Best Hospitality REITs

Real estate investment trusts (REITs) have become an increasingly popular investment vehicle, particularly in the hospitality sector. Investing in hospitality REITs allows individuals to gain exposure to hotel and resort properties without the need for direct ownership. In this article, we’ll explore some of the best hospitality REITs based on performance, management strategy, and market potential. 

What are Hospitality REITs?

Hospitality REITs are a type of real estate investment trust that specializes in investing in and operating properties in the hospitality sector. These REITs primarily own and manage hotels, resorts, motels, and other types of lodging facilities.

While hospitality REITs also purchase and sell real estate, the primary driver of income is typically tenants. Hotel REITs rely on very short-term leases from the general public renting rooms or conference spaces. They lease directly to the consumer, which means seasonality, climate issues or natural disasters can all affect occupancy. 

Within hospitality REITs, some focus on one type of hospitality property, like resorts, boutique hotels, economy properties or midscale hotels. Consider the REIT's diversification of properties within an asset class to mitigate risk. For example, if a REIT invests in resort properties in Florida and the Caribbean, a hurricane could destroy operations in the area for a couple of weeks or many months, depending on the severity of the damage. 

Top 5 Hospitality REITs to Invest in

If you're ready for wild fluctuations and possible strong long-term returns, consider this list of hospitality REITs for possible investment opportunities: 

1. Park Hotels & Resorts Inc. (NYSE: PK)

Park Hotels and Resorts tops the list with a solid portfolio of mid-range hotel properties you'll recognize. Its portfolio includes Hilton, DoubleTree, and Hyatt Regency brands. These brands have solidly performing properties across the U.S., diversifying the risk of a single natural disaster harming the bottom line. It gains a place on this list from its strong balance sheet, a market cap of $2.94 billion, a dividend yield of 7.12%, and a one-year increase in stock value of 22.2%.

2. Apple Hospitality REIT Inc. (NYSE: APLE)

Apple Hospitality holds a portfolio of economy properties, with 100 Marriott-branded hotels, 119 Hilton-branded hotels, and five Hyatt-branded hotels. These include brands like Courtyard, Fairfield, and Residence Inn.

With properties spread across the country, the REIT has strong diversification. Although stock values have decreased in the past five-year and one-year reporting periods, management is working to improve efficiencies and increase occupancy rates. 

Apple Hospitality's $3.65 billion market cap and 6.32% dividend annual yield make it a strong possible option as a hospitality REIT. 

3. Pebblebrook Hotel Trust (NYSE: PEB)

At the other end of the economic spectrum, Pebblebrook Hotel Trust strategically acquires and invests in upper upscale, full-service hotel and resort properties in or near urban markets in major U.S. gateway cities. Investing in resort properties is one of its greatest strengths.

Resort holdings include multiple beach resorts in Key West, Jekyll Island Club Resort, and properties from California to Washington, D.C. It is of particular interest to ESG investors that Pebblebrook has made significant progress toward sustainability and social responsibility goals.

While dividend yields are low — just 0.32% — the stock price has increased 5.6% in the past one year. With a market cap of $1.5 billion and a reasonable debt load, Pebblebrook Hotel Trust can be a reasonable luxury market REIT choice.

4. Summit Hotel Properties Inc. (NYSE: INN)

Another economy hotel REIT, Summit Hotel Properties, owns properties across the U.S., with a recent acquisition focusing on southern US cities like New Orleans, Houston, Dallas and Oklahoma City, where demand continues to outpace supply. Summit Hotel Properties owns familiar brands like Residence Inn, AC Hotels by Marriott, Embassy Suites and Hilton Garden Inn.

While stock value has dropped over the past five-year and year-to-date reporting periods, the diverse portfolio of economic properties has a strong possibility of weathering inflation or economic downturns as travelers downgrade hotel options to save. With a market cap of $682.52 million, this is one of the smallest REITs on this list. Dividend annual yields have been 5.08% offering investors stable, modest returns. 

5. Hersha Hospitality Trust (NYSE: HT)

For the high-end luxury market position, consider Hersha Hospitality Trust, which owns 25 hotels with over 3,800 rooms in markets that include New York, Philadelphia, South Florida, Washington, D.C., Boston and California. The company aims to reach business and leisure travelers seeking premium accommodations and personalized experiences. 

The target clientele usually has a cushion against market downturns, so these properties could continue to see strong occupancy. With a market cap of $482.37 million, this is the smallest REIT on the list. The 2% annual dividend yields offer investors modest stability. While stock prices have dropped over the past five years, this could present an opportunity for investors to invest for the long term. 

Where to Invest in Hospitality REITs

If you're wondering where to invest, look at your brokerage or consider these options. 

Benefits of Investing in Hospitality REITs

Hotel REITs have numerous benefits when you invest for the long term. Consider these advantages of adding a modest position of lodging REITs to your portfolio. 

• Income Generation: Hospitality REITs provide a steady income stream through dividends. With long-term lease agreements or management contracts with hotel operators, these REITs offer consistent rental income, making them attractive to income-focused investors.
• Exposure to the Hospitality Industry: Investing in hospitality REITs allows exposure to the travel, tourism, and leisure sectors. As global travel and tourism grow, hospitality properties can benefit from increased demand, offering potential revenue growth.
• Diversification: Adding hospitality REITs to a portfolio can provide diversification by spreading investments across different locations and customer segments, such as business travelers, vacationers, and convention attendees. This reduces risk within the hospitality industry.
• Professional Management and Expertise: Hospitality REITs are managed by industry professionals with expertise in market trends, property operations, and revenue management. Investors benefit from this specialized knowledge without the need to manage properties directly.
• Potential for Capital Appreciation: Beyond income generation, hospitality REITs offer the potential for capital appreciation. As the hospitality industry thrives, well-performing hotel properties may increase in value, allowing investors to benefit from appreciation and capital gains.

Potential Risks of Investing in Hospitality REITs

As it's clear from earlier warnings, hospitality REITs can show high volatility and are generally considered high-risk REITs. Here are the risks to weigh before investing in these REITs.

• Economic Sensitivity: Hospitality REITs are highly sensitive to economic conditions and consumer spending. Economic downturns or recessions can reduce travel and tourism activities, leading to lower occupancy rates and revenues. Factors like unemployment rates, inflation, and GDP growth can impact these REITs’ performance.
• Market Volatility: The hospitality sector faces volatility from various influences, including changes in travel trends, global events, natural disasters, political instability, and public health crises. Such factors can significantly impact hotel occupancy, room rates, and revenue, affecting the financial performance and valuation of hospitality REITs.
• Operational Risks: The success of hospitality REITs relies on effective hotel property management. Risks include competition, shifts in consumer preferences, property upkeep, service quality, and guest retention. Poor operational performance can result in lower occupancy and revenue, potentially impacting the financial stability of hospitality REITs.

Investing in the Hospitality Industry

Holding modest positions in various hotel REITs is a way to invest in the hospitality industry with minimal risk exposure. Consider the financial analysis of individual REITs, past performance, current positions, and dividends to find the best hotel REITs for your portfolio. Learn more about hotel REITs and the best REIT stocks and discover commercial real estate REITs.

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