March 22, 2010
By Jeff Higley
 

ATLANTA — The data guys have spoken: Things are looking up for the hotel industry.

During a general session at the 22nd annual Hunter Hotel Investment Conference, Jan Freitag of STR said spring has sprung for U.S. hotels, Mark Woodworth of PKF Hospitality noted that 2010 is the year of the white tiger on the Asian calendar and the tiger represents the autumn of a cycle, and Steve Swope of Rubicon said forward-looking bookings are easily outpacing what they were at this time in 2009.

Following is a summary of the three presentations.


Jan Freitag, VP, STR

Freitag noted at least a half dozen times that the industry’s performance is showing signs of life, but also wondered several times what was going to happen to average daily rates.

Freitag’s takeaways: the good news is there’s less bad news; the construction pipeline is emptying; demand is slowly improving; and there’s a big question mark surrounding yield-management discipline.

For midscale without food-and-beverage properties and economy properties, STR projects that rate declines will continue through 2010. “We’re suggesting for midscale without F&B that (revenue per available room) will drop slightly,” Freitag said. “On the economy side, it’s still rough sailing.”

Freitag showed a slide revealing the RevPAR guidance from 10 publicly traded companies, and the mean was about flat.

“There’s probably a little more life in these numbers than they tell you publicly,” he said, noting that internal expectations could be higher.

Freitag also showed a chart depicting the consumer price index and explained that there’s a wide gap between the CPI and ADR. “It shows how much we should be at just to be at the rate of inflation,” he said. “That difference is money right out of your pockets.”

Freitag said the industry has seen the trough in demand, and while it is “less worse” than it has been for the past 18 months, there needs to be some substantial movement.

“Our data suggests we need 2 percent demand growth on a quarterly basis for rates to increase above the rate of inflation,” he said. “Demand is positive, not on a quarterly basis yet, but there are signs of life.”


Mark Woodworth, president, PKF Hospitality

Woodworth said the Asian calendar favors 2010.

“2010 is the year of the white tiger,” he said. “It’s particularly meaningful because in the year of the white tiger, according to Asian astrology, tiger years represent the autumn of a long cycle.”

He said suggested actions during years of the tiger include: build reserves and strengths; prepare to pounce on opportunities; and beware of charismatic leaders.

Woodworth’s key points include:

• PKF is forecasting relatively flat RevPAR for 2010;
• the bad news is that the unemployment rate will peak in the third quarter of this year;
• Las Vegas is the one major market still contracting in overall recession;
• the 2007 recession will end after 12 quarters—it currently is in the 10th quarter; and
• occupancy for the hotel industry will turn positive in the second quarter.

“It’s really getting into the back half of this year when rates will turn around,” Woodworth said. “We’re at the bottom of the hotel market cycle.”

Woodworth added that the news with PKF’s forecasts is that there is no news—the forecast hasn’t changed from 90 days ago.

“The recovery is a little softer in 2011 and somewhat more robust in 2012,” he said.

Woodworth noted that his company believes there will be record RevPAR increases in 2012 following the record RevPAR drop during 2008.

Other highlights from Woodworth’s presentation include:

• In a sample of operating statements from 2009, gross operating profits are down 31.5 percent and net operating income is down 36.3 percent;
• the eight consecutive quarters of demand contraction will end at the end of the first quarter of 2010; and
• from the consumers’ perspective, hotels will remain a buyer’s market into 2011.

Woodworth said PKF sees strong asset appreciation for hotels beginning in 2011 and persisting through 2014.

“The hole in the landscape is the equity hole,” he said, noting there is a lot of uncertainty into what lending vehicle will fill that hole.


Steve Swope, president, Rubicon

Rubicon focuses on forward-looking bookings, and Swope’s presentation featured hotels in the upscale, midscale with food-and beverage, and midscale without F&B segments.

Through 10 March, the total committed occupancy is up 0.2 percent on a year-over-year basis. “In March for the first time in 18 months we actually had positive committed occupancy growth,” Swope said.

Swope said forward-looking year-over-year bookings for the next 12 months include large increases for a number of markets, including: Tampa, Florida (+22 percent); Phoenix (+19 percent); Denver (+16 percent); San Francisco (+10 percent); and New York (+9 percent). On the other end of the spectrum are Detroit (-7 percent); St. Louis (-7 percent); Seattle (-8 percent); Houston (-9 percent); and Philadelphia (-10 percent).

“One of the critical measurements is how much new business is added on a month-to-month basis,” Swope said. “That pace of demand is the earliest indicator of what a market is going to do.”

Rubicon’s expectations for 2010 include:

• committed occupancy is down 4.3 percent;
• new business is being added 5.5 percent faster than in 2009;
• the pace of new business will close the occupancy gap;
• the ADR gap has already begun to close;
• year-to-date occupancy will reach 2009 levels by 3Q 2010;
• year-end occupancy growth will be 2 percent to 3 percent; and
• ADR will drop 5.3 percent by the end of 2010.

“It’s great news for the industry,” Swope said. “We won’t hit 2007 levels or 2008 levels, but we’re certainly going to eclipse the horrible performance of 2009. There’s great reason to be optimistic for 2011.”