Executives with real estate investment trusts on third-quarter earnings calls discussed transactions that took place in the quarter and their appetite for acquisitions going forward.
REPORT FROM THE U.S.—Some transaction activity occurred during the third quarter despite the pandemic, and officials with real estate investment trusts are starting to think about acquisition opportunities going forward.
Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“We get a lot of calls from potential buyers about lots of different assets within our portfolio, and (EVP and Chief Investment Officer) Tom Fisher and his team spend a lot of time both making sure that anybody who calls that they’re real, that they’re qualified, they have the financial wherewithal to do this, particularly in the case of situations—there’s not a lot of new debt financing available, and so transactions in many cases will need to be driven by either all or an awful lot of equity in order for the buyer to be real.
“And so, like we did with Union Station, where the buyer’s legit, we’re happy to talk to everybody, anybody who is legit about properties in our portfolio. If there is an attractive price, then we’ll move forward with a sale and we’ll reallocate that capital to places where we can get better returns.
“I think in terms of where likely the market has seen the least decline, it would be in our resort portfolio … not surprisingly. And some of the sort of get away markets, like a San Diego, where those markets not only hold up better, but again, live off of something that’s likely not going to go away, like great weather, and the amenity base that’s in the market.
“So that’s sort of the best I can tell you right now. A lot of valuation decisions are going to be subject to more specific properties in many cases than they are the particular markets within our portfolio.”
Leslie Hale, president and CEO, RLJ Lodging Trust
“With respect to external growth, we expect to be in a position to deploy growth capital as recovery takes hold, and we are already exploring investment structures that will allow us to be active. Our history of successfully raising capital as a private equity firm, deep industry relationships, proven ability to source attractive off-market deals and our disciplined and thoughtful approach to unlocking value in each transaction will enable us to pursue external growth.”
James Risoleo, president and CEO, Host Hotels & Resorts
“We would be very open to exploring club deals and JVs off-balance sheet format if it made sense to us. We're in a unique position where under our existing credit facility waiver agreement, we can acquire up to $1.5 billion of hotels that have existing liquidity subject to maintaining $500 million of liquidity in the company. And as we discussed, we expect, assuming that the fourth-quarter trends mirror the third-quarter trends and we're very pleased with how October has played out, that will have $2.4 billion to $2.5 billion of available liquidity at the end of this year, taking us into next year.”
“…Come the first half of next year, as forbearance periods weigh, start to expire and as owners who are in the unfortunate position where they don't have the liquidity, or they choose to not fund debt service payments and other expenses, we expect to see a significant number of properties come to market.”
Jonathan P. Stanner, EVP, CFO and treasurer, Summit Hotel Properties
“There's certainly an appetite from both us and our JV partners to at some point in time take advantage of what we think are going to be some pretty attractive acquisition opportunities. We obviously have some constraints today from our balance sheet in our bank waivers that will need to be worked through, but we do expect, one, there to be a pretty deep set of opportunities, and two, a fairly long window to execute those on.
“Today, I think that we're certainly watching everything that's happened in the transaction market. There hasn't been a lot of trades. We do expect those opportunities to become more meaningful as we get into next year and beyond.”
Justin Knight, president and CEO, Apple Hospitality REIT
“In the near term, we're beginning to see an increase in transactions and assets coming to market that would be – the most likely scenario for us in the near term is that those would be funded – new acquisitions would be funded with proceeds from dispositions. And then as our share price continues to recover, we see a more consistent trend line in terms of occupancy and rates growth. We would begin next to utilize the strength of our balance sheet.
“At some point, hopefully, we’ll have an opportunity to issue equity. I think we would only do that at a point in time when we were assured that we could – we’re priced appropriately such that we could pursue assets in ways that would benefit our current shareholders. But following the past trends, we think there will be a window of opportunities in 2021 and possibly into 2022 to potentially grow the size of our portfolio. … We have a tremendous amount of experience doing that over two decades and through a very large number of transactions, (both) individual asset and portfolio transactions.”
Ashish Parikh, CFO, Hersha Hospitality Trust
“As highlighted in our earnings release, (we now) have five assets under contract for sale. We remain in constant contact with suppliers of the four assets that we announced earlier this year and we recently granted the buyer of the Dwayne Street hotel an extension before in the first quarter of 2021 and this resulted in our receipt of an additional deposit of 500,000 for the transaction. As none of the buyers need material financing, we remain confident these transactions will close in a timely fashion next year.
“…We went under contract for sale for the Sheraton Wilmington in Delaware for $19.5 million and we've received a material hard deposit from the buyer. We anticipate this sale will close before the end of 2020.
“The proceeds from these five transactions will be utilized to pay down our debt and we plan to utilize any additional proceeds received from any of the five assets we currently have on the market for debt pay down and for additional working capital to bolster our liquidity.”
