Trends In Hotel Capital Markets - Hotel Law Blog In Hotel Capital Markets David Loeb ... Feb 2010...
Transcript of Trends In Hotel Capital Markets - Hotel Law Blog In Hotel Capital Markets David Loeb ... Feb 2010...
Real Estate ResearchMay 4, 2010
Trends In Hotel Capital Markets
David LoebManaging Director, Senior Real Estate and Hotel Research AnalystRobert W. Baird & Co. [email protected] 765 7063414.765.7063
Please refer to Appendix - Important Disclosures and Analyst Certification on page 33.
Today’s TopicsToday s Topics
•Hotel debt capital markets far from healedp
•Hotel transaction market slowly improvingy p g
•Public equity market happily chasing hotelsq y pp y g
•Conclusions
•QuestionsQ
Baird Real Estate Research | 2
R l E D b C i l M kReal Estate Debt Capital Markets
Lots of Debt Outstandingg
Commercial and Multifamily Debt Outstanding - Year-End 2009
$3.38 Trillion of Outstanding Commercial/Multuifamily Mortgages
Government-sponsored t i
Savings institutions6%
Agency-and GSE-backed mortgage pools
5%
$3 38 o o Outsta d g Co e c a / u tu a y o tgages
Commercial bankingLife insurance companies
10%
enterprises7%
g49%
CMBS, CDO and other ABS issues
23%
Baird Real Estate Research | 4
Source: Federal Reserve
Refinancing Will Be Hot Topic for YearsRefinancing Will Be Hot Topic for Years
CMBS Issuance 1991-2009 (billions)
300
350
150
200
250
Non-US CMBS Issuance
US CMBS Issuance
50
100
Source: Bloomberg
01991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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Significant Maturities Across Property Typesg p y yp
CMBS Maturities 2010-2017 (millions)140,000
100,000
120,000
,
Retail
R id ti l
40,000
60,000
80,000 Residential
Other
Office
N/A
Industrial
0
20,000
,
2010 2011 2012 2013 2014 2015 2016 2017
Industrial
Hotel
Source: Bloomberg
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Another Maturity Wave Lies Ahead for HotelsAnother Maturity Wave Lies Ahead for Hotels
Hotel CMBS Loan Maturities By Year
$20
$14
$16
$18
$20
llion
s)
$8
$10
$12
Current
Delinquent
aid
bala
nce
($bi
$0
$2
$4
$6
Curr
ent u
npa
Source: Realpoint
$0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
and
be
yond
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Delinquency rates getting worseDelinquency rates getting worse
Hotel loan delinquency rate by month (as % of total CMBS hotel loans)
10.0%
12.0%
4 0%
6.0%
8.0%
0.0%
2.0%
4.0%
Source: Realpoint
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Spreads on Existing Debt are NarrowingSpreads on Existing Debt are Narrowing
CMBS Spreads
1,400
1,600
1,800
2,000
sury
800
1,000
1,200
ad to
10
Year
Tre
as
Super Senior AAA
AAA mezz
-
200
400
600
Spre
a
Source: Bloomberg
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The Problem: Extend and Pretend WorkedThe Problem: Extend and Pretend Worked
• Many lenders opted to work with borrowers, ignore delinquencies or offer more timeignore delinquencies, or offer more time
• Bet has been that cycle will turn up, increasing d bt i d ll t l ldebt service coverage and collateral value
• Smaller banks under increasing regulatory d l i h b d lpressure to deal with bad loans
• Still WAY too much debt coming due relative to available new debt
• Additional equity is the ultimate answer—property and entity level
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Transaction Markets
Hotel Transactions Are RecoveringHotel Transactions Are RecoveringUnited States Hotel Transactions
3550 0
31 0
46.0
28 24 29
30
2423 23
