Hotel stock prices on average were poised to finish 2021 ahead of where they were at the end of 2020, but the recovery has been rocky, with much of the volatility resulting from factors outside of hotel executives' sphere of influence.
That volatility in the stock market is expected to carry into 2022, as investors remain wary of the lingering impact of the COVID-19 pandemic on travel and the global economy in general takes time to heal.
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 11.5% year to date as of Nov. 30. By comparison, the index finished 2020 down 13.2%.
Michael Bellisario, senior hotel research analyst and director at financial services firm Baird, said investors in 2022 will watch closely for signs of increasing business travel demand, but bookings pace and revenue per available room at existing hotels are far from the only considerations.
"Investor enthusiasm regarding the strong performance of leisure travel has moderated, and the narrative has shifted to the expected return of business travel and the recovery of urban markets in 2022," he said, adding that another focus will be "on net unit growth and the resumption of or increase in shareholder capital returns heading into 2022."
The emergence and spread of the COVID-19 delta and omicron variants also weigh on investor sentiment toward travel-related stocks, Bellisario said.
"The risks to the stocks are now more apparent given the emergence of the omicron variant," he said. "Will large corporations continue to push back return-to-office plans and will COVID case counts continue to rise?"
Leisure travel demand has clearly led the hotel industry recovery in 2021, as propensity for travel increased in line with wider COVID-19 vaccine distribution.
In the U.S., hotel RevPAR increased steadily month over month from January through July and the height of the summer travel season. Hotel stock prices, however, didn't always align with performance.
U.S. hotel industry RevPAR increased month to month in January by 6%, but the Hotel Stock Index was down 8.2%.
A 26% increase in RevPAR from January to February kept pace with a 22.4% rise in the stock index, which was the largest monthly increase of the year amid rising investor optimism for travel as vaccine distribution ramped up in the U.S. and new COVID-19 case counts decreased.
“Hotel stocks posted huge gains in February as the reopening and reflation trade momentum caused many hotel brands and hotel [real estate investment trusts] to reach new post-pandemic highs,” Bellisario said at the time. “Investors appear willing to pay up today for several years of expected growth, and improving vaccine distribution and declining case counts have caused investors to become even more optimistic about the prospects for a significant improvement in demand during the second half of the year and in 2022."
The index edged back down in March, declining 0.2% month to month, as RevPAR growth escalated, up 30% over the same period.
The Hotel Stock Index also recorded month-over-month losses in May, June, August and November. Monthly U.S. RevPAR, meanwhile, was down in August, September and November.
Despite a record-setting Thanksgiving holiday weekend in the U.S., the stock index declined by 7.6% and U.S. hotel industry RevPAR was down 13% month over month in November.
Largely as a result of the huge gains in February, the Hotel Stock Index was still up 11.5% overall for the year as of Nov. 30.
The hotel brand companies listed on the index drove the majority of that growth, with the brand sub-index up 15.2% year to date in November. The hotel real estate investment trust sub-index is up only 1.3% over the same period.
Month-over-month declines in stock prices for hotel real estate investment trusts have been recorded in five out of the 11 months on record, compared to declines for the brands in six out of 11 months.
The hotel REITs outperformed the brands in each of the first six months of the year, with smaller month-over-month declines or larger gains. That trend reversed in July, when brand stocks rose 5.6% compared to an 8% loss for the REITs. But in August, the hotel brand sub-index was down 5.4% compared to a 2.5% increase for the REITs. The big difference for the brands came in September and October, when the brand sub-index was up 6.7% and 9%, compared to much smaller gains of 2.5% and 1% for the REITs, respectively.
"The hotel REITs have been more volatile, especially as of late, compared to the hotel brands," Bellisario said. "The hotel brands continue to be relative outperformers given that their business models proved much more resilient throughout the pandemic and their cash-flow profiles rebounded quickly than most initially expected."
CoStar hospitality analytics firm STR, which partners with Baird on the Hotel Stock Index, has projected more confidence in the U.S. hotel industry recovery in 2022, which if realized should help to drive investor sentiment and stock prices up.
STR President Amanda 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."
Uncertainty still looms, however.
"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," Hite said. "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.”
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.