Hotel REITs own hospitality properties — select service hotels, full service resorts, extended stay facilities — and earn income from room rates and occupancy. Unlike most REITs with long-term leases providing revenue visibility, hotel revenue reprices nightly: a hotel room unsold today is a permanent revenue loss, and the next day's rate is set by demand at that moment. This creates far more revenue volatility than lease-based real estate. RevPAR (revenue per available room) is the universal performance metric, combining occupancy and average daily rate. Business travel and leisure travel have different seasonal and cyclical patterns, and properties serving both segments have more stable demand profiles than those dependent on a single traveler type. International luxury destination properties carry significant foreign exchange exposure. Brands and franchise affiliations drive booking channels and pricing power significantly in this sector. For investors, hotel REITs offer compelling entry opportunities when travel demand is recovering from a cyclical trough — they benefit disproportionately from demand recoveries given the operating leverage inherent in hotel operations — but require caution at cycle peaks when RevPAR growth decelerates and valuations reflect optimistic assumptions.
