Park Hotels & Resorts proposed buy of Chesapeake Lodging Trust is the latest example in a long-awaited wave of hotel REIT M&A, but will how far will that trend go?
Let me just get this out of the way right at the beginning: This is not going to be a blog where I opine on all the theoretical pairings, all the possible buyers and sellers in the world of real estate investment trust mergers and acquisitions.
But it seems like the talk about how the hotel REIT sector needs to consolidate is more than talk now, right? RLJ-Felcor, Pebblebrook-LaSalle, and now Park-Chesapeake are either closed or signed deals, and it seems the chatter among the Wall Street Analyst types is more and more about what REITs are the best to theoretically be bought or sold.
Even before announcing their recent deal, Park Hotels & Resorts President and CEO Tom Baltimore Jr. wasn’t shy about saying he believes there needs to be fewer hotel REITs. It’s true that there are significantly more hotel REITs than some other real estate sectors, and probably because of that they are significantly smaller than those other sectors.
I feel like I’ve gone to enough industry conferences over the years and talked to enough people to know that Baltimore’s outlook is not particularly unique across the hotel industry. Executives with Ashford Hospitality Trust said something very similar during their public pursuit of Felcor Lodging Trust (before RLJ Lodging Trust swooped in and closed that deal).
But I’m always left wondering just how far would this wave take us? What’s the right number of hotel REITs in the U.S.?
By my count, there are just shy of 20 hotel REITs in the U.S., and Host Hotels & Resorts is easily the biggest of that group (although Park officials proudly tout their deal for Chesapeake will secure their place as the second biggest).
As I sit here and write this, Host’s market cap is just over $14 billion. Park is at $6.2 billion, and its merger target Chesapeake sits at just over $400 million. There are several REITs that hover in a $6 billion to $4 billion-ish range and a lot more that are worth less than that.
Using some really iffy math, if you mashed together all the existing hotel REITS in the country, you could cut that pie up into about five Host sized companies.
But the question then is: Is that what investors want? Is that something that would ultimately benefit the hotel industry in some meaningful way? Part of what makes the hotel REIT landscape work is the ability for each of those smaller companies to seize on to more unique strategies for asset investment, and the fact that Pebblebrook’s and LaSalle’s strategies were so similar (in part because of their shared history) is part of what made that deal so compelling.
So if we just smash it all together and divvy it out, are investors able to find an investment option that meets their interests?
I don’t have answers to these questions, but I’ll interested to see what the REIT landscape looks like a couple years from now if this trend continues.
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