As of mid-October 2019, the hotel real estate market seems to be stable, bordering on bullish. This current market performance is very different from one year ago in October of 2018.
In last August of 2018, the 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 very compressed EBITDA multiples. The average publicly-traded lodging company lost 10.2% of its equity value just in the month of October.
During that time, I personally thought that we were at the bottom, however, I quickly realized in early November that most stocks were continuing to decline. I remember leaving the office two days before Christmas of last year knowing that almost every lodging stock had hit a 52-week low that day. I believe there were some 92 publicly traded stock companies that were also at a 52-week low during that same week. It gave Everyone in our industry pause for concern as to whether the stock market in January was going to continue to decline or begin to rebound.
The title of this article is, “What a Difference a Year Makes,” and in business, as well as in life, it is always difficult to plan the path ahead. Looking back to January of this year, we saw stocks begin 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 10-20% 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 (10-15%) of the trading ranges in late 2017 and early 2018.
Today, in October 2019, 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. We are seeing greater amounts of deals 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 we will see a recession in 2020. Basically, no one knows for certain (as was the case in 2008), therefore the best path forward is one of guarded optimism. I have often said that sellers should be sellers when there are buyers. Pretty straightforward. Am I right? We believe 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 we see the market today. KT