INVESTMENT
REITS KICKSTART
NEXT CHAPTER OF
RECOVERY
Contributed by JEFFREY DAVIS , JLL ’ S HOTELS & HOSPITALITY GROUP , MANAGING DIRECTOR AND HEAD OF U . S . FULL-SERVICE INVESTMENT SALES , AND CHRIS SHEA , MANAGING DIRECTOR , JLL CAPITAL MARKETS , M & A AND CORPORATE ADVISORY
There is a renewed sense of optimism surrounding the hotel industry ’ s recovery , spurred by an increasing proportion of the population being inoculated , loosening COVID-19 restrictions and strong domestic consumer travel sentiment in the United States .
While hotel REIT stock prices concluded 2020 down approximately 25 % for the year ( after falling approximately 69 % between January and March 2020 ), recent performance reflects the positive momentum observed in lodging fundamentals , with stock prices rising 81 % since Pfizer ’ s announcement of the successful phase 3 COVID-19 vaccine results on November 9 , 2020 .
Throughout 2020 , sector REITs dependent on consumer mobility , such as retail , office , and hospitality , drastically underperformed relative to REITs with an industrial , data centers and life sciences focus . However , those formerly underperforming sectors , including hospitality , are showing significant gains against these darlings , with hotel REIT stock prices as of late June rising 21 % since the turn of the year .
With recovery in near sight , public hotel REITs are now providing forward earnings guidance . Further , as with most REIT sectors , which continue trading at premiums to net asset value ( NAV ), several publicly traded hotel REITs have experienced a strong , positive change in their cost of capital this year , and have access to public equity and the debt markets to fuel growth , according to JLL ’ s latest M & A and Strategic Transactions Monitor .
Other factors encouraging the hotel REIT story , include appreciating real estate values due to cap rate compression , the physical return into offices and retail coupled with debt refinancing happening at lower rates . Early on during the pandemic , the industry expected that distress would lead to a number of recapitalizations and potential M & A transactions . However , such activity has failed to materialize as recovery occurred quicker than anticipated . The recent improvement in performance has not been overlooked , with hotel REITs attracting interest from equity investors focused on industries with exposure to rebounding consumer demand in the post pandemic world .
REVIEW OF PANDEMIC-ERA ACTIVITY Similar to other major hotel owners across the industry , at the onset of the pandemic , REITs were forced to shift priorities and acutely concentrate on cash preservation and strategic asset management of their existing portfolios .
As the “ new normal ” set-in and leisure travel rebounded during the summer months of 2020 , it became evident that consumer travel preferences benefited drive-to , resort destinations or less
62 hotelsmag . com July / August 2021