Lodging Presentation_Lodging Industry Outlook

Industry Overview * Leisure Travel Leading Recovery: Leisure travel has been the primary driver of the lodging recovery, with RevPAR ending 2023 up +5% YOY or +14% vs. 2019. Business transient and group travel have recovered more slowly. * Supply Growth Below Average: Construction starts remain below peak levels, leading to lower supply growth in the future. Industry estimates for supply growth over the next few years are lower than historical levels, with 2024E and 2025E growth expected at +1.3% and +1.5% respectively, compared to the long-term average of ~2%. * Luxury Segment Underperforming: Luxury RevPAR growth has been below average industry growth in recent years, potentially indicating a late stage in the lodging cycle. * Top 25 Markets Driving Growth: Future supply growth is concentrated in the top 25 markets, which have outperformed the US average in RevPAR growth historically. Company Analysis * Hilton Worldwide Holdings, Inc. (HLT): * Buy Rating: UBS maintains a Buy rating on HLT, with a price target of $274. * **Unit Growth**: HLT is expected to show acceleration in unit growth in 2025, excluding acquisitions. * **Pipeline**: HLT's pipeline to existing footprint ratio is higher than Marriott's, indicating a potential gain in market share. * **Marriott International, Inc. (MAR)**: * **Neutral Rating**: UBS maintains a Neutral rating on MAR, with a price target of$294. * Unit Growth: Marriott's unit growth needs to accelerate to reach long-term 2025 targets. * Pipeline: Marriott has a larger share of the US hotel room pipeline but has a lower pipeline to existing footprint ratio compared to HLT. * Host Hotels & Resorts Inc. (HST): * Neutral Rating: UBS maintains a Neutral rating on HST, with a price target of $19. * **Portfolio**: HST owns a portfolio of high-quality hotels with significant barriers to entry and limited supply growth. * **Transactions**: HST has been active in the transaction market, with a strong investment grade balance sheet and undrawn liquidity. * **Choice Hotels International, Inc. (CHH)**: * **Neutral Rating**: UBS maintains a Neutral rating on CHH, with a price target of$154. * Business Model: CHH operates a pure-play franchise model, providing a less volatile earnings stream. * Acquisition: CHH acquired the Radisson Hotel Group Americas, increasing its upscale and upper midscale exposure. * Park Hotels & Resorts (PK): * Neutral Rating: UBS maintains a Neutral rating on PK, with a price target of $15. * REIT: PK is the second-largest lodging REIT, with a high concentration in the luxury and upper upscale segments. * Management Contracts: PK's management fees are structured in an atypical way, potentially benefiting the company early in a cycle. Conclusion The lodging industry is recovering from the impact of the pandemic, with leisure travel leading the recovery. Supply growth remains below average, and the luxury segment is underperforming. UBS maintains a Buy rating on HLT and a Neutral rating on MAR, HST, CHH, and PK, based on their respective strengths and market positions.