American Hotel Income (HOT.UN.TO)

(A Top Pick Nov 12/15. Up 10.64%.) This was a “yield” pick, and it did what it was supposed to do. He still likes this as a yield pick in that it earns in US$ and pays in US$, even though it is a Canadian dollar company. You are benefiting from the US economy.

(A Top Pick Sept 11/15. Up 21.35%) A great portfolio of US hotels. Many of them are anchored by the rail industries through contracts. Trading at a very reasonable valuation.

Hotels. His small cap fund has a large percentage of dividend paying companies. The great thing with the small-cap spectrum is that, just as you can find unloved or uncovered companies that trade at very low PE relative to their growth rates, you can find companies whose base business allows them to generate enough cash to pay a dividend. Some of the growth is through acquisitions where they bought hotels and refurbished them. A lot of the revenue is guaranteed by rail companies. That has been weak because of a lack of coal demand and frac sand demand. Dividend yield of 7.84% at about a 70% payout ratio.

This has underperformed in the REIT sector, because management has been relatively aggressive in raising money. They’ve gone from starting the company, to a $450 million market cap. They buy railroad hotel properties in the US, and have long-term contracts on them. Dividend yield of 8.11%.

It has come under pressure for two fronts. Across the US there is quite a bit of new hotel product that is coming on stream over the next 12-24 months. But they are not competing in the same tier 1 cities as the new product so should not be affected by the new volume. Also, they have a lot of contracts with rail operators. Volumes for rails have dropped off considerably.

(A Top Pick April 22/15. Up 3.77%.) Hotels in the US. High yield of over 8%. To make the yield safer at the peak, they locked their distribution, putting it into US$’s, so now the payout is about 70%. About 40% of income comes from railroad contracts, so people are a little concerned that lower rail volumes will affect it. However, they do have guaranteed contracts.

He likes this a lot. All of their properties are in the US, and most of them are contracted with rail lines. They provide dark rooms for rail employees to sleep in. A very stable client base and very stable cash flows. Management did a really smart thing. When the Cdn$ fell below $.70, they allowed unit holders to get their dividends in either US or Cdn dollars.

The dividend does not appear to be covered. It is expensive on a price to book basis. However American accounting does not take into account real estate inflation values, like Canadian REITs. The balance sheet is strong enough that they can keep paying the dividend without hurting the company.

Gives you US$ income, so just on the currency alone it makes sense. Gives you exposure to the US Hotel market without paying up for it. Has come off its high levels, just because performance is not quite hitting the streets’ expectations. Half their performance is guaranteed already because they rent to railroads. With the other half, you are getting access to travelers’ hotels, airports, and limited service. He likes the sector. Feels it is still undervalued and the 8.65% dividend is very safe.

Hotels in the US. They have railway assets as well. Railway contracts add a stability to the hotel business that has not been there in the past. The stock has been flat over one year, but has a 9% yield. There have been new contracts in recent weeks that have de-risked this one. This is a growth company.

(Market Call Minute.) A really interesting business model. They lease out rooms to rail companies. Recently signed a contract with a rail company and this is one that you want to Hold.

The hotel industry in Canada is doing quite well, and in the US it is on fire, and these are all American hotels They have long-term contracts with railway companies. Not sexy hotels, but they are steady income. Have also been expanding into limited service hotels. It’s a growth story and has been growing aggressively. A very attractive yield of 9.02%.

Normally he is somewhat negative on hotels and that sector, but this is a good time for the hotel industry, particularly in the US. The numbers showing travelling has gone up significantly. He could see 2-3 years of reasonable growth in the US, and the hotels should do just fine.

Many hotels have guaranteed contracts from rail companies. They have some rooms with over 100% occupancy because of rail shifts. They are all in the US and their income is in US dollars, but dividends are all in Canadian dollars. The payout he thinks will go to 60% next year and will prompt a 10% dividend hike. 9% yield.

He likes this name. They just announced an equity deal to increase their rail holdings. All US hotels. Over 40% are anchored by the rail companies. He thinks they came to the market a little bit too much. 8.9% yield.