Hotel REITs: Another Record Year For Hotel Demand



  • Powered by resurgent corporate travel, hotel demand set yet another record in the first half of 2018. The hospitality sector has seen more than 100 consecutive months of RevPar growth.
  • Hotel REITs finally have their time in the sun. The sector has outperformed in 2018 and delivered solid results in 2Q18.
  • Supply growth continues to hang over the sector and is most acute in the business travel segments and urban markets. REITs hold a disproportionate amount of hotels in this segment.
  • Business tax reform and the accompanying economic resurgence of 2018 has led to a jump in corporate and luxury hotel demand, more than offsetting the negative impact of supply growth.
  • Expectations for the sector remain muted, however. Hotel ownership remains a tough, capital intensive business. Sentiment is much improved from 2017, but valuations still appear attractive relative to other REIT sectors.

REIT Rankings: Hotels

In our REIT Rankings series, we analyze each of the major real estate sectors. We rank REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. We update these rankings every quarter with new developments.

reit rankings hotels

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Hotel Sector Overview

Hotel REITs comprise 5-7% of the REIT indexes (VNQ and IYR). Within the Hoya Capital Hotel REIT Index, we track the fourteen largest hotel REITs, which account for roughly $55 billion in market value: DiamondRock (DRH), Host (HST), LaSalle (LHO), Park (PK), Pebblebrook (PEB), RLJ Lodging (RLJ), Sunstone (SHO), Summit (INN), Ryman (RHP), Xenia (XHR), Chesapeake (CHSP), Ashford (AHT), Apple (APLE), and Hospitality Properties (HPT).

hotel REIT overviewFor real estate investors who are accustomed to simple business models, the hotel industry is an outlier. Generally, the companies that are ubiquitous with the hotel business - Marriott (MAR), Hilton (HLT), Hyatt (H), Choice ( CHH), and Extended Stay (STAY) - don't actually own hotels but simply manage the hotel for the property owners. These hotel operators are typically structured as c-corporations and tend to operate in an asset-light model with higher margins and lower leverage.

hotel operator overview

Hotel REITs, on the other hand, operate with an asset-heavy model by owning the assets, collecting the revenue, and paying a set percentage to the management company. Hotel REITs tend to be less nimble and have slower growth rates than c-corp hotel operators, but have historically paid a sizable dividend yield to investors. Simplistically, hotel operators are the growth side of the business, while

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