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Coronavirus-Led Mass Cancellations Hit Hotel REITs Hard

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Coronavirus is already emerging as a pandemic, wreaking havoc across the globe. The number of infected patients in the United States continues to rise, while the spread outside of mainland China from South Korea to Italy continues.

Markedly, massive cancellations by businesses and vacationers have affected Lodging REITs, particularly. Tourism has been the worst affected amid travel restrictions, with total returns from Lodging REITs slipping 8.74% so far in March and 29.95%, year to date.

Recently, Sunstone Hotel Investors, Inc. SHO withdrew its first-quarter and full-year 2020 guidance due to uncertainties regarding COVID-19’s crippling impact on travel demand. At the time of providing the outlook in February, the company included approximately $1 million of lost revenues, resulting mainly from known group-customer cancellations due to the corona scare.

However, the situation has worsened, with the company witnessing a significant increase in expected lost revenues from group-customer cancelations, which is now up to approximately $11 million. However, with COVID-19’s impact on travel demand worsening further, accurate assessment of the financial impact on its full-year operations is difficult.

Host Hotels & Resorts Inc. HST too announced that its operations have been marred by the coronavirus outbreak. The company reported that total revenues witnessed a negative impact of nearly $14 million through Mar 2.

The impact on net income is $7 million and the effect on adjusted EBITDA amounts to around $7 million, so far. This has resulted in a 0.5% decline at the mid-point of the company’s adjusted EBITDA outlook of $1.36-$1.405 billion for the current year. Business in California, where coronavirus cases have been reported, has been hit hard mainly due to group business cancellations. (Read more: Will Coronavirus Hurt Host Hotels' Performance This Year?)

Also, shares of Ryman Hospitality Properties, Inc. (RHP - Free Report) and Park Hotels & Resorts Inc. (PK - Free Report) slipped more than 9% and 8%, respectively, during yesterday’s session.

Apart from lodging REITs, mall REITs might be affected as well. Already battling store closure and bankruptcy issues, this asset class is on tenterhooks, as an outbreak results in consumers preferring to avoid gathering at large public places. Therefore, Regional Malls’ total return slid 2.87%, with Simon Property SPG declining 2.9%, during yesterday’s session.

The magnitude of the pandemic’s overall impact on the global as well as the U.S. economy is uncertain as of now. With low unemployment, job growth and increasing incomes, the commercial real estate sector continues to experience low vacancy rates and rising rents. Remarkably, Tuesday’s unprecedented 50-basis-point rate cut by the Fed to combat the “evolving risk to economic activity” will provide support to an extent. Nevertheless, mounting pressure is anticipated on politicians for fiscal measures in the United States, as well as in other economies for countering this global crisis.  

Currently, Sunstone Hotel Investors, Host Hotels, Ryman Hospitality and Park Hotels & Resorts carry a Zacks Rank #3 (Hold), while Simon Property holds a Zacks Rank of 4 (Sell), respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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