Hospitality Properties Trust Enters 'Transition Period' With $232M Renovation Plans

Significant renovation efforts and post-hurricane uncertainty are imposing a short-term burden on Hospitality Properties Trust HPT before the retail REIT can see any significant ramp, according to D.A. Davidson. 

The Analyst

James O. Lykins of D.A. Davidson downgraded HPT from Buy to Neutral and lowered the REIT’s 12-month price target from $33 to $26.

The Thesis

HPT is set to undergo a "transition period," as costly renovation plans in 2018 will act as an overhang on the REIT’s short-term profitability, Lykins said in a Friday note. (See the analyst’s track record here.)

The company is planning $180 million in hotel renovations and roughly $52 million in travel center improvements, the analyst said.

In terms of the overall real estate environment, the company — which holds properties in Florida, Texas and Puerto Rico — will also face uncertainty related to hurricane relief efforts, said Lykins.

While renovation costs may weigh the company down in 2018, the planned projects will position HPT for a significant 2019 ramp, the analyst said.

“The impact [of the renovation projects] will be meaningful, and we anticipate high single-digit annual returns upon completion.”

Price Action

At the time of publication, shares of HPT were trading down 0.16 percent at $24.32.

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