HOTEL INDUSTRY OVERVIEW: Fall 2011
Summary of Key Performance Indicators
The industry turned in a very solid performance in the third quarter, continuing on a pace of approximately 8% overall RevPAR growth. The contribution of ADR relative to occupancy improved- it made up almost half of the RevPAR growth, and a significantly higher proportion in key upper-end markets. Luxury continues to outpace the rest of the industry, and grew even faster in the third quarter than in the first two, while upper upscale and resort slipped slightly.
Regionally, Miami, LA and San Francisco continue to lead the pack, with consistently strong performances throughout the year. Orlando has also been steady, with very high demand growth (due primarily to the Harry Potter attraction) offsetting increased supply, while still sustaining decent ADR growth. Boston and Phoenix also had relatively good quarters, and New York has come back a little from a disappointing second quarter. Washington continues to lag, and Chicago has also weakened. Among the smaller markets, Nashville, Tampa and Minneapolis were strong in the 3rd quarter, while St. Louis, Atlanta and Norfolk continue to be the weakest. New Orleans also showed a drop off, but this was mostly due to the spike in occupancy related to the crews cleaning up the BP oil spill last year. That market is still performing well. It should also be noted that St. Louis and Dallas will see at least a short term bump due to the baseball World Series.
|3rd Quarter||YTD (thru 10/22/11)|
Source: Smith Travel Research, Raymond James US Research
The performance of major brands that are operated by publicly traded hotel companies continues to closely track the national trends. Generally, the higher scale and more urban-oriented brands have achieved better performance. The Marriott full service brands have been lagging the overall market for over a year, as they appear to be losing share to Starwood brands and also to their own limited service brands. Courtyard, for example, had 9.5% RevPAR growth for the quarter.
|Q3 2011||Rolling 4 Quarters|
|Marriott (full service)||2.9%||2.2%||5.2%||3.8%||1.3%||5.1%|
Source: Company earnings releases
Over the past several months, indeed since signs of weakness began appearing in the US economy in late spring, industry pundits have been divided into two camps regarding the outlook for 2012 and beyond. This has led to unusually large spreads in the range of forecasted results, even by individual analysts such as the highly regarded Mark Woodworth of PKF, who says that RevPAR will increase by 2.5% to 7.5% “depending on whether or not we go into a recession.”
One school of thought, which is largely composed of Wall Street analysts, speculators and other “momentum” players argues that since GDP, employment growth and consumer confidence have not grown as expected, this will ripple through to the hotel sector and cause a dramatic slowdown of growth, if not contraction of RevPAR. This has resulted in a large correction in hotel stock prices, especially in the REIT sector, as will be shown later.
On the other hand, there are many people (including Woodworth, who is just hedging his bet) who feel that lack of supply growth and strength on the corporate side will be enough to maintain decent, if not robust growth in hotel income and profits. Most of the folks on this side seem to be more directly connected with hotel operations, so it would seem that they have more credibility, and at least over the past few months the results seem to have borne this out, as indicated by the charts above. This camp cites some other evidence, some factual and some anecdotal, to support their contentions, such as the following points:
Conversely, there are other arguments to support the pessimistic view:
There is obviously validity to many of the arguments on both sides, and everyone in the industry is anxiously holding their breath to see what develops. Right now, there does seem to be a bit more positive momentum in the economy as preliminary 3rd quarter GDP was not as bad as expected, the stock market had a strong October and jobless claims seem to be holding steady, so right now we are somewhat bullish about 2012 prospects, but stay tuned.
This is one area that has definitely felt the impact since the credit downgrade, as many deals have been pulled due to lack of financing. Except for the re-trade of the Cerebrus/Innkeepers portfolio (see below), and some recent smaller select service transactions, only one major public REIT deal was closed in the last three months; most of these were private sales.
