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Hotel Owners Predict Summer Leisure Explosion But Still Unsure Of Business Travel

Hotel executives are sounding increasingly optimistic about the market's recovery, as they have seen occupancy improving through the spring and forecast a strong summer for leisure travel. 

On a series of first-quarter earnings calls over the last week, the CEOs of the nation's largest hotel companies detailed their improvement thus far this year and their projections for how the recovery will look going forward. 

Hilton Hawaiian Village Honolulu

While hotel executives feel more confident about leisure travel, they say business and convention travel has yet to recover. Executives cited some positive signs in early booking data that shows business travel could improve after Labor Day, but the timing of that recovery remains uncertain. 

The positive outlook is leading some large hotel companies to go back on offense, with at least two real estate investment trusts closing acquisitions so far this year and others announcing they are on the market to buy hotels. For large brand giants such as Marriott International and Hilton Worldwide, the recovery has been segmented based on geographic region, with China leading the way, followed by the U.S. and Europe lagging behind. 

Hilton CEO Chris Nassetta said the level of summer bookings for U.S. hotels that the company received last month exceeded 2019 levels by nearly 10%. 

"We believe this summer will be meaningfully over peak 2019 levels of leisure demand," Nassetta said on the firm's May 5 earnings call, according to a Motley Fool transcript

Business travel, including the corporate transient and group demand segments, still lag behind leisure travel, but Nassetta said bookings for future trips are increasing month-over-month, and it is seeing positive signs for later this year. 

"Group bookings made in the first quarter for the back half of the year were roughly flat with 2019 booking activity, suggesting customers are increasingly optimistic about safety measures and loosening pandemic restrictions," Nassetta said. 

The expected increase in demand for the summer and fall would continue the improvement Hilton and other companies have seen so far this year. Hilton's U.S. occupancy reached 55% by the end of Q1, with March's occupancy numbers 62% higher than January's, Hilton Chief Financial Officer Kevin Jacobs said on the call. 

Marriott International's U.S. occupancy rose from 33% in January to 49% by March, boosted by leisure demand in ski and beach resort destinations. Looking forward, Marriott said room nights booked 30 days in advance for its U.S. and Canada resort hotels are 60% above 2019 levels, and rates are nearly 20% higher than they were in 2019. 

"Occupancy on the books for our resorts in the region is higher relative to the same time in 2019 for every month through the end of the year," Marriott CFO Leeny Oberg said on the firm's Monday earnings call, according to a Motley Fool transcript

Business travel is still "meaningfully below pre-pandemic levels," Marriott CEO Anthony Capuano said on the call, but he is also seeing signs of improvement. He said special corporate bookings for future stays in March were 25% higher than February, and future bookings in April were 13% higher than March. 

"Group bookings for the U.S. and Canada also continue to pick up as meeting planners are increasingly optimistic about the recovery and are feeling more confident that they can plan events, especially in 2022 and beyond," said Capuano, who became CEO in February after Arne Sorenson's death

Marriott and Hilton both pointed to positive signs in China, which has reached occupancy levels in the 70% range and has started to experience a return of business travel. Hotel occupancy in Europe is behind the U.S. due to increasing Covid-19 cases, reinstated lockdowns and delays in vaccine distribution, Nassetta said. 

Executives of hotel REITs, which largely concentrate their portfolios in major U.S. markets, also expressed optimism about the hotel market's recovery. And some are putting their money where their mouths are by starting to acquire new hotels again. 

Host Hotels & Resorts acquired the Hyatt Regency Austin and the Four Seasons Resort Orlando at Walt Disney World Resort for a combined $771M, it said in its Q1 earnings report

The Hyatt Regency Austin, which Host Hotels acquired in March.

The Austin hotel closed for an estimated 20% to 25% below pre-Covid pricing, Host Hotels CEO James Risoleo said on the firm's May 5 earnings call, according to a Motley Fool transcript. He described the hotel as "an asset that was under distress," but said he is not generally seeing a large amount of distress in the marketplace today.

The Orlando hotel was profitable in the first quarter, Risoleo said, and Host expects it is likely to benefit from a surge in leisure travel over the course of this year. Risoleo said he sees a lot of capital chasing hotel deals, especially for the limited number of distressed assets. 

"As you compete more in auction processes, pricing is going to be aggressive," Risoleo said on the call. "However, we're coming out of the worst downturn that we've ever experienced in the lodging industry and the pandemic-induced recession in the United States as well. We're turning the corner, and we are firm believers that for the right assets at this stage of the cycle, it's the time to acquire."

Host Hotels' portfolio-wide occupancy increased from 19.6% in January to 34% in March. Its occupancy in Sun Belt markets and Hawaii reached 57.4% in the last week of March, Risoleo said. 

Sunstone Hotel Investors last month acquired the 130-room Montage Healdsburg, a newly developed resort in Sonoma County, California, for $265M, it announced April 28. The hotel fits within the leisure segment that has recovered more quickly, but Sunstone CEO John Arabia said he is also seeing promising signs for a future business travel recovery. 

"While transient trends remain strong, we now have increased confidence in the improving group and business demand trends, which we believe have just begun and should continue to strengthen into the second half of this year," Arabia said on the May 4 call, according to a Seeking Alpha transcript.  "Given the current trajectory, we feel more confident now than we did a quarter ago."

RLJ Lodging Trust CEO Leslie Hale said the REIT's portfolio reached 56.1% occupancy in March, the highest monthly occupancy level since the start of the coronavirus pandemic. She also said she is seeing promising signs in the business travel segment, with corporate demand increasing 27% from Q4 to Q1. 

The REIT didn't announce any closed acquisitions, but Hale said it is on the market looking to buy hotels. 

"We are continuing to actively underwrite acquisition targets, and remain well-positioned to deploy growth capital during what we believe will be a multi-year window for acquisitions," Hale said on the REIT's May 6 earnings call, according to a Seeking Alpha transcript.

Robert W. Baird & Co. Senior Research Analyst Michael Bellisario, who covers the hotel sector, said he sees the REITs becoming more active on the acquisition front as a positive sign for the market. 

"We're seeing buys for the first time, we didn't have any acquisitions really until Host did the deal in March in Austin," Bellisario said. "They're all looking to buy. They all feel better about the world and the market is giving them the green light to go spend money."

Bellisario said the increased occupancy that companies reported for the spring months were a good sign, but he said the increase in leisure demand was largely expected and already priced into the companies' stock prices. Because of this, he said most hotel stocks fell after their earnings reports, even if their Q1 performance beat previous estimates. 

Marriott's stock price, for example, fell from $147/share when the market closed Friday to $141/share at Monday's close, after releasing its earnings. Hilton's stock price fell from $128/share on May 4 to $123/share on May 5, the day it held its earnings call. 

"Leisure travel is strong, we know that. The consumer has money and wants to get out," Bellisario said. "The biggest question, and maybe the market's reaction with the underperformance in the stocks post-earnings is 'What have you done for me lately?' These companies are very dependent on business travel. When do people get back to the office and start traveling?"