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Incremental Takeaways from Webcast with HotStats

We hosted a webcast with HotStats, the property-level P&L data benchmarking company. We found the following comments most interesting / incremental on how to think about current and future hotel profitability:

Hotels are currently breaking even on Gross Operating Profit (GOP) at 26% occupancy vs. previously ~35%. Hotels have been able to meaningfully cut costs through zero-based budgeting and help from franchisors / govt's, which has allowed them to lower their break-even occupancy to 26% from previously ~35%, despite lower room rates. This is on Gross Operating Profits, so basically property EBITDAR before mgmt fees. For luxury hotels, many had been able to break-even at lower occupancy levels in the past due to premium room rates and more ancillary revenues, so it will be important for this business to come back.

Costs to safeguard rooms for COVID are only driving slightly higher supply costs / room. The onset of the pandemic resulted in a sharp increase in supply costs per occupied room related to higher cleaning and safety standards related to COVID. However, the incremental supply expenses per occupied room appear to have been offset by operational efficiencies where they are now only slightly above last year’s levels.

Sales & marketing likely one of the biggest levers of future profit margins.
While labor is the largest contributor of expenses at ~40%, in the past three months hotels across regions have made greater cuts to sales & marketing than to any other expense bucket. Sales & marketing at least in the US make up ~12- 13% of hotel expenses, suggesting permanent reductions to sales & marketing could bolster future margins.

US and EU hotels had inefficient F&B compared to the RoW pre-COVID. Just over 70% of global hotel revenue is typically rooms, with the remainder Food & Beverage, Conference & Banqueting, Spa & Leisure, and Other (e.g. parking). Generally, non-room revenues can be quite profitable. However, in the US and Europe F&B margins have run at 28% and 25%, lower than 33% and 39% in APAC and Middle East. Some of this may be structural (e.g. hotel restaurants more popular in APAC / ME, also labor costs lower). However, it could also suggest room for future cost savings in the US and EU, with US F&B costs per available room basis currently down ~80%, EU ~70%, ME ~55%, and APAC ~30%.

US leisure occupancy reached 55% of 2019 levels in Oct while corp only reached 12%. In the US and the RoW, leisure is leading the recovery, while corporate demand continues to lag. In the US, both leisure and corporate travel troughed at 6% occupancy, but leisure travel reached 55% of 2019 occupancy levels in October, while corporate occupancy reached only 12%.

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Morgan Stanley Coverage Cites HotStats Data

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