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We like lodging but buying HOT because you think it is going private is not a sound investment strategy.

Theflyonthewall.com recently reported that there was go private chatter related to Starwood Hotels.  No offense to HOT shareholders – lodging stocks look interesting to us too – but the chances of a large company going private in our space over the near term are very slim.  Here is why:

  • Debt markets are not available for deal leverage
    • Max leverage for super high quality stuff is 5.5x and for meat and potato, it's 4.5x
    • All the peak deals were done in the CMBS markets, which aren’t really back
  • HOT does not own enough real estate for LBO.  Blackstone was able to take Hilton private given the frothy financing environment for real estate.
    • It’s not that cheap
    • Fritz likes being public and likes his job, so we don’t think the interest is there.  There is no one on the board likely to encourage them to do it
  • CEOs are not interested in M&A.  They are chasing new Greenfield opportunities.
  • M&A deals over the last 5 quarters or shall I say lack thereof:
    • ProLogis/AMB
    • Ventas/NHP
    • Corporate properties associates ($916MM)
  • There was the Sonesta deal yesterday.  However, it's a micro cap transaction and is more of an asset sale rather than M&A since their main asset sold - Royal Sonesta Hotel Boston - accounted for 86% of the purchase price.