Hotel stock values — a measure of investor confidence — did not go hand in hand with the performance of hotel companies and the wider hotel industry in 2022, the third year of the industry's recovery from the depths of the COVID-19 pandemic.
Despite strong performance fundamentals in December, driven by a robust holiday travel season, hotel stocks underperformed the broader economy for the month while still outperforming on average for the year.
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, declined in value by 10% in December, according to the latest monthly data provided by Baird.
The decline marked a reversal from gains of 15.8% in October and 2.7% in November.
As a result, the index ended 2022 down 15% from December 2021.
"Hotel stocks ended a relatively strong year on a weak note as recessionary fears and slowing growth concerns were front and center for investors in December, which caused hotel stocks to underperform during the month," said Michael Bellisario, senior hotel research analyst and director at Baird.
Broader economic indexes the S&P 500 and RMZ fared better in December — down 5.9% and 5.8%, respectively. But year-to-date as of the end of December, the S&P 500 and RMZ recorded sharper declines of 19.4% and 27.3%, respectively.
"In 2022, the global hotel brands outperformed the S&P 500 by more than 500 basis points; the hotel REITs outperformed the RMZ by more than 1,000 basis points, which was the first year of relative outperformance since 2017. For the year, the global hotel brands topped the hotel REITs by approximately 280 bps," Bellisario said.
In the three years of pandemic recovery, the hotel stock index is down on average 2.4% from the end of 2019 — after a decline of 13.2% in 2020, a gain of 25.6% in 2021 and the 10% drop in 2022.
Three years after the start of the pandemic, real U.S. hotel industry revenue per available room, adjusted for inflation, was down 6% as of Dec. 31, according to Isaac Collazo, vice president of analytics at STR, CoStar's hospitality analytics firm.
"Though the downturn triggered by the pandemic was the most severe ever, the industry has recovered at a quicker pace," Collazo wrote, noting that "three years after the start of the Great Recession, real RevPAR was down 18%."
Amanda Hite, president of STR, said that "while the future weighed heavily on investor sentiment, U.S. hotel performance completed the year in solid position."
Highlighting December performance, Hite said “room demand in the final month of 2022 was the highest for any December before it — even 2019, the previous record holder."
Stocks for the hotel brands fared slightly better than the hotel real estate investment trusts in December, down 9.2% compared to a 12.8% decline for the REITs. That was the trend for most of 2022, as the brands on the index averaged a 14.3% decline for the year compared to a 17.1% decline by the REITs.
Bellisario said that the underperformance by the REITs was at least partially in response to a revised fourth-quarter outlook released by Pebblebrook Hotel Trust in December, which signaled concerns "about the slower/sluggish business travel backdrop and the increasingly less favorable operating environment."
“Pebblebrook’s negative fourth-quarter preliminary earnings announcement caused the hotel REITs to lag in December and reinforced investors’ negative sentiment toward the sub-sector," Bellisario said.
Stocks declined month over month in December for all but one company listed on the stock index — top performer Braemar Hotels & Resorts, which was up 11.4% versus November.
The bottom-five month-over-month performances were all from REITs. Ashford Hospitality Trust stocks took the biggest hit, down 31.3% from November. Pebblebrook's stock value was down 19.6% for the month.
Compared to December 2021, stock values were down for all hotel companies listed on the stock index. Apple Hospitality REIT was the top year-over-year performer, with its stock value down only 2.3% from December 2021. Hyatt Hotels Corp. was the top performer among brands, with stocks down 5.7% year over year. In the top five, Marriott International's stock value declined nearly 10% year over year.
Ashford and Pebblebrook also were at the bottom of the index in terms of year-over-year stock performance.
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.