Executives with hotel real estate investment trusts shared their insights on the environment for acquiring and disposing of assets during recent earnings calls.
REPORT FROM THE U.S.—As the lodging cycle grows ever longer, the outlook for trading assets grows ever more complicated, leading to some company-specific opinions on whether or not it’s a good time to be active in the market.
During the recent first-quarter earnings calls with investors, officials with the hotel-specific real estate investment trusts were regularly asked how they felt about the current environment.
Here’s what REIT executives had to say about their outlook on buying and selling:
James Risoleo, president and CEO, Host Hotels & Resorts
“As we think about continuing to prune the portfolio, we will be opportunistic in taking assets to market, responding to unsolicited offers, where we feel that we can achieve a value that's in excess of our internal hold value. We continue to be very disciplined with respect to our underwriting for new investment opportunities, as well as for assets we might want to sell by looking at the near term, (revenue per available room) performance of an asset in a particular market, the capital needs and what we think is a fair and reasonable residual cap rate.”
John Murray, president and CEO, Hospitality Properties Trust
“We're trying to be more conservative and we're trying to be mindful of our leverage levels and mindful of the amount of renovations that we're doing. So, I think there are a couple of hundred million dollars that we'll invest in hotels in 2019. It will be more than a lot of RIETs will invest in acquisitions in a year. I think with the acquisitions we've done so far coupled with our hotel renovations, we'll probably will be happy with that for this year. Although I do expect that we'll make additional acquisitions between now and the end of the year.”
Douglas Kessler, president and CEO, Ashford Hospitality Trust
“I'd say that overall for the industry we're seeing a decent flow of single assets. In fact the data, which showed that volume was up about 1.5% for single assets, but there are lot fewer portfolios out there in the market over the same time a quarter ago.”
Justin Knight, president and CEO, Apple Hospitality REIT
“We actually are continually looking at the entirety of our portfolio and looking for opportunities to monetize or to realize value through sale transactions. … Because the market continues to appear to be relatively strong, at least relative to the past several years in terms of transaction volume, we're optimistic that we will continue to find opportunities to prune from our portfolio and to replace with assets that we think based on our total portfolio have greater value.”
Marcel Verbaas, chairman and CEO, Xenia Hotels & Resorts
“We certainly have a pipeline of potential acquisitions we are constantly underwriting and reviewing. I wouldn't say it's a very extensive and deep pipeline today, but I'd made this comment before. We necessarily didn't feel the same way 12 months ago or 24 months ago, either. So we're hopeful we'll find interesting acquisition opportunities, but we're also very happy with what we have done over the last few years and where we have positioned our portfolio with the assets that we own today.”
Mark Brugger, president and CEO, Diamondrock Hospitality
“We’re fans of (mergers-and-acquisitions) activity within the space. We’re a fan of people making statements about valuation. We believe that activity within the space adds interest. In some ways, having one less similar-sized peer out there is probably advantageous to us. And frankly, if someone has a higher multiple, it adds value for shareholders. We think that that’s the right thing to do. And people should be active on that front.”
Dan Hansen, chairman, president and CEO, Summit Hotel Properties
“We do a fair amount of underwriting, and continue to do so. … It is a challenging to say the least, and it shouldn't surprise investors. … We feel good about again about the (leverage) range that we've outlined. But I wouldn't say there's a definitive number where we're going to be aggressive. It’s very much underwritten as opportunities based on extra capacities and how we see them adding value.”
Jeffrey Fisher, chairman of the board, president and CEO, Chatham Lodging Trust
“I think the (bid-ask) spread is wide. So I’m not going to stand up on kind of a soapbox or whatever and beat my chest and say we’re selling a bunch of hotels. But there were a few out in (Western, Pennsylvania) that I think we’ll get done and sort of get rid of those problems so to speak. But I think on an opportunistic basis, we’ll continue to look for deals that will allow us to recycle capital in an accretive way. But the gap is wide right now.”
Richard Stockton, president and CEO, Braemar Hotels & Resorts
“We're essentially at our leverage target, so if we were to make an acquisition, it would have to be extraordinarily compelling just using your cash on the balance sheet. That's really not our intention based on what we're seeing out there. The acquisition market continues to be very competitive. We don't see a lot of opportunities where outsized returns are available. So as we look at our capital allocation, we will say the debt markets continue to be very strong, very inexpensive.”