AS INVESTORS CONTINUED to appear cautious over market uncertainties, the Baird/STR Hotel Stock Index dropped 8.5 percent in December and its year-to-date performance was down 16.8 percent. Still, the overall positive condition of the economy gives experts some hope that the market will recover.
In a change from previous months, the Baird/STR index performed better than the S&P 500, which dropped 9.2 percent last month, and the MSCI US REIT Index went down 8.8 percent. The index’s reduced performance indicated a deterioration of investor sentiment, said Baird’s senior hotel research analyst and Vice President Michael Bellisario.
“The hotel REITs and the hotel brands fell 13.9 percent and 5.5 percent respectively in December, and the sub-indices declined 17.5 percent and 16.3 percent, respectively, in 2018,” Bellisario said. “The year was marked by significant volatility, and initial optimism around tax reform for the brands and M&A upside for the REITs quickly faded. However, given that we do not expect fundamentals to meaningfully decelerate in the near term, we view valuations as more attractive at current levels even in the face of heightened macroeconomic uncertainties.”
Uncertainty about policy and global markets has separated investor sentiment from actual industry fundamental performance indicators, said Amanda Hite, STR’s president and CEO.
“This stands in sharp contrast to the connection between hotel industry performance and the overall macroeconomic outlook in the U.S., which is actually—even though tempered—still quite positive,” she said. “Hotel performance results for Q4 look to be lower than expected, and muted RevPAR growth is probably a sign of things to come. But the continued GDP growth outlook coupled with a very low unemployment rate and a growing labor participation rate gives us conviction that demand and ADR will continue to grow in 2019.”