Thinking through hotels really quick, particularly the big three C-Corps. We all agree that franchisor business models, and these ones in particular, are amazing - capital light, big ability to reinvest at high rates of return, international expansion, etc.
Forget who tweeted it (maybe @LAForeverHall?) but a franchisor's business is only as good as the underlying economics for the franchisee. So despite how great Marriott's business is if the Marriott hotel owners aren't making money this is moot. Very relevant!
There are way smarter people than me who can forecast when things will reopen, what demand is going to look like, what have you. I can say hotels that index to group are going to take a long time to ramp because that business has long lead times to build up.
Transient-focused boxes will do better since they can fill Day 1, but it'll still take time. Every single hotel in America with debt on it is going to blow covenants, so the business right now girding the C-Corp franchisor model is terrible! What's the bull case?
Lenders (generally, maybe debt funds are okay with it) do NOT want to take back hotels. These are businesses, and they're super hard to run and require specialized expertise. This isn't an office building or multifamily where (generally) it can be more plug and play.
Obviously dependent on your collateral - a brand new Marriott or a fully PIP'ed Residence Inn is more likely to get flexibility from a lender than a 1990s SpringHill Suites where the franchise agreement is coming up, but broadly I bet that's the case.
There's potentially some upside with the CARES Act, though depends on whether hotel ownership entities (which generally don't have employees) qualify as the management cos. have lots of employees, even if the owners don't. Assume that there is something there.
These have all gotten absolutely demolished. $HLT, which has one of the best CEOs in America, was down north of 50% at one point. It's going to survive, and even if this takes a 18-36 months for full-serve group boxes to get back to normal, they're going to survive.
This isn't the cruise industry where they have tons of assets not earning any revenue. Could easily tank from here, but hard to see how if we avoid a 28 Days Later scenario, which I think we've done (knock on wood)...
That all three cos. are not back near where they were in January in the next 24 months. Not a lot of numbers here, more gut feelings, I get it, so feel free to poke holes. Just trying to think out loud.
