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Hoteliers and brands are still riding the wave of growing international travel, and even amid the threat of inflation and economic turmoil, many have fully recovered from the pandemic.
Some major hospitality brands, including Hilton, Hyatt and Marriott, have soared to higher share prices in recent weeks, and revenue per room, a leading measure of hotels’ performance, has surpassed pre-pandemic levels across the US. With international travel restrictions now lifted and China officially reopened, hotel companies’ fourth-quarter earnings calls had a modest tone.
While demand is still lagging in some sectors, fears of a recession and higher prices have yet to tame consumer appetite — and remote work has opened up a new set of travelers, many of whom aim to make up for lost time during the lockdown.
“Weekends are now three days or four days in some cases, and the business travel week is now two or three days instead of three or four days,” Baird senior research analyst Michael Bellisario said in an interview. “People continue to move from goods to services. Goods were bought in 2020 — cars, homes, washers and dryers. People are now buying services, going out to restaurants, and going on vacations.”
Although uncertainty over the country’s economy and a frozen investment sales market has dampened sentiment, hoteliers are seeing strong earnings calls at surprisingly healthy rates.
Marriott International reported a profit of $673 million in the fourth quarter, up from $468 million a year earlier. RevPAR for the quarter was up 5% from Q4 2019 and generated $5.9B in revenue for the period, beating Wall Street expectations by more than $500M, The Wall Street Journal reported.
“Lodging is a cyclical business, and it’s not immune to a downturn in the macroeconomic environment,” Marriott CEO Tony Capuno said on the company’s earnings call. “To date, however, we have seen signs of softening demand.”
Hilton beat expectations in the fourth quarter, CEO Christopher Nacetta said, with RevPAR jumping 24.8 percent from last year. Hyatt reported a nearly 35% increase in RevPAR between Q4 2021 and Q4 2022, contributing to a 60% jump in full-year RevPAR.
Hotels have been able to significantly improve their performance because they have been able to charge higher prices across the board without inconveniencing consumers, Bellisario said. The demand itself is relatively unchanged from 2019. The industry as a whole has seen RevPAR grow 10 percent between January 2019 and January 2023, and inflation is the main cause — not catching up, it’s still slightly lower than before the pandemic, he said. .
Additionally, Hotel Brands, as opposed to publicly traded hotel REITs, is performing well in the current economic climate – which is reflected in the stock price.
“When you think about brand business and ownership business, brand business is better business,” he said. “It is property-light. Someone else is paying you. People don’t have it, they’re not paying property taxes.
by Credit Suisse Asset Management/Trinity Real Estate Investments
The Diplomat Beach Resort in Hollywood, Florida sold for $835 million this year.
Hotel REITs, however, had a strong quarter, and executives expressed optimism about business and group travel growth.
The nation’s largest hotel REIT, Host Hotels & Resorts, saw average daily rates rise 22% in Q4 from 2019, and RevPAR was above 2019 levels for the third consecutive quarter. Cash from operations beat analysts’ estimates for the quarter.
Host executives said the company It took more revenue from group bookings than it did for the second straight quarter in 2019, and although business travel is still down 18% from pre-pandemic levels, it’s picking up fast.
“We’re not seeing any signs of weakness in any of the business units,” Host CEO Jim Risolio said on the company’s earnings call. “Our team speed is working exceptionally well.”
Pebblebrook Hotel Trust’s quarterly revenue rose 29.3% to $319.6M from $247.3M last year, although it still posted a loss of $45.3M and missed analysts’ estimates. Park Hotels & Resorts reported revenue of $665M in Q4, according to Nasdaq, up from $451M a year ago.
Diamond Rock Hospitality, meanwhile, has $600 million in cash and is said to be hunting for properties to buy. Apple Hospitality executives told investors during the company’s Q4 earnings call that its balance sheet is in the right place to start buying “when the market is right,” Costar reported.
Bellisario said the quiet investment sales market is challenging for REITs, which have historically been able to grow their portfolios during down cycles.
“It’s amazing. [REITs] They are generally low net worth, have the ability to earn and borrow money, and want to grow their portfolio and buy property. “The challenge is that there’s not much to sell, and the fundamentals are still good, so sellers aren’t willing to take it at a discount just yet. So I think there’s a little bit of frustration there, but they have a desire to grow.
There are still concerns about the state of the economy. Hotels are the first type of property to be hit by the recession because their customers have very short leases.
“Current macroeconomic headwinds and the potential for an economic slowdown are competing against a marginal recovery,” said Sourav Ghosh, the host’s chief financial officer.
But any decline is not showing up in the numbers yet. Executives said in February calls that demand in 2023 is increasing over last year, and most predict continued growth.
“We’re very cautious about the economic backdrop and the recession, federal actions, geopolitical issues, labor market concerns — we’re cautious about that, but we don’t see it in the fundamentals today,” said Leslie Hale, CEO of RLJ Lodging Trust. Bisnow Interview on Tuesday.
“We continue to look ahead, and we expect positive direction year-over-year. Having said that, the industry as a whole has only come to where we’ve gone to zero revenue, so I’m very comfortable with how we manage our businesses today, being smart in terms of developing skills and efficiencies in the industry, and I’m able to navigate any kind of downturn.” “
The hospitality industry has been rocked by the outbreak, with domestic travelers avoiding travel and visitors from major international markets banned from entering the country for a year and a half. The immediate impact was even more profound when combined with 9/11 and the global financial crisis. The speed of the industry’s recovery has surprised market analysts.
“It’s wild,” said Zach DeMusz, JLL’s global head of hotels research. The expectation is that it will take years to get back to 2019 – but what we’ve seen is a journey that no one expected as people feel the need to leave their homes.
CBRE forecasts 5.8% annual growth in RevPAR to 2023, up from a previous forecast of 5.6% growth. Meanwhile, hotels are hiring, with nearly 80% of hotels experiencing staffing shortages, according to the American Hotel & Lodging Association.
DeMuz pointed to some marquee deals this year, notably the sale of the Diplomat Beach Resort in Hollywood, Florida, for $835 million last month, the third-highest single-property hotel sale ever in the United States.
“We’ve seen very high value trades and very significant transactions,” he said. “A year ago we thought we were going to go back to lockdown.”
Jon Banister contributed reporting to this article.
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