REIT Wrecks » hotel reits

Hotel REITs Default and Deflate – Can Shareholders Benefit?

REIT Wrecks — Mon, 27 Jul 2009 10:15:00 +0000

It’s almost factual at this point: most 2006 and 2007 buyers of hotel properties will likely default on their mortgages. The reasons are simple: pro forma room rate and occupancy assumptions are being crushed, existing mortgage debt cannot be serviced, and the resulting drop in property values is preventing any kind of loan workout (other than through receivership and foreclosure). The interesting aspect of all this is that some hotel REIT shareholders could actually benefit from this huge mess.

First though, here is a hit parade, if you will, of defaults related to hotels located in “superstar” cities that were previously thought to be impervious to market downturns:

The St. Regis Monarch Beach hotel, an Orange County luxury resort in Dana Point, has completed a “consensual transfer” of ownership (it was late, and they were drunk) from its owner to its lender, Citigroup.

The Four Seasons Hotel in San Francisco has defaulted on a $90 million mortgage loan.

The Stanford Court Hotel, also in San Francisco, has gone into receivership after defaulting on an $89 million mortgage. JE Roberts bought the place for $93 million in 2007 and then dumped $32 million more into renovations.

Sunstone Hotel Investors chose to make an “elective default” on its the June 1 payment for the $65 million mortgage on the W Hotel in San Diego, which reflected “significant and continuing deterioration in demand for luxury lodging.” According to Sunstone’s CFO, the value of the W San Diego is “meaningfully below” the what it owes on the property. This is only natural, as they “elected” to overpay in the first place.

According to Commercial Real Estate Direct Sunstone’s 366-room Embassy Suites Chicago, is also not generating anywhere near the amount of cash flow needed to service its debt, nor is the 284-room Marriott Del Mar in San Diego, or the 299-room Ontario Airport Marriott.

The 469-room Marriott in downtown L.A., purchased by Ezri Namvar’s Namco Capital Group in 207 for approximately $115 million, recently filed for bankruptcy protection.

Luxury hotels in “superstar cities” aside, every day cities are feeling the pinch too. Red Roof Inn Inc., a hotel chain popular with budget-mided business travelers, defaulted on $367 million in mortgage debt earlier this year. Red Roof Inn was acquired for $1.3 billion by a syndicate led by Citigroup’s Global Special Situations Unit. It remains unclear whether the unit’s mandate is to create special situations, or to invest in them.

Not to be outdone, the Lightstone Group bought Extended Stay Hotels, a chain which operates 680 hotels catering to budget-minded travelers on longer trips, for $8 billion. Lightstone agreed to the purchase in 2007, and financed it at at 92.5% leverage. Unable to service $7.4 billion in debt, the chain promptly filed for Chapter 11 bankruptcy protection 24 months later.

As many as 500 properties could be in default by year’s end, according to Atlas Hospitality Group. “The bright spot is that this is going to be the best buying opportunity since the Great Depression,” said Alan Reay, the group’s principal.

This, perhaps, is what’s causing vulture investors to pick at these carcasses. This weekend, REIT Wrecks reader NS alerted me to the Vector Group’s (VGR) purchase of over 7% of Strategic Hotels and Resorts’s (BEE) common stock. Vector bought the shares for between 96 cents and $1.74 per share in the first and second weeks of July. At this point, despite BEE’s hyper-leverage relative to it’s underwater NAV, Vector Group and Bill Gates’s Cascade Investment Company, another early vulture, now own slightly over 13% of the Company.

Vector is not the only one picking through the rubble. Hong Kong’s Keck Seng Investments Ltd. just agreed to buy the San Francisco W Hotel for $90 million. According to The San Francisco Chronicle, although the price represents a 50 percent drop from peak values two years ago. The seller was Starwood Hotels & Resorts, which sold in order to “further reduce its debt levels.”

Ironically, Hotel REIT investors could wind up benefiting from these moves, since dumping underperforming properties, even at a loss, will ultimately be accretive to both net asset value and FFO. This may be what is attracting intrepid investors back into the space, but if you choose to play a Hotel REIT recovery, you may need some need patience: Cascade Investments is down about 50% on its initial 2008 investment in BEE (Although BEE is well-managed, it’s not worthy of investment in my opinion).

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JP Morgan Likes Brandywine (BDN) and Entertainment Properties Trust (EPT)

REIT Wrecks — Wed, 08 Jul 2009 16:44:00 +0000

JP Morgan analyst Anthony Paolone is understandably not bullish on commercial real estate fundamentals, but since the public market is typically ahead of the private market in terms of valuations, he does like certain REITs.

Brandwine in particular has both refinanced existing debt, and repurchased its own debt on the open market (for a quick explanation of the accounting behind debt repurchases, read Muddled REIT Book Values Create Opportunity). The ability to delever in this market is obviously muy bueno, even though Brandywine also diluted shareholders to death in the process.

