Hotel REIT execs see more activity, conviction in the deals market

The U.S. hotel transaction environment is picking up the pace, and executives at real estate investment trusts see opportunities to take advantage of that, one way or another.

For the most part, the hotel-focused REITs have been keeping an eye on the transaction market but not yet major participants aside from the occasional one-off buy or disposition. During the latest round of quarterly earnings calls, REIT execs shared their observations about the market and whether they'll be an active participant.

See below for a selection of their comments.

"So, we have a lot of flexibility to play offense when we see opportunities to meet our return thresholds. So, we're seeing more activity today. There have been a lot of deals in the market. We've underwritten a lot of transactions. And to date, we haven't been able to cross the bar that we set for ourselves internally. But there are high-quality assets out there, and we will continue to look for assets with multiple demand generators, drivers, attractive market fundamentals and importantly, opportunities where our active management and ownership can create incremental [earnings before interest, taxes, depreciation and amortization].

"That's where we can be most opportunistic. We have an advantage over others because we're an all-cash buyer. We can move quickly. We have deep industry relationships and our platform really gives us the opportunity to underwrite complex assets with confidence.

"So why do we like acquisitions? Because it can do more than just add EBITDA. An acquisition can add to the long-time growth profile of the company and benefit from our expense benchmarking, renovations, as you've seen time and again, branding repositioning opportunities and the like."

"It continues to be more constructive. Obviously, we expected that in terms of the improving operating fundamentals.

"As we stated previously, capital followed performance. We're seeing more transactions. We're seeing larger transactions. We're seeing more investor depth and performance is leading to more investor conviction. So, you have all of the ingredients.

"I think you have increasing operating fundamentals, you have more investor conviction. You have more trades, which I think is giving more confidence to other investors to participate. You have the debt markets that continue to remain attractive, both in terms of availability as well as pricing.

"And so I think overall, it's set up for a more active [environment], although I would tell you that it's somewhat bifurcated that it continues to kind of trend towards the luxury type assets and the resort type assets and then assets where markets have significant growth that investors can underwrite."

"On the capital allocation front, we continue to execute our strategy of recycling capital out of underperforming non-core assets while enhancing the quality and long-term growth profile of our portfolio. Since our May earnings call, we have completed three additional dispositions. In May, we sold our ownership interest in an unconsolidated joint venture that owns and operates the 288-room Embassy Suites Old Town Alexandria for gross proceeds of $29 million.

"In June, we exited the 262-room Embassy Suite Austin through the termination of the short-term ground lease and sale of the hotel's operating assets, generating approximately $6 million of proceeds. Most recently in July, we completed the sale of the 314 room Hilton Short Hills for $12 million. These transactions represent another step forward toward simplifying the company, lowering future capital needs and concentrating our portfolio on higher-quality assets with stronger growth prospects and more durable earnings.

"Since announcing our plan in early 2025 to exit our remaining non-core assets, we have sold or disposed of 10 of the 19 identified hotels generating nearly $200 million of proceeds at an average multiple of approximately 12.5x EBITDA. And since the spin, we have now sold or disposed of 55 assets for more than $3 billion.

"We continue to make solid progress with the remaining non-core hotels, which today account for less than 5% of the portfolio's value and remain firmly committed to materially reducing our exposure by year-end with active marketing efforts underway for several assets."

"I would say that we're in a market where pricing is an asset-by-asset, case-by-case basis. What I would say about the overall transaction market is that it's more constructive today and that there are more transactions in the pipeline. I would say that the debt market continues to be very competitive, with a number of capital providers. There's better fundamentals, which is allowing potential buyers to underwrite with more conviction. The buyer pool has widened today, particularly as performance continues to improve, and we're seeing owner-operators continue to play a role in the transaction market. We're also starting to see family offices and a little bit of private equity as well.

"And so it's still focused on single assets as opposed to portfolios, but we do see the overall transaction market improving. But I would generally say that we're starting to see pricing converge, and it's really just a case-by-case basis in this climate. We recently sold, as you mentioned, an asset in Fremont, and that was an asset where the dynamics of that market had moved away from its trajectory from the rest of what's happening in northern California. And the pending capital didn't make sense for us. And so we ran a small process and we had a regional operator pay a healthy multiple on that existing asset."

