Another direction no one has mentioned is the possibility of a REIT merger between SPPR and HT. An article recently in the Wall Street Journal focused on the hot market of REIT mergers and with the intermixed board members this seems a logical proposition. The article mentioned another merger between high end and economy hotels that recently occurred. I do not have the link but it is food for thought.
REIT Merger Boom Is Brewing Peter Slatin, 05.04.11, 06:00 PM EDT Forbes Magazine dated May 23, 2011 At a time when most are focusing on luxury, boutique and convention hotels, amenity-light chain properties offer value.
In 2010 real estate watchers became very excited about two potentially big trends: initial public offerings and mergers and acquisitions. Unfortunately the consolidation wave never materialized, and the new stocks that were offered seriously lagged major REIT indexes. Last year investors stuck with the established REITS that had made it through the downturn, as they raised $47.7 billion in secondary stock offerings and unsecured debt. Overall REITs had a total return of 28%. As a group they snapped up $25 billion worth of individual properties.
The REIT IPO market is still struggling, and only two private property companies have completed offerings this year. Both are now well positioned to reap the benefits of access to faster, cheaper public market capital.
EMAIL PRINT REPRINT NEWSLETTER SHARE American Assets Trust (AAT, 22) raised more than $500 million in January, and since then its stock is up 7%. American Assets is a 45-year-old company based in San Diego that has a high-quality diversified portfolio of office, residential and retail properties. Its California and Hawaii portfolio is just 5% vacant--despite a national average in the double digits. In March it made an all-cash acquisition of a top-quality office building in Portland, Ore. leased mainly to government agencies. The deal structure brought in an exceptional yield of nearly 7%. While managing a diverse portfolio isn't for every REIT--or for most--American Assets' management group is experienced and capable.
Summit Hotel Properties (INN, 11) is yet another in a string of hotel REITs that have IPOed since 2009, including Chesapeake, Pebblebrook and Chatham. While I don't usually go for the amenity-light midscale chain properties that make up Summit's portfolio, it, too, has smart management that is experienced in this sector at a time when hotel buyers are fighting over so-called full-service hotels known as luxury, boutique and convention center properties.
The not-so-glitzy but cash-flowing hotels that Summit owns make up almost half of the hotel market. Most investors are ignoring the group even as the hotel market has recovered. Summit, with cash on hand, is staking out this territory and is likely to grow rapidly in size--and in dividend yield. Summit came public in February at $9.75 per share and is already up 15%. It's still cheap. Surprisingly there have been no mergers yet in the apartment or hotel sectors, where fundamentals are improving more rapidly than in any other property sector. Two hotel companies whose portfolios would fit well together--or easily fold into those of a high-quality owner--are DiamondRock Hospitality ( DRH - news - people ) andAshford Hotels. Ashford has aggressively cleaned up its balance sheet and is poised for growth or a merger. Of the two, buy Ashford HOSPITALITY TRUST (AHT, 12).