Key Points
- Bank of America downgraded Apple Hospitality REIT and Summit Hotel Properties.
- The downgrades are due to weak demand for select-service hotels and business uncertainty.
- The bank is cautious about the near-term revenue outlook (RevPAR) for the lodging sector.
- Risks of a government shutdown and weaker leisure demand are also hurting the industry.
Bank of America has downgraded Apple Hospitality REIT and Summit Hotel Properties, citing ongoing weakness in demand for select-service hotels and growing uncertainty among small and mid-sized businesses.
The brokerage lowered its rating for Apple Hospitality to “Neutral” from “Buy,” cutting its price target to $11.50 from $15. It also downgraded Summit Hotel to “Underperform” from “Neutral,” with a new price target of $4.50, down from $5.75.
Bank of America said it is becoming “incrementally more cautious” about the near-term outlook for revenue per available room (RevPAR), a key industry metric. This follows a string of weak earnings reports and few signs of recovery at the lower end of the hotel market. Risks of a government shutdown and weaker leisure demand have also hurt hotel occupancy rates.
The bank warned that economic growth is mostly concentrated among a few large tech companies. At the same time, its uncertainty index for small and medium-sized businesses has risen sharply. Historically, this is a bad sign for business travel.
Bank of America expects more earnings downgrades across the lodging sector. It noted that Real Estate Investment Trusts (REITs) are lagging behind C-Corps in profitability because their higher margins make them more vulnerable to downturns. The bank anticipates further pressure on core profits (EBITDA) and margins into 2026 if RevPAR growth stays below 3-4%.
Apple Hospitality does have some advantages, including a favorable supply situation and a younger, well-maintained portfolio that requires less capital expenditure. However, analysts added that “APLE’s select-service model offers fewer cost offsets, leaving margins more exposed to incremental softness.”
For Summit Hotel, Bank of America pointed to higher debt and less clear visibility into its recovery as key reasons for the downgrade. The bank now prefers full-service hotel companies over select-service ones.
