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Coronavirus Crisis Forces Hotel REITs to Discard 2020 Guidance

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The rampant coronavirus (COVID-19) outbreak is weakening travel demand and compelling Lodging REITs to withdraw their 2020 guidance. The latest to jump on this bandwagon is Host Hotels & Resorts, Inc. HST, which withdrew its outlook for the ongoing year.

The REIT, which had earlier notified about bearing the brunt of this epidemic on its operations but shied away from withdrawing its full-year view, has now confirmed that as of Mar 9, the company’s total revenues, net income and adjusted EBITDAre suffer damages of roughly $97 million, $48 million and $48 million, respectively. This, however, excludes the collection of approximately $16 million from cancellation fees.

Bulk of the adverse impact on total revenues is because of group business cancellations. Particularly, activities in California where coronavirus cases have been reported are affected mainly due to group business cancellations. In fact, California markets accounted for nearly 58% of the group business cancellations. However, offering some relief, management stated that year-to-date notifications of group business cancellations, attributable to the COVID-19 calamity, have not stretched beyond the first half of the year.

As a matter of fact, the rapidly-evolving coronavirus has already assumed epidemic proportions with the number of infected patients in the United States sharply on the rise and the spread outside mainland China from South Korea to Italy showing no signs of relenting. The outbreak is wreaking havoc across the globe, primarily hitting the travel, airline, lodging and tourism plus event industries hard. Meetings and conferences are called off while travel restrictions are being imposed on places reeling under this widespread health crisis. As a result, business travelers are grounded while leisure travelers are scared to go on an outing.

These massive business tour cancellations and vacation trips are weighing on Lodging REITs, particularly. Total returns from the same sector have been down 17.54% so far in March and 36.71% year to date.

Apart from Host Hotels, recently, Ryman Hospitality Properties (RHP - Free Report) withdrew its full business performance outlook for 2020, previously provided on Feb 25, as it witnessed an increase in group room night attrition and cancellations amid the viral outbreak. Specifically, for the week ended Mar 7, 2020, its hospitality business endured total attrition and cancellations of roughly 77,000 net room nights, representing around $40 million of revenue. Approximately 75% of this impact is for March 2020 while 25% is for April 2020.

Pebblebrook Hotel Trust PEB too has withdrawn its first-quarter 2020 and full-year projections provided on Feb 20 as mounting corporate group cancellations in recent days and corporate travel policy restrictions amid the coronavirus attack are inducing poor net bookings. The corporate group-and convention-related cancellations are mainly for business previously on the books for March, April and May of this year. There has been a considerable drop in business transient demand while leisure bookings too have taken a hit.

This week, Chatham Lodging Trust CLDT has also withdrawn its first-quarter 2020 and full-year guidance while last week, Sunstone Hotel Investors SHO withdrew its guidance due to uncertainties surrounding the COVID-19 impact on travel demand. Sunstone Hotel included approximately $1 million of lost revenues, stemming mainly from known group-customer cancellations due to the coronavirus scare. As situation further worsened, the company witnessed a significant deterioration in the anticipated loss of revenues from group-customer cancellations, which as of Mar 5, increased to approximately $11 million.

Obviously, the magnitude of this epidemic’s lethal blow to the global as well as the U.S. economy is unclear as of now. For the lodging REITs too, implementing cost-reduction plans seem an only option to partly mitigate this universal health emergency. Evidently, Host Hotels, Pebblebrook, Ryman Hospitality among others are coordinating with operators to execute the same.

Currently, Host Hotels, Ryman Hospitality, Chatham Lodging and Sunstone Hotel Investors carry a Zacks Rank #3 (Hold) each while Pebblebrook has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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