Amid widespread global economic jitters in February and the escalation of the invasion in Ukraine toward the end of the month, investors were relatively optimistic about the recovery of the hotel industry.
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 4.1% in value in February — more than 7% premium over broader economic indexes the S&P 500 and RMZ, which were down 3.1% and 3.3%, respectively.
“Hotel stocks posted gains in February and were relative outperformers for the third consecutive month,” said Michael Bellisario, senior hotel research analyst and director at Baird. “Despite increased stock market volatility and growing geopolitical concerns, investors remained focused on the reopening momentum and improving demand trends as omicron-related disruptions are in the rearview mirror and corporations’ back-to-office plans are moving forward. A more normalized travel environment is expected to unfold over the next several months, in our opinion, and we are keeping a close eye on rising gas prices and any potential impact on near-term, drive-to leisure demand.”
The month-over-month gain was led by the major hotel brands, with that sub-index up 4.2% versus a 3.5% increase for the hotel REITs.
Year-to-date, the hotel stock index is up just 0.2%, after a 3.8% decline in January. The hotel brands making up the index are down 0.2% on average year to date, while the hotel REITs are up 1.3% for the same period. The S&P 500 and RMZ indexes are down 8.2% and 10.1%, respectively, since the start of the year.
Hotel industry performance also trended upward in February and is expected to continue to rise as the spring travel season begins, according to Amanda Hite, president of STR, CoStar's hospitality analytics firm.
“The decline in omicron cases and subsequent easing of mask mandates and restrictions is expected to have a positive impact on spring room demand in both the corporate and leisure segments,” Hite said. “Occupancy and room rates showed continued improvement in February with limited-service hotels displaying the most substantial gains toward pre-pandemic levels."
Rising inflation and labor costs, however, are putting continued pressure on hotel profitability, she added.
"While nominal [average daily rate] has been at or above 2019 comparables, inflation pressures continue to weigh on owner and investor minds as these healthy room rates are not translating to equally strong profit growth as expenses, especially labor costs, continue to rise,” Hite said.
Within the index, hotel REITs represented both the top and bottom monthly performers.
Sotherly Hotels, Braemar Hotels & Resorts and Ashford Hospitality Trust each recorded double-digit gains from January to February, followed by Apple Hospitality REIT, which was up 9.7%.
However, the only two companies on the index to record a stock value loss compared to January were also REITs — Sunstone Hotel Investors, down 6.5%, and Ryman Hospitality Properties, down 0.3%.
Compared to February 2021, the hotel brands were the clear winners, taking up four of the five top spots for year-over-year performance.
Choice Hotels International led with a 37.6% year-over-year gain, followed by Wyndham Hotels & Resorts, up 32.4%. Brands Hilton and Marriott International also recorded double-digit year-over-year gains, along with Apple Hospitality REIT.
Despite picking up in February, stock values for Ashford Hospitality Trust are down 74.9% year over year. Stock values for four other REITs — Sotherly Hotels, Sunstone Hotel Investors, Hersha Hospitality Trust and Braemar Hotels & Resorts — are significantly lower compared to February 2021.
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.