Even as more analysts and economic prognosticators say that a recession, albeit a mild one, is imminent in the U.S. in 2023, investor outlook for the hotel sector, as well as the broader economy, continues to be positive.
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, grew in value by 2.7% in November, after a 14.4% hike in October.
Still, year to date, the hotel stock index is down 5.5% from 2021, and underperformed broader economic indexes the S&P 500 and the RMZ, which grew in value by 5.4% and 5.6%, respectively, in November. Hotel stocks, on average, have fared better this year than both the S&P 500 and RMZ indexes, which are down 14.4% and 22.8% year to date, respectively.
“Hotel stocks increased in November but were relative underperformers for the first time since June,” said Michael Bellisario, senior hotel research analyst and director at Baird.
“Softer than expected [Consumer Price Index] data fed into the Federal Reserve pivot narrative, which caused the broader stock market to jump, particularly in some of the industries and sectors that had lagged recently; as a result, both the hotel REITs and the global hotel brands underperformed their respective benchmarks.”
The hotel brand companies listed on the index had a better November than the REITs — up 3.7% month over month compared to a 0.2% decline.
Amanda Hite, president of CoStar hospitality analytics firm STR, said hotel industry performance fundamentals in November remained strong, and buoyed confidence in the company's forecast for the full year and 2023 that calls for growth in revenue per available room despite a recession — which would be a first.
"U.S. hotel room demand continued to improve in November, but year-over-year growth slowed compared to October due in part to the calendar shift around Halloween,” Hite said.
“Similarly, rate growth remained robust, albeit at a slightly slower pace than the previous month. Despite the slowdown in growth, nominal RevPAR remained above the pre-pandemic comparable while inflation-adjusted RevPAR was just 4% lower than 2019. While we continue to monitor the inflation impact and the likely recession, the resilience of the industry allowed us to maintain our previous projections for [average daily rate] and RevPAR in our final forecast of the year.”
Bellisario said investors are expected to be focused on hotel companies' efforts to control and cut costs.
“Hotel fundamentals broadly continue to hold steady, but the rate of change on the top-line has moderated. Following third-quarter earnings, expense pressures now are more in focus, particularly as investors focus on 2023 growth outlooks and potential risks to the overall recovery,” he said.
In month-over-month comparisons, hotel brand companies were the top three performers for November, led by IHG Hotels & Resorts, up 7.3% from October. Hyatt Hotels Corp. and Hilton followed, up 6.5% and 5.4%, respectively.
Compared to November 2021, four of the top five performers were REITs, but the top spot went to Hyatt, up 27.4% year over year.
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.