Hospitality Industry Executives Look Ahead to 2019
Officials with public companies shared their full-year 2018 expectations on third-quarter earnings calls, but some shared thoughts on renovations, group business and more to come in 2019.
The year isn’t over yet, but executives from public companies on third-quarter earnings calls were sharing what they expect to see in 2019.
There are headwinds ahead for some hotel brand companies and real estate investment trusts, but the overall tone on calls in regards to next year was positive.
Leslie Hale, CEO, RLJ Lodging Trust
“The ongoing renovation at our largest asset, The Marriott Louisville Downtown, and non-repeat project business at other hotels in the market resulted in our (revenue per available room) declining by 17.1% during the quarter. With ongoing renovations during the fourth quarter and comping against an 11% RevPAR growth last year, we expect weakness to persist in the fourth quarter. For 2019 however, we are encouraged by the renovation-related tailwinds and the strong group pace at the Marriott Downtown.”
David Wyshner, CFO, Wyndham Hotels & Resorts
“We continue to expect to achieve $55 million to $70 million in total synergies from the La Quinta acquisition; we are on target with both our expected timing of synergy realization and the amount of salary and benefit savings. As a reminder, virtually all of the synergies we projected are cost savings. …
“We continue to target completion of substantially all of our integration work in the first half of 2019 as we add La Quinta onto our technology platforms and loyalty programs, positioning us to reach full run rate synergies in the second half of 2019. As a reminder, you should expect La Quinta to contribute about $9 million to $12 million of (earnings before interest, taxes, depreciation and amortization) per month in 2018, subject to some seasonality growing to around $13 million to $14 million per month by late 2019 as the business is fully integrated.”
Dominic Dragisich, CFO, Choice Hotels International
“Over 1,000 Comfort Hotels are either under renovation or have recently completed their upgrades. This number exceeds our previous expectation and had a short-term impact on Q3 (RevPAR). Today, hotels that have completed renovations are already performing better than the rest of our brand portfolio and prove that we’re making solid progress towards the tipping point in the brand’s transformation. While we anticipate approximately 40% of the Comfort system to complete their renovations by year-end, a significant number of Comfort Hotels will continue renovation into 2019, given the completion time required at some hotels.
“Even with the temporary renovation impacts, we expect our fourth-quarter RevPAR to grow between 1% and 3%, and our 2019 full-year RevPAR to increase in line with the industry projections for our chain-scale segments. In addition, in 2019, we expect an acceleration of our domestic unit growth and further improvement in our effective royalty rates that will continue to fuel our royalty growth.”
Arne Sorenson, president and CEO, Marriott International
“As we consider our 2019 outlook, we note that group revenue on the books in North America for comp hotels in both 2018 and 2019 are modestly higher consistent with constrained meeting space capacity. Our sales organization is doing a great job.
“We are negotiating 2019 special corporate rates with our largest corporate clients right now. And while only a few negotiations are complete, we expect 2019 special corporate rates for comparable accounts in North America to rise at a low single-digit rate.
“Given all this, we expect RevPAR in North America will increase 1% to 3% in 2019, which reflects our continued steady-as-she-goes view of lodging demand.”
Chris Nassetta, president and CEO, Hilton
“Looking ahead to 2019, positive macro indicators suggest continued strength in lodging demand. This, together with decelerating supply growth in the U.S., should lead to fundamentals remaining positive, with regional GDP growth forecast indicating continued strength in international markets. Additionally, areas of the business where we have better visibility further support healthy dynamics going forward.
“Group position for next year remains up in the mid-to-high single digits, with nearly 70% of group business on the books. And early corporate rate negotiations show healthy year-over-year increases. As a result, we feel good about things heading into 2019 and expect RevPAR trends similar to this year, with growth of 2% to 4%.
“Our optimism also extends to our development outlook, where we continue to gain share of global activity. We ended the third quarter with more than 2,400 hotels, totaling roughly 371,000 rooms in our pipeline, up 11% year-over-year, driven by increases across both our U.S. and international pipelines. We remain on track to sign a record 110,000 rooms this year and deliver net unit growth of approximately 6.5% in 2018 and again in 2019.”
