Q2 earnings continue to show positive growth, outlook

(Choice Hotels)

The second-quarter earnings reports season is coming to a close, as a slew of hotel companies and real estate investment trusts reported how their business fared. Let's take a look.

First, hotel companies....

Choice Hotels International
Choice reported a slight net profit for the second quarter, but robust RevPAR growth. The Silver Spring, Md.-based hotel operator reported net income of $35.40 million, up from the $31.81 million it earned during the same period last year. Domestic RevPAR rose 7.6 percent.

"During the second quarter, momentum in our core lodging business was very strong and we are pleased with our performance, which exceeded our expectations. We achieved continued net domestic unit growth and strong development results," said President and CEO Stephen Joyce.

Total revenues for the quarter increased 4 percent to $197.64 million. Royalty fees for the quarter grew 7 percent to $78 million, while marketing and reservation revenues remained flat with last year at $104 million from the prior-year quarter. Franchising revenues increased 8 percent to $93.83 million. New domestic hotel franchise contracts during the second quarter grew 20 percent to 125 from the 104 contracts executed in the same quarter last year.

Morgans Hotel Group
Morgans has gone through turmoil, but it's second quarter showed promise over its Q1.

Adjusted EBITDA was $14.8 million in the second quarter of 2014, a full 26.7-percent better over the same period in 2013, primarily driven by strong operating performance at the company's Owned Hotels, including a 36.8-percent increase in EBITDA at Delano South Beach.

RevPAR increased by 6.4 percent on a year-over-year basis.

"We are pleased with Morgans Hotel Group's continued progress during the second quarter, and believe that our improved results reflect the significant effort over the last year to return the company to solid footing," said Jason T. Kalisman, interim CEO. "With two high-profile properties scheduled to open in the third quarter, and our ongoing commitment to operational excellence, we are confident in Morgans' future prospects as we enter the second half of 2014."

Morgans' performance has come not only after shareholder turbulence, but also the loss of the Ames Hotel in Boston, a year ago in July. Ames' exit from the portfolio did not, however, help revenue from franchise fees. Management fees decreased $2 million, or 25.4 percent, during the second quarter compared to the same period in 2013. In addition, management fees declined as a result of a decrease in food and beverage management fees due primarily to revisions in the management fee structure with MGM effective January 1, 2014 to a more incentive based model, the comapny said.

Morgans currently expects to open two hotels in the third quarter of 2014: Delano Las Vegas, in early September, and Mondrian London, also in September. Additionally, the company has a franchise agreement for 10 Karakoy, a 71-room Morgans Original in Istanbul, Turkey, expected to open by the end of 2014, and a management agreement for a Mondrian in Doha, Qatar which is expected to open in the second quarter of 2015.

On to the REITs...

DiamondRock Hospitality
At DiamondRock, pro forma RevPAR was $169.21, an increase of 11.9 percent from 2013. Adjusted EBITDA was $70.9 million, an increase of 13.6 percent from 2013. Adjusted FFO was $51.9 million.

Mark W. Brugger, president and CEO of DiamondRock, stated, "Our strong second quarter results reflect the initial impact of our significant investments to reposition DiamondRock's portfolio of the past year. Additionally, the combination of our successful internal initiatives to drive performance and an extended lodging recovery enable us to raise our full year guidance. The company will benefit from the forthcoming acquisition of the Hilton Garden Inn Times Square Central and recent actions taken to lower our cost of capital. As we continue to execute on our strategy, strengthen our portfolio, and reap the benefits of completed renovations, we remain confident in our ability to deliver growth and strong shareholder returns across the full lodging cycle."

Sunstone Hotel Investors
At Sunstone, comparable hotel RevPAR increased 6.2 percent to $171.69. Adjusted EBITDA increased 34.4 percent to $94.5 million. Adjusted FFO available to common stockholders per diluted share increased 30.0 percent.

Ken Cruse, CEO, said, "At 86.6 percent, our portfolio occupancy has surpassed prior peak levels, while group and transient demand continue to strengthen. Accordingly, we have increased the midpoint of our Adjusted EBITDA and Adjusted FFO/share guidance for the full year 2014. We believe business fundamentals support continued growth for Sunstone."

In regard to development, last month, Sunstone completed its previously announced acquisition of the 544-room Marriott Wailea for $325.5 million. Separately, the company and its JV partner have agreed to certain loan amendment terms with the existing lenders of the loan secured by the Hilton San Diego Bayfront, the balance of which was $229.7 million as of June 30, 2014.

Ashford Hospitality Trust
Asford's RevPAR for the Ashford Trust Portfolio hotels increased 7.7 percent during the quarter. Hotel EBITDA increased 7.7 percent for all Ashford Trust Portfolio hotels. Net income, however, was down, to $3.5 million, compared with net income of $3.8 million in the prior-year quarter.

CapEx invested in the quarter for the Ashford Trust Portfolio was $40 million.