7 best hotel REITs to buy now

Key Points

• Hotel REITs provide exposure to the hospitality industry without having to purchase multiple physical properties.
• Hotel REITs offer high dividend yields, liquidity and tax benefits but also come with market risk, leverage risk and concentration risks, as well as rising interest rates.
• Host Hotels & Resorts Inc. is the largest publicly-traded lodging REIT in the U.S. and creates long-term value creation for shareholders.

Are you looking to invest in hotel real estate investment trusts (REITs) in 2024? 

Hotel REITs offer you the chance to diversify your portfolio with exciting and luxurious properties in exotic locations around the world, from New York to Bali. By investing in a REIT, you can potentially increase your income and gain capital appreciation and the opportunity to invest in a more resilient asset class.

If you're considering investing in hotel REITs, you'll want to ensure you're investing in the best ones. This article will overview some of the top hotel REITs to consider in 2024. We'll take a look at their fundamentals, dividend yields and more. 

After reading this article, you'll have the information to pick the best hotel REITs for you and your investing goals. So let's get started!

What is a hotel REIT? 

A REIT is a type of security (such as those on the MarketBeat REITs list, below) where you can purchase shares in a publicly traded real estate company that owns and operates hotels.

Hotel REITs typically specialize in acquiring, operating, operating and managing full-service, luxury or extended-stay hotels. The companies on our hotel REITs list provide you with the potential to boost your income and gain capital appreciation through their vast portfolios of hotel properties.

REIT hotels offer stability through diversification and the ability to invest in properties worldwide. Hospitality REITs are a great way to invest in a more resilient asset class while gaining exposure to global markets.

Understanding hotel REITs 

REITs offer you the chance to get in on the ground floor of the real estate market without directly owning property. They pool investor capital to own or finance income-producing real estate across various sectors. One of these sectors is hotels, ranging from luxurious to budget accommodations. The hospitality sector is especially dynamic, influenced by travel trends and economic shifts. REITs are legally obligated to distribute most of their income as dividends, offering good yields and benefiting from tax efficiencies due to their structure. 

First, our lodging REITS list will start with a brief overview of the three major types of hotel REITs. Lodging REITs invest in full-service hotels, such as Marriott REIT, Hilton and Hyatt; select-service REITs focus on mid-priced hotels like Hampton Inn and Comfort Inn; and extended-stay REITs specialize in extended stay properties, such as Residence Inn and Extended Stay America.

The impact of economic factors on hotel REITs

The performance of hotel REITs is closely tied to GDP growth and interest rates, as well as broader tourism trends. Here's a breakdown:

• GDP growth: As GDP rises, consumers and businesses spend more. This uptick in activity often leads to higher hotel occupancy rates and room prices, as more people jet off for business trips and leisure travel. That can boost the revenue and profitability of hotel properties within REIT portfolios. But in economic downturns, when GDP growth slows or contracts, reduced travel spending can hit hotel REITs.
• Interest rates: Higher interest rates can increase borrowing costs for REITs, which often rely on debt for property acquisitions and making improvements. This can lead to higher expenses and reduced profit margins. Interest rates also affect investors' appetite for REITs. Lower interest rates typically make REITs more attractive, thanks to their high dividend yields compared to fixed-income securities. But when rates rise, alternative investments might become more popular.
• Tourism trends: Factors such as changing traveler preferences, emerging destinations and how often people travel directly impact the demand for hotel accommodations. For instance, a surge in international travel or a sudden spike in domestic tourism due to a boom in the economy can lead to higher occupancy rates and increased revenue per available room (RevPAR) for hotels in popular destinations. However, geopolitical tensions, pandemics or economic slumps can adversely affect hotel REITs.

Key performance metrics in hotel REIT analysis 

If you're considering a hotel REIT, here's a breakdown of the essential metrics to evaluate them:

• Funds from operations (FFO): FFO offers a clearer picture of the trust's operating performance by excluding the effects of depreciation and gains or losses on property sales. It's a more accurate measure of the REIT's operational income and reflects the true cash flow from its hotel operations.
• Revenue per available room (RevPAR): RevPAR combines the average daily room rate with the occupancy rate to assess a hotel's ability to fill its rooms at profitable rates. It reflects both pricing strategies and market demand. Higher RevPAR means better performance in attracting guests and maximizing revenue.
• Occupancy rates: This measures the percentage of available rooms occupied at a given time. It's a direct indicator of a hotel's popularity and market demand. Higher occupancy rates generally lead to higher revenues; you need to evaluate them alongside RevPAR and FFO for a full picture.

When comparing these metrics across different hotel REITs, investors can identify top performers in the sector. For instance, a hotel REIT with consistently high FFO suggests efficient operations and strong financial health. Similarly, high RevPAR and occupancy rates indicate strong market demand and effective revenue management.

Comparative analysis can reveal REITs adept at maintaining high occupancy without compromising room rates, indicating a robust market position and effective operational strategies. Conversely, lower metrics might signal operational challenges or less favorable market conditions.

7 hotel REITs to consider in 2024 

Now, look at some of the largest hotel REITs you should consider investing in this year.

