Q3: Hoteliers grapple with impact of natural disasters
 
Q3: Hoteliers grapple with impact of natural disasters
14 NOVEMBER 2017 9:44 AM

Based on executives’ comments, natural disasters like hurricanes were the defining issue of Q3 2017.

REPORT FROM THE U.S.—There were many unique circumstances about the third quarter of 2018 that affected the hotel industry, including shifts in the calendar and macroeconomic trends.

Based on comments from hotel executives as a guide, nothing was more impactful than the especially condensed rash of natural disasters that took place during the quarter. Multiple hurricanes wreaked havoc across Southeastern United States and the Caribbean while Mexico was hit by multiple earthquakes, and Northern California was hit by a prolonged period of destructive wildfires.

Below is a collection of quotes, culled from publicly traded hotel companies’ Q3 earnings calls with investors, related to the natural phenomenon experienced during the quarter and how executives think they will impact their businesses.

Arne Sorenson, president and CEO, Marriott International
“This has been an eventful quarter, from Hurricane Harvey and its historic flooding in Texas, to hurricanes Irma and Maria and their relentless pounding of the Caribbean, Florida and parts of the southeast, to two earthquakes in Mexico and then the devastating fires in Northern California, all within a quick seven-week period. We have a presence in these communities, and our crisis management and property teams have worked tirelessly to ensure associate, guest and property safety.

“Not only have these events damaged property and upended lives, they have also impacted local economies, many of which are very dependent on tourism. As these areas repair, rebuild and recover, we encourage you to support their efforts. One Sonoma restaurant owner recently said to a New York Times reporter, there are so many people who want to do something. The most important thing we can do is to tell people we're open, we're here and we want them to come.

“In the third quarter, the Caribbean and Latin America region experienced two major earthquakes, three tropical storms and four hurricanes. The Virgin Islands and Puerto Rico were particularly hard hit. As a result of these events, we no longer include 18 properties in this region in our (competitive) set for purposes of calculating (revenue-per-available-room) performance. We're excluding eight hotels because they have sustained severe damage and are taking few guests, and we are removing 10 properties because they are closed.

“I think, the last thing to point out, it's a little bit counterintuitive, is the impact of the hurricanes in Texas and Florida, not counting the Caribbean, were a net positive in September, not a net negative. Probably most dramatically so in Texas where that was one of the weakest markets we had in the United States for the last year or two years, and fairly quickly, within days, recovery efforts are beginning and people who are looking for housing are filling up hotels. And so, the Houston market and Florida market drove a bit of the outperformance in Q3.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“We have a presence in all of the impacted markets and many of our colleagues and guests have endured a wide range of challenges posed by these events. I'm inspired by all of the examples of care that we've seen, and I want to express my gratitude to all of the members of the Hyatt family who have demonstrated in such tangible and visible ways, our purpose, which is to care for people so they can be their best.

“The natural disasters that occurred during the quarter weighed on our overall results with a disproportionate impact to certain owned properties. We reported adjusted (earnings before interest, taxes, depreciation and amortization) for the quarter of $180 million, exceeding our previous estimates despite the unexpected external events. Adjusting for the year-over-year impact of transactions, along with the impact of the holiday shift, the tough comparison in Rio de Janeiro and the natural disasters, our adjusted EBITDA would have increased 7% on a constant currency basis, driven once again by strong increases in management and franchise fees across all regions.”

David Wyshner, EVP and CFO, Wyndham Worldwide
“Results for the quarter reflect the punishing impact of several hurricanes which we estimate reduced revenues by $13 million, adjusted EBITDA by $9 million, net income by $6 million and adjusted EPS (earnings per share) by $0.06.

“Certainly, weather events happen from time to time, but the number and magnitude of events in the third quarter were unusual. All in, we estimate that we lost around 5,000 tours in Q3 as result of the hurricanes.

“As we look at the fourth quarter, we expect that the recent storms will impact results in all three of our segments.

“In our hotel group, Hurricane Maria left our Rio Mar property in Puerto Rico needing significant repairs and the rooms we currently are able to use are primarily occupied by emergency relief workers, which is lower-margin business.

“In our destination network operations, many affiliated properties throughout the Caribbean, South Florida, and elsewhere have been damaged, reducing the inventory we have available to satisfy exchange requests.

