Many hotel REITs, or real estate investment trusts, have been fantastic performers in recent months, and it isn't difficult to understand why. As vaccine efforts continue and state economies continue to reopen, pent-up demand for travel has been off the charts. Memorial Day weekend saw the highest travel numbers of the pandemic and could be just the beginning as the summer goes on. In fact, since the initial reports of Pfizer's phase three vaccine trials in November, the Dow Jones U.S. Hotel & Lodging REITs Index has climbed by a staggering 71%.
However, for some hotel REITs, the best could be yet to come. Here are three hotel REITs in particular that could still have quite a bit to gain as the U.S. gradually gets back to normal this year and could be great stocks to add to your portfolio in June.
Group travel hasn't picked up yet
I mentioned that Memorial Day weekend saw the highest travel numbers since the pandemic began, but virtually all of the travel we're seeing is leisure in nature -- that is, people taking vacations or visiting their friends and family. Business travel is slowly starting to trickle back. But group travel, such as conventions and conferences, is still mostly nonexistent.
This is why Ryman Hospitality Properties (NYSE: RHP) could be a smart addition to your portfolio now. Ryman owns five large-scale hotels operated under the Gaylord brand name -- the Gaylord Opryland in Nashville is the flagship property, but all five are huge, impressive properties. In fact, the four largest hotels in the U.S. by meeting space (outside of the casino industry) are Gaylord hotels. Plus, Ryman owns a few entertainment venues ,such as its namesake Ryman Auditorium and the Grand Ole Opry.
So far, Ryman has rebooked 1.6 million cancelled room nights and is reporting strong demand for events in the second half of 2021. But once the hotels actually start filling up and making money, there could be lots of upside potential ahead.
People are ready to splurge
Not only is there tremendous pent-up demand for vacations, but people have tons of cash sitting around. Just to name one example, mega bank JPMorgan Chase reported that consumer deposits are 32% higher than they were a year ago, and other major financial institutions are reporting similar trends. Between stimulus money flowing in, various forms of pandemic relief (such as postponed student loan payments), and a general lack of things to spend money on, American consumers have money to spend.
This is why Xenia Hotels & Resorts (NYSE: XHR) could be worth a look. Xenia specializes in luxury resorts, most of which are operated under various Marriott or Hyatt brands, such as Ritz-Carlton. In all, Xenia owns 35 hotels with just over 10,000 rooms. Just to name a few examples, Xenia owns two Ritz-Carlton hotels, the Westin Galleria Houston, and the massive Fairmont Dallas. If you agree with me that Americans are not only ready to travel but to splurge after more than a year under COVID-19 restrictions, Xenia belongs on your radar.
Business travel is just starting to return
Apple Hospitality REIT (NYSE: APLE) operates a portfolio of "select service" hotels. Essentially, think of extended-stay hotels, all-suite properties, and others that have nice rooms but don't offer a ton of luxury amenities or food and beverage outlets.
Now, some of Apple Hospitality's revenue comes from leisure travel, and its business has rebounded significantly in recent months. By April, the portfolio's occupancy was 68%, significantly lower than the 80% occupancy rate it saw in March 2019, the best pre-pandemic comparable period.
One reason for the difference is that business travel is a big source of revenue for these types of hotels and has just started to return to the market. As more companies have started to return to in-person work, business travel should start to pick up significantly, and Apple Hospitality REIT could be a big beneficiary.
Know what you're buying
To be sure, all three of these hotel REITs are well-run companies that should do rather well for investors over the long run. However, it's important to educate yourself about hotel REITs before you add any of them to your portfolio. Hotel REITs can be more unpredictable than other forms of real estate investment trusts and are especially vulnerable to economic slowdowns. If you invest, do so for the long haul and not just because you think they'll do well for the rest of 2021.