Hotel stock values dipped again in August after rallying in July, which likely reflects some investor skepticism over the recovery of business travel post-Labor Day as leisure demand for hotels cools, according to Baird Senior Hotel Research Analyst and Director Michael Bellisario.
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, was down 2.7% overall in August after a 14.3% increase in July.
Year to date, the stock index is down 12.6%. The hotel stock index outperformed broader economic indexes in the S&P 500 and RMZ — which were down 4.2% and 6.1%, respectively — as it has in every month this year except June.
The hotel brand companies also slightly outperformed the REITs in the index to end August, down 2.3% compared to 3.7%. However, the Hotel REIT sub-index has fared better year to date, down 8.7% compared to a 13.8% decline by the brands.
Month over month, the top-performing REIT was Sotherly Hotels, with a 12.2% increase in stock value over July. The top-performing brand over the same period was Hyatt Hotels Corp., which increased stock value by 8.3% from July to August.
Hyatt also led year-over-year performance, with a 22% increase in stock value over August 2021, followed by Marriott International, up 13.8%. The top-performing REIT over the same period was Host Hotels & Resorts, up 7.9% from August 2021.
“Hotel stocks took a breather in August after July’s sharp rebound, [but] despite the slight decline in stock prices, both the global hotel brands and hotel REITs outperformed their respective benchmarks,” Bellisario said.
He noted that the rally in July aligned with the fact that “hotel trends have remained solid throughout the summer months despite all the capital markets volatility and macroeconomic uncertainties," but now "investors appear somewhat skeptical about the prospects for a significant recovery in business-transient travel post-Labor Day, and hotel stocks appear to be discounting this relatively conservative fundamental expectation, in our opinion.”
Amanda Hite, president of CoStar's hospitality analytics firm STR, said that “even with expected seasonal slowing, [hotel] demand and room rates have remained at healthy levels.”
She said she is encouraged particularly by performance in the upscale and upper-midscale segments, which “reported stronger occupancy levels in August, appealing to price-conscious leisure and corporate transient travelers.”
However, as the summer travel season in the U.S. ended, attention turned to the business traveler, which so far has been slow to return to hotels.
“With schools now back in session, owners and operators are closely watching the return of the corporate group and individual traveler to understand if, and how, patterns have changed since the onset of the pandemic,” Hite said.
There are reasons for optimism, she added.
“Association and large group event organizers are looking forward to the first fall without significant health restrictions, which could drive event attendance to new heights,” she said.
Challenges going forward include a shortage of labor in the industry, which is spurring a wage increase across the board, as well as increased expenses as hotel operators ramp up services to meet guest expectations — both of which are “putting pressure on profit growth,” she said.
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.