LIIC members talk stocks, brand explosion
LIIC members talk stocks, brand explosion
27 OCTOBER 2015 7:28 AM
Members of the Lodging Industry Investment Council spoke frankly about public hotel performance, the future of full-service hotels and how they summed up 2015.
PHOENIX—The Lodging Industry Investment Council is a group of executives familiar with the ups and downs of any given hotel cycle, and at the group’s recent meeting in Phoenix, members debated some of the indicators showing where the industry is headed next.

The group tackled topics ranging from public company performance to new brands to their take on 2015 in general.

Stock performance
Stock performance of hotel C-corps and real estate investment trusts dominated the conversation, as Robert W. Baird & Company Senior Research Analyst David Loeb shared insights on how the actions of public companies are affecting overall industry health. Reports have shown that recent overall stock market softening has pushed U.S. hotel stocks down in recent months.

“Hotels are actually seeing much better growth, yet stock performance is really bad,” he said. Much of this can be attributed to the August stock dip.

“Most REITs are probably done buying for the cycle,” he said. “Even if their stocks come back up and they start buying now, people will say, ‘You’re buying for the remainder of the cycle; that may not be long,’ and they’ll be punished.”

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He said the current downturn “is a lot like 2011, which turned out to be a head-fake—a deep, painful head-fake. We’re at a time in the cycle now for tremendous margin growth.”

Brands and KPIs
LIIC members also debated the state of hotel brand proliferation, particularly how new brands might have an impact on supply, which could upset the strong fundamentals supporting good times.

The frequency of new brand launches is “incredibly nerve-wracking,” said Richard Frank, principal at Frank Solutions. “You can make the assumption these launches have nothing to do with consumer demand—they have everything to do with brand growth and putting new products in new markets.”

Guy Maisnik, partner and vice chair of Jeffer Mangels Butler & Mitchell’s global hospitality group, agreed, adding that in many cases, non-compete scenarios don’t matter as much anymore as brands race to put more rooms in markets that might already be saturated.

Keith Kefgen, managing director and CEO of AETHOS Consulting Group, said it’s all about differentiation.

“Brands exist to differentiate themselves in the mind of a buyer,” he said. “That’s why the proliferation of brands will continue. I understand why the chains do it, but the chains don’t even dominate all the hotel rooms in this country. Companies don’t need to be Coca-Cola or Pepsi, unless that’s part of their strategy.”

Other LIIC members talked about how technology—particularly around distribution—has helped level the playing field.

“Technology is what’s allowing people to shift away from brands and realize they may not need one,” said Mike Cahill, founder and CEO of Hospitality Real Estate Counselors. “With all these new distribution platforms, independents are gaining market share and will be stronger in the long run.”

Doug Dreher, president and CEO of The Hotel Group, said that notion might still be a ways off for the U.S. hotel industry, where large groups of consumers still like to amass brand loyalty points.

Jan Freitag, senior VP of lodging insights at STR, said that despite the flurry of recent brand launches, U.S. hotel performance numbers remain at all-time highs. Still, “supply is creeping up and demand is creeping down,” he said. (STR is the parent company of Hotel News Now.)

STR forecasts supply in 2015 to grow year over year 1.2% and 1.4% in 2016. The company’s demand forecast for 2015 is 2.9% year over year and 2.2% in 2016.

Freitag did point to the recent explosion of midscale and upscale select-service hotel development popularity: “I think we’re building ourselves into a problem,” he said. “As an industry, five years from now, where will groups meet? Full service might ultimately be underserved.” 

In August, 67% of rooms under construction in the U.S. were in the upscale and upper-midscale segments.

Overall, however, Freitag said STR’s forecasts are positive. “Life is either good or awesome, depending on where you are,” he said.

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