American Assets Trust (AAT) is a real estate investment trust headquartered in San Diego. The trust ...
Diamondrock: Check in for Hospitality
03/21/2016 7:00 am EST
Our newest selection, a lodging REIT is not a home run stock. But its combination of value, growth, and yield make it a more than solid single, asserts Bret Jensen, editor of Small Cap Gems.
Diamondrock Hospitality (DRH) owns a portfolio of 29 premium hotels and resorts containing 10,900 rooms concentrated in key gateway cities and destination resorts in North America and the US Virgin Islands.
Most of its hotels are upscale Marriotts, Hiltons, and Westins as well as independently operating hotels like the Gwen & Lexington in large cities like New York, Chicago, and Boston.
The company has a fortress-like balance sheet; in fact, 18 of its properties are totally unencumbered by any debt. The company’s overall loan portfolio currently stands at 3.6 times EBITDA, very low compared to peers.
This provides a significant “margin of safety” on this portfolio even in the case of a significant domestic recession.
This also provides Diamondrock the financial flexibility to make strategic purchases when they become available. The company recently did so by picking up the Sheraton Suites in Key West.
The company issued conservative guidance of $1.04 to $1.09 a share in FFO in fiscal year 2016 after posting $1.01 a share in FFO in the just concluded fiscal year 2015.
The company has hiked its dividend payout by more than 50% over the past three years and still has a low payout ratio.
Diamondrock currently yields five and a quarter percent, which is outstanding in this low interest rate environment.
Combined with its capital appreciation potential, undervalued assets, lightly levered balance sheet, and large margin of safety, this makes Diamondrock Hospitality a compelling idea at current levels.
By Bret Jensen, Editor of Small Cap Gems
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