I think h_man_investor's walk down of implied value is a legitimate scenario. I also agree that the issuance of new pref shares from Whitehall's seller financing is a possibility, but ARC would be very motivated to pay off this seller financing as quickly as possible since it would be dilutive to their dividend thresholds(they need to distribute dividends of ~6.5% versus the coupon on the pref in one of the SEC filings which is something like 7.5% - they will want to take this out as quickly as possible with cheaper equity dollars). My scenario analysis and implied share value is as follows (assuming a roll-forward to 09/30/14):
Scenario A - deal with ARC falls through. You can nibble around the edges on price, but the PSA that has been entered into at $1.925 billion has established that there is equity beyond the debt and preferred equity liabilities on all 126 hotel assets. That said, all of the accumulated dividends must be brought current for Whitehall to receive any equity distributions, therefore I set a floor value at the accrued dividend amount, or ~$15/share.
Scenario B - h_man_investor's scorched earth scenario. The 20 hotel pool serves as collateral for the Trust Preferred debt liability and only proceeds that flow to the Company (3% of Senior Mezz LLC and 100% of the 20 hotel Pool) are used to pay off accumulated dividends and release the dividend blocker resulting from the suspended dividends. Value ~$22/share.
Scenario C - Same as Scenario B only now accounting for roughly $10 million of operating cash on-hand and repayment of the ~$46 million of net proceeds from asset sales that were 100% owned by the Company and were voluntarily utilized to paydown the prior GE senior debt proceeds - this is super relevant because the Company is now only receiving 3% of the benefit from that (which would have otherwise flowed 100% to the Company). Value ~$32/share.
Scenario D - The Trust Preferred, Preferred B & C, and Accumulated preferred dividends are treated as ENTITY LEVEL liabilities and are therefore serviced with total pro rata net proceeds prior to equity distributions upstream. So yes, WNT Holdings does now own 97% of Senior Mezz LLC, but Senior Mezz LLC is encumbered by mortgage, mezzanine, and preferred equity liabilities and those liabilities need to be serviced before any common equity distributions can be made. Value is par plus accrued or ~$40/share.
