Excerpt from CoStar

Analysts on the Lookout for Transactions News

Third quarter performance for major hotel brands and real estate investment trusts is expected to follow a somewhat predictable pattern: Especially strong leisure demand fueled strong numbers in July and August before a seasonal drop-off of demand in September.

But analysts who cover the hotel industry believe those demand patterns, and indeed performance during the fourth quarter, aren't going to be what investors are interested in or what management teams are focused on during the upcoming third quarter earnings season. Instead, earnings calls are likely to be dominated by optimistic commentary for the trajectory of demand in 2022.

"Management teams are not focused too much on fundamentals, and investors aren't either," said Michael Bellisario, senior research analyst and director at Baird. "Mainly, we're through the worst of the [COVID-19] delta variant, and it was pretty scary for about 30 days with slowdowns and cancellations, but now you can expect upbeat commentary about business travel recovering gradually, bookings improving and group bookings on the books for next year looking strong."

Rich Hightower, managing director at Evercore ISI, said it's reasonable to expect current performance levels to continue through most of the fourth quarter.

"That's going to carry through the fall until we get to the end-of-the-year holiday period," he said.

But he agreed that likely won't be the focus of commentary in earnings calls.

"I don't think early October performance, for instance, is going to be a huge highlight for these guys," he said. "They're probably going to minimize the fourth quarter, at this point."

C. Patrick Scholes, managing director of lodging and experiential leisure equity research for Truist Securities Group, said most publicly traded hotel companies had modest earnings projections for the quarter, and investor expectations for the year remain conservative. He said the commentary from hotel brand executives likely will revolve around development pipelines.

"What I'm expecting from the C-corps like Hilton, Hyatt and Marriott is for them to remain bullish on their new unit pipelines and net unit growth," he said. "That business continues to go very well, and given how bad it was last year, net unit growth staying strong is quite an accomplishment."

Click here to read complete article at CoStar.