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Conrad Hotel Orlando – Image Credit Hilton
The hospitality industry remains cautiously optimistic as hotel brands outperform real estate investment trusts amid tariff concerns.
Market Sentiment and Performance
As the second-quarter earnings season approaches, the sentiment among publicly traded hotel companies is mixed. Analysts indicate that the anticipated negative impact of U.S.-enforced tariffs has not materialized to the extent feared. Michael Bellisario, a senior hotel research analyst at Baird, notes that while growth has slowed, public hotel companies have exceeded the lower end of their forecasts by adapting to the uncertain tariff environment experienced in the first quarter. He describes the situation as a “less bad trade” scenario, with stock prices rising and estimates increasing due to the low end of guidance ranges not coming to fruition.
Hotel Brands vs. Real Estate Investment Trusts
C. Patrick Scholes of Truist Securities highlights a divergence in sentiment between hotel brands and real estate investment trusts (REITs). While hotel brands and C-corporations maintain a bullish outlook, REITs, privately owned companies, bankers, lenders, and asset managers exhibit more pessimism about the industry’s state. Notably, Hilton, Marriott International, and Hyatt Hotels Corp. are leading the industry, whereas Wyndham Hotels & Resorts and Choice Hotels International, along with most hotel REITs, lag behind pre-Liberation Day highs.
On the REIT side, many companies are either selling hotels or attempting to do so. Bellisario explains that these companies are primarily recycling proceeds from sales into buybacks. He anticipates some companies may slightly raise the low end of their guidance but doubts any REIT will increase the high end due to negative sentiment and low expectations.
Companies to Watch
Investor sentiment remains high for Hilton, which has performed well by maintaining a long-term perspective on the industry’s health. Scholes commends Hilton for effectively communicating a strong, long-term vision that resonates with investors. Despite underperformance by Choice and Wyndham relative to other brands, Bellisario expects updates from these companies to be “less bad than feared.” Developers continue to proceed with projects, and tariff impacts have not significantly hindered progress.
Hyatt is of particular interest this earnings season, having recently completed a $2.6 billion acquisition of Playa Hotels & Resorts. Hyatt subsequently sold $2 billion in owned real estate from the deal to a joint venture of KSL Capital Partners and Rodina. Bellisario notes that Hyatt’s guidance will involve numerous moving parts, emphasizing the importance of execution.
Outlook for Hospitality REITs
Host Hotels & Resorts is expected to serve as a bellwether for the hospitality REIT sector when it reports its earnings on July 31. Other notable hotel REITs include those with market-specific drivers, such as Park Hotels & Resorts, Sunstone Hotel Investors, and Host with Hawaii.
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