The unleashing of pent-up leisure travel demand in the U.S. this summer so far hasn't been enough to significantly boost stock values for the hotel industry overall, as hotel stocks underperformed the broader economy in June for the fourth straight month.
The Baird-STR Hotel Stock Index — comprising 20 of the largest hotel companies publicly traded on a U.S. stock exchange by market capitalization — declined by 3% in June, underperforming both the S&P 500 and RMZ indexes, which were both up 2.2% for the month.
Michael Bellisario, senior hotel research analyst and director at Baird, and research associate Alex Kubicek wrote in the financial services firm's latest hospitality report that the decline is "despite fundamentals and investor sentiment improving" for the sector.
"Robust leisure demand persists, and we are beginning to see the early signs of a more significant rebound in business travel," they wrote.
"Although many investors have been pulling forward their expectations for the timing of the recovery, hotel stocks continued to underperform their respective benchmarks; leisure travel strength is well understood at this point, in our opinion, and incremental upside needs to come from a faster-than-forecasted business travel recovery."
Despite the month-to-month decline, the hotel stock index is up 8.5% year to date in 2021, after falling 13.2% in 2020. Stocks for hotel real estate investment trusts have fared better overall, outperforming stocks for hotel brands by 350 basis points in June and increasing by 16.1% year to date.
The Baird report also noted that hotel transactions volume was "on the rise" in June.
"The second quarter delivered far more hotel transactions [both announcements and closings] than we had expected at the beginning of the quarter," Bellisario and Kubicek wrote.
The value of that transaction activity totaled more than $1.5 billion during the month, according to Baird.
"We suspect deal volume will increase during [the second half of 2021], particularly on the buy side for the hotel REITs, given management teams' growing confidence in the fundamental recovery and commentary that they are much more focused on offensive versus defensive capital allocation decisions," they wrote.
In a release announcing the latest index results, STR President Amanda Hite expressed surprise that hotel stocks continued to underperform in June.
“If aligning industry performance with investor sentiment, it would seem there is less focus on the uptick in leisure-driven segments and more concern around the persistent lack of business travel and group demand," she said.
"While leisure markets are reaping the benefits of the U.S. summer travel surge, the major metros and big-box hotels are still stuck near the recovery start line — that is preventing more substantial recovery for the industry as a whole. There are indicators for improvement in those segments later this year.”
The five top-performing stocks for the month were all hotel REITs, led by Ashford Hospitality Trust, which grew in value by 12.6%. Single-digit month-over-month growth was posted by Ryman Hospitality Properties, Pebblebrook Hotel Trust, CorePoint Lodging and Braemar Hotels & Resorts.
Another hotel REIT, Sotherly Hotels, was the bottom performer on the stock index, with a 19.4% decline in stock values versus May. Hotel brand companies Marriott International, IHG Hotels & Resorts and Hilton also were in the bottom five in month-over-month performance, along with Apple Hospitality REIT.
Compared to June 2020, values have grown for all but one company on the hotel stock index — Ashford Hospitality Trust, which posted a 36.9% year-over-year decline. The five best-performing stocks year over year were again all REITs — CorePoint, Ryman, Braemar, Chatham Lodging Trust and Park Hotels & Resorts.
The Baird/STR Hotel Stock Index and sub-indices are available exclusively on Hotel News Now. The indices are cobranded and were created by Robert W. Baird & Co. (Baird) and STR. The market-cap-weighted, price-only indices comprise 20 of the largest market-capitalization hotel companies publicly traded on a U.S. exchange and attempt to characterize the performance of hotel stocks. The Index and sub-indices are maintained by Baird and hosted on Hotel News Now, are not actively managed, and no direct investment can be made in them. As of 30 June 2021, the companies that comprised the Baird/STR Hotel Stock Index included: Apple Hospitality REIT, Ashford Hospitality Trust, Chatham Lodging Trust, Choice Hotels International, DiamondRock Hospitality Company, Hersha Hospitality Trust, Hilton Inc., Host Hotels & Resorts, Hyatt Hotels, InterContinental Hotels Group, Marriott International, Park Hotels & Resorts, Inc., Pebblebrook Hotel Trust, RLJ Lodging Trust, Ryman Hospitality Properties, Service Properties Trust, Summit Hotel Properties, Sunstone Hotel Investors, Wyndham Hotels & Resorts, and Xenia Hotels & Resorts.