After a hot summer for hotel stocks, the market cooled off in August, likely in large part due to investor angst over a weaker-than-expected second quarter for hotel real estate investment trusts.
With month-to-month gains of 6% in June and 8% in July, the Baird/STR Hotel Stock Index was nearly at its peak value for the year in the high season for summer travel. But from July to August, the index — which comprises 20 of the largest hotel brand companies and real estate investment trusts publicly traded on a U.S. stock exchange by market capitalization — fell 3.6%.
The stock index is still up nearly 20% year to date in 2023, outperforming broader economic indexes the S&P 500 and the RMZ, or MSCI US REIT Index, which is a gauge of the overall real estate investment market. Year to date, the S&P 500 is up 17.4%, and the RMZ is up 2.7%.
Hotel stocks slightly underperformed the broader economy in August, with the S&P 500 down only 1.8% and the RMZ down 3.2%.
The hotel REITs, as a subindex, dragged down results considerably, plunging 9.1% from end of July to end of August. Losses by the brand companies on the index were less pronounced, down 2.2% in aggregate, which is much closer to the downward trajectory and pace of the broader economic indexes.
As bad as the hotel REITs had it, it could have been worse, said Michael Bellisario, senior hotel research analyst and director at Baird.
“The hotel REITs posted their worst month of the year due to weak second-quarter earnings reports, reduced full-year guidance expectations and several weather-related impacts across the country during the month,” he said. “Relative performance would have been even worse” if not for [Hersha Hospitality Trust's] take-public announcement during the last week of the month.”
Hotel News Now's Bryan Wroten reported 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.
On the news of the deal, Hersha stocks rose 56.9% for August. Only three other companies on the Hotel Stock Index gained stock value month over month, and none near the front-runner. Chatham Lodging Trust stocks gained 1.9% for second place, followed by sub-1% gains for brands Marriott International and IHG Hotels & Resorts.
As has been proven consistently throughout the hotel industry's recovery from the COVID-19 pandemic, the trajectory of hotel stocks does not always align with that of hotel performance.
Amanda Hite, president of CoStar hospitality analytics firm STR, said that “U.S. hotel performance showed improved year-over-year growth in August, as RevPAR rose 1.7% over 2022 because of a 2% increase in ADR.”
Still, she said, “overall, summer performance was lower year over year as more Americans traveled internationally, and inbound travel to the U.S. remained at a deficit.”
Year over year, the Hotel Stock Index is faring much better — up 16.6% to a level of 5,856 from a level of 5,021 in August 2022.
The hotel brands are responsible for the bulk of that success in the stock market, making up all of the top five spots for year-over-year performance. In that metric, the brands are again led by IHG and Marriott, though it reverse order — with IHG stocks up 38.2% and Marriott up 32.4%.
The index's bottom five year-over-year performers are all REITs, with Ashford Hospitality Trust taking the biggest hit, down 67.6% from August 2022.
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.