Do U.S. hotel stock trends point to larger industry concerns?

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U.S. hotel stocks have been playing a game of Chutes and Ladders so far this year.

While STR and Baird reported that the Baird/STR Hotel Stock Index increased 6.4 percent in January, the companies announced Monday that the index dropped 6.9 percent in February.

“Hotel stocks fell sharply in February and erased their early year-to-date gains. Higher interest rates and broader stock-market volatility were the main drivers of lower stock prices,” Michael Bellisario, senior hotel research analyst and VP at Baird, said in a news release.

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The decrease of the Baird/STR Hotel Stock Index for February was steeper than that of the S&P 500 (-3.9 percent). The MSCI U.S. REIT Index showed the worst decline of the three (-7.9 percent).

Related Story: What 2018 could have in store for the hotel industry’s profitability

“Investor expectations for the hotel companies were elevated heading into fourth-quarter earnings, and initial 2018 guidance ranges, particularly for the hotel [real estate investment trusts], were generally disappointing,” Bellisario said. “With stock prices and earnings estimates down across the board, expectations appear more appropriately balanced today versus just a few weeks ago.”

A look at share prices for some of the largest publicly traded hotel companies shows a trend between January and February figures:

 

Company

Share price – Feb. 28

Share price – Jan. 31

Percent change

Marriott (MAR)

$141.21

$147

-3.9%

Wyndham (WYN)

$115.78

$124.13

-6.7%

Hilton (HLT)

$80.64

$85.49

-5.7%

Choice (CHH)

$79.15

$82.15

-3.7%

Hyatt (H)

$77.27

$81.30

-5%

InterContinental (IHG)

$64.79

$67.07

-3.4%

Red Lion (RLH)

$9.70

$10.45

-7.2%

Share prices, adjusted close

Source: Yahoo Finance, Compiled by Hotel Management

However, as of press time Tuesday, all of the companies except for InterContinental Hotels Group have started the climb back up and have surpassed February close figures.

A Cause for Concern?

Amanda Hite, STR’s president and CEO, said investor sentiment in February didn’t follow strong industry performance from the previous month.

“January 2018 was the strongest January on record, despite the tough comparisons created by the inauguration weekend in 2017. Even as the post-hurricane impact in Texas and Florida slowly subsides, U.S. hotel room demand remains robust, and the annualized key performance indicators point to another healthy year,” she said.

Credit: STR/Baird

Hite said that STR’s pipeline data shows a slowing in the number of rooms under construction, which should lead to continued and healthy industry performance. The only blip in the radar likely will be a lack of pricing power, she said. Fourth-quarter real average daily rate growth—which is ADR growth minus the rate of inflation, as measured by the consumer price index—was 0.2 percent.

As Hotel Management recently reported, supply growth could be a headwind this year for hotel earnings, according to Moody’s. While the 2-percent supply growth in 2018 is forecasted to be below historical levels, the anticipated growth is an increase from 2014’s 1 percent.

Supply mostly will grow in the upscale and upper-midscale select-service segments as well as urban locations. In 2017, the upscale and upper-midscale segments grew 4.3 percent and 4 percent, respectively, according to STR. By comparison, total U.S. hotel rooms grew 1.8 percent.