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Log In / Register | May 25, 2018

Hotels Poised for Best Performance in REIT Sector

According to Seeking Alpha, a securities news site, hotels are positioned for the best performance among REITs in 2013.

Blue MauMau readers are more interested in the owning and running of hotels rather than investing in REITs, but writer Clark, who is long on several hotel REITs, does some number crunching along with a consideration of practicalities. These may be helpful to owners in doing their own analysis to see if his numbers add up and his scenarios make sense as they set up their own plans for 2013.

In this frenzy, only the hotel sector [among REITs] remains untouched as investors do not want day to day revenue which could disappear at the first sign of crisis. Consequently, it is undervalued while the rest of REITs are pricey. — Dane Clark, contributor, Seeking Alpha

Clark professes to be very bullish on hotel REITs, writing:

Going forward into 2013, I believe two catalysts will emerge that will vault the hotel sector to outrageous returns, improving fundamentals and fair market treatment.

Following a table of vital hotel statistics for 15 hospitality REITs and another of their FFO/ Total Revenue MRY expressed as a percentage, we read further that

The Hotel REIT average FFO/total revenue of 12.77% means that approximately $1 gets through to FFO from every $7.83 of revenue. Since the 5.1% increase from ADR is to revenue (not FFO) and virtually every dollar of it will get through, the increase to FFO will be closer to (5.1% X 7.83) or 39.94%. I don't even need to tell you how huge 39.94% FFO growth is.

Making such predictions is a slippery slope, and several caveats are issued along the way.

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