John Nelson
The theme of the recent 25th annual Hunter Hotel Investment Conference was “Moving Forward with Confidence,” which was apropos based on the comments of four hotel operators during the conference’s president’s panel. The prevailing sentiment from the panel was that the U.S. hotel industry can expect healthy gains in revenue per available room (RevPAR) and average daily rate (ADR) this year and beyond.
The panel lauded the U.S. hotel industry’s performance in recent history, despite the rough years experienced during the recovery from the Great Recession.
“We’ve been in a sluggish, unstable economy and we’ve had a couple good years,” reasons Wayne Goldberg, president and CEO of Irving, Texas-based La Quinta Inns & Suites.
The four panelists, who oversee hotel operations for properties ranging from midscale assets to luxury hotels, included Goldberg; Steve Joyce, president and CEO of Choice Hotels International in Silver Spring, Md.; Richard Kessler, chairman and CEO of The Kessler Collection of Orlando, Fla.; and Mark LaPort, president and CEO of Concord Hospitality in Raleigh, N.C. The conference was held at the Marriott Marquis in downtown Atlanta. More than 900 industry professionals attended the annual event.
Wayne Goldberg (far left), president and CEO of La Quinta Inn & Suites, makes a point during the president's panel at the 25th annual Hunter Hotel Investment conference held in Atlanta.
Jeff Higley, vice president of digital media and communications of HotelNewsNow.com, a division of Smith Travel Research (STR), moderated the panel, which covered everything from the industry’s real estate fundamentals to the stock market to what each panelist thought the next 24 months would look like for their respective firms. The panel predicted the industry will see more activity in investment sales of hotels, even though hotel professionals aren’t exactly sitting on their hands right now.
“I think we’re going to see a robust selling season this year,” says LaPort. “I foresee significant equity coming into the market.”
STR’s research supports LaPort’s forecast. The firm forecasts that approximately $17.5 billion worth of hotels will trade in 2013, compared to approximately $12.5 billion trading in 2012, a projected 40 percent increase.
TIME TO DEVELOP?
On a year-over-year basis, the room supply in the U.S. hotel industry grew a mere 0.5 percent from February 2012 to February 2013, according to STR. The panel predicted that the inventory will increase the number of hotels in the pipeline, especially considering the low interest rates for debt.
“If you take the interest rates where they are right now, it’s the perfect time to be investing and developing in our business,” says Goldberg, who disclosed that La Quinta will add 12 to 14 new hotels in 2013.
STR forecasts that U.S. hotel supply will increase 1 percent in 2013 and 1.5 percent in 2014. While midscale hotel operators like La Quinta are breaking ground on new assets, upscale hotels in urban settings are the more desired product type, according to Joyce of Choice Hotels International.
“The market has spoken. You see what’s being built; you see what people want to be in,” says Joyce. “People want to be in the upscale space.”
According to STR, the pipeline for new hotel development is already heating up. Approximately 395,246 rooms are in the pipeline at various stages (pre-planning to topping off) as of February 2013, a growth of 3.9 percent compared to the same time last year.
BY THE NUMBERS
RevPAR industrywide was $65.82 as of February 2013, a 6.7 percent increase from 12 months prior, according to STR. That is significant growth that the panel believes will continue.
The panel disclosed the projected RevPAR growth of their own companies as well. Goldberg forecasted RevPAR growth for La Quinta hotels at 7.5 to 8 percent for 2013, Joyce forecasted Choice hotels’ growth in the 5 percent range, Kessler forecasted Kessler hotels at 11 to 12 percent and LaPort forecasted Concord hotels to grow at mid-6 percent for 2013.
Metrics like ADR, RevPAR and occupancy are key for investors and operators because the data reflects the amount of revenue generated. The hotel industry posted 61.6 percent occupancy as of February 2013, a 2.4 percent improvement from 12 months earlier, according to STR. ADR also increased 4.3 percent in the same time frame to $106.79.
For the next 24 months, STR forecasts occupancy to grow 0.8 percent in 2013 and 1.3 percent in 2014. To see STR’s forecast of other performance indicators, see chart.
Source: Smith Travel Research
CONCERNS LOOM
Despite the panel’s bullishness, there are still some concerns looming on the horizon.
Kessler of the upscale Kessler Collection brand says that the time for his firm to develop hotels is now because the outlook on construction and labor costs isn’t too encouraging.
“Rising construction costs are inevitable. It will happen, and the rates won’t support new development, so that will slow down our ambitions to develop for a while,” predicts Kessler.
The current availability of cheap debt encourages new supply, and the panel is concerned that key markets could get overbuilt. Too many hotels in one locale could cannibalize business and would be a lose-lose for competing hotel developers and operators.
“There’s an inevitably about it that we’ll [see] oversupply again, as developers will oversupply the great markets that present opportunities,” says LaPort. “We’re already seeing developers rush to selective markets to provide more rooms at a rate we find threatening.”
All in all, the hotel industry’s future is looking bright for the panel but Joyce sees some causes for concern that makes him a bit bearish on 2013, at least compared to his counterparts on the panel.
“I believe that 2013 will be a good year, but not a great one,” says Joyce. “We’re going to see a little slowing over the summer and we’ll see the sequestration have some impact. We’ll accelerate toward the end of the year, and 2014 and 2015 will be great years.”