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:
- 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.