ALIS: Numbers back up optimistic mood
ALIS: Numbers back up optimistic mood
27 JANUARY 2015 8:55 AM
The positive performance of the hotel industry had ALIS panelists on Monday singing the same happy tune.  
LOS ANGELES—The theme of this year’s Americas Lodging Investment Summit is “Don’t worry, be happy,” and panelists presenting hotel performance and forecast data on Monday were singing the same tune.
Jan Freitag, senior VP of strategic development at STR (Hotel News Now’s parent company); Suzanne Mellen, senior managing director of HVS; and Mark Woodworth, president of hospitality research for PKF Hospitality Research, all agreed that the optimism of 2014 will continue well into the future, at least as far as performance metrics, transaction activity and economic impact are concerned. 
This year panelists shared their presentations in advance of the conference. Click on the links below to see them:  
Citing 2014’s record-breaking performance metrics, Freitag said the company expects to see strong revenue-per-available-room-growth in 2015 of 6.4% driven by rate growth (average daily rate is forecast to grow 5.2% in 2015 according to STR).  
Occupancy also will hit a high note: “In the first or second quarter of 2015 we’ll hit a new occupancy high record on an annualized basis,” Freitag said in his video. “We’re at 64.4% now, and we’ll hit 65% at some point this year. This will make the industry attractive to other players and will make pricing better.”
That occupancy story differs when it comes to chain scales, however, which will affect pricing power moving forward. Lower segments are seeing RevPAR composition of about 50:50 ADR to occupancy, while upper-end segments “have been full, selling seven out of 10 rooms every night for the past 12 months in a row,” Freitag said. This will lead to more healthy pricing power for those upper tiers moving forward, he added.
On the segmentation front, Freitag said ADR change in transient rooms is healthy, and group  is “back and back in full force.” Despite upticks in group demand, he said ADR percent change for that segment is basically flat. Still, he added, that implies hotel managers have increased visibility into the future and should be able to increase room rates yet this year.  
Strong group behavior played a role in 2014's demand numbers, he told the ALIS audience. "The group resurgence was much stronger than we anticipated," he said.  
Transaction activity strong among high-end, select service 
HVS’ Mellen reiterated the optimism of 2014 when she shared data from Real Capital Analytics showing total hotel transaction volume increased 22% in 2014 compared to 2013.  
“The market was dominated by the sale of select-service hotels,” she said in her video presentation, adding this kept average price per key at a relatively muted 4% growth rate in 2014.  
The big player: Hotels sold at $10 million and above. Mellen said transaction activity in this price range increased by 25% in 2014, leading to an average price per key  20% higher than peak prices achieved in 2006. On the flip side, hotels selling in the $2.4 million to $10 million price range showed price per key still well below 2008 peak levels.  
Key portfolio sales characterized 2014’s healthy sales volume increases. Mellen said portfolio volume increased by 14% in 2014, and the number of properties sold went up by 20% compared to 2013. She pointed to four notable portfolio sales involving select-service properties, including Lone Star Funds’ purchase of 38 Hyatt Place and Hyatt House properties from Hyatt Hotels, NorthStar Realty Finance/Chatham’s purchase of 48 select-service properties from Inland American Real Estate Trust, NorthStar’s purchase of 40 Courtyard by Marriott hotels and Blackstone’s purchase of 48 Residence Inn and Homewood Suites properties from Clarion Partners.
“It’s a great time for (select service),” Mellen said. “Sellers are recognizing that these hotels have appreciated to close to or well exceeding replacement cost. We've seen incredible asset appreciation, and it will continue." 
As far as lender composition goes, Mellen said while debt has been the major activity driver, “the (commercial mortgage-backed securities) market has been increasing its share of the financing of hotel transactions, exceeding 50 percent in 2014.” 
She said this move comes at the expense of international banks that “can’t quite compete” with terms offered by CMBS lenders. Still, she said many international buyers are coming into the U.S. transactions market (cross-border capital represented 24% of overall capital in 2014), driven by a few key large transactions.  
Economic factors to consider 
PKF’s Woodworth tempered the optimism by introducing a few economic factors hoteliers should keep an eye on in the future; namely, the impact of the strong U.S. dollar, low oil prices and protracted low inflation rates. 
 With inbound U.S. travel at high levels, Woodworth pointed out that a continuing strong U.S. dollar may have an impact on sustained international demand. At the same time, that strong dollar makes product imports to the U.S. more affordable. Ultimately, he called this “a headwind against continued growth,” saying that a change in the dollar’s value “does affect hotel demand, particularly upper segments in gateway cities.”  
Regarding low oil prices, Woodworth cited Moody’s Analytical data showing per-barrel pricing likely to even out by year’s end, but said that ultimately, oil net-consuming nations, like the U.S., will be the winners, benefiting from the price of oil being low.  
Still, Woodworth is optimistic in PKF’s current forecast, showing supply forecast to grow 1.1% in 2015, demand to grow 3.2%, occupancy to reach 65.8%, ADR to grow 5.4% and RevPAR to grow 7.6% in 2015.  
“Business investment and consumer spending have driven the rebound, and we expect to see more in 2015,” he said. “We expect the rate of lodging demand growth in 2015 to begin to dissipate, not because of weaker economic fundamentals, but because we’re at that part in the cycle.”  

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