the impact of inhibiting or discouraging a 3rd get together from making an acquisition proposal for our Firm or of delaying, deferring or stopping a change in command of our Firm below circumstances that in any other case might present the holders of shares of our widespread inventory and shares of our Most popular Inventory with the chance to comprehend a premium over the then present market worth or that stockholders could in any other case imagine is of their greatest 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 widespread after the merger (when you do not, you may get orphaned).
Discover to Holders of Most popular Inventory
With respect to every collection of the Firm Most popular 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 popular Discover”). The Most popular Discover will embrace sure particulars with respect to the Merger and specify a date (to be at least 20 days nor greater than 35 days after the date of the Most popular Discover) by which the holders of the Firm Most popular Inventory could elect to train a proper to transform some or all the Firm Most popular Inventory held by such holder into the correct to transform, topic to the phrases and circumstances contained within the Constitution, together with the share cap as outlined therein, into Firm Frequent Inventory and obtain the Per Firm Share Merger Consideration.
The widespread 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 danger of this not closing is fairly low (strong financing, fairly low-cost worth being paid too) given the illiquidity premium a micro cap arb scenario 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 doubtless 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 observe and never overlook, the patrons are incentivized to make changing your shares troublesome. However at a 30+% IRR, looks like a reasonably engaging threat/return to me.
Disclosure: I personal shares of SOHOB and SOHOO (simply which of them my purchase order stuffed, once more, does not actually matter which class you decide)