No. of Recommendations: 13
LHO has done a pretty good job of keeping its debt leverage at a reasonable ratio, and I think its pfds are reasonable choices for those who want higher-than-average yields and YTFCs and are willing to accept the "hotel risk." The negative here, of course, is that hotel NOI and AFFOs are more volatile than in other sectors, due to the lack of long-term leases and often substantial operating leverage that's par for the course in hotel ownership.

LHO's debt leverage is just a tad above 40%, and its debt/ebitda ratio is 4.5x (better than most non-lodging REITs). By my informal calculations, and before giving effect to the pending redemption and new pfd issue, about 15% of LHO's AFFO is committed to the holders of its pfds, so there is a fair amount of room for AFFO slippage should the US economy get weaker.

I think the way to "play" the LHO pfds is to own some, but not get carried away with them. The LHOpH, which isn't callable until January 2016, has a YTFC (applying accrued dividends to adjust the current price) of 6.25%. That's not great, of course, but seems reasonable in relationship to Baa-rated bonds at the present time. The new LHOpI was priced at 6.375%.

It is interesting that the new GGPpA was priced at an identical yield. Between the two issues, you have less debt leverage and stronger debt/ebitda coverage at LHO, but a much less volatile property sector at GGP. Again, there's no free lunch!

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