Ho tel REIT s to benefit from fragmented North American market

American Hotel Income Properties REIT LP is a better investment than InnVest REIT at the moment, says Brad Sturges, analyst at Industrial Alliance Securities, but both real estate investment trusts are expected to benefit from North America’s highly fragmented hotel property market.

“The North American lodging industry is highly fragmented with publicly traded hotel owners and operators representing less than 6% of total rooms,” he said.

“Over time, this fragmentation may present InnVest and AHIP with opportunities to complete accretive hotel property acquisitions at wide going-in acquisition spreads over the cost of secured debt financing.”

Sturges this week initiated coverage of both stocks, rating AHIP a buy with a $12 price target, representing potential upside of 12 per cent, while InnVest is a hold with a $6 price target, representing an expected return of eight per cent.

His buy rating for AHIP is partly based on the REIT’s relatively greater exposure to the U.S. hotel market, which is expected to outperform the Canadian hotel market in 2015.

“We believe InnVest and AHIP are well-positioned to benefit from forecasted continued improvements in North American hotel property demand fundamentals combined with anticipated limited new supply over the next 12 months,” Sturges said.

“All else being equal, given the potential operating outperformance of US hotels relative to Canadian hotels forecasted in 2015 by various lodging industry experts, we currently prefer Canadianlisted real estate investment trusts (REITs) with US hotel property market exposure.”