Analyst outlook: What to expect from Q2 earnings season
 
Analyst outlook: What to expect from Q2 earnings season
25 JULY 2017 8:20 AM

Industry analysts spoke to Hotel News Now about their second-quarter earnings call expectations for brands and real estate investment trusts. 

REPORT FROM THE U.S.—While revenue-per-available-room growth might not be as strong as it was in the first quarter of the year, industry analysts are expecting an overall upbeat tone from hotel brands and real estate investment trusts on second-quarter earnings calls.

Michael Bellisario, senior research analyst, Robert W. Baird and Co.:
“From a fundamental perspective, I think the thing we’re talking to investors about is that the second-quarter RevPAR growth metrics that these companies are going to provide aren’t going to be as strong as they were in the first quarter. A lot of that has to do with the Easter shift and the way group businesses shifted into and out of the quarters.

"I think we’ll hear about how they’re continuing to see strength into and actually from Europe given the economies that are doing a little bit better, and then the dollar strength has caused a lot of U.S. citizens to take vacations to Europe.

"I think overall, I think you’re going to hear an upbeat tone. … I think it will all be on the margin, anecdotal comments that signs are pointing to things maybe being better in the near or intermediate term, but those signs have not yet resulted in better RevPAR growth trends.”

Patrick Scholes, managing director, lodging and leisure equity research, SunTrust Robinson Humphrey:
“You’ll have a couple companies (such as) Hilton and Marriott (International) be very positive talking about trends in Europe of late. Europe has been very strong, so that will benefit them.

"… Everybody’s going to ask about what’s going on with share repurchases, and will Marriott sell any of those hotels they bought in the Starwood deal; how is that progressing?

"(A) needle-mover for Marriott will be how (the) integration of the Sheraton brand is going. You know, last quarter, they picked up a point of RevPAR share index, that secret number that only (STR) and the travel companies have, so that’ll be interesting to hear if Marriott was able to continue along those lines, and I suspect they will, if their brands are taking a little bit of share from competitors. (STR is parent company of Hotel News Now.)

"That’s been a little bit of a help to their (earnings) performance. For a mature industry and somewhat of a mature company, it’s been unusual at this stage that you’ve got a point of market share. I suspect it may have to do with, so far, the integration with the Sheraton brand into the Marriott reservation and rewards system and what not.”

Ryan Meliker, analyst, Canaccord Genuity; Peter Abramowitz, associate, Canaccord Genuity, from a “REITS – Lodging” Q2 earnings outlook report:
“We expect virtually every lodging (real estate investment trust) in our coverage universe to report a meaningful deceleration in RevPAR growth from (Q1), largely driven by calendar shifts and convention calendars.

“… We remain optimistic that RevPAR growth will reaccelerate in late 2017 on the heels of improving business investment. (First-quarter) business investment was up 4%, the first quarter of materially positive growth since 2015. If (Q2) results come in meaningfully positive when the initial BEA release hits on (28 July), we believe it will lead to an increase in business travel demand in (Q3) and more importantly, (Q4). As such, we will be watching that release closely. If it is materially positive again, we would be buyers of any pullback that occurs during (Q2) earnings season.”

Bellisario:
“The REITs, same kind of thing in terms of (Q2). I think (Q2) will be even more challenging to them relative to (Q1) compared to the brands, given their more urban focus and those markets in particular have continued to underperform.

“You have New York, Boston, Chicago, San Francisco, all the major markets are staging a variety of headwinds, and those headwinds were still present in the second quarter. And if you think about the stronger dollar—how it might be a beneficiary to some of the brands because their European hotels are performing better—on the flipside, that hurts the REITs because … the New Yorks, Bostons, Chicagos of the world, those markets are negatively impacted by the stronger dollar when inbound international travel flows.

"I think you’ll hear more about capital recycling. At the beginning of the year, they all wanted to buy hotels. They all felt better about the trajectory of fundamentals. Stock prices had rebounded after the election. But the deal flow hasn’t materialized, the transaction market is really competitive, and I think you’ll hear more about them thinking about selective disposition to take advantage of being (in) a seller’s market, despite them already having low-leverage levels, high cash balances, and for the most part, (having sold) a lot of their noncore hotels.”

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