Corporate governance failures of hotel REITs are centerstage this year as NAREIT gathers for its annual conference at the San Francisco Marriott Marquis, Host Hotels and Resort’s flagship 1,500 room convention hotel where workers have been on strike for nearly a month.
Around 7,000 hotel workers are on strike at Marriotts in San Francisco, Boston, Hawaii, San Francisco, San Diego, and San Jose. Many of these hotels are high performers for their respective REITs and REITs are highly exposed to the costs of strikes:
- Diamondrock’s Westin Waterfront by Marriott in Boston contributed 11% of 2017 EBITDA;
- LaSalle’s Westin Copley Place contributed 9% of 2017 EBITDA;
- Pebblebrook’s Westin Gaslamp in San Diego and W Boston combined for 10% of 2017 EBITDA;
- Host’s SF Marriott Marquis and Sheraton Boston are a combined 2,720 rooms and 3.8% of 2017 EBITDA;
- Braemar’s Courtyard Downtown SF was 10% of 2017 EBITDA;
- RLJ’s SF Marriott Union Square was 2% of 2017 EBITDA.
The main issues are economics and Marriott’s “Make a Green Choice” program that puts housekeepers at greater risk of pain and injury.
Pebblebrook Hotel Trust has spent a year and considerable financial resources pursuing a merger with LaSalle Hotel Properties, which is on the cusp of being voted on and consummated. But both have high performing properties subject to rare hotel worker strikes at a critical time for the merger.
We think investors should be aware of the following facts in assessing the risks and costs of the ongoing strikes in the context of this merger.
Industry Group Fails to Acknowledge Hotel Owners’ Responsibility
On September 6, 2018, the American Hotel & Lodging Association (AHLA) announced its “5-Star Promise,” a long overdue response to widespread sexual harassment and assault in the hotel industry. AHLA’s Promise contained a set of voluntary, non-binding recommendations lacking specific scope or timeframe for adoption and assigned no role or responsibility for hotel REITs, despite the risks and liabilities that sexual harassment holds for them:
- In 2018, Host Hotels and Resorts, the world’s largest hotel REIT opposed a shareholder proposal to increase disclosures about the impact on investors of hotel operators’ environmental, human rights, and labor practices.
- Sunstone Hotel Investors, another hotel REIT, declined to share information about the costs of and risks to the REIT from sexual harassment claims by hotel employees despite a March 2017 settlement of a lawsuit by two female employees of the hotel alleging sexual harassment and threats of retaliation.