Q1 drag: The headwinds that affected brands, REITs
Q1 drag: The headwinds that affected brands, REITs
20 MAY 2019 7:32 AM

Some publicly traded hotel companies reported their first-quarter 2019 earnings were weighed down by the tough comps from Q1 2018.

REPORT FROM THE U.S.—Executives from hotel C-corporations and real estate investment trusts noticed some softness in first-quarter performance for their companies.

For some companies, Q1 2019 had a tougher comp against the first quarter of 2018, when demand from markets affected by hurricanes in 2017 continued into the first part of the year. Other companies with portfolios anchored in Washington, D.C., reported noticeable impact from the U.S. government shutdown that lasted 35 days.

Jonathan Halkyard, President and CEO, Extended Stay America
“Last year, we had a lot of extended-stay demand that was driven by the hurricanes primarily in the Houston and Florida markets. We also had some (Federal Emergency Management Agency) business in the Northeast related to Puerto Rico. In a lot of cases, these were guests who were paying full retail rate even though they ended up staying in our hotel for 30 days or longer. And so there was a beneficial impact both to our average length of stay and the cost to serve those guests, as well as to our (average daily rate).

“As we lap that, you see a number of kind of interesting things going on. One of them is the reduction in our ADR, driven not only by that lapping, but also by an intentional effort on our part, especially in certain markets to make sure that we have a good base load of solid extended-stay business. We’ve been doing some promotional and other activity to make sure that, especially in lower demand lower occupancy markets, we maintain pretty solid occupancy although giving up some ADR. And so that’s been happening over the course of the last quarter or so. And I think you’ll see that continue where our occupancy will be very positive and very healthy relative to our comps set certainly, but you might see somewhat lower ADR. That also comes with at a lower cost to serve those guests, because of less frequent housekeeping and less frequent other touchpoints.”

David Wyshner, CFO, Wyndham Hotels and Resorts
“As expected, our first-quarter (revenue-per-available-room) growth was dampened by nearly 2 points globally and nearly 3 points domestically due to lapping the incremental hurricane-related demand that we had in the first quarter of 2018. … We expect to see the last hurricane-related headwinds of about 1 point globally and 1.5 points domestically in the second quarter, and we will put that issue behind us when we move into the third quarter.”

Leslie Hale, President and CEO, RLJ Lodging Trust
“We achieved solid performance despite some headwinds in the quarter. While the overall economy expanded at a robust clip in the first quarter, components of the economy that closely correlate to our industry such as business and consumer spending decelerated. At the same time, the lodging industry was impacted by the government shutdown during the quarter. Against this backdrop, we achieved solid RevPAR growth of 1.3% during the first quarter, which outperformed the upscale segment and the top 25 markets. …

“Our overall performance was partially offset by a 25-basis-point impact from the government shutdown and approximately 60 basis points of renovation disruption in the quarter.”

Ray Martz, CFO, Pebblebrook Hotel Trust
“Our underperforming markets (were expected, but performed) slightly worse than we thought. In addition to supply growth, Chicago also suffered from a weak convention calendar and a tough winter as the Chicago (central business district) RevPAR declined 11.4% with our Chicago hotels faring worse, down 16.5%.

“This was primarily due to the continued Marriott integration challenges at our West and Michigan Avenue, where RevPAR declined 24%, as our booking production unfortunately continues to be poor. Our Hotel Chicago actually outperformed Chicago CBD as the hotel continues to gain share from its conversion to a Marriott Autograph. Portland was also a tough market as RevPAR was down 9.6% in the urban track with our hotels declining 10%.

“West LA was another challenging market for us, again primarily due to supply growth. West LA was down 3.6% and our hotels declined 5.1%. Our weaker market performance was largely due to the renovation at Mondrian and a negative impact from the dramatic decline in redemption rooms and revenue at our (Le Méridien Delfina Santa Monica) due to the Marriott integration of its various loyalty programs.”

Dominic Dragisich, CFO, Choice Hotels International
“Our domestic systemwide RevPAR decreased 0.7% for the first quarter, which was slightly below our guidance of approximately unchanged. Excluding one-time impacts, our Q1 RevPAR would have increased by approximately 1%.

“We predominantly attribute the Q1 softness to our Comfort transformation, which saw more hotels under renovation during the quarter than forecasted; the multi-week shutdown of federal agencies and national parks across the country, which depressed occupancy at many of our hotels; and tougher (comps), which in the first quarter of 2018 benefited from lingering hurricane activity in the South central and southeastern United States. These challenges are short-term.

“In the long run, we are optimistic that our RevPAR growth will benefit from our strong pipeline in high RevPAR markets like California and the strategic investments we are making to fuel our long-term growth.”

Keith Cline, president and CEO, CorePoint Lodging
“Our RevPAR performance in the first quarter was driven by double-digit growth in both the hurricane-impacted hotels and in our repositioned properties. Hurricane hotels benefited from cycling over the room closures from the first quarter of last year and repositioned properties benefited from growth in ADR and occupancy as they continue to ramp.

“This growth was partially offset by the significant headwinds we’re facing in our oil markets, especially west Texas. It’s important to note that our total portfolio RevPAR was up 4.6%, driven by 10 non-comp hotels that were primarily impacted by the hurricanes in Q1 2018.

“The month of April was softer than Q1 with several contributing factors: a negative impact from a change in the timing of the Easter holiday; additional softness in Texas markets, including oil; a temporary outage at our third-party call center provider; and as it release to the systems transition indications of a disruptive impact.”

James Risoleo, president and CEO, Host Hotels & Resorts
“The RevPAR results were driven by an occupancy decrease of 180 basis points, which was partially offset by a 1.3% increase in average rate, the factors that affected RevPAR this quarter, including estimated 40 basis points of impact from the disruption related to the Marriott transformational capital program, an estimated 30-basis-point impact from the government shutdown and a softer-than-expected March.

“If you look at the 1% down for the quarter and you take into consideration the disruption from the Marriott capital program of 40 basis points and the effects of the government shutdown of 30 basis points that left us with, call it another 30 basis points, to get back to even.

“A lot of that was the result of a slowdown in business travel in the month of March that we saw as a result of … the spring break season this year, given the late Easter was elongated. And that really put a crimp in business travel.”

Jeremy Welter, co-president and COO, Ashford
“Insurance is continuously difficult for us. We're in the market right now pricing our program, and that renewal will hit in June of this year. We had a decent size increase last year that provided some headwinds going into this year. But there's been a lot of issues not necessarily with our portfolio or our assets, but just the market in general and capacity in the insurance market, which has been challenging. So that's something I'm a little concerned about as we go into the renewal. That's not going to be a huge overall cost for us, but it's probably going to be potentially a decent percentage increase. Then labor continues to be a challenge for us. Right now our franchised assets, we've pulled the data and there are labor and benefits combined were up 3.8% we're projecting for the year, which is certainly higher than what we like to see.”

Justin Knight, president and CEO, Apple Hospitality REIT
“Although the strength of the broader economy continues to drive demand for travel, new supply remains a headwind for our portfolio in many of our markets. At the end of the first quarter, approximately 66.2% of our properties had one or more upper-midscale, upscale or upper-upscale new-construction projects within a five-mile radius, which represents an uptick from what we reported at the end of the fourth quarter.

“As construction costs continue to rise, we remain optimistic that new supply will begin to peak over the next year, year-and-a-half and begin to represent less of a headwind for us.

“We have an increase in the number of markets in total that are being impacted by new supply. If you look at supply as a percentage increase across our portfolio, we continue to be roughly in line with national averages.”

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