HPT looks to buy: Are REITS set to leave the sidelines?
 
HPT looks to buy: Are REITS set to leave the sidelines?
10 AUGUST 2016 7:26 AM

After most hotel real estate investment trusts have sat on the sidelines in the past year, Hospitality Properties Trust is the latest REIT to indicate it's looking to be an active buyer.

NEWTON, Massachusetts—Just days after officials with Ashford Hospitality Trust indicated market conditions are close to making buying hotel properties attractive again, executives with Hospitality Properties Trust shared a similar opinion.

Speaking during the real estate investment trust’s second quarter earnings call, President and COO John Murray said HPT will prioritize acquiring hotels over its other primary asset class—travel centers.

“We are focused on adding hotels to our portfolio,” he said. “And we’ll continue to do so.”

On the acquisitions front, the REIT signed an agreement to purchase a 236-room full service hotel in Silicon Valley in late July for $52 million.

Murray said another deal for a property fell apart during the due diligence stage.

“We had a hotel under contract earlier in the quarter but, as a result of diligence, ran into some CapEx issues that needed to be addressed by the seller,” he said. “We had to let that property go.”

Assuming the deal for the Silicon Valley property closes, HPT officials plan to add it to the company’s portfolio of Sonesta-managed hotels and will possibly expand its meeting space.

Even though HPT officials have signaled they would like to buy, that doesn’t mean they are willing to lower their standards for potential targets, Murray said.

“We’re being very selective as we consider additional hotel acquisition opportunities,” he said. “In light of weakened global economic conditions and modest domestic growth, we believe hotel pricing may moderate.”

Key metrics
Revenue per available room was up 3.7% year over year for the quarter, driven largely by a 2.8% average daily rate increase. The results were better for the company’s comparable hotels, which saw RevPAR jump 4.9% with a 3% improvement in ADR.

Murray said this marks the 14th consecutive quarter RevPAR for comparable hotels beat the industry average.

Total revenue was up $43.2 million year over year to $550.3 million. Adjusted earnings before interest, taxes, depreciation and amortization increased 12.8% to $215.6 million, but net income decreased 32.6% to $56.1 million.

By close of the market Tuesday, HPT’s stock is trading up 21.95% year to date. The Baird/STR Hotel Stock Index was up 6.98% for the same period.

Praise for Hyatt
HPT’s portfolio of Hyatt Hotels Corporation properties led the way in terms of RevPAR growth, CFO Mark Kleifges said. HPT’s Hyatt hotels saw RevPAR increase 7% in the quarter.

Murray attributed the strong growth to new revenue management systems developed by Hyatt that do a better job of tracking where occupancy and rates were in past years and past cycles.

“So, they’re a little bit better able to have conviction about raising rates and holding rates when they believe there should be better demand,” he said. “It’s kind of simple, actually, but it’s been particularly effective for them.”

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