Housing REIT shares have been highlighting the real estate sector since the beginning of the year as business travel begins to pick up, helping to boost the recovery in the leisure sector. This is taking place against an economic backdrop where some senior leaders are sounding the alarm about rising interest rates, the war in Ukraine and supply chain disruptions in China.
In the chart below, REITs in hotels/accommodations have 7.9% year-to-date compared to the diversified REIT index, which fell 15% and the S&P 500 -13% over the same period. Residential (-17%) and office REITs (-18%) performed the worst in this sample. Healthcare REITS made progress, but still fell 1%.
And three of the five top-grossing REIT stocks were hospitality REITs – DiamondRock Hospitality (New York Stock Exchange: HRD) +7.5%, Pebblebrook Hotel Trust (New York Stock Exchange: PEB) +7.0%, while Park Hotels & Resorts (New York Stock Exchange: PC) +5.9%, Evercore ISI analyst Steve Sakwa said in a note dated June 3 (before the market closed).
Last month, Baird analyst Michael Bellisaro pointed to an improving business travel trend that would support hotels and airlines alike. “Major tech and financial firms have begun to return to office processes, which bodes well for a recovery in business travel in the short term,” he wrote in the firm’s travel report.
“The reopening momentum is palpable, and continued strong demand for leisure, coupled with a rapidly recovering midweek business tourism, gives us even more confidence that a more normal travel environment will unfold over the next few months,” Bellisaro said.
On Tuesday, Truist Financial analyst K. Patrick Scholes upgraded Park Hotels (PK) to Buy from Hold and raised its 2022 EBITDA estimate to $585 million from $525 million and adjusted FFO per share to $1.46 from $1. ,ten. After evaluating Q1 housing REIT earnings, he also raised his full-year EBITDA estimate for DiamondRock (DRH), Host Hotels (NASDAQ:HST), Ryman Hospitality Properties (New York Stock Exchange: RHP) and Sunstone Hotel Investors (New York Stock Exchange: SHO).
Sunstone Hotel Investors (SHO) released a business update Thursday that describes better demand growth at its city and group hotels, which are “seeing growth in short-term booking activity, higher-than-expected group event attendance and an increase in temporary business volume. “.
The average daily rate in a comparable portfolio of 12 hotels was above 2019 levels every month of 2022 and up 11.3% in the second quarter of 2022.
Baird’s Bellisario expects hotel REITs to deliver positive intra-quarter updates in their presentations at next week’s Nareit meeting, “as May’s top-line performance came in better than expected.”
“Investor sentiment has generally turned more negative recently, given heightened concerns about slower growth and consumer spending, but hospitality fundamentals have continued their positive recovery trajectory,” he said. “Recent demand trends were stronger than expected, driven by the continued recovery in business and group travel, as well as…