Alex Pettee, CFA
Hotel REITs: As Airbnb Readies IPO, A Look At Industry Fundamentals
The US hotel industry had another banner year of record occupancy and strong demand growth in 2018. Despite trade tensions and market volatility, 2019 is off to a solid start.
As it has been since 2015, supply growth remains elevated, particularly in the business travel segments and urban markets. REITs have disproportionate exposure to hotels in these weaker segments.
As a result, hotel REITs have produced disappointing returns over the past five years compared to the more diversified hotel operators. Recent results suggest REITs may be turning the corner.
Construction spending on hotels has finally cooled after several years of double-digit growth. Hotel REITs appear attractively valued within the REIT sector, paying yields above 5%.
The long-awaited Airbnb IPO appears to be imminent. As domestic growth slows, the dire projections of Airbnb crushing the traditional hotel industry have not come to fruition.