Top-line performance metrics for publicly traded hotel companies remain comparatively weak amid a soft leisure travel demand environment, but much of the discussion in third-quarter earnings calls could revolve around disruptions seen in the past month, analysts say.
Two highly destructive hurricane hitting the Southeast U.S. within two weeks and a month of nationwide hotel strikes are likely to be defining issues this earnings season, particularly for the real estate investment trusts that have the highest exposure to those issues.
Since Labor Day weekend, strikes have been prevalent at hotels across the U.S., including many owned by hotel REITs. Michael Bellisario, senior hotel research analyst and director at Baird, said it's hard to generalize or model what the impact of strikes could be on the sector.
"It's pretty idiosyncratic," he said. "And then the most challenging part with the strike is you don't know when it's going to end."
Both Bellisario and C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, said analyst questions are likely to key in on strike impacts during Park Hotels & Resorts' third-quarter earnings reports, in large part because of how much of an effect it can ultimately have on the REIT's largest property, the Hilton Hawaiian Village Waikiki Beach Resort.
Analysts are focused on "hearing from a company like Park because they have been really silent about what's happening in Hawaii," Scholes said, noting negative national media coverage related to strikes and guest experience at the property.
Hotel REITs could face a double-edged sword when it comes to union negotiations because prolonged strikes can disrupt performance — particularly in markets that have a longer booking window like Hawaii, Bellisario said. At the same time, new contracts that end the strikes are likely to come with high labor costs.
The other quarterly curveball is the overall impacts of Hurricanes Helene and Milton, which hit the Southeast U.S. in quick succession. Bellisario noted part of the hurricane-related disruption includes an uptick in performance for hotel brands like Choice Hotels International and Wyndham Hotels & Resorts that have more properties in lower segments that are likely to be filled by people displaced by storms or emergency workers.
Scholes said the other side of that coin, though, is storms have disrupted performance in the Caribbean, which will have a drag on hotel brands concentrated on the high end, most notably Hyatt Hotels Corporation.
In terms of key performance metrics for hotels, analysts expect it to be a weak quarter, with Bellisario comparing performance to the pre-pandemic period of slowing growth.
Revenue per available room "trends are still sluggish and relatively disappointing," he said, saying hotel metrics haven't kept pace with a strong U.S. consumer for various reasons, including outsized international travel.
On the brand front, Scholes said looking out to next year, the growth story for hotel C-corps is not likely to be driven by domestic RevPAR growth but rather unit growth and international travel trends. He said the big question heading into 2025 is how a potential economic recovery shapes up in China.
"The economy [in China] is bad, but they're infusing stimulus and you'll have a weak [year-over-year comparison]," he said. "It's a big wild card for next year."