Here’s a short post of the type I have threatened: I have never been a big fan of hotel REITs, as this category lacks the protection of long-term leases, and results can be cyclical and affected by new developments that have not been as disciplined as in the case of other property types. The only hotel REIT I own presently is LaSalle (LHO). It owns “upper upscale” hotel properties, most of which are independently branded (giving the REIT more flexibility than other hotel REITs). Its heaviest concentrations are in San Francisco, Boston, San Diego and D.C. Management is solid and experienced, and they are good capital allocators. Debt leverage is very low, at below 30% and debt/ebitda is a very modest 3.2x.LHO came out with earnings last night, and they were quite good. RevPar grew at +5.4%, and hotel EBITDA growth was +16.8%. Full-year earnings guidance was boosted by 3% at the mid-point. AFFO should rise by almost 13% this year, and perhaps by almost that in ’16. The stock rose 1.4% today, to $38.50, where it trades at a REIT market multiple of 20.9x. It also trades at a very modest NAV discount. The 12-month high and low is $43.56 and $31.36.LHO has been generous with its dividend increases. Last night it announced a 20% dividend increase to $1.80 per share. The yield at today’s closing price is 4.67%, and the new dividend will be covered by estimated ’16 AFFO (though not by a lot). I bought more LHO today, and believe it’s a good REIT to own for those who like yield and willing to assume a little more risk than your average REIT, given the nature of its property type.P.S. LHO has two preferreds outstanding. The one I like most (but don't presently own) is LHOpI, which trades at par and yields about 6.38% (slightly more with accrued dividends). But, like most of these, it is pretty illiquid. Ralph
Thank You Ralph!
Great post! Thanks Ralph.I have bought a few hotel REITs over the years and currently own SHO which I have been patiently waiting for it to fully reinstate its dividend to sell. One important thing to remember is that lodging/travel is fairly economically sensitive and this coupled with the segments lack of long term leases at least to the end customer makes these REITs economically sensitive in my opinion. For hotels in some of the more tourist areas I wonder is the strong dollar might have an effect on occupancy rates, especially since there are a few minor signs of a possible U.S. economic slow down.
One important thing to remember is that lodging/travel is fairly economically sensitive and this coupled with the segments lack of long term leases at least to the end customer makes these REITs economically sensitive in my opinion.There is no question about that. For this reason, it is unlike virtually any other commercial real estate sector. And supply can creep up on us quickly, although that usually begins with the limited service sector where entitlements are easier to obtain and the building costs are much less. We DO need to watch the supply situation carefully in this sector; right now, there is a bit too much new supply in NYC, for example. But, generally speaking, we are at least a year away from having to worry seriously about this potentially negative force.For hotels in some of the more tourist areas I wonder is the strong dollar might have an effect on occupancy rates, especially since there are a few minor signs of a possible U.S. economic slow down. Yes, the strong US dollar is a worry for hotel REIT investors, but it's too early to know how big an impact it will have. LHO's four largest markets are SF, Boston, SD, DC and NYC, so we need to watch this carefully. However, LHO maintained full-year RevPar projections when it released its Q1 results about three weeks ago.Bottom line: I do like LHO, but like all hotel REITs, we cannot put it on auto-pilot.Ralph
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