Despite all of the obstacles to buying and selling hotels, hotel real estate investment trusts are still closing deals.

During third-quarter earnings calls, executives at these publicly traded hotel REITs spoke about the current hotel transactions environment, highlighting recent deals and explaining their overall strategies.

Sellers are looking to right-size their portfolios, moving on from underperforming properties and using the proceeds to pay off debt, buy back stocks or build liquidity. Buyers are taking a careful approach, acquiring only the properties that meet all of their conditions.

Here are some excerpts from these recent earnings calls.

“We have the ability to allocate capital across many fronts, as you saw us do in the third quarter, and sitting here at 2.1-times leverage and the ability to do deals all-cash and get them done quickly. It's something that I don't think there's anyone else in this market can do today.

“What we're seeing today, though, is still a fairly significant bid-ask spread in the marketplace. There just isn't a lot of quality product in the pipeline. We are talking to a lot of people, a lot of hotel owners, and we'll just have to wait and see how pricing trends as we get into 2024. But we clearly have the capability to not only continue to buy back stock, which we believe is very undervalued relative to our assets and the quality of our [earnings before interest, taxes, depreciation and amortization] and invest in our assets and pay a sustainable dividend and also be acquisitive. So let's keep our fingers crossed that we have an opportunity next year to do that.”

"Our reduction in urban properties has been going on since 2016 when we began to sell out of New York. Prior to the LaSalle transaction in late 2018, we sold a total of seven properties for gross proceeds of $592 million and all of them were urban. Acquiring LaSalle added six unique resorts, all with significant repositioning upside. Simultaneously with the corporate transaction, we also disposed of five LaSalle's urban properties for total gross proceeds of $821 million.

"Since then, we've sold 24 additional properties, including the upcoming sale of Hotel Zoe in San Francisco, all urban generating gross proceeds of an additional $1.725 billion. In total, we've sold 36 urban properties since 2016 for over $3.1 billion.

"In 2021 and 2022, we acquired five leisure-focused resort properties and two guest houses in Key West, which were added to Southernmost Resort for a total of $822 million. Jekyll Island, Estancia La Jolla, Newport Harbor Island, and the two guest houses have and are undergoing extensive upgrades, repositioning, and operator changes that will drive significant upside going forward. ...

"Today, we believe the business leisure mix in our portfolio is roughly 50-50. And assuming we sell additional urban properties over the next couple of years, we expect the leisure portion to edge slightly higher. We don't think it will move a lot, as many of the urban properties we've sold or are selling, such as those in San Francisco, Portland, Seattle and Washington, D.C., have a strong leisure mix, as these markets are very attractive to leisure travelers."

“In our portfolio, everything is for sale, and there certainly seems to be an arbitrage between private market values and public market implied values. So we'd like to get into that arbitrage. With that said, it's not a great seller’s market right now. We're trying to be prudent about making sure that we're doing what's in the best interest of our shareholders on release prices.

“We're actively involved in testing the market. I think it's below $100 million [where] we've seen greater volume in the number of lenders and the number of potential bidders. So you're more likely to get a number of bidders on those more small to midsized deals than you are on the $200 million product deals that are out in the marketplace.

“We think the best arbitrage is still probably in the under $100 million dispositions. The flip side, as you pointed out, is that for acquisition opportunities, there is more competition for those kind of opportunities. That's why we continue to spend our efforts on off-market transactions.”

“We have acquired four hotels since the beginning of the year, with three additional hotels under contract for purchase and are actively underwriting additional opportunities. In October, we acquired a Courtyard, a recently renovated Hyatt House and a corresponding parking garage in downtown Salt Lake City for a combined total of $91.5 million.

“In October, we [also] acquired the recently built Residence Inn Seattle South, Renton for $55.5 million. Renton is well-known for its proximity to downtown Seattle and Bellevue as well as its strong business environment that spans aviation, aerospace, manufacturing, technology, life science and healthcare.

“We continue to have one existing hotel under contract for purchase for a total of approximately $37 million — the Embassy Suites, South Jordan Salt Lake City — which we anticipate acquiring by year-end. …

“When we look at total transaction volume, that has not meaningfully increased, but our share of the total transaction volume has. And I think that’s a firm indication of our ability to transact in a market that has become more challenging for some of the groups that we are competing with when we look back 12 months or so.”

“In September, we signed an agreement to sell our 123-guestroom Hyatt Place in Owings Mills, Maryland, for $8.25 million. The sale price equates to a 4.6% capitalization rate on the hotel’s trailing-12-month, net-operating income at quarter end and a 2.9% capitalization rate inclusive of near-term deferred [capital expenditures]. ... We currently expect the transaction to close prior to the end of the year. Since May 2022, we’ve disposed of six hotels, inclusive of the pending sale of the Hyatt Place.

“I think the transaction market has remained relatively unchanged. It’s still pretty challenged. Rates are still higher. The buyer pool is still smaller than it was several years ago. We still continue to believe that the assets that we have sold and including the asset that we announced the pending sale of an Owings Mills [hotel] this quarter, that’s still the most liquid part of the transaction market in our view, where you’ve got smaller check sizes of less requirements on debt capital markets. That’s where we think the best execution can come. As we alluded to, we will continue to opportunistically look for disposition candidates. We like the ability to sell lower cap rate assets that have larger deferred capital needs as a good way to redeploy those capital into other opportunities.”

"Our priority remains addressing our upcoming debt maturities. That being said, we continue to evaluate acquisition opportunities similar to what we bought in June with the Nautilus. But at the current time we have nothing under purchase sale agreement. We're underwriting a couple of transactions. But that said, it's unlikely we buy anything the rest of this calendar year, and as you know, we've bought one asset in the past three years, we've sold over 100 hotels for $1 billion in proceeds. So we have been net sellers, but we'll continue to opportunistically evaluate transactions, but again the priority is the upcoming maturities."

"While the transaction market remains challenging, there are deals getting done, and recycling capital continues to be a primary component of our strategy. Now that we have harvested the gain from the Boston Park Plaza, we have considerable investment capacity, and we look forward to sharing additional information on our progress as we seek to redeploy these proceeds into new growth opportunities. ...

"We are starting to see some convergence in buyer and seller expectations. To add to that, that is more skewed to the urban and group hotels than the resort hotels. I think what we are seeing now is pricing is closer to our expectations and more rational [for] that type of hotels than the resorts.

"The resorts are obviously trying to determine what the normalized leisure demand is. The last couple of quarters have obviously been soft in many resorts and higher-end resort markets. Combine that with some coastal insurance costs and what the resorts were doing nine, 12 months ago, and seller sometimes get locked in on a value. It takes a while to to come to a view of what the current market is. So when talking about types of hotel [we would acquire], I think it would be more likely that we are going to find what we're looking for, and what we're looking for is a strong going-in yield."

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