24
3130 30 31
25 25
30
35
35.0
40.0
45.0
50.0
d ($
000)
billi
on)
9 815.0
21.5
31.0
19
16
19
16 15
2123 23
21
15
20
15 0
20.0
25.0
30.0
r ke
y pr
ice
pai
on V
olum
ne ($
b
5.12.0 2.5 2.3 3.0 4.0
8.0
9.810.1
5.1 5.0 5.13.0
6.08.0
2.03.5
0
5
10
0.0
5.0
10.0
15.0
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 F
Aver
age
pe
Tran
sact
io
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
F
Transaction volume Per key
Baird Real Estate Research | 12
Source: Jones Lang LaSalle Hotels
Recent Hotel Sales Utilized Public CapitalRecent Hotel Sales Utilized Public CapitalRecent Hotel Transactions
Date Hotel RoomsPrice
Per key CommentsDate Hotel Rooms ($000s) Per key Comments
Feb 2010 Holiday Inn Express - Times Square 210 $56,500 $269 McSam to Hersha Hospitality. Reported 8.2% cap on 2010
Feb 2010 Candlew ood Suites-Times Square 188 $51,000 $271 McSam to Hersha Hospitality. Reported 8.2% cap on 2010
Feb 2010 Hampton Inn Times Square 184 $56 000 $304 McSam to Hersha Hospitality. Reported 8.2% cap on Feb 2010 Hampton Inn-Times Square 184 $56,000 $304 p y p p2010
Feb 2010 Sofitel Washington DC 237 $95,000 $401 Whitehall/GEM sold to LHO for 15.7x '09 EBITDA (ex-inauguration)
March 2010 W New York - The Court/Tuscany 328 $78,000 $238 Starw ood sold - w ill lose W flag- convert to St. Giles Hotels
M h 2010 A b d E t H t l Chi 285 $25 000 $88 I Sh b ht f P t D d D id BMarch 2010 Ambassador East Hotel, Chicago 285 $25,000 $88 Ian Shrager bought from Peter Dumon and David Bossy
March 2010 Marriott - Houston Energy Corridor 206 $50,750 $246 Apple 9, bought from MWE Houston Property LP
March 2010 Raffles L'Ermitage - Berverly Hills 119 $44,800 $376 Viceroy bought from Colony
M h 2010 F S S F i 277 $107 500 $388 W tb k b ht 67% i t t f Mill i P tMarch 2010 Four Seasons San Francisco 277 $107,500 $388 Westbrook bought 67% interest from Millennium Partners
March 2010 Four Seasons Miami 221 $60,000 $271 Westbrook bought 67% interest from Millennium Partners
March 2010 Ritz-Carlton Boston 193 $37,500 $194 Westbrook bought 67% interest from Millennium Partners
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Source: Baird Research. Highlighted transactions involved public company purchasing the hotels
Recent Hotel Sales Utilized Public CapitalRecent Hotel Sales Utilized Public CapitalRecent Hotel Transactions
D t H t l RPrice
P k C tDate Hotel Rooms ($000s) Per key Comments
March 2010 Hyatt Boston 498 $112,000 $225 Hyatt sold to Chesapeake, reported to be 7% cap TTM
March 2010 Sheraton, Pleasanton, CA 170 $12,300 $72 Mesa West Capital sold
Purchased by Shenzhen New World in foreclosureMarch 2010 Marriott Dow ntow n Los Angeles 469 $60,000 $128 Purchased by Shenzhen New World in foreclosure previously Manco Capital. $13 mm renovation scheduled
March 2010 Hampton Inn and Suites, Beale Street Memphis
144 $20,000 $139 Fairw ood Hospitality acquired
March 2010 Tow nePlace Suites, Panama City, FL 103 $10,600 $103 Apple 9 acquired
April 2010 St. Regis Monarch Beach 400 $230,000 $575Citi took over w ith mezz in late '09-sold to Washington Holdings. Cancelled $230 mm first, now reported to have $165 mm first and $40 mm mezz
April 2010Marriott and Independent in Rochester, MN, Courtyard LAX 653 $83,000 $127
9.6x 2009 EBITDA. Sunstone bought these hotels from their lender after tried to w alk aw ay
RLJ D l t ld t Ch th L d i T t Will tApril 2010 Portfolio of 6 Homew ood Suites 813 $73,500 $90 RLJ Development sold to Chatham Lodging Trust. Will get $11 million capex.
