Hotel industry analysts expect to hear an upbeat tone from the REITs and C-Corps on second-quarter earnings calls, and they think there will be talk of Pebblebrook-LaSalle, transaction activity and more.
REPORT FROM THE U.S.—Earnings reporting season for the second quarter is approaching, and hotel industry analysts are forecasting another quarter of overall positivity from major public hotel companies.
Hilton and Pebblebrook Hotel Trust will once again kick off calls, said C. Patrick Scholes, managing director, lodging, gaming and leisure equity research at SunTrust Robinson Humphrey, which will set the tone for the quarter.
“You want to (hear) the first one,” he said. “I think Hilton the first day and then actually Pebblebrook the next day really set the tone … after those two, what else happens is not so different.”
Rich Hightower, managing director of equity research at Evercore ISI, said he’s also expecting to hear an overall positive tone on calls, as well as possible cautiousness at the back half of the year.
“The tone regarding the second quarter should be pretty positive,” he said. “You could also probably foresee some cautiousness in terms of the back half to the extent that trade war fears and things like that … possibly might impact some of the numbers on the back half, so at least on how the calendar is set up, we know that the third quarter has a more favorable comp situation that the fourth quarter.”
On the real estate investment side, Mike Bellisario, VP and senior research analyst of hotel REITs & C-corps at Robert W. Baird and Co., said the tone for calls “will continue to be one of cautious optimism.”
“(The REITs are) optimistic because if you look out to 2019, a lot of these companies have outside exposure to markets that will be stronger in ’19,” he said, adding that New York will hopefully won’t be as bad as previous quarters.
“Florida continues to be strong,” he said. “You get through the tough hurricane comps that a lot of companies are going to face the last four months of the year. There’s reason to be optimistic. It’s a matter of does the market view an unchanged optimistic tone positively or negatively.”
One company Bellisario is looking forward to hearing from is Host Hotels & Resorts and their appetite to sell hotels.
“Host, beside the fact that they’re an 800-pound gorilla, they have reportedly $1.2 billion of 12 hotels on the market for sale,” he said.
Hightower added that Host and Park Hotels & Resorts will have stories “about capital recycling,” and companies in markets such as San Francisco and New York should be upbeat.
“Anybody with outside exposure in San Francisco is going to have a pretty positive story to tell about that just given what’s happening in the market there over the past couple of years now that the Moscone is opened,” he said. “(Diamondrock Hospitality Company) is one that’s going to have positive commentary on some of the changes that we’re seeing in the New York market.”
Pebblebrook is still pushing LaSalle Hotel Properties to take its proposed offer for the company, which analysts will be listening for on calls.
Bellisario said LaSalle will report earnings, but he doesn’t think it will have a conference call, and its results will likely come out at the end of the reporting season, around 9 August.
“At some point, we’re going to see the proxy go effective and the shareholder date set,” he said. “We would have thought you would have seen it now already; we’re kind of a week or two behind where we thought.”
With Pebblebrook’s offer for LaSalle of at least 80% in stock, Bellisario said the company’s call will likely be upbeat, but that all depends on if Blackstone decides to raise its offer.
“They typically always beat earnings; it’s just a matter of by how much,” he said. “I think they will qualitatively talk about their portfolio performing well, the outlook for 2019 continuing to strengthen, minimal renovations activity … All that stuff around the edges that will get people more positive about Pebblebrook and its execution and its ability to generate (outsized) returns, which will then in turn lead to more interest in LaSalle and people getting more comfortable with what and how Pebblebrook wants to turn LaSalle into an accretive M&A transaction.”
The brands are always optimistic, Bellisario said, which he doesn’t expect will change this quarter.
He said the brands have good business models, relatively strong global growth and “secular tailwinds continue.”
“I think the biggest factors that we’re kind of looking at are the international trends, the impact of the dollar,” Bellisario said. “That one negatively impacts results on the currency conversion, but also potentially inbound international travel to the U.S.”
Mergers and acquisitions are still a topic of discussion, but there likely won’t be anything as significant as Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide, he said, adding that at this point, people are expecting tuck-in acquisitions.
Bellisario added that investors are trying to figure out what stock prices look like for the brands.
“The stocks are not as expensive as they were five, six months ago, but they’re not necessarily cheap either,” he said. “So I think investors are really trying to get their arms around what does the long-term growth trajectory look like for these guys. Is 6% net unit growth and 2% to 3% RevPAR growth sustainable, and what’s the appropriate multiple for these stocks today?
“There’s more transaction activity. It’s just a matter of at what price and what are the companies doing with the cash.”