Higher interest rates, and the insistence of the U.S. Federal Reserve to keep them elevated for the foreseeable future, dealt the biggest blow of the year to stock indexes representing the broad U.S. economy and the real estate market. By comparison, hotel stocks took a much smaller hit.
The S&P 500, which indexes the stock performance of 500 of the biggest U.S. companies, was down 4.9% from the end of August to the end of September. The RMZ, or MSCI US REIT Index, which is a gauge of the overall real estate investment market, was down 7.5% over the same period.
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 — fell 2% in September.
The hotel index is still up 17.5% year to date as of Aug. 31, which also is better than the S&P — up 11.7% — and the RMZ, which was down 5%.
“Hotel stocks were down again in September, but they outperformed their relative benchmarks,” said Michael Bellisario, senior hotel research analyst and director at Baird. “Both the S&P 500 and the RMZ had their worst monthly performance of the year as higher interest rates weighed on stock prices and investor sentiment; hotels likely benefited from continued slow but stable RevPAR growth during the month.”
Bellisario said that the hotel brand companies have carried the index essentially all year — their stock values collectively are up 23.3% year to date as of August. The hotel REITs, meanwhile, have dipped below even for the year, with stock values down 1.5% year to date.
But in September, the hotel brands took most of the hit to the index. The brand sub-index was down 2.4%, compared to a 0.4% dip for REIT stocks.
REITs took the top four spots in monthly performance, led by Sunstone Hotel Investors with a gain of 4.1%. Hilton rounded out that list at fifth, with a 1% increase in stock value month to month.
The hotel stock index's decline in September followed August's 3.6% decline. The index saw significantly higher growth in June and July, when the peak of the summer travel season pushed gains of 6.2% and 8.2%, respectively.
STR President Amanda Hite said that stock performance in September did not reflect the industry's overall performance.
“U.S. room demand has decreased year over year in five of the last six months, but September’s level was the second-highest ever recorded for the month behind last year,” Hite said.
She pointed to trends in hotel classes and segments that are dragging down occupancy and room demand, and others that are giving her confidence for the industry's trajectory through the end of the year.
“Demand for premium hotels continued to grow but not enough to offset decreases by economy and independent hotels, which continue to drive the overall declines,” she said. “Pricing trends continues to vary by segment as well, but overall [average daily rate] growth was at its highest level since May, which made the same true for [revenue per available room]. There is no doubt that business travel, particularly group, has returned in recent weeks, and we expect that to continue into the holiday season.”
Year over year, growth in hotel occupancy and revenue per available room has slowed as hotel performance normalizes. But the value of the hotel stock index is 25% higher than it was at the end of September 2022 — from a level of 4,564 to 5,739.
Brand companies are driving that year-over-year growth, led by IHG Hotels & Resorts, which posted a 53.8% gain in stock value compared to September 2022. Hotel brands — Marriott International, Hyatt Hotels Corp. and Hilton — followed, each with double-digit gains.
REIT Hersha Hospitality Trust rounded out the top five yearly performers on the index, up 23.6%, in part influenced by news on Aug. 28 that a deal had been reached for KSL Capital Partners to acquire Hersha for $1.4 billion and take the REIT public.
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.