Revising full-year 2024 outlook was the overarching theme for publicly traded hotel brands and real estate investment trusts during their latest earnings reports.

Price sensitivity among leisure travelers has led to concerns over the ability to drive rate. Coupled with weaker domestic travel in Greater China, several companies lowered their revenue per available room expectations along with other earnings metrics. Despite this downward revision, many executives still pointed to more favorable conditions for the hospitality industry in 2025.

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13 Min Read

August 13, 2024 09:11 AM

Group, Business Travel Continue Recovery as Hotel Leisure Demand Slows

Hotel brand and real estate investment trust executives said during their second-quarter earnings calls that group and business travel is trending in the right direction while leisure travel tapers off from the strength of years past.

Trevor Simpson

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"Global RevPAR is expected to grow 3% to 4% in the third quarter and for the full year. RevPAR growth is expected to remain higher in the vast majority of our international markets than in the U.S. and Canada. The primary change in our full-year outlook is Greater China's updated expectation of negative RevPAR growth for the rest of the year. We expect a continuation of current weak demand and pricing trends in the region with the third quarter anticipated to see the most meaningful RevPAR decline as outbound travel accelerates during summer holidays.

"Note that given Greater China's lower overall average RevPAR compared to the rest of our system, it typically makes up around 7% of RevPAR-related fees although it accounts for 10% of open rooms.

"While we also expect marginally lower full-year RevPAR in the U.S. and Canada than we had previously anticipated in part due to less group business, the first two weeks of November, given the intense focus on the U.S. presidential election. Overall RevPAR trends in the U.S. and Canada in the back half of the year are expected to remain relatively steady with the first six months of the year.

"Worldwide RevPAR growth is still anticipated to be driven by another year of strong growth in group revenue, continued improvement in business transient revenue and slower but still growing leisure revenues. In the third quarter, gross fee growth is expected to be in the 6% to 8% range."

“We expect full year system-wide RevPAR to increase 2% to 3% driven by positive growth across all major segments and regions. We tempered the high end of our expectations versus prior guidance due to softer trends in certain international markets and normalizing leisure growth more broadly. With continued strength in group and steady recovery in business transient, we expect higher-end chain scales to continue to outperform.”

The updated outlook range “implies 2% to 3% [RevPAR growth] for both [third and fourth] quarters. If you look at what’s going on so far in the third quarter, it has been a touch softer. And as we get into the fourth quarter, the expectation would be as the bigger business-travel months of October and the first part of November kick in, particularly in the U.S., that there would be a little bit of strengthening in RevPAR growth.”

"We expect full-year system-wide RevPAR growth between 3% and 4% compared to 2023 and expect group and business-transient revenue growth to outpace leisure transient for the second half of the year. We anticipate United States RevPAR growth for the full year of approximately 2% compared to 2023 led by group and business travel in the third quarter.

"Our outlook assumes RevPAR growth in Greater China is negative for the last two quarters of this year compared to last year as domestic travel laps tougher comparisons to 2023 and outbound international travel increases. Finally, we expect RevPAR growth in other international markets to exceed the high end of our range, led by Europe and Asia-Pacific, excluding Greater China.

"We expect net rooms growth between 5.5% and 6% driven by organic growth, conversions and potential portfolio transactions that may close by year end."

"I would say the outlook really is dependent a bit on the overall economy and how macro factors impact. Having said that, there are certain dynamics — and I don't want to tilt too far into interpreting and extrapolating macro indicators from a very short term, highly disrupted period, which is what we're living through right now into the future. The underlying issue that we focus on is the general economic health and growth rate for the key markets that we are participating in and ... yes, it is true that the that the public markets have been extraordinarily disrupted. It is not true that that is reflective of a massive disruption in the U.S. economic outlook."

"For the full-year 2024, we are maintaining our adjusted [earnings before interest, taxes, depreciation and amortization outlook] while lowering RevPAR expectations reflecting primarily disciplined discretionary investment spend as well as better than expected performance from our ancillary revenues. In addition, we are raising our adjusted earnings per share [outlook] to range between $6.40 and $6.65 per share, which is a 7% year over year growth at the midpoint to reflect our increased share repurchase activity and lower than expected interest expense.

