Published Fri, 25 Oct 2019 09:15:47 -0400 on Seeking Alpha
Currently the sentiment for investing in hotel REITs is overly pessimistic with barely anyone willing to consider them. This is exemplified by relatively huge cap rates, above average dividend yields and most importantly depressed valuation multiples. Let's have a look on how hotel/lodging REITs compare to other REIT sectors.
Source: NAREIT (compiled by the author based on data published on September 30th, 2019)
The chart above basically shows that hotel REITs are trading at a significant discounts relative to other REIT players. Their trailing 12 month P/FFO multiple of 6.42x is 54% below the overall REIT average. The only sector in which cheaper REITs can be found is regional malls. However, the sample of regional malls consists of only 7 REITs and is artificially depressed due to 3 REITs fighting against possible bankruptcy event. For example, CBL & Associates (CBL) trades at just 0.68x P/FFO, Washington Prime Group (WPG) at 2.74x and Pennsylvania Real Estate Investment Trust (PEI) at 3.98x.
Now, there are obviously some legitimate reasons for why the market is discounting hotel REITs so aggressively. In general, the market is somewhat efficient and it would be foolish to think that 54% discount is with no reasonable basis justifying it.
The key two things pushing down the valuations are the fact that 2008 was a disastrous year for hotels, and that the underlying cash flows are highly correlated with the overall market swings. The chart below illustrates... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|CBL & ASSOCIATES PROPERTIES||1.38||0.0||-0.95||0.35||27.34|
|PENNSYLVANIA REAL ESTATE INVESTMENT TRUST||5.68||0.0||-1.81||0.84||14.58|
|HOST HOTELS & RESORTS||17.08||11.5||1.48||0.80||4.59|
|RYMAN HOSPITALITY PROPERTIES||81.48||16.1||5.05||3.60||4.46|
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