Company: Hospitality Properties Trust
Time in current role: 12 years
Currently reading: “Mayflower” by Nathaniel Philbrick
Since becoming president of Hospitality Properties Trust in 1996, John Murray has pursued a conservative strategy, buying strong-performing hotels and travel centers. While competitors piled on debt, Murray kept leverage low to ensure that his Newton, Mass.-based REIT would maintain an investment-grade credit rating. The strategy could prove crucial.
“Because of the conservative approach, Hospitality Properties should do relatively well if there is an economic slowdown,” says Smedes Rose, lodging analyst for Keefe Bruyette & Woods.
While some lodging companies have reduced their expectations for 2008, John Murray expresses optimism. The occupancy rate of Hospital Properties (NYSE: HPT) is about 72%, near where it stood a year ago. Revenue per available room (RevPAR), a key measure, is growing at a healthy rate of 5.5%.
“The outlook is good,” says Murray. “We have had good performance recently, and if the economy can hang together, 2008 should be another good year.”
Instead of picking up properties one by one, Murray preferred to grow by buying portfolios. In 2007, he paid $1.9 billion to acquire TravelCenters of America, an operator of truck stops. Although he is scouting for more properties, acquisition activity by Hospitality Properties and other hotel REITs has ground to a halt. Sellers demand last year's prices, while buyers hunt for discounts. Rose does not expect much acquisition activity in the months ahead.
When the clouds clear, Murray may be one of the first buyers to step forward. While leveraged purchasers struggle to get deals financed, Hospitality Properties has a $750 million line of credit.
Murray is careful about how he manages the balance sheet. When many REITs buy hotels, they put mortgages on the properties, but Murray frowns on that approach. Instead, the REIT puts debt on the corporate balance sheet so the debt-free hotels can easily be sold to raise cash. Murray also spreads out the maturities of corporate debt so that no big bill comes due in any one year.
“We have the greatest financial flexibility of any lodging REIT,” he says. “When the market settles down, we will be able to buy good properties.”
Over the years, Hospitality Properties has made a series of acquisitions, spending $6.2 billion to assemble a portfolio of 292 hotels and 185 travel centers in 44 states. Many are extended-stay hotels targeting business travelers. But the REIT also owns luxury units under such brands as Marriott, InterContinental, Hyatt and Carlson. Many of the brands award points to frequent customers.
Besides buying healthy hotels, Hospitality Properties holds down risk with a conservative leasing strategy. After purchase, Murray leases properties to management companies such as Marriott to operate the hotels.
Because much of its income comes from fixed leases, the REIT enjoys fairly steady revenues during economic downturns, says Rose. “This was one of the few lodging companies that did not have to cut or suspend its dividend following the terrorist attacks of September 11th.”
For the rest of 2008, analysts are not predicting the dismal conditions of 2001 and 2002, but they remain cautious about the outlook for REITs. Hospitality Properties' stock closed at $34.82 on Feb. 20, down from its 52-week high of $48, but above the low of $29.50.
Analyst Rose does not expect a bull market for lodging stocks this year. But he thinks Hospitality Properties will continue its solid performance. “They should raise the dividend by a few cents in 2008,” says Rose. “That makes the stock a good choice for investors who want reliable income.”