How AHIP REIT Became North America’s No. 1 Rail Hotel Player

Vancouver-based American Hotel Income Properties was the continent’s best-performing hotel REIT in 2015, with 16% returns. CEO Rob O’Neill says that's proof the trust's portfolio of railway and branded hotels is a winning combo.

Being North America’s top hotel REIT is akin to being a “short man in a room of very short men,” jokes Rob. But AHIP—with 80 hotels in 27 states, a blend of Oak Tree Inns catering to the railway industry (45) and select-service Marriott, Hilton and Holiday Inn brands (35), plus 27 Penny’s Diners—saw growth in 2015 while most of its rivals were down. Rob, an industry vet, founded Coast Hotels with his dad and then launched Canada Hotel Income Properties, the nation’s first hotel REIT, with his brother, John. He notes AHIP has delivered returns of 33% since its 2013 IPO.

Hungry for scale, AHIP's been active on acquisitions, particularly US rail hotels, a segment Rob's firm dominates “by a factor of three.” At the end of 2015, the trust acquired dedicated rail hotels in Fort Scott, KS, and Lincoln, NE. Both come with multi-year rail crew lodging contracts with a major rail company, guaranteeing most guest rooms. In other cases AHIP is buying high-occupancy hotels and motels and retrofitting them to conform to railway-worker safety standards: blackout curtains and sound insulation, 24-hour food options and railyard bus transfers.

Rob says expanding existing high-occupancy hotels is a low-risk way for AHIP to grow its rail-hotel portfolio while selling additional rooms to rail customers and the regular guests it’s been having to turn away. AHIP last month announced the 24-room expansion of the Oak Tree Inn in Hearne, TX (with a 98% rail crew room guarantee). It’s the third such expansion project AHIP has underway, and Rob says the plan is to launch several more by year’s end. “We see moderately paced growth” on the rail-hotel side, he says, with at least three acquisitions a year.

Then there's branded hotels, a segment where AHIP's created a “pretty formidable business” in three years: 35 select-service Hilton, Marriott and Holiday Inn hotels across the US. This is the REIT’s “second leg,” giving it scale, scope and balance, says Rob, who’s worked in branded hotels his whole career. After Coast Hotels (sold to Okabe Corp in 1988) and CHIP (taken over by bcIMC), he was a partner with Intrawest in Whistler Lodging Co (the resort is seen below) and is a partner in O’Neill Hotels & Resorts (run by his brother, John), ONE Hospitality Group and subsidiary SunOne Developments.

Rob predicts AHIP is “perfectly placed” to thrive in a US hotel industry poised for considerable growth. It’s been a slow start to 2016 for the firm, but he anticipates deal activity accelerating in the second half. Meantime, AHIP is benefiting from a lower loonie. “When I invested the IPO money we were at par,” says Rob, and now payout ratios are locked in at about 70%. This gives his trust a “nice safety margin" and more money to invest in redevelopment and acquisitions at a time when hotel capital is scarce. “So we’re cautious but quite optimistic about what’s in front of us.”