As the 2019 fourth-quarter and full-year earnings reporting season continues, Hotel News Now will be monitoring earnings calls for talk from executives of public hotel companies on how the coronavirus (COVID-19) is affecting business.
GLOBAL REPORT—The outbreak of the coronavirus (COVID-19) that originated in Wuhan, China, has led to the shutdown of cities and businesses, including hotels, as well as major travel disruption. What the impact might be on hotel company performance is just beginning to become evident, as executives share projections on earnings calls with analysts.
Read below what hotel company executives have said about the coronavirus on fourth-quarter and full-year earnings calls. HNN will update this article regularly throughout earnings season.
Wyndham Hotels & Resorts
“The coronavirus outbreak … is presenting a challenging start to 2020 for our committed and dedicated team in China,” Wyndham President and CEO Geoff Ballotti said on the company’s earnings call with analysts.
“While China represents only 2% of our adjusted (earnings before interest, taxes, depreciation and amortization) given our lower (revenue per available room), lower-royalty Super 8 master licensee arrangement, it is becoming a more important factor to our international direct franchising business.
“The 60 government mandated hotel closures we saw in the first week of the outbreak peaked last weekend at a 1,000 of our (hotels in) China. Approximately 900 of the 1,000 closures are Super 8 master licensee franchisees.
“Hotel closures appear to be stabilizing, and we’ve also seen approximately 50 hotels re-opened over the past several days. Importantly, the majority of the closures resulted from our owners and franchisees doing everything they could to protect their team members and prevent the spread of the virus.”
“The situation in China continues to unfold,” said Wyndham CFO Michele Allen. “To further expand on the geographical concentration we posted on our investor website, we are providing the following regional sensitivities. In China, a 100-basis-point change in net rooms or RevPAR growth equates to approximately $250,000 in adjusted EBITDA on a full-year basis. In Southeast Asia, a 100-basis-point change in net rooms or RevPAR growth equates to approximately $125,000, and in the U.S., for comparison purposes, a 100-basis-point change in net rooms of RevPAR growth equates to approximately $4 million.
“We’re providing these full-year sensitivities as a point of reference and to illustrate the relative and manageable magnitude of this issue in the context of our overall financial results. What we know today and can currently quantify is that approximately 70% of our hotels in China remain closed, with the balance experiencing occupancy declines of approximately 75%. We expect this to continue through at least the end of March.
“We also know that our hotels in Southeast Asia, particularly in Korea, Singapore and Thailand, are seeing varying degrees of occupancy declines. We are assuming that as hotels in China reopen, the market will remain soft for the vast majority of the year as occupancy recovers over a three-month to six-month period.
“Given what we know today, we would estimate a headwind of 200 basis points to 400 basis points on our full-year global RevPAR, a potential adverse impact of approximately $5 million to our first-quarter adjusted EBITDA and a potential adverse impact of approximately $8 million to $12 million to our full-year adjusted EBITDA.
“From a net rooms growth perspective, we are expecting the vast majority of our China room openings initially scheduled for the first quarter to slip to later into the year. As a result, we expect flat to negative room growth in China during the first quarter and for our first-quarter global net rooms growth to pace behind our full-year outlook. Should openings slip out of the year, we view the risk to net room growth as approximately half a point.”
MGM Resorts International
“We’re currently navigating an extremely fluid environment with the coronavirus, which we are taking very seriously,” said MGM Chairman and CEO Jim Murren on the company’s earnings call with analysts. The company also announced that he will be stepping down from his position.
“The safety of our employees and guests is our top priority, and we continue to work closely with the local authorities to ensure that we’re doing what’s right for the well-being of everyone there,” Murren said regarding his company’s response to the virus outbreak.
“As such, our Macau casinos and gaming areas are currently closed, so we are maintaining some non-gaming facilities to support our hotel guests. During this time with our casinos closed, we are actively managing our costs and are incurring approximately $1.5 million of operating expenses per day across both properties—the majority of which is payroll.
“While the current situation creates volatility in our business near-term, we are confident that does not reflect the medium to long-term earnings potential of these assets or the marketplace. In fact, while short-lived, we have been seeing signs of an improving marketplace during the first couple of weeks in January with our businesses averaging just under $2.5 million of property EBITDA a day.”
On a Q4 and full-year 2019 earnings call, Hilton President and CEO Chris Nassetta said the potential performance impact of the coronavirus in 2020 is estimated to be a 100-basis-point drag on comparable systemwide RevPAR growth, roughly a 0.5% reduction in net unit growth, and a $25-million to $50-million hit to full-year adjusted EBITDA. (HNN is a division of STR, a CoStar Group Company. Nassetta serves on CoStar Group’s Board of Directors.)
As of 11 February, Hilton had closed 150 hotels in China, totaling 33,000 rooms, due to the outbreak.
On the topic of the coronavirus outbreak, Wynn Resorts President and CEO Matt Maddox said during an earnings call with analysts on 6 February that the company’s main focus is on the health and safety of employees, customers and the community at large in Macau.
Forbes reports Wynn ceased operations of some guest facilities at its Wynn Macau and Wynn Palace properties on 7 February in response to the coronavirus outbreak and at the direction of Chinese officials in Macau. Other casinos in Macau were ordered by officials on 4 February to close for 15 days, The Wall Street Journal reports.
On the call with analysts, Maddox said his company is facing losses of $2.4 million to $2.6 million per day while its casino properties in Macau are closed.
“I’d like to commend the government of Macau and China … for the quick and decisive action that they take and continue to take to contain the coronavirus,” he said. “We’re in daily conversations with the government. It’s been extremely transparent and they have been terrific partners with us as we focus on the safety of everyone in Macau.”