Hotel stocks hit by market turbulence
21 JANUARY 2016 9:27 AM
Hotel stocks haven’t been immune to the struggles of the larger markets, but industry metrics still hold positive signs.
REPORT FROM THE U.S.—It’s been a bumpy start to 2016 for global markets, and hotel stocks have not been immune to the issues that have plagued them.
After a rough 2015 for overall hotel stock performance—the Baird/STR Hotel Stock Index fell 20% during the year—it might seem easy to think this is an ominous sign for 2016. However, Michael Bellisario, VP and senior research associate for Robert W. Baird & Company, said it’s not all negative signs for hotel stocks.
“Domestically, we still have strong hotel fundamentals, even if it’s not quite as strong as a few months ago,” he said.
The start of the year was marked with some record-setting moments—and not good ones—for the markets, including the worst four-day start on record, followed by the worst opening week. These factors, coupled with persistent struggles for the Chinese economy and apocalyptic predictions like The Royal Bank of Scotland’s call to “sell everything,” have led to a troubling start to 2016 for investors.
Hotel stocks have enjoyed some up-and-down performance through the first two and a half weeks of the year. As of press time, the Baird/STR Hotel Stock Index has seen a $474.68 drop, representing 18.2%, to $2,613.73 since trading for the year began.
The drop in hotel stocks has largely outpaced the larger markets. As of press time, The Dow Jones Industrial Average has seen a 9.5% drop, down $1,658.29 to $15,766.74. The S&P 500 has fallen $184.61, or 9%, to $1,859.33.
While Bellisario believes there’s still positive signs for the industry, Todd Antonelli, managing director at Berkeley Research Group, said weakening growth, along with worsening supply-demand dynamics in global urban markets, paint a bleaker picture. He said hotel companies will have to be focused to make a real recovery in the markets.
“Once the markets settle, hotels need to focus on their fundamentals and quickly integrating acquisitions,” Antonelli said. “More importantly, the hospitality industry will fare better if the focus is on increasing investor comfort through better investor relations and stories to tell.”
Both C-Corps and REITs have shared in the pain. Here’s how some of the publicly traded companies in the industry have fared so far this year (as of press time):
- Marriott International has fallen 10.8% to $59.81 year to date. That company was trading as high as $77.99 near the end of October.
- Starwood Hotels & Resorts Worldwide has shared a fate similar to that of the company that plans to buy it. Starwood is down 13.4% year to date to $59.98, which is lower than any price it saw during an up-and-down 2015.
- Hilton Worldwide Holdings is trading at $17.74, down 17.1% year to date.
- Wyndham Worldwide Corporation has fallen 10.5% to $64.99.
- Choice Hotels International has fallen 14.9% to $42.88.
- Host Hotels and Resorts has dipped 16.4% to $12.84.
- Hospitality Properties Trust has dropped 16.8% to $21.77.
- Ashford Hospitality Trust has fallen 27.4% to $4.58.
- RLJ Lodging Trust is down 18.8% to $17.55.
- Apple Hospitality REIT is now at $17.54, a 12% drop year to date.
The numbers bare out the idea that the New Year has been especially rough on REITs, but Bellisario said groups that focus on over-supplied large markets such as New York City were hit particularly hard. He said companies like Apple Hospitality, which puts more of an emphasis on tertiary markets, could be better positioned to weather the storm.
Even if domestic markets stabilize, China is poised to be a lingering question mark through 2016. He said the Chinese government’s reactions could threaten the ability for Chinese capital to reach international companies.
China’s economy “is not going to get better,” Bellisario said. “It might get worse. There are investors in China that have purchased U.S. real estate or want to, and it’s becoming increasingly difficult to even convert to U.S. dollars because their government is not letting them.”
Even within Chinese markets, hotel companies have faced similar struggles. For example, Shanghai Jin Jiang International Hotel Group has fallen 21.8% to 2.59 Hong Kong Dollars ($0.33) year to date.
So hoteliers might be faced with issues in China.
Matt Costin, managing director for BDRC Continental, said, “A combination of still-surging hotel supply and slower economic growth undoubtedly presents challenges for the Chinese hotel industry.
“The pattern of building ahead of demand will place considerable pressure on the short-term financial performance of hotels,” Costin said.
Despite those near-term struggles, Costin said China still represents considerable long-term possibilities for the hotel industry, particularly in the relatively underdeveloped midscale segment.