- 4Q24 results for Marriott and Hilton ended on a high note; inflation to drive organic RevPAR down
- Trump policies may seem like an indirect blow to industry but may bite in more ways than one
- US hotel revenues and booking demand has a sharp historical correlation to US GDP
- Downshift in sentiment as Fed revises GDP forecasts for 2025 – 2027
- Favour S-REITs with stable master lease income, lower operational risk & lower exposure to US hotels
Related Insights
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.
Figure 1: Room pipeline as % of existing room count
Source: Companies, DBS
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