RevPAR growth has started to reaccelerate but not because of the economy. Hotels look more attractive than gaming or leisure.
While the global markets experienced one of the most volatile months in stock market history, hotel performance—not that of hotel stocks—actually improved throughout the month of August. Is this because hotels do better in tough and volatile economic times? Certainly not. It’s just the sequential math. We estimate August Upper Upscale REVPAR will come in at $102 or 5.5% YoY growth. This growth is impressive considering August included a hurricane-battered week and that the 1st half of August averaged a mere 4% growth. If you look at the chart of 3-week rolling UUP REVPAR YoY change (shown below), REVPAR accelerated in the 2nd half of August, which our math predicted in our note, “IT’S NOT THE ECONOMY STUPID! (8/25/11)”.
So where do we go from here? According to our model, which tracks sequential, seasonally-adjusted dollar RevPAR, we still expect a sustained pickup in REVPAR growth for the rest of the year—as long as the US economy continues to chug along at a snail’s pace or better but not double dip. So far so good. Last week’s RevPAR increased 8.6%.
With the stocks down 40% year to date, a RevPAR reacceleration should help investor sentiment tremendously. Hotel stocks almost across the board are looking attractive to us. Of course, we would still need a stable or up stock market for hotel stocks to work. Although MAR doesn’t have the same ownership leverage to RevPAR growth as the REITs or HOT and H, sentiment around MAR is as low as we’ve seen it. Moreover, MAR has the least downside relative to its March 2009 trough valuation among the lodgers and some potential positive catalysts such as a very aggressive stock buyback and potentially higher than expected FCF growth.