“And in our Vacation Ownership business, fourth-quarter tour flow has been negatively impacted at a number of sites; and we also think that the economic disruption in Puerto Rico, Texas, Florida and the Virgin Islands, could potentially have some impact on our consumer finance portfolio.

“Our associates and our management teams have been working to mitigate the financial effects of the storms on our business. Nonetheless, as we disclosed in our earnings release, we estimate that the hurricanes will negatively impact our fourth quarter revenues by $20 million to $30 million, our adjusted EBITDA by $15 million to $23 million and EPS by $0.09 to $0.14. Therefore as a result of the storms, we’re reducing our full-year 2017 projections. We now expect revenues of $5.8 billion to $5.85 billion, adjusted EBITDA of $1.38 billion to $1.395 billion and adjusted net income of $618 million to $628 million.”

Keith Cline, president and CEO, La Quinta Holdings
“In the third quarter, Hurricane Harvey had a slightly positive impact on our results. The damage sustained from Hurricane Harvey was primarily due to flooding on the ground floors, lobbies and great rooms. We currently have only two owned hotels, or just over 200 rooms, closed within the area impacted by Hurricane Harvey and an additional 200 rooms out of service in Texas.

“Overall however, Hurricane Harvey positively impacted our business in the third quarter. By comparison, Hurricane Irma has had and continues to have a negative impact on our operations in Florida and parts of Georgia and South Carolina where the wind and rain caused our hotels to suffer substantial roof damage and water intrusion.

“Our teams are on the ground working very hard with our insurance adjusters, contractors and GMs to bring those rooms back as quick as possible. Our assessments are ongoing, but we currently expect to have a quarter of these rooms back to service by the end of 2017 and the vast majority back in service by the end of first quarter 2018.

“Irma continues to have a rather significant impact on our business. Due to the significant number of rooms out of service, we had adjusted our owned hotel revenue and adjusted EBITDA forecast for the remainder of the year, which is reflected in our updated adjusted EBITDA guidance range.”

Greg Mount, president and CEO, RLH Corporation
“We are committed to supporting our hotel owners in an effort to providing shelter for those in the community affected by the recent natural disasters. … We have worked with our franchisees who have been impacted in Florida and in Texas and helping them by deferring some of their fees as they get through this process. But those deferrals are only really just extending the agreements versus just eliminating the revenue. So we’ve tried to work hard with them, but the impacts have been fairly minimal for us. ”

Aaron Howard, VP of financial planning & analysis and corporate finance, RLH Corporation
“The biggest impact (of the hurricanes) is how it affects our franchise family, and we’re always concerned about that from a financial impact, because most of those hotels … the hotels that were impacted are a flat fee schedule. It’s a very immaterial impact to our financials for this quarter or for the year. So we continue to reach out and try to help and support those franchises in those communities as best as we can.”

Chris Nassetta, president and CEO, Hilton
“I’d like to briefly recognize all of those around the world who have been impacted by recent natural disasters it’s something that was brought into vivid reality as I recently visited our teams down in Puerto Rico and in Houston. It’s been an incredibly challenging time for these communities and for our team members that serve them. At the same time, it’s been really inspiring to see our teams come together to support one another and their communities, and I want to thank them for all of their extraordinary efforts.”

Kevin Jacobs, EVP and CFO, Hilton
“Calendar shifts displaced business travel and group demand in the quarter with the July 4th and Jewish holiday timing shifts weighing on July and September. System-wide we estimate the RevPAR benefits from hurricanes Harvey and Irma largely offset these major calendar shifts. … We estimate that the two major calendar shifts negatively weighed on U.S. RevPAR by approximately 70 basis points in the quarter partially offset by a lift in business from the aftermath of the hurricanes. We estimate that our hurricane-related benefit was less than the overall U.S. industry due to our meaningful occupancy share premiums in those markets.”

Ross Bierkan, president and CEO, RLJ Lodging Trust
“I would like to take a minute to say that I'm extremely appreciative and proud of our property-level associates, who, despite the incredible difficulty in their personal lives caused by the two devastating hurricanes, truly went above and beyond in taking care of our guests. Their efforts were extraordinary under these circumstances and truly made a difference in the lives of so many of those guests. Their dedication also ensured that we were able to return to normal business operations as soon as possible. We thank them. … Given the multiple market headwinds in the quarter, we were pleased that our overall pro forma RevPAR decreased just 1.9% or a decrease of 1.1% if we adjust for hurricane-related displacement.

