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REIT Magazine: How Business and Leisure Travelers Affect Lodging REITs

According to REIT Magazine:

Hotel executives will tell you that their business is pretty simple: You need heads in beds at the highest possible rate. How lodging REITs and their competitors perform, however, often depends on which heads they want for their beds.

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Observers point to fewer business trips as the main culprit behind the slower growth of REIT-owned hotels. The corporate sector accounts for about 75 percent of demand in higher-end hotels, which most lodging REITs own, according to Lukas Hartwich, senior analyst of lodging and data centers for Green Street Advisors.

"We expect to see RevPAR growth of about 3 percent over the next three to six months," says Hartwich. "Anecdotally, there are some expectations that corporate profit growth could come back stronger later in 2017. If that's true, then the lodging sector will likely see more rapid RevPAR growth, too."

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However, the leisure segment is still dealing with the effects of a strong dollar, which has cut into demand from foreign travelers. Additionally, it's influencing the decisions of U.S. vacationers.

"Shopping is often a high priority for inbound international travelers, so fewer foreign travelers are coming to the U.S.," Hartwich says. "At the same time, more Americans are traveling overseas because their dollars go further."

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Domestic travelers are more likely than international travelers to be loyal to a particular hotel brand, Hartwich says. Meanwhile, he notes that business travelers tend to be more brand loyal than leisure travelers. Consequently, REITs that own a larger number of hotels in a particular brand might see a positive or negative impact on profitability from loyalty programs, Hartwich says.

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To view the full article from REIT Magazine, click here.