Hotel REIT Performance Varied in Third Quarter

Hotel REITs are beginning to announce third quarter earning results. While many REITs are reporting some improvement compared to earlier in the pandemic, the results are varied. While there is yet to be a clear picture of the hotel market, hotels are beginning to show signs of recovery with positive EBITDA and improving RevPAR.

Chatham Lodging Trust, which focuses on select-service hotels, has outperformed the greater hotel market. In the third quarter, EBITDA turned positive and occupancy rebounded into the 50% range. RevPAR and ADR also showed improvement. The REIT also reports liquidity of $109 million including cash of $32 million and remaining capacity of $77 million on the credit facility. This gives Chatham 64 months of liquidity, excluding capex. While the third quarter showed improvement, October has already reversed direction with lower occupancy compared to September, which could be related to the rise in COVID cases in the US.

Pebblebrook Hotel Trust was another bright spot for REIT performance. A report from BTIG found that the REIT is better positioned than its peers to withstanding the recession thanks to a portfolio with exposure to the drive-to resort segment, smaller hotels with fewer fixed costs and only a small exposure to the higher costs of owning large, group-oriented branded hotels. In the third quarter, the REIT’s EBITDA was $27.6 million, which were slightly weaker than estimates, while occupancy was 19.5%, ADR was $215.95 and RevPAR was $42.17.

Ashford Hospitality Trust reported a similar varied performance. According to CEO Jeremy Welter on the firm’s third quarter earnings call, RevPAR for the portfolio decreased 72.1% during the third quarter of 2020, however, hotel EBITDA flow-through was at 54.2%. Occupancy has grown, but select service occupancy was down 54.6% while full service was down 62.5%. Currently, 98% of the portfolio has reopened.

Braemar Hotels & Resorts also achieved positive EBITDA for the quarter, thanks to a large portion of the REIT’s portfolio reopening in July. This helped drive improving occupancy, which recovered to 48% for resort product, but remained at 30% for the full portfolio. However, ADR declined as a result of the addition of lower-rated room inventory to the reopened portfolio. Leisure demand has helped the portfolio’s performance, but the absence of corporate travel and group travel have hampered occupancy growth.

Finally, Service Properties Trust, which has hotels as well and net leased product in its portfolio, is currently not covering its minimum annual rent and faces significant default in its hotel portfolio. In addition, InterContinental and Marriott, which accounted for 66% of the hotel portfolio, both defaulted on leases in the third quarter, putting more pressure on the REIT. BTIG gave the REIT a neutral rating with an expectation that FFO/sh for service to decline 69% in 2020 to $1.18 and to recover slightly in 2021 to $1.40. FFO/sh in 2019 was $3.78.