"Our ability to continue to deliver attractive earnings growth in light of the normalizing RevPAR environment demonstrates the increased versatility of our model. This outlook does not account for any [mergers and acquisitions], repurchase of the company stock after July 31 or other capital markets activity. We remain confident in the long-term growth of our franchise business, with continued organic growth across more revenue intense hotels and markets, incremental contribution from Radisson Americas, robust effective royalty rate growth, continued earnings stream from our co-branded credit card, international business expansion and other factors."

"While global RevPAR improved sequentially, the second-quarter trends, as [President and CEO Geoff Ballotti] mentioned, represented a more gradual return to year-over-year growth than previously anticipated.

"As a result, we're updating our full-year 2024 growth outlook for RevPAR to be essentially flat year over year. Consequently, our outlook for fee-related and other revenues is now $1.41 billion to $1.43 billion, down from our prior outlook of $1.43 billion to $1.46 billion. This decline is roughly split evenly between royalties and franchise fees and marketing reservation and loyalty revenues, the latter of which has no impact on adjusted EBITDA. There are no changes to our outlook for net room growth, which remains at 3% to 4% or adjusted EBITDA, which remains at $690 million to $700 million and implies a year-over-year improvement in our EBITDA margin of approximately 130 basis points at the midpoint of our outlook.

"We're revising our adjusted net income outlook to $338 million to $348 million to reflect an increase in interest expense due to the upsizing of our Term Loan B net of the savings from the spread reduction."

"The midpoint of our [outlook] contemplates a slower-than-anticipated recovery from the wildfires in Maui and moderating domestic leisure transient demand, primarily driven by the international demand imbalance. At the low end, we have assumed slower group pickup and softer leisure transient demand. And at the high end, we have assumed a faster recovery at our Maui resorts and increased transient pickup.

"For full-year 2024, we anticipate comparable hotel RevPAR growth of between negative 1% and positive 1% over 2023. We expect comparable hotel EBITDA margins to be down 110 basis points year-over-year at the low end of our guidance to down 60 basis points at the high end. At the midpoint of our [outlook] range, we anticipate comparable hotel total RevPAR growth of 1.2% and flat comparable hotel RevPAR compared to 2023.

"Looking at the drivers of the RevPAR midpoint decline, approximately 90% of the reduction is related to transient business as group remains strong in the second half of the year, particularly in the third quarter. We estimate the Maui wildfires will impact full-year comparable hotel total RevPAR by 120 basis points and RevPAR by 180 basis points.

"Excluding business interruption proceeds, we expect adjusted EBITDA [for real estate] to be impacted by $75 million to $80 million relative to our pre-fire estimate.

"In terms of RevPAR growth cadence, we expect comparable hotel RevPAR growth to be slightly positive in the second half of the year, driven by low single-digit growth in the fourth quarter."

"As a result of this continuing leakage in [average daily rate], which earlier this year we had thought would reverse and turn positive in the second half of the year, we're lowering our RevPAR outlook to 1.25% to 2.25% for the year, with all growth stemming from increased occupancy. Despite this adjustment, we still expect healthy growth in total revenues, driven by strong out-of-room spend from increased occupancy and the benefits of our significant remerchandising efforts across our redeveloped portfolio.

"Additionally, our successful efforts to create operating efficiencies, achieve real estate tax reductions and manage a lower increase in property and casualty insurance, allow us to increase our 2024 outlook for hotel EBITDA, adjusted EBITDA and adjusted [funds from operations] and [adjusted funds from operations] per share. We're not forecasting any additional material reductions or credits in real estate taxes for the remainder of the year. However, we do continue to expect substantial additional prior- and current-year reductions over the next several years. We just don't know when these efforts will deliver these benefits, given the uncertain timing of the governmental process.

"For [the third quarter], we're forecasting RevPAR growth in the range of 1.25% to 3.25%, driven entirely by occupancy growth. We're forecasting total revenues to rise by 1.7% to 3.8% and total expenses to increase by 3.9% to 4.9%.

"Our urban properties are expected to lead this RevPAR growth, although San Francisco will be a drag due to a challenging convention calendar compared to last year, and Los Angeles seems to be recovering more slowly from last year's strikes than anticipated. Our properties in San Diego, Boston and Washington, D.C. should again lead our urban market performance, with strong growth expected in Chicago, with a robust convention calendar for the quarter, and the Democratic National Convention in August. Our resorts should see flat to modest growth in Q3."

