Categorized | Hotels

Lodging Industry RevPAR Declines Worst Ever: All Segments Down Significantly and No Upturn Until 2011

Posted on 28 July 2009

Smedes Rose is a Senior Research Analyst with Keefe, Bruyette & Woods, Inc. (KBW) focusing on the lodging and self-storage industries within the firm’s real estate group. Mr. Rose previously worked at Calyon Securities, USA, following the gaming and lodging industries. Prior to Calyon, he worked in equity research at JP Morgan with the gaming and lodging group. Mr. Rose earned an MBA from Columbia Business School, a master’s in International Affairs from Columbia and a BA from New York University.


TWST: Tell us what’s going on out there in the lodging industry. How bad is the slump?


Mr. Rose: It’s very bad. It is pretty much unprecedented, what we’re seeing in the industry right now. As you know, the key metric that we look at is RevPAR, or revenue per available room. We think in 2009, RevPAR will decline by 18% to 20% and will likely fall modestly in 2010. I would compare that to the fallout after 9/11, when RevPAR declined 7% in 2001 and about 3% in 2002 before flatting out in 2003. So this is really much worse than what we’ve seen in recent times.


TWST: Is there anything positive going on in lodging?


Mr. Rose: We did see a property sale by Starwood (HOT) recently, selling the W Hotel in San Francisco at an approximate 5 cap rate, or capitalization rate. That looks like pretty good pricing to us. It does show that there are some buyers who remain well-financed and there are some properties that are desirable. But I would say the good news is slim and few and far between.


TWST: You said RevPAR is currently very low. How does that impact a company’s bottom line?


Mr. Rose: It’s hurting a lot. Most of the larger chains focus on three segments. They focus on business transient travel, group bookings and leisure. All three segments are down significantly. If you look at a company like Host Hotels (HST), which is a pretty good proxy for the group with large group-oriented hotels positioned across the country, we’re looking for 40% declines in EBITDA in 2009. That’s on top of a 10% decline we saw in 2008, and we estimate an approximate 10% decline next year as well. So these are very steep fall-offs from peak earnings in 2007.

Source: Wall Street Jounal

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