Hotel brands, REITs lean on group business in Q1

Executives from hotel brand companies and REITs on Q1 earnings calls discuss performance by segment, with many pointing to strength in group bookings as uplifting in a relatively weaker quarter.

GLOBAL REPORT—For many hotel brand companies and real estate investment trusts, what was expected to be a relatively weaker first quarter of 2019 would have been significantly worse if not for big group bookings in key markets for conventions and citywide events, executives indicated on calls to report Q1 performance.

Marriott International, Pebblebrook Hotel Trust, Park Hotels & Resorts and others credited their hotels in markets such as San Francisco and Super-Bowl host city Atlanta as carrying their portfolios for the quarter.

The group booking picture wasn’t all bright. Hyatt Hotels Corporation reported that weaker group pace in Chicago was a drag on first-quarter performance.

Other companies, such as Wyndham Hotel Group, noted surprisingly strong, or stronger-than-expected, growth in leisure business in Q1.

Pat Pacious, president and CEO, Choice Hotels International
“The Comfort hotels that have completed their renovations are experiencing (revenue per available room) lift. … In fact, the one-third of our Comfort portfolio that completed their renovations by the end of the fourth quarter of 2018 had RevPAR growth of nearly 1% in the first quarter. The same hotels that completed their renovations by the end of last year also captured more business and mid-week travel, and the results are starting to speak for themselves. These hotels more than doubled their business travel revenue growth compared to the Comfort hotels that have yet to complete their upgrades.

“Comfort is our most competitive midscale brand in attracting business travel. Therefore, its growth helps us capture a greater share of business and mid-week demand. We are optimistic that we will gain even greater traction among corporate travelers with our newly opened and newly renovated Comfort hotels.”

Hilton
Chris Nassetta, president and CEO
“Systemwide group business remained strong, as we’ve seen for several quarters with RevPAR up 3.7%. Transient RevPAR grew approximately 1% driven by steady U.S. leisure demand, tempered somewhat by softer U.S. corporate demand in March. …

“If you look at the segments … (in Q1), group was a little bit better than we thought, and transient was a little bit worse than we thought. The net result … didn’t drag the overall answer down a lot. But leisure hung in there if you break transient apart and was pretty stable. It was a little bit lower than we had seen on average for certainly the first half of last year, but that’s exactly what we expected and exactly what we talked about in the last call.

“Business transient … was a little bit weaker than we thought, really driven by March. … What happened as a result of Easter being so late was that spring break got spread out throughout the whole month. And so when we look at the travel patterns, as it related and overlaid the spring break season with it, we think it had a material impact on business travel during that period. And that was what was driving the bulk of the business transient weakness in March. …

“Group is going to lead the charge again this year and have the highest level of growth. I think it will sort of end up at the midpoint to the high end of our guidance (1% to 3% RevPAR growth). I think that is, at this point, fully supported by group position on the book, so we feel pretty good about that. On the transient side, I would say … demand is going to be healthy and continuing to grow in a way that will deliver toward the midpoint of our guidance on transient.”

Kevin Jacobs, CFO
“(Q1 systemwide RevPAR results) benefited from strong group business, particularly given holiday shifts.”

Host Hotels & Resorts
James Risoleo, president and CEO
“Given our optimal group and transient mix, we are pleased with our position. As we mentioned last quarter, 2018 was a record year for group room nights with over 5 million room nights booked for the year. Group revenue booking activity in the quarter for the remainder of the year was up 5% and up 20% for the second quarter. For 2019, total group revenue pace is up 70 basis points.”

Michael Bluhm, EVP and CFO
“Overall first-quarter transient revenues decreased 0.6% as demand declined 1.6%. It was partially offset by a 1% increase in average rate. The decrease in demand was due to the partial government shutdown in January and the Easter holiday shift.

“Group revenues declined 1.5% as occupancy fell 3.9%, partially mitigated by a 2.5% increase in average rate. The decline in group occupancy was driven by a decrease in association business predominantly due to the lack of citywide events in San Diego, Boston and Chicago. To partially mitigate this decline, our managers pursued corporate group business which improved 4.1% this quarter. The increase in corporate group business which represents the largest segment of all business this quarter for the banquet and catering out performance.

