Investors are becoming more and more convinced that the economy has turned a corner, and while a recovery is not yet at hand, things are certainly getting no worse. This belief has been accelerated by so-called "greenshoots" appearing in the U.S. and world economy.
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No Recovery Yet
The hotel industry has not yet seen any recovery, with the latest figures showing double-digit percentage declines in key metrics used to gauge performance in the industry. Smith Travel Research reported that in the week ending May 23, measured on a year-over-year basis:
- Occupancy fell 11.1% to 59.4%.
- The average daily rate dropped 9.3% to $98.31.
- Revenue per available room (RevPAR) fell 19.4% to $58.39.
New York had the largest RevPAR decline at 33.6%. Other markets with large decreases included:
- Detroit - down 30.8%
- Chicago - 28.0%
- San Diego - 27.7%
- Los Angeles - 27.5%
- Tampa - 27.1%
- Phoenix - 26.0%
Market Ignoring Data
The stocks certainly don't seen to be paying any attention to RevPAR, as most lodging stocks have risen higher. Wyndham Worldwide Corp. (NYSE:WYN), Marriott International (NYSE:MAR), Starwood Hotels & Resorts (NYSE:HOT) and Intercontinental Hotels Group (NYSE:IHG) have all doubled off the lows reached in March.
Some hotel operators are reporting RevPAR declines worse than the industry average. Marriott, in its last reported quarter, said that RevPAR fell by 24.3% for all operated hotels.
The debt markets also seem to be opening up to hotel operators. Starwood Hotels & Resorts raised $500 million in a debt issue in late April.
Some In The Industry Are Still Optimistic
Jones Lang LaSalle (NYSE:JLL), which provides leasing, property management and other services to the hotel industry, just released a report predicting that RevPAR will reach $68.28 in 2013, after bottoming out in 2010 with a small growth rate of 0.6%. The report said that it expects "significant attrition to the supply pipeline" of new hotels as builders find it difficult to get financing to construct new units.
That isn't stopping some operators. Wyndham has 108,600 rooms under construction in its pipeline, and the company has either started construction or secured financing for most of the balance. IHG also has a large pipeline with approximately 240,000 rooms under construction as of the end of 2008.
Final Thoughts
Although the hotel industry has still not seen a turn in its fortunes, as measured by important industry metrics followed by investors, the stocks have hit a bull run off bear market lows as investors bet on a recovery over the next few years.
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