Hotel REITs: Is The Drop Justifiable?

Hotel Industry Grows on Economic Recovery: Time to Invest? – Industry Outlook: The hotel industry has come a long way since the sales plunge witnessed during the global financial crisis. A few pockets of economic and political.

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Have you seen a correlation between share drop and second quarter operating results for Hotel REITs? My job was to assemble hotel-operating metrics for Hotel REITs released in August. These metrics consist of Revenue Per Available Room (RevPar), Average Daily Rate, (ADR), and Hotel Occupancy. I compared numbers from the second quarter of 2015, with ones from the second quarter of 2014, and found that they are reasonably strong. I have concluded that there is no link between last week’s share price performance, and these figures.


Hotel revenues run concurrent with the economy. The fundamentals have been doing well, especially for Hotels located in major gateways, with a higher number of international travelers (although a stronger dollar may stall further growth). The demand has outpaced the supply, resulting in an upward movement in the operating metrics. This should continue, with the exception of certain locations with supply issues. Investors in the cities of New York have experienced a supply expansion, resulting in even rates. This explains why RLJ Lodging’s occupancy (NYSE:RLJ) decreased by 1.3 percentage points this quarter.


The rises in interest rates favor hotels relative to other REITs. REITs that can raise lease revenues rapidly will catch up with increases in debt costs. Hotel REITs gain an advantage over long term lease REITS, because rent increases, for long term lease REITS, are limited. Hotels also benefit better from a hot economy.


A divide exists between the hotel industry outlook and actual share performance. This is not the first time that this has happened. Sunstone Hotel Investors (NYSE:SHO), which has elevated guidance numbers, is the only REIT who posted a share price appreciation last week. On the opposite end of the spectrum, multiple companies share prices have dropped by two digits. For example, Chatham Lodging Trust (NYSE:CLDT) was down thirteen percent, Ashford Hospitality Prime (NYSE:AHP) lost eleven percent, and FelCor Lodging Trust (NYSE:FCH) dropped ten percent in share price. Several analysts have upgraded their views on select hotel REITs following the severe drop in share price.

Curated by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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