Could Hersha Hospitality Trust Pay A Special Dividend?

Canaccord Genuity said Hersha Hospitality Trust HT could pay a special dividend of as much as $0.20 a share and should see upside in the long term.

The company has about $130 million in acquisitions left to execute this year to fulfill the 1031 exchange opportunities from the recent Manhattan portfolio sale to Cindat.

In addition to that level of targeted acquisitions, the brokerage noted the company has another 9 hotels worth $225 million–$250 million on the market for sale currently, which could generate another $100 million in capital gains if 1031 exchange acquisitions are not identified.

"[W]e would not be surprised to see HT have excess capital gains by year-end that result in a special dividend, which could be as much $0.20 per share. We would expect that to be a short-term positive for the stock," analyst Ryan Meliker wrote in a note.

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However, Meliker maintains his Hold rating on the stock citing lack of near-term catalysts.

"[T]rading at a 27 percent discount to NAV, we believe investors have a unique opportunity to buy HT at a substantial discount, but near-term catalysts for the stock are somewhat limited and until sentiment toward the group turns, it's hard to see near-term outperformance," Meliker said.

Meliker added that the company feels confident that RevPAR growth will pick up in third quarter and fourth quarter, as convention calendar's in Hersha's markets improve materially.

"We think 2Q operational softness is already built into the stock, but upside from 3Q and 4Q does not seem to be, offering upside to buy-side expectations if it materializes," Meliker highlighted.

For 2016, the analyst expects recurring FFO of $2.55 a share and EBITDA of $177.3 million.

At the time of writing, shares of Hersha Hospitality were down 2.13 percent on the day at $17.46. Meliker has a price target of $21.