Hotel Stocks Are Improving, but Risks Persist

Hotel-property stocks have trailed the market in recent months. New data show that the companies’, but significant questions over Covid-19 variants and business travel could still undercut a rebound.

Real-estate investment trusts are behind many hotels and resorts. Companies such as Host Hotels & Resorts Inc. and Apple Hospitality REIT Inc. own the hotel properties and earn revenue from rooms rented and food and drinks sold. In turn, the REITs pay management fees to operators such as Marriott International Inc. to run the properties.

Hotel REITs are among the riskier real-estate bets because rooms turn over every day and travel is particularly vulnerable to economic swings. They were among the hardest hit when the pandemic began. New data suggest things are getting better. In the second quarter, hotel REITs’ cumulative funds from operations—an earnings metric widely used in commercial real estate—turned positive for the first time since early last year, according to the National Association of Real Estate Investment Trusts.

Higher revenues helped Apple Hospitality and Pebblebrook Hotel Trust deliver their first quarterly net profits since late 2019 and early 2020, respectively, while losses at Host and another big hotel REIT, Ryman Hospitality Properties Inc., both narrowed substantially. “That’s a really encouraging development,” said Calvin Schnure, a senior economist for the association, noting that business travel has rebounded far less than leisure trips. “You have a lot more potential upside in that sector,” he said.

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