Hotel real estate investment trusts (REITs) are a popular investment option for individuals looking to diversify their portfolio with exposure to the hospitality industry. REITs are companies that own, operate, or finance income-generating real estate across different sectors, including hotels. Hotel REITs provide investors with the opportunity to invest in hotels without directly owning the properties themselves.
Hotel REITs typically generate revenue from leasing hotels to operators on long-term contracts, generating a steady stream of rental income. With the potential for capital appreciation as hotel properties increase in value over time, investors can benefit from both recurring rental income and property value appreciation.
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
Some of the key benefits of investing in hotel REITs include:
- 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, accounts for significant revenues generated by hotel REITs.
- Steady income stream: Hotel properties typically generate consistent rental income, which are then distributed to shareholders in the form of dividends. This can provide investors with a reliable source of passive income, making hotel REITs an attractive option for those seeking recurring cash flow from their investments.
- Diversification: By holding a portfolio of hotel properties across different locations and market segments, hotel REITs can help spread risk and reduce dependency on any single hotel property or market. This diversification can help protect investors from fluctuations in the hospitality industry and economic downturns, making hotel REITs a valuable addition to a well-rounded investment portfolio.
Risks of Hotel REITs
The risks of investing in hotel REITs are:
- Cyclical fluctuations: The performance of hotel REITs depends on the seasonal demand for travel and tourism. They 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 off-seasons.
- High competition: There are a multitude of hotel and resort chains and standalone hotels. 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
Listed below are a few of the 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. The company's investment strategy is centered around maintaining a geographically diverse portfolio to mitigate risk and capitalize on different market trends.
Apple Hospitality REIT Inc.'s experienced management team has a proven track record of selecting high-quality properties in strategic locations, ensuring steady revenue streams and long-term value appreciation. With a focus on operational efficiency and cost management, Apple Hospitality REIT Inc. is well-positioned to navigate the ever-changing hospitality industry landscape and deliver consistent returns to its shareholders.
Park Hotels & Resorts Inc.
With a multi-billion-dollar market cap, Park Hotels & Resorts Inc. (NYSE: PK) is among the largest publicly traded hospitality and lodging REITs in the U.S. With over 60 properties in its portfolio, the company prides itself on delivering exceptional guest experiences and generating strong financial returns for its shareholders.
Park Hotels & Resorts' strategic focus on prime locations in key gateway cities and popular tourist destinations ensures a steady stream of revenue and growth potential. The company is committed to sustainable business practices and maintaining a competitive edge through continuous innovation and property enhancements.
Whether you are a seasoned investor looking to diversify your portfolio or a traveler seeking luxury accommodations, Park Hotels & Resorts Inc. stands out as a premier player in the hospitality sector, offering a blend of upscale amenities, impeccable service, and attractive investment opportunities.
Pebblebrook Hotel Trust
Pebblebrook Hotel Trust (NYSE: PEB) is a real estate investment trust that specializes in acquiring and managing upscale, full-service hotels and resorts across the United States. With a portfolio that includes iconic properties in major urban markets and leisure destinations, Pebblebrook is known for its commitment to delivering exceptional guest experiences and generating long-term value for investors.
One of the key factors that sets Pebblebrook apart is its strategic approach to hotel acquisitions and development. The company focuses on acquiring well-positioned properties in high-demand markets, leveraging its industry expertise to reposition and enhance the value of each asset. By investing in renovations, rebranding, and innovative amenity offerings, Pebblebrook aims to create dynamic and profitable hotel experiences that cater to evolving consumer preferences.
Host Hotels & Resorts, Inc.
Host Hotels & Resorts, Inc. (NASDAQ: HST) is a leading lodging REIT focused on upscale and luxury hotels around the world. With a portfolio comprising over 80 properties and approximately 47,000 rooms, Host Hotels & Resorts, Inc. stands as one of the largest owners of high-quality hotel assets in the industry.
Driven by a proactive approach to asset management and a strong commitment to operational excellence, Host Hotels & Resorts, Inc. has established itself as a key player in the global hospitality sector. The company's diverse portfolio encompasses iconic properties, including luxury resorts, urban hotels, and convention centers, catering to a wide range of travelers and meeting the needs of both leisure and business guests.
RLJ Lodging Trust
RLJ Lodging Trust (NYSE: RLJ) is one of the largest real estate investment trusts specializing in owning and operating upscale hotels in prime locations across the country. With a diverse portfolio of over 100 properties, RLJ Lodging Trust offers a range of lodging options catering to both business and leisure travelers. The company's strategic focus on select-service and compact full-service hotels allows it to provide exceptional guest experiences while maintaining operational efficiency.
The company's commitment to sustainable practices and innovative technologies ensures that its properties are not only luxurious but also environmentally responsible. With a customer-centric approach and a dedication to excellence, RLJ Lodging Trust continues to expand its footprint in the hospitality industry and solidify its position as a trusted leader in upscale lodging.
Industry Overview
| Number of REITs | 12 |
| Average Dividend Yield | 3.91% |
| YTD Total Return | -1.57% |
| January Total Return | -1.57% |
| 2023 Total Return | 23.92% |
Quarterly Performance Data
| Financial Metric | Q4 2023 | 2023 |
|---|---|---|
| FFO ($M) | $845 | $3,757 |
| NOI ($M) | $1,404 | $6,152 |
| Dividends Paid ($M) | $396 | $1,614 |
All Hotel REITS
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
Investing in Hotel REITs
Hotel REITs offer a unique investment proposition compared to owning physical hotel properties as they provide a more liquid and easily tradable investment vehicle. Additionally, investing in hotel REITs allows investors to access a diversified portfolio of hotel properties across different locations and market segments, reducing risk exposure to any single property or market fluctuations.
Before investing in hotel REITs, it's important for investors to conduct thorough research on the REIT's management team, property portfolio, financial health, occupancy rates, and overall industry outlook. By carefully assessing these factors, investors can make informed decisions to capitalize on the potential benefits of investing in hotel REITs for long-term wealth accumulation and portfolio growth.
Frequently Asked Questions
What is REIT in hotels?
Which hotel REIT is the largest?
How many lodging REITs are there?
There are around 15 to 20 lodging REITs in the market. These REITs typically own a portfolio of hotel properties across different segments, such as luxury, upscale, midscale, and economy, to diversify their revenue streams and minimize risk.
