Contributor, Benzinga
December 5, 2023

The hospitality industry has made a rapid recovery from the pandemic-era lows, thanks to the surging pent-up demand for travel and outdoor activities. According to an AdTheorent report, 83% of people surveyed planned to splurge on travel in 2022, with 57% regarding themselves as “revenge travelers.” 

This trend will likely be amplified this holiday season, as people can travel without any COVID-related, which benefits hotel REITs. 

What are Hotel REITs?

Hotel REITs own, acquire and operate hotels, resorts and motel chains. They include luxury hotels in popular tourist destinations, business travel hotels, resorts and budget-friendly establishments in small towns. The primary source of revenue for hotel REITs is the short-term leasing of rooms. Other revenue sources include in-hotel restaurants and banquet rentals. 

Benefits of Hotel REITs

High turnover: Hotel rooms are typically rented for short periods of time, and the booking process is simple. During peak seasons, luxury hotels at tourist destinations are often completely booked. Business travel hotels have high booking rates year-round. This, combined with earnings from other sources, account for significant revenues generated by hotel REITs.  

Pent-up demand: Travel demand has picked up substantially post-pandemic and is no longer limited to specific seasons. Remote working structures have allowed people to travel at their convenience, playing a significant role in the revival of the battered industry. According to a survey conducted by American Express Travel, 74% of the respondents were willing to book a trip in 2022 at the risk of canceling or modifying it at a later date. 

Risks of Hotel REITs

Cyclical fluctuations: The performance of hotel REITs depends on the seasonal demand for travel and tourism. Hotel REITs typically generate record-high revenues during peak seasons such as holidays or summer. But this only lasts a few months, and hotels report substantial vacancies during the off seasons. As recession concerns amp up, travel demand might plummet next year, wiping off the past year’s gains. 

High competition: There are a multitude of hotel and resort chains and standalone hotels. As of Oct. 31, there are 14 publicly traded lodging REITs. Competing hotels often engage in price wars to attract customers, which adversely impacts their profit margins. The risk of oversupply is pervasive. 

How to Invest in Hotel REITs

The majority of hotel REITs are publicly traded and can be bought and sold like stocks through online stock brokers. You can also invest in hotel REITs through mutual funds and REIT exchange-traded funds (ETFs). While individual shares of REITs and REIT ETFs can be traded during stock market hours, REIT-focused mutual funds can only be traded when the markets close. 

Largest Hotel REITs

Apple Hospitality REIT Inc.

Apple Hospitality REIT Inc. (NYSE: APLE) is one of the largest hotel REITs in the U.S., operating more than 220 hotels across the country. Popular brands owned and operated by Apple Hospitality include Hilton, Marriott and Hyatt. 

Thanks to the strong demand, Apple Hospitality REIT reported stellar financials in the fiscal third quarter that ended Sept 30. Its revenue per available room (RevPAR) hit the highest levels since 2019.

Despite the current macroeconomic headwinds, Apple Hospitality REIT CEO Justin Knight has maintained an optimistic outlook. The REIT’s broad consumer appeal, strategic market locations and strong balance sheet should allow it to outperform its peers notwithstanding the inflationary backdrop.

Park Hotels & Resorts Inc.

With multi-billion-dollar market cap, Park Hotels & Resorts Inc. (NYSE: PK) is the second-largest publicly traded hospitality and lodging REIT in the U.S. It owns and operates 47 premium branded hotels and resorts. 

In the third quarter, Park Hotels & Resorts REIT’s pro forma RevPAR increased 61.7% year over year. Park Hotels Chairman and CEO Thomas J. Baltimore, Jr. stated, “Leisure demand remained strong from summer travel while business-transient demand continues to accelerate across our New York, Chicago, San Francisco, Southern California and Boston markets. Average rates exceeded 2019 levels at our resort and suburban hotels, while average rates at our urban and airport hotels approximated 2019 levels.”

Pebblebrook Hotel Trust

Pebblebrook Hotel Trust (NYSE: PEB) owns and operates 51 upscale, full-service hotels and resorts across 15 strategic urban markets across the U.S.

Industry Overview

Number of REITs13
Average Dividend Yield4.28%
YTD Total Return-1.58%
October Total Return-2.38%
2023 Total Return-15.31%
Source: NAREIT

Quarterly Performance Data

Financial MetricQ3 20232023 YTD
FFO ($M)$928$2,990
NOI ($M)$1,514$1,514
Dividends Paid ($M)$376$1,217
Source: Nareit T-Tracker

All Hotel REITS

TickerCompany±%PriceInvest

Investing in Hotel REITs

Hotel REITs have made a remarkable comeback over the past two years, after being battered by shutdowns in 2020. In spite of the surging airfares and cancellation risks, people have been booking vacations as revenge travel gains traction. While the recession warnings for 2023 are a cause for concern, hotel REITs are expected to outperform this holiday season. 

Frequently Asked Questions

Q

Are hotel REITs a good investment?

A

Yes, hotel REITs are a good investment option.

Q

How do hotel REITs do in a downturn?

A

Hotel REITs typically underperform during bear markets and recessions as travel demand and spending plummet.

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