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Morgan Stanley Coverage Cites HotStats Data

Morgan Stanley recently began using HotStats data to produce its notes. 

We recently began receiving monthly data from HotStats, a global profit and loss data benchmarking company.
HotStats collects property-level P&L data to create reports with >500 KPIs of revenue and expense down to the Gross Operating Profit (GOP) level. The data is published on the 21st of each month for the prior month. In the US data set we receive, there are a total of 1,435 hotels or 453,646 rooms, covering 23 operators and 105 brands. The data reflects both open and closed hotels. The percentage of closed hotels included in the set was 19%/15%/13%/11% in July/Aug/Sept/Oct, improving from 53% in April. Recent trends are as follows:

Revenue metrics. Total operating revenue growth fell 82%/78%/79%/79% y/y in July/Aug/Sept/Oct. F&B revenue growth declined 59%/56%/67%/65% y/y in July- Oct, improving from an April trough of 89% during the summer leisure months, but taking a step back in Sept/Oct. Total RevPAR growth the past 4 months declined 82%/78%/79%/79% y/y, suggesting that the recovery has recently begun to stall. The sequential m/m improvement in rooms RevPAR growth has similarly moderated for the data set, with July/Aug/Sept/Oct experiencing declines of 81%/77%/77%/77.5% y/y.

Expense metrics. Total costs fell 69%/63%/62%/68% y/y in July/Aug/Sept/Oct, with the uptick in August/Sept perhaps attributable to hotels re-opening and expenses ramping before moderating slightly in October. Similarly, labor costs declined 71%/62.5%/62%/71% y/y in July/Aug/Sept/Oct. The sequential m/m decline in both total costs and labor costs from September to October is due to heightened payroll in September, specifically severance pay especially in union markets like NYC.

Margins. Notably, Gross Operating Profit (GOP) margins were 9.9% in October, positive for the first time since Feb, with the prior July/Aug/Sept (12)%/(12)%/(12)%. GOP margins at open hotels in our data set have been positive since July. Open hotel margins were 5%/3%/7%/22% in July/Aug/Sept/Oct.

Implications for Lodging REITs' 4Q results. The hotels in the data set are concentrated in higher-end chain scales and gateway cities, and appear to have had a strong correlation with our covered Lodging REITs' (DRH, HST, SHO, XHR) performance. For example, our covered REITs experienced average RevPAR declines of 24%/95%/83% in 1Q/2Q/3Q vs. HotStats reported declines of 20%/91%/79%. We expect the REITs' avg 4Q RevPAR growth to fall 76% y/y vs. Hotstats October RevPAR came in at (77.5)%. Additionally, the REITs' total comparable revenues, ex dispositions, fell 22%/94%/81% in 1Q/2Q/3Q vs. HotStats 19%/92%/80%. We expect the REITs' avg 4Q revenue growth to fall 73% y/y vs. Hotstats October revenue came in at (79)%. In 1Q/2Q/3Q, our covered REITs experienced average expense reductions of 9%/72%/62% vs. Hotstats reported reductions of 8%/74%/65%. We expect the REITs' 4Q avg expenses to fall 56% y/y vs. Hotstats October expenses came in at (68)%. With both revenue and expenses coming in a bit below our forecasts, we are generally comfortable with our current 4Q estimates, with potential slight upside for DRH, HST, SHO from expense savings, but downside for XHR from lower revs.

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