April 2010 Embassy Suites, Tampa Convention Center
360 $77,000 $214 RLJ Development purchased from Whiteco Industries
May 2010 Hilton Checkers, Los Angeles, Courtyard Anaheim
341 $71,000 $208 Chesapeake purchased from Tarsadia. Baird estimates 7.25% blended cap
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Source: Baird Research. Highlighted transactions involved public company purchasing the hotels
Public Companies Play Lead RolePublic Companies Play Lead Role• 28 institutional deals and 6,500 rooms uncovered by Baird Research so far in 2010$1 34 billi f t• $1.34 billion of assets
• Public companies have emerged as key capital providers, with ability to recapitalize larger properties
Summary of YTD Hotel Deal Flow
Number of Hotels Dollar Amount
Public
Ownership of Existing Hotel Rooms
Private40% Public
47%Private
4%
Public60%
40% 47%Private53%
Private
Baird Real Estate Research | 15Source: Baird Research
Private96%
Approximately 4.8 million U.S. hotel rooms
Transaction Case Study: HershaTransaction Case Study: Hersha
Deal Specifics:• Acquired three limited service hotels in Times Square area on 39th
between 8th and 9th. • Paid $163.5 million for 582 rooms ($281k/key)
Company estimates 2010E cap rate of 8 3%• Company estimates 2010E cap rate of 8.3%
Deal Financing:• Funded primarily with newly issued equity• Completed TWO equity offerings totaling $272 million• Deals announced, but not closed, prior to first equity raise• Both equity offerings were well over-subscribed• Hotels owned with no property debt today
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Transaction Case Study: LaSalleTransaction Case Study: LaSalle
Deal Specifics:• Acquired Sofitel Washington D.C• Paid $95 million for 237 rooms ($401k/key)• Baird estimated cap rate of 5.7% on 2009 EBITDA (ex-inauguration)
Deal Financing:• Funded with newly sold equity AFTER the deal was announced and closed• Funded with newly sold equity AFTER the deal was announced and closed• Today hotel is owned without property debt
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Transaction Case Study: SunstoneTransaction Case Study: Sunstone
Deal Specifics:• Acquired 3 hotels: Marriott & Independent in Rochester, MN, Courtyard LAX• Paid $83 million for 635 rooms ($127k/key)• Baird estimated cap rate of 8.75% on 2009 EBITDA
Deal Financing:• “Acquired” by paying release fee as part of returning large portfolio from • Acquired by paying release fee as part of returning large portfolio from
lender; Sunstone just kept ownership, while handing keys on remaining asset to lender
• Funded with excess cash on hand as Sunstone has no credit facility• Today hotels owned without property debt
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The Solution: Become a SellerThe Solution: Become a Seller
• Not that much on the market and lots of buyers looking
• Cap rates are down prices are up• Cap rates are down, prices are up• Public companies have a lower cost of capital
Lesson from 2007: It pays to swim against the tide so take your profits against the tide, so take your profits
when others see more value than you do
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P bli E i M kPublic Equity Markets
Don’t Look to Private EquityDon t Look to Private Equity
Real Estate Private Equity Fund Raising: Capital Raising
37.3
29.831.6 31.8
39.5 39.5
30
35
40
45
lion)
23
19.8
16.7
15
20
25
30
pita
l Rai
sed
($bi
ll
10.3
2.5
0
5
10
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Cap
