Investors in October bought in to the hotel industry's thesis that demand for hotel rooms is as strong as ever coming out of the pandemic, as stock values for hotel brand companies and real estate investment trusts rallied to outperform the broader economy.
The Baird/STR Hotel Stock Index, comprising 20 of the largest hotel brand companies and real estate investment trusts publicly traded on a U.S. stock exchange by market capitalization, gained 15.8% in October, more than making up for losses in the previous two months — down 9.1% in September and down 2.7% in August.
“Importantly, both the global hotel brands and the Hotel REITs were relative outperformers versus their respective benchmarks in October,” said Michael Bellisario, senior hotel research analyst and director at Baird. “As investors shifted their focus from broader macroeconomic uncertainties to sector-specific performance ahead of and through third-quarter earnings reports, hotels continued to screen favorably given still-strong underlying fundamentals and an intact post-pandemic recovery thesis.”
Hotel brands included in the index averaged a 14.4% increase in stock value for October, compared to a 20.6% gain for the REIT sub-index.
For the year, the Hotel Stock Index now has had as many positive months as negative, but year to date is still down 8% from the close of 2021. The brand and REIT sub-indexes are down 9% and 4.7% year to date, respectively.
Still, the Hotel Stock Index continues to outperform broader economic indexes. The S&P 500 was up 8% in October but down 18.8% year to date; while the RMZ index was up 4.7% in October and down 26.9% year to date.
Amanda Hite, president of CoStar hospitality analytics firm STR, said that hotel performance trends this fall travel season have shown the strength of demand, and that should continue.
“Despite worries around the likely recession on the horizon, October showed no signs of slowing as U.S. demand continued to strengthen,” Hite said. “Multiple pandemic-era highs were recorded during the month, specifically demand for the group segment and the top 25 markets. We expect these strong demand trends to continue through the fourth quarter with a strong holiday period and increased group activity into the beginning of 2023.”
Stock values for every brand and REIT on the Hotel Stock Index gained ground month over month in October, led by Chatham Lodging Trust — up 31.4% from September. REITs had four of the top five performances versus last month; Wyndham Hotels & Resorts led the brands with a 23.8% increase over September.
Compared to October 2021, the brands were mostly in the middle of the pack in terms of performance. The top year-over-year gain came from REIT Host Hotels & Resorts, followed by brand Hyatt Hotels Corp., both up double digits. Four other REITs and IHG Hotels & Resorts made up the bottom five spots in year-over-year performance, all down double-digits.
For more information about the Hotel Stock Index, email hotelstockindex@rwbaird.com.
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.