Analyst rates REIT “best buy” among consumer stocks

Analysts follow as many as 20 stocks, most of which are rated “buys”. Of those buys, an analyst has one or two special favorites seen as most suitable for new buying. On analyst Bob Sewell’s list of best consumer stocks is a hotel REIT with attractive yields.

American Hotel Income Properties REIT (TSX─HOT.UN), as its name makes all too clear, owns hotels in the U.S. — 61 to be exact. In fact, all its properties are in the U.S. But the company is headquartered in downtown Vancouver.

Well, so what? American Hotel’s Canadian base doesn’t appear to have stopped it from becoming a good investment.

Mr. Sewell, president and CEO of Bellwether Investments in Oakville, Ont., says that the current yield on American Hotel is good — indeed, at 8.3 per cent, it’s great.

Moreover, at 26 per cent, the REIT’s expected return for 2016 is also a big plus.  But the great yield and strong return are just one reason Mr. Sewell likes the company. He also likes its high occupancy rate.

Railways are this consumer stock’s biggest customer

And the occupancy rate is high. For example, American Hotel boasts a guaranteed occupancy rate of 75 per cent on the rooms it rents to railway crews. And supplying lodging for railway crews accounts for 62 per cent of the company’s business.

Moreover, as the U.S. economy continues to pick up, Americans will start travelling more. They’ll also likely take longer vacations.  And as they do, the REIT’s occupancy rate will probably rise.

In fact, for Mr. Sewell, American Hotel is a leveraged play on America’s economic recovery.  In addition, he notes, the company is likely to log growth in both cash flow and earnings, given its strategy of buying second-tier hotels at good capitalization rates.

And because the REIT receives all its revenue in U.S. dollars, it gets a lift when it converts the greenbacks to loonies.

Another American Hotel plus? Low volatility.  In fact, this consumer stock’s beta, a measure of volatility, is just 0.75 when compared to the TSX Composite Index.

For Mr. Sewell, American Hotel is a best buy — one with a 12-month price target of $12.70. He’s also pegging its funds from operations for 2015 at $1.14 a unit; for 2016, at $1.26 a unit.

Revenue rises, net loss narrows

For the three months ended March 31, American Hotel’s net loss narrowed to US$346,000 or 0.01 a unit, from $760,000, or a nickel a unit, for the similar period in 2014.

But revenue was higher, rising to US$29.5 million from $17.2 million, while expenses climbed to US$25 million from $14.2 million.

 

Investor’s Digest of Canada, MPL Communications Inc.
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