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We're checking in on the hotel sector now. Some big names are reporting earnings with Marriott today and Hilton last week. We're breaking down how to play the sector. Joining us now is Dan Wasiolek, senior equity analyst at Morningstar. Dan, it's good to see you. So maybe start big picture for us, Dan. You know, you look at this hotel sector broadly over the next 12 months, Dan. Are you constructive on that sector, Dan? You see reasons for optimism or no, for investors who are listening right now, reasons for concern?

Hey Josh, thanks for having me. Yeah, over the next 12 months, we remain constructive on the desire to travel. Um, when you look at the long-term trend, uh, you have hotel revenue per available room grow above GDP growth, um, by a decent amount. So right now, the projections that we have at Morning Star is for GDP growth to be pretty helpful, um, healthy this year and next year. And so we would expect Revpar growth to continue although at a moderate level, maybe, you know, low single, mid single digit type growth for some of the operators like Hilton and Marriott. Um, within that, we think leisure probably, uh, grows a little bit. That's the, um, first area that really recovered out of the pandemic, but really kind of what's taken the reins this year would be group travel and then business continuing to recover.

Dan, I'm also curious just to get your take on the consumer given your coverage universe. You have, you know, really unique line of sight there. How does the consumer look to you, Dan? Because the economic data points we get continue to seem to suggest a consumer that's hanging in there, resilient.

Yeah, I mean, you could be concerned that savings rates are depleted. Uh, consumer sentiment has kind of been volatile of late. But when we go back and we study historically the US hotel performance industry and that revenue per available room metric or Revpar metric, what we find is that as long as GDP growth is positive, and again, that's our view, that you tend to have, uh, travel demand outpace that GDP growth. So we've seen that in the past, uh, couple decades. There's been periods where you've had robust Revpar growth, um, despite maybe savings rates being depleted versus historical levels, uh, uh, financing costs and interest rates being elevated. Uh, there's periods that point to or that harmonize kind of with where we are right now where you can point to those periods and say, yes, we can still have a constructive view on travel demand in 2025.

Dan, let's get to some specific names here. Marriott, uh, International, did come under some pressure here today. It doesn't look like guidance for net rooms growth in 25 perhaps softer than some on the street expected, Dan. What what did you make of that report? What did you see?

Yeah, so I mean, I first of all, I think Marriott reported a pretty solid uh fourth quarter with a with a decent outlook. Probably what's at play here in our view too is that the stock has risen about over 40% since early August and there's been a lot of multiple expansion in this name and some of its peers. So expectations were pretty high going into the quarter. But I do think, you know, on the margin, uh, their unit growth for uh, 2024 was quite strong at 6.8%. And for next year, they're expecting unit growth or room growth to be 4 to 5%. And that was maybe a little bit disappointing, but that's coming after a pretty robust 2024 period. And then when you look at their pipeline, which is kind of a future indicator of um, room growth for the next couple years, it's quite large. It's about um, you know, 600,000 rooms or 500,000 rooms, uh, which is 34% of their existing room base. So we do think that they can kind of have this 4, 5% unit growth for the next few years. And that's above the long-term US industry average of about 2% growth just to kind of put some perspective on it. So they continue to, their brands continue to resonate with third-party owners that want to join one of the Marriott brands.

Dan, another name I want you to take on, Hyatt Hotels. We heard today they agreed to buy Playa Hotels Resorts for about 2.6 billion. In your opinion, Dan, smart move for them financially, strategically?

I don't really think it moves the needle despite the big acquisition uh, price tag of 2.6 billion. Now, they're acquiring Playa, which is an all-inclusive resort, 9,000 rooms, 24 hotels. Um, some of those are owned, about two-thirds of those rooms are owned, um, of those 9,000 rooms. They're Hyatt plans to sell those rooms for at least two billion, I think by 2027. So you have this acquisition price of 2.6. They're going to sell the owned asset part of this, um, uh, company for two billion plus. And what they're left with is owning some of those managed relationships and getting fees involved for that, and then having the potential of growing this all-inclusive brand, uh, through Hyatt's, um, Zivas and Zilla, um, Zilleras, uh, and getting management fees in the future. So, uh, to us, we don't think that it really changes what the fair value estimate we have on the company is of 147. As far as capital allocation, um, you know, being in the all-inclusive space, I think it makes strategic sense. Um, and given that they're going to kind of recoup some of the purchase price by selling these assets, I think longer term it makes sense. Um, you know, that being said, I probably, you know, maybe would have focused, maybe there, I'm interested to see on the call if there was other opportunities that maybe were exploring. I I think it's kind of neutral to us.

Dan, appreciate your time and walking us through those stock picks. Thank you.

Thanks, Josh.