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Abstract

We explain the variation in hotel holding periods (HP) based on liquidity needs, owner type, acquisition conditions and timing of hotel renovation. Contrary to popular belief, properties owned by listed companies tend to have longer HPs due to lower liquidity constraints. REITs sell heterogeneous hotels sooner to strengthen their focus whereas REOCs keep such assets longer for diversification benefits. Moreover, we document that higher quality hotels tend to have longer HPs, and that capital expenditure employed in renovating an acquired asset prolongs the HP whereas assets renovated before acquisition experience shorter HPs. Finally, we show how our model can be used in practice to predict the median HP based on a given hotel characteristics, and present a method to adjust the DCF discount rate according to the selected holding period.

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