“Hurricanes Harvey and Irma resulted in some of our hotels experiencing water intrusion and minor damage. None of our properties experienced significant damage and therefore we do not foresee any future disruption to earnings.

“In Houston, we have seen robust demand at our hotel since the hurricane. In September, despite a few days of disruption, RevPAR grew 41.8% driving positive RevPAR growth of 6.9% for the quarter, given the five extended-stay assets, we have in the market. We've seen significant post-hurricane demand continue into October and November.

“In Austin, hurricane-related cancellations and some group events and citywide activity plus the mix of non-repeating business from last year, muted RevPAR leading to a decline of 6.1% for the quarter. Storm-related disruption negatively impacted RevPAR by approximately 260 basis points.

“With some of these headwinds now behind us, we expect fourth-quarter results was slightly improved relative to Q3. In South Florida, the temporary closures of eight hotels due to the mandatory evacuation orders were partially offset by the lift from post-hurricane recovery activity leading to flat RevPAR growth. October, clearly benefited from recovery business but the ongoing pace is unclear, still given this demand and potential upside from disruptive Caribbean Travel, we are cautiously optimistic about the trends in South Florida.”

Gregory Larson, CFO, Host Hotels & Resorts
“RevPAR at our hotels in Florida declined 8.7% mainly driven by Hurricane Irma. Six of eight comparable hotels in Florida were closed due to mandatory evacuation and loss of commercial power.

“As Jim mentioned, our teams did an excellent job of getting our properties back online quickly. Those properties have been restored to substantially full capacity. We currently have about 320 rooms out of service, most of which are at the Biscayne Bay Marriott. Prior to the hurricane, our properties in Florida performed better in July and August than we had anticipated at the end of the second quarter.”

Justin Knight, president and CEO, Apple Hospitality REIT
“During the quarter, our portfolio experienced disruption from two major storms, while the damage to our hotel from hurricanes Harvey and Irma was not material, the storms had a devastating impact on numerous communities. We are incredibly proud of the tremendous service and hospitality that the operating teams at our hotels provided our guests in response to the storms.

“Our hotel associates, some with catastrophic damage to their own homes, worked tirelessly to ensure the safety and comfort of our guests and we commend them for their hard work and continued efforts to aid in the rebuilding of their communities.

“You know, I think we anticipate that we'll continue to see the benefit in markets like Houston of hurricane recovery business, some of the Florida markets, potentially though the damage in most of the markets where we have ownership was less significant. But we anticipate a lift going into that first quarter, potentially the second quarter in some of our markets.”

Richard Stockton, president and CEO, Ashford Hospitality Prime
“Four of our thirteen hotels were significantly impacted by hurricanes in the Caribbean and wildfires in Northern California in the past few months.

“On (6 September), Hurricane Irma was the first Category 5 hurricane to ever make landfall on the U.S. Virgin Islands and its impact on that area has been significant. Our Ritz-Carlton St. Thomas received substantial damage from the storm and our team has been working diligently, along with the Ritz-Carlton property management team, to assess the damage, develop a comprehensive restoration plan, and assist in the recovery effort. Three of the six guestroom buildings on the property sustained extensive damage, and we currently have 73 of the property's 180 guest rooms available and in service. These rooms are mostly being occupied by those assisting in the recovery effort. We expect that the recovery at this property could take up to two years.

“The Florida Keys were also significantly impacted by Hurricane Irma and our Pier House Resort in Key West also sustained some damage. The damage at Pier House was less extensive than at the Ritz-Carlton St. Thomas and currently all of the property's guest rooms are available and in service. We expect Key West to recover much more quickly than St. Thomas. During the quarter, we booked insurance deductibles for both property and business interruption of $4.6 million related to both Hurricane Irma and Maria that we have added back for purposes of our non-GAAP metrics.

