Alex Pettee, CFA
Hotel REITs: Dividend Cut Bloodbath
Hotel REITs have been hit harder than any real estate sector during the ongoing coronavirus pandemic and resulting economic lockdowns, plunging more than 50% in 2020.
Dividend cuts abound. Every hotel REIT slashed its dividend over the last quarter, but even that might not be enough to stay afloat as the industry faces an existential crisis.
"No vacancy" becomes "no occupancy." Following a record year of occupancy and revenues for the hotel industry in 2019, hotels are expecting a mind-blowing 50% plunge in revenues this year.
A rebound in economic activity since April has thrown a lifeline to several highly levered REITs teetering on the edge, but a "second wave" of the pandemic could be the death knell.
Hotel ownership is a tough, capital-intensive business even in the best of times. Outside of several well-capitalized hotel REITs, value-seeking investors should be wary of catching the falling knife.