Is Houston Hurting This Hotel REIT?

chart01.pngXenia Hotels & Resorts Company collects governing factors of a good investment for the long term. In the stock market, the hotel REIT mid-cap trading is at 21% below its 52-week high and exhibits a 6.3% dividend yield. The company has a superior quality diverse portfolio comprised of luxury and upscale lodging properties, by which new hotel construction have the least adverse effects upon. The stock has displayed a positive trend for the current year and the stock rapidly rebounding, yet the stock seems to fall behind its peers in terms of valuation multiples. How come?

Considering the fact that Houston’s oil industry-based economy is impacted by low oil prices and softened oil markets, and 12% of Xenia’s portfolio lies in the city may be what dulled potential hotel REIT investors’ interest. The RevPAR (revenue per available room) of the said region in Q1 plummeted down, which slightly hurt the overall performance of the company’s portfolio. Xenia’s bright spots particularly on the West Coast have significantly contributed to hold up the performance and offset the situation. The company also has hotels within US major bright markets.

Moreover, Xenia recently began trading in February 2015 when it sprung as a standalone company from its parent company, InvenTrust Properties Corp. The proposed spin-off was marketed as a liquidity event and was thought to provide better conditions for growth for Xenia. Although president and CEO of Xenia Marcel Verbaas has led the company since 2007, when it was only InvenTrust’s lodging arm, the company has a short public history.

Though there is no straightforward answer to the original question, it can be said that Xenia has demonstrated to be a safe investment with an above average dividend yield that’s typically not accessible to the average investor, along with a conservative balance sheet. A close look through the hotel REIT metrics and results do not show signs of major red flags and is enough reason to consider the company as long-term investment in the hotel sector.

The bottom line? Houston might be the biggest problem Xenia is faced with, but not as huge in a way that overshadows the company.

Source: Xenia Hotels & Resorts, Inc.(NYSE:XHR)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

There’s Room in This Hotel REIT

chart01One of the best motivations to seriously consider investing in the hotel REIT Chatham Lodging Trust is its quality properties. The property portfolio is oriented towards the West Coast, a region where the lodging industry is expected to show strength in 2017. Furthermore, the REIT serves a diversified mix of customers, but it has in business travelers its principal base. The positive news is that the share price has not rebounded entirely from last year’s selloff so it has upside.

In fact, Chatham’s stock has a 23% upside from its 52-week peak. The highest price was at $28.85, but fell to $16.12 in January and is currently around $22. Furthermore, the stock has not reached its full potential while trading at 9 times its AFFO projected for 2016. There is room for optimism.

chart02The majority of Chatham hotels are made up of Marriott Residence Inn and Hilton Homewood suites (24 out of 38 locations). These locations are high end, long-term inns, which cater to business associates who require a longer time frame in an area to complete their work. The remaining are select hotels with leaner cost structure and better profit margins.

The positive sign is that half of the asset collection is concentrated on the West Coast—one of the largest concentrations amongst hotel REITs. Silicon Valley possesses the majority, but in LA, San Diego, and Seattle, there are also hotels. More vulnerable lodging areas, for instance New York, have minor share and this means that the portfolio should do well over the next year.

Even though the company should continue to grow internally, the main concern is whether or not this will take its share price to a higher level. Hotels in Texas, California, Massachusetts, and Silicon Valley are being upgraded according to information retrieved from the company. However, they have reported they are not pursuing new acquisitions, dispositions, debt or equity issuance.

Despite the uncertainty, investing in Chatham stocks can provide an instant benefit. Dividend yield is a meaty 6%, and because dividend is only 52% of FFO, distributions will most likely remain strong.

Source: Chatham Lodging Trust(NYSE:CLDT), Fast Graphs

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

This Undervalued Hotel REIT is Out For Now

chart01It’s hard to know when to invest in a specific stock, even if it’s fairly undervalued. The hotel REIT Hersha Hospitality Trust Class A is no different. Despite the good dividend paying record, Hersha’s share prices fell over 35% in the last year alone. Now, this specific stock is averaging trades around 7 times its projected AFFO for 2016 (putting it below its closest peers). Despite this upside, we still don’t think it’s time to invest.

The problem is that the property portfolio Hersha owns is exposed to challenging locations. Many of their hotels are fairly well rated, but there are many factors working against them. For example, New York (which has been flooded by new supply of hotels) accounts for 28% of company’s entire EBITDA.

chart02In 2015, supply in Manhattan grew more than the demand. Notwithstanding, last quarter was the opposite, what led the management team to a more positive outlook on the situation. That being said, Hotel News Now’s Sean McCracken reported that a challenging year is ahead of us, as New York City remains a sore spot in the industry (click here).

