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Another lodger disappoints on Q2 RevPAR and F&B growth. However, guidance and forward commentary was positive


Q2 2014 commentary:

  • High occupancy driving ADR and thus RevPAR
  • International hotels continue to outperform
  • Transient: demand 1.6%, rate 5%, revpar 6.5%
  • Group slow due to Q2 calendar shift:  demand 0.8%, revenues 2%

For H1 2014 commentary:

  • Group REVPAR:  +3.5%, demand:  +3.5%, ADR +6% best performance since last peak
  • Corporate group +5% demand
  • Transient demand + 0.7%  rate +4.5% = +5% revenue
  • Banquet revenue +6.6%.  F&B +4.8%;  50% flow through

Acquisitions: active pipeline and expect acquisitions before year end but not included in forecast currently due to timing of closing

Disposition:  expect to sell at least one asset ($200M) before year end

Total capex:  $180m


  • Slow GDP growth, employment growth, limited new supply
  • Group booking pace very strong: revenues tracking 6% higher
  • Group IQFTY up 14%
  • 3Q booking trending better than 4Q
  • Solid banquet spend and good flow through
  • 2H margins expand more than 1H

Q2 Market Highlights:

  • Latin America:  RevPAR +40%, Rio & Mexico City +53% RevPAR, outpeform in Q3
  • West Coast: RevPAR +7.1%; ADR +7%,
    • SF ADR +11.2% mix shift toward transient and higher rated group.
    • Seattle: Q3 stronger than portfolio
    • Pheonix: rate and occ gains due to group gains, driving transient mix, 3Q in line with portfolio
  • Denver: strong group business = strong Q3
  • Hawaii: negative impact due to Hyatt Maui, Q3 improving performance
  • Florida: RevPAR +16.5% in April, 13% in Q2.  Q3 in line with portfolio
  • Houston: lost  2% occupancy due to comp and attrition: Q3 and Q4 expect under performance due to renovations and lack of citywides.
  • Atlanta: Q3 better
  • Chicago: RevPAR down, lack of citywides.  Q3 better
  • NY:  occupancy up, rate weaker, Q2 RevPAR 5%, F&B +8% in Q2, supply growth hampering rate gains.  Q3 and Q4 in line with Q2 but supply overhang
  • Wash DC: ADR declines, suffering, Q2 group room nights -9.2%, replaced group loss with lower rated transient. Q3 expect continued weakness


  • Q2 slow down due to calendar shift
  • Q3 stronger

EBITDA outlook:

  • Margin: 100-130 bps better, insurance and overhead gains
  • 3Q: 22% EBITDA of total FY EBITDA will be earned in 3Q

Balance Sheet:

  • Blended and extended revolver and term loan


  • Strong outlook, large FCF, increased dividend to $0.20 - will be run rate for few quarters.
  • Potential for special dividend.
  • May issue additional dividend greater than 100% of taxable income if unable to find suitable uses for excess cash.


  • NA RevPAR vs. STR data
    • Secondary market performed better than primary markets, natural evolution of lodging cycle.  Leisure sector stronger than rest of the market, better performance at lower price points.  Non-comp hotels had double digit RevPAR growth.
  •  Acquisitions: why no assumed acquisitions in guidance?
    • Nothing to announce today, mid-year 
  • Acquisition pricing vs. replacement cost vs. historicals?
    • Difficult to compare on replacement cost, still better to be a buyer vs as a developer.  Certain markets with stronger recoveries (West Coast and Miami), transaction pricing approaching replacement cost, so some new development. Not yet at the levels of 2006 and 2007 when buyers willing to pay 15% to 20% higher price than HST ability/desire.
  •  Acquisitions: what's in the pipeline -- US vs. International?
    • Mixed, good European activity, looking in Europe. Also looking at higher end of select service in the US.  Asia slow, nothing immanent. 
  • Acquisition - how to find appealing opportunities given interest by PE, SWF, and other REITs?  Repositioning?
    • Change in operator or change in brand which allows HST to satisfy their yield requirements.
  • Dispositions?
    • A number of assets listed for sale, expect potential closing late fall into early winter
    • If sell a $200 million asset, then EBITDA down $4 million in Q4. 
  • Group - increasing lead time, pricing power? 
    • Seeing a significant increase in corporate business, especially in Q2.  Pleased with booking activity in Q2,  IQFTQ room nights up 9%, rest of 2014 nights up 5% translates into revenues up 14%. Bookings getting done now ADR significantly higher than YoY.  Encouraged by booking pace.   2015 unclear...1H very good on rate and occupancy but 2H rate lower and not seeing booking nights pick up. 
  • Prior Peak EBITDA on current portfolio?
    • 2007 peak $1.48B but acquired and sold various assets, so not a true comparable number. 
  • F&B spend in Q2 vs. Q1 for groups?
    • Up strongly in Q1, flat in Q2, up in Q3 but difficult to tell for Q4, Q4 impacted by holiday party spend decisions which are close to date. Generally seeing decision to spend more closer to event. 
  • Upscale select service opportunity?
    • Decision based on return opportunity of the asset as well as the outlook for the asset. Not see a meaningful increase in upscale hotels in portfolio. 
  • European JV portfolio - H1 vs H2 trends?
    • Noticed similarities in Spain & UK, urban hotels under performing.  Spanish resorts did very well and outperformed urban assets. Weaker in Europe in H1 due to event timing, group events in 2013, coupled with internal travel shifts.  Pleased with F&B and profit flow through.  H2 trends reverse, upticks in group business.  
  • More acquisitive with JV partner as European economies recover?
    • Looking and also seeing an uptick in activity.  Will be disappointed if HST does not participate in few transactions in H2 of this year.
  • Occupancy trends - markets running high 70s/80ish, how to get additional occupancy gains?
    • Add'l RevPAR gains will be ADR driven.  Middle of the week 90% occupancy so drives rate, on weekend need to drive occupancy and ADR will follow.  Trying to move groups more to weekend stays. 
  • Incentive management fees - trending over coming quarters? 
    • Expect 50%-55% of hotels to pay IMFs.  Renegotiated IMF contracts with several operators.  Expect historical IMF increases in 2015 and 2016, but will approach prior peak of 70% of hotels paying IMFs.
  • Domestic RevPAR below MAR and HOT - why?   
    • Portfolio composition and YoY compares. But encouraged and mid-point of guidance today was upper end of range last quarter. If include non-comp hotels, then Q2 closer to 5% revpar growth.
  • Maui timeshare - quantify expenses?
    • Have expense during Q2... didn't quantify.  But $11 million of EBITDA will be recognized in Q4 when the timeshare sales begin
  • Redevelopment opportunities?
    • Houston Marriott, San Diego ballroom, plus couple of other redevelopment opportunities, will have more commentary on 3Q call, but expect 2015 ROI capex budget to increase slightly.  
  • Washington DC outlook?
    • Outlook better - more rooms booked for 2015 and 2016.
    • Negative is what's happening with the Government politically, government sequesters, cutbacks.  H2 drag more muted/modest.