Not Tempted by Hospital Properties Trust's Reinstated Dividend

Hospitality Properties Trust (HPT) is a real estate investment trust (REIT). REITs were once a solid spot for dividend investors to park some cash and collect steady payouts. REITs normally offer solid yields and some good tax benefits to shareholders, but the financial crisis of 2008 changed the REIT landscape and those changes may have a lasting impact. Yields on REIT stocks doubled throughout 2008 as the stocks came tumbling down due to high leverage and poor loan quality at so many REITs. This transformed the sector from a dividend paradise to a dividend wasteland.

Dozens of REITs cut or eliminated their dividends to conserve cash. Others started paying their dividends in stock. That was little compensation as those stock dividends “rewarded” investors with shares in a company that the market had significantly beaten down.

Here we are at the end of 2009 and the market rally has lifted many REIT stocks, but there are still plenty of concerns regarding the sector. The commercial real estate market remains tepid at best and is probably best characterized as downright bad. We continue to remain apprehensive regarding the sector and its dividends and think there are better income opportunities in many other sectors.

That's why we're not preparing to throw a party over the fact that Hospitality Properties Trust (NYSE: HPT) may reinstate its quarterly payout. Hospitality Properties, which owns 289 hotels in the U.S., Canada and Puerto Rico along with 185 highway travel centers, suspended its dividend in April due to a suffocating debt load. At the time, Hospitality Properties was yielding over 16%.

One analyst expects the REIT to reinstate an annual dividend of $1.50 to $2 a share. Dividend reinstatements are a positive sign to be sure, but with so many black clouds still hanging over REITs, we believe better dividend opportunities lie elsewhere.

Comments

[malach hamovess]

the HPT preferred shares yield between 9.2 and 9.5 percent. The dividends are relatively well covered by cash flow.

There is room for some cap gain - 20 -25 percent if the common recovers enough to build a bigger implied floor under the preferred.

2009 Nov 26 05:02 PM

[Old Trader]

" Yields on REIT stocks doubled throughout 2008 as the stocks came tumbling down due to high leverage and poor loan quality at so many REITs."

The author seems to have lumped operating REITs and mortgage REITs into the same basket, which throws doubt on the whole article.

2009 Nov 27 04:31 AM

[toomuchgas]

HPT's debt load was never overwhelming as some of the other hotel Reits. It was more the fear of losing their bank credit lines as well as the poor performance of the Travel Centers which clearly was a dumb investment.

2009 Nov 27 11:56 AM