Hospitality Properties Trust [NYSE:HPT] Jan. 18, 2007 close: $30.99
Yield = 9.94% 52-week range: $29.50 - $49.00
HPT is a real estate investment trust [REIT] that owns 292 hotels and 185 travel centers in 44 states around the USA, Puerto Rico and Canada. Managed brands include Marriott, and Intercontinental Hotels Group. As a REIT, virtually all the profits are distributed to shareholders each year [through quarterly payouts] making for a very generous yield [9.94%] at today's price.
Since coming public in 1995 the company has always been profitable even during times of turmoil, such as post-September 11, 2001 when travel was severely curtailed. The leases that HPT operates have consistently generated positive cash flow as they are not directly tied to the operating profitability of the hotel operations. As such, dividend payments have increased in 11 of the past 12 years. The current quarterly distribution is now $0.77 /share.
FFO [Funds from Operations] is often the best gauge of health for REITs. FFO for 2007 is estimated to have been $4.60/share and Value Line looks for $4.75 for 2008. The 9.94% yield is well covered and expected to rise again over the next few years.
Since 1995 these shares have normally traded at a premium to book value. The premium has been as high as 69% [in 2004] and as low as (-16%) [in 2000] with an average price/book value of 124% over the full 12-year period these shares have been public.
In the current stock market environment HPT is available at just 98% of BV.
The only years prior to right now that HPT traded at a discount to BV were 1999 and 2000. The shares bottomed at $17.90 [in late 1999] before rallying strongly to $36.80 over the next 34 months. Not coincidently, 1999-2000 was also a time when the yield on HPT was in the 10% or higher range.
A return to a normalized 124% of year-end 2007's BV leads to a target price of $39.18 or + 26.4% above today's close. Value Line assumes a rise in year-end 2008 book value to $35.50. That could easily support a $44 goal price 12 months out.
Are these projected prices reasonable? HPT shares touched $42.40, $47.30, $46.30, $51.50 and $49 at their peaks in 2003 - 2007 respectively.
FFO, Annual Distributions and Book Value are all higher now than they were when those much higher share prices were being paid by the public.
Risk? With the share price now depressed by the general market sell-off, these shares are trading well below the lows in the four years 2003 - 2007. The 9.94% yield figures to put a nice floor under the share price as well.
Value Line rates HPT's stock price stability at the 90th percentile and gives them an 80th percentile earnings predictability score. Their financial strength rating is a decent B+.
Barclays Global Investors and Capital Research and Management owned 6.8% and 6.2% of these shares as of the March 2007 proxy statement. Guru David Dreman is a holder as well.
With 25 - 50% upside on top of the huge dividend, I see Hospitality Properties as a good, conservative play in a volatile market.
Disclosure: I bought HPT shares earlier today.
Yield = 9.94% 52-week range: $29.50 - $49.00
HPT is a real estate investment trust [REIT] that owns 292 hotels and 185 travel centers in 44 states around the USA, Puerto Rico and Canada. Managed brands include Marriott, and Intercontinental Hotels Group. As a REIT, virtually all the profits are distributed to shareholders each year [through quarterly payouts] making for a very generous yield [9.94%] at today's price.
Since coming public in 1995 the company has always been profitable even during times of turmoil, such as post-September 11, 2001 when travel was severely curtailed. The leases that HPT operates have consistently generated positive cash flow as they are not directly tied to the operating profitability of the hotel operations. As such, dividend payments have increased in 11 of the past 12 years. The current quarterly distribution is now $0.77 /share.
FFO [Funds from Operations] is often the best gauge of health for REITs. FFO for 2007 is estimated to have been $4.60/share and Value Line looks for $4.75 for 2008. The 9.94% yield is well covered and expected to rise again over the next few years.
Since 1995 these shares have normally traded at a premium to book value. The premium has been as high as 69% [in 2004] and as low as (-16%) [in 2000] with an average price/book value of 124% over the full 12-year period these shares have been public.
In the current stock market environment HPT is available at just 98% of BV.
The only years prior to right now that HPT traded at a discount to BV were 1999 and 2000. The shares bottomed at $17.90 [in late 1999] before rallying strongly to $36.80 over the next 34 months. Not coincidently, 1999-2000 was also a time when the yield on HPT was in the 10% or higher range.
A return to a normalized 124% of year-end 2007's BV leads to a target price of $39.18 or + 26.4% above today's close. Value Line assumes a rise in year-end 2008 book value to $35.50. That could easily support a $44 goal price 12 months out.
Are these projected prices reasonable? HPT shares touched $42.40, $47.30, $46.30, $51.50 and $49 at their peaks in 2003 - 2007 respectively.
FFO, Annual Distributions and Book Value are all higher now than they were when those much higher share prices were being paid by the public.
Risk? With the share price now depressed by the general market sell-off, these shares are trading well below the lows in the four years 2003 - 2007. The 9.94% yield figures to put a nice floor under the share price as well.
Value Line rates HPT's stock price stability at the 90th percentile and gives them an 80th percentile earnings predictability score. Their financial strength rating is a decent B+.
Barclays Global Investors and Capital Research and Management owned 6.8% and 6.2% of these shares as of the March 2007 proxy statement. Guru David Dreman is a holder as well.
With 25 - 50% upside on top of the huge dividend, I see Hospitality Properties as a good, conservative play in a volatile market.
Disclosure: I bought HPT shares earlier today.
