Summer can bring a slow down for stocks and investors may look to commercial real estate investment trusts for diversification and stability. Though lodging and hospitality REITs struggled toward the end of 2018, these REITs have posted a total return of 18.1% so far this year, according to data from Nareit.
“Hotel and resort REITs are advertised as relatively stable with predictable occupancy rates and the ability to change rates very quickly,” says Pedro Silva, wealth manager at Provo Financial Services Group in Massachusetts. He says the hospitality industry’s primary challenge is disruptive innovation like the kind advanced by Airbnb. With that in mind, here are seven hotel REITs to buy that may have staying power.
Chesapeake Lodging Trust
CHSP, which invests primarily in upscale and premium hotels, has garnered attention recently after announcing it would be acquired by Parks Hotels and Resorts (PK) in a deal valued at about $2.7 billion. Combined, the two are poised to become the second largest lodging REIT on the market. Year to date, CHSP has returned 23%, with a yield of 5.3%. That could make it an attractive option if that performance can be sustained after the purchase is completed, says Steven Azoury, financial advisor and owner of Azoury Financial in Troy, Michigan.
Summit Hotel Properties
While many hospitality REITs cater to boutique hotels, INN emphasizes brand partnerships with some of the leading hotel chains. Its portfolio includes properties from Hyatt Hotels (H), Marriott International (MAR) and Hilton Worldwide (HLT) in major markets nationwide. INN earns high marks for its 6% yield, edging out several of its hotel REIT competitors. First quarter revenues edged up slightly over expectations and year to date, INN’s return checks in at 23%.
Pebblebrook Hotel Trust
PEB invests in upscale hotel and resort properties in major urban markets across the U.S. from New York to San Francisco. In December 2018, Pebblebrook completed a merger with LaSalle Hotel Properties. The tangible benefit of that to investors will hinge largely on how the merger is absorbed and managed, says George Steffani, director of investment sales at Lee & Associates in New York. “If management can continue to create efficiencies from the merger and integrate pieces of LaSalle’s holdings, there should be incremental value for shareholders in the future,” he says. PEB has returned 7.5% year to date, producing a dividend of 3.5%.
EPR’s portfolio isn’t exclusively hotel focused. In addition to investing in resorts, the REIT’s property holdings include movie theaters, family entertainment centers, golf entertainment complexes and theme parks. Azoury says that makes it a solid buy for hotel and hospitality investors focused on encouraging summertime portfolio growth as consumers head outdoors. EPR has demonstrated strong performance, both year to date and throughout 2018, with a one-year return of 27.4%. Its current yield is a healthy 5.8%.
Hospitality Properties Trust
From a yield perspective, HPT looks to be a promising buy. HPT's current yield is 8.3%, and it has returned 9.1% year to date. This REIT's key advantage may lie in its choice of markets; properties are primarily located in suburban markets that are close proximity to larger urban areas, such as around Baltimore. Holdings are concentrated in extended stay hotels in brands like Candlewood Suites and Residence Inn by Marriott, which cater to business travelers. Year over year, revenues per available room decreased through the first quarter. But as of mid-May, the REIT carries a "buy" rating.
Apple Hospitality REIT
APLE features a diverse collection of more than 230 upscale hotels representing industry-leading brands, including Marriott, Hilton and Hyatt. The REIT’s main strength may lie in the fact that it targets mid-market properties, versus bargain hotels or high-end resorts. These properties typically offer a comfortable range of amenities at affordable rates, potentially making them appealing to a larger range of travelers. APLE's current yield is on the higher end at 7.4% and its year-to-date return is 13.7%.
Xenia Hotels & Resorts
Orlando-based XHR is on the smaller side compared with some of its larger hotel REIT counterparts, with 40 hotels across 17 states. In terms of performance, however, it holds its own and them some with a year-to-date return of 29.6% and a 4.9% yield. Experts suggest that XHR may be undervalued, potentially signaling a "buy" opportunity. First-quarter results yielded a pleasant surprise, with funds from operations outstripping Wall Street’s expectations. Funds from operations is a measure of a REIT’s cash flow and profitability, based on depreciation, earnings and gains.