Investment Trust Insider on Hotel Income REIT – James Carthew: hotel income fund looks worth checking into
After booming in 2018, the investment companies new issue market has been much quieter this year. Nervous investors, looking over their shoulders at Brexit and slowing global growth, are sticking to tried-and-trusted names. That is frustrating if you want to launch a new fund on the stock market but I think there may be scope if you offer something that is differentiated. One that I came across recently is Hotel Income Reit.
As you might expect, this real estate investment trust (Reit) wants to buy a portfolio of hotels and pay investors a decent yield. The day-to-day running of the hotels will be outsourced; this is very much about the bricks and mortar.
The target is to raise £167 million from investors, a very specific number but it is what the managers think they need to buy a seed portfolio of five hotels worth £248 million (the balance will come from debt – target leverage is 35% of gross asset value and this is capped at 40%).
The hotels are held through corporate structures so there is no hefty stamp duty to pay on the initial purchase. The tenants are the hotel operators and they have taken out 25-year leases. The tenants are responsible for repairs and maintenance capital expenditure.
The target is to pay dividends of 1.25p per quarter starting from the second quarter after launch, so the yield steps up from 3.75% on the issue price in the first accounting year to 5% the year after that. Thereafter, thanks to a link between rents and inflation in the leases (25 years with uplifts based on rises in the retail prices index in a band of 0%-4%) the dividend should grow.
If the manager can add additional value through…. read more here