Hotel stocks went bonkers in February

Investor confidence erased pandemic losses, but signs of trouble remain

National /
Mar.March 02, 2021 08:30 AM
(Getty)

(Getty)

Hotel investors can rest a little easier at night.

Robust gains in February put share prices of publicly traded hotel companies back up to pre-Covid levels, a year after the pandemic sent valuations into a nosedive.

Share price indexes of firms that operate hotels, and own their physical assets as REITs, grew more than 20 percent last month, despite much of the hospitality industry still suffering.

The gains were roughly five times that of the broader market. The Nasdaq Composite rose about 4 percent during that time while the S&P 500 gained 5 percent.

“Investors are looking past damage” and “toward recovery” said Chris Darling, a hotel analyst at Green Street.

The share price of Sunstone Hotel Investors, operator of 17 hotels with over 19,000 rooms in mostly coastal areas, grew 20 percent last month. It was the stock’s best month of the pandemic except for November, when initial results of Covid-19 vaccine trials were announced.

The pandemic forced hotel REITs to conserve cash at a time when, according to Darling, operating income has fallen more than 100 percent.

Sunstone recently sold a 502-room property outside Los Angeles International Airport for $92.5 million, one of the largest pandemic-era deals of its kind, and handed ownership of the Times Square Hilton hotel in New York City back to its lender.

Hotel properties typically serve industry conventions, business trips and leisure travel. Experts expect the last of those three to recover most quickly.

“Conferences and conventions will probably take longest to recover,” said Michael Jerbich, president of B. Riley Real Estate, noting that the International Housewares Association canceled its August convention at the McCormick Place Convention Center in Chicago.

Apple Hospitality, with hotels in urban and suburban markets, grew 14 percent in February. Its share price closed Monday at $14.15, less than a dollar below its level of last February. Apple’s diversity has helped it hold up better than its peers, according to Darling.

DiamondRock Hospitality Company ended February with its share price more than 23 percent higher than where it began the month.

Investor enthusiasm, however, does not mean the industry is out of the woods.

Delinquency among commercial mortgage-backed securities loans – mortgages held by many individual investors rather than by banks – remains nearly twice as high for hotel properties as for retail, said Jerbich, who expects leverage to increase as the recovery progresses.

“Lenders will likely consider more forward-looking underwriting,” basing loan amounts on future financial conditions, “which we saw following the Great Recession,” said Jerbich.

For now, hotels are crawling toward normalcy.

National hotel occupancy sat below 50 percent for the week ending Feb. 20, a drop of nearly 24 percent since the pandemic began, according to hotel data firm STR, while revenue per room was down 40 percent compared to 2020.

In the nation’s top markets, Miami had the highest occupancy rate, almost 76 percent, while Minneapolis and Oahu Island had the lowest, about 32 percent each, suggesting temperate locations within driving distance had the best chance for an early post-Covid recovery.





    Related Articles

    arrow_forward_ios
    The Birch Group CEO Mark Meisner and Mack-Cali CEO Mahbod Nia with (clockwise from top left: 101, 103, 150 and 51 John F. Kennedy Parkway, Short Hills (Mack-Cali, Linkedin)
    Mack-Cali sells Short Hills, NJ office portfolio for $255M
    Mack-Cali sells Short Hills, NJ office portfolio for $255M
    (Getty, iStock)
    Capacity restrictions in NY to ease as soon as next week
    Capacity restrictions in NY to ease as soon as next week
    WeWork CEO Sandeep Mathrani. (Getty, WeWork)
    WeWork will accept Bitcoin for membership fees
    WeWork will accept Bitcoin for membership fees
    As office market laguishes, single-tenant buildings pose risk to landlords (iStock)
    Single-tenant office buildings face higher risk of default
    Single-tenant office buildings face higher risk of default
    HRI executive director Aaron Carr and 700 West 192nd Street (Google Maps, Facebook)
    Brooklyn, Manhattan tenants sue landlords over alleged 421a abuse
    Brooklyn, Manhattan tenants sue landlords over alleged 421a abuse
    Nate Paul of World Class Holdings (Facebook/GreatValueStorage, iStock)
    Great Value Storage files for bankruptcy to stop foreclosure
    Great Value Storage files for bankruptcy to stop foreclosure
    JPMorgan CEO Jamie Dimon and 270 Park Avenue (Getty, Google Maps)
    JPMorgan Chase will embrace “flexible” design for 270 Park HQ
    JPMorgan Chase will embrace “flexible” design for 270 Park HQ
    Though some companies have received fat PPP payouts, real estate received just 4.6% of the loans distributed in New York. (iStock)
    Real estate receives just 5% of New York’s PPP loans
    Real estate receives just 5% of New York’s PPP loans
    arrow_forward_ios

    The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

    Loading...