Q2 REITs: Leisure challenges lighten RevPAR projections

NATIONAL REPORT — Hotel REIT earnings in the second quarter generally projected slower RevPAR growth for the second half of 2024 as concerns about leisure travel and normalizing travel trends in general weighed down expectations and affected absolute and relative performance.

Analyst Michael Bellisario of R.W. Baird said hotel REIT stocks declined 0.4% in July, with interest rates and broader economic growth concerns being the biggest drivers. However, this was less of a decline than Baird’s global hotel brands index, which fell 3.4% during the month. He said the stock declines in August have continued, with hotel REITs dropping 7.6% and global hotel brands declining nearly 6%.

“Hotel REITs’ operating performance varied widely during 2Q24, particularly on the bottom line, which was impacted by the timing of favorable property insurance renewals, renovations, and relative urban versus resort exposures,” Bellisario said.

While total U.S. hotel industry RevPAR was +2.5% in the second quarter, hotel REIT RevPAR median was only +2% (or +2.2% adjusted for major renovations).

Here’s a roundup of the major hotel REITs’ earnings in the second quarter.

Ashford Hospitality Trust

The Dallas-based REIT, which has been selling assets and handing the hotel keys back to lenders in the past year as part of a plan to pay off its strategic financing, said it has a “viable” plan to pay off the rest of its financing by the end of this year. “We continue to successfully execute against our operating strategy, and I’m very pleased with the progress we have made in paying off our strategic financing,” said new President and CEO Stephen Zsigray, who took over for Rob Hays on July 1. “The outstanding loan balance is down almost 53% from the original balance, and between the excess proceeds from additional planned asset sales, excess proceeds from planned property refinancings, and proceeds from our non-traded preferred capital raise, we believe we have a viable path to pay off our strategic financing this year.” Through the second quarter, AHT had loans of $2.7 billion, with a blended average interest rate of 8.1%. Bellisario said a sluggish fundamental backdrop is slowing Ashford’s deleveraging process, which Baird thought could be completed even earlier. “Our main focus is the company’s over-levered balance sheet; more asset sales need to be completed before Oaktree can be fully repaid (now more likely to occur in 4Q24 than 3Q24). Free cash flow can inflect positively, and the company can be in a position to grow again,” he said.

Apple Hospitality REIT

The Richmond, Virginia-based company reported RevPAR growth of 2.5% in Q2 and hotel EBITDA growth of 1.5% year over year. Still, it lowered its RevPAR and adjusted EBITDA guidance for the rest of 2024 as part of its second-quarter earnings. The highly acquisitive REIT bought two hotels in the quarter, sold three others and still has one previously announced deal on the books, an approximately $98.2 million acquisition of a 260-key Motto by Hilton hotel in Nashville, scheduled to be completed next year. Bellisario said the REIT’s results were in line with expectations. “June RevPAR was a bit softer than we expected, but better margins led to hotel-level results that matched our forecast. Not surprisingly, the 2H24 outlook is being reduced to reflect slower growth top-line trends (ADR pressure, consumer pricing sensitivity). We expect management to remain active with buybacks at the current stock price.”

Chatham Lodging Trust

The Palm Beach, Florida-based REIT reported a net income loss of almost 25% from the same period a year ago for the second quarter, while its total revenues rose to $86.47 million. Chatham had a net income of $7.03 million, while the net income attributed to the company was $6.84 million, also down significantly from the $9.14 million in 2Q23. Chatham’s portfolio RevPAR increased 4% to $151, ADR remained unchanged at $183, while occupancy rose 4% to 82% for its 38 hotels. The company said RevPAR for the Silicon Valley and Bellevue hotels was up 10% over the second quarter of 2023, reaching a post-pandemic high of $152. Earlier this year, Chatham announced the acquisition of the 148-key Home2 Suites by Hilton Phoenix Downtown for $43.3 million.

DiamondRock Hospitality

The Bethesda, Maryland-based REIT saw comparable total revenues of $309.3 million, a 4.8% increase yearly, while comparable RevPAR increased 2.2% to $229.21. Comparable hotel EBITDA in Q2 was $99.5 million, which was a 5.5% increase year over year. The REIT also reported that group revenue on the books for the second half of 2024 is up 14% year over year, and group room nights on the books have increased by 7.3% from a year ago. Jeffrey Donnelly, who was named CEO in April, said, “Second quarter operating results surpassed our expectations. Our strategy to focus on building a larger base of group demand drove strong room revenues and significantly stronger food and beverage revenues, particularly at our larger urban properties.” The REIT recently completed the repositioning and rebranding of the Hilton Burlington Lake Champlain in Vermont as the 258-key Hotel Champlain Burlington, Curio Collection by Hilton.

Host Hotel & Resorts

The Bethesda, Maryland-based REIT reduced its full-year guidance as part of its second-quarter earnings. The company cited slower-than-expected demand at its properties in Maui and a slowdown in leisure travel demand. CEO Jim Risoleo said the year-over-year decline in Maui RevPAR had an actual drag of 250 basis points on Host’s second-quarter portfolio RevPAR. “This understates the true impact of the wildfires, as we would have expected Maui to contribute 90 basis points to portfolio RevPAR growth in the second quarter… As a result, the total estimated impact of the wildfires on second-quarter RevPAR is 340 basis points,” he said. While group room revenue was up approximately 8% for the quarter, Risoleo said domestic leisure demand has moderated as consumers have opted for international destinations like Europe, Asia and the Caribbean. Host made several high-profile acquisitions in the second quarter, including the $265 million acquisition of the 234-key 1 Hotel Central Park in New York and the $650 million acquisition of the 450-key Turtle Bay resort in O’ahu, Hawaii (which was recently rebranded to a Ritz-Carlton).

