Hotel REITs: As Airbnb Readies IPO, A Look At Industry Fundamentals

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• The US hotel industry had another banner year of record occupancy and strong demand growth in 2018. Despite trade tensions and market volatility, 2019 is off to a solid start.
• As it has been since 2015, supply growth remains elevated, particularly in the business travel segments and urban markets. REITs have disproportionate exposure to hotels in these weaker segments.
• As a result, hotel REITs have produced disappointing returns over the past five years compared to the more diversified hotel operators. Recent results suggest REITs may be turning the corner.
• Construction spending on hotels has finally cooled after several years of double-digit growth. Hotel REITs appear attractively valued within the REIT sector, paying yields above 5%.
• The long-awaited Airbnb IPO appears to be imminent. As domestic growth slows, the dire projections of Airbnb crushing the traditional hotel industry have not come to fruition.