Analysts foresee stronger-than-expected Q1 for most
Analysts foresee stronger-than-expected Q1 for most
25 APRIL 2018 8:57 AM

Hilton and Pebblebrook’s pre-released results set the tone for the first-quarter earnings season. Hotel industry analysts anticipate better-than-expected performance across the board and are hoping to hear chatter about Pebblebrook’s offer to acquire LaSalle. 

REPORT FROM THE U.S.—Pebblebrook Hotel Trust and Hilton pre-released earnings results, which were better than expected, according to analysts, who said the two companies should set the tone for other real estate investment trusts and C-Corps this earnings season.

Analysts agreed fourth-quarter results came out pretty conservative, but they are expecting to hear more optimism and positive updates to guidance ranges on first-quarter earnings calls.

“The cat’s out of the bag here. Hilton pre-released, Pebblebrook has pre-released—both of them stronger than expected—and I think that’s going to be a common theme for most of the brands and the REITs this reporting season,” said Michael Bellisario, VP and equity research senior analyst at Robert W. Baird & Co.

“Some of that’s a combination of: March was better than expected, but also the guidance ranges that were provided … in some instances six weeks ago, eight weeks ago, were conservative. The bar was basically set on the ground, and it was pretty easy to walk over.”

C. Patrick Scholes, managing director at SunTrust Robinson Humphrey, said some companies will be encouraged by Q1 results.

“I don’t think they’re going to over-promise for the next year, but I think you’ll see a little bit more optimism than you’ve seen in the last two or three quarters simply because one, it was a decent quarter, and two … maybe on the margin, it picked up a little bit,” he said. “It’s not like (revenue per available room) is going 8% or something, but maybe … slightly better than it was when we last talked in February.”

Topics likely to be discussed on earnings calls are mergers-and-acquisitions activity, consolidation and “alternatives that can be pursued at this point in the cycle,” Bellisario said.

Analysts said they’re looking forward to hearing from Pebblebrook executives why their latest offer for LaSalle Hotel Properties makes sense for both companies.

LaSalle has yet to release results or announce the timing of its earnings call.

Pebblebrook released a letter with its final merger offer for LaSalle on 24 April. The company increased its cash option to 20% and increased its per-share price by $2.49 compared to the original offer.

“Of course, Pebblebrook is in the middle of a hostile offer for LaSalle,” said Rich Hightower, managing director at Evercore ISI. “In addition to their fundamental trends, (analysts) are going to be keenly interested in where they are in that process.

“We’ll hope to get an update there. It will be interesting to hear their tone and how they answer questions related to the fact that LaSalle seems to be keeping Pebblebrook entirely in the dark in terms of their intentions and their process, given that Pebblebrook was very public about their intentions.”

Bellisario added that Pebblebrook’s call will be interesting because “there’s only so much they can say that’s new.”

“They’ve already told us a lot of things that they already know and think, and how they view their outstanding LaSalle offer,” he said. “I think what will be more interesting is what LaSalle can or won’t say, what they do or don’t say.”

If LaSalle has a call, Scholes said executives might acknowledge Pebblebrook’s offer and then pre-emptively block analysts from asking questions about it.

“(Pebblebrook), they’re going to plead their case pretty hard as to why they think this is great for everyone,” he said. “They might even open it up to investor questions, which is sort of unusual, but I think given the circumstance, they want to get as many investors on board as possible.”

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