Furthermore, the hotels classified as upscale and upper midscale amount to 75% of Hersha’s EBITDA. This further tips the scales that will affect the profitability of Hersha Hospitality in the future. In fact, STR’s new supply stats for February reported that most of the construction in the hotel was associated with either upper midscale or upscale accommodations rather than other scales.

There are a few things going for Hersha right now, however. First and foremost, over 20% of the market share value for the company’s overall EBITDA comes from the West Coast (which has been a bright spot in the industry). The company is further selling seven Manhattan hotels to a joint venture with Chinese investors.

Hersha has provided investors relatively stable rates for more than 16 years, so it’s not time to pull out your money yet. In fact, the company has continued to demonstrate dividend yield over 6%, paying out below 50% of its AFFO.

When it comes to choosing stock, it’s about choosing businesses with the most potential for growth; and it’s hard to say that there’s enough potential to entice investors this year.

Source: Hersha Hospitality Trust (NYSE:HT)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

This Texan Hotel REIT Won’t Bow Down

chart01The Texan hotel REIT Ashford Prime won’t bow down. This Monday, Monty Bennett, CEO, and chairperson of Ashford Prime, wrote a letter to The Weisman Group rejecting an offer of $20.25 a share. The letter went on to say that the price offered was way below the company’s value. In 2015, Ashford Prime estimated the company value at $27.60 per share.

Bennett, who is also the chairperson and in charge of the firm’s external advisory, has also said that the assigned a value of $70 million to end the agreement between advisory and Ashford was notably below the contractual value. Ashford Prime has already pointed out that the company’s contractual value could be in the range of hundreds of millions of dollars. Activist Sessa Capital, in a row with Ashford has indicated that this amount was equivalent to a considerable portion of the REIT’s market cap, which was unusual.

Since the stock market has never swayed up to the offer price of $ 20.25, this decision wasn’t surprising. As a matter of fact, the share bid only went up from $ 11 to approximately $15. It was a sign that some investors were cynical the sales would ever come true. Following the news, the shares dropped by 6% and stabilized slightly up $13.

The REIT was right to mention in the letter that they have a high quality group of hotels. One of the main reasons they were spun off of Ashford Trust was to own high RevPAR properties. These properties are competitive and well rated among other hotels.

The bottom line

Today, doubts abound about Ashford Prime’s stock performance. The Weisman Group has two options. One is to walk away, or two is to accept the net asset value and pay up. For that reason, the stocks have now been placed as speculative.

Source: Ashford Hospitality Prime, Inc. (NYSE:AHP), Ashford Inc. (AMEX:AINC)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

What Does it Take to Invest in Hotel REITs?

chart01.pngBrexit dealt a significant blow on the hospitality stocks in the U.S. A large number of hotel REIT stocks have experienced a depreciation of more than 5%. Because investors have been negatively inclined toward hotels, these stocks currently attract the most lucrative dividends in regards to REITs. What does it entail to invest in it?

  1. Wall Street has taken stringent measures in the event of oversupply. A real estate investor’s greatest discomfort stems from supply, and that is what has happened with the hotels. On the upside, the supply growth has not yet been above its 2% historic rate. Besides, overall, demand growth remains greater than supply growth.
  2. Concentrate on hotel scales where demand is stronger than supply. This is the case of luxury and upper scale.
  3. Steering clear of cities indicating an oversupply is prudent. Take for an example; New York has been cited as an area engaged in massive construction.
  4. Beware that the U.S. dollar might appreciate further. Evidently, the U.S. dollar experienced a notable increase in later half of 2014 and the opening semester of 2015, and observations appraise an increase of the U.S. dollar. Brexit is responsible for investors taking a keen interest in the U.S. dollar. Consequently, with an increment in the strength of the dollar, foreign tourists are reluctant to tour U.S. cities. As a result, gateway markets like Orlando and Miami are adversely affected.
  5. Short rental websites are in no way a hindrance, although Airbnb is well rooted in cities like San Francisco, Los Angeles, and New York. A glimpse at San Francisco reveals over 33,000 hotel rooms and over 8,000 Airbnb listings. That said, San Francisco has implemented systems that stunt its expansion, which if allowed, could spread over to other large cities.

