As of mid-October, the hotel real estate market seems to be stable, bordering on bullish. This current market performance is different from one year ago.
In August of 2018, publicly traded lodging companies began to mirror the rest of the stock market in a downward trend. There was investor concern, and by the middle of September, the publicly traded market was showing signs of stress that signaled what many thought was going to be the start of a downturn. In October of 2018, lodging stocks and the greater stock market continued in a downward trend resulting in compressed earnings before interest, taxes, depreciation and amortization multiples. The average publicly traded lodging company lost 10.2 percent of its equity value just in the month of October.
In early November, most stocks continued to decline. Two days before Christmas of last year, almost every lodging stock had hit a 52-week low that day. Some 92 publicly traded stock companies were also at a 52-week low during that same week. It gave everyone in the industry pause for concern as to whether the stock market in January was going to continue to decline or begin to rebound.
It is always difficult to plan the path ahead. Looking back to January of this year, stocks began a gradual rebound, which, looking back, was a welcomed occurrence. During the first quarter of 2019, most of the publicly traded lodging companies saw a 10 to 20 percent increase in the equity value of their stock from the levels at the end of 2018. Even with many companies rebounding this year, many lodging company stock values are still short (10 to 15 percent) of the trading ranges in late 2017 and early 2018.
Today, lodging stocks are still mostly down from their highs, but there seems to be comfortable confidence that the last quarter of 2019 will not be a repeat of 2018. A greater amount of deals are under sale contract than a year ago, and there is hope that the transaction market will continue to be strong for the next couple of quarters.
Many of the lodging news pundits seem to be split 50/50 as to whether a recession will hit in 2020. Basically, no one knows for certain (as was the case in 2008); therefore, the best path forward is one of guarded optimism.
It’s pretty straightforward: Sellers should be sellers when there are buyers. The definition of what makes a buyer a buyer are two things: whether they can get a loan and whether they can see some upside. That is the most simplistic picture of where the market is today.
H. Keith Thompson is principal with Avison Young.