Hotel CEOs review, predict performance of key markets
 
Hotel CEOs review, predict performance of key markets
15 NOVEMBER 2018 9:20 AM

During third-quarter earnings calls, CEOs from public hotel companies spoke about the different markets within their portfolios, examining how they performed amid disruptors, such as employee strikes and hurricane impact, and predicting how they will fare in future quarters.

REPORT FROM THE U.S.—A hotel’s performance relies heavily on the overall demand of its market, which is something hotel executives watch closely.

The CEOs of public hotel companies shared their thoughts on the key markets their hotels have called home during recent third-quarter earnings calls, providing insight into how they performed and what they expect out of the markets going forward.

Chris Nassetta, president and CEO, Hilton
“It does appear that China's economy is slowing down, sort of … We would expect China to finish this year in the 11% (revenue-per-available-room growth) range as an example.

“We are assuming something lower than that next year honestly. I think it's 8% or 9% from a budgeting point of view, just to put it in context to be reflective of the fact that even though we haven't seen any meaningful trend other than sort of the impact I told you in third quarter (related to weather conditions slowing leisure growth somewhat), we haven't seen an underlying weakness. The reality is that the economy is going to slow in China; there should be some knock-on effects…. But in terms of, have we seen real signs of global slowdown in the core parts of the business? We have not seen that. We are trying to be thoughtful and reasonably conservative about looking into next year to incorporate some of those views, but we have not real-time seen it.”

Pat Pacious, president and CEO, Choice Hotels International
“In addition to entering Spain and Colombia for the first time, hotels are slated to open in Brazil, Ecuador, Mexico and Panama across a mix of our brands. Choice's previously announced alliance with Sercotel is contributing more than half of the 40 openings expected by year-end in Spain and Latin America.

“In September, we also signed a multi-unit agreement with a Mexican private equity fund to develop 20 new construction Sleep Inn hotels in that country over the next five years. The agreement is expected to add 2,000 rooms to top markets like Mexico City and Guadalajara and more than triple the size of Sleep Inn's footprint in the country.”

Jim Murren, chairman and CEO, MGM Resorts International
“I think one of the data points I just pointed to in that large-scale convention booker is the value proposition that Las Vegas represents. The U.S. economy as it has grown has made Las Vegas on a relative basis even a more attractive destination from a price perspective. And we monitor this against all of our major competitive cities around the country and in fact around the world. So, it has been something that we always focus on. We don't think it has been an issue. We always evaluate these market conditions. And we look at not only the data we have, but the data that the (Las Vegas Convention and Visitors Authority) puts out and we know that from an (average daily rate) perspective, we're still much lower than cities like Orlando or Chicago or Hawaii—but we continue to tweak it and we always will.”

Jonathan Halkyard, president and CEO, Extended Stay America
“Some industry observers recently had worried about some recent headline RevPAR weakness from (STR) reports. It is true that the hurricane impact will be a drag on fourth-quarter and first-quarter results for us and for the industry; many of us have mentioned that fact many times this year. However, the underlying RevPAR environment has not changed. If anything, it's improved in recent months.

“For example, for Extended Stay America in September, RevPAR growth outside of Houston and South Florida was 3%. In October, our RevPAR growth outside the hurricane markets is approximately 5%. Each of these months represents an acceleration from the first half of the year. We think the underlying fundamentals of the economy and our proven track record of execution continue to point to solid fundamentals for Extended Stay America.”

(STR is the parent company of Hotel News Now.)

Jim Risoleo, president and CEO, Host Hotels & Resorts
“An active hurricane season affected our Hawaii market in August and our Atlanta and Washington, D.C. markets in September. While the D.C. markets did not experience a significant weather impact from Hurricane Florence, local governments in the area declared a state of emergency in advance of the storm which led to cancellations.

“We estimate that the impact of the hurricanes cost us 30 basis points of RevPAR in the quarter. Year-to-date, comparable RevPAR on a constant currency basis increased 1.9% to $180, driven by a 1 point increase in average room rate and a 70 basis point increase in occupancy to approximately 80%.”

Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“Most of our best performing hotels in the quarter were in San Francisco, which had an improved convention calendar during the third quarter as compared to last year, when two of the three convention center buildings were closed. This created more rate compression opportunities for our seven San Francisco hotels despite some ongoing renovations in the quarter. …

“… Well, I think that the whole city is going to be just on fire next year in a positive way given the amount of business in the city, the continuing business growth in the city, the economic strength of the city, the leisure destination attraction of the city. And so I think all the markets are going to be impacted in a very positive and dramatic way.”

Tom Baltimore, chairman, president and CEO, Park Hotels & Resorts
“Reviewing our major markets, our two San Francisco hotels continued their strong performance from last quarter, posting RevPAR growth of 5.8% in the third quarter with strong production in margins as a complex improving roughly 160 basis points. Looking forward, we expect a solid fourth quarter with RevPAR in the mid-single digits despite citywide convention weakness that projects room nights to be down close to 30%. Overall, our San Francisco complex should see group revenues increase in the mid-teens for 2018, which is more than double the group pace expectation set at the beginning of the year. We believe this is a direct result of our focused resources we have targeted towards identifying opportunities and capturing in-house business. In addition, group pace for our two assets is up over 21% to over 257,000 room nights for 2019. …

“Turning to Chicago, I want to start out by first commending the team in Chicago for their dedication and hard work during the labor strike which impacted the hotel during the third quarter. Hilton GM, John Wells and his team did an unbelievable job ensuring hotel operations ran smoothly throughout the strike so that the hotel could serve its guests. I am pleased to report that both sides reached an agreement and all employees are back to work. In spite of the strike, we posted very solid results, with our Hilton Chicago reporting an 8.6% increase in RevPAR driven by double-digit RevPAR increases in July and August that continued the momentum from the second quarter. Note that September performance at the hotel was impacted by the citywide strike that lasted for 23 days. If you were to exclude the impact of the strike, RevPAR at the hotel would have been up 11.6%, while margins would have been roughly 280 basis points higher.

