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Demand For Hotels Is Flattening As Hotel Owners Burn Through Millions In Cash Reserves

Demand For Hotels Is Flattening As Hotel Owners Burn Through Millions In Cash Reserves
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Major U.S. hotel companies lost hundreds of millions of dollars in the spring as they gradually reopened hotels this summer to low demand, and their leaders expect there could be a long road back to profitability. 

The hotel industry, by job losses and debt defaults, has been the hardest hit by the pandemic. The biggest owners and operators of hotels have revealed a host of new financial information over the last two weeks as companies release their earnings reports for the second quarter, which includes the nadir of pandemic-related shutdowns.

In addition to the data from April through June, which shows billions of dollars in losses for hotel REITs and brand giants, the companies have shined a light on a discouraging trend that materialized in July.

A spike in COVID-19 cases across the country caused hotel demand to flatten in July after it experienced positive momentum in previous months, multiple CEOs said.

This trend was especially bad in South Florida, where local governments closed beaches after a surge in cases, Host Hotels & Resorts CEO James Risoleo said on his firm’s earnings call. He said the company had expected July occupancy to reach the 70% range at some of its Florida hotels, including the 1 Hotel South Beach, but it ended up running around 20%.

“The bad news is there was a surge in cases, and there’s nothing we can do about that,” Risoleo said. “We think if we hadn’t seen the surge in cases in Florida that we would have done better than we did at those properties.”

Host Hotels, the largest lodging REIT, reported a net loss of $356M during the second quarter. The REIT estimated its monthly cash burn will remain between $100M and $110M throughout the second half of 2020.

Pebblebrook Hotel Trust, another major lodging REIT, reported a Q2 net loss of $131M and its monthly cash burn is running between $19M and $24M. CEO Jon Bortz said hotel demand bottomed out in mid-April and then gradually increased over the next two months, but he also saw a flattening of demand growth in July that he attributed to the rise in cases.

“We do not anticipate any substantial improvement in business travel or travel in total over the course of the rest of the year,” Bortz said on the REIT’s earnings call. “We think it’s unrealistic to expect at this point, given the resurgence in cases, in deaths, in hospitalizations, particularly as compared to other places around the world. We’ve not gotten control of the virus.”

The performance of hotel REITs varied based on how heavily their portfolios were concentrated in major cities with large hotels dependent on conferences.

“The bigger the hotel, the more challenging it is to get open because you’re just that much more dependent on groups,” Bellisario said. “Large groups aren’t materializing, and I think people are starting to realize it’s probably not going to happen this year.”

“As we look to the fall, assuming no significant disruptions to the current environment, we hope to see a continuation of the modest pickup in business transient demand, which would help offset slower leisure demand post-summer,” Hilton CEO Chris Nassetta said on its Thursday earnings call. “However, we remain cautious given the uncertainty surrounding the virus and its overall impact, including the reopening of schools and offices.”

credit: bisnow

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