InnVest Reit (INN.UN.TO)

Orange Capital purchased over 10% and attempted to implement some changes with regards to internalizing asset management down the road, as well as finding a new CEO and changing the terms of the property management agreement. These are all positive things. With ownership of hotels, this has historically been more volatile when it comes to cash flow compared to other REITs. Had to cut the distribution a couple of times. Believes the current distribution is sustainable as long as the fundamentals in the lodging sector hold up. Before purchasing, he would like to see execution in many of the things that have come out with respect to the strategic plan. Thinks the yield is sustainable.

In the past, when the Cdn$ was weak, it benefited our tourist industry. It has to be seen how long it will take for people to come back. This is really the only investable hotel name in Canada, so if you believe recreational and business spending is going to go up, this is the only name to buy. However, they do have a debt problem, but thinks they will make it through but it is going to take a long time.

(Market Call Minute.) Not a fan of lodging REITs. This one has had a lot of difficulty in the last few years.

One has to be careful around REITs that are high yielding. It is for a reason and you have to be wary of that. Look for Net Operating Income growth. This is a good REIT and doing a decent job of trying to fix up their portfolio, selling non-core assets and deploying capital into their core properties. Be careful if you are conservative because it is a call on lodging and management executing their strategy. Payout ratio is over 100%. He doesn’t see growth opportunities. Prefers RMM.UN-T

Perfect storm. Lodging. You had to avoid this thing. Tourism has been low. Not defensive. They always have to refurbish. Trades cheap. This could be a good entry point but the passport rule is still limiting tourism.

Market has been a little bit concerned that the balance sheet is stretched. Underperformed the national averages last year. However, the company has responded since January. Shoring up their balance sheet by selling non-core hotels. Industry is forecasting “revenue per room” growth nationally of 3.7%. If that comes true, that should benefit them. Stock is very cheap at these levels. He estimates their compound growth rate at 20% over the next 2 years. Very high dividend of 8% looks pretty safe. If you believe the Canadian economy is going to pick up and that they can execute on the national average, it would be a good name to be buying right now.

9.3% yield. A chronic underperformer because it is in a lower end hotel space. Has not participated in the REIT rally. Historically cut its distribution because of cash flow and it is still not a great business because you have to continually reinvest in your asset. 82% payout ratio means distribution is sustainable.

(A Top Pick Nov 30/11. Up 13.92%.) Sold his holdings above $5. Disappointed in that it did not do what he thought it would do. Margins expanded only 0.3% in 2012 where he was looking for 1.5%. If they can expand their margins 23.7% in 2013, it’s a good stock. If you own, consider Selling.

Lodging REIT. Pretty attractive yield. You need to see an improvement in revenue per available room, driven by economy. You have not seen that uptick as much as you would have thought since 2009. A higher risk name. They just cut distribution so it is safe. Thinks as time goes on there is potential to increase it again.