Paolone also thinks (BDN) will pay a special dividend in Q4. Be aware of the fact that JP Morgan was joint lead underwriter on BDN’s very dilutive equity offering, so do look carefully beneath the hood before plunging in.

Enjoy the vid!

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Hotel REITs Sink The REIT Ship

REIT Wrecks — Tue, 30 Dec 2008 04:06:00 +0000

What happened? Just when you though it was safe to venture out, the REIT sector got hammered again, with many shares down 10% or more on Monday. Much of the reason for that related to the latest round of dividend cuts, this time from the Hotel REIT sector. Ashford Hospitality Trust Inc. (AHT), a hotel operator, became the latest hotelier to suspend its dividend to preserve cash.

After the close of trading on Friday, Ashford said it was laying off employees, cutting benefits for those who remain, renegotiating vendor contracts and suspending its common stock dividend to preserve cash. Ashford shares dropped over 10 percent, to $1.12.

AHT is now is danger of being delisted, but the stock has never been for the faint of heart. The Company provided no information on the number of job cuts, and said it expects to distribute the absolute minimum dividend required to maintain its REIT status in 2009, but no more. Expect that REIT dividend to be paid in stock.

Like other Hotel REITS, Ashford sits squarely in the bullseye of reduced consumer and business spending, which leads inevitably to a decline in the value of its real estate. Ashford is just one of many REITs that have suspended or reduced dividends to preserve cash. Newcastle Investment Corp., a Mortgage REIT, even skipped its preferred stock dividend.

Earlier this month, DiamondRock Hospitality Co. (DRH) said it does not plan to issue another dividend until the end of 2009 to free up more liquidity for next year and help pay down about $70 million in debt.

Also, FelCor Lodging Trust Inc. (FCH) suspended its common dividend and Host Hotels & Resorts Inc. (HST) slashed its regular quarterly dividend by 75 percent to 5 cents.

FelCor shares took a 10% dive to $1.55, while Host Hotels’ stock dropped to $6.73.

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Disclosures: None at the time of publication

Click here for a list of Hotel REITs, including current yields.

Scroll down for more news, information and analysis on REITs

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No Bottom In Commercial Real Estate Until 2010 – 2011

REIT Wrecks — Sat, 20 Dec 2008 22:49:00 +0000

The good news is that the end is near, and I’m not talking about the rapture. Mercifully (unmercifully?), Moody’s said Friday that commercial real estate is going to get a whole lot worse before it gets better, but that it WILL get better. Unfortunately, that won’t be until 2010, at the earliest.

For now, Moody’s says that the deepening recession and the reduced availability of financing have heightened the risks for the US commercial real estate sector no kidding. The ratings agency cites the retail sector as most exposed to very tight-fisted U.S. consumers, but the gloomy picture they paint is the product of a very broad, thick brush: they say virtually no asset class will escape unscathed.

The hotel sector is clearly in the middle of the storm, as is retail, but demand for office space is also declining in many markets and industrial properties have been adversely affected by slowing trade and retail sales. Even multifamily (apartment) properties face trouble. It’s true that everybody needs a place to live, but Moody’s says there will be fewer “everybodys”.

Reduced household formation, a fancy euphemism used to describe the impacts of children moving back in with parents, other parents moving in with their kids, friends sleeping in closets, and in some cases, dogs and cats relinquishing the kennel to their masters, all combined with growing unemployment and the increasing supply of rentals in the “shadow market” of foreclosed homes, will create stress even at this level in Maslow’s hierarchy. For a little more dark humor on this topic, check out Public Storage: Sold on Craigs List!

Loan defaults will increase as well, but they’ve been at historical lows for so long this was inevitable. Moody’s expects the aggregate default rate on CMBS loans (0.75% as of November 2008) to revert to its long-term historical average of 1.5% to 2.0% in 2009, and most likely to surpass this level before the market begins to form a bottom in 2010 and 2011. They also expect commercial property values, which have declined about 10% from the peak reached in October 2007, to decline an additional 10 to 20% over the next 18 to 24 months.

Other than that, I’m assuming they would also like to wish everybody a happy and prosperous holiday season.

Click here for the full Moody’s press release on commercial real estate.

Disclosures: None at the time of publication
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Hotel REIT Directory

REIT Wrecks — Fri, 22 Aug 2008 00:58:00 +0000

This is the most up-to-date Hotel REIT list on the web. Prices and yields update daily at the close, and the list contains links to the latest news and home pages of each REIT. The list includes the recent Hotel REIT IPOs (Chesapeake Lodging Trust, Chatham Lodging Trust, Pebble Brook, and even more recently, Summit Hotel Properties.) Additional REIT lists by property type can be found below the table.

