- 4Q24 results for Marriott and Hilton ended on a high note from strong net unit growth, while organic RevPAR going forward is guided to moderate down to the pace of inflation
- Trump administration policies may seem like an indirect blow to US hotels but will likely bite in more than one way on booking demand, margins, and developments
- US hotel revenues and booking demand has a sharp historical correlation to US GDP, with downshift in sentiment as Fed revises GDP forecasts for 2025 – 2027
- Favour S-REITs with stable master lease income, lower operational risk, and limited exposure to US hotels
Net room expansion to drive growth. Marriott and Hilton reported solid results to end FY24 supported by net unit growth. As RevPAR growth for FY25 is expected to ease and align with inflation of around 3%, US hoteliers are now shifting their focus towards expanding net room capacity to drive growth. Marriott projects net unit growth of approximately 4.5% next year, bolstered by diversification into non-traditional lodging segments, such as outdoor hospitality. Hilton, meanwhile, forecasts a more ambitious 6-7% net unit increase, driven by momentum from a record pipeline of upcoming rooms. These trends signal a normalisation of pent-up pandemic-era travel demand, with US hoteliers increasingly relying on expanding room inventory as a key growth lever heading into 2025.
Trump tariffs take toll on travel demand, margins, and developments. Trump administration policies with higher trade tariffs and anti-immigration policies may have a more direct impact on US hotel operations than expected. We foresee potential pressure on operating margins due to tariff-driven cost inflation affecting soft goods (eg: textiles) and FF&E (furniture, fixtures, and equipment). Higher construction and raw material costs from tariffs such as steel could mean costlier and lengthier renovation and constructions for US hoteliers. On the demand side, we see anti-immigration policies and tariffs on neighbouring countries (Mexico and Canada) amid heightening geopolitical friction that could discourage tourism and cross-border travels in both directions. Last but not least, the recent softening of US GDP growth forecast by the Federal Reserve for 2025 – 2027 could paint a more cautious picture for both leisure and corporate travel and hotel demand.
Hotel REITs favoured over operators on business stability. Among regional hotel plays, we favour Singapore hotel S-REITs over US REITs. US hotel operators that may see pressure on operating margins and net unit growth targets as US construction sector feels the heat. S-REITs with stable hotel master leases while having limited exposure to US hotels are preferred. Meanwhile, we remain neutral on US hoteliers with share prices at a five-year historical high EV/EBITDA while leaving room for downside surprises.
Topic
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.