Source: Preqin
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PE Raising Less than TargetingPE Raising Less than Targeting
Real Estate Private Equity Fund Raising: Final Closing as a Percentage of Target
34%
31%35%
40%
82% of 2009 funds on the road fell short of fund raising goals compared to only 20% in
20%18%
20%
25%
19%
24%
27%
20%
25%
30%
ised
($b
illio
n)
20072008
2007
3% 4%
13%15%
10%8% 8%
4%
12%
4%5%
10%
15%
Capi
tal R
ai
2009
Source: Preqin
3% 2%0%
0%
5%
Below 49% 50% - 70% 80% - 90% 100% 101% - 120% 121%- 150% Above 150%
Baird Real Estate Research | 22
Hotel Stocks Up Sharply As Investors Seek Recovery Investment Vehicles
Baird Hospitality and Major Stock Indices
Since 2000 Since 2009
3,500
4,000
4,500 Since 2000
2,000
2,500Since 2009
2,500
3,000
1,500
1,000
1,500
2,000
500
1,000
0
500
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
0
Jan-
09
Apr-
09
Jul-0
9
Oct
-09
Jan-
10
Baird Real Estate Research | 23
Source: Baird Research, SNL Financial
Hospitality Index S&P 500 RMZ Hospitality Index S&P 500 RMZ
Public Markets Discounting the RecoveryPublic Markets Discounting the Recovery• Public market EBITDA multiples are at cyclical peaks • Private market cap rates are at cyclical lows
Historical Hotel REIT EBITDA Multiples for Select Companies
All hotel stock buyers appear to be discounting a strong recovery
16.918.0
20.0
Multip
le
LHO
11.6 11 312 0
14.0
16.0
d Ye
ar EBITD
A M
HST
DRH
AHT
HT10.4
11.3
8.0
10.0
12.0
Forw
ard HT
AVERAGE
Baird Real Estate Research | 24Source: Baird Research
2007 2008 2009 2010
Public Companies Actively Raising Equity . . .Public Companies Actively Raising Equity . . .
Public Hotel Equity Raised Since 2008
Completion Equity Completion EquityIssuer Date Proceeds ($000s) Issuer Date Proceeds ($000s)Hersha Hospitality Trust 05/13/08 65,340 Sunstone Hotel Investors, Inc. 10/16/09 165,600Apple REIT Eight, Inc. 06/30/08 950,000 Pebblebrook Hotel Trust 12/08/09 402,500pp g , , ,Orient-Express Hotels Ltd. 11/14/08 55,185 Pebblebrook Hotel Trust 12/08/09 2,700DiamondRock Hospitality Company 04/14/09 86,451 DiamondRock Hospitality Company 12/31/09 49,383LaSalle Hotel Properties 04/23/09 124,861 Host Hotels & Resorts, Inc. 12/31/09 157,350Host Hotels & Resorts, Inc. 04/24/09 499,950 Orient-Express Hotels Ltd. 01/12/10 138,000Orient-Express Hotels Ltd. 04/28/09 148,781 Hersha Hospitality Trust 01/14/10 155,250Sunstone Hotel Investors, Inc. 05/21/09 103,500 MHI Hospitality Corporation 01/15/10 3,412Sunstone Hotel Investors, Inc. 05/21/09 103,500 MHI Hospitality Corporation 01/15/10 3,412LaSalle Hotel Properties 06/10/09 147,500 Chesapeake Lodging Trust 01/21/10 151,717Hospitality Properties Trust 06/18/09 231,438 Chesapeake Lodging Trust 01/21/10 3,000Hersha Hospitality Trust 08/04/09 14,250 Chesapeake Lodging Trust 01/21/10 25,517Hospitality Properties Trust 08/11/09 158,700 LaSalle Hotel Properties 03/02/10 113,821DiamondRock Hospitality Company 09/11/09 53,504 Hersha Hospitality Trust 03/19/10 117,300Host Hotels & Resorts Inc 09/11/09 130 000 Chatham Lodging Trust 04/15/10 172 500Host Hotels & Resorts, Inc. 09/11/09 130,000 Chatham Lodging Trust 04/15/10 172,500DiamondRock Hospitality Company 10/08/09 21,495 Chatham Lodging Trust 04/15/10 10,000
Total $4,459,005Note: Hyatt IPO raised an additional $1.1 billion from public hotel investors, but was not new equity
Source: SNL Financial and Baird Research
Baird Real Estate Research | 25
