BOULDER, Colorado—The bottom of the room-revenue slide cannot come soon enough for hotel real estate investment trusts.
The 2009 year-end room revenue statistics for hotel REITS illustrates the pain hotel investors have been experiencing. While significant declines were apparent in both occupancy and average daily rate, average rate fell at a steeper pace than occupancy. Occupancy declines ranged from 2.6 percent to 8.8 percent year-over-year; ADR drops spanned from 9.6 percent to 15.3 percent.
No investment segment appeared immune to the industry declines either, with entities on both ends of the rate spectrum (Strategic Hotels & Resorts and Hospitality Properties Trust) exhibiting revenue-per-available-room declines in excess of 20 percent.
Source: SEC Filings. Click image to enlarge.
While the worst may be over, hotel REITs should expect continuing declines in room revenue during 2010, albeit at a less drastic pace. This year’s results will look better but more than likely will remain in negative territory.
Meanwhile, new hotel REITs have sprouted up with the intent of acquiring assets at steep discounts during the market trough. Chesapeake Lodging Trust and Pebblebrook Hotel Trust have issued IPOs in recent months to raise capital for pursuing such opportunities. Chatham Lodging Trust, which already has a few assets for its portfolio, is in the process of going public.
In general, the prospectuses for these companies state that they believe demand declines and rate deterioration will taper between the end of 2010 and early 2011. Furthermore, an economic recovery, coupled with dwindling supply growth for the foreseeable future, is anticipated to fuel resurgence in occupancy and ADR. As one would expect, these prospectuses also state there is a certain risk the turnaround might not occur as quickly. For everyone’s sake, we hope the positive outlook is more accurate than the potential fear.
