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Depressed Hotel REITs Provide Opportunities For Dividend Investors

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
WP GLIMCHER 4.18   24.6 0.17 1.00 24.10
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


Older articles featuring Cbl & Associates Properties (CBL):
Dividend Cuts And Overdue Rent: REIT Earnings Recap
Dividend Cuts And Overdue Rent: Previewing REIT Earnings Season
Retail REITs: Double-Digit Yields, Secular Shifts And Mean-Reversion
We Need To Talk About Dividend Cuts - They Are A Necessary Evil
REIT Preferreds: Higher-Yield Without Excess Risk
Dividend Cuts And Overdue Rent: REIT Earnings Recap
Our High Yield REIT Portfolio - Optimizing Rebound Potential
Now Is Not The Time To Be A High-Yield REIT Investor
Macerich: Debunking Three Bear Theses, Including Why I Want A Dividend Cut
Introducing This Growing Dividend Portfolio