InnVest Reit (INN.UN.TO) Buy, Sell or Hold

InnVest Reit (INN.UN.TO)

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TOP PICK

They are losing less than they were last time. They know what they are doing. Fairly high yield. A bit too much debt. For someone who wants to take some risk, the leverage in this one is strong.

BUY

About the only one in Canadian hotels that looks like a survivor. Cut their payouts twice way back. Should be able to continue making their fairly high distributions.

HOLD

(Market Call Minute) Wished he had held on longer.

WEAK BUY

Hotels. Charts are starting to look very good on this but it is on promise. They are almost certainly going to cut their distribution. If there is any recovery coming they will be fine but only after a distribution cut, which is built into the price of the stock. (He owns some convertibles.)

DON'T BUY

Smaller hotels don’t like recessions. He would buy the convertible, but you would probably be all right.

DON'T BUY

Yield of 24%. Expect the cash flow will continue to deteriorate. There are better places for your capital.

COMMENT

Limited service hotels, primarily in Ontario and Quebec. Hasn’t been a big fan of this one. Assets are a little older and they’ve had some operational issues with their Western assets. There are some strategic questions about what they are going to be going forward. Distribution is sustainable and it is definitely undervalued.

DON'T BUY

Limited service hotels. Recently did a transaction, which helped privatize Legacy REITs. Portfolio is in a state of flux. Not a core name for him. Go after the blue chips instead.

COMMENT

Largely limited hotels in secondary markets, more in Ontario and Quebec. Recently participated along with the Caisse and a US group, to take Legacy REIT (LGY.UN-T) private. The question is, are they going to focus on high rent properties, run a diversified portfolio and where are they headed strategically? Thinks it's worth more than what it is trading for, but you may want to diversify into another sector or another name. 10.9% yield.

DON'T BUY

One of the few remaining hotel focused trusts left in Canada. Upgraded their portfolio by acquiring some assets from the former Legacy Income Trust. Suffering from the headwind in the economy and the strong Cdn$. Tough to get too excited in the short term.

HOLD

(Market Call Minute.) There will be more cyclicality with the acquisition of Legacy, which increased their exposure to mid-level hotels.

COMMENT

One of the cheaper, larger hotel REITs. With the acquisition of Legacy (LGY.UN-T) they will own 11 hotels and will have about 26% of the acquisition. Expect all the hotel REITs will be taken out over the next couple of years.

DON'T BUY

Own about 180 lower tier hotel properties. They have tremendous ability to increase their accommodations rates. The problem is that capital expenditures to maintain the properties is very expensive. Also, the stronger Cdn$ is killing the US traveler.

BUY

Based in Ontario and Quebec. Great management team, but they don't do much with them. Their properties are starting to get old which is a slight concern, but otherwise has no problem with them.

COMMENT

Non-service hotels. Room occupancy is down, but room rates are up. Yield is relatively high. The sector has a lot of uncertainty in it.

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InnVest Reit (INN.UN.TO)