Hotel stocks have been on a roller-coaster ride over the past month — largely rising on better-than-expected third quarter performance by the brands, but dragged down over broader concerns with inflation and the impact of COVID-19 variants on travel.
In the first week of December, stock prices for major hotel companies are ticking back up, after ending November down significantly from October figures. Among the hotel brands, Hilton Worldwide Holdings' stock is up nearly 5% since Nov. 30, and Marriott International is up 6%. Hotel real estate investment trusts are also showing gains, with Apple Hospitality REIT up 6% and Hersha Hospitality Trust up nearly 3% since Nov. 30.
But hotel stocks ended November in a slump, significantly underperforming broader economic indexes as temperatures dropped and flu season was compounded by worries over the spread of COVID-19 variants.
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 7.6% in November, more than wiping out a 6.8% gain the previous month.
The S&P 500 and RMZ indexes, representing the broader economy, were also down for the month, but only slightly — by 0.8% and 0.9%, respectively.
Year to date, the Hotel Stock Index is still up 11.5%, driven by a 22.4% gain in February, the largest uptick of the year. The decline in November was second only to January, when the index was down 8.2% from December 2020.
“Hotel stock price volatility continued in November with both the hotel brands and hotel REITs significantly underperforming their respective benchmarks,” said Michael Bellisario, senior hotel research analyst and director at Baird.
“Two different investment narratives drove stock price performance during the month: In early November, third quarter earnings were better than expected, reopening optimism continued to gain momentum, and the hotel brands were hitting new all-time highs; but, by the end of the month, broader growth and inflation concerns surfaced, the omicron variant spooked investors and impacted all travel-related stocks, and the hotel REITs were hitting new year-to-date lows."
Stock values for hotel real estate investment trusts fared worse in November, declining by 8.9% compared to a 7.2% drop for the hotel brand companies. Year to date, the hotel brand sub-index is up 15.2%, while the hotel REIT sub-index is up only 1.3%.
Despite the slide in the stock market, STR President Amanda Hite expressed confidence in improving hotel performance, particularly evident in figures from Thanksgiving holiday week.
“The best Thanksgiving week performance on record reinforced the notion that U.S. travelers are buoyant about leisure trips while business travel, especially to attend group meetings, is still subdued,” Hite said.
“Our new forecast with Tourism Economics projects that the industry will near 2019 levels of demand and room rates in 2022 with the overall recovery timeline moved up one year. We are, of course, monitoring for any potential impact from the omicron variant, but if history is a guide, the impact will be most pronounced in international travel figures with much smaller effects on domestic travel patterns. Regardless, pressure on margins will continue to weigh on operators’ minds as increases in [average daily rate] may not be enough to make up for the higher wages across all chain scales.”
Historically, November is not a bad month for hotel stocks. Since 2012, the only other month-over-month decline recorded in November was in 2015. In 2020, the Hotel Stock Index recorded its largest month-over-month gain in November, up 31% amid optimism over the development, approval and early rollout of COVID-19 vaccines.
All but one company listed on the Hotel Stock Index recorded a month-over-month decline in stock values this November. Choice Hotels International shares were up 2.1%. The other "top five" performers for the month were all REITs, led by Hersha Hospitality Trust, which was down 1.1% from October.
REITs also made up four of the five lowest performances month to month, with Ashford Hospitality Trust stocks down 24.6%, and InterContinental Hotels Group losing 14.5% in value versus October.
Compared to November 2020, all but three of the companies listed on the index — Ashford, Sotherly Hotels and IHG — gained ground. The clear year-over-year winner was CorePoint Lodging, with its stock up 137%. Choice led the brands with a 44.1% year-over-year increase.
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.