In what has increasingly become the theme of the year for the hotel industry, the upcoming second-quarter earning season is likely to be defined by the split between the haves and have-nots, industry analysts say.
Michael Bellisario, senior hotel research analyst and director at Baird, said there have been some improvements in the sector of late; the Baird Hotel Stock Index increased by 4.4% in June, reversing a monthslong trend of declines. But that increase has been driven mostly by brands, and investors remain bearish on hotel real estate investment trusts.
"I think it's a tale of two sub-industries," Bellisario said. "For the hotel REITs, sentiment, investor positioning and expectations are negative. RevPAR growth in the U.S. has been sluggish. Everyone is going to Europe and Japan. ... The back-half guidance ranges need to come down a bit. RevPAR is a bit softer. Everyone, for the most part, knows that. That is expected and sort of priced into the stock. I think almost the exact opposite is true [for the brands], particularly Hilton, Marriott and to a degree Hyatt. EBITDA is fine. Numbers will go up. RevPAR is OK. Unit growth is great. These guys are taking share, and people are traveling globally, and they obviously get a benefit from cross-border travel."
C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, echoed the idea of bifurcation being a defining theme for the quarter. He added it's also a big deal in terms of customer segments and geography.
"Group continues to be the leader," he said in terms of segment growth. "Individual business travelers are sort of in the middle there. We've seen some good room rate growth on corporate business but stagnant occupancy and demand there. Then with leisure, there's various degrees of mediocre. The higher end is doing better, and the lower end is less good."
He also echoed the disparity of performance between outbound and inbound international travel as a major theme for the quarter. Both Europe and the Caribbean continue to see strong performance, although those regions continue to struggle with growing costs.
Hotel REITs are, by and large, "going nowhere fast," Scholes said, with Ryman Hospitality Properties one of the few that is better-positioned.
Bellisario said he'll continue to have a closer eye on Host Hotels & Resorts on the REIT side, largely because of how active the company has been on the transactions market, recently acquiring the 1 Hotel Central Park for $233.8 million from Starwood Capital Group. He said it wouldn't be surprising if Host's deals pace slowed considerably in the back half of the year.
On the brand side, Bellisario said he's eager to see how Hilton's recent activity — including the March acquisition of Graduate Hotels and partnership with Small Luxury Hotels of the World.
Both analysts agreed Hyatt Hotel Corp.'s rumored plans to acquire Standard Hotels, which was first reported by Bloomberg, is a positive but not earth-shattering.
Scholes said the deal is not dissimilar from many Hyatt has done over recent years, including acquisitions of Two Roads Hospitality, Dream Hotel Group and Apple Leisure Group.
"These are pretty small, but if you do enough of them, they start to add up," he said, adding more value comes from giving owners more brands to choose from in the Hyatt family rather than Standard's existing portfolio. "If you hit enough singles, eventually you'll generate a run."