Several major hotel deals closed in 2022, and hospitality-focused real estate investment trust companies could be even more active in 2023.

During fourth-quarter and full-year earnings conference calls, REIT executives shared highlights of recent deals and their appetites for investment going forward.

“On the investment side, we were very active. We acquired two leisure-focused resorts for $330 million and sold four urban hotels for $261 million. Since 2020, we have acquired six leisure-focused resorts for over $820 million while selling 11 hotels in slower-to-recover urban markets for a total of $957 million. Between acquisitions and dispositions, since 2020, we have recycled almost 30% of our portfolio, representing a dramatic transformation of our company.

“As a result of these investments and divestitures, we have increased our market segmentation from leisure, both group and transient, to roughly 50%, and we are extremely excited about the many operating, remerchandising and redevelopment opportunities at our recent resort acquisitions, some of which are already underway.”

“We do look at risk-adjusted returns in our markets over a minimum of a five-year period, and understand are there better places to put that capital, whether it's in other markets, whether it's in other types of assets like we have done over the last two years or whether it's to repurchase our stock ....

“We obviously also are looking at what's [sellable] in the market, and what might be much more challenging to sell in a market. I would say today, size is probably the biggest deterrent to a sale unless it's a high-cash-flowing asset of a resort. I think if one were trying to sell a 1,000-room convention hotel today — and I'm not taking a shot at anybody, we have a couple of 750- and 800-room properties — it would be more difficult to sell because of the debt markets today.

“Obviously, all-cash buyers can buy those, but they generally are not sold to all cash buyers. ... The primary driver is where's the best risk-adjusted return for the shareholders, and then we have to take into account the time that it takes to do these transactions.”

“There are a number of properties in the market right now that we are evaluating. I would just say that the bid-ask spread hasn't come to the middle yet. For the near term ... the next 60 to 90 days ... [we're] not anticipating acquiring any assets, but that could change. You know, I'll just point out that the Four Seasons Jackson Hole was roughly a 30-day process for us, which puts us in a really strong position because we are the only player out there that can really do a meaningful transaction all-cash.

“As we sit back and look at how the year might evolve, we're tracking all the CMBS loan maturities for 2023-24. We will see if certain owners are in a position where they're gonna have to sell the asset, just given the current interest rate environment relative to where the environment was when they put their current debt financing in place and the fact that their asset is likely to need significant CapEx because they haven't been able to invest over the course of the pandemic. And, you know, I think you can see us, as the year evolves assuming distress presents itself, investing across markets that are different than markets that we invested in in 2021 and 2022. ...

“We're going to be open-minded and look at other markets. It's really transaction-dependent and whether or not we think we can create value and what we can do with the underlying EBITDA growth of that asset going forward. ... I don't think there's a market in the country that has a red line through it, subject to all of the underwriting criteria that we employ when we evaluate a particular hotel.”

“We continue to build a pipeline, look at a pipeline to see what's out there. [The deals market] just continues to be fairly shallow as it relates to assets that we think would be a strategic fit for us, and would be good growth drivers for us, especially with pricing expectation that still is out there.

“We do think that as we get deeper into the year that there just might be more product that comes to market, and I think that's absolutely the view that most of the brokerage community has, too. ...

“Some of that is obviously going to be driven by what's the overall economic climate, what does the interest rate environment look like, but ... we think there should be an environment coming up that will be more conducive to more product being out there, us having more choice and more of an ability to look at what's really attractive to us and will be additive to our portfolio.”

“The transaction market has been dormant, but it seems like it's starting to ease up a bit with the significant rise in interest rates and a bunch of maturing debt occurring throughout the industry. We believe there will be some opportunities to acquire hotels that fit into our high-quality portfolio in the back half of the year. ...

“I also think that our friends at the various [private equity] firms that have frankly been buying a lot of things, during the pandemic might not be as aggressive as they have been given the interest rate scenario. On a relative basis, I think that bodes better for hotel REITs.”

“While the debt and transaction markets remain muted, we will remain flexible and entrepreneurial in our approach. We constantly monitor the markets and actively underwrite opportunities to expand our footprint. Given our financial flexibility and relatively low sensitivity to the interest rate environment in a time of economic certainty, we are particularly well-positioned to act swiftly when the right growth opportunities present themselves. ...

“We do think that there will be opportunities, not only in New York but in every major market in the country. ... There is currently a significant lack of credit out there for hospitality. It's the market has definitely thawed since October, November, December, and there are some lenders out there that are ... providing quotes on the hotel transactions, but very few and far between. LTVs are a lot lower than they were one year ago. And the cost of financing and just interest expense levels are 300, 400 basis points higher than they were a year ago. There is clearly a challenge for anyone, any owner, who has a maturity coming up. ...

“We haven't seen a huge influx of potential distressed opportunities yet. But I would say that by the time we were at ALIS in late January, there were more and more deals appearing in the brokers' books. There were still real questions on whether anything could get done, whether the sellers were realistic or whether the buyers are leaning in enough. But I do feel like across the next quarter or two, until the credit markets really start moving and transacting and spreads come in ... there is an opportunity for REITs or for other buyers ... to find some good opportunities.”

“We are pleased with the transaction activity we completed in 2022. Early in the year, we exited the Chicago market, which we believe did not offer sufficient long-term growth potential, and recycled those proceeds into higher growth opportunities. Midyear, we purchased The Confidante Miami Beach, which has been exceeding our underwriting and which will soon be transforming into the Andaz Miami Beach. ...

“The transaction markets remain challenging given economic uncertainty and restrictive financing markets. That said, we maintain considerable balance sheet capacity, which will allow us to be opportunistic and take advantage of dislocation. Additionally, we constantly look for ways to creatively grow and enhance the value of our portfolio, and we look forward to sharing updates on our investment activity as the year progresses.”

“Our combined acquisitions and dispositions activity has positioned us to produce better portfolio margins and to drive greater profitability over time. And while the transaction market in recent months has been relatively quiet, we expect debt maturities and brand mandated capital investment to increase the number of properties coming to market as the year progresses. With ample liquidity and over 20 years of transaction history, we are optimally positioned to grow our portfolio, when market conditions are right. …

“Importantly, higher interest rates have made private-equity participants in the market meaningfully less competitive. And a number of those players were unable to complete transactions that they had signed up in the latter part of last year. As a result, looking at the two deals that we closed last year, we were able to acquire those assets without being the high bid, because we did not have a financing contingency. And as we think about our ability to underwrite assets based on our experience in the space and our existing portfolio and our ability to act quickly to close without financing contingencies, as the market opens up, we have a meaningful competitive advantage. …

“We’ve been very purposeful and strategic in pursuing acquisitions, I really could say for the past 20 years, but specifically since the onset of the pandemic. ... As a result, we have a balance sheet that’s intact with significant capacity to acquire hotels, when pricing is appropriate for those hotels. ... Looking at the deals we have done since the onset of the pandemic, I highlighted the fact that they are yielding in excess of 8% unlevered after CapEx. And that’s even utilizing a year where there was massive disruption in the first quarter, as a result of omicron. We anticipate meaningful upside in those.

“We want to make sure on a go forward basis that we do good deals. And while we have the capacity to do a significant number of deals, we want to make sure that, every deal we do is additive to the portfolio that we currently have. I think as we think about the opportunities that may materialize, as we move into the latter part of the year, we certainly anticipate that there will be a meaningful increase in individual assets coming to market. But there will likely be smaller portfolios that will come to market as well. And as has been the case in the past, we’ll be active in underwriting those and we will transact when they meet our underwriting criteria.”

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