Lodging Is On A Roll

WASHINGTON D.C.— Lodging is back and it’s going to get even better. That was the consensus from some of the leading hospitality analysts gathered together last month by the American Hotel & Lodging Association for a one day conference held here at the National Press Building to share their views on the current state of the hospitality market and where it is likely heading. Presenting at the event were Mark Lomanno, president of Smith Travel Research; Bjorn Hanson, group industry leader, hospitality and leisure practice at PricewaterhouseCoopers International Ltd.; Douglas Shifflet, president/CEO of D.K. Shifflet & Associates Ltd.; Patrick Ford, president of Lodging Econometrics; Philip Wolf, president/CEO of PhoCusWright Inc.; and Peter Yesawich, managing partner of Yesawich, Pepperdine, Brown & Russell. Peter Krause, managing director and founding member of Greenhill & Co., kicked off the event and set the tone early by saying that the deal-making environment in the lodging industry has picked up momentum so far this year. “There is a lot of capital and a lot of hotel real estate out there. It is remarkable to see how quickly values are returning and mergers and acquisitions activity is increasing in the lodging sector,” Krause said. “Recent deals such as the purchase of the KSL golf resort portfolio at a 6% capitalization rate, the sale of Savoy Hotels for $1.8 million per room, and the purchase of Extended Stay America at a 24% premium to its market price all indicate the growing and significant appetite for hotel real estate,” he said. STR’s Lomanno followed and said that both occupancy and average daily rates in the industry are on the upswing. “That is why we are optimistic. The demand side of lodging is coming back and it is coming back quickly,” he said, adding that the bounce back in occupancy is occurring at a higher rate than its decline so the “recovery is stronger than the decline.” Specifically, on a 12-month moving average, occupancy for March 2004 was 69.8%, above its peak of 64.9% in June 1996, Lomanno said. For its part, ADR is also showing strong growth at $83.76 this past March, from a peak of $86.46 in June 2001, he said. And the trend is continuing. “In May 2004, lodging will sell more rooms than ever in its history [on an annualized basis],” Lomanno said. Already, April numbers are showing it was just 4,000 rooms shy of its peak “and closing in very rapidly,” he said. He also said the industry is witnessing some significant recovery in ADR. “We are starting to se see some movement in the ADR equation after years of sluggish decline,” Lomanno said. Echoing some of Lomanno’s statements, PwC’s Hanson put the current state of the lodging market in context with its performance over the last 75 years or so and said the market closely follows the economy, except in some rare instances. “As the economy recovers, we will see quite the same results for lodging,” Hanson said. He also said that according to PwC research, people’s travel patterns are more influenced by U.S. terror alerts than they are by international incidents. He did warn, however, that even as demand continues to recover, there is a lot of construction in the pipeline. Hanson also shared PwC’s forecasts for the industry through 2005. Average daily rooms sold is expected to grow 4.6% this year and then 2.3% in 2005; end-of-year room supply is expected to be up 1.4% this year and 1.6% in 2005; occupancy for 2004 should come in at 61.2% and rise to 61.7% next year; average daily rate is projected to increase 1.9% this year and then jump another 3% in 2005; and RevPAR is expected to rise 5.2% in 2004 and 3.9% in 2004, according to Hanson. One regular theme throughout the one-day event was that the Internet has had a profound impact on the lodging business. Shifflet said because Generation Xers have become such a big part of the travel industry, technology has also emerged and booking through the Internet is a medium that cannot be