Stockchase Opinions

Andrew Moffs American Hotel Income HOT.UN-T DON'T BUY Nov 04, 2019

It is operating in a very difficult space and he is short in that space. These leases reset every night. Revenue per available room at best is going be flat over the next year. They have too much debt and don’t cover their distribution.
$6.710

Stock price when the opinion was issued

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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.
COMMENT
A steady downtrend since 2017, but there are places to hang your hat. Now, it's in a seasonal time, going up or sideways at worst in the summer.
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.
SELL
This would be a sell for him. He is not into the hotel space. It comes down to how well you operate these assets. He is not a fan of the operations or management. Railway hotels that are now being sold at losses. Not a good investment. Avoid.
DON'T BUY
He does not think their distribution level is sustainable. They don’t have the right dividend coverage or distribution level.
SELL
It is a difficult stock to own in this environment. The pandemic has shut them. He believes the distribution has been suspended. They have impaired cash flow and higher level.
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.
DON'T BUY
Hotels are typically the first sector to go down in a downturn and the first to come out. Today there is zero visibility, however. He would move on from this one.
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.