Supertel was dropping in sympathy with all of the REITS and the general economic turmoil which took the stock down to around $3.60. This was where you would hope that the company would step in, and as a value play, buy some stock but there wasn't enough room on the line of credit with the dividend coming up and property sales, although in the works, not yet completed. With the stock market continuing to fall, one of the large stockholders was being squeezed and word got out that he might have to sell some Supertel. Since the likely big buyers are insiders, who are and continue to be locked down by pending news (quarterly earnings) the stock was driven down to $2.30 much like it was driven down earlier this year when an equity fund tried to get out. Finally a block of 275,000 shares traded at $1.90 and we are starting the long climb back up.
When the company releases third quarter earnings that are better than last year's the stock should trade at $3.60 minimum (14% yield). If it can sell a few of the properties that it has offers on or if it is willing and able to borrow some money buying the stock at these levels is hugely accretive. In the mean time the stock is trading at $2.65 with what looks to be a secure $.51 dividend (19.25%), better than treasury bills.
I would love it if Slce was more positive but his comments balance my internal optimism and make me think. If SPPR doesn't get its line of credit renewed it has big problems but I don't see any reason to believe it won't be able to. The fact that it is continuing to pay a dividend would certainly imply that the board is not feeling any pressure from Great Western to not pay a dividend to roll its line. As far as the suggestion of not paying a dividend to accumulate cash I think that would remove all price support from the stock. I still think that SPPR is a fundementally sound company that had stock in some weak hands in an awful market. Once the selling stopped you saw how the stock bounce on very little volume. I'm still hoping the company sells some properties and buys a bunch of its stock. Weren't about half of the shares issued at $5.70 just two years ago and used to purchase properties. One thing Schulte is good at is valuing properties so I think that the underlying value is still there. This is a great buying opportunity both for individuals and for the company itself. I read about a large motel selling two weeks ago in my local newspaper so it can be done.
Recognizing that it’s utterly a matter of personal tolerance, I don’t find your remarks insufferable, slcehamrick.
I lurk on this board to gain insight from others' perspectives, and (apart from my own) can’t cite a single entry from anyone as being entirely devoid of merit.
What is your estimate of the new rate on the debt post-rollover? What will the cash flow covenants be? Management has watched the stock drop from $10 to Happy Meal without (as far as I can tell) doing a whole heckuva lot to develop a cash conservation plan. Why do you think the stock has been hit much harder than the REIT index? Will you hold if the dividend is eliminated? These are the questions I am wrestling with. I come to this board because sometimes you can get some useful facts or opinions.
Take a look at this link. It suggests answers to some of the questions above and generally outlines what I am thinking about.
I am long at $6. I am thinking about averaging down but it would violate one of my cardinals rules of investing.
Thanks for being so "cordial" but frankly you offer very little insight into the roll over of debt. All you have is your own speculation. All anyone knows is what management issued on 11/3 which reads as follows:
"Management communicates regularly with our lenders, and we are currently in negotiations to renew on what we believe will be reasonable terms on the $34 million debt facility which matures in February 2009. We expect to conclude that transaction within the next several weeks. We also expect to retire, renew or replace all of the other mortgage and credit facilities which mature in 2009."
If you don't trust management's comments from three weeks ago, maybe it is time for you to sell your SPPR and move on. But instead it is post after post from you. Give it a rest, no one on this board really needs your help.
I think the longs are much better off trusting management's comments than yours....you know...the same management types that have been buying the stock recently.
So why don't YOU offer some facts other than "if it's raining outside I assume I am going to get wet" (now that is insightful, what a joke!). You have no idea how negotiations are going with regard to this debt, so until you have some useful information......go away!!!
I was glad to get the bump, too. If we get a rally through Christmas maybe we could see $2.50 or $3.00.
Availability I am not worried about (although maybe I should be). I do mezzanine finance part time and I see rates 300-400 basis points higher. That would mean an extra $2 million per year in cash interest on the debt rolling this year.
If that's the way it plays out I think the dividend will be cut but not eliminated and the stock can trade up to maybe $2.50 or so next year.
All supposition of course.
I am less concerned about the rate than the availability. There are stories everywhere about banks just wanting there money back. I would think that SPPR would be a desirable credit, but who knows. Rates will go up and perhaps a tighter borrowing base will be required. Nice to see a bump up today though.
Since you have it figured out, what will be the new rate on the $60 million in debt that needs to be rolled over pretty much immediately? Do you have any facts to support your opinions?
I disagree. There is no question whether SPPR is a buy. It is a spectacular buy at $1.37. Will it remain a buy? No doubt. But will it remain in the $1.37 range I don't think so. It all depends on what dividend the company decides to pay.
This company is sound. Has it made mistakes? You bet. It used its operating line of credit to make acquisitions and then had to issue the preferred stock last summer to cover the short fall.
If Supertel announces that its dividend is unchanged the stock price will go back to $3.60 as fast as it fell. It went from $2 to $1 in a week on no news. It will go back up just as quickly.
Certainly would agree that no one knows whether this is a good buy.
I believe there will be hundreds of bargains to be had---sometime in the next 6 months, but keeping powder dry while awaiting all these wash outs is the best strategy.
SuperTel common and preferred are on my watch list---but ther is no rush to buy since we first have to see them through the next few quarters as they may or may not survive.
Neither you know I know whether this is a "tremendous buying opportunity". This company has a huge debt load that must be rolled in a difficult environment. If they end up paying junk bond or leveraged loan prices -- neither you nor I know if they will -- the price the common is trading at today is about right.