Hospitality: Rest Stops and REITs

07/29/2015 8:00 am EST

Focus: REITS

Khoa Nguyen

Investment Analyst, Investing Daily

Whether by planes, trains, or automobiles, last year Americans took roughly 1.7 billion leisure trips and 450 million business trips domestically, asserts Khoa Nguyen, editor of Global Income Edge.

This bodes well for Hospitality Properties Trust (HPT), a real estate investment trust that owns about 291 hotels and 184 rest stops across the United States, Canada, and Puerto Rico.

The REIT leases its properties to other companies through long-term agreements. Well-known brands like Carlson, Hyatt, Marriott, and Wyndham manage and operate the hotel properties, paying HPT a leasing fee.

HPT’s rest stops typically have parking spaces for 189 tractor-trailers, as well as cars, and have a full-service restaurant.

The company leases the rest stops to TravelCenters of America and its subsidiaries under the TravelCenters of America or Petro Shopping Centers brand names.

Although it’s a REIT, HPT operates as a net lease business because most of its hotels are managed under portfolio agreements that are secured by deposits or guarantees.

This arrangement means that cash flow is shielded if property managers can’t cover minimum rents. HPT also offers additional returns because it collects a percentage of property revenues over a threshold amount.

At the end of 2014, Hospitality Property’s weighted average term for all of its agreements was 15.3 years, giving it a great deal of stability.

With properties in 44 states, the REIT is geographically diversified so it should benefit from overall US economic growth.

With HPT, you won’t get high-flying price appreciation and dividend growth but rather an attractive, sustainable distribution that steadily grows. Hospitality Property Trust—yielding 7%—is a buy up to $38.

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