1H 2013 Total Hotel Transactions Increase Slightly (YoY); Portfolio Transactions Begin to Accelerate
September 5, 2013 9:53pm
September 5, 2013 - Lodging Econometrics' (LE's) report: For 1H 2013 Total Hotel Transactions and Property Transfers improved to 604 hotels/ 85,200 rooms, up 240 hotels over the 1H 2012 total of 364 hotels. Of the 240 hotels, 216 were for hotels sold within portfolios. Individual transactions at 334 hotels are up only 32 hotels Year over Year (YoY). M&A Property Transfers are non-existent but are expected to accelerate as the first leg of the real estate cycle is likely to draw to a close over the next 12 – 18 months. Transaction volume is a long way from the record of 3,218 hotels/ 441,617 rooms set in 2007, just as the financial crisis and the great recession was getting underway.
Selling Price Trends
An unusually high 508 hotels out of 604 total transactions and transfers reported selling prices in 1H. Selling prices soared to $130,119 per room up 15% over year-end 2012. It’s the highest average selling price per room ever recorded by LE, exceeding the previous record of $118,949 set in 2007. Prices reflect near record-low interest rates, which always maximizes prices and the fact that industry performance has nearly recovered to prerecessionary peaks.
Seller and Buyer Activity
The period from late 2012 through 2014 will represent the conclusion of the first upward leg of the real estate cycle. It’s characterized by near record low interest rates, increased profitability in hotel operations and strong expectations about future business conditions, all of which provides investors an opportune time to dispose of their assets acquired earlier at recessionary lows. It’s an attractive time to harvest profits from their real estate appreciation.
In 1H 2013, dollar volume for all transactions with a reported selling price soared to 8.1B. It’s the highest two-quarter activity level since 2007.
Privately Held Hotel Companies, at 1.8B, continued their disposition activities and are on pace for their biggest year since 2007. Private Equity Funds have accelerated their selling activity substantially to 2.6B and will accelerate at an even faster pace as the IPO market opens up. REITs at 2.5B have not been heavy sellers since 2007 but those who own upscale and midscale assets are rushing to market to take advantage of ideal selling conditions.
Conversely, it’s also an ideal climate to be a buyer. Institutional investors, both Private Equity Funds and REITs, are looking to purchase assets to take advantage of greater profitability potential and further appreciation opportunity promised in the second leg of the real estate cycle. Investors are hoping the economy will break out to the upside away from its slow but steadily improving trend lines.
In the larger economy, IPO issuances in 1H 2013 are at the highest level since 2007. Private Equity Funds with hotels in portfolio have taken notice and have filled the IPO Pipeline for 2013 – 14 with hotel companies like: Hilton, LaQuinta, Extended Stay America, etc. Depending on scheduling, the next 12 months could be the highest hotel transaction property transfer period recorded, possibly exceeding the peak set in 2007.
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