Source: STR

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

This Hotel REIT For Long Term Appreciation

chart01

  1. Although hotel REITs have been out of favor, several stocks failed to approach their real share value. FelCor Lodging Trust is a great example.
  2. FelCor management is actively engaged in selling non-core hotels and using the proceeds to repurchase stocks.
  3. Moreover, although being an activist target doesn’t necessarily lead to gains, the company has worked cooperatively with activists in an effort to improve governance.
  4. Finally, the company is actively looking to reduce its leverage level and improve its debt profile.
  5. May and June’s share dip was a great opportunity to buy.

That hotels, one of 2016’s poorest REIT performers, are out of favor is not news. Recent chase for yield have not propelled hotel REIT share price performance. Although dividend yields have been the highest among equity REITs, share price performance has been flat all year. This is because many believe hotel REITs have either already reached or are currently reaching their peak in the real estate cycle.

A promising hotel REIT that has failed to realize its value so far in FelCor Lodging Trust. FelCor’s share price has been 40% below its 52 week high and 20% below its 2016 high. While hotel REIT shares dropped by 0.4% this year, shares of FelCor dropped by 12%. The strongest activity has been in May, when its share dropped by 8%.

One good thing is that management is focused on propping up shares by selling 5 of its 41 hotels and using the cash to repurchase stocks and redevelop several hotels. Also, the sale of non-core assets will raise FelCor’s portfolio profile, improving hotel metrics, such as RevPAR, Hotel EBITDA per key, and hotel EBITDA margins. The company’s core assets have been in gateway urban markets and resort locations that can be more difficult to break into.

In addition, the company has also been the target of activist Land and Buildings, which owns approximately 4% of its shares. Although being an activist target doesn’t necessarily lead to future gains, they did make the management improve its governance by including two independent directors. In the end, the company seems to be working cooperatively with the activist, something that is positive in itself.

Finally, the company is actively looking to reduce its leverage level and improve its debt profile. The company doesn’t have any major debt maturity in the next two years as interest expense has decreased over time and debt metrics have improved.

If you buy FelCor, you’re buying it for long term appreciation, not for dividend yield, which has been one of the lowest among its peer group. Since the company is only reserving 43% of its AFFO to fund dividends, the company is concentrating its efforts on internal growth.

In summary, FelCor demonstrates the chance to be a good opportunity, but I’d limit its exposure in the portfolio because FelCor performance has been conditioned to the successful hotel sales.

Source: FelCor Lodging Trust Incorporated (NYSE: FCH)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.

How Much of an Impact Airbnb Has on Hotel REITs

chart01The San Francisco Board of Supervisors, who are responsible for the city’s policies, recently approved a legislation requiring short-term renters (who advertise their properties on sites like Airbnb) be a primary resident registered with the city. If the renter isn’t registered with the city, they could face large daily fines. In addition, renters are only allowed to register one property. While the registration requirement may be viewed as a minor nuisance, it has helped propel the share prices of several hotel REITs over the last week.

Following the news, the Dow Jones U.S. Hotel & Lodging REITs Index went up by 6% this month. Some shares, such as DiamondRock Hospitality Company, Host Hotels & Resorts, Inc., and Ashford Prime, increased by more than 6% last week.

This shows just how much of an impact Airbnb and similar websites have on hotels, at least in some major cities. According to the site ‘Inside Airbnb’, which shows the impact of Airbnb on neighborhoods, there are more than 8,000 listings in San Francisco. On the other hand, there are over 33,000 hotel rooms for rent in the city.

In fact, Airbnb isn’t the only website where you can find places to rent. A quick search in San Francisco turned up 2,500 available listings on HomeAway and 1,300 on FlipKey, among others. It isn’t unusual to find property managers listing their properties on several rental sites.

While the legislation only affects San Francisco, there is a good chance other major cities may follow suit. Currently, Airbnb has 37,000 listings in NYC, 21,000 in Los Angeles, 6,000 in Chicago, and 2,500 in Boston.

Although it is undeniable that short-term rental websites have influenced the hotel industry, the business of renting out homes and rooms dates back to the beginning of time. The legislation may lead to some reduction in room supply, but it won’t change the fundamentals altogether. GDP growth and discrepancy between supply and demand will continue to be the main drivers in this industry.

Source: Dow Jones U.S. Hotel & Lodging (^DJUSHL), http://www.sanfrancisco.travel/san-francisco-visitor-industry-statistics, http://insideairbnb.com/, DiamondRock Hospitality Company (NYSE:DRH), Host Hotels & Resorts, Inc. (NYSE:HST), Ashford Hospitality Prime, Inc. (NYSE:AHP)

Disclaimer: This newsletter 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. Please do your own due diligence before making any investment decision. 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.