Editor's note: This conversation was recorded on Oct. 11, before news of Choice Hotels International's pursuit of Wyndham Hotels & Resorts was announced.
As slow demand growth driven by normalizing leisure and business travel trends dominate the short-term picture for publicly traded hotel companies, investors are more interested in the long-term growth prospects heading into the third-quarter earnings season.
Speaking on the Hotel News Now podcast ahead of third-quarter earnings calls, Michael Bellisario, senior hotel research analyst and director at Baird, said the stronger-than-expected performance of the past three months doesn't "matter too much."
He said instead the hotel brands such as Marriott International and Hilton will keep the discussion on net unit growth since "that's a bigger driver of the way investors think today than it was 10 years ago."
"It's how many conversions can the brands do, how aggressive do they get with their balance sheets and key money to either protect hotels or win new deals, and what's the path to getting back maybe not exactly to what they were doing in 2019 but better than what they have been doing recently on the net-unit-growth front," he said.
Things are much more complicated for the hotel real estate investment trusts due to a prolonged "disconnect between public and private-market valuations," Bellisario said.
Hersha Hospitality Trust's recently announced $1.4 billion planned acquisition by KSL Capital Partners did provide a ray of hope to some, but Bellisario said investors don't believe that won't spark a wave of deals to take REITs private.
"Obviously, the debt market has moved since then," he said. "Then I think myself and most people believe [the deal] is pretty idiosyncratic to Hersha and their portfolio. ... This is the challenge and this is the management team's job that if you're worth 10 and you're trading at five, how do you get to something greater than five? Maybe it doesn't even have to be 10. Maybe it's nine or eight. Then, what's the path to get there [for other hotel REITs]?"
For the upcoming quarter, Bellisario said the most interesting companies to listen to include Hilton, which is expected to give a longer-term outlook similar to what Marriott delivered at its recent investor day. Another company to listen to is Sunstone Hotel Investors, as the REIT is expected to have an influx of cash soon.
"How much of it do [Sunstone executives] set aside for renovations for the [Andaz Miami Beach] that just started?" he asked. "So lots of capital allocation and sort of strategic focus on that one."
For HNN's full conversation with Michael Bellisario listen to the podcast above and subscribe to the Hotel News Now podcast on Apple, Spotify or wherever you find podcasts.