Corey Sanders, COO, MGM Resorts International
“…As we look at the entire year and as we look at also what’s out there from a citywide perspective, we expect to be up. What we have on the books right now is pacing extremely well and we believe that we’ll gain some market share in the group room night area. And in particular, (the Las Vegas Convention and Visitors Authority), I think, came out and said that they’re going to be up 1%, 1.25%. We believe we will do much better than that on what we see on the books. And the comfort there is we have about 80% of what we think is going to be on the books already on the books. And that’s probably the highest we’ve been in the last, ever since we’ve really started our budgeting process. From an event perspective, it’s—that’s also really hard, because we know where hockey’s on the books and what other sporting events are on the books and there will be more events there, but that is also looking pretty positive. With regards to Mandalay Bay, Mandalay Bay will be up next year on convention book room nights. It’s still not quite where we’d like to see them, but they definitely will have a nice increase compared to this year.”
Jon Bortz, chairman, president and CEO, Pebblebrook Hotel Trust
“We also have a significant number of properties that we’ve completely transformed that will continue to ramp up in 2019 toward stabilization, including the eight properties in the last two years. At the same time, economic growth is generally forecasted to continue at a healthy level in 2019. Coming off what is likely to be record corporate profit growth in 2017 and 2018, which should drive further growth in business travel and leisure travel.
“When we look at our pace for 2019, we’re particularly encouraged. Group revenues for 2019 are up a robust 22.3% over same time last year for 2018. Group room nights are up by 15.4% and for what is a very positive sign for 2019. Group (average daily rate) is currently up 6%. And we currently have 41% of the number of group room nights on the books as compared to our forecast for where we’ll end up for 2018.
Our pace is also very positive for transient. Room nights for 2019 are up 1.5%, transient ADR is ahead by 10.8% and total transient revenue is 12.5% over same time last year for 2018. So 2019 is shaping up so far as a very good year.”
Keith Cline, president and CEO, CorePoint Lodging
“I know many of you are seeking some insights into our 2019 (EBITDA) expectations. We are in the early stages of 2019 budget planning with Wyndham to complete our 2019 budgets, and we’ll provide full-year 2019 guidance on our fourth-quarter earnings call in February. However, based on a very preliminary review, I can provide some direction on two key items for 2019. First, the properties impacted by hurricanes. All properties impacted by Hurricane Irma will be opened by the end of 2018, except our Fort Myers location, which we expect to open in early 2019. We currently expect the incremental EBITDA contribution from properties impacted by Hurricane Harvey and Irma will be in a range of $13 million to $17 million in 2019 over 2018, reflective of an expectation of increased operating costs and insurance premiums next year.
“Second, the repositioned properties. As of the end of 2018, 27 of the repositioned hotels will have a full 12 months of (ramp up) and the remaining 26 properties under repositioning will be in various phases of stabilization. As such, next year, we’ll only realize a portion of the benefit of this initiative. Consistent with our performance in 2018, our preliminary expectations for the performance of these repositioned hotels in 2019 is exceeding our original revenue expectations. But as we continue the transition of these hotels, higher expenses are impacting their overall profitability versus our original expectations, at least in the near term. Taking this into account, we currently expect the incremental EBITDA generated by repositioned properties will be in a range of $7 million to $9 million in 2019 over 2018.”
James Risoleo, president and CEO, Host Hotels & Resorts
“In the quarter, we closed on the previously-announced sale of the W Union Square for $171 million. We also announced that the Westin New York Grand Central is under contract for $300 million, inclusive of the (furniture, fixtures and equipment) reserve. The Westin had significant money at risk and we anticipate the sale closing early in 2019.
“Including the W New York, which was sold earlier in the year, by early 2019, we will have sold three assets in New York for a combined EBITDA multiple of 28 times, significantly eliminating our exposure to profitability-challenged hotels in the market.”
Tom Baltimore, president and CEO, Park Hotels & Resorts
“I remain very optimistic on the fundamentals of our business. The fourth quarter should be one of our strongest quarters of the year with that momentum expected to carry into 2019. While there has been some concern over weaker citywide calendars next year across several major U.S. cities, one of Park’s key advantages is the strength of our group business, and we believe Park remains very well-positioned in this regard for a few reasons.