"Our adjustments to [outlook] are based on a number of factors, including moderating performance that our Hilton Hawaiian Village resort during the second quarter, a trend we expect to continue over the back half of the year, given weaker-than-expected inbound travel from Japan into Oahu. Our adjusted EBITDA will also be impacted by the sale of Hilton Torrey Pines, which will account for approximately $2 million of earnings drag over the balance of the year. Partially offsetting these headwinds is a previously discussed Chicago property tax benefit, recognized in Q2 as well as the more favorable insurance renewal, which collectively will account for roughly $6 million of positive adjustments. Please note that guidance does not account for eventual exit from the Hilton Oakland hotel, a property which is scheduled to close in the third quarter."

"Although the current economic backdrop is showing signs of moderation, we are optimistic that RevPAR growth will continue throughout the balance of this year, largely driven by demand, with urban markets expected to continue to outperform the industry. Our current view is rooted in the continued improvement in business travel and strong group demand as well as muted new supply, particularly in our footprint. That said, we expect price sensitivity for the leisure segment to persist, dampening our growth expectations relative to the beginning of the year.

"... We expect our urban assets to benefit from the continuing improvement in business travel as well as urban leisure demand, which remains stable. Our second half should benefit from strong citywides in several markets such as Boston and Chicago and our strong booking pace, which is currently tracking double digits ahead of 2023 and the continuing ramp-up from our conversions. We are seeing these dynamics play out in our July performance.

"Longer term, we remain optimistic about the trajectory of lodging fundamentals, which, over time, should benefit from growth in all segments of demand given the ongoing consumer preferences towards experiential travel, especially against the backdrop of an elongated period of limited new supply."

"Turning to our outlook, the success of our group strategy has exceeded our expectations, shifting our mix towards group as well as a focus on building occupancy in our resorts may reduce room RevPAR growth, but it is done so to the benefit of total RevPAR and ultimately, profit. Accordingly, we are adjusting our RevPAR growth outlook to a range of 1.5% to 3%. However, we expect total RevPAR growth to be in the range of 3% to 4.5%.

"Our group strategy has performed well, and we expect it will continue to drive incremental revenue and profit. But due to the types of groups on the calendar, we do not expect out-of-room spending in the second half of the year will contribute 250 basis points to our total RevPAR growth as it did in the first half of the year. We now expect 2024 adjusted EBITDA to range between $278 million and $290 million."

"While operational results for the first quarter of 2024 were in line with our expectations at the previously provided midpoint and demand continued to improve during the second quarter. Rate growth during the second quarter was modest, and the updated outlook takes into account increased price sensitivity in the leisure consumer and the impact of the increase in business transient as a percent of mix, which is currently coming at lower rates than those we've seen from leisure consumers following the pandemic.

"The high end of the full-year range reflects relatively steady macroeconomic conditions with continued strength in leisure demand and improvement in business transient with greater ADR growth as we move past our strongest leisure-oriented months. The low end of the range reflects continued pressure on rate growth with a slight pullback in leisure demand. Despite the 150-basis-point shift in RevPAR growth [outlook] primarily due to lower rate growth, with strong bottom-line performance year-to-date, the updated range assumes better than originally anticipated variable and fixed expense growth, resulting in just a 1% decline in comparable hotels adjusted EBITDA. Despite some pullback in our expectations for the full year, we are confident we are well-positioned for continued strong operating fundamentals and bottom-line performance."

“We have lowered our full-year expectations for RevPAR growth and earnings. The change is primarily related to the extended timing of completion of the renovation in Long Beach and the softer leisure trends we have seen in Wailea, which together are impacting growth in full-year RevPAR by over 200 basis points.

“Based on what we see today, we expect that our total portfolio full-year RevPAR growth, which includes all hotels in the portfolio, will range from a decline of 25 basis points to an increase of 1.75% as compared to 2023. If we exclude the Confidante Miami Beach, RevPAR growth is projected to range from 2.25% to 4.25%.

“Including our revised outlook for the balance of the year, we now estimate that full-year adjusted EBITDA will range from $242 million to $252 million, and our adjusted FFO per diluted share will range from $0.85 to $0.90.”

Editor’s note: Christopher J. Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.

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