SunTrust Robinson Humphrey Hotel Update: 4 Upgrades & 1 Top Pick For Your Portfolio

On May 21, SunTrust Robinson Humphrey updated the lodging industry, with a focus on RevPAR and market performance by city.

SunTrust upgraded four names from Reduce to Neutral, with no change to price targets:

• DiamondRock Hospitality DRH - $14 PT, 2 percent upside from previous close; 13x
• Host Hotels & Resorts HST - $21 PT, 2 percent upside from previous close; 14x
• Hersha Hospitality Trust HT - $6.50 PT, essentially flat; 13.5x
• LaSalle Hotel Properties LHO - $39 PT, 3 percent upside from previous close; 14x

The SunTrust price targets were derived by applying a target EV/EBITDA multiple to 2016E EBITDA.

Tale Of The Tape - Past Year

SunTrust - Top Lodging Pick

Ashford Hospitality Prime AHP - $22 PT, 36 percent upside from previous close; 12.5x.

Ashford Prime is exposed to markets which SunTrust views as outperforming industry averages over the next 12 months, including: "Seattle (18% of EBITDA), Washington DC (15%), Chicago (12%), and San Diego (11%) should translate into high-single digit RevPAR growth for the company in 2015."

Shares of $390 million cap AHP have traded in a 52-wk range of $14.09 to $18.03. The SunTrust $22 PT represents a breakout of 22 percent above its 52-wk high. Downside risks to SunTrust RH price target include: 1) a dilutive equity raise; 2) a 10 percent portfolio exposure to Washington, D.C.

SunTrust - Big Picture

• Group/Convention: bookings continue to be positive, 3 to 4 percent higher through Q3 2015.

• Leisure Travel: while noting that this market segment is hard to predict and can change rapidly, SunTrust confirmed that bookings "did pick up over the last month."
• RevPAR Upside: SunTrust noted that if "the good pace" of leisure travel bookings continues through Q2 and Q3, RevPAR results for "most companies will come in towards the higher end of expectations."

SunTrust - Top Markets

SunTrust noted that Boston, Chicago, Los Angeles and San Francisco are all tracking for high single-digit growth.
Washington D.C. is tracking for slower growth 2H 2015, compared to the first half of the year.

"New York remains a well below-average market after falling considerably six months ago… New York is still the only top 25 US market showing negative rate over the next 12 months…"

However, the NYC market has shown gradual strengthening during the past few quarters, and comps will get easier moving forward, according to SunTrust.

Houston has overtaken New York with the weakest forecasts, "tracking at approximately -7 to -9% for 2Q, -2% to -4% for 3Q, and then turning positive in 4Q as comps begin to get easier."

SunTrust - Market Overview By Company

SunTrust RH expects Ashford Prime to outperform the industry.

Hersha Hospitality Trust "remains the lowest ranked company in next 12 month RevPAR ranking due to outsize NYC exposure."

SunTrust - Lodging Sector Caveat

SunTrust analyst C. Patrick Scholes warned in bold print that the industry as a whole is "at the later stages of the lodging stock cycle," noting a record 6.5 years of "lodging stock upcycle," and that it is "difficult to envision sustainable valuation multiple expansion."

Scholes further explained that "… it has historically been valuation multiple contraction expansion/contraction that has led to the greatest degree of stock outperformance/ underperformance…"