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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.

By Gordon Pape  | Monday, November 27, 2017


Q – On BNN recently, Eric Nuttall of Sprott mentioned a REIT, American Hotel Income Properties (TSX: HOT.UN). Could you have a look at it? The high yield is very appealing, perhaps too much so. – Robb H., Calgary

A – The yield of this Real Estate Investment Trust (REIT) certainly is attractive – 8.9% as of Nov. 27, based on a price of C$9.21 and a monthly payout of US$0.054 per unit. The cash flow is attractive, but the unit price is down significantly from its 52-week high of $11.14, reached briefly last winter.

Although it is based in Vancouver, the American Hotel Income Properties REIT invests in U.S. hotel properties in secondary markets. As of the end of the second quarter, it had 113 hotels in its portfolio, boosted by the recent acquisition of 18 Marriott and Hilton-branded hotels in markets along the Eastern Seaboard.

The REIT’s recent financial performance looks impressive. Third-quarter revenue more than doubled from the same period last year, to $90.3 million (the REIT reports in U.S. currency). Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 107% to $30 million, funds from operations (FFO) increased 93.0% to $19.3 million, while adjusted funds from operations (AFFO) rose 87.6% to $16.7 million. However, it should be noted that this apparently rapid growth was not organic but rather fuelled by the addition of new hotel properties.

A possible area of concern is the falloff in AFFO, which is a key measure of a REIT’s financial health and the basis for its payouts. In the third quarter, diluted AFFO per unit was unchanged from the year-ago quarter, at $0.21. The payout ratio improved during the third quarter, to 76.1%, compared with 82.5% in 2016. For the first nine months, the payout ratio was 84.0%, compared with 77.1% in 2016.

Net income for the nine months ended Sept. 30 was $5.7 million, compared with $5.9 million in the prior period. According to the company, this decline was a result of higher business acquisition costs and an impairment charge incurred during the second quarter. Diluted net income per unit came in at $0.09 compared with $0.16 in the same period last year.

“Our third quarter results reflect the impact of the 33 premium branded hotels we acquired in the last 12 months, which improved the geographic diversification of our properties and supported our overall RevPAR growth of 25.2%. Revenue and EBITDA more than doubled from the same quarter last year, while our payout ratio improved to 76%,” said Rob O’Neill, CEO, AHIP

Overall, this young REIT (it started trading in March 2013) looks attractive to aggressive investors at the current level. However, it has a history of volatility, and the high yield suggests that investors are somewhat leery about its prospects. – Gordon Pape

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at and on Facebook at

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.


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