Extended-stay hotels may protect some REITs from hospitality armageddon

Chatham Lodging Trust, Apple Hospitality and Summit Hotel Properties have so far been able to weather the Covid-storm

The hospitality industry is facing an existential crisis, but some REITs whose portfolios include extended-stay properties may be a safe long-term bet for investors. Courtyard Houston-West University in Houston, Texas (Courtesy of Chatham Lodging)
The hospitality industry is facing an existential crisis, but some REITs whose portfolios include extended-stay properties may be a safe long-term bet for investors. Courtyard Houston-West University in Houston, Texas (Courtesy of Chatham Lodging)

The coronavirus pandemic has hammered the hospitality industry, with real estate investment trusts that own and manage hotels and resorts getting hit especially hard.

But some REITs are relatively stable — specifically those with large holdings in the extended-stay and limited-service segments, according to the Wall Street Journal.

Chatham Lodging Trust, Apple Hospitality and Summit Hotel Properties in particular have been able to keep the lights on in most of their hotels.

Chatham, for example, saw a major sell-off after cutting dividends, but made significant cuts to staff and executive salaries. But June, it approached positive funds despite occupancy levels under 40 percent. Chatham also doesn’t face any significant debt maturities for three years.

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Some hotel owners — large and small — are still in deep financial trouble despite similar occupancy levels. Occupancy in New York is around 41 percent and $1.47 billion worth of commercial-mortgage-backed securities loans on hotels there are delinquent. Some owners have declared bankruptcy.

While it may be awhile before Chatham and other REITs are able to pay dividends again, they may prove to be relatively safe havens for investors in the long run.

Occupancy for the most part has been on the rise across the country since the depths of the pandemic, but hotels in some markets are struggling to fill even a quarter of their rooms. [WSJ] — Dennis Lynch