I am surprised at the financial markets sudden pessimism at the beginning of 2016 after the markets ended 2015 on a positive note. The interest rate hike made the domestic economy more predictable, but concerns overseas have amplified losses in the S&P 500 and equity REITs. Suddenly I started to give Janet Yellen credit for being concerned about China.
In 2016, lodging and timber REIT stocks could be potential casualties. Two weeks into 2016, lodging is down by 17% and timber is down by 14%; this is already half the losses both sectors experienced in all of 2015. In 2015, infrastructure fell by 32%, lodging by 29%, and timber by 17%.
Lodging REIT stocks have had great growth rates, but now is not a good time to own these stocks. First, market sentiment is negative towards lodging due to their performance. Investors have assumed that they are at its peak and ready to go downhill. Investors have been so sensitive that every piece of bad news associated with lodging makes them dump the stocks.
In addition, market sentiment is negative towards REITs in general due to the interest rate hike. Whenever the Fed raises the yield on 10-year treasury notes, they become more competitive against REIT dividend yields. 10-year treasury notes are risk free which gives them a clear advantage over owning REITs.
In a statement last week, LaSalle Hotel Properties said they have revised down the metrics and don’t expect fourth quarter growth in RevPAR. They also will not provide forward looking statements for 2016 because the current environment has been too clouded. Their stocks have dropped by 11.4%. Largely because of the statement, lodging stocks, on average, have fallen by 10%.
Also, John Petry of Sessa Capital LP, which owns 8.2% of Ashford Hospitality Prime, is currently trying to remove the board and management after witnessing ‘one self-serving action after another.’ Petry wants to put it up for sale. I welcome a move to more transparency in the REIT space, but in this negative environment, I can only wish Petry good luck. Easy to play the hero role, but hard to execute it. The market seems to believe the same thing as Ashford’s stocks plummeted between 16%-18% last week.
Companies: Ashford Hospitality Prime, Inc. (NYSE:AHP), Ashford Hospitality Trust, Inc. (NYSE:AHT), LaSalle Hotel Properties (NYSE:LHO)
Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on January 15, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.
As of December 31, 2015, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.
This report is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.