Lodging REIT stocks have stood out in the real estate sector since the start of the year, as business travel begins to recover, contributing to the recovery of the leisure sector. This is part of an economic context where leading personalities frames are ringing alarm bells over rising interest rates, the war in Ukraine and supply chain disruptions in China.
In the table below, hotel/lodging REITs have increased by 7.9% year-to-date, versus the diversified REIT index, which fell 15%, and the S&P 500 -13% over the same period. Residential (-17%) and office (-18%) REITs fare the worst in this sample. Health care REITS rose but still fell 1%.
And three of the top five performing REIT stocks were hotel REITs – DiamondRock Hospitality (NYSE: HRD) +7.5%, Pebblebrook Hotel Trust (NYSE: PEB) +7.0%, and Park Hotels & Resorts (NYSE: P.K.) +5.9%, Evercore ISI analyst Steve Sakwa said in a note dated June 3 (pre-closing).
Last month, Baird analyst Michael Bellisaro pointed to the improving trend in business travel, which will boost both hotels and airlines. “Major technology and financial services companies have begun their return to office processes, which bodes well for the recovery of business travel in the near term,” he wrote in the travel newsletter. the company.
“The reopening momentum is palpable, and the continued strength in leisure demand coupled with the rapid resumption of business travel mid-week gives us even more confidence that a more normalized travel environment will unfold over the coming months,” Bellisaro said.
On Tuesday, Truist Financial analyst C. Patrick Scholes upgraded Park Hotels (PK) to Buy from Hold and increased its 2022 EBITDA estimate to $585 million from $525 million and the adjusted estimate of FFO per share at $1.46 vs. $1.10. After assessing first-quarter hospitality REIT revenue, he also raised full-year EBITDA estimates for DiamondRock (HRD), Host Hotels (NASDAQ: HST), Ryman Hospitality Properties (NYSE: RHP) and Sunstone Hotel Investors (NYSE: SHO).
On Thursday, Sunstone Hotel Investors (SHO) released a business update outlining better demand growth at its city and group-oriented hotels, which “are seeing increased short-term booking activity, higher footfall than expected at group events and increased business throughput.”
The average daily rate for a comparable portfolio of 12 hotels exceeded 2019 levels every month of 2022 and is 11.3% higher than Q2 2022 QTD.
Baird’s Bellisario expects hotel REITs to give positive intra-quarter updates during their presentations at next week’s Nareit meeting, “as May’s revenue performance was better than intended”.
“Investor sentiment has turned more negative overall recently on heightened concerns about slowing growth and consumer spending, but hospitality fundamentals have continued their positive recovery trajectory,” he said. . “Recent demand trends have been stronger than expected, driven by a continued recovery in business and group travel and a still-strong leisure customer base.”
For investment ideas in hotel and resort REITs, check out the SA Stock Analyzer.
Last month, SA contributor Daniel Jones said Park Hotels & Resorts (PK) is an attractive opportunity as the recovery is going well