Medicine Hat Real Estate
Royal Host REIT accommodates income investors - Real Estate Investment Trust The fragmented Canadian hotel industry creates opportunities for consolidation
We are introducing coverage of Royal Host Real Estate Investment Trust (TSE: RYL.UN; Recent price: $6.85) with a buy rating for income-oriented investors for the following reasons.
* Since its initial public offering, the trust has doubled the size of its hotel portfolio and has increased monthly cash distributions per unit by more than 65%.
* Based on recent unit prices the trust is forecast to have an annualized income yield greater than 17%.
* Approximately 60% of cash distributions to unit holders in 1999 will be exempt from income tax.
Royal Host Real Estate
Investment Trust
Recent price $6.85
Distribution/yield 17.5%
Units outstanding 18.83 million
Market capitalization $129.0 million
52-week range $6.35 - $11.05
12 month target $8.00 - $8.50
* With more than 25 year's experience, the REITS managers have a proven ability to acquire existing properties below replacement cost and successfully reposition them.
The Royal Host REIT is a closedend investment trust established to provide unitholders with cash distributions based on revenue generated by providing travel accommodations.
The trust currently owns and manages 36 hotels throughout Canada. It also manages and/or holds an interest in another nine hotel properties.
By acquiring new hotel properties and developing current ones, Royal Host plans to add value by increasing cash distributions and by long-term capital appreciation of its hotel assets.
The Hotel Portfolio
Name/Franchise Location Rooms
Venture Inn Timmins, ON 74
Venture Inn North Bay, ON 76
Venture Inn Sudbury, ON 85
Venture Inn Thunder Bay, ON 93
Venture Inn Burlington, ON 122
Venture Inn Barrie, ON 130
Venture Inn Toronto, ON 283
Travelodge Medicine Hat, AB 129
Travelodge Red Deer, AB 136
Travelodge Lethbridge, AB 105
Travelodge Chatham, ON 103
Travelodge London, ON 125
Travelodge Fort Nelson, BC 68
Travelodge Timmins, ON 90
Country Inn Saskatoon, SK 77
Country Inn Regina, SK 77
Country Inn Winnipeg, MB 77
Country Inn Saint John, NB 60
Country Inn Moncton, NB 77
Country Inn Dartmouth, NS 77
Country Inn New Glasgow, NS 66
Super 8 Red Deer, AB 74
Super 8 Brooks, AB 60
Super 8 Lethbridge, AB 91
Super 8 North Battleford, SK 39
Super 8 Regina, SK 60
Palace Holiday Inn Edmonton, AB 137
Holiday Inn Oakville Oakville, ON 145
Yellowknife Inn Yellowknife, NWT 130
Grand Okanagan Res. Kelowna, BC 175
Airlane Hotel Thunder Bay, ON 154
Chimo Hotel Ottawa, ON 258
Howard Johnson North York, ON 380
Royal Host London London, ON 322
Sundial Inn Orillia, ON 91
Talisman Hotel Ottawa, ON 225
TOTAL 4,471
Investment risks
Fundamentally, units in Royal Host are subject to risk from three areas: industry risk, operating risk, and market risk.
Industry risk includes those factors that can affect the demand for or supply of travel accommodations. A key operating risk is the trust's ability to identify suitable acquisition targets.
Because units of Royal Host are an income-oriented investment, they compete with other income products including, bonds, mortgages and debentures. Changes in the level of interest rates could make competing investments relatively more or less attractive, which will affect the market price of the units.
Drawing on its 25 years of experience, the management of Royal Host has successfully identified and implemented an acquisition and development strategy capable of providing investors with superior income yields. Further, as the hotel industry in Canada matures, investors should benefit from capital appreciation of the underlying hotel assets. Supported by favourable supply and demand dynamics, the outlook for both the industry and the trust is positive.
Accordingly, we recommend the trust units of Royal Host REIT as a buy for income investors seeking to participate in high yield cash distributions with potential for capital growth in future years.
COPYRIGHT 1999 Money Digest
COPYRIGHT 2004 Gale Group
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