Hotel Property Investments

By Jason Fittler

HPI is an Income Stock Flying Under the Radar.

Perhaps they should be with the share price taking a tumble on listing and still trading below the $2.10 listing price.

HPI is a stapled security comprising the Company (Hotel Property Investments Limited) and the Trust (Hotel Property Investments Trust).

The Trust Company (RE Services) Limited is the responsible entity of the Trust.

HPI owns a Portfolio of 48 Properties. There are 41 Pubs, 7 detached bottle shops and other On-site Specialty Stores in the Portfolio.

The Properties are located throughout Queensland and South Australia and have been independently valued at $481.5m as at 1 October 2013.

The Portfolio is 100% occupied.

95% of the Portfolio, by income, is leased to the Coles Tenants. The remaining 5% of HPI’s rental income is derived from the Specialty Tenants leasing the On-site Specialty Stores.

Hotel Property Investments with a fair value estimate of AUD 2.60.

At current prices of about AUD 2.06, Hotel Property Investments trades at a 23% discount to our fair value estimate.

The fiscal 2015 distribution yield is 7.6%, or 7.9% after adjusting the share price for the second-half 2014 distribution of AUD 8.8 cents to be paid shortly (ex-dividend date is 26 June).

In addition to the attractive yield, distribution growth should be strong as rents are contracted to grow at about 4% per annum.

The downside to this company is the gearing levels currently at 45%, which is high and is expect to reduce as the value of the property goes up.

We also note that dividends are partly funds through increase lending.

The yield for this company is compelling but we consider it to be a higher risk company and therefore only for those investors who have the required risk profile.

For more information about Hotel Property Investments HPI please contact us on 07 4771 4577.