Third quarter performance for major hotel brands and real estate investment trusts is expected to follow a somewhat predictable pattern: Especially strong leisure demand fueled strong numbers in July and August before a seasonal drop-off of demand in September.

But analysts who cover the hotel industry believe those demand patterns, and indeed performance during the fourth quarter, aren't going to be what investors are interested in or what management teams are focused on during the upcoming third quarter earnings season. Instead, earnings calls are likely to be dominated by optimistic commentary for the trajectory of demand in 2022.

"Management teams are not focused too much on fundamentals, and investors aren't either," said Michael Bellisario, senior research analyst and director at Baird. "Mainly, we're through the worst of the [COVID-19] delta variant, and it was pretty scary for about 30 days with slowdowns and cancellations, but now you can expect upbeat commentary about business travel recovering gradually, bookings improving and group bookings on the books for next year looking strong."

Rich Hightower, managing director at Evercore ISI, said it's reasonable to expect current performance levels to continue through most of the fourth quarter.

"That's going to carry through the fall until we get to the end-of-the-year holiday period," he said.

But he agreed that likely won't be the focus of commentary in earnings calls.

"I don't think early October performance, for instance, is going to be a huge highlight for these guys," he said. "They're probably going to minimize the fourth quarter, at this point."

C. Patrick Scholes, managing director of lodging and experiential leisure equity research for Truist Securities Group, said most publicly traded hotel companies had modest earnings projections for the quarter, and investor expectations for the year remain conservative. He said the commentary from hotel brand executives likely will revolve around development pipelines.

"What I'm expecting from the C-corps like Hilton, Hyatt and Marriott is for them to remain bullish on their new unit pipelines and net unit growth," he said. "That business continues to go very well, and given how bad it was last year, net unit growth staying strong is quite an accomplishment."

Bellisario said announcements of transactions are anticipated for the quarter, particularly among the REITs, noting multiple companies have deals completed that have not been made public.

"You can expect transactions from Apple [Hospitality REIT], DiamondRock [Hospitality Company] and Host [Hotels & Resorts], and maybe from Summit [Hotel Properties] and RLJ [Lodging Trust]," he said.

He described mergers-and-acquisitions activity as the big "watercooler conversation" for the quarter, as various factors have lined up to make it more possible than in the recent past.

"The stars are aligning better today than they have in a long time," he said. "There's lot of capital on the sidelines; performance is improving; stocks haven't worked."

Analysts pointed to Sunstone Hotel Investors as the most intriguing company during the quarter. The Irvine, California-based real estate investment trust announced in early September that President and CEO John Arabia was immediately stepping down from the company, noting in a news release that the move was "not related to any matter regarding the company's financial condition."

The company announced Chairman Douglas Pasquale would serve in the chief executive role on an interim basis, and analysts expect to get more clarity on that situation and what the next steps will be during Sunstone's earnings call.

"They have to answer questions in a public forum about why and when they made the change," Bellisario said.

He said all of that also points to Sunstone being a possible target for merger or acquisition.

"I'd put Sunstone at one, two and three" for REITs most likely to be involved in a portfolio-wide deal. "Everybody else is at four or below."

Hightower said he's interested to hear commentary on the trajectory of group business and urban transient travel from the companies that rely on that demand, such as Host, Park Hotels & Resorts and Pebblebrook Hotel Trust.

"We'll want to hear what what those guys are seeing and expecting this year into next year," he said.

Scholes said he's particularly interested in the trajectory for Ryman Hospitality Properties, which has been more bullish than its peers on the recovery of group business, partially as a benefit of its concentration of properties in the South.

"They're geographically different, so it will interesting to see if that can work in their favor," he said.

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