“During the month of October, we also experienced disruption at two of our properties due to the Napa Valley wildfires. While none of our guests or associates were injured, and neither of our two Yountville properties suffered direct damage, tourism demand in that market was negatively impacted and we did experience a 24-hour power outage. We will be claiming business interruption losses against our insurance policy due to this event. Our uninsured losses for this event are not expected to exceed $500,000.”

Tom Baltimore, president and CEO, Park Hotels & Resorts
“I want to provide some additional color on the impact of the hurricanes on our Key West and Puerto Rico assets. In Key West, we own two hotels, the 311-room Waldorf Casa Marina and the 150-room Waldorf Ridge Resort, which collectively account for approximately 3% of our total EBITDA.

“I'm happy to report that both hotels avoided major structural damage. And after the outstanding efforts by our teams and various contractors and support personnel on the ground, both hotels reopened on October 13th with nearly all the rooms back in service. The total deductible for both hotels is $5 million including property and business interruption.

“From an operational standpoint, with our two properties closed for nearly 40 days, RevPAR declined 16.4% at our Key West hotels during the third quarter, accounting for a 34 basis point drag on comparable portfolio RevPAR results; while third quarter adjusted EBITDA was negatively impacted by approximately $1 million.

“We note that while group business is not expected to be impacted in the fourth quarter, we anticipate a slower ramp-up in our transient business, which accounts for 80% for our demand in Key West. Accordingly, we estimate the residual impact of Key West on fourth quarter adjusted EBITDA will be approximately $3 million.

“Turning to Puerto Rico, unfortunately, the situation is far more challenged at our 748-room Caribe Hilton hotel, which sustained significant damage from Hurricane Maria and remains closed throughout the remainder of the year and will likely remain closed most of 2018.

“First of all, I am most thankful that all guests and team members are safe and accounted for and our teams on the ground need to be commended for their hard work and dedication for dealing with what continues to be a very difficult situation across much of the island.

“I personally traveled to Puerto Rico a few weeks ago and was struck by the widespread devastation; although I remain encouraged by the resilience of the Puerto Rican people and have no doubt the island will make a full recovery over time.

“As I noted, damage to the company was extensive with more than 80% of the rooms in need of some repair and a majority of the public space will require significant work. We are currently working with our design teams and various consultants to come up with … an estimate of total damage. But we anticipate total expenditures, including business interruption, to far exceed our $11 million insurance deductible.

“With Caribe accounting for just under 1% of EBITDA, the impact on earnings is largely immaterial with a third-quarter drag on adjusted EBITDA of roughly $300,000, although fourth quarter impact is expected to be approximately $2 million.

“In total, we estimate this year's hurricane season negatively impacted comparable RevPAR by just 10 basis points during the third quarter, while having virtually no impact on adjusted EBITDA or adjusted FFO.

“As it relates to the fourth quarter, the cumulative impact on adjusted EBITDA from the storms is expected to be approximately $5 million or $0.002 adjusted (funds from operations) per share with Caribe to remain closed and Key West anticipated to have a slower ramp-up. Note these amounts exclude asset write-offs and recovery costs incurred.

“While the final amount of the damage associated with hurricanes Irma and Maria have yet to be determined, we believe insurance proceeds will be sufficient to cover a significant portion of the property damage to the hotels.

“Total out-of-pocket expenses including our insurance deductibles are estimated to be $20 million, inclusive of the $2 million that was recognized in the third quarter.”

Pat Pacious, president and CEO, Choice Hotels International
“Primarily, we had about 350 hotels between the Harvey impact area and the Irma impact area. Not all of them were definitely impacted when the storms hit. We're down to about maybe a dozen hotels that are still closed.

“And as you look at sort of the impact, we know net-net, it's a positive as first responders come into the market and those who are helping to rebuild come into the market, so we know we saw an uplift. We try to look at and trying tease out the specific number. There's so many puts and takes in the quarter. If you look at the holiday shift, the hurricane essentially was sort of an offset to that, the way we look at it. And so it's really hard to sort of get down that granular level and understand it.

“The second piece is, the hurricanes themselves tend to have a tail on them and in this case we expect the Harvey impact to have a longer tail meaning of a greater flow-through on RevPAR and occupancy increases, just given the type of damage that was done in that market versus Irma. Irma was more of a wider area, but a quicker impact and so we are expecting to see the Harvey impact probably last a little bit longer into the current quarter?”

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