U.S. and China Developments Will Dominate Hotel Earnings Season

Hotel earnings season is here and densely packed: Marriott, Wyndham, Hilton, Choice Hotels, and Hyatt all report within a three-day span beginning Tuesday. 

Third quarter earnings season was notably upbeat around the idea new coronavirus cases were coming down, and the return of business travel was just around the corner. Omicron upended that optimism over the fourth quarter, but there are still ways for these major hotel companies to show shareholders a growth story.

The U.S., despite its record-setting surge of new cases, remained open for travel. That kept hotel performance generally durable through winter and holiday travel season. Even when occupancy rates dipped, hotel owners maintained rates, or charged more, and were able to avoid a massive hit to performance during the variant surge.

Each of the companies reporting this week have a bulk of their portfolio in the U.S., so they will likely not see the negative impact that a company like Paris-based Accor — with a major European presence — faced. 

Companies like Wyndham and Choice are likely to show the most resilience through the end of last year, as both do a bulk of their business in affordable brands like Days Inn, La Quinta, and Comfort that cater to drive-to and leisure travel. 

Investor analyst reports weren’t necessarily expecting Marriott or Hilton to have nosedived during the fourth quarter, but it was another stretch where the convention business was deflated and large companies shied away from business travel — not exactly the best for these companies’ namesake brands and others like Hyatt Regency.

China Build-Up: China was the go-to growth story for most publicly traded hotel companies for the first 16 months of the pandemic. The country’s tough crackdown response to spikes in new cases typically involved two-week lockdowns for a given city and then a general return to recovery. 

But, beginning with the Delta variant last summer, the usual two-week speed bump extended amid more cases popping up across the country. China’s zero-tolerance approach was suddenly seen as unfeasible as hotel performance ran between 40 and 50 percent below pre-pandemic levels for weeks on end. Even European hotels performed better than the former global leader for recovery. 

But there is still growth spin coming out of China. The country had its highest-ever level of construction at the end of last year, according to Lodging Econometrics. The Chinese hotel construction pipeline entailed more than 700,000 rooms across 3,693 properties. By comparison, the U.S. was at nearly 582,000 rooms across 4,814 projects. 

Hilton, IHG Hotels & Resorts — which doesn’t report until Feb. 22 — and Marriott are the three hotel companies topping the Chinese development pipeline. Even if hotel performance in China faced a setback with ongoing lockdowns in certain cities, companies want to be there and have access to the extraordinarily large domestic traveler base. 

Greater China accounts for more than half of Marriott’s anticipated luxury hotel openings in the Asia Pacific region this year, according to the Daily Lodging Report.

The biggest uncertainty is whether the threat of lockdown in China for future crises has any investors deciding the risk doesn’t make financial sense to go to all the trouble of developing a major hotel project.

U.S. Hotel Deal Volume Eclipsed Pre-Pandemic Levels in 2021

U.S. hotel transaction activity was stronger than expected last year, according to a new HVS report. There was a little more than $32 billion in single-asset and portfolio sales through November — a 230 percent increase over 2020. 

Sure, that’s a little unfair of a comparison given that 2020 was the worst year of the pandemic and lenders weren’t exactly rushing to green light new deals. But RCA data shows transaction activity through November was still 4 percent higher than the same 11-month stretch seen in the years leading up to the pandemic. 

Recovery momentum has lenders active for deals involving existing assets, but there is still some hesitation regarding new construction projects. Occupancy levels are still below where lenders would see a need for a new hotel to get added to an area’s development pipeline. This also drives up prices for existing hotels.

“Facing the lower probability of getting projects off the ground, many investors turn their focus to acquiring existing assets, which in turn increases the size of the buyer pool,” HVS reported.

Extended Stay America Gets a New CEO

Bruce Haase is out of the top job at Extended Stay America, the extended-stay hotel brand that Blackstone and Starwood Capital jointly acquired last year for $6 billion. Greg Juceam, who most recently served as ESA’s chief operating officer, will take on the CEO job while Haase “stepped down to pursue other opportunities,” per a release on Friday. 

Juceam was previously president and COO of G6 Hospitality, the parent company of Motel 6 that Blackstone also owns and is reportedly shopping around for potential buyers. The leadership shift comes as the extended stay hotel sector becomes increasingly competitive thanks to the resilience brands in this space showed during even the worst months of the pandemic.

None of Extended Stay America’s hotels shut down during the pandemic, as demand for rooms generally held. Extended stay hotels often cater to essential workers as well as guests looking for more residential stays.