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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In this week’s piece we discuss five ideas with five charts, including probably way-too-early hurricane forecasts for the upcoming Atlantic hurricane season as it relates to cruise lines; NCLH’s recent consistent beat and raise execution, and what that hasn’t meant for the equity multiple; why VAC’s planned analyst day later this Fall seems positive; RevPAR index gains for brands, who seemingly took RevPAR share from independents in 1Q, which we believe is positive for the long-term model; and softer Chinese credit data in April, and what that might mean for Macau GGR. Please click the link above for the full report.
Last week was a busy week filled with cruise, gaming, and lodging earnings reports. In this week’s piece we highlight ten key themes with several charts. Please click the link above for the full report.
For our weekly charts this week we examine why U.S. RevPAR growth has been soft and why we expect it to remain soft. Specifically, we list seven key challenges with supporting charts. Please click the link above for the full report.
For our weekly charts this week we provide an update on IMO 2020 given on-going fluctuating fuel prices as well as some recent and potentially overlooked news on scrubber policy, which could become problematic for CCL. We’ll discuss and later in Exhibit 1 and Exhibit 2 we’ll quantify the potential impact to fuel expense. Please click the link above for the full report.
Last week we lowered our Lodging sector rating to Market Weight and downgraded HST to Underperform. Our view is we seem late in the lodging cycle and we think U.S. RevPAR faces risks. See our notes with our complete thesis here and here. To be clear we aren’t making a negative call on all lodging. We’re still bullish on timeshare (VAC and HGV), which is our favorite sub-group, and RevPAR isn’t a KPI for timeshare. We also think the hotel C-Corps can still work in a tepid U.S. RevPAR environment because the asset-light business models are powerful, and efforts by China/Europe to re-stimulate could start to favor names with international exposure like the C-Corps, but admittedly we now see less exciting upside to the C-Corps as reflected by our target prices. Given the move in lodging stocks as well as slowing U.S. RevPAR the risk/reward of the space seems less compelling. Owned real estate in the U.S. seems most exposed to our view, which is the reason for our downgrade of HST to Underperform. Investor feedback on our call has generally been receptive, and it feels like sentiment is definitely biased negative. From our conversations we even sense some bearishness towards the high-quality C-Corps.
Today (3/11/2019) we lower our sector weighting on Lodging from Market Overweight to Market Weight, and we also downgrade HST from Peer Perform to Underperform. The reasoning for the change is largely based on the idea that we are later in the cycle with soft U.S. RevPAR growth, which we do not expect to improve in the near-term.
We spoke with two different owners of several WH properties to learn more about the economics and the value proposition of using the brand, particularly at the lower end of the chain scale. We’re calling this week’s “Charts of the Week” our “Conversations of the Week,” and below we include a paraphrased Q&A dialogue we had with these two separate owners. Note we rate shares of WH as Peer Perform despite a lower-end valuation because of high owner exits (~7% of rooms annually) limiting net unit growth relative to peers, and our belief that branding is less relevant for owners at the low end of the chain scale, particularly the very low end budget segment. We still believe the latter to be true, but we walked away from our conversations feeling marginally more constructive. Note, the two owners we spoke to are seemingly higher quality owners who own higher quality and newer/fresher properties than the domestic system average, in our view.
Timeshare stocks have rallied hard since the Christmas Eve bottom, with VAC up 61%, HGV up 33%, and WYND up 39% versus the S&P 500 up 19%. However, the stocks still remain well off their 2018 highs. For example, VAC remains 35% below its prior high and HGV remains 31% below its prior high, and it’s been entirely a function of multiple contraction. Interestingly, the S&P 500 is now only 5% below its prior high and credit spreads have narrowed considerably.
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