Barclays on U.S. Lodging: Lodging REIT Panel Offers Positive Views

Barclays on U.S. Lodging: Lodging REIT Panel Offers Positive Views

Barclays analyst, Felicia R. Hendrix, said, "Lodging demand and RevPAR statistics remain stable and the outlook for 2012 is positive, according to several lodging REIT executives who participated in a panel discussion during the Barclays Capital Real Estate/REIT and Lodging Conference
yesterday. Our panel included the CEOs of LaSalle (NYSE: LHO), Ashford (NYSE: AHT), Diamond (NYSE: DRH), Sunstone (NYSE: SHO) and Chatham (Nasdaq: CLDT) and the CFO of Hersha (NYSE: HT)."

"The panelists were positive on the growth prospects for 2012 even in the face of slowing macro trends, for several reasons: 1) Historically low supply (expected growth of only 0.5% in 2012 versus the 20-year average of 2%) should provide hotels with pricing power; 2) lodging demand has been strong and is at prior peak levels (despite the ongoing economic uncertainty), which should allow for continued rate growth next year; and 3) government per diem rates for 2012 have been set 5% higher which could further benefit ADR in many markets in 2012. Several panelists also discussed the recent decoupling of GDP growth from lodging demand (the two are normally highly correlated). This could be attributable, in their view, to business travel increasing as businesses attempt to offset the effects of a slowing economy."

"Group trends continue to be favorable for 2012. DRH noted that its group booking pace has accelerated during 4Q for 2012 from the 10% reported on 10/27...Jones Lang LaSalle Hotels (NYSE: JLL) expects 2011 US hotel transaction volume to grow 28% to $14.5bn. Public lodging REITs, including those represented on our panel, were very active in 1H11 and generated 43% of transactions. However, the transaction market has slowed in 2H11."

"Looking ahead, most panelists see continued opportunity for deals in 2012. Their underwriting standards remain unchanged since the market dislocation began in the summer. Panelists noted double-digit unlevered IRR targets for potential deals and a focus on value-add opportunities and markets. Much of the transaction activity to date has been in gateway cities in the US which has driven up pricing. As such, the next tier of markets, such as Denver and New Orleans, is becoming more attractive."

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