STIFEL: HPT ($30.39, Buy) - Adjusting Estimates For Bond Redemption

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Hospitality Properties Trust: $HPT – NASDAQ

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Adjusting Estimates For Bond Redemption
Redeeming 2017 Bonds. Hospitality Properties Trust announced that the company will redeem its 5.625% Senior Notes due 2017 that mature in March 2017. The notes are the company's only 2017 maturity.
 
Recently Raised Equity. Last week the company priced 12.65 million shares of equity at $30.75 for net proceeds of $372.6 million.

Adjusting Estimates. We are adjusting our 2016E normalized FFO to $3.68 (from $3.66), to $3.94 (from $3.93), and our 2018E normalized to $4.10 (from $4.09). Our original estimates assumed the bonds would be repaid in March 2017.

Above Dividend Yield In The Sector. HPT's annual dividend of $2.04 per share represents a current yield of 6.7%. We wouldn’t be surprised to see the company continue to raise its dividend going forward.

Balance Sheet. Net debt+preferred-to-EV is 40.8% and net debt-to-2017E EBITDA is 3.8x.


Valuation. Shares trade at 9.9x adjusted 2017E EBITDA of $830 million. Our $31.50 NAV estimate assumes a 9.5x multiple on the truck stops forward lease payments coupled with a 10.5x multiple on the lodging forward EBITDA.


Target Price Methodology/Risks
Our target price of $34 reflects a 10.4x multiple on our 2018E EBITDA of $851 million.


Risks to Target Price:

Lodging generally follows economic cycles, and a sustained economic downturn could negatively impact the sector’s profitability.