Host Hotels & Resorts Inc.

Host Hotels & Resorts Inc. NYSE: HST is one of the largest publicly traded lodging companies in the world. It owns almost 80 luxury properties from around the globe with locations that include the US, Canada and Brazil. The company also has strong fundamentals, including a Host dividend yield of 4.03% and revenue growth of 13.12% over the past year.

Apple Hospitality REIT

Apple Hospitality REIT NYSE: APLE is one of the largest owners and operators of high-end hotels in the U.S., with over 200 upscale properties ranging from resorts to extended stays located across 37 states. The company is currently offering a generous dividend yield of 5.69%, making it an appealing option if you're looking for income generation.

Park Hotels & Resorts 

Park Hotels & Resorts NYSE: PK is another leading hospitality company with a portfolio consisting of over 60 premium hotels across North America. The company has seen solid growth over recent years, reporting revenue growth of 13% compared to the same quarter last year along with an impressive dividend yield of 23.21%.

Pebblebrook Hotel Trust

Pebblebrook Hotel Trust NYSE: PEB is a luxury hotel REIT with a portfolio of nearly 50 properties located in top urban and resort destinations across the United States. It also offers investors a Pebblebrook dividend yield of 0.26%.

Ryman Hospitality Properties

Ryman Hospitality Properties NYSE: RHP owns and operates four of the most iconic entertainment destinations in the U.S. — Gaylord Hotels and the famous Ryman Auditorium in Nashville, home of the Grand Ole Opry — providing guests with an immersive experience in music and entertainment. The Ryman financials outlook is strong, with a dividend yield of 3.93% and revenue growth of 29.69% over the past year.

RLJ Lodging Trust

RLJ Lodging Trust NYSE: RLJ is a select-service hotel REIT with a portfolio of nearly 100 mid-priced properties across the U.S. The company's properties are primarily located in urban markets and have consistently delivered strong financial results, with an RLJ dividend yield of 3.44% and revenue growth of 15.8% over the past year.

Sunstone Hotel Investors

Sunstone Hotel Investors (NYSE: SHOs a luxury hotels REIT with a portfolio of 15 high-end properties located in prime locations around the U.S. The company's iconic properties include Hilton, Marriott and Four Seasons. Sunstone Hotel Investors also offers investors a dividend yield of 2.20%, and the REIT had revenue of $247.70 million during the quarter, compared to Sunstone analyst expectations of $245.52 million.

DiamondRock Hospitality Company

DiamondRock Hospitality Company NYSE: DRH is a lodging REIT that owns and operates 35 upscale hotels across the U.S. The company's properties include brands such as Marriott, Hilton and Westin. DiamondRock financials are strong with a dividend yield of 1.28%.

Navigating the regulatory landscape of hotel REITs

Hotel REITs operate within a complex regulatory and legal framework. Here's a brief overview of these considerations and recent regulatory changes:

• REIT compliance requirements: Hotel REITs must adhere to specific Internal IRS guidelines to maintain their REIT status, which includes distributing at least 90% of their taxable income to shareholders and ensuring that most of their assets and income are real estate-related.
• Zoning and land use regulations: Local and state governments impose zoning laws and land-use regulations that can affect hotel development and operations. They determine where hotels can be built, their size and other operational aspects. Changes in these laws can impact the expansion and profitability of hotel REITs.
• Environmental regulations: Hotel REITs must comply with regulations on waste management, energy efficiency and building codes. Stricter environmental regulations can lead to greater operational costs for existing and new properties.
• Securities and Exchange Commission (SEC) regulations: As publicly traded entities, hotel REITs are subject to SEC regulations, which mandate transparent reporting and disclosures. Compliance ensures investors have confidence and trust in the financial health of the REIT.

Regarding recent regulatory changes:

• Tax reforms: Changes in corporate tax rates and policies can affect the profitability and distribution of hotel REITs. For example, recent tax reforms in some places have altered the tax landscape and affected returns.
• COVID-19 regulations: In response to the pandemic, many governments implemented rules on travel and hospitality. These included restrictions on occupancy, health and safety requirements and travel bans, all of which directly impacted the hotel industry's revenue streams. As these regulations evolve, they continue to influence hotel REITs.
• ESG compliance: There's a growing emphasis on environmental, social and governance (ESG) compliance in the investment world. New sustainability and social responsibility regulations can influence investor sentiment and operational practices.

