Alex Pettee, CFA
Hotel REITs: Winter's Coming
"No vacancy" becomes "no occupancy." Hotel REITs - along with the global leisure and tourism industry - have been decimated by the coronavirus pandemic, plunging more than 50% this year.
Following a record year for the industry in 2019, hotels REITs reported occupancy rates below 20% in Q2. Occupancy has recovered to roughly 45% by late-summer, but winter is coming.
Every hotel REIT has slashed its dividend in an effort to stay afloat, as 40-50% occupancy is needed to "keep the lights on." Suburban-focused and leisure-oriented properties have outperformed urban-hotels.
Perhaps a more "pure play" on the success of a vaccine than even the pharmaceuticals themselves, a significant "second-wave" of the pandemic would be likely catastrophic for equity holders.
While leisure demand should bounce back relatively quickly when the pandemic subsides, business and group demand may take up to a half-decade or longer to fully recover.
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