The hotel sector has been a top performer among REITs so far in 2013, indicating that the sector is on the road to recovery, according to industry analysts.
Hotel REITs have posted total returns of 13.4 percent in 2013 as of Aug. 22, according to the FTSE NAREIT U.S. Real Estate Index. Equity REITs had total returns of nearly 1 percent for the year.
Jim Stevens, analyst with SNL Financial, noted that 2013 projected funds from operations (FFO) growth for hotel REITs is currently 18.7 percent, one of the largest projected growth rates among all REIT sectors and more than twice the 8 percent average for all equity REITs.
Second quarter operating fundamentals told a similar story of growth, according to Stevens.
“On average, publicly traded lodging companies posted positive results for second quarter operations. Average same-store occupancy climbed to 78.1 percent during the second quarter, up from 77.3 percent for the prior-year period,” he said. “Average daily rate (ADR) and revenue per available room (RevPAR) also each improved, with average same-store increases of 3.2 percent and 4.4 percent, respectively.”
However, Stevens pointed out that hotel occupancy ticked down 0.3 percent in June, according to data released by Smith Travel Research in late July, even as ADR and RevPar moved up.
“These mixed results, along with other year-over-year increases, suggest that U.S. travel is recovering slowly,” he said.
Overall, hotel net operating income (NOI) growth has remained strong at 8.2 percent year over year, according to recent data from Fitch Ratings.
When it comes to challenges, Lukas Hartwich, analyst with Green Street Advisors, said lodging REITs have to figure out a way to keep up the momentum.
“We’re in our fourth year of RevPAR growth in the 6 percent-plus range,” Hartwich said. “That’s pretty remarkable when you consider how lackluster the macro environment is. So, I really want to see what’s going to continue driving it.”
Stevens added that hotel companies are extremely dependent on general economic trends.
“Performance can fluctuate quickly based on positive or negative economic environments,” he said.