Tips for investing in hotel REITs 

If you’re ready to jump head-first into hotel REITS, here are some practical tips:

• Conduct due diligence: Research the hotel REIT's portfolio quality, management track record and financial health before investing. Look at key metrics like FFO, RevPAR, occupancy rates and debt levels. Analyze annual reports, earnings calls and sector-specific news to gauge the REIT's market position and future growth potential.
• Understand market cycles: Understanding where we are in the economic cycle can help you make decisions. For instance, investing during a downturn might offer lower entry points, while an upturn can provide quick gains due to increased travel and tourism.
• Diversify within the sector: Diversification mitigates risk. Consider diversifying your hotel REIT investments across different geographical locations, types of hotels (luxury, mid-scale, budget) and target markets (business, leisure, or mixed-use). This approach can help balance the portfolio against market volatility.
• Monitor economic indicators: Keep an eye on interest rates and GDP growth. Rising interest rates can increase borrowing costs and affect dividend payouts, while economic growth can lead to increased travel and higher occupancy rates.
• Consider long-term horizons: Look at hotel REITs as long-term investments. The sector can experience short-term volatility due to various factors, including economic changes and travel trends. A long-term perspective lets you ride them out and wait for a gradual market recovery.
• Seek professional advice: Consult with financial advisors or industry experts, especially if you're new to REITs. Professionals can introduce you to market trends, regulatory changes and specific REIT performance, helping you make more informed decisions.
• Stay updated on industry trends: The hotel industry evolves with the changing tastes of globe-trotters and technological advancements. Stay informed about sustainable practices, digital transformation and travel trends.

Invest in hotel REITs 

Investing in hotel REIT stocks requires just a few basic steps.

Step 1: Research hotels REITs. 

Thoroughly research your hotel ETF list before investing. Consider factors such as the company's dividend yield, revenue growth, occupancy rate, and location of its properties. Pay attention to analyst ratings and read through the REIT's 10-K reports to better understand the company's financials.

Step 2: Set investment goals.

Clearly define your investment goals to decide which hotel REIT stocks are right for you. Factors to consider include your risk tolerance, expected return on investment and time frame for realizing gains.

Step 3: Invest in hotel REITs.

Once you've identified a hotel REIT on our hospitality REITS list that meets your criteria, you can invest in it by purchasing shares directly from the company or through a broker. Some brokers offer commission-free REIT purchases, which can help you save money on transaction fees. Be aware of any changes in market conditions or potential risks before making a purchase decision.

Step 4: Monitor performance and reevaluate investment goals.

Regularly monitor the performance of your hotel REIT investments and adjust your strategies accordingly. Reevaluate your investment goals periodically to ensure that they're still in line with your original objectives.

Pros and cons of hotel REITs 

Hotel REITs are a popular way to gain exposure to the hospitality industry without buying physical properties. However, there are pros and cons to investing in one of the REITs on our hospitality REIT list.

Pros 

The following are some pros of investing in hotel REITS:

• Diversified portfolio: Hotel REITs allow you to gain exposure to hospitality businesses without having to purchase multiple physical properties.
• High-yield investing: Hotel REITs typically offer higher dividend yields than other real estate investments.
• Liquidity: Hotel REITs are usually publicly traded on major stock exchanges, making them easy to buy and sell.
• Tax benefits: You may be eligible for certain tax benefits when investing in hotel REITs, such as deductions on depreciation and amortization expenses.
• Professional management: Most hotel REITs employ experienced management teams in running hospitality operations.

Cons 

Of course, there are also cons of choosing to invest in a hotel REIT:

• Market risk: The stock prices of hotel REITs can fluctuate due to market conditions or other external factors, which could lead to losses if you don't manage them properly.
• Leverage risk: Many hotel REITs use leverage, which means that if their debt is called by creditors, they may not have enough cash on hand to pay back their loans, resulting in a default.
• Concentration risk: Many hotel REITs invest heavily in a limited number of markets or property types, which can expose them if those markets or sectors experience downturns.
• Rising interest rates: Rising interest rates can increase the cost of borrowing money and reduce available capital for investments, potentially resulting in lower returns for you.

Checking into hotel REITs

Hotel REITs can be a lucrative investment and allow you to buy into the exciting world of travel and hospitality. They offer high dividend yields, access to professional management, and liquidity and diversification benefits. However, they also come with market risk, leverage risk, concentration risk and rising interest rates. Always research the risks associated with hotel REIT investments before making any decisions.

FAQs 

Now that you better understand hotel REITs, you may still have lingering questions. Don’t worry. We provide detailed answers and explanations to ensure your confidence before investing.

What is the largest hotel REIT in the U.S.? 

Apple Hospitality owns and operates a vast portfolio of properties, including over 200 hotels with around 29,000 guest rooms across 37 states. Most hotels are branded by industry-leading names: 96 under the Marriott banner, 119 as Hilton locations, four Hyatt hotels and one independent hotel.

What is the most successful hotel real estate investment trust? 

Host Hotels & Resorts Inc. is the world's largest publicly traded lodging REIT, with a geographically diverse portfolio of luxury and upscale hotels across the United States. They're one of the largest owners of luxury and upper-upscale hotels. 

The company was incorporated as a Maryland corporation in 1998 and operates as a self-managed and self-administered REIT while being traded on the NASDAQ under the symbol "HST." The company's management team has decades of experience in the hospitality industry.

How does a hotel REIT work?

A hotel REIT is an investment vehicle that holds and operates income-producing real estate assets, particularly hotels and resorts. When you purchase shares of a hotel REIT, you become part owners of the company and, in turn, receive a portion of the earnings generated. Hotel REITs are typically managed by experienced professionals with expertise in hotel operations, management and finance who use their expertise to manage the day-to-day operations of their properties and source new investments.