“Overall, we are pleased with our optimum group mix for our portfolio. As you recall, 2018 was a record year for group nights with 5 million group rooms booked for the year. Consistent with last year, we have 85% of our group business booked for 2019 providing a strong base of business. In addition, as we think about our business for the rest of the year, activity in the quarter for the remainder of the year was up 5%.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“The quarter was a bit weaker in group than we came into the year expecting. But it turns out that it was really driven by just two specific dynamics. The first is Chicago. We have our largest percentage of convention hotel inventory here in Chicago, and Chicago had a very weak first quarter. The overall Central Business District in Chicago as a market was down over 11%, and that was primarily driven by citywide volumes that were off materially from last year.

“And for us, just to give you a reference point here, Chicago by itself represented a 170-basis-point drag for our group results across the entirety of U.S. in the quarter. And so now, that was unexpectedly weak, short-term performance. But I would also note that our two largest city center convention hotels in Chicago are seeing pace in 2020, up in the low teens. So we absolutely see this as a temporary issue, but it did have a big impact in the quarter. The second thing that happened in the quarter is that we experienced some attrition in the attendance of groups at three particular hotels, but really one very large convention in one of our hotels. But in that case, it had less to do with the ultimate attendance to the event, and more to do with the sequencing of events, over which the room block was released by the meeting planner. So it was like unintended consequence of just how it was handled … (and) it doesn’t really suggest to us that we have a fundamental demand issue.

“Corporate group revenue was encouragingly up in the quarter, and rates were up in the mid-single digits, so that was really encouraging. And the Americas overall saw a mid-single-digit rate increase, along with a slight decline in room nights, which had something to do with the other dynamics I mentioned. We also reported that in the quarter, bookings and future pace … was down. But we saw an increase in new business booked by corporate customers … both for the quarter and for the remainder of the year. So the corporate side is holding up.”

Arne Sorenson, president and CEO, Marriott International
“Group RevPAR across North America increased 3% on strong citywide demand in Atlanta and San Francisco and the favorable impact of the timing of Easter. While Easter timing will present a headwind for group business in the second quarter, the negative hurricane and government shutdown impact should be behind us. Our group revenue booking pays for the full-year 2019 is flat. New bookings for 2019 increased in the first quarter and surged in April. So we expect Group RevPAR will be higher for the year.

“First-quarter transient RevPAR from our largest 300 corporate accounts in North America rose 3%, but overall transient RevPAR was flattish in the first quarter, largely due to weak demand in March. Given this, we expect North American RevPAR will increase by 1% to 2% in the second quarter and 1% to 3% for the full-year.”

Tom Baltimore, Jr., president and CEO, Park Hotels & Resorts
“Top-performing markets during the quarter included San Francisco, up 23.8%; Key West, up 6.6%; and New Orleans, up 3.4%. While we clearly benefited from having the right geographic footprint, credit also needs to be given to our proactive efforts to group up the portfolio.

“We gained market share at 31 of our 48 comparable domestic hotels during the quarter, resulting in an overall share increase of 480 basis points. As a result, group revenue was up an impressive 10.3%, led by San Francisco, which saw a 42% increase in group revenues, with additional group strength at our Hilton Bonnet Creek and our Hilton New Orleans hotels, as well the Hilton Santa Barbara, which continues to benefit from the recent up-branding, renovation and conversion.”

Ray Martz, CFO, Pebblebrook Hotel Trust
“Overall for the quarter, revenue, which made up about 72% of our total portfolio room revenues, increased 1.5% compared to the prior year. Transient ADR increased 3.8% for the quarter, driven by strong increases in San Francisco and South Florida. Group revenues increased 13% in the quarter with room rates increasing 3% and ADR increasing 9.7%. This was largely due to strong corporate group and convention related demand, assisted greatly by San Francisco. Group roommates made up 27.3% % of total roommates for the portfolio, up over 100 basis points from last year, and group revenues represented 28.4% of total room revenues in the quarter, up 277 basis points from last year.

