Continued recovery in business and group travel demand, coupled with steady leisure activity helped drive earnings performance for hotel real estate investment trusts during the third quarter, according to an S&P Global Market Intelligence analysis.
Same-store occupancy and RevPAR growth
The US hotel REIT sector posted mixed results with regard to same-store revenue per available room (RevPAR). Of the thirteen REITs that reported same-store RevPAR for the quarter, seven reported annual growth in the third quarter, while five reported year-over-year declines.
The largest hotel REITs largely reported positive growth rates for same-store RevPAR. Host Hotels & Resorts Inc., the largest hotel REIT by market capitalization, reported same-store RevPAR growth of 1.8% for the quarter, while Apple Hospitality REIT Inc. and Park Hotels & Resorts Inc. reported growth rates of 3.0% and 2.8%, respectively. Other REITs that reported positive same-store RevPAR growth included Ashford Hospitality Trust Inc. at 4.3%, Summit Hotel Properties Inc. at 2.4%, Service Properties Trust at 0.8% and Xenia Hotels & Resorts Inc. at 0.4%.
Meanwhile, Braemar Hotels & Resorts Inc. reported a same-store RevPAR decline of 7.3%, the largest drop of the peer group. The other REITs that reported annual declines included Chatham Lodging Trust at 2.6%, Sotherly Hotels Inc. at 1.3%, and DiamondRock Hospitality Co. and Pebblebrook Hotel Trust both at 1.1%.
Overall, median same-store RevPAR for the hotel REIT peer group dipped 0.4% year over year to $158.48.
Median same-store occupancy rate for the sector came in at 72.8% for the third quarter, up 1.0 percentage point year over year but down 8.0 percentage points compared to the third quarter of 2019.
Companies that reported growth in same-location metrics attributed their performances to growing business travel and steady demand in leisure travel.
On Host Hotels' third-quarter earnings call, CEO James Risoleo said the REIT's total group revenue pace for 2023 was 6.7% ahead of the same time 2019. Business transient demand continued to improve, with revenue up approximately 9% and demand up 5% compared to the third quarter of 2022.
Risoleo also said leisure travel rates for the REIT's portfolio were 56% above the comparable quarter in 2019, but had moderated a bit compared to the quarter prior.
Ryman Hospitality Properties Inc.'s executive chairman, Colin Reed, said this was the strongest third-quarter ever for the REIT's same-store hospitality portfolio in regards to total revenue, total average daily rate (ADR) and group ADR. When compared to the third quarter of 2019, total same-store hospitality revenue was up 20.7%, total ADR up 22.4% and group ADR up 16.5%.
In regards to group travel, Ryman Hospitalities reported approximately 513,000 group room nights traveled in the quarter, a 3.1% increase compared to the third quarter of 2022 and back to pre-pandemic 2019 levels.
Though same-store RevPAR for Braemar Hotels & Resorts was down year over year, the metric is up roughly 10% over 2019. DiamondRock Hospitality logged a similar trend, with same-store RevPAR down compared to 2022, but up from the third quarter of 2019.
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FFO, recurring EBIDTA dip
When looking at Market Intelligence-calculated recurring EBITDA for the third quarter, only four hotel REITs logged year-over-year growth, while the other 11 showed annual declines.
Figures for operating funds from operations (FFO) per share showed a similar trend, with four hotel REITs reporting annual increases and nine reporting year-over-year declines.
Market Intelligence defines operating FFO as funds from operations adjusted for extraordinary items or other nonrecurring items at the discretion of the company. Hotel REITs sometimes refer to this as normalized FFO, core FFO or adjusted FFO.
Optimistic outlook
While the Dow Jones US Real Estate Hotels Index is still down significantly compared to the end of 2019, hotel REITs continued to express optimism for the sector.
Both group and transient business travel continued to gradually improve during the recent quarter, while leisure travel remained strong despite macroeconomic challenges including high inflation and elevated interest rates.
Host Hotels also expects international demand to be a positive trend. International inbound air traffic for September sat at 88% of 2019 levels, up from 80% in June. International outbound air traffic also increased to 118% of 2019 levels after hovering near 108% since January, which the REIT said indicates that consumers continue to prioritize travel. The REIT expects the international imbalance to likely revert to 2019 levels over time.
As of Nov. 28, the hotel REIT index is down 31.4% from the end of 2019, while the more broad equity REIT index is down only 11.2%. The S&P 500 is up 41.0% over the same time period.
