Executives of publicly traded hotel companies are expected to strike an optimistic tone this earnings season, analysts said. As the industry weathered the COVID-19 omicron variant early in the year, performance metrics came back strong by the end of the first quarter with signs of better performance to come.
C. Patrick Scholes, managing director of lodging and leisure equity research at Truist, said hotel management teams will likely tout a strong comeback in performance in January and early February, including some signs of life from corporate and group travel.
"That demand is still down 30% to 40% from pre-COVID, but that was a lot better than it was even in January," he said. "After you'd been beat down so much, any improvement makes you happy."
Jan Freitag, CoStar's national director of hospitality market analytics, said performance in the quarter, while uneven, offers reasons for optimism.
“The impact of the omicron variant put a slight damper on business travel in the latter part of the quarter and likely impacted some leisure travel, as well," he said. "That said, room rate growth remained the bright spot for operators as room rates, especially on the high end, continued to grow with unprecedented velocity. Transaction volume kept pace with the prior two quarters and the total annual sales volume set a new record.”
But Michael Bellisario, senior research analyst at Baird, said he doesn't expect earnings calls this season to revolve around first-quarter performance.
"It's not really about the quarter," he said. "It's really about the trajectory of March to April and what May and June are going to look like."
He added hotel real estate investment trusts Park Hotels & Resorts and Pebblebrook Hotel Trust have recently issued positive commentary, and airlines have similarly been extremely positive about the growth trajectory for the travel sector.
"It's really about how much better can this get and how much estimates need to increase," he said.
Scholes agreed, noting both hotel management teams and analysts have been fairly conservative about forward-looking estimates and the odds are good that outlook will improve.
He said the caveat in all of this optimism is it will be largely focused domestically, and there are much larger causes for concern abroad, particularly in Asia and Europe.
Companies To Watch
Both Scholes and Bellisario said the earliest companies to report, particularly Wyndham Hotels & Resorts and Pebblebrook, will set the tone for the quarter overall.
Scholes said he expects Wyndham to be particularly optimistic given the space it plays in has performed exceptionally well and the types of business travelers that stay at Wyndham hotels have come back more quickly than with other brands.
He said he's also particularly interested to listen to Choice Hotels International's earnings call to find out what the company plans to do with its significant cash reserves.
Choice "has the best balance sheet, but they haven't done much with share repurchases," he said. "It's getting to a point where you can say they have too much cash. Something has to give eventually."
In a quarter marked by a significant amount of leadership turnover for hotel REITs, Bellisario said he's interested in hearing what new Sunstone Hotel Investors CEO Bryan Giglia has to say during that company's call.
He said the REITs will dominate a lot of the discussions this quarter and multiple transactions are likely to be announced throughout the earnings season, which could set the tone for the industry.
He said what types of hotels are trading and for how much will define expectations.
"It's important to see, as urban hotels get better, how people look at the bigger picture and if these guys are still allocating capital to drive-to resorts of if there's any increased interest in urban markets," he said.