The universe for investing in hotel companies can include several subsets, all of which fall within the realm of consumer cyclicals, which tend to do well when the economy is in growth phases. In general, hotel companies can be super profitable if they’re managed correctly. They also usually operate under franchise models, allowing them to more easily branch out all over the U.S. and the world. Hotels can also bring in more money when they expand to luxurious escapes or pair their offerings with attractions like gambling.
Since hotels are consumer cyclicals, they do come with some higher than average risks. As a consumer cyclical, these companies do well when consumers have more disposable income and are willing to spend more on leisure. In cases of economic downturn this can lead to big losses and in crippling situations large, expensive buildings may be left empty or significantly unoccupied. Reputation risk can also be a big factor, with poor service or bad reviews dampening an already on edge profitability.
Below, we’ll look at some of the leading companies in different subsets across luxury, standard accommodations, and alternatives, along with some of the diversified investment options that investors may also be interested in. In general, when looking to invest in the hotel sector, diversification can be important as the above risks can easily take their toll either from individual challenges or big economic downturns.
- The growing hotel industry can be grouped by luxury, standard lodging, and alternatives.
- Disney and Las Vegas Sands are the two largest luxury hotel providers.
- Marriott and Hilton rise to the top of the standard lodging category.
- Airbnb is providing a growing alternative as an offshoot of emerging crowd sharing innovation.
The Baird/STR Hotel Stock Index and its associated companies provide a comprehensive universe for looking at the biggest and best names in the hotel industry. Luxury hotels form their own subset of the market as they break away from the regular pack offering higher-end accommodations often centered around exotic locations, secluded getaways, and gambling.
In the luxury market, Disney (DIS) and Las Vegas Sands (LVS) rise to the top as the largest companies by market capitalization.
Disney has a market cap of $187.6 billion as of May 2020. It operates Disney Resorts all over the world. In the U.S. its two most popular resorts are Disneyland in California and Disney World in Florida. Hotel resorts are a big part of the company’s earnings. Its onsite resort lodging allows visitors to stay immersed in the Disney magic throughout their whole trip.
Las Vegas Sands
Las Vegas Sands is a luxury resort that offers both the beauty of Las Vegas’ lovely beaches along with the thrill of its gambling casinos. Las Vegas Sands trades publicly under the symbol LVS. It has a market cap of $34.96 billion as of May 2020. Sands owns six luxury properties in Las Vegas, including the Venetian.
Other Luxury Names
Other names in the luxury resort market include Wynn Resorts (WYNN), MGM Resorts (MGM), Boyd Gaming (BYD), Starwood Hotels and Resorts (HOT), Wyndham Hotels & Resorts (WH), Wyndham Destinations (WYND), and Marcus (MCS).
Marriott International owns and operates hotels that range from Fairfield Inn & Suites and the Residence Inn all the way up to the recently acquired Delta and the Ritz. With over 6,700 properties, Marriott International has over 800,000 rooms under its control. Marriott also makes money from its timeshare division.
In the trailing 12 months through May 2020, Marriott reported revenue of $20.97 billion. Its net income for the same trailing 12-month period was $662 million.
Hilton Worldwide Holdings
Hilton Worldwide Holdings is a company with over 5,000 properties in 100 countries and territories. The company’s revenue stems from a familiar model in the hotel company world: timeshares, franchise fees, royalties, management fees, and actual ownership.
Hilton Worldwide operates hotel brands like Hilton, Embassy Suites, Hampton Inn, and Waldorf Astoria. For the trailing 12 months through May 2020, it had revenue of $9.2 billion and net income of $504 million.
Other Standard Lodging Names
Other names in the standard lodging category include:
- InterContinental Hotels Group (IHG)
- Hyatt Hotels (H)
- Choice Hotels (CHH)
- Extended Stay America (STAY)
- Red Lion Hotels (RLH)
With online crowd sharing growing in popularity, consumers also have several alternatives when it comes to online searches and bookings. Airbnb has announced plans to go public in 2020. Airbnb has created its own niche, offering an online market for sharing spaces to consumers. Its listings range from discounted weekly stays to luxurious vacation spots. Consumers can search through the many listings on the Airbnb.com website to find a space that fits their needs, dealing with the renter directly.
Online, consumers also have several additional options, though none that quite rival the directness of Airbnb’s offering. Online alternatives often helpful in the short term rental search can include names like Tripping.com, Flipkey, Vacation Rental by Owner, Wimdu, Booking.com, Hotels.com, Expedia, and more.
Diversified Investment Options
When it comes to real estate, many investors are cautious. Investors also like to diversify in a concentrated sector and especially one with the higher cyclical risks that come with hotels. For these investors, real estate investment trusts (REITs) and exchange-traded funds (ETFs) can be good options.
REITs offer a trust fund with diversification that is often concentrated in special sectors. Hotel REITs can be quite popular. Among the universe from Baird/STR, the top four hotel REITs by market cap as of May 2020 include the following:
- Host Hotels & Resorts (HST): trading price $9.77; market cap of $6.887.45 billion
- Apple Hospitality REIT (APLE): trading price $7.88; market cap of $1.759.74 billion
- Park Hotels & Resorts (PK): trading price $7.30; market cap of $1.719.83 billion
- Sunstone Hotel Investors (SHO): trading price $7.40; market cap of $1.595.01 billion
ETFs are also a good consideration as they provide diversification with high levels of liquidity and a lot of transparency for their investors. Hotel ETFs can be somewhat more difficult to identify distinctly. This often leads investors to consumer cyclical ETFs or ETFs more broadly investing in gambling, entertainment, and leisure. Some ETF options include the following:
- Consumer Discretionary Select Sector SPDR Fund (XLY)
- Nuveen Short-Term REIT ETF (NURE)
- VanEck Vectors Gaming ETF (BJK)
- Invesco Dynamic Leisure & Entertainment ETF (PEJ)