“Leisure travel, as represented by weekends, was softer throughout the quarter versus business travel, which remained solid throughout the quarter. Although April RevPAR growth is forecasted to be the weakest month of the second quarter for us primarily due to holiday shift, May and June booking pace are looking positive. (May is) expected to be the strongest month of the quarter for us, reversing the trends we saw in the industry in our portfolio during March and some of April.

“June is expected to be a solid month for us as well but not as strong as May. For the remainder of the year, meaning quarters two through four, pace continues to be positive. Group revenues are ahead by 1.8% with transient up 3.5% and total revenues ahead by 2.6% with 85% in rate.”

Sean Mahoney, EVP and CFO, RLJ Lodging Trust
“In terms of our segmentation, similar to the trends in the industry, our group segment was our strongest segment. First-quarter group revenues grew in the high-single-digits, which was expected due to our favorable geographic footprint in markets with stronger citywide activity.

“Our first-quarter group outperformance was primarily due to the significant group demand in markets such as Northern California, Louisville and Atlanta and the post-renovation ramp-up from several 2018 renovations.

“In the transient segment, while we experienced robust growth in the special corporate, total transient was down due to a decline in government, largely related to the government shutdown.”

Dan Hansen, chairman, president and CEO, Summit Hotel Properties
“The Baltimore market benefited from strong convention calendar in the first quarter that produced a 61% increase in citywide roomnights. Our four hotels grew RevPAR by 9.4% in the quarter, which was nearly 250 basis points better than our competitive set’s growth. Our focused sales effort layered in new corporate accounts on top of an already strong group base. Adjusting for the moderate displacement in the first quarter of 2018 at our Residence Inn, the four hotels still posted a RevPAR gain of 8.7%.

“In Louisville, the reopening of the convention center allowed our two hotels to shift segmentation back to higher rated group in transient business, which resulted in a 20% increase in RevPAR during the quarter. We were encouraged by several positive trends within our guest segmentation that drove our growth in the quarter, primarily related to increases in group and corporate bookings.

“Strong convention calendars in markets such as Atlanta, San Francisco and Louisville drove an overall 15.4% increase in group revenue for the portfolio. Despite the substantial increase in group contribution, revenue in the corporate negotiating segment also increased 3.7% in the quarter. The increased demand in these segments allowed us to more effectively yield-manage our inventory and reduce reliance on OTA-driven revenue, which declined 16.6% in the quarter. …

“Group is not a huge portion of our business. It’s roughly 15%. We’ve been very pleased with our revenue-management team and their ability to manage this—not just the citywide events, but the small groups. We think that’s a stable number as we have visibility into the near term … and our markets look pretty favorable for the balance of the year.”

Alison Brittain, CEO of Whitbread PLC, owners of the Premier Inn hotel chain
“In the fourth quarter, we saw a decline in business and leisure confidence (in the U.K.), leading to weaker domestic hotel demand. This weakness has increased into March and April, particularly in the regional business market.”

Geoff Ballotti, CEO, Wyndham Hotels and Resorts
“We’re very pleased with (first-quarter 2019 growth), which showed continued occupancy gains across the board and continued weekend strength, which we feel from a leisure standpoint … sets us up very well for the busy summer leisure travel season ahead.”

Barry Bloom, president and COO, Xenia Hotels & Resorts
“Most of the hotels we renovated last year were generally heavily transient-focused and more urban hotels. It was really strength in our largest convention hotels across the board this quarter that helped drive the majority of that growth in group, for sure. … We obviously also had some benefit from the Super Bowl in Atlanta, specifically at the Waldorf. … Whether you clearly count as group or not is kind of an individual matter. But certainly, when you think about our largest group-focused hotels, those are the ones that really have that outsized group performance. …

“Without question, I think Q1 will shape up to be our best group quarter in terms of growth. … Just directionally … things are fine in Q2 and Q3. Right now, we are seeing some softness in Q4, but that doesn’t particularly concern us because we still have … a big booking window to get into that and are focused on that obviously as it relates to our end-of-year, full-year business.”

 

 

By  Robert McCune