Swapping Summit Hotel Preferreds To Harvest Tax Losses

Summit Hotel Properties (INN) preferreds E and F offer yield and tax-mitigation opportunities via strategic trading of mispriced, thinly traded issues. INN common stock surged 40% YTD, but INN.PR.E and INN.PR.F preferreds declined, presenting discounts to par and enhanced yields. Swapping INN.PR.E for INN.PR.F enables investors to harvest tax losses, maintain high yield, and increase upside to par value. Active, patient trading of REIT preferreds can improve after-tax returns by exploiting pricing anomalies and market inefficiencies.

Our experience makes us believe that markets for thinly traded preferred equities repeatedly present attractive mispricing relative to fixed income alternatives and even relative to their preferred peers. In perceiving that preferred issues from the same company are fungible (supported by underwriting/due diligence), we maintain a constant vigilance for pricing anomalies that will allow us to trade for improved yield, improved upside to par value, or, ideally, bo...