HENDERSONVILLE, Tennessee—The Hotel Stock Index tracks the performance of a basket of publicly traded hotel stocks. It gives an indicator of the performance of the stocks over time, with 31 December 1999 set at the baseline mark of 1,000 and the indicator moving from 3 January 2000, the first trading day.
Stock prices historically are influenced by a wide variety of external factors, such as the political and fiscal environment and certain factors internal to the company, such as earnings per share and management acumen. Since earnings are only released quarterly, relating the daily stock movements to this quarterly occurrence is not helpful.
Luckily, each week STR, parent company of Hotel News Now, receives daily data from some two-thirds of all hotels in the U.S. Based on that data set, we can chart daily revenue per available room and its percent change, and relate that to the percent change in the HSI. The daily data feeds to STR reached a robust sample in 2004, so the data in this article starts in and captures the entirety of the last downturn and its recovery through May 2013.
HSI percent-change fluctuations are much more pronounced than the RevPAR percent changes. The maximum HSI increase is around 160%, whereas the maximum RevPAR change is around 100%. A few dates show sharp drops and increases in RevPAR, likely caused by calendar shifts of date specific holidays (e.g. New Year’s Day, July Fourth, Valentine’s Day, Christmas).
Because of the differences in magnitude, it is hard to make any inferences between the HSI and RevPAR changes. It is probably fair to assume the sentiments that govern the stock market are leading indicators of things to come and investors always price-in expected future performance in the current stock price.
But because of the singular outliers in the RevPAR data, connections are hard to unravel. One way to smooth out the graphs is to apply a 30-day moving average to both data sets and chart them on separate axes.
After doing so, some interesting trends emerge. The charts seem to indicate that the HSI is indeed forecasting the downturn and the recovery quite accurately. On 29 November 2007, the HSI percent change turned negative. This was in anticipation of a contraction in demand and average daily rate. Eight months later on 6 August 2008, RevPAR percent change entered negative territory as well. On the upswing, the HSI was again ahead of its time, anticipating positive things to come. On 15 October 2009, the HSI percent change moved above zero. A few months later on 25 March 2010, RevPAR followed suit.
The HSI bottomed out 16 December 2008 and then started to increase only to hit almost the same low point again 31 March 2009. This second bottom is remarkably close—only 49 trading days prior—to the actual RevPAR low point on 10 June 2009. So, in that case, the HSI seemed to work well as a present indicator of future performance.
The HSI peaked just days after RevPAR percent change turned positive again. As stated above, on 25 March 2010 RevPAR crossed into positive territory and HSI percent change peaked only five trading days later on 1 April 2010 at about 160%. It looks as if some stock pickers assumed that now that RevPAR was recovering and everyone was aware of the trend, the stock price increase had run its course. And, following that theory, the HSI percent changes declined to around 39% on 1 October 2010 and then below zero on 29 August 2011.
As our RevPAR data showed though, that latest HSI decline may have been premature since RevPAR percent change has been in positive territory since the recovery and is expected to remain there for the foreseeable future. Indeed, HSI recovered and its percent change turned positive again 29 March 2012. Most recently the calendar shifts of New Year’s and Christmas caused RevPAR percent changes of around 14% on 31 December 2012, which was preceded by a roughly 45% change in HSI in early October.
In summary, and using the available history as a guide, the HSI has at times been a leading indicator for hotel RevPAR movements. That said, HSI has had some false starts and stops in its history, so the relationship does not hold all the time, and it is not good enough for any definitive forecast of RevPAR movements.