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'It's Wild': Hotel Brands, REITs Beat Expectations As Travel Demand Stays Hot

Hotel owners and brands are still riding the resurgent wave of global travel, and even amid inflation and concerns over economic turmoil, many are already fully recovered from the pandemic.


Some of the major hospitality brands, including Hilton, Hyatt and Marriott, have edged toward all-time-high stock prices in recent weeks, and revenue per available room, hotels’ leading performance metric, across the U.S. has surpassed pre-pandemic levels. With international travel bans now rescinded and China officially reopened, hotel companies’ fourth-quarter earnings calls took a decidedly rosy tone.

While demand still lags in some sectors, recession threats and higher prices have so far failed to tame consumer appetite — and remote work has unlocked a new set of travelers, many of whom are intent on making up for lost time during lockdowns.

“The weekends are now three days or four days in some cases, and the business travel week is now two or three days instead of three or four days,” Michael Bellisario, a senior research analyst at Baird, said in an interview. “People continue to shift from goods to services. Goods were purchased in 2020 — cars, homes, washers and dryers. People are purchasing services now, going out to restaurants, and they're going on vacations.”

The surprisingly healthy rates hoteliers are seeing dominated earnings calls, although uncertainty about the country’s economy and the frozen investment sales market dampened spirits somewhat.

Marriott International turned a $673M profit in the fourth quarter, up from $468M a year earlier. Its quarterly RevPAR was 5% above Q4 2019, and it brought in $5.9B in revenue in the period, beating Wall Street expectations by over $500M, The Wall Street Journal reported.

“Lodging is a cyclical business, and it’s not immune to downturns in the macroeconomic environment,” Marriott CEO Tony Capuano said on his company’s earnings call. “To date, however, we have not seen signs of demand softening.”

Hilton surpassed expectations in the fourth quarter, CEO Christopher Nassetta said, with RevPAR jumping 24.8% from the year earlier. Hyatt reported a RevPAR increase of nearly 35% between Q4 of 2021 and 2022, which contributed to a full-year RevPAR jump of 60%.

Hotels have been able to improve their performance so dramatically because they have managed to charge higher rates across the board without consumers balking, Bellisario said. The demand itself is relatively unchanged from 2019. Overall, the industry grew its RevPAR by 10% between January 2019 and January 2023, he said, and inflation was the main cause — not occupancy, which is still slightly lower than it was pre-pandemic.

Plus, he said, hotel brands, as opposed to the publicly traded hotel REITs, are performing well in the current economic climate — which is showing up in the share price.

“When you think about the brand business versus the ownership business, the brand business is a better business,” he said. “It's asset-light. Someone else is paying you. They don't have people, they are not paying the property taxes.”

The Diplomat Beach Resort in Hollywood, Florida, which sold for $835M this year.

Hotel REITs nevertheless had a strong quarter, and executives expressed particular confidence about the growth of business and group travel.

The country’s largest hotel REIT, Host Hotels & Resorts, reported its average daily rate was 22% higher in Q4 than it was in 2019, while RevPAR was above 2019 levels for a third straight quarter. Its funds from operations beat analyst expectations in the quarter.

Host executives said the company took in more revenue from group bookings than it did in 2019 for the second straight quarter, and although business travel was still down 18% from pre-pandemic levels, it is climbing quickly.

“We're not seeing any signs of weakness in any business segment,” Host CEO Jim Risoleo said on his company's earnings call. “Our group pace is performing exceptionally well.”

Pebblebrook Hotel Trust’s revenue for the quarter jumped 29.3% to $319.6M from $247.3M last year, although it still posted a $45.3M loss and reportedly missed analysts’ estimates. Park Hotels & Resorts posted revenues of $665M in Q4, per Nasdaq, up from $451M a year ago.

DiamondRock Hospitality, meanwhile, reportedly has $600M in liquidity and is hunting for properties to buy. Apple Hospitality executives told investors during the company's Q4 earnings call that its balance sheet is in the right place to start buying “when the market is right,” CoStar reported.

Bellisario said that the quiet investment sales market is a challenge for REITs, which historically have been able to beef up their portfolios in a down cycle.

“What's interesting is [REITs] generally are lower-levered, they have access to cash and borrowing capacity, and they want to grow their portfolio and buy properties,” he said. “The challenge is there's not a lot for sale, and fundamentals are still good, so sellers aren't really willing to take discounted prices yet. So I think there's a little bit of frustration there, but they have a desire to grow.”

There is also still apprehension about the state of the economy. Hotels have historically been the first property type affected by economic downturns because their customers have the shortest leases.

“Current macroeconomic headwinds and the potential for an economic slowdown are competing with the margin recovery,” Host Chief Financial Officer Sourav Ghosh said.

But any possible downturn isn’t showing up in the numbers yet. Executives said on February calls that demand in 2023 is outpacing last year, and most are forecasting continued growth.

“We’re very sober to the economic backdrop and the overhang of the concern of a recession, Fed actions, geopolitical issues, the labor market — we’re sober about that, but we’re not seeing it in the fundamentals today,” RLJ Lodging Trust CEO Leslie Hale told Bisnow in an interview Tuesday.

“We continue to see things grind forward, and we expect positive year-over-year trajectory. Having said that, the industry as a whole just came through an environment where we went to zero revenue, so I’m very comfortable that we’re smarter today in terms of how to operate our businesses, develop skills and efficiencies within the industry to be able to navigate any type of recession.”

The hospitality industry was pummeled by the pandemic, with domestic travelers avoiding travel and visitors from major international markets blocked from entering the country for a year and a half. The immediate impact was deeper than that of 9/11 and the Global Financial Crisis combined. The industry's recovery has surprised market analysts with its speed.

“It’s wild,” JLL Global Head of Hotels Research Zach Demuth said. “The expectation was that it would take years to get back to 2019 — if ever — but what we saw is this travel that no one expected, as people felt they had to get out of their home.”

CBRE forecast a 5.8% annual increase in RevPAR for 2023, up from an earlier forecast of 5.6% growth. Meanwhile, hotels are on a hiring spree, with nearly 80% of hotels experiencing staffing shortages, per the American Hotel & Lodging Association.

Demuth pointed to some marquee trades this year, notably the sale of The Diplomat Beach Resort in Hollywood, Florida, last month for $835M, the third-largest single-asset hotel sale ever in the U.S.

“We’ve seen some really high-price trades and really valuable transactions,” he said. “A year ago, we thought we might go back into lockdown.”

Jon Banister contributed reporting for this article.