"I think all else equal, if price was no object, I would — I think the long-term secular drivers for resorts are particularly attractive. But pricing on resorts has been very, very competitive and has tightened substantially this year. So while we do look at a lot of them, there's a lot that I think get bid outside of what we're willing to pay. We do look at urban markets as well. So I would tell you, all else equal, yes, I would like to tilt toward resorts, but we do look at everything, both urban markets and resorts.

"There's some [acquisition deals] that I thought we would be close and then we proved to be like 10% to 15% off with many bidders in between. I think that's what's probably been most surprising is maybe a year ago, the gap between a first-round bid and a second-round bid was relatively tight. We've seen that widen out pretty substantially, I think on the last few properties that we were pursuing, where there could be as much of a sort of a move is maybe 10%, 15% or even buyers sort of going hard with a letter of intent. So it's gotten much more aggressive for certain properties.

"With our leverage coming down and generating incremental cash, I think shareholders want us to redeploy that capital accretively or return it to them if we cannot. So currently, when I said this at the beginning of the year that we would be a net seller this year, I think that's quite plausible that in this calendar year, we will be a net seller — but as I look beyond and just seeing more transactions come to market, I guess I'm optimistic that we will eventually find something that we connect on. So I think we will be potentially a buyer and a seller, but there's nothing imminent today that we're not hard on any transactions or anything like that for an acquisition at this time."

"On the transaction environment, we're definitely seeing volume pick up. I think earlier in the year, it was more luxury focused. So, I think that is starting to broaden out a little bit more, where we're starting to see not just luxury or big, large super tanker hotels on the market. So, we're seeing more in the, call it, $75 million to $150 million range of full service in primary or secondary markets.

"I think that when we look at those types of hotels, there are definitely more bidders out there, and we from a pricing standpoint, we still see a bit of a disconnect of where things are getting done just because of the competitive nature of a marketed process. So more interesting, but not where they need to be from our standpoint at this time. And we have been very active over the last several years of recycling capital and trying to find the best redeployment of that on a risk-adjusted return basis. When we look at the transaction market improving now, I think that this is a time where we really have to remain disciplined."

"We have seen more activity in the transaction market, which has been encouraging. And I think we've always felt like the catalyst for more activity was better operating fundamentals. And clearly, we started to see that.

"And so I do think it kind of broadens the aperture in terms of what we can look at. I still feel where we sit today, you know, the most effective transaction for us has been this kind of one or two portfolio, maybe three-asset type of portfolio deal where we take a very targeted approach and very often are finding more local regional buyers. I wouldn't say that has changed yet, but as you alluded to, the financing markets remain very, very strong and we see more activity in the transaction market, I do think it broadens what we can look at there."

"I think my expectations were at this point in the cycle, especially given the strength we've seen recently, we would be experiencing or seeing more transactions happen in our space. I think we're more optimistic based on products that we're underwriting today and products coming to market that we're nearing a point where we could see meaningfully greater deal flow.

"For some period of time, there's been a fairly wide bid-ask spread as much as 200 or 300 basis points from a cap rate standpoint, depending on market and product. I think what we've observed happening is product that has been on the market for an extended period of time is starting to look, in some cases, more reasonable given the recent run-up in operating performance, which is making yields more attractive. And should current trends continue, which we feel reasonably confident they will, I think that alone gets us to a point where more deals pencil and we are able to get more active on the acquisitions front.

"Aligned with that somewhat is the fact that we have seen improvement in our share price over the past several months. And as we think about uses of capital, our underwriting consistently weighs potential acquisitions against purchases of our shares. And I think up until recently, the math clearly pointed towards the share purchases. I'll tell you today, and I said in my prepared remarks, there's still a gap. And as we think about valuation, especially on days where share price pulls back, I think we still feel that there is meaningful value and upside in our shares, but the gap is shrinking. And I could see us becoming more active on the acquisitions front and really, quite frankly, that market in total becoming more active as we move towards the end of the year, especially to the extent we continue to see positive indicators for how 2027 might shape up."

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