Fourth-quarter 2019 earnings calls with hotel REITs and C-corps kick off this week, and analysts expect to hear a great deal of talk about the coronavirus outbreak. But some bright spots include a strong group outlook in 2020.
REPORT FROM THE U.S.—The mood heading into fourth-quarter earnings calls this week is expected to be somber despite some momentum gained at the end of 2019, according to analysts.
Mike Bellisario, senior hotel research analyst and VP at Baird, said there were some investors becoming more optimistic and looking for “green shoots in November, December and into the beginning of the year when the stocks had moved higher.”
But any optimism that was there is now gone, he said.
C. Patrick Scholes, managing director of lodging, gaming and leisure equity research at SunTrust Robinson Humphrey, said investors will be asking about impact of the coronavirus (2019-nCoV) on every call.
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“I think that is unfortunately going to impact the (revenue per available room) and earnings guidance (for) companies that have Asia exposure” such as Hilton, Hyatt Hotels Corporation and Marriott International, he said.
He expects RevPAR at some public companies to decline at least 100 basis points globally, if not more.
It’s difficult to say for certain, but Scholes anticipates there could be some construction delays in China because of the outbreak, which “might take down their pipeline growth forecasts.”
Wes Golladay, director, equity research analyst at RBC Capital Markets, said October started off slow but gained momentum in November and December due to a combination of a milder winter, easier comps and more confidence from hotel CEOs. A quarter ago, there was optimism that overseas tourism might stabilize or even increase, he said.
“The wild card is obviously the coronavirus,” he said. “There’s going to be the direct impact. China is the No. 3 source of tourism to the U.S. from overseas. … That was the opposite of the slightly better picture.”
Bellisario said the coronavirus will have less of a direct impact on the real estate investment trusts. But it will allow management teams to be conservative in the way they are providing guidance, he said.
On the brand side, he said Marriott’s RevPAR range on the high end is at 2%, and they might moderate their outlook. Hilton will likely keep the range of 0% to 1%, he said.
“I think they’ll all say it’s a relatively small part of their business, it’s still viewed as a transitory type of event. Our business is strong, and we’re going to come out of this on the other end just fine,” he said.
Group business to win in 2020
Outside of coronavirus talk, Scholes expects to hear executives discuss trends of the three main customer buckets: business transient, leisure and group business.
He expects business transient demand to soften and not turnaround anytime soon. However, leisure appears to be steady, which is reflective of a good stock and housing market, full employment and some wage growth, he said.
Scholes called the 2020 calendar, as it relates to group business, the “perfect storm of holiday shifts.”
“You’re going to hear (companies) quite optimistic on group for this year, but take it as a grain of salt because it’s a perfect storm of holiday shifts and political conventions, and in 2021 those all go the other way,” he said. “That’s one thing we’re warning investors with, don’t get too hyped up if you here these fantastic group numbers.”
Squeezed margins, wages
Bellisario said his company’s top concerns are margins and wages, along with trying to figure out how those will shake out in 2020.
“There’s a wide range of potential outcomes that we’ve talked to investors about,” he said. “There’s always things to cut; there’s just less to cut today than there was last year and the year before.”
Because of how big of an uncertainty that is, it’s keeping stock investors on the sidelines and pushing private market investors to the sidelines, he said.