This past week provided one of the clearest snapshots yet of where the hospitality industry stands—and where it’s headed. From Sotherly Hotels’ $425 million take-private transaction to Booking Holdings’ strong quarterly earnings, the sector continues to show solid fundamentals despite persistent headwinds from capital markets. At the same time, the Federal Reserve’s cautious policy stance and a steady U.S. hotel development pipeline illustrate the balance between optimism in operations and restraint in investment.
In short, the hospitality sector is entering a new phase—one defined by stable performance, rising deal selectivity, and disciplined growth strategies that emphasize value over volume.
Sotherly Hotels Goes Private in $425 Million Take-Private Deal
The week’s most significant announcement came from Sotherly Hotels (SOHO), which revealed plans to be taken private by Kemmons Wilson Hospitality Partners and Ascendant Capital for $425 million in cash. Valued at 9.3x Hotel EBITDA and approximately $152,600 per key, the transaction underscores growing private equity interest in income-producing hotel portfolios with operational upside.
Portfolio and Deal Structure
Sotherly’s portfolio consists of 10 full-service upscale and upper-upscale hotels totaling 2,786 rooms, as well as two condo-hotels in Hollywood Beach, Florida. Together, these properties generate an estimated $141.9 million in total room revenue with a 30% NOI margin across all income streams.
The acquisition includes $350 million in debt and a $25 million promissory note, bringing total capital commitments to $462 million. This reflects Sotherly’s leverage profile—8.3x gross debt to EBITDA—and the acquirers’ willingness to recapitalize and restructure the balance sheet to unlock long-term value.
Market Implications
The 153% premium over Sotherly’s previous share price highlights a widening gap between public hotel REIT valuations and private market pricing. It also signals that institutional investors are once again viewing hospitality as a yield-driven real estate class worth re-engaging with—especially as hotel cash flows remain resilient.
For the broader REIT sector, this transaction could catalyze more take-private discussions and strategic reviews, particularly among smaller-cap operators with high asset values but limited liquidity.
Booking Holdings Earnings Underscore Global Travel Resilience
While M&A headlines dominated the ownership side, Booking Holdings (BKNG) reinforced the operational strength underpinning the travel sector. The company once again exceeded expectations, showcasing strong momentum in both growth and profitability.
Earnings Overview
For the third quarter of 2025, Booking reported:
- +14% gross bookings growth
- +13% revenue growth
- +15% adjusted EBITDA ($4.23 billion vs. $4.02 billion expected)
- +19% EPS growth ($99.50 vs. $95.77 expected)
Room nights increased 8% year-over-year, with ADRs up 1%. The company’s Genius loyalty program, which now drives more than half of all bookings, continues to strengthen traveler retention. Additionally, Connected Trip transactions grew 20% year-over-year, signaling rising adoption of integrated, multi-product itineraries.
Travel Demand and Strategic Positioning
Booking’s U.S. performance was particularly strong, with high-single-digit room night growth supported by outbound travel and improved booking windows. As leisure travelers become more price-sensitive, OTAs are gaining share from direct brand websites—a trend likely to persist as consumers seek better transparency and flexibility.
Looking ahead, Booking forecasts 4%–6% room night growth and up to $2.1 billion in adjusted EBITDA for Q4. Ongoing investments in AI-powered personalization and supplier tools position the platform for continued share gains in 2026, reinforcing that travel demand remains durable even in a tightening economic environment.
Hotel Operations and Development Pipeline Trends
Hotel operators remain cautiously optimistic as the sector enters the final quarter of the year. While overall fundamentals remain solid, the pace of growth has slowed modestly, particularly in leisure-heavy markets.
Xenia Hotels’ Consistent but Measured Quarter
Xenia Hotels & Resorts (XHR) reported a slightly better-than-expected third quarter, though it trimmed full-year guidance. RevPAR was flat, with ADR up 1.6% and occupancy down 100 basis points. Higher expenses (+4.6%) compressed margins slightly, but October RevPAR rebounded +5.8%, aided by strong group and corporate demand.
Management now expects 3.5%–4.5% RevPAR growth for 2025, with softness in leisure travel offset by steadier group business. Xenia’s portfolio concentration in upper-upscale and luxury properties has helped sustain pricing power despite cost inflation.
Pipeline Overview and Conversion Growth
According to Lodging Econometrics’ Q3 2025 report, the U.S. hotel construction pipeline totaled 6,205 projects (728,416 rooms), steady year-over-year. While projects under construction dipped slightly (-1%), conversion activity surged 13%, reaching a record 1,421 projects.
Upscale and upper-midscale brands dominate, accounting for 75% of all projects, as developers gravitate toward asset-light formats and quicker ROI. Lodging Econometrics projects 692 new hotel openings in 2025 and 754 in 2026, suggesting a measured but consistent expansion trend.
Notable transactions include Hilton’s Tempo Nashville refinance, which achieved an 11.2% NOI debt yield, and Wyndham’s ECHO Suites brand, which continues expanding its extended-stay footprint with new openings in growth markets such as Georgia, Texas, and Arizona.
The Federal Reserve’s Latest Move and Its Impact on Hospitality
Monetary policy once again took the spotlight after the Federal Reserve cut the federal funds rate by 25 basis points, setting the target range at 3.75%–4.00%, the lowest since 2022. While the move was expected, Chair Jerome Powell’s cautionary remarks about December’s outlook shifted market sentiment.
Market Reaction and Rate Outlook
Following Powell’s statement that “a December rate cut is not a foregone conclusion,” the probability of a 350–375 bps range fell sharply, while expectations for 375–400 bps rose. The market now sees a realistic chance that rates could hold steady through early 2026, tempering hopes for sustained rate reductions.
Implications for the Hotel Sector
- Refinancing: Modest rate cuts offer partial relief, but higher spreads and cautious lenders continue to challenge refinancing options.
- Development: Select-service and extended-stay segments remain the most financeable, while larger full-service projects face hurdles due to construction and labor costs.
- Transactions: Valuations are stabilizing rather than expanding, with investors emphasizing realistic underwriting and higher yield requirements.
For now, the hospitality market appears to be adapting to a “new normal” where operational health remains strong but capital costs dictate strategy.
Positioning for What’s Next
The hospitality sector enters 2026 on a foundation of operational strength and financial discipline. Travel demand remains resilient, private capital is returning, and development pipelines are holding steady. Yet the environment rewards selectivity—both in acquisitions and project development.
The coming year is likely to be defined by:
- Continued M&A activity, particularly among undervalued REITs and independent portfolios.
- Rising conversion projects, as owners reposition assets to align with new brand and market dynamics.
- Gradual normalization of rates, supporting refinancing stability without driving excessive risk-taking.
In short, the industry is transitioning from recovery to recalibration—focused not on chasing growth, but on building durable value.
Advisory and Insights
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Contact us to discuss your portfolio strategy, financing outlook, or acquisition pipeline as you prepare for 2026 and beyond.