CLEVELAND—“Continued elevated volatility” is in the forecast for lodging generally and for hotel REITs in particular, RBC Capital Markets LLC said Friday. The outlook report from Cleveland-based analyst Wes Golladay cites moderating RevPAR growth and concerns about the softening of the global economy, and says the volatility—especially in stock performance—is likely to continue until the sector's visibility improves.
In their most recent earnings reports, “The C-corps within our coverage guided to 2% to 5% RevPAR growth while the lodging REITs varied depending on exposure to urban markets,” Golladay writes. “The US urban markets remain soft with weaker inbound international travel, lighter business travel and cancellations weighing on RevPAR growth.”
On the bright side, Golladay notes, “the lodging stocks entered earnings season with lower valuations, which set the stage for a relief rally.” Although the SNL Hotel REIT index was down 16.5% year-to-date as of Jan. 20, it has since rebounded and is now 2.0% higher YTD.
In a series of property-sector snapshots focused on CMBS, Fitch Ratings last month described lodging's outlook as “peaking.” In a Feb. 29 report on commercial property performance, a Green Street Advisors chart ranking the sectors similarly positioned hotels at or near their peak. More recently, Fitch last week lowered its US RevPAR growth forecast for the year from the 4%- to 6%-range to no more than 5%.
“RevPAR growth will not likely exceed 5% for the year due to weaker than expected fourth-quarter and year-to-date transient demand growth,” according to Fitch. The ratings agency said last Thursday that it expects group demand, i.e. hotel stays booked in room blocks of 10 or more, to drive RevPAR growth for US hotels this year and for the balance of the upcycle.
“Group demand can support hotel cash flows and credit profiles, but it is another indication that the US lodging cycle is peaking,” according to Fitch. Today's strength in group demand strength is “largely a function of decisions made several years ago and, therefore, does not necessarily reflect current demand. Group demand lags transient during recoveries to varying degrees based on event type and size. The advance bookings window can range from in the quarter/for the quarter for smaller groups to five years or more for large associations.”
And while Airbnb may not have made much of an impact on group demand as yet, it is making inroads generally. CBRE Hotels reported last week that Airbnb users spent $2.4 billion domestically between October 2014 and September 2015. Of that $2.4 billion, 55% was spent in just five cities—New York City, Los Angeles, San Francisco, Miami and Boston—“representing a significant portion of the lodging revenues in these markets,” according to CBRE Hotels.
“It seems reasonable that Airbnb will impact hotels in two ways,” says R. Mark Woodworth, senior managing director of CBRE Hotels. “For existing hotels, the growth of average daily rates will most likely be curtailed. The fluid nature of Airbnb's supply suggests that traditional hotel's historic price premiums realized during peak demand periods will be mitigated.”
The other impact, Woodworth says, may be on new hotel construction. “Airbnb may be an impediment to traditional hotel construction and could reduce traditional hotel supply growth in many markets.”
CLEVELAND—“Continued elevated volatility” is in the forecast for lodging generally and for hotel REITs in particular,
In their most recent earnings reports, “The C-corps within our coverage guided to 2% to 5% RevPAR growth while the lodging REITs varied depending on exposure to urban markets,” Golladay writes. “The US urban markets remain soft with weaker inbound international travel, lighter business travel and cancellations weighing on RevPAR growth.”
On the bright side, Golladay notes, “the lodging stocks entered earnings season with lower valuations, which set the stage for a relief rally.” Although the SNL Hotel REIT index was down 16.5% year-to-date as of Jan. 20, it has since rebounded and is now 2.0% higher YTD.
In a series of property-sector snapshots focused on CMBS, Fitch Ratings last month described lodging's outlook as “peaking.” In a Feb. 29 report on commercial property performance, a Green Street Advisors chart ranking the sectors similarly positioned hotels at or near their peak. More recently, Fitch last week lowered its US RevPAR growth forecast for the year from the 4%- to 6%-range to no more than 5%.
“RevPAR growth will not likely exceed 5% for the year due to weaker than expected fourth-quarter and year-to-date transient demand growth,” according to Fitch. The ratings agency said last Thursday that it expects group demand, i.e. hotel stays booked in room blocks of 10 or more, to drive RevPAR growth for US hotels this year and for the balance of the upcycle.
“Group demand can support hotel cash flows and credit profiles, but it is another indication that the US lodging cycle is peaking,” according to Fitch. Today's strength in group demand strength is “largely a function of decisions made several years ago and, therefore, does not necessarily reflect current demand. Group demand lags transient during recoveries to varying degrees based on event type and size. The advance bookings window can range from in the quarter/for the quarter for smaller groups to five years or more for large associations.”
And while Airbnb may not have made much of an impact on group demand as yet, it is making inroads generally. CBRE Hotels reported last week that Airbnb users spent $2.4 billion domestically between October 2014 and September 2015. Of that $2.4 billion, 55% was spent in just five cities—
“It seems reasonable that Airbnb will impact hotels in two ways,” says R. Mark Woodworth, senior managing director of CBRE Hotels. “For existing hotels, the growth of average daily rates will most likely be curtailed. The fluid nature of Airbnb's supply suggests that traditional hotel's historic price premiums realized during peak demand periods will be mitigated.”
The other impact, Woodworth says, may be on new hotel construction. “Airbnb may be an impediment to traditional hotel construction and could reduce traditional hotel supply growth in many markets.”
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