After spending 2016 on the sidelines, lodging REITs seem to be heading toward an active 2017.
In 2016, ask any analyst where the hotel industry’s real estate investment trusts were and the answers were almost universally “on the sidelines.”
With their stock prices down and the much-discussed bid-ask gap widening, hotel REITs were squarely entrenched as benchwarmers.
If the hotel industry was the Golden State Warriors, they were JaVale McGee. They were technically there, but they didn’t matter. As an aside, I wish this analogy extended even further because I would’ve loved to see a feud between Shaq and Ashford’s Monty Bennett.
But if the first couple of months are any indication, the REITs are back in the game.
REIT activity through the first couple of months includes:
- an apparent uptick in acquisitions following a post-election stock rebound;
- at least one new player in the space with Hilton’s spinoff of Park Hotels & Resorts; and
- Ashford Hospitality Trust’s bid to purchase FelCor Lodging Trust.
On top of all of that, there are reasons to believe activity will continue or even grow.
Analysts believe REIT acquisitions could take off significantly if stock prices improve just a bit more, giving them the leeway and capital to really chase growth. Ashford Hospitality Prime just announced a pair of deals Thursday, and Hospitality Properties Trust discussed three acquisitions as part of their most recent earnings call.
It’s probably safe to assume that following the post-election stock boom, REITs will feel more compelled to justify their value to investors in order to keep growing their share prices. Some of that will be dividend driven, but they’ll also be eager to show they’re growing, so REITs will be incentivized to be active buyers.
There could be even more real estate spins going forward, as La Quinta Holdings has already announced plans to separate its brand from its owned assets. Even if there aren’t any new REITs in the near future, it’s a safe bet Park will be active on the market as the company seeks to diversify its portfolio and move a bit away from owning only Hilton-branded properties.
And there’s a relatively high likelihood that Ashford Trust’s bid for FelCor could turn hostile as the former company has already announced it is pursuing that option and FelCor officials have indicated they’re lukewarm at best to the current proposal.
If it’s too much to say the REITs will be the Steph Curry of the hotel industry in 2017, they’ve at least achieved Draymond Green status. But let’s hope they play it a bit cleaner than Green would.
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