by Lawrence Meyers | February 6, 2012 9:10 am
With additional signs that the economy is improving, businesses travel is picking up, along with consumers who have decided to start spending those discretionary greenbacks again. Also, demand is rising, but new hotel supply remains constricted. This supply/demand imbalance allows hoteliers to raise room rates, which pushes up both the ADR and RevPAR metrics. Couple those with increasing occupancy rates, and hotels are seeing a virtuous cycle. Indeed, Smith Travel Research just reported the last week of January saw all three metrics rise significantly.
So which hotel chains and REITs are best positioned to take advantage of the recovery?
I’m betting on upscale, upper-upscale and luxury segments to do very well. Business travelers don’t stay at Travelodge, after all. In addition, with luxury retailers exhibiting strong sales and earnings increases, it’s apparent that rich folks are spending money again.
I personally prefer hotel REITs because they offer diversification across chains. I’ve been a longtime fan and owner of Ashford Hospitality Trust (NYSE:AHT), with its portfolio of over 160 hotels spread across the nation in the quality scale range mentioned above. AHT also is setting up an internally run $20 million hedge fund to invest in other public hotel companies, demonstrating the depth of its experience. Ashford Hospitality also has high insider holdings (9%) and yield 4.3%. Both before, during and after the recession, AHT has outpaced nearly all of its peers on every metric that matters.
Pebblebrook Hotel Trust (NYSE:PEB) owns 20 high-end hotels across the country and has been very careful with its leverage. PEB’s dividend is 2.1%, and its efficient debt management should keep Pebblebrook on your radar and in your portfolio.
LaSalle Hotel Properties (NYSE:LHO) also is worth a look. It owns a lot of interesting boutique hotels in some very upscale locations. For example, I’ve been to LaSalle’s Viceroy property in Santa Monica many times, and it’s a trendy, hip and expensive property. LHO sits on $277 million in cash on only $645 million in debt, and pays a 1.2% dividend.
But what if you want to ignore my advice and go for the chains? I’d go with Wyndham Worldwide (NYSE:WYN), not so much for its hotels — which actually skew well away from the upscale segments — but because of its timeshare business. I love timeshares. Build a hotel, sell each room 52 times, and many times you get to finance the sales at rates higher than where you borrowed to build the hotel.
If you want to place a bet on China, you could have a look at China Lodging Group (NASDAQ:HTHT). The company owns 473 hotels in China, with more than 160 in development. The company just switched CEOs, replacing the current one with the chairman. Because the company only files with the SEC annually, wait and see what 2011’s financials look like. If they improve on 2010’s, then China Lodging might be a good growth play.
As of this writing, Lawrence Meyers was long AHT. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.
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