With each passing month, hotel performance in the U.S. is improving, much to the relief of hotel executives when they look back over last year.

As the first quarter 2021 earnings season approaches, industry analysts are waiting to hear from hotel brand and real estate investment trust executives about how these positive trends are shaping the recovery.

Generally, the most important thing for the publicly traded hotel companies is that things are getting better, said Michael Bellisario, senior hotel research analyst and director at Baird. Many are reporting at nearly the latest possible date in early May, giving them access to have full April data. That will allow them to say each month from January through April has been better than the last.

Everyone is bullish on the leisure demand recovery, primarily in resort and ski destinations, said C. Patrick Scholes, managing director of lodging and experiential leisure equity research for Truist Securities. Group and corporate, however, are still behind.

“We're measuring the recovery in leisure travel in percentage points right now,” he said. “We're measuring the recovery in corporate, in group travel, in basis points. It's much more gradual.”

There’s going to be a crossover point for the strong leisure demand and corporate demand, because no one can go on vacation 10 times a year, Bellisario said.

“There will be a switch in the narrative from strong leisure travel to ‘when does business start picking back up?’” he said. “Whether that’s post-Labor Day, whether that’s some point in the fall, that will change the tune of a lot of investors.”

The groups booking now are smaller groups, such as sports teams or weddings, Bellisario said. Business travel right now consists of individuals deciding on their own to travel or smaller companies making the decision. While a positive development, they make up a small piece of the overall pie of 5.5 million available hotel rooms in the U.S.

“It’s not the 100,000-person company that is letting their business travelers get back on the road as they’re not back in the office yet,” he said.

Most of the companies that are back in the office are the smaller “mom and pop” businesses that don’t have human resources and legal departments dictating when they can return, Scholes said. A thaw is starting, but the real return of corporate travel will come after businesses are back in their offices, which will likely occur in midsummer.

The gradual return of business travel will follow around Labor Day, he said.

With revenue per available room still well below pre-pandemic levels, the brand companies will focus on development, conversions, construction starts and market share, Bellisario said.

“How do these big, strong brands gobble up some weaker brands and have their conversion opportunities and grow their pipeline even more?” he asked.

Many brands have a high concentration of their pipelines in the Asia-Pacific region, particularly in China, he said. Even though the brands’ existing portfolios are largely in the U.S., the incremental growth is coming from the Asia-Pacific, which is still humming along.

Franchise owners are going to want to know how brands view pricing of rooms, said Rich Hightower, managing director at Evercore ISI. Brands will have to lead in that category.

From an investor’s perspective, they’re going to want to hear the global perspective on the recovery trajectory, he said. Europe and Latin America are well behind the U.S. while the Asia-Pacific is at or above the U.S.

Unit growth is important, but it’s not the most important thing now for the brands, Hightower said. It’s more about figuring out what the underlying business looks like and putting growth on top of that.

For real estate investment trusts, everyone knows leisure drive-to markets are doing well, but it will be good to see some big-box, urban hotels reopen, Bellisario said. It’s not a total needle-mover, but the hotels have to reopen before they can welcome back guests, particularly in areas where many hotels have closed.

Based on the commentary shared so far, it’s likely REIT executives will talk about bookings improving each month and the expectation that May bookings will be better than April’s, he said.

“You’ll hear very positive commentary focused on the sequential changes that have occurred year to date and that the light is at the end of the tunnel, balance sheets are fine, ample liquidity is on hand and they are switching from defense to offense,” he said.

There will be talk about capital deployment opportunities and acquisition opportunities versus disposition opportunities, Bellisario said, citing Host Hotels & Resorts’ acquisition of the Austin Hyatt Regency for $161 million in March.

Hightower noted Park Hotels & Resorts is actively marketing a couple of assets, executives with the company have indicated pricing sounds “pretty strong” with private market participants.

“It’s a function of liquidity, and it’s a function of low-interest rates,” he said. “The debt markets are back, the equity markets are back, not quite to pre-COVID, but closer than you’d think they’d be given the fundamental picture on the ground.”

At the margins, there might be a couple of asset sales by the REITs, Hightower said. Similarly, for those with the balance sheets to do it, acquisition activity should pick up over the next six to 12 months as the more orderly liquidation process restarts as banks may finally force the sales of assets that are underwater.

“It’s not creating distress, it’ll be more orderly than that,” he said. “That’ll present some opportunities on the buy side for the more well-capitalized REITs.”

REITs should be net acquirers, but the best-performing markets won’t provide the best opportunities for deals as the asset prices are mostly back to pre-COVID-19 levels, Scholes said. Some of the currently less desirable markets, including New York and San Francisco, have assets with prices down about 20% from pre-pandemic levels.

“If you want something cheap, you’re going to have to go into markets that are pretty unpopular right now,” he said. “Maybe that turns out to be the contrarian investment.”

While buying in troubled markets might work out well for private companies, shareholders would likely give REITs a hard time even with a five-year plan because of the cash burn necessary for the first 12 months, he said.

Extended-stay hotels were the best-performing hotel subsector throughout the pandemic, Bellisario said. The two companies buying Extended Stay America, Blackstone and Starwood Capital Group, are well-financed and know the company and segments well, which checks all of the boxes.

If someone wanted to buy a REIT, that would be more difficult, he said. The fundamentals improve as the year progresses, and a deal would depend on where stock prices are trading, but there is a lot of capital on the sidelines. If there’s any consolidation activity among the publicly traded companies, it would depend on the availability and pricing to drive a take-private transaction.

Hightower believes the Extended Stay America deal is likely a one-off. Based on the recent SEC filing, Blackstone and Starwood Capital followed a strategic process and were working on the acquisition for years.

“It’s sort of company-specific in that regard,” he said about the deal.

Hightower said he could envision a scenario in which a publicly traded company, most likely a REIT, might not be so enamored with being a public company anymore after the last year. Public market pricing has come back to pre-COVID-19 levels, if not above it, but private market pricing is arguably even better.

“I think that's a possibility,” he said. “It's probably more unlikely, but I wouldn't discount it entirely.”