Hidden value in hotels
Hotel stocks can benefit from long-term trends, but get in before the economic cycle picks up
BEFORE the resurgence of global economic sentiment this year, hotel stocks languished.
On the surface, they seem like an inferior property asset versus stable yield plays like real estate investment trusts (Reits).
This is because hotel earnings are volatile. Occupancy rates and room rates go down with a weak economy, while labour and maintenance costs are fixed. Deflationary forces stalk the industry, with group deals, promotions, and sites like Airbnb and Agoda making it easy for consumers to find the cheapest rooms.
On the other hand, hotels make a lot of money when times are good, because revenues rise faster than costs.
On top of higher room rates and occupancy levels, a hotel can benefit from renting out space to more conventions on its premises, make money from more people enjoying its restaurants, and other promotional e…
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