Yes, AHT is not as liquid, and the preferreds reflect that. But it's flowing cash in this hell hole of a year, so I don't expect them to have any trouble, plenty of time before anything serious comes due.
So, regarding trains and stations, do tell? I picked up some ATPG today after reading an article in SA and doing dd. The latest presentation and webcast does a pretty good sales job, management argues for a $100+ NAV. Not my usual, they don't pay out anything, but the 12-18 month value proposition is too good to pass by.
People in the board are too young to know what you are talking about... the '80's where when real estate firms invested in a looser but made money with the tax deductions. Reagan & Tip O'Neill fixed that by limiting the losses you could claim from those deals on tax return.
These REITS seem pricey to me too... and I might sell SHO tomorrow for other reasons... not that I really want to but I need the liquidity to jump on a couple of trains that are about to leave the station.
These boards are for trading tips so I hope you do not mind if I comment on AHT. It lacks liquidity... not as bad as BEE but not in the same ballpark as SHO or better still DRH. And its equity represents 29% of its assets which means it might be worthless if the properties are adjusted to market value.
In the absence of some very specific moves BEE will come down under $2 very soon. I am positive.
I was in taxation with a real estate emphasis in the early 80's, and summer was a second busy season for me, putting together forecasts for private offerings, getting the good old 2 to 1 write off. I used to work until 6AM penciling out spreadsheets, then I'd sleep for a couple hours while drafts were typed, and come back in to start the process over again for the next deal, all the while puffing ciggies like a chimney and drinking coffee all day. Amazing one lived through that kind of abuse! Just about every deal I was involved in went back to the bank eventually, when the passive loss rules spoiled the fun.
I'm very surprised SHO is holding up here, especially in relation to AHT, which is performing better in hotel operations (never mind their ill-advised foray into high finance). I'm holding preferreds for both, and I'd like to be in the common eventually, but not up here. If that train leaves the station without me, oh well, but I won't pay $7. Or AHT above $3 for that matter. A return to cash distribution for the common on these puppies is just too far out, 2012 maybe? Probably they'll have losses to cover operating taxable income until then.
I lived through the mid-80's mess with real estate.
There is a glut of office buildings and commercial properties... Hotels... there is glut of those too. But the luxury end is more supplied constrained and it show it in the share price.
I just bought SHO this morning... DRH was too pricy and BEE too risky at its current price. And I wanted a position in the sector and thought SHO offered the best value. But almost all hospitality REITS are somewhat overvalued at the moment... just a matter of degrees.
Curiously, you could see a scenario where the opposite could be true. Since hotels are a trade or business, if lodging came back strong the enterprise value of the hotel as a going concern could make the real estate value moot. In fact, the real estate value of a hotel is already mostly irrelevant given that the highest and best use of the property can't be changed, at least in ordinary circumstances. In that light, a hotel is like a factory building to a manufacturer, part of the necessary infrastructure to generate earnings, but not particularly relevant to the value of the manufacturer as a going concern.
On the other hand, the value of an office building is pretty much just the present value of the rents, depending on what the going rate is. It's just real estate, the business is the asset. Real estate in general could be hugely depressed without demand, while a hotel could be cooking so long as people travel. Probably the prospects for the two businesses are related by the state of the overall economy, but one could imagine a situation where commercial real estate could suck for a long time while general business conditions were returning to normal. The mid 80's for example (due to tax law).
Hotels are a little different... they have a lot of volatility so lenders are conservative. To be an hotel REITS you have to have more equity than to own office buildings for example.
The same way with investments... You will also see that they have on going investment programs... it takes more investment to own an Hotel than to own an office building.
Liquidity, debt compared to market cap and cash flow are the only metrics I would pay attention to. Even debt can be misleading, classically in the context of real estate one wants as much debt as one can handle in order to derive an efficient return on capital. It's a lot different now of course, where real estate values may actually be deflating, and high levels of debt threaten survival.
Is not that difficult. Not with Hotel Reits. That is because the loan covenants are restrictive... if the loan value rises to 80% of the property value the loan is in default.
You also can look for peers and gauge the relative discount from book at which they trade. You are not trying to split peas... just get an idea. Do these two things and some of them will surprise you with how cheap they are.
Then cross check to liquidity... and invest in one that sells at a discount from tangible book in line with its peers and that also has cash. There is just a few. SHO is one... BEE does not have liquidity that is why it can't trade at this level.
Well, tangible equity might be high, but that's probably just a reflection of their recent purchase at relatively high prices. Generally speaking, book value is meaningless.
Example, company A owns hotels it bought in the 80's, and their depreciated book value is $500M. Company B buys the hotels for $1000M. These hotels now have twice the tangible book value on company B's books, but they're the same asset. Historical cost is GAAP crap, and makes tbv comparisons very difficult.
The saving grace with BEE and other well run hotels was that they where not terribly leveraged. Luxury hotels where all overexposed to the California market but BEE's properties are fewer as a % of their portfolio and better.
To me the attractiveness of BEE lies on the discount from tangible equity at which it trades. It is very favorable in comparison with others.
I do not think that you will need to wait a decade for them to turn around. I think it will be more like a year. Again... courtesy of the conservative balance sheet they has BEFORE the recession. I also like DRH for exactly the same reason but it is pricier than BEE.
This one (SHO) I sold this morning near the high. The California properties weight it down more than the others. BUT... keep an eye on if AFTER the 3Q results... it will drop to attractive levels again.