Replies to post #69 on Condor Hospitality Trust Inc fka CDOR

[temp luvs amy]

Yes, the offering could look stupid as the price falls.

Let's hope for some patience from. I have plenty of my own. I am only nibbling before the smoke clears. I have lots of dry powder, but might not even use it if management acts stupid.

The preferreds have no stated maturity, so it's not as if they have to redeem them tomorrow.

[Olmsted]

vpagano

Well even at 50% of BV, a company can still issue shares and dilute common. So the 50% of BV one buys at can become 100% of new BV, just thinking about that as I saw this:

http://www.sec.gov/Archives/edgar/data/929545/000119312513354146/d566563ds11a.htm

Exactly. I looked at this over the weekend, fully expecting to find opportunity, after seeing the price drop. But the offering has me thinking otherwise.

50% of BV is irrelevant now. It is all about where the new shares price. The filing gave the expected range as between 6 and 7 - but who knows now that the price is tanking. This is reflexivity in action, and it sucks for any pre-offering holders. The more shares fall, the less they are worth as dilution cuts the new book value per share.

Did some back-of-the-envelope numbers. 2.893m shares outstanding today, and 16.7m new shares coming on line. If they price right in the middle of the previously-expected range, you get BVPS of about $8. So significantly less than a 50% discount. But it gets worse. If they price at $5.50, new BVPS=$7. If shares keep tanking and they price at $4, new BVPS=$5.78.

Unfortunately I do not see any stakeholders with an interest in defending the price. The biggest shareholder has signed up for 30% of the new offering, which will dwarf their current investment, and it is in their interest to get the new shares cheaply. I'm guessing management will get some nice incentives from growing the business from here on out. Those incentives will be more valuable the lower the secondary prices. While I haven't looked at their current options, etc. I would guess they are far enough out of the money not to matter.

Worse, to me, than the hit to your P/B ratio from this offering is the signal it sends. Based on the expected use of the new capital, it doesn't seem management cares about current shareholders. Will the company go under without the new capital? No. Will it create more value for current shareholders? Very doubtful at this price and dilution. $40m or so is going to buy some new hotels. Are the economics of those hotels so outstanding as to justify the dilution at this price? Highly doubt it. Management is basically hitting the reset button on the company with this offering. That's good for them. Perhaps good for anyone who buys in the secondary. Not good for current shareholders.

I'll be watching to see how this prices, but am inclined to stay away.