Why the Hotel Properties Investment Share Price Has Jumped

What happened to the Hotel Properties Investment share price?

From a low of $2.42 in late February, the share price of Hotel Properties Investments [ASX:HPI] has rocketed nearly 23% over the last three months, recently trading at $2.97 — an all-time high.

Especially happy will be those that got in on HPI’s float at $2.10, just two-and-a-half years ago. Not only have their shares risen by 50%, they’ve picked up another 34 cents per share in dividends along the way. Add those in, and the total return is nudging 60%. That’s a nice little return from a small cap REIT.

Why did HPI do this?

With interest rates at record lows, and the interest rate yield curve as flat as you’ll see, some of the money that would normally be invested in bonds has found its way into the REIT market.

With high quality tenants in Coles, and now Woolworths, HPI’s portfolio of 41 pubs in Queensland are secured on long term deals. Add in particularly favourable annual rental increases (3.9% last year) as part of the agreements, and you’ll see why HPI was able to increase its interim dividend in February by 13.9%.

What now for HPI?

With gearing at 42%, HPI is somewhat limited in financing any new major acquisitions, unless it does so via a capital raising. What it will do, though, is continue to turn over properties to achieve the best return on its capital.

Even after the run up in the share price, HPI is trading on a yield of 6.1%. However, being a small cap, investors need to consider the risks. Any change (however unlikely) in Queensland liquor laws could have a big impact on the share price.

Matt Hibbard,
Money Morning

Money Morning Australia