Lukas Hartwich, senior analyst at Green Street Advisors, joined REIT.com for a video interview at REITWeek 2016: NAREIT’s Investor Forum at the Waldorf Astoria New York.
Hartwich discussed the factors contributing to lagging fundamentals in the lodging sector. The most prominent one, he said, is weakness in business travel and spending. Hartwich pointed out that business travel accounts for about 75 percent of demand for lodging REITs.
Green Street’s new lodging demand indicator tool isn’t calling for a downturn, but it is pointing to some of the weakest growth in 20 years outside of a recession, he noted.
Meanwhile, Hartwich observed that the consensus view is that hotel asset prices are down by 5 percent to 15 percent. That presents an opportunity for lodging REITs.
“Right now there’s a very strong signal for hotel REITs to be selling assets and either paying down debt or buying back shares because they have this unique arbitrage opportunity,” Hartwich said. He explained that if lodging REIT stocks trade at significant discounts to the net asset value (NAV) of their portfolios, they can sell assets in the private market for 100 cents on the dollar and use the proceeds to repurchase similar assets in their own portfolio at a discount to NAV.