In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance
OVERALL
- LITTLE WORSE: Last quarter, HOT thought that 2012 was more likely to surprise to the upside than downside. Given the larger FX headwinds and weakness in Europe, Argentina, Canada and greater deceleration in China, it now looks like things are trending at the mid-point of their expectation.
REVPAR MOMENTUM AND MIX
- SAME: US RevPAR picked up to 7.9% in 2Q. Rate growth of 4.8% accounted for 60% of RevPAR growth.
- PREVIOUSLY:
- "Primarily driven by rates, we expect RevPAR growth momentum to be sequentially stronger from Q1 to Q2."
- "Rate in the first quarter was roughly 50/50 and we're heading towards more like a 60%-plus rate to occupancy mix as we head into the latter part of the year."
- "Occupancies are getting to the point where rates should begin to move more than it has to date.
GROUP BOOKINGS
- LITTLE WORSE: "Corporate momentum remains robust, group pace is tracking in the mid- single digits" There was a lot less discussion surrounding the strength of group bookings on this call.
- PREVIOUSLY: "We're now booking on the group side is clearly at a much higher rate. Recent group bookings have been at rate increases that are in the range of 7%, 8%, 9%."
CORPORATE NEGOTIATED RATES
- BETTER: HOT expects an even better outcome from 2013 corporate rate negotiations compared to the rate increases realized this year.
- PREVIOUSLY: "Corporate negotiated rates always take a little while to catch up, but they are beginning to catch up. We've had some rate increases in the negotiated rates. The corporate negotiated rate business that we're getting this year is 6%-plus more than last year."
SUPPLY OUTLOOK/DEMAND OUTLOOK
- SAME: Low supply growth continues to offset the impact of the "new normal" 1-2% economic growth. Corporate profits remain healthy and they have had no indication of plans to cut back on travel.
- PREVIOUSLY: "Commercial real estate loans in general and especially construction loans continue to decline. So supply is tight and it looks set to stay that way for a while, but demand in North America, Europe and Japan has continued to build. Companies are profitable and in great financial shape and they're in search of growth."
EUROPEAN REVPAR
- WORSE: Trends in Europe must have deteriorated since April. European RevPAR grew 2.3% in constant currency and was down 8% in actual dollars. Expect a slow and steady improvement in the business with 3Q getting a boost from the Olympics and the strong dollar driving leisure travel from the US.
- PREVIOUSLY: "Despite continuing concerns around the outcome of the French election or Spain's refinancing needs, we are seeing improving business trends in our key European markets. These trends would suggest that RevPAR growth in Q2 should approach 4% in local currencies from under 2% in Q1. We are currently tracking at a 4% level in April."
ASIA REVPAR
- SLIGHTLY WORSE: Asian RevPAR picked up from 6.7% in 1Q12 to 9.3% in 2Q 2012, but didn't quite get to those double-digit rates that HOT had hoped for. Expect the 2H to come in at the high end of their 6-8% WW range.
- PREVIOUSLY: "We expect a sequential acceleration in Q2, with RevPAR growth returning to a double-digit pace."
MIDDLE EAST & AFRICA REVPAR
- BETTER: 2Q RevPAR in this region increased to 11.2% from 2.3% last quarter
- PREVIOUSLY: "In the Middle East and Africa, we saw big jumps in RevPAR in March, as North Africa started to lap the start of Arab Spring events of last year. However, in absolute terms, business is still weak in countries like Egypt, where the situation remains unsettled for travel. Saudi and the Gulf, on the other hand, are on a strong cyclical recovery track, and sub-Saharan Africa is delivering solid double-digit growth. As a result, we expect RevPAR growth to accelerate in this region in Q2."
LATIN AMERICAN REVPAR
- WORSE: Since 1Q, Latin America has lost its momentum. It was HOT's second slowest region with RevPAR growth of 6.1%. The slowdown in Latin America was attributed to instability in Argentina, which is expected to get worse in 2H12 and continue to drag down RevPAR for that region.
- PREVIOUSLY: "All indications are that Latin America will remain our fastest growing region."
CHINA PIPELINE
- SAME: HOT has not see any development delays in their 100 hotel pipeline. YTD signings have picked up to 30 new hotels vs. 27 last year.
- PREVIOUSLY: "Although there have been concerns about the real estate sector in China, the pace of hotel signings and openings remains steady and strong, especially in tier two and tier three markets, where we have been focused for the past few years."
BAL HARBOUR CLOSINGS
- BETTER: HOT closed on 60% of the condo units at Bal Harbour through 2Q
- PREVIOSULY: "To date, we have closed on 138 condo units, 102 this year and 36 last year. 32 units have been sold but not yet closed. As such, the project will be over 50% sold and closed by the end of this quarter."
M&A
- BETTER: They still have several assets where sale discussions are underway and they expect to close on a few by the end of the year. However, management stated that they were more discussions underway with potential buyers than there were 3 months ago.
- PREVIOUSLY: "In terms of assets sales, we are always exploring opportunities to sell our owned hotels at attractive prices to high quality, long-term owners. We have several conversations currently underway. We expect some or all of these transactions to close later this year."
BUYBACK
- BETTER: HOT repurchased 2.84MM shares for $140MM during 2Q through July 25th
- PREVIOUSLY: We have a share buyback authorization already; we've had it for a while. I think the timing of our share buyback is going to be linked more to assessment of intrinsic value than any kind of trigger around asset sales and so on."
INVESTMENT GRADE RATING
- BETTER: HOT got BBB ratings from 2 rating agencies this quarter. Goal of keeping the rating through cycles remains.
- PREVIOUSLY: "Our goal is to stay investment grade through cycles. We're there with the next paydown. We pretty much brought our debt down to levels where we want it to be. We think, over time, the ratings will all line up at BBB."