|Date||Property||Location||# keys||Price $MM||Price/Key||Buyer/Seller|
|Aug-11||Ritz Carlton Highlands||Truckee CA||170||85.5||503||Private/Private|
|Aug-11||Hotel Chelsea||New York||226||82.5||365||Private/Private|
|Aug-11||Mandarin Oriental||San Francisco||158||63.5||402||Private/Cornerstone|
|Aug-11||Marriott LaGuardia||New York||438||61.0||139||Capmark/RLJ|
|Aug-11||Holiday Inn||San Diego||218||17.5||80||Pinnace/Rockpoint|
|Aug-11||Mark Hotel||New York||180||145.0||806||Private/Private|
|Aug-11||6 hotel portfolio||TX CA VA GA WI||875||238.4||272||Hyatt/LodgeWorks|
|Aug-11||93 Red Roof Inns||Various||11,233||335.0||30||Five Mile/Citigroup Westmont JV|
|Sep-11||La Valencia Hotel||La Jolla CA||115||41.0||357||Private/Private|
|Sep-11||Chateau Bourbon||New Orleans||251||45.7||182||Private/Private|
|Sep-11||Doubletree||Wilmington DE||219||12.0||55||Driftwood Apollo/Private|
|Sep-11||Beverly Hilton||Beverly Hills CA||569||NA||NA||Oaktree/Private|
|Sep-11||Lost Pines Resort||Cedar Creek TX||500||NA||NA||Anschutz/Oklahoma Publishing|
|Sep-11||The Broadmoor||Colo. Springs CO||744||NA||NA||Anschutz/Oklahoma Publishing|
|Sep-11||Marriott City Center||Denver||613||119.0||194||Chesapeake REIT/Walton St|
|Sep-11||Embassy Suites||Deerfield IL||237||18.0||76||Oaktree/C III Capital|
|Sep-11||Paramount Hotel||New York||597||275.0||461||Private/Walton St JV Westbrook|
|Sep-Oct||5 HGI/Homewoods||NE TX AZ OH IN||649||91.5||141||Apple REIT/various private|
|Oct-11||Hawks Cay Resort||Marathon FL||177||76.8||434||Related JV Deutsche Bank/Behringer Harvard|
|Oct-11||Kyoto Grand Hotel||Los Angeles||436||NA||NA||Rim Hospitality/Private|
|Oct-11||Hilton Downtown||Miami||527||24.4||46||Genting from Related JV|
|Oct-11||64 hotel select serv.||Various||8,101||1,020.0||126||Cerebrus Chatham JV/Apollo|
|Nov-11||Residence Inn||Kansas City||96||9.9||103||Summit/Private|
Public Company News
IPO, Financing, Mergers and Acquisitions
A summary of reported Q3 earnings for the some of the larger-cap companies is as follows:
|Company||Date Reported||Reported EPS*||Consensus EPS*||RevPAR Guidance for 2012|
|Host Hotels||Oct 12||0.16||0.17||3-7%|
|La Salle||Oct 19||0.50||0.49||NA, but group up 8%|
|Sunstone||Nov 8||0.20||0.20||“in line” w/industry|
|Diamondrock||July 25||0.16||0.15||NA; group pace +10%|
*Generally excludes unusual items; figures are for FFO on REITS
In general, most companies met or exceeded Street earnings estimates. Guidance for Q4 remained largely unchanged, but as shown above, there is considerable uncertainty as to next year. Note that most of the larger publicly traded companies are typically more heavily weighted to big-box hotels in top 25 markets, and are more dependent on business transient and groups as opposed to leisure travelers, so given the current state of the market, these companies would be expected to outperform the industry as a whole.
Prices for large cap full service hotel companies are generally down about 10% since June 30 and 20% for the year to date, while limited service companies such as Choice have done relatively better. Some, such as Wyndham (not shown on chart) are actually up over 10% for the year. REIT stocks have rallied strongly over the past month; they are now, on average “only” down 18% for the year, whereas at the beginning of October they were down 35%.
Publicly traded hotel company stock performance (US based companies with market capitalization in excess of $1Bn)
|Company||Type||Primary Segment (s)||Price as of11/8/11||ChangeSince 6/30/11||Change Since 12/31/10|
|Marriot International||C-Corp||Upper Upscale,Luxury, Resorts||$31.83||(10.3%)||(23.4%)|
|Starwood Hotels||C-Corp||Upper Upscale, Luxury||$50.74||(9.5%)||(16.5%)|
|Host Hotels||REIT||Upper Upscale, Luxury||$14.37||(15.2%)||(19.6%)|
|Hospitality PropertiesTrust||REIT||Limited Services||$23.53||(3.0%)||2.1%|
Note- all prices adjusted for dividends paid
Source: Yahoo! Finance
Other Industry News
US Economy General Statistics
Key Economic Indicators
Sources: National Bureau of Economic Research; various government agencies including US Department of Commerce