Source: SNL Financial and Baird Research
. . . and Using Proceeds for De-leveraging. . . and Using Proceeds for De leveraging
• The new normal is expected to be much lower financial leverageT d ’ d bt t EBITDA f 5 3 l k lik 3 8 2007 EBITDA b i • Today’s debt to EBITDA of 5.3x looks like 3.8x on a 2007 EBITDA basis, when EBITDA was roughly 40% higher than today
• Hotel companies are deleveraging by unencumbering specific assets or through purchasing with 100% cash
Historical Hotel REIT Leverage: Debt /EBITDA for Select Companies
6.67.0
8.0
4.34.5
5.3
5.0
6.0
/ EBITDA
Multip
le
LHO
HST
DRH
HT
2.0
3.0
4.0
2007 2008 2009 2010
Debt / HT
AVERAGE
Baird Real Estate Research | 26
Source: Baird Research
2007 2008 2009 2010
Public Markets Offer Solution to PrivatePublic Markets Offer Solution to PrivateMarket Leverage
• Rescue financing, 2010 (and beyond) edition• Valuations quite attractive• Large and small portfolios may seek public exit• Opportunistic buyers looking for public capital (blind pool IPOs)(blind pool IPOs)
• Now-private companies may seek public exit –Hilton is best example of possible IPO, but there could be a number of others
• Looming debt maturities can be catalyst, but public valuation can create great outcomespublic valuation can create great outcomes
Baird Real Estate Research | 27
“Blind Pool” IPOsBlind Pool IPOs• Public market investors becoming increasingly skeptical• Bar is being raised for each successive dealBar is being raised for each successive deal• Pristine corporate governance is a must• Differentiated business plan or credible “twist” required• Management reputation / track record is important• $767 million raised so far, another $525 million is trying
Public Hotel Equity Blind Pools, Near Blind Pools, Attempted Blind Pools, and Blind Pool Wanna Be
Completion EquityIssuer Ticker Date Proceeds ($mil)
CompletedpPebblebrook Hotel Trust PEB 12/08/09 $405Chesapeake Lodging Trust CHSP 01/21/10 $180Chatham Lodging Trust CLDT 04/15/10 $182
$767In registrationPyramid Hotels and Resorts PYR 12/08/09 $275
Baird Real Estate Research | 28
Pyramid Hotels and Resorts PYR 12/08/09 $275Reunion Hotel Trust RBSC 01/21/10 $250
Source: Baird Research
ConclusionsConclusions• Extend and pretend—So crazy, it just might work! And has, so far
• Now could be a great time to sell assets
• Public equity investors are hungry for real companies; too little stock to go real companies; too little stock to go around today, as investors keep looking for more ways to invest in hotels
• By this time next year, expect 3-6 more public hotel companiespublic hotel companies
Baird Real Estate Research | 29
Questions?
To Get Our Research, Send Full ContactTo Get Our Research, Send Full Contact Information to:
David Loebdloeb@rwbaird [email protected]
414-765-7063
• Hospitality Monthly• Industry and company research• This presentationThis presentation
Baird Real Estate Research | 31
Baird Hospitality Real Estate ContactsBaird Hospitality Real Estate Contacts
Research Investment Banking Trading
David [email protected]
Mark Decker, [email protected]
Mike Lanigan [email protected]@rwbaird.com
414.765.7063
Andrew J. [email protected]
Mark Decker, [email protected]
Jeff [email protected]
Brian [email protected]
Justin Glasgow
Equity Capital Markets
Rick [email protected] 609 5480g
312.609.5480
Baird Real Estate Research | 32
Appendix – Important Disclosures and pp pAnalyst Certification
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