Executives at the Americas Lodging Investment Summit sounded off on the impacts U.S. tax code reform will have on the hotel industry.
LOS ANGELES—U.S. tax reform was a recurring topic of conversation during the recent Americas Lodging Investment Summit, and speakers were largely divided regarding its short- and long-term impacts on the hotel industry.
Among the tax reform topics debated from the ALIS stage were how much it can be expected to boost consumer spending on travel, whether it might spur a more pro-inflationary environment and what it might mean for everything from supply and demand balance to hotel pricing power.
Here’s a collection of what people said on the topic, both from the main stage and during interviews.
Geoff Ballotti, president and CEO of Wyndham Hotel Group
“(The tax reform bill) allows us to be more aggressive when it comes to looking at acquisition potential opportunities. It allows us to become more optimistic in terms of growth for the future, in terms of the resulting cash flow benefits … from that reduced tax.”
Michael Barnello, president and CEO of LaSalle Hotel Properties
“(Tax code reform) sounds good, but how much can actually be affected? When you put the pieces together, a tax change of this magnitude hasn’t been done often and any other time it’s done, employment has been north of 7%. We’re at around 4%. I think it’s great to say corporate America has a bunch of money because they do. … The concern we have is, if you want to build a new factory or office, you still need people to do it. At the same time, we have a country that’s maybe not so open to immigration. People who don’t have jobs don’t want jobs, so you’re swapping people around in different businesses. The optimism’s there; I just don’t know how it all translates into the demand that a lot of folks are already counting on.”
Mark Brugger, president and CEO of DiamondRock Hospitality
“Last year, there was something nagging at C-suites in corporate America. Hopefully, the biggest sentiment now is that C-suites are a little more bullish—they green-light more properties; they get their people back on the road. Real estate really benefits. As a real estate industry, we should be pretty bullish about the consequences of tax reform.”
Adam Feuerstein, principal and national real estate tax technical leader for PwC
“There’s a whole sea change. … For years, people setting up a business would want to go through a pass-through entity. They’d form a C-corp only if they had to. But now the corporate rates are so much lower—it’s 21% for a C-corp—and that means people thinking about setting up a business might consider being in a C-corp.”
Jeff Fisher, president and CEO of Chatham Lodging Trust
“We’re not betting or banking on the fact the new tax law is going to put a whole bunch of more heads in beds. If it happens, great; we’re all going to be happy recipients of that. I think our budgets were set before the tax law was enacted.”
Michael George, president and CEO of Crescent Hotels & Resorts
“(Tax code reform) is all good. It’s just that simple. It’s motivating group (business). It’s motivating social functions at properties. We’re seeing lots of activity around meetings and social events and rewards and recognitions. It’s a very optimistic time.”
Kevin Jacobs, CFO of Hilton
“Strategically it’s not going to change the way we change the business. Seventy percent of our business comes from the U.S., so generally speaking, it will increase our free cash flow. The primary thing we’re going to do with our capital is return it to our shareholders in the form of dividends and (stock) buy-backs. The quantum of our buy-backs will increase somewhat due to the reduction in taxes.”
“We still think about the business strategically the same way. We still spend time thinking about new brands where we serve more customers and serve more owners. The way in which we think about allocating capital and building new brands versus buying new brands isn’t going to change because of taxes.”
Leeny Oberg, EVP and CFO of Marriott International
“The reality is about two-thirds of our business is in the U.S., so clearly, from that perspective, when the federal tax rate on profits in the U.S. goes from 35% to 21%, that is of course tremendously positive for us on that business. I think probably the more important question is really how it affects the overall economy. When you think about what drives business at the end of the day, it is about GDP in our country where our hotels are located. … Although (tax reform) clearly will provide a bunch of cash, what it means is there is accelerated economic growth in the U.S. That, at the end of the day, is what will drive our business the best and will be the most sustainable type of growth.”
Charles Oswald, president and CEO of HP Hotels
“… I anticipate it will affect asset values ultimately. It will affect returns, affect asset values and affect underwriting. There are billions sitting out on the sidelines, capital dying to be placed. There are deals not for sale or the pricing doesn’t make sense based off … the way we currently scale or measure. I’m anticipating we will see some of that money loosen up, see people who underwrite deals a little differently. It might move cap rates by 50, maybe even 100 basis points.”
Rachael Rothman, senior analyst for Susquehanna Financial Group
“When people see that money in their paycheck, they’re going to find a way to spend it, and the trend of spending on services rather than things is a trend that will continue. … I would say the past run we’ve had in corporate profits has been focused on corporations saving money and returning the capital to shareholders. That’s not so great for group business. When they shift to a mentality of growth—and now with lower corporate tax rates, that’s going to be profitable—that’s when people go out on the road, and that’s going to be good for group business.”
D. Michael Van Konynenburg, president of Eastdil Secured
“There’s still half of the country, if not more, who view (tax code reform) as not having any impact. Still, businesses have felt responsible to pass that through to their employees (and people will feel it). This additional boost will increase demand at the spending level.”
Mark Woodworth, senior managing director at CBRE Hotels
“Since hotels are conceptually full, (tax code and more consumer spending) may see some of those dollars find their way to meetings travel and other travel, and we may see a nice surprise on the room rate side.”
Mark Wynne Smith, global CEO of JLL Hotels
“The change in tone from November to January is very marked, in my perception. I can see there will be a more positive attitude to underwriting now. The one thing that doesn’t change is lenders’ caution toward financing new development.”