As more mergers and acquisitions happen among hotel real estate investment trusts, I have a hard time believing the pending LaSalle-Pebblebrook deal represents the last.
When I first started covering the hotel industry a few years ago, I was told that hotel real estate mergers and acquisitions in the real estate investment trust space might be a topic of conversation periodically, but it’s not something you should count on happening on a regular basis.
The last couple of years have proven that line of thinking to be false, first with Ashford Hospitality Trust’s pursuit of FelCor Lodging Trust morphing into RLJ Lodging Trust’s purchase of FelCor and now with Pebblebrook Hotel Trust on the cusp of purchasing LaSalle Hotel Properties.
We seem to now be operating at a clip of one REIT-to-REIT transaction a year in the hotel space, so that leaves us to wonder who the banner acquisition will be in 2019, who will the company that pursues them be and who will eventually win the deal?
One of the interesting things about lodging REITs is that the space, at least as explained to me by people who are far more knowledgeable about these things than I am, is that the space is far more fragmented than other REIT sectors. According to Nareit, based on figures as of 31 August, there are 20 lodging REITs with a combined market cap of $61.8 billion.
I imagine most of our readers could guess Host Hotels & Resorts is the largest in the space with a $15.8-billion market cap, so it’s pretty safe to say they’re not going to be bought by another REIT. Maybe some private equity buyer with incredibly deep pockets will decide to make a splash and pick up a huge hotel portfolio.
How’s this for a hypothetical? Blackstone Group, recently spurned by LaSalle, decides to make an even bigger play in the hotel space and take Host private. It could happen! Probably won’t, though.
Or maybe Host decides to go out and take advantage of its size to pick up one or two smaller players? We’ve got a couple of REITs now represented only by a single brand family now, following Park Hotels & Resorts spinoff from Hilton and CorePoint Lodging’s spin from La Quinta Holdings. Maybe Host buys both of them to create one lodging REIT megaportfolio. Throw in MGM Growth Properties, and the Host team is halfway to taking over the world.
There’s a few other outliers that would make for more difficult acquisition targets, at least in my opinion. The unique management structures for Ashford (along with its sister company Braemar Hotels & Resorts) and Hospitality Properties Trust maybe make them probably less likely to move.
What we’re left with is about a dozen other companies in the mix. I almost feel like you could pull names out of a hat to come up with possible M&A combinations, but obviously they all have their own strategies for what kinds of assets they like to pursue.
Maybe a couple of the select service-focused REITs (Apple Hospitality REIT and Summit Hotel Properties) could join forces?
Let me just state this for complete clarity: This is all completely baseless conjecture. If by some complete coincidence one of these things actually ends up happening next year, it was complete dumb luck and not the result of me having any sort of inside information.
But 2019 looks like it could be another interesting year for hotel REITs.
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