Hotel industry analysts want to hear about the impact of the U.S. government shutdown from public companies on fourth-quarter/full-year earnings calls and are eager to hear an update from Marriott International on the data breach of legacy Starwood systems.
REPORT FROM THE U.S.—The longest partial U.S. government shutdown has ended for now, but the impact of the shutdown could influence guidance from public companies on full-year/fourth-quarter 2018 earnings calls, industry analysts said.
Rich Hightower, managing director of real estate investment trusts and lodging research at Evercore ISI, said his company didn’t change its 2019 fundamental outlook or estimates for companies covered due to the shutdown, but he wouldn’t be surprised if the C-corps lowered the high end of their full-year 2019 guidance to account for the government shutdown.
C. Patrick Scholes, managing director of lodging, gaming and leisure equity research at SunTrust Robinson Humphrey, said he’s not expecting to see “any earnings or guidance of upward catalysts” from companies. Revenue per available room “came in light” for real estate investment trusts and C-corps, he said, which was driven by softness in the fourth quarter at the last minute.
The government shutdown did not help the end of December or January in terms of performance, especially for hotels in Washington, D.C., he said, adding that hotels around national parks likely saw a negative impact on performance from the shutdown.
The first week of reporting usually sets the tone for the quarter, Scholes said, which will start out with Wyndham Hotels & Resorts and Hilton on the brand side.
Hilton previously announced a full-year 2019 RevPAR growth range of 2% to 4%.
“No one really believed the 4% at the high end,” Hightower said. “It wouldn’t surprise me to see that 4% get shaved down to more of a (3%) at the high end, which would put Hilton more in line with where (Marriott International) is, and I think that is kind of the range people are looking at.”
SunTrust’s lodging preview states the company expects 2019 RevPAR guidance to be lowered 50 to 100 basis points, especially for Hilton, but that doesn’t mean guidance will be lowered this quarter, according to the preview.
Aside from a possible change in guidance, Hightower said he’s expecting a “relatively clean story” from Hilton this earnings season. Marriott is a top company he’s looking to hear from this quarter because “there’s a lot of noise in what they are likely going to say this quarter, in some part derived from the data breach announcement from several months back.”
“I am including a billion-dollar placeholder in my model just for whether it’s fines, penalties, consultant fees … I am just basically stripping a billion dollars out of my valuation of the company to account for all of that,” he said. “And even net of that impact, I still think the shares are attractively valued, but you could see incremental headlines (about the breach), you could see incremental announcements, this is something that’s likely going to go on for quite a while outside of the normal fundamental picture for Marriott, there’s going to be some noise related to the data breach and they’re going to have to keep people updated as time goes on.”
Marriott also recently announced its new loyalty program, Marriott Bonvoy, which combined Marriott Rewards, Starwood Preferred Guest and Ritz-Carlton Rewards.
Mike Bellisario, VP and senior research analyst at Baird, said he thinks there will be “a lot of data and commentary from Marriott” on the loyalty program, the data breach and the government shutdown.
Hyatt Hotels Corporation acquired Two Roads Hospitality last year and “recut the valuation of the deal,” Hightower said.
“I think that’s because some hotels probably dropped out of the system that were previously part of the system when the deal was originally negotiated,” he said. “I think there is probably going to have to be some explanation as to what is going on behind the numbers in that case, so again that’s something (outside) the basic fundamental outlook (for Hyatt).”
One upside for brands this earnings period is a “healthy global pipeline of new rooms for the brands,” Scholes said.
One REIT Bellisario is looking forward to hearing from is Pebblebrook Hotel Trust. There are a lot of moving pieces for the company since the LaSalle Hotel Properties acquisition, he said.
Hightower added that he wants to hear more detail around Pebblebrook’s pro forma portfolio, and get an understanding of what “the earning profile (and) the free cash flow profile (is), what sort of redevelopment (capital expenditure) is embedded in the forecast and the before and after effect of incremental asset sales that we know they are working on right now.”
Analysts said Host Hotels & Resorts is another REIT they’ve got their eye on this quarter.
“(Host) stocks underperformed (and) they’ve got a lot of balance sheet capacity,” Bellisario said. “There’s a lot of conversation about what they might use that investment capacity on and when, so just more clarity around their sources and uses of capital and the potential investment capacity.”
Host is “the largest cap liquid name in the space,” Hightower said, adding that investors have been hesitant to “own Host” because “they are the only public vehicle that would possibly be interested in buying the (Strategic Hotels & Resorts) portfolio, and I think that’s been a bit of an overhang on the stock for the last couple of months.”
He added that he likes the stock and doesn’t see “the risk of raising equity at this valuation to go and buy Strategic.” He wants to see what they have to say about the impact of the Marriott-Starwood integration on Host’s portfolio and capital allocation in 2019.