Hotel & Lodging REITs

# Executive Summary * The U.S. Hotel & Lodging REIT sector is experiencing significant profit and margin pressure, driven by flat RevPAR growth and operating costs, particularly labor, rising faster than revenue. * A substantial $48 billion wave of debt maturities in 2025-2026, coupled with a 40% increase in borrowing costs, is compelling REITs to prioritize robust balance sheet management and proactive debt refinancing. * Persistent valuation discounts relative to underlying asset values are fueling shareholder activism, with campaigns at several REITs demanding strategic reviews, including full company sales or liquidations. * Industry performance is bifurcating, with strong demand in group, business, and luxury segments offsetting weakness in leisure and government-related travel, rewarding REITs with specific portfolio concentrations. * Companies are responding with disciplined capital allocation strategies, including recycling capital from non-core asset sales into share buybacks and high-return renovations. * A long-term positive tailwind for the industry is the historically low level of new hotel supply, which is expected to support pricing power once near-term macroeconomic headwinds subside. ## Key Trends & Outlook The U.S. Hotel & Lodging REIT sector is grappling with significant macroeconomic headwinds, leading to the third consecutive year of expected margin and profit declines in 2025. Top-line growth has stalled, with industry-wide RevPAR remaining flat year-over-year through the first nine months of 2025. This stagnation is compounded by persistent cost pressures, especially from labor, with operating expenses set to outpace revenue growth. This dynamic directly compresses profitability, as seen with Host Hotels & Resorts (HST) anticipating a 6% increase in overall wage and benefit expenses for 2025. The impact varies by segment, with weaker consumer sentiment affecting leisure travel while corporate and group demand remains more resilient, benefiting urban-focused portfolios. The outlook for the next 6-12 months remains challenging, with hotel EBITDA expected to see a modest decline. The industry faces a critical test of financial health due to elevated interest rates and a $48 billion CMBS maturity wave in 2025-2026. Refinancing costs have jumped by 40%, with borrowers now confronting 6.25% to 7% debt costs, a significant increase from 3% to 4.5% rates in 2020–2022, squeezing cash flows and pushing hotel delinquency rates to 7.29% as of August 2025. In response, well-managed REITs are proactively addressing their balance sheets; for example, DiamondRock Hospitality (DRH) completed a major credit facility refinancing in July 2025 that eliminated all debt maturities until 2029, creating a fully unencumbered portfolio. The primary long-term opportunity lies in the historically low new supply growth, with only 0.8% net new rooms annually expected over the next three years compared to a historical mean of 2%, providing a structural tailwind for future RevPAR growth. However, the most acute risk is from shareholder activism fueled by valuation discounts. The public campaign by activist investor Tarsadia Capital urging Sunstone Hotel Investors (SHO) to sell or liquidate on September 12, 2025, highlights how this pressure can force drastic strategic changes on underperforming companies. ## Competitive Landscape The Hotel & Lodging REIT market is fragmented, but REITs represent a dominant 45% share of the overall Hospitality Real Estate market. Within this structure, different competitive approaches emerge, primarily based on portfolio segmentation and operational models. Some of the largest players, such as Host Hotels & Resorts (HST), compete through scale and diversification in the luxury and upper-upscale segments. Their core strategy involves leveraging premier brand partnerships (e.g., Marriott, Hyatt) and a strong, investment-grade balance sheet to own and manage a diverse portfolio of high-end properties in key markets. This approach offers advantages through diversification, mitigating localized downturns, and strong brand affiliations that provide access to loyalty programs and pricing power. A robust balance sheet, like HST's $2.3 billion in available liquidity, allows for opportunistic acquisitions and capital investment through market cycles. In contrast, other REITs find success through a more specialized approach, such as Chatham Lodging Trust (CLDT)'s focus on high-margin, select-service and upscale extended-stay hotels. CLDT's portfolio is concentrated in tech-driven markets like Silicon Valley, Bellevue, and Austin, benefiting from strong demand generators in these areas. This model emphasizes a leaner operating structure with lower food and beverage overhead, aiming for higher profit margins and more stable occupancy, particularly in the extended-stay segment. Its affiliated management structure also facilitates agile sales and stringent expense control. Ultimately, the key competitive battleground is currently operational efficiency and balance sheet management. All models are being tested by the same macroeconomic and interest rate pressures, making the ability to control costs, manage debt, and strategically allocate capital paramount for sustained performance. ## Financial Performance ### Revenue Revenue growth in the Hotel & Lodging REIT sector is bifurcating, directly reflecting the shifting travel patterns and segment performance. This split is starkly visible in DiamondRock Hospitality (DRH)'s results, where its urban portfolio achieved 3% RevPAR growth in Q2 2025, while its resort portfolio experienced a 6.3% comparable RevPAR decline in the same period. Overall, bellwether Host Hotels & Resorts (HST) is guiding for positive 3.0% comparable RevPAR growth for the full year 2025, demonstrating the relative strength of the upper-upscale segment. This divergence is a direct result of resilient corporate, group, and high-end transient travel boosting urban and luxury properties, while budget-conscious consumers pull back on leisure trips. {{chart_0}} ### Profitability Widespread margin compression is a central theme across the industry, driven by operating costs, particularly for labor and benefits, rising faster than the flat-to-modest revenue growth, thereby squeezing profitability. For example, industry leader Host Hotels & Resorts (HST) expects a 6% increase in overall wage and benefit expenses in 2025, a significant headwind against its modest RevPAR growth and a key reason for industry-wide profit declines. Chatham Lodging Trust (CLDT) also reported that its gross operating profit margins contracted by 90 basis points in Q3 2025 due to weaker RevPAR and higher operating costs. {{chart_1}} ### Capital Allocation The prevailing strategy for capital allocation is one of disciplined capital recycling, prioritizing conservative balance sheet management and shareholder returns in an environment of high interest rates and flat growth. REITs are actively selling non-core assets to fund share repurchases and strengthen balance sheets. Sunstone Hotel Investors (SHO) exemplifies this trend, having repurchased over 11 million shares for $98.5 million in the first half of 2025, with total repurchases since 2022 nearing $300 million. This strategy allows companies to optimize their portfolios and return value to shareholders while navigating challenging market conditions. ### Balance Sheet Balance sheet strength is a key competitive advantage in the current rate environment, with a clear divergence between the strong and the leveraged. Some REITs have made significant strides in deleveraging, with Chatham Lodging Trust (CLDT), for instance, reducing its net debt by $55 million over two years and lowering its leverage ratio to a decade-low of 21% as of Q2 2025, positioning it favorably to navigate financial headwinds. This proactive management of debt maturities and leverage has become a critical differentiator, allowing companies with stronger balance sheets to maintain financial flexibility and pursue strategic initiatives. {{chart_2}}