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Plummeting Share Price Slows Hotel REIT's Buying


Commercial Real Estate Direct Staff Report

Plummeting prices for shares of Chesapeake Lodging Trust this summer caused the REIT to halt its investment activity and shrink its pipeline of prospective deals, according to Douglas W. Vicari, its chief financial officer.

The Annapolis, Md., REIT's share price tumbled between July 1 and late Sept. 30 by 33 percent to $11.41 each. That prompted it to re-trade a number of deals it had in the works and become less aggressive in both its buying and bidding plans. Its shares have since recovered, to $14.44 each.

And it's not the only hotel REIT to pull back on acquisitions because of volatile share prices

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"REIT stocks have not been good," said Bruce Blum, a founding principal of Chartres Lodging Group, a San Francisco hotel investor. But, he added, "This is a window for private-equity investors."

Francis Nardozza, chief executive of REH Capital Advisors, a Fort Lauderdale, Fla., investment-advisory firm, expects sovereign wealth funds and Chinese groups to pick up the slack left by the slowdown among REITs.

"When our stock price tanked in the summer, we had four deals working and went back to the sellers," Vicari said. He spoke at the Global Hospitality & Lodging Investment Summit in Manhattan, sponsored by iGlobal, a New York conference organizer. "We tried to reduce prices, and all but one told us to come back in six months."

He added that the REIT's pipeline of deals being worked on has dropped to a nominal number from 15 a year earlier.

Chesapeake had been among the most active buyers of hotels through early July, when it bought five hotels for $347.6 million, and had talks under way on another four purchases. Since then, it acquired just one hotel, the 613-room Denver Marriott City Center in Denver.

"Over the next quarter or two, our buying will be lighter than it was in the past. Pause is the word we use," Vicari said. Chesapeake owned 11 properties with 3,390 rooms in five states and the District of Columbia as of Sept. 30.

REITs that tried to renegotiate deals after their stock prices tumbled include Chatham Lodging Trust, whose share price dropped 40 percent between July and October. Chatham, along with partner Cerberus Capital Management negotiated a 9 percent reduction in the price both had previously agreed to pay for 64 Innkeepers USA Trust hotels. They ultimately bought them for $1.02 billion.

Among the hotel REITs to see steep share-price declines between July 1 and Sept. 30 are Ashford Hospitality Trust Inc., whose price fell 44 percent, but has since recovered somewhat, and FelCor Lodging Trust Inc., which saw a 59 percent drop in its share price.

Article originally published in Commercial Real Estate Direct.

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