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Suntrust Robinson Humphrey October 2019 Hotel P&L Analyzer

GOP margins -100 bps y/y on Total RevPAR of -1.2%

Introducing our 2020 margin forecast of -25 to -125 bps

What's Incremental To Our View

Based on “big data” observations from ~1,000 higher-rated U.S. hotels (data source: HotStats) in our hotel data analytics lab: October: 100 bps of GOP margin decline on approximately -1.2% Total RevPAR (Total RevPAR includes Rooms RevPAR plus outside-of-the-room spend). October RevPAR results came as expected with Rooms RevPAR of -2.4% and relatively better Total RevPAR. October data reflected holiday shift impact (the Jewish High Holidays benefited September/hurt October).

We are holding our 4Q19 margin forecast of +25 bps to -50 bps. We are holding our 2019 margin forecast at flat to -50 bps (YTD -30 bps). While 4Q will be an easier comp for many hotels (strong San Francisco citywides, lapping of 2018 union strikes, and a positive calendar shift for New Year's), the tough Jewish High Holidays calendar shift and continued challenges of weakening RevPAR growth and labor cost pressures will likely limit opportunities for positive margins in 4Q19.

Introducing 2020 hotel REIT margin forecast of -25 bps to -125 bps. As shown in the GOP % of Total Revenue graph on page 10, the margin trend line is not encouraging and we believe the slope of the line will not begin to turn upwards until RevPAR growth has troughed and begun to show second- derivative improvement. Unfortunately in our forward-looking research, we see no clear evidence that a sustainable cyclical turn upwards is on the immediate horizon. We believe it may not be until 4Q2021 when the growth rate of RevPAR troughs.

  • Why the 4Q2021 quarter? 4Q2021 will face a very difficult y/y comp due to election-related group events and conventions. Based on our forward-looking research, group business begins to gradually reaccelerate in 2022 once this tough comp is past.
  • We anticipate a wide spread among hotel margins for REITS in 2020.
    • Margin relative outperformers: Hotels with a heavy group mix and in strong citywide markets. Within our coverage, we assume Ryman Hospitality (RHP, Hold) is the standout.
    • Margin relative underperformers: Hotels with a transient business focus, hotels in high labor cost growth markets, and hotels with material new competitive supply growth. Some REITS will likely have negative margins due to major ROI CapEx projects.

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Industry Notes

Suntrust Robinson Humphrey December 2019 Hotel P&L Analyzer

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