The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
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U.S. RevPAR growth has been sluggish and has continued to decelerate. The weekly data reported by STR last week grew y/y (+1.2% y/y) for the first time in seven weeks, as the comps were particularly tough over that time period before easing a little for this last week. The forward indicators we track are showing mixed signs for future months, and in this week’s piece we’ll examine those indicators and discuss our outlook going forward.
Current reports indicate Hurricane Dorian is strengthening and could make landfall in Florida as a Category 3 storm on Sunday.
Resort fees are additional charges outside of advertised room rates (for access to the gym, pool, internet, etc.), which have been gaining more attention following criticism from consumers, OTAs, and some regulators. In this note we discuss the key issues and the financial impact to our coverage.
HST reported 2Q earnings yesterday afternoon (08/07/19) and hosted their call this morning. Adjusted EBITDAre was $460M, versus our $460M, consensus of $459M, and the implied guide of $445M-$480M. HST lowered FY19 EBITDAre guidance from $1,535M-$1,600M to $1,500M-$1,540M, representing a $47.5M cut at the midpoint, $21M of which is due to asset sales. The remainder seems attributed to softer RevPAR, as HST reduced FY guidance from 0%-+2% to -1%-0%. Shockingly, HST only reduced FY19 comp hotel margins by 5bp at the midpoint, as HST found other cost offsets.
For our Weekly Sho we've recorded a 20-minute video with 36 slides highlighting our current views as we head into another earnings season. The cruise line section begins at 4:03, the lodging section begins at 9:00, and the gaming section begins at 15:40. Enjoy the rest of your weekend!
Our coverage is up 24% YTD, on average, which is modestly outperforming the market. However, our coverage remains 21% below 2018 highs, on average, and also 10% below 2019 highs, on average, all while the market is near an all-time high. Our coverage mostly remains out-of-favor, in our opinion, but we see some opportunities. Within lodging our best idea is VAC. Within gaming our best idea is ERI. And within cruise our best ideas are RCL/NCLH.
Hotel brand loyalty is critically important because loyalty members pay higher rates, spend more while at the property, stay more frequently, and cost less (i.e. a direct booking guest without OTA commissions), which attracts developers and owners to the brand. Importantly, loyalty is growing. The combined loyalty at the major C-Corps (MAR/HOT, HLT, IHG, CHH, and WH) currently totals ~450M members. Five years ago, those same C-Corps had combined loyalty of only around ~270M members.
In recent years hotels have modified rate options within the booking process while also modifying cancellation policies, we think with a goal to reduce churn and cancellation activity. In years past, hotels offered a standard rate option – book now and pay at check-in. Now, hotels offer multiple options, including an option to pre-pay now at a lower but non-refundable rate. Hotels have also tightened cancellation policies for the standard rate (i.e. pay at check-in rate), with cancellation policies extending from 0-24 hours prior to check-in to in some cases now 72 hours before check-in. These policies have resulted in less cancellations, and on the last earnings call HLT cited cancellations are down 10% over the past several years.
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