Big hotel REITs stand to gain from government debt relief - WSJ
Jun. 29, 2020 12:06 PM ET|About: Ashford Hospitality Trust, ... (AHT)|By: Liz Kiesche, SA News Editor
Though lawmakers and businesses are urging the U.S. government to offer debt relief to hundreds of small hotel owners who had tapped the bond market for capital, big real estate firms may be the biggest beneficiaries of such a plan.
According to analysis by hotel union Unite Here International, real estate owners with properties that are financed with troubled commercial mortgage-backed securities may have the most to gain, the Wall Street Journal reports.
Ashford Hospitality Trust ( AHT +7.8%) and Braemar Hotels & Resorts ( BHR +15.2%), both affiliated with Dallas businessman Monty Bennett, have loans valued at almost $2.3B with special servicers, according to the analysis of public filings and data from data research Trepp LLC.
Colony Capital ( CLNY +2.4%), a private equity firm run by Thomas Barrack, owes ~$2B and Brookfield Asset Management ( BAM +0.2%) has $723M owed in loans with special servicers.
The problem with holding CMBS debt during the pandemic is that the market isn't designed for temporary payment relief. Borrowers who need to suspend payments must with with special servicers, which are hired to negotiate on behalf of the bondholders who own the loans.
"Giving hoteliers debt on top of the debt that they already can't repay seems foolish," said Bennett during a webinar interview last month. "The industry needs grants along the lines of what the airline industry has received."
Hotels were hit particularly hard by the pandemic as travel essentially stopped during the worst of it; occupancy rates fell to below 25%. Since then, they've rebounded to more than 40%, but resort areas and big cities are still well below that.
The Unite Here analysis shows that the two biggest borrowers represented ~31% of the $14B of hotel CMBS debt with special servicers as of May.
It still isn't known if the Fed and Treasury will enact specific relief for borrowers who used the CMBS market, or if they do, how they will handle larger borrowers vs. smaller ones.
The Fed, though, cannot provide grants; it can only provide loans. Congress would have the power to provide grants to the industry.
The largest number of troubled hotel loans tracked by Trepp — more than 200 — had balances of $20M or less, showing that most of the borrowers are smaller businesses.
Ashford had originally applied for and received at least $70M in Payroll Protection Program forgivable loans, but returned those after the Treasury clarified that the loans aren't intended for companies with access to capital markets.
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Picked up some trading shares of the AHTpG and will either hold and/or peel off at $9.50/share or higher. Dividends have been suspended but are cumulative payers. Position still small but based on the news today, thought the Risk/Reward would make a good speculative hold.
EKS |
