Opinions
Andrew Pyle
American Hotel Income
HOT.UN-T
BUY
Nov 15, 2018
REITs aren't doing bad now. We're getting close to the end of the cycle rate-tightening as bond yields have risen alot. on This REIT comes down to your view on interest rates--he thinks we'll come to the end of this in 6-12 months when the cycle turns. REITs like this have decent valuations. However, the bears say that the bond market will correct for another two years.
$7.450
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DON'T BUY
A huge dividend is not a good thing. The market is telling us something – the dividend is too high. They may be capitalizing too much of their maintenance expenditures. The CAP-X is about 6% of net operating income. It should be 20-25%, which is closer to what they are actually spending. They don’t have to cut their dividend, but at this point in the cycle and with more sensitivity in the cycle, they should be more conservative with their capital.
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DON'T BUY
This REIT has had so many problems. They owned a lot of railway depot hotels, where engineers would take rest. These contracts have been lost and they own in secondary markets. They have over distributed and missed earnings on several occasions. They are now having to invest to keep these assets maintained. This is still a work in progress stock. He does not think the 12% yield will be sustainable. Stay away.
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DON'T BUY
He once owned this, selling it before Covid fortunately. The reason was that the 9% dividend could not be sustainable. Indeed, the dividend was cut during Covid. He wouldn't buy it back. Their hotels remain largely empty. He isn't a flipper or trader. Perhaps you can make a trade her if the US economy rapidly reopens and travel revives. There are better ways to play the reopening. Doesn't know when their dividend will return.
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DON'T BUY
They own U.S. hotels, a high-risk, high-reward stock. He's bearish on hotels, which is struggling with labour costs and keeping labour. HOT.UN has done a good job restoring vacancies, in the low-70s, though their peak was in the 80s. However, they've made up the balance on their hotel rates. Their balance sheet is slightly higher, so he would avoid. There are better hotel names.
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