“First, we have some of the largest group-oriented hotels in the sector, with eight hotels offering over 125,000 square feet of meeting space. This platform allows us to book a considerable amount of our demand in-house, with only a third of our group business generated from citywide conventions. Second, there is a favorable setup in a number of our key markets going into next year, and we anticipate strong group performance in Hawaii, Orlando and especially San Francisco as the Moscone Center will be fully renovated and operational by the end of this month. And finally, the strength of our group pace reinforces our optimism. Our 2019 group pace is up nearly 12% and over 9% when you exclude San Francisco, demonstrating our continued success in grouping up across our top 25 hotels, with most of that growth generated on the demand side. Of particular note is the impressive pace for corporate group, which is up (more than) 20%. Additionally, our transient business continues to improve, with the pace of business transient revenues accelerating in the second half of this year supported by favorable macroeconomic fundamentals. Simply put, the setup for Park in 2019 is very good.”
Jeremy Welter, COO, Ashford Hospitality Trust
“But going into 2019, the group positioning that we have at within the portfolio is strong. The (request for proposal) process that we’re going through right now with special corporate negotiated rates is strong. We expect to have some decent ADR increases. We are seeing growth in business transient.”
Pat Grismer, former CFO, Hyatt Hotels Corporation
“Looking ahead to next year, we expect full-year 2019 system-wide RevPAR growth to be in the range of 1% to 3%. We are reaffirming our prior guidance for net rooms growth of 6.5% to 7% for 2018. But I would note that we have a large number of hotels scheduled to open near the end of the year with the possibility of openings in December that were previously scheduled for 2019.
“With respect to 2019 net rooms growth, we are also reaffirming our prior indication of at least 7.5% growth. However, should previously-scheduled 2019 openings accelerate into 2018, we could see a slightly higher 2018 growth rate and a slightly lower 2019 growth rate, with the combination of the two years showing exceptionally strong net rooms growth. I would like to point out that we expect a record number of signings of management and franchise agreements in 2018, supporting strong net rooms growth well into the future.
“Finally, we are reducing our guidance for full-year capital expenditures to approximately $325 million, reflecting a shift of certain costs into 2019, which we expect will show higher levels of spending, given the number and nature of projects underway at that time.”
Jonathan Halkyard, president and CEO, Extended Stay America
“First, on the hotels that we would expect to have opened in 2019, in terms of the owned hotels, we’ve broken ground on a couple, plan to break ground on a couple more before the end of the year. But the construction cycle is right about 12 months. So while we would expect to have some new hotels within our owned portfolio opened by the end of the year, the impact to our financial performance next year is going to be pretty modest. And I would expect the same for third-party (development), while there is good third-party activity and they are moving ahead apace, again, it takes about 12 months to get a hotel built. So I wouldn’t expect to see a lot of impact to 2019.
…
“I would tell you that the difference between where we’ve been, say over the course of the last year and where we would expect to go next year, relates to the CapEx from our renovation program and then CapEx for new-builds. But on the renovation program, just kind of some things to keep in mind, we’re doing at least the $5,000-per-key base level of renovation in all properties, spread out over the course of about seven years. So you can expect that that renovation activity will probably result in CapEx of about $35 million to $40 million in 2019 and in subsequent years. In addition to that, there are the extra tiers of renovation. … And that level of renovation activity spread out over the course of the seven years is going to be somewhere in the neighborhood of $40 million, maybe a little north of that, and we would expect it to be somewhat higher in 2019.”
Mark Brugger, president and CEO, DiamondRock
“For 2019, we’re still in the very early stages of receiving and reviewing budgets. We are generally bullish on our resorts and resort markets, which comprise about one-third of our portfolio. Our Boston hotels are likely to perform around the national averages as the increasingly easier comp helps offset a softer convention calendar.”
…
“Our 2019 group pace is currently down mid-single digits, but improved about 70 basis points from last quarter, and we continue to make progress. For us, for DiamondRock really, our two most important group markets given our big convention hotels in Chicago and Boston, they both have soft convention calendar years in 2019, but they do have better patterns. So if you look at the most in-the-need group quarter, which is the first quarter in both markets, it’s actually quite good for our two biggest convention hotels. First-quarter group pace is up 18% at the Westin Boston, and it’s up 24% at the Chicago Marriott. So we still have work to do on the pace for 2019, but as we mentioned earlier, the ’20 and ’21 pace look excellent.”