Parks Hotels & Resorts said it is permanently closing its Hilton Oakland Airport hotel later this year.

Park Hotels & Resorts

The Tysons, Virginia-based REIT said it had comparable RevPAR growth of 2% in the second quarter versus 2Q23 and said comparable group revenue pace was up nearly 10% versus the same time last year, driven by accelerated business demand at its Boston, Chicago and New York hotels. Park also said it extended its debt maturities in the quarter by refinancing $650 million in senior notes due in June 2025. The REIT currently has liquidity of nearly $1.4 billion and decided to permanently close its Hilton Oakland Airport hotel later this year. In July, the REIT (along with Dallas-based REIT Braemar Hotels & Resorts) sold the Hilton La Jolla Torrey Pines hotel for approximately $165 million. Park expects to incur approximately $270-$290 million in capital improvement costs in 2024; $51 million was spent during the second quarter.

Pebblebrook Hotel Trust

The Bethesda, Maryland-based REIT said urban and resort occupancies rose in the second quarter, with gains driven by its properties in Boston, Chicago, San Diego and Washington, D.C. The company said its same-property total RevPAR increased by 2.5% in Q2, with urban properties improving by 3.4%. Same-property EBITDA was up 8.9% in the quarter, driven by better-than-expected operational efficiencies, reduced expenses and real estate tax reductions. Pebblebrook also reduced its full-year RevPAR growth guidance to 1.25%-2.25% (vs. 2-4% previously) because of a more price-sensitive leisure traveler and several of its weaker-performing markets (Los Angeles, Portland, and San Francisco) are not recovering as quickly as previously expected. Pebblebrook also said LaPlaya Beach Resort & Club continues to ramp up its operating performance following its redevelopment and restoration following Hurricane Ian. The company also announced that the Le Méridien Delfina Santa Monica will be converted and rebranded to Hyatt Centric by mid-September.

RLJ Lodging Trust

The Bethesda, Maryland-based REIT reported 2Q24 earnings of  2.6% RevPAR growth, 0.6% ADR growth and 2.1% occupancy growth for a revenue increase of 3.4% due to slightly better total revenues and margin performance, especially in June. However, RLJ reduced guidance, cutting the RevPAR growth midpoint by 225 bps (now 1-2.5% vs. 2.5-5.5% previously) and the hotel EBITDA midpoint by >4%. The full-year RevPAR growth range implies flat to 3% growth in 2H24, wrote Bellisario. He said the corresponding reductions to full-year adjusted EBITDA and adjusted FFO/share were ~5% and ~8%, respectively. RLJ also reported the acquisition of the Hotel Teatro in downtown Denver for $35.5 million and the sale of the 78-room Residence Inn Merrillville in Indiana for $8.1 million.

Ryman has, in our view, one of the most sophisticated revenue management approaches of the major hotel owners.

Truist Securities

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Ryman Hospitality

The Nashville-based REIT said it had a record second-quarter net income of $104.7 million and record Q2 consolidated revenue of $613.3 million, including record same-store hospitality revenue of $456.2 million. Ryman also had a record consolidated operating income of $168.1 million and a consolidated adjusted EBITDA of $233.2 million. The REIT said it refinanced Opry Entertainment Group’s term loan B and revolving credit facility with a new $300 million term loan B and $80 million revolving credit facility. The REIT is raising its full-year 2024 outlook for consolidated net income, operating income and adjusted EBITDAre. However, it is lowering its outlook for same-store hospitality RevPAR and total RevPAR growth to account for continued leisure transient softness. Analysts at Truist Securities said Ryman is a positive outlier in a frustrating sub-sector. “Ryman has, in our view, one of the most sophisticated revenue management approaches of the major hotel owners. As an example, remarkably, RHP is not seeing the choppiness or weakness in group demand for the week around the election, a topic we inquired about on the earnings call. While we do not know exactly how RHP can be that differentiated from its operator or other REITS (possibly from its longer-than-average booking window?), we can point to the investor day earlier this year as an example of what we do not hear from peers about their approaches on building groups.”

Sunstone Hotel Investors

The Aliso Viejo, California-based REIT said its comparable RevPAR decreased 2% in the quarter, citing renovations at The Confidante Miami and Marriott Long Beach Downtown in California as aiding the lower results. Adjusted EBITDA for the REIT was also down 13.6% for the quarter. CEO Bryan Giglia said the results were consistent with their expectations because of less robust RevPAR growth and slower recovery in Maui. The CEO said the REIT was encouraged by growing business demand in Boston and San Francisco and its recent investment at the Westin Washington, DC Downtown hotel, which produced record earnings in Q2. The Confidante Miami is being converted to the Andaz Miami Beach, expected to debut late next year. During the second quarter of 2024, the company invested $41 million into its portfolio. During the second quarter, the company substantially completed the remaining renovation work on its newly converted Marriott Long Beach Downtown. The company expects to invest approximately $135 million to $155 million into its portfolio in 2024, with most of the investment relating to the conversions of Andaz Miami Beach and the Marriott Long Beach Downtown and a soft goods renovation at Wailea Beach Resort.