REITweek 2018: Lodging REITs See Tailwinds from Improving Economy, Higher Corporate Profits

An improving economy, higher corporate profits, steady inflation and low unemployment are creating tailwinds for the lodging REIT sector. However, higher labor costs due to current immigration policies could create headwinds, according to executives speaking at Nareit’s REITweek 2018: Investor Conference.

Sentiment in the hospitality industry is broadly positive, benefiting in part from the impact of tax cuts filtering through the economy, according to Jim Risoleo, CEO of Host Hotels and Resorts Inc. (NYSE: HST). Corporate profits are higher, and so is consumer confidence, he noted.

Risoleo said Host Hotels has seen higher corporate demand since the second quarter of last year. With business transient customers comprising the majority of its clients, Host reported an all-time-high occupancy rate during the first quarter of 2018. Markets in New York, San Francisco and Denver are all doing particularly well, he noted.

With increased business travel, operators are in a position to push rates higher, executives said. Apple Hospitality REIT (NYSE: APLE), for example, reported increased rate growth thanks to their business customers.

“Trends seem to be improving. It’s still too early to call it a definite trend—we’re hoping the economy warms up but not overheats,” said John Murray, CEO of Hospitality Properties Trust (NASDAQ: HPT).

Meanwhile, lodging executives also commented on the impact of current immigration policies on the industry.

They pointed out that jobs such as kitchen helpers, dish washers, bellmen and receptionists are often filled by immigrants. But since the current administration took office, the hotel industry has found it hard to find such workers, executives said.

Labor makes up more than 50 percent of overall costs for most of the lodging REITs. In addition to immigration policies, wage rate increases due to the low unemployment rate and rising minimum wages in many states have also created pressure for the industry.

“We’re working on keeping the costs under control,” Risoleo observed.