Expect Marriott to Tell This Growth Story This Week

The hotel industry’s first quarter earnings calls have been a financial albatross amid all the optimistic drum beating about the upcoming summer travel season.

Revenues were still way down from pre-pandemic performance. Hyatt lost $304 million while Hilton lost $109 million. UK-based IHG and Paris-based Accor, neither required to post quarterly loss statements, noted ongoing European lockdowns severely hampered business.

But the leaders of each of these companies focused more on what a cash cow the summer might be, given loosening travel restrictions and pent-up demand. Marriott, which reports its latest financial results Monday, will almost certainly do the same. But it’s also likely to point to several relatively new leisure-focused growth drivers.

Resorts and Rentals: All-inclusive resorts and vacation rentals are almost guaranteed to be a key part of Monday’s investor call. Marriott added 19 all-inclusive resorts to its portfolio earlier this year, and the company’s CEO Tony Capuano led the initiative well before taking the top job at the company in February.

“We are seeing leisure-transient lead the recovery. That’s not for a moment to suggest we aren’t seeing green shoots in business travel and even a bit of small group, but leisure transient has a pretty good head start,” Capuano told Skift earlier this year following the all-inclusive deal. “This allows us to continue to build on that leisure-transient recovery.”

Homes & Villas by Marriott International, the vacation rental platform the company launched in 2019, should also be a leading growth story. Marriott’s leaders reported thousands of new listings to the vacation rental division on several of the company’s most recent earnings calls, and that trend isn’t expected to dissipate.

Marriott inked a deal with short-term rental platform Frontdesk late last month to bring most of the the company’s more than 600 listings in 32 cities onto the Homes & Villas platform.

The company has also improved the back-end technology of the platform to work better with some of its partners, and don’t forget how Stephanie Linnartz, president of Marriott, indicated on the company’s last earnings call there were “a couple million homes” out there that fit the bill to list on Homes & Villas.

This is no longer just a very small part of the world’s largest hotel company, as Marriott leaders frequently described Homes & Villas in its early days. The platform is likely to play an even more important role on investor calls, given the tight lending market for building new hotels.

“These guys are all publicly traded and need to highlight their growth,” Nicolas Graf, associate dean at New York University’s Jonathan M. Tisch Center of Hospitality, told Skift last month. “If there’s no growth in the traditional hotel space, where do you go? You shift to another market that shows there is potential growth.”

Follow the Revenue: Optimistic takes on the summer travel season don’t help financial numbers from the first three months of the year, as most of the hotel companies that reported so far displayed. Wyndham, which doesn’t have as much exposure to corporate travel and convention hotels as Marriott, is the only major hotel company to report a first quarter profit.

Analysts expect Marriott, with a greater exposure to China, to show slightly better numbers than Hilton for the first quarter, according to a Truist Securities note last week on Hilton’s earnings.

China had its own setbacks with a winter case surge and ensuing lockdowns, so the advantage may not be massive. But Marriott did post a $100 million third quarter profit last year, so it has shown an ability to notch a financial win in the depths of the pandemic.

The Development Shift to Asia

Speaking of China, Marriott and other hotel companies are almost certain to ramp up development there considering soaring construction costs and a tight lending market in the U.S.

Steel prices jumped nearly 18 percent just last month while lumber — used on typically more affordable-to-build midscale and extended-stay hotels — was up more than 6 percent, according to the U.S. Bureau of Labor Statistics.

Wyndham CEO Geoff Ballotti pointed to growing momentum in signing new franchise deals across China in recent months. Hilton has a development agreement with property developer Country Garden to build more than 1,000 Home 2 Suites properties across the country.

The potential construction slowdown in the U.S. would give owners of existing properties the ability to build rates back without worrying about a constant addition of new supply to the market. Hotel companies are likely to look to Asia to satisfy their appetite for growth in the meantime.

“I suspect you will see a cycle where, particularly in the U.S., the new construction numbers are going to be much, much lower,” Hilton CEO Chris Nassetta said on an earnings call last week. “That’s obviously long-term healthy for the for the industry. But the good news for us is the world’s a big place, and the pressures are not the same in all places in the world, particularly recognizing that the place where we have the second-biggest chunk of our growth is Asia.”

Labor Pains

Hotel labor is hard to come by, and a solution isn’t likely anytime soon.

First, the good news: Hotels and hospitality were the bright spot in an otherwise disappointing April jobs report Friday. The hotel industry added 54,000 jobs — the biggest monthly gain since last September — and hotel unemployment dropped to 13.8 percent from the 19.9 percent seen in March.

The tough part: Hotels need to maintain this level of hiring, if not more, for months to come if occupancy rates continue recovering as they have in the U.S.

Owners shed staff during the pandemic to make sense for record-low occupancies, but it will be impossible to maintain quality this summer with expected high demand if staffing levels are the same as they were in the winter.

Even worse, more high-end properties with greater employee counts are expected to reopen this summer, adding more demand for what limited supply of workers are out there.

Most of the major hotel companies report more than 90 percent of their hotels are open following last year’s wave of temporary shutdowns during the worst of the pandemic. But about 15 percent of luxury hotels remain closed, according to CBRE.

Many of those are planning to reopen for the summer, and competing for workers with higher wages may be the only way to build back some degree of normal staffing.

“We think this dynamic is really going to play out where there’s going to be pressure on finding workers, and they’re going to see pretty steep increases in wages in order to close the gap,” said Rachael Rothman, head of hotel research and data analytics for CBRE Hotels.

Delayed Distress

Leaders at Apollo Global Management, which struck a $6.25 billion deal with Las Vegas Sands earlier this year for the Venetian Resort Las Vegas and the Sands Expo and Convention Center, say it could be more than a year before that long-awaited wave of distressed deals hits the market. (We should note the Venetian and Sands Expo buy was not a distressed deal.)

“It’s hard to see distress on the doorstep in [2021], possibly late [2022],” James Zelter, co-president and chief investment officer of credit at Apollo, told Bloomberg last week.

Hotels accounted for nearly a quarter of delinquent loans in the commercial mortgage-backed securities market, a pool of loans developers typically use to build various types of commercial real estate. But that hasn’t translated into default and fire sales.

Various forms of government economic relief around the world as well as lender flexibility — banks don’t want to take over hotel ownership in such an uncertain travel market — kept properties from changing hands. That doesn’t mean distress will never appear.

“[Distress] will certainly come,” Zelter said. “The great quantitative easing around the globe has not altered economic cycles.”

Another Sin City Sale

Red Rocks Resorts agreed last week to sell its Palms Casino Resort in Las Vegas to the San Manuel Band of Mission Indians for $650 million. The sale, slated to close later this year, is the largest Las Vegas acquisition on record from a Native American tribe, Bloomberg reported.

The resort, once a major draw for its nightclubs and celebrity appeal despite not being on the Las Vegas Strip, remains temporarily closed due to the pandemic drop in demand. That isn’t deterring investors from the U.S. gaming capital.

Along with Apollo acquiring the Venetian, Rhode Island-based Bally’s Corp. announced plans last month to purchase the Tropicana Las Vegas Hotel and Casino for $308 million. Investor Dreamscape also announced plans earlier last month to extensively renovate its Rio All-Suite Hotel & Casino, another off-Strip resort.

Caesars Entertainment is expected to sell one of its Las Vegas resorts, but the company’s CEO Thomas Reeg indicated he’s waiting for demand to return more before beginning sales talks, likely sometime next year.

“I’ve read a number of more rumors [and] different flavor this quarter,” he said on an investor call last week. “There are no active discussions on any Las Vegas asset as I sit here today.”