Real estate investment trusts (REITs) that invest in hotels and motels provide investors with exposure to a portfolio of income-producing properties. Since the average retail investor lacks the enormous capital and experience needed to purchase a portfolio of lodging properties, hospitality REITs provide unique access to this market.

However, even the best hospitality REITs of 2020 are struggling, especially when compared to their past performance in 2019, a record year for the industry. The total long-term impacts of the global pandemic caused by COVID-19 are unknown. But since the United States fell into a recession in February 2020, the retail and hospitality industries have definitely taken a hit.

Key Takeaways

  • Real estate investment trusts (REITs) that invest in hotels and motels provide investors with exposure to a portfolio of income-producing properties.
  • Hotel REITs are the single-most economically sensitive REIT sectors.
  • While hotels might be a risky play right now due to government restrictions on travel that were put in place in 2020 to slow the spread of COVID-19, these REITs might be the most likely to recover.

In the event of a protracted economic downturn, malls, hotels, and other retail outlets have been known to suffer. In 2020, tenants have been forced to close for long periods of time. At the same time, both travel for business and leisure have been severely impacted. For example, Apple Hospitality REIT's occupancy rate was 77% in 2019. In April 2020, it had dropped to a mere 18%.

Hotel REITs are the single-most economically sensitive REIT sectors, but if you're a long-term investor and you can be patient, these three hotel REITs are relative bargains.

Host Hotels and Resorts

Host Hotels & Resorts is an S&P 500 company and is the largest lodging REIT, with 80 luxury and upper-upscale hotels (75 properties in the U.S. and 5 properties internationally) amounting to a total of approximately 46,700 rooms. The company is headquartered in Bethesda, Maryland and is traded on the Nasdaq stock exchange. Its brands include Marriott, Ritz-Carlton, Westin, Hilton, and Grand Hyatt. As of August 31, 2020, Host had reopened 70 of its hotels.

As of November 5, 2020, shares of Host Hotels & Resorts had fallen 39.19% year to date, compared to 19.94% for the S&P United States REIT index. The company previously paid a quarterly cash dividend of $0.20 per share on its common stock on April 15, 2020 to stockholders of record as of March 31, 2020. However, on June 19, 2020, the Board of Directors announced that it would be temporarily suspending the company’s regular quarterly dividend, commencing with the second quarter dividend that would have been paid in July 2020.

It has a price to earnings ratio (P/E ratio) of 96.25 and its market capitalization is $7.80 billion.

Apple Hospitality REIT

Apple Hospitality REIT owns 230 hotels across 34 U.S. states. This amounts to approximately 30,000 guest rooms across the country. Its hotels include Marriott, Hilton, Hyatt, and two independent hotels. The portfolio is rooms-focused, which means it is more focused on providing a place to sleep than providing a resort-like vacation experience.

Year-to-date, the performance of Apple Hospitality shares has fallen by -33.32%. Apple Hospitality last reported its quarterly earnings results on August 6, 2020. The REIT reported $0.35 earnings per share (EPS) for the quarter; it generated $1.63 earnings per share over the last year. 

It has a price to earnings ratio (P/E ratio) of 14.03 and its market capitalization is $2.38 billion.

Sunstone Hotel Investors Inc.

Sunstone Hotel Investors Inc. is a lodging REIT that has interests in 19 hotels, mainly in the upper-upscale hotel segment. This amounts to approximately 9,988 rooms. The company operates nationally recognized brands, such as Marriott, Hilton, and Hyatt. The company was founded by Robert A. Alter in 1985 and is headquartered in Aliso Viejo, California.

The company's properties are located in U.S. gateway, convention, and resort markets and the company focuses on what it refers to as long-term relevant real estate. This means that its portfolio focuses on properties that meet certain criteria: desirably located; difficult to replicate; enduring demand drivers; stands the test of time; generally owned fee simple; superior economics for capital costs and owner profit. With these criteria, Sunstone believes it can generate higher returns from its properties.

After occupancy in its hotels plummeted to just 6.7% in April, the company suspended its dividend. In April 2020, the company's total revenue was reported to have plummeted 95.9% year over year.

In November 2020, the company's market capitalization is $1.74 billion. Its price to earnings ratio (P/E ratio) is 14.89.