As an avid investor in the finance world, I am always interested in what major players like Blackstone Inc. (BX) are buying in the public capital markets. With over $1 trillion of capital under management, Blackstone is the world’s largest private equity group, with a significant portion invested in real estate.
According to recent reports, Blackstone has been vocal about the potential opportunities in the public real estate investment trust (REIT) market. After the crash in 2022, REITs have been trading at steep discounts of 30-50% relative to the fair value of their assets.
Blackstone has taken advantage of these discounts by acquiring over $30 billion worth of REITs. Notably, they have invested in Mid-America Apartment Communities, Inc. (MAA), as well as smaller hotel REITs like First Industrial Realty Trust (FR), Sunstone Hotel Investors (SHO), Apple Hospitality REIT (APLE), and Chatham Lodging Trust (CLDT).
The Most Compelling Opportunity: Chatham Lodging Trust
While all five REITs present interesting investment prospects, Chatham Lodging Trust (CLDT) stands out as particularly compelling. Despite being a smaller REIT with a market cap of $480 million, Blackstone’s investment suggests a bullish outlook for the company.
One of the key reasons CLDT is appealing is its significant investment in extended-stay properties, which now represents almost two-thirds of its portfolio. Blackstone’s strong conviction in the extended-stay model is evident through its previous acquisitions of Extended Stay America and WoodSpring Suites facilities, where extended stays are popular.
Extended-stay properties offer a unique blend of affordability, convenience, and flexibility, making them attractive to remote workers, price-conscious travelers, and construction workers engaged in infrastructure projects. The long-term trends favoring extended-stay properties include the growth of remote work, the rise of price-conscious travelers, and increased demand from infrastructure investments.
Despite its compelling investment thesis and strong portfolio, CLDT is currently undervalued. With an implied cap rate of 9% based on trailing net operating income (NOI) and 10.1% based on pro forma NOI, CLDT’s valuation is unusually low. This undervaluation may be attributed to delayed recovery due to the cancellation of intern business in 2023 and its current focus on debt reduction instead of dividend payouts.
However, CLDT’s management expressed confidence in a recovery, especially in Silicon Valley and Seattle, as well as the return of intern business in Austin. They anticipate substantial internal growth and believe that reaching 2019 revenue per available room (RevPAR) levels in 2024 could lead to a significant increase in portfolio RevPAR and funds from operations (FFO) per share.
Despite the risks and uncertainties associated with increased competition from platforms like Airbnb, Blackstone’s investment in CLDT indicates their confidence in its potential. While extended-stay properties offer a different experience than standard Airbnb rentals, competition may arise for longer-term stays. However, the unique advantages of extended-stay properties, such as larger rooms, kitchens, and dedicated services, provide a competitive edge.
As an investor considering CLDT, it is essential to weigh the potential risks and rewards carefully. Increased competition from Airbnb-like platforms and the company’s focus on debt reduction rather than dividends are factors that should be taken into account. However, the CEO’s confidence in the share price and insider purchases suggest a positive outlook for CLDT.
While every investor has their individual investment strategies, Blackstone’s interest in Chatham Lodging Trust highlights the potential opportunities in the REIT market. CLDT’s heavy investment in extended-stay properties, undervaluation, and strong portfolio make it a compelling investment prospect worthy of consideration.
As always, conducting thorough due diligence and monitoring potential risks, such as increased competition from platforms like Airbnb, is crucial when making investment decisions. By staying informed and assessing opportunities like CLDT, investors can position themselves for potential success in the dynamic world of finance.