HOTEL/LODGING REIT LIST Prices & Yields Updated Daily at the Close
REIT Name	Last Price	Change	Yield	News
Ashford Hospitality Trust	$5.25	+0.21	13.00%	AHT
Chatham Lodging Trust	$5.25	+0.21	13.00%	CLDT
Chesapeake Lodging Trust	$5.25	+0.21	13.00%	CHSP
Diamond Rock Hospitality	$5.25	+0.21	13.00%	DRH
Entertainment Properties Trust	$5.25	+0.21	13.00%	EPR
Felcor Lodging Trust	$5.25	+0.21	13.00%	FCH
Golf Trust of America	$5.25	+0.21	N/A (De-REITed)	GTA
Hersha Hospitality Trust	$5.25	+0.21	13.00%	HT
Hospitality Realty Trust	$5.25	+0.21	13.00%	HPT
Host Hotels	$5.25	+0.21	13.00%	HST
InnSuites Trust	$5.25	+0.21	13.00%	IHT
Lasalle Hotel Properties	$5.25	+0.21	13.00%	LHO
Pebble Brook Hotels	$5.25	+0.21	13.00%	PEB
Summitt Hotel Properties	$5.25	+0.21	13.00%	INN
Strategic Hotels & Resorts	$5.25	+0.21	13.00%	BEE
Sunstone Hotel Investors	$5.25	+0.21	13.00%	SHO
Supertel Hospitality, Inc.	$5.25	+0.21	13.00%	SPPR

Click here for a list of Apartment REITs
Click here for a list of Healthcare REITs
Click here for a list of Industrial REITs
Click here for a list of Mortgage REITs
Click here for a list of Non-Traded REITs
Click here for a list of Office REITs
Click here for a list of Retail REITs
Click here for a list of Storage REITs
Click here for a list of all REITs
Click here for a list of REITs paying dividends in stock
Click here for a list of REIT ETFs
Click here for a list of REIT Funds

Information on how REITs work can be found in the post REIT Definition. At this rate however, you might be as well learn how to buy penny stocks!

hotel reits, reit, reits

Even Ben Stein Loves REITs

REIT Wrecks — Sat, 05 Apr 2008 07:57:00 +0000

TORONTO — The beaten-up REIT sector got a ringing endorsement last Wednesday from Ben Stein, the author, actor and economist best recognized for his role as the humourless high school teacher in Ferris Bueller’s Day Off.

“I’m buying all [the REITs] I can get my little paws on. These are God’s gift to retirees,” Mr. Stein said in a keynote speech at CIBC World Markets Inc.’s annual North American Real Estate Equities conference in Toronto.

Despite their depressed market values, many U.S. and Canadian REITs are generating good yields, something that is becoming more critical as the wave of baby boomers in North America nears retirement, said Mr. Stein, whose career also includes stints as an economist at the U.S. Department of Commerce, a lawyer at the U.S. Federal Trade Commission and teaching posts at various U.S. universities.

The bulk of Americans do not have pension plans or adequate retirement savings, and should be looking at this “best income producing, most-fabulous” asset class while the REITs are a bargain, he added.

The S&P/TSX Capped REIT Index has bounced back from a low hit in January, but is down 4.6 per cent year-to-date, and 18.3 per cent from a year ago.

While Wall Street has taken on the atmosphere of a “casino” as of late, long-term investors who are buying trusts for income rather than capital appreciation shouldn’t be scared off the markets, Mr. Stein said in an interview following his speech.

During his presentation, Mr. Stein also lambasted U.S. politicians and regulators for the “nightmare” in the U.S. subprime mortgage and credit markets. Deregulation of the financial industry is the culprit behind the current credit crunch, and also the root of the tech bubble, the U.S. savings and loan crisis and the collapse of the junk bond industry, he said.

While the bail-out of Bear Stearns Cos. Inc. was necessary to protect investors, it should also spark greater regulation of industries, including investment banking and hedge funds, he said.

Sophisticated investors are now likely eyeing products such as structured investment vehicles (SIVs) and collateralized debt obligations (CDOs), Mr. Stein said.

“They are so oversold and there is so much money to be made from them,” he said.

Mr. Stein said he’s guessing one investor eyeing these assets could be billionaire Warren Buffett. On one visit to the Oracle of Omaha’s office Mr. Stein said he saw a collection of framed notes, which Mr. Buffett told him he had made during his failed attempt to purchase collapsed hedge fund Long Term Capital Management in the 1990s.

Mr. Buffett likely would have made billions on that portfolio, and a similar opportunity could now exist in the asset-backed securities sector, Mr. Stein said.

Click here for an updated list of Mortgage REITs, including current yields
Click here for an updated list of Apartment REITs, including current yields
Click here for an updated list of Office REITs, including current yields
Click here for an updated list of Retail REITs, including current yields
Click here for an updated list of Industrial REITs, including current yields
Click here for an updated list of Storage REITs, including current yields
Click here for an updated list of Healthcare REITs, including current yields
Click here for an updated list of REIT dividends being paid in stock, including current “yields”

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