Hotel stock values inched up in July, but concerns over rising COVID-19 cases kept investor sentiment for the sector muted and results mixed, according to the latest Baird-STR Hotel Stock Index report.
The Baird-STR Hotel Stock Index — comprising 20 of the largest hotel companies publicly traded on a U.S. stock exchange by market capitalization — was up 1.9% from June to July, according to a news release. STR is CoStar's hospitality analytics firm.
For the fifth straight month, the hotel stock index underperformed both the S&P 500 and RMZ indexes, which were up 2.3% and 4.7%, respectively, for the month. However, July marked the first month-to-month increase for the index since April. The index was down 3% in June and down 2.8% in May.
The underperformance of hotel stocks points to some hesitancy among investors to buy into the hotel industry's recovery from the pandemic, despite U.S. hotel performance surging this summer as pent-up leisure demand is unleashed.
Michael Bellisario, senior hotel research analyst and director at Baird, said in the report that hesitancy likely is tied to concerns about a lack of business and group travel after Labor Day, as well as the COVID-19 Delta variant that is driving up caseloads.
“While second quarter earnings so far have exceeded expectations, investors appear to be focused on the potential impact of the Delta variant domestically, how business travel might unfold post-Labor Day, and broader macroeconomic growth concerns," he said.
STR President Amanda Hite said in the report that while U.S. hotel demand softened in July, in line with historical trends, "room rates are at an all-time high on a nominal basis."
In Baird's monthly Hospitality Report, Bellisario writes that the U.S. hotel industry recovery "has progressed quickly and ahead of nearly everyone's expectations, in our opinion."
Still, concerns persist about the trajectory of the hotel industry's recovery, Hite said.
“Outsized leisure travel is driving a demand disparity between strong weekends and softer weekdays, which is a cause for concern as the summer travel season nears its end. The sharp rise in the Delta variant will likely put a damper on the expected business travel rebound post-Labor Day," she said. "Also, as more states and markets reinstate mask mandates, and the total cost of travel continues to increase, it is possible that corporate travel managers push business travel back to the early part of 2022.”
During the pandemic, the stock values of hotel real estate investment trusts have consistently outperformed the hotel brands, but that trend did not hold for July.
In July, the hotel REIT sub-index was down 8% from June, while hotel brand stocks were up 5.6% month to month.
Year to date, the Hotel Stock Index is up 11.2%, while the brand sub-index is up 12.9% and the REIT sub-index is up 6.9%. In comparison, the S&P 500 is up 17% and the RMZ index is up 25.6% year to date.
“Hotel stocks were positive, but performance was mixed in July with the hotel brands significantly outperforming the hotel REITs,” Bellisario said. "Sentiment toward the global and domestic recoveries appears to have normalized a bit in July, which we believe explains the large divergence in stock price performance between the hotel brands and hotel REITs last month.”
In July, four of the top-five performing companies on the Hotel Stock Index were hotel brands, but CorePoint Lodging, a REIT, led the index with a 25.6% gain over June. Hilton had the next best month-to-month increase in stock values, up 9% — followed by Marriott International, Hyatt Hotels Corp. and Choice Hotels International.
Compared to July 2020, the top-five performing stocks were all hotel REITs, led again by CorePoint, and followed by Ryman Hospitality Properties, Chatham Lodging Trust, Park Hotels & Resorts and Xenia Hotels & Resorts — all with triple-digit percentage increases year over year.
The bottom performers on the Hotel Stock Index are also mostly REITs.
Stock values for Ashford Hospitality Trust have taken the largest hit, both month over month and compared to 2020. Ashford is the only company on the Hotel Stock Index valued lower than it was in 2020 — down 58.7%.
Hotel News Now's Sean McCracken talked with Ashford CEO Rob Hays about how the company has shifted strategy amid a record-setting downturn.
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.