One of the best motivations to seriously consider investing in the hotel REIT Chatham Lodging Trust is its quality properties. The property portfolio is oriented towards the West Coast, a region where the lodging industry is expected to show strength in 2017. Furthermore, the REIT serves a diversified mix of customers, but it has in business travelers its principal base. The positive news is that the share price has not rebounded entirely from last year’s selloff so it has upside.
In fact, Chatham’s stock has a 23% upside from its 52-week peak. The highest price was at $28.85, but fell to $16.12 in January and is currently around $22. Furthermore, the stock has not reached its full potential while trading at 9 times its AFFO projected for 2016. There is room for optimism.
The majority of Chatham hotels are made up of Marriott Residence Inn and Hilton Homewood suites (24 out of 38 locations). These locations are high end, long-term inns, which cater to business associates who require a longer time frame in an area to complete their work. The remaining are select hotels with leaner cost structure and better profit margins.
The positive sign is that half of the asset collection is concentrated on the West Coast—one of the largest concentrations amongst hotel REITs. Silicon Valley possesses the majority, but in LA, San Diego, and Seattle, there are also hotels. More vulnerable lodging areas, for instance New York, have minor share and this means that the portfolio should do well over the next year.
Even though the company should continue to grow internally, the main concern is whether or not this will take its share price to a higher level. Hotels in Texas, California, Massachusetts, and Silicon Valley are being upgraded according to information retrieved from the company. However, they have reported they are not pursuing new acquisitions, dispositions, debt or equity issuance.
Despite the uncertainty, investing in Chatham stocks can provide an instant benefit. Dividend yield is a meaty 6%, and because dividend is only 52% of FFO, distributions will most likely remain strong.
Source: Chatham Lodging Trust(NYSE:CLDT), Fast Graphs
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