Why REITs are suffering from a value disconnect

NATIONAL REPORT — Hotel REITs are suffering from a public-private disconnect in terms of their relative values, highlighted last month by Braemar Hotels & Resorts putting itself up for sale. This disconnect especially puts pressure on REITs with luxury assets, like Braemar, which feels its portfolio’s value isn’t reflected in its stock price.

“The challenge is this is a public-private disconnect,” said R.W. Baird analyst Michael Bellisaro. “The public market values cash flow… It’s real estate, but they are stocks, and people value the stocks. If earnings aren’t going up and margins are negative, multiples go down, even if the underlying real estate value is worth the same.

“The private market values real estate. So, the stocks look cheap relative to the real estate because you could probably go sell a couple of these assets for way more than what the market is probably valuing them.”

While hotel REITs are still suffering from that disconnect, if August stock values are any guide, the sector could be turning a corner.

Bellisario said hotel stocks rebounded and outperformed in August as the “broader stock market priced in a lower interest rate outlook.”

While global hotel brands’ stock increased 2.2% in August, hotel REIT stocks gained 8.5% in the month and outperformed the benchmark REIT index (RMZ) by approximately 430 basis points. Bellisario said hotel REITs are benefiting from being a “less bad” trade in the stock market and have become relative outperformers for four consecutive months. (Braemar led that revival with its stock up 25.9% month-over-month, with most of those gains happening after its sale was announced.)

Why REITs are net sellers

While other hotel REITs haven’t said they are for sale like Braemar, most have been net sellers in 2025, with many shedding assets and REITs like Tysons, Virginia-based Park Hotels & Resorts touting selling assets to get down to its “core” portfolio, where the REIT said it derives 90% of its value. 

Bellisario said the biggest driver for these sales isn’t necessarily that the REITs want to sell, but because they don’t think they can get their ROI back for hotels that need renovations.

The bigger driver is they want to sell old hotels that need capex. Capex costs are higher, and the math doesn’t pencil like it used to, and the brands want you to renovate. [REITs say] we don’t see a return for $30 million of capex. One, we don’t want to do it, and two, we don’t want to spend it.

Michael Bellisario

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“The bigger driver is they want to sell old hotels that need capex. Capex costs are higher, and the math doesn’t pencil like it used to, and the brands want you to renovate,” he said. “[REITs say] we don’t see a return for $30 million of capex. One, we don’t want to do it, and two, we don’t want to spend it.”

That leads the REITs to seek buyers, Bellisario said.

“So, your net result is you have a smaller portfolio that’s arguably higher quality, but you’re really choosing to sell what you’re selling because there’s a big capex need, and you don’t see the return for it,” he said. “So, you forego that capex and have someone else do it.”

Ultimately, the stock price often drives those decisions, Bellisario said.

“Everyone’s selling because for REITs, they can or can’t do things based on their stock price and their stock price has been down,” he said. “They all want to buy and grow, but the math doesn’t pencil. So, therefore, you either do nothing, or you sell assets or buy back stock.”

Will more REITs offer themselves up for sale, or is Braemar in a unique situation because of its portfolio and smaller size? Bellisario said that the answer probably depends on how fast a sale happens.

“If Braemar gets sold in 90 days for a five cap, then I think people are going to say, ‘I’m for sale, too’, or ‘Who wants to buy my hotels?’” he said. “The other thought is these assets should always be for sale, and these conversations should always be ongoing and most of the REIT management teams should know who most of the prospective buyers are.”

Ultimately, the challenge for hotel REITs is that with stock prices lower, how do you get to a valuation you think is correct?

“I have this conversation all the time: Do you sell your best assets and get a good mark? Do you sell your worst assets to make the resulting portfolio better? One is 15 times EBITDA, one is 8 times EBITDA,” Bellisario said. “One is accretive and one’s dilutive. No one wants to shrink their portfolio. No one wants to put themselves out of business. There’s a delicate balance there.”

Broadly speaking, Bellisario expects there to be fewer hotel REITs in the next five years, either through sales or companies going private.

“I say there’s going to be fewer REITs because there’s a gross and net to it and I just don’t see any public IPOs for REITs happening unless something drastically changes,” he said. “Aside from Braemar, say they’re gone [in that time frame], there’s probably a good chance that someone else goes away, too.”

Bellisario also expects hotel REITs to own fewer assets in that same time frame. 

“That’s the trajectory they’re on and I would expect that to continue for the foreseeable future,” he said. “They all want to buy more and be bigger because you can leverage your G&A. They all want to grow.” 

Ultimately, Bellisario said he expects hotel REITs to continue to shed assets because he doesn’t see big changes coming in the broader market dynamics.

“It’s really because of the motivation to sell hotels to defer capex,” he said. “Are construction costs really going to come down? Is inflation really going to come down? Is hotel performance really going to get that much better where the renovation has a better ROI? That’s tough to see. So, the motivation to sell because of capex pressures and the deferral of those cash outflows will probably persist.”

Why are REITs in this position?

So, why are hotel REITs in this predicament and why are their stock valuations down over the past few years? Patrick Scholes, analyst for Truist Securities, said there are several factors.

Costs are growing faster than revenues. It’s pressure on EBITDA growth. Plus, there has not been, until Braemar, a lot of interest from management teams to sell assets, and there have been more dilutive acquisitions than accretive acquisitions the last couple of years. Long-hold investors don’t typically like that.

Patrick Scholes

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“Costs are growing faster than revenues. It’s pressure on EBITDA growth. Plus, there has not been, until Braemar, a lot of interest from management teams to sell assets, and there have been more dilutive acquisitions than accretive acquisitions the last couple of years. Long-hold investors don’t typically like that.”

Hotel REITs are also facing increased cost pressures, Scholes said.

“I thought the unions did extremely well in their negotiations last year, and even if you’re not a unionized hotel, those union wages and benefits growth rates flow through to the entire industry,” he said. “In an environment of very lethargic RevPAR growth, that makes it very difficult right now to grow EBITDA. If you’re not growing EBITDA, it makes it harder, if not impossible, to raise your dividend.”

Still, the market is cyclical, Scholes said, noting that cruise stocks were once out of favor and now are some of the hottest in the travel industry. So, there’s hope that hotel REIT stock will be more in favor in the future.

“I’ve followed enough hotel and leisure subsectors to know that sectors come in and out of favor,” he said. “Hotel REITs won’t be out of favor forever, but for the moment, they are. They will have their day again. I just don’t see it necessarily in the near to midterm.”