How coronavirus concerns are affecting hotel stocks, guidance

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Photo credit: Pixabay/Gerd Altmann

The week opened Monday with one of the worst days on record for the stock market since 2008’s financial crisis, with the Dow Jones Industrial Average plummeting over 2,000 points. Then, Tuesday brought in some optimism followed by more uncertainty. COVID-19 concerns, in addition to falling oil prices, were to blame. By Tuesday afternoon, the Dow was up about 1.5 percent.

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On Monday, STR and Baird reported that the Baird/STR Hotel Stock Index fell 11.7 percent in February to a level of 4,296. Year to date through the first two months of 2020, the stock index has dropped 18.5 percent. The Hotel Brand sub-index decreased 10.6 percent to 7,195 from January, while the Hotel REIT sub-index declined 14.3 percent to 1,169.

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“Hotel stocks fell off a cliff at the end of the month due to mounting COVID-19 concerns domestically, and the broader stock market correction has disproportionately impacted travel-related stocks,” Michael Bellisario, senior hotel research analyst and director at Baird, said in a news release. “Increased cancellations and stricter corporate travel policies will impact near-term profitability for both hotel owners and hotel brands; however, the disruption for owners, particularly ones with more urban gateway and group exposure, will be far greater than the impact on the global hotel brands companies.”

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Amanda Hite, STR’s president, said the steep drop wasn’t surprising thanks to coronavirus outbreak concerns and the overall sentiment in the market. “Prior to the wider spread outbreak, we forecasted flat [revenue per available room] performance for the year. Performance has held to this point, but we expect a negative trend to surface at some point in this quarter’s data, especially in gateway cities,” she said.

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Guidance Mass Exodus

As a result, many hotel companies have withdrawn their previously announced 2020 guidance.

Real estate investment trust Pebblebrook Hotel Trust announced on Monday that it would pull its 2020 and first-quarter outlook due to many corporate group cancellations as well as corporate travel policy restrictions as a result of COVID-19 concerns. The REIT said that net bookings, on a year-over-year basis, had seen significant declines.

Another REIT, Sunstone Hotel Investors, also pulled its guidance, citing similar issues. As of March 5, the company had experienced $11 million in lost revenue, mainly related to business that had been scheduled this month and subsequently canceled.

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Meanwhile, Host Hotels & Resorts also announced on Monday that it is withdrawing its full-year 2020 guidance due to the ongoing financial impact of reduced travel demand as a result of the global coronavirus outbreak. To date, the company’s total revenues, net income and adjusted earnings before interest, taxes, depreciation and amortization have been negatively affected by approximately $97 million, $48 million and $48 million respectively, excluding the collection of approximately $16 million of cancellation fees, according to a company news release.

Park Hotels & Resorts has also withdrawn its 2020 outlook. Since providing guidance nearly two weeks ago, Park has experienced a material increase in the number of corporate group cancellations, according to a company news release. Additionally, increasing travel restrictions, governmental travel advisories and state of emergency declarations across several of its key markets are expected to adversely impact the company’s financial results for the full year 2020. When Park originally reported its outlook, executives thought the company would experience an $8-million loss in rooms revenue due to cancellations. As of Monday, the company has lost $30 million, with most of that impact expected to occur in March and April.

Sotherly Hotels, which originally reported in its guidance that impact from COVID-19 cancellations would be minimal, has since updated its outlook to report a significant number of corporate group cancellations. “Due to the developing nature of the situation surrounding COVID-19, we will wait until the situation stabilizes prior to issuing new guidance,” Dave Folsom, president and CEO, said in a news release.

Hyatt Hotels Corporation also pulled its guidance last week. Company executives updated the forecast to show an expected EBITDA loss of 21.5 percent to $147 million. The previous forecast called for a 2.8-percent drop to $178 million.

Update: As of Wednesday morning, Chatham Lodging Trust, Xenia Hotels & Resorts and Hilton have all pulled their guidance for 2020 due to COVID-19 impact.

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