Marcel Verbaas, chairman and CEO, Xenia Hotels & Resorts
“After the three transactions that were announced in the early part of the year did not close, we were able to collect a total of approximately $29 million in nonrefundable deposits as we have previously disclosed. After these transactions did not close as anticipated, we thoroughly analyzed our portfolio for opportunities to gain additional balance sheet flexibility and liquidity through the potential disposition of assets. Our collection of high-quality, desirable assets has proven to be an efficient source of liquidity as we've been able to negotiate a number of dispositions at attractive pricing, particularly given the current operating environment. We previously announced two of these dispositions, which were both completed in October, and we recently entered into agreements to sell two additional hotels. We believe that these transactions, coupled with our recent senior notes offerings, are the most logical and cost-effective path for capital raising at the moment.”
Jeff Fisher, chairman of the board, CEO and president, Chatham Lodging Trust
“I want to talk about a significant and recent development, and that's the pending sale of our 192-room Residence Inn in Mission Valley in San Diego to the San Diego Housing Commission for $67 million or almost $350,000 per room. Not only does this transaction make sense from a financial perspective, after all, the price equates to a very attractive 6.5% cap rate on 2019 results which certainly is far from a distressed price. The transaction adds meaningful liquidity and allows us to pay off a CMBS loan that was set to mature in a couple of years. So this liquidity significantly strengthens our balance sheet during these uncertain times and provides added flexibility to potentially reinvest these proceeds into distressed acquisitions down the road. It's a home run deal for us and for the city of San Diego.”
Richard Stockton, CEO and president, Braemar Hotels & Resorts
In response to an analyst question about Braemar’s appetite for acquisitions and growing the portfolio: “We are starting to think about it, and I am tracking all the transactions that we're seeing, which I know you know is very few and there are some interesting trends. There are some hotels that are trading at significant discounts on a per key basis than what you would have seen a year ago and in some cases, even more than the kind of 25%. I think people generally believe that values are down.
“And so that speaks to our interest. We're not seeing it for properties in the luxury segment. And I don't know if that's a function of it maybe just being too early, (but) the circumstances haven't risen yet. We are seeing it in the lower rate of chain scales. As far as Braemar's appetite is concerned, right now, we are cash flow negative and preserving our liquidity is a paramount importance. You won't see us using our cash opportunistically until we get at least back to cash flow positive on a corporate level. Our view is we just don't know when that is going to happen precisely. There's too many factors that make that an unknown.
“We have to be solidly in the black on a corporate level, on a monthly cash flow level before we would ever consider a new acquisition. That's how we think about new acquisitions. For the moment, we're studying the market. We're aware of what's out there and how things are trading. But we're not bidding on anything, that's for sure.”
Daniel Swanstrom, CFO, CorePoint Lodging
“We continue to believe there is compelling strategic rationale for our non-core disposition program and narrowing our focus to a go-forward core portfolio of 105 hotels focused on our higher quality and growth potential assets that are primarily located in top 50 MSAs.
“During the third quarter, we closed on the sale of 20 hotels for total gross proceeds of approximately $97 million. Subsequent to quarter-end, we have closed on the sale of one additional hotel for total gross proceeds of approximately $7 million. These transactions were completed at attractive valuations, an average 2019 revenue multiple of approximately 2.6 times, 2019 hotel adjusted EBITDAre multiple of approximately 18 times and about $41,000 on a price per key basis. We also have an additional 22 hotels under contract with qualified buyers that are expected to generate total gross proceeds of approximately $110 million.”
Todd Hargreaves, VP and chief investment officer, Service Properties Trust
“We originally targeted 53 hotels for sale, but in addition to the four Wyndhams that have been transitioned to Sonesta, we have not been able to come to acceptable terms on nine Marriott-branded hotels and one Wyndham full-service hotel. The management of the nine Marriott hotels will be transitioned to Sonesta on 15 December 2020. The Wyndham remains available for sale.
“Relative to the discount of sale transaction to full-service urban hotels that have recently occurred in the market, pricing for the hotels that were under contract to sell is at or near pre-pandemic levels. Generally, we found the extended stay hotels remarketed for sale have maintained their values as a result a strong buyer demand from investors interested in continuing to operate the properties of hotels as well as from groups that would convert to multifamily.”
J. Robison Hays, president and CEO, Ashford Hospitality Trust
“We are fortunate to be in a position where we think we have a decent amount of equity in the portfolio, even at price for the equity, value and then as we recover. And to the extent that we want to be able to maximize value to shareholders over time and we want to obviously retain as many of those assets that have equity value in them as possible.
“And so that's a tension that exists. We obviously are focused on what are the best ways to raise capital whether that's publicly or privately and there are efforts underway on that front to see what are sizable amounts of capital that we could raise to be able to give the company enough liquidity to make it through all this. And so those efforts are underway.”
Thomas Baltimore Jr., president and CEO, Park Hotels & Resorts
“We remain focused on continuing to selectively sell non-core assets with net proceeds expected to be used to pay down debt. While the bid-ask spread remains wide, there is a significant amount of capital on the sidelines, and we anticipate a more active transaction market once the path to recovery is more apparent.”
“We are in active discussions on asset sales. As we've said on the previous call, we thought the COVID discount was too wide it was 30% to 40%. There's a tremendous amount of capital that's sitting on the sidelines, less debt capital available right now. But we do believe that that COVID discount is going to narrow. And we are cautiously optimistic that you will see asset sales from us in the coming months.”