NEW YORK—A group of real-estate investment trust CEOs assessed the REIT outlook during a panel discussion last week at the Bank of America Merrill Lynch 2011 Global Real Estate Conference.
The pace of hotel transactions (largely dominated by REIT buyers) slowed to a crawl since upheaval struck the capital markets in early August. But that crawl might soon pick up speed, the CEOs agreed.
“This speed bump will be short-lived,” Jay Shah, CEO of Hersha Hospitality Trust, said during a panel titled “Checking in or Out? Lodging REITs,” which was webcast.
Kenneth Cruse, the CEO of Sunstone Hotel Investors, agreed. He said the deal slowdown is likely to be a “short-lived phenomenon.”
The REIT CEOs touted record demand in July, strong hotel operating metrics and high corporate profits as reasons to be optimistic about the direction in which the hotel sector is moving.
“We still feel as good as we did five weeks ago,” said Michael D. Barnello, president and CEO of LaSalle Hotel Properties.
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Laurence Geller
president and CEO
Strategic Hotels & Resorts
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He pointed to STR’s weekly hotel data for the week ending 27 August that showed occupancy increased by 4.5% to 62.8%, average daily rate rose by 3.2% to US$99.79, and revenue per available room jumped by 7.8% to US$62.63. STR is the parent company of HotelNewsNow.com.
“By anyone’s stretch of the imagination,” Barnello said, “that’s not bad numbers.”
Group booking pace is also strong, the CEOs said.
“Corporate America, at the moment, is booking,” said Laurence Geller, the president, CEO, director and founder of Strategic Hotels & Resorts.
Cruse added, “Businesses are expecting and accepting 5 to 10% (increases) in rates.”
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Today’s deal environment
Still, the CEOs acknowledged the transactions market today is stagnant, in part because of a lack of clarity into which way the macro economy might turn.
“With our stock price at (US)$5.50, we’re not looking at any deals right now,” Cruse said. “Clearly, deal flow has dried up over the last several months.”
In the end, the deal market’s recovery all comes down to pricing, Barnello said.
“When we look at how this year has evolved, we have looked at plenty of deals and closed one,” he said.
Going forward, he said, REITs such as LaSalle need to be careful in the assessment of potential transactions. “If we need an additional source of funding, it better make sense,” he said.
On the topic of transactions, Geller was asked when Strategic might begin offloading some of its portfolio. The answer: not anytime soon.
“Why would I sell when I have just walked through the valley of the shadow of death?” he responded. “If you buy at (US)$700,000 per key, why sell at (US)$300,000 per key?”