“Turning to Hawaii, RevPAR growth at our Hilton Hawaiian Village asset was up 0.2%, or slightly weaker than we had anticipated as results were negatively impacted by Hurricanes Lane and Olivia and disruption from the two hurricanes as well as Typhoon Jebi, which disrupted demand from Asia, placed a 180 basis point drag on RevPAR performance during the quarter, with some of that weakness expected to bleed into the fourth quarter. That said 2019 should be a very strong year given improved airlift to the island, strong forward bookings from Asian wholesale producers and an extremely favorable group pace of over 25% next year. Regarding our capital recycling efforts, as we announced on our last call, we are on the early stage of phase two marketing for a handful of non-core assets. At this point, we do not have any new information on the volume of sales or expected timing of any transactions. As we have demonstrated, we will continue to be disciplined and focused in our approach and we will keep you posted on our progress as it unfolds in the months and quarters ahead.”

Mark Brugger, president and CEO, DiamondRock Hospitality
“New York City has a lot of positive momentum, but there's one more year of meaningful supply to absorb before we can start seeing some real outperformance. Chicago, like D.C., is expected to be a softer market as it works through an off year for (citywide conventions). We do expect strong growth at our hotels in Phoenix (and) in Salt Lake City as well as our four hotels in Northern California, including Hotel Emblem San Francisco, the Lodge at Sonoma, The Landing in Lake Tahoe and the pending acquisition.

“Importantly, the preliminary indications are very positive for our portfolio in 2020. Our three largest markets are all expected to do well. New York City should begin its significant decline in supply in 2020, and RevPAR should really start rebounding there in 2020 and even more so in 2021. Boston has a strong citywide calendar in 2020, and our Boston Westin pace is up a healthy 19%. Chicago also has a better citywide calendar in 2020. Our Chicago Marriott is pacing up an impressive 40%, and The Gwen is also up 40% in 2020. 2021 in Chicago should be even better based on the convention cycle. Washington, D.C., is expected to be another strong market for us in 2020 with group pace up 69% at our hotel. In total, 2020 group pace revenue for our entire portfolio is up over 20%. Finally, our two Virgin Island resorts should reopen in 2020.”

Leslie Hale, president and CEO, RLJ Lodging Trust
“Now relative to our largest markets, Chicago was our best performing market this quarter. Our hotels achieved robust RevPAR growth of 6.7% and increased market share by 350 basis points. We benefited from a strong citywide calendar and the ramp up of one hotel that was under renovation last year. With a robust citywide calendar in the fourth quarter, we expect to see continued strength in Chicago.

“In Northern California, our largest market, we achieved solid RevPAR growth of 4.6% despite ongoing renovations. Our hotels benefited from the compression created by several large citywide events during the quarter. However, our fourth-quarter results will be constrained by a softer citywide calendar, continuing renovations and the impact from the ongoing labor strike. Looking ahead, our innovative portfolio is well positioned to benefit from the record breaking citywide calendar next year. …

“Two markets that faced especially difficult comps in the third quarter were South Florida and Houston, which benefited from hurricane recovery efforts last year. Despite this, our South Florida cluster achieved RevPAR growth of 1.3% and grew market share by a robust 370 basis points. In Houston, our hotels outperformed the overall market by 600 basis points in RevPAR, benefiting from strong citywides. However, given the extremely difficult prior year hurricane comps, our RevPAR declined by 7.2% in Houston. With our comps continuing to be tough for the remainder of the year, we expect soft results from both of these markets in the fourth quarter.

Keith Cline, president and CEO, CorePoint Lodging
“We continue to experience revenue strengths in our repositioned hotels that have completed our strategic renovations as well as in the energy markets, realizing RevPAR growth of 15.6% and 24.2%, respectively, year-over-year. Regionally, our top-performing markets during the quarter included Boston, New Orleans, Phoenix, San Francisco, and West Texas.

“Comparable RevPAR Index for the third quarter grew 390 basis points over the same period last year. Once again, our hotels located in the oil markets, especially three of our West Texas hotels and our repositioned hotels, display the largest year-over-year index growth. We achieved these strong results despite the negative impact hurricane-affected hotels continue to have on our performance. … At the start of the third quarter, we still had five hotels closed in Florida due to Hurricane Irma. We're pleased to report that two of these hotels opened at the end of September, (and) two more hotels closed after Hurricane Irma are expected to be reopened by the end of the year, leaving our Fort Myers hotel with a projected reopening date in early 2019.

“We also experienced weaker performance in certain Texas markets this quarter as we cycled against top comparisons from the lift we experienced after Hurricane Harvey last year. While we are pleased with our RevPAR performance again this quarter, we have yet to realize corresponding improvements in hotel profit margins in these early months of our transition to Wyndham as our manager.”

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