American Hotel Income (HOT.UN.TO)

They owned hotels in smaller US markets along railroad lines. When margins got squeezed they diversified and focused on business travelers. It is cheap and the dividend looks safe. Buying on US GDP growth. Yield 8%.

This was a focused railroad hotel. They did a new contract with the rails, which allows them to resell 20% of unused accommodation to the general public. They focus on suburbia USA. The railway business is less important now, being only 30% versus the 60% it used to be. The stock has been under pressure, and he wouldn’t be surprised to see better numbers coming out. It is interesting and he is looking at it.

(A Top Pick Aug 30/16. Down 9%.) Hotels that railway employees used to use. They’ve been expanding in the past couple of years into branded hotels, which have been doing fairly well up until the last quarter, where they have been renovating a larger than normal number of rooms. This has a 9% yield.

They were always known as the railroad hotel as they had contracts with railroad providers. That is now only about 20% of the REIT. They focus on secondary markets in the US and have brands including Marriott, Hilton and Holiday Inn. They came in with numbers that were light. Margin compression was happening at the rail side of the business. There were also some timing issues with regards to a couple of the new hotels. This is a play on US GDP growth. With the US$ where it is, this is probably not a bad time to have US assets. He would like to see another quarter numbers. About 78% payout ratio which is normal. Distribution of almost 9%.

Tied to the railroad industry, mid-west US. They made some non-rail acquisitions. They had a mini-stumble. This is not a bad entry point below $10.

It is a smaller cap REIT. The payout is high. Most of the earnings are US$ translated back to CAD$, which just appreciated over the last three months. The market is pricing this depreciation in the yield into the stock. He is not expecting a dividend cut, but it is a possibility. AIR B&B’s have not shaken up this industry yet, but they could. He prefers BPY.UN-T.

He is looking at it now. Assets are almost all in the US. Until a couple of weeks ago their properties were rail hotels. They are very specialized rooms and restaurants. Rail workers can have mandated rests. They spent about $400 Million US in the North East to buy Marriot and Hilton hotel locations in lower population areas. They wanted to diversify because of softness in the rail business. They are in the US where the US is growing. It is cheap because they issued equity to make the acquisitions.

This recently took a hit, because they did an issuance. Issued some shares to repay some debt. They’ve done a pretty good job. Thinks the payout ratio is fine. Hotels are a more cyclical area, so you have to be careful. Trading at a good multiple and has good distribution.

Most, if not all of their assets, are in the US. They have 2 kinds of businesses. One focuses on hotels/motels for rail employees. The second is the named hotels/motels throughout the US that are mid-tier. Very good operators. They are trying to expand and increase their franchise hotels. This is in a good spot. They don’t have too much debt and are growing. Thinks they trade a little more than what the sector does, so wait for a better entry point.

He owns this for 2 reasons. It began as a hotel for railroads. 1. It has some nice growth potential as they roll up smaller hotels in and across the US. 2. He likes its real estate outside of Canada, so you get exposure of the real estate sector, without having assets tied up in Canada. If the Cdn$ goes down, he has an asset that appreciates in value.

About an 8% yield and he believes the dividend is safe. They initially had big exposure to railways. They have diversified. It is a bit of a growth by acquisition company. If you are patient with this they should ultimately be able to grow. It is a well balanced portfolio.

An interesting REIT. Most properties are situated in the US. 2/3rds of the hotels service railways. Railway workers have to have specific rest periods. A large part of their business is focused on exactly that. It is an extremely stable business. The only issue is that it is sensitive to railway traffic. Last year has been generally really good. It is safe and he likes it. It is too small cap for him.

Tricon Capital Group (TCN-T) or American Hotel Income (HOT.UN-T)? He likes Tricon, but it is not really an income play, it is a growth play.

They are concentrated in the more Southern States. They pay a pretty high yield. The payout ratio is about 2/3 rds to ¾ ths of their cash flow. They got some contracts to house rail crews originally. The cap rate was very high back then. They are a well run company and have a lot of cash to spend on acquisitions. It gives Canadian exposure to US assets. An 8.2% yield that is safe.

It only IPOed in the last few years. The vast majority of the business came from rail road industry at the time. They have since diversified and done a good job of it. He still thinks it is a niche. He would prefer HR.UN-T but hold if you own HOT.UN-T then hang on to it.