REITs had a rough 2022 and many have had an even worse five year stretch. It has been a particularly tough stretch for lodging REITs. It’s hard to imagine a worse operating environment for those who own and operate hotels than the last three years. The pandemic decimated demand for multiple years and now interest rates have risen at the fastest pace since the 1980s which puts pressure on REITs from multiple angles. Owning real estate involves employing high degrees of leverage so when interest rates rise the cost of doing business goes up because financing is so much more expensive. On top of that, many investors look to REITs to generate yield and when safer fixed income sources become more attractive investors flee REITs, making interest rate increases a double whammy for the stocks. Given this backdrop, who in their right mind would want to own a REIT? Naturally when a segment of the market is this out of favor I can’t help but look deeper.
Thanks for sharing! I'm curious if Park Hotels could ultimately be a target of a take private transaction given the factors you mentioned. In particular, the points around the assets trading at less than replacement costs, an out of favor asset class, and the fact that many of these assets are irreplaceable in terms of their location, etc. all sounds a lot like what Brookfield Asset Management looks for in terms of real estate investments.
Thanks for sharing! I'm curious if Park Hotels could ultimately be a target of a take private transaction given the factors you mentioned. In particular, the points around the assets trading at less than replacement costs, an out of favor asset class, and the fact that many of these assets are irreplaceable in terms of their location, etc. all sounds a lot like what Brookfield Asset Management looks for in terms of real estate investments.