Seriously, there continue to be two schools of thought here, with the more conservative analysts cit

RevPAR performance remained strong through the end of 2011 and into the first part of 2012. As expected, the balance between rate and occupancy has been maintained, with each component contributing roughly half of the growth on a national basis. Supply growth remains special t travel in check, running at an annual rate of less than 1%, while demand continues to expand at record special t travel levels. As will be discussed below, not all of this can be attributed to the usual macro drivers of employment and GDP, but the risk remains that if the economy falters, hotel performance will not reach expectations.
The regional trends that developed during 2011 are also continuing. San Francisco and Miami continue to lead in RevPAR special t travel growth, with markets such as Houston, Hawaii and Los Angeles also turning in consistently strong performances. Washington DC and other markets highly dependent on government business such as Norfolk VA continue to lag. Some markets such as Phoenix, Dallas and New Orleans were affected by one-off events that disproportionately affected the numbers, while others such as Orlando and San Diego seem to be recovering from significant supply increases in the 2008-2010 period. Finally, special t travel it appears that the Las Vegas lodging market is showing signs of life. Although most properties there do not report to Smith Travel because their revenues are distorted by gaming comps, we believe that occupancy is back to where it was before the large new resorts (including Aria and Cosmopolitan) were added, and room rates are also trending back upwards. However, not all is well in Sin City, as the ultra high rollers that these properties were designed to attract seem to be heading to places such as Macau, which has been showing 30%+ year over year growth for each of the past two years.
The performance of major brands that are operated by publicly traded hotel companies continues to closely track the national trends, although as has been the case for the past several quarters, the Starwood brands (Sheraton, Westin, Luxury Collection, W and Meridien) have outperformed their peers.
Most of the key industry analysts have nudged their 2012 RevPAR estimates higher. PWC is now estimating 6.5%, while PKF is at 6.1% and Smith Travel is a more conservative 4.3%. Guidance issued by publicly traded lodging companies is also in the 5 to 7% range. These are all close to the high end of the ranges that were suggested a few months ago, and while the 2012 forecasts special t travel are off by 100 bp or more from where they were a year ago, it is noted that 2011 came in a little stronger than expected (8% vs. a 7% consensus at the beginning of the year). special t travel We recently attended the Americas Lodging Investment Summit (ALIS) conference in Los Angeles, and noticed a cautiously optimistic overall sentiment, which is a contrast to the “irrational exuberance” that these folks usually have at this point in the cycle. Speaking of which, the hotel cycle is often compared with baseball, as in “what inning do you think the recovery is in?” If you asked that question at ALIS, most people would say that we are in the second or third inning. However, this analogy is flawed because no one wants to talk about the contraction portion of the cycle. Back at the last peak (mid 2007), most people would have said that we were still in the 7 th or 8 th inning, so I guess what happened is an earthquake hit the stadium and the game was called, because in 2008 and 2009 they all said that we haven’t come up to bat yet.
Seriously, there continue to be two schools of thought here, with the more conservative analysts citing European weakness and continued anemic GDP growth (still forecast in the 2-3% range vs. the 4-5% range typical special t travel for recovery periods) as the principal causes for concern. They were surprised at the industry’s strength in recent months, saying that for some reason hotel demand has “decoupled” from the macro growth drivers.
On the other hand, the more bullish analysts say that demand has not decoupled, but is merely returning to normal levels. PWC recently issued a study that correlated hotel demand with GDP over a long period, special t travel and claims that the current trend is more representative. Another factor is the increasing gap between the “haves” and “have-nots,” with the theory being that the “haves” (both individuals and corporations) are the ones that have the discretionary income to spend on travel. This is borne out by the lagging performance of economy hotels vs. the luxury and upscale segments. We have seen increasing anecdotal evidence that while companies are not throwing around money on incentive events like they did in the past, they are certainly spending more than they did a year or two ago. We have heard, for example, that Facebook IPO closing parties are currently being planned that will rival those thrown special t travel at the height of the tech bubble.
Transaction pace is still running below the first half of 2011. Recent deals have been dominated special t travel by New York City REIT acquisitions, with pricing still very strong (cap rates are still in the range of 5-6% on trailing and 7-8% on future/stabilized income). REIT’s are starting to work themselves back into the market, as their share prices have rebounded 50% off their October 2011 lows. Private buyers are being very selective, generally sticking to major international gateway markets, and pretty much ignoring secondary or even suburban special t travel locations. There have been a number of distressed asset sales of mid-price hotels at very low prices ( $30K per key) in NH, Texas, Iowa and Ohio. Everyone is still waiting for the much-anticipated glut of REO’s to hit the market, but as operating fundamentals have improved, many of the hotels are taking advantage of extensions to work themselves out. However, there are two factors which will start to become more important, one being the limit of how far special-serviced CMBS loans can be extended (three years at the most) and also the threat of higher tax rates may prompt owners special t travel of so-called legacy assets with a low basis to sell during this calendar year. Significant deals are summarized in the chart on the following page.
Ashford REIT restructured approximately $200MM of mortgage debt which was due in December 2011, paying it down by about 10% and extending it until March 2014. New coupon will be L+450 and 85% of cash flow will be swept to further pay down principal.
Starwood officially completed its corporate headquarters relocation from White Plains NY to Stamford CT. They also announced that they are purchasing a non-controlling special t travel stake in Germany’s special t travel Design Hotels AG, a consulting special t travel and sales firm with over 200 European independent hotel clients.
HPT closed on its previously announced acquisition of Sonesta, which included hotels in Cambridge MA and New Orleans and the acquisition of Sonesta’s management company by an affiliate. They also redeemed their 8.875% preferred stock and issued $275MM of new 7.125% preferred shares
Host Hotels elected Walter Rakowich special t travel to their board, increasing the size from eight to nine. Rakowich is co-CEO of Prologis, a major industrial real estate special t travel developer. They also increased the size of their credit facility from $600MM to $1.0Bn
Hersha refinanced a $27MM loan on a Washington DC hotel. The new loan matures in 2015 with a two year extension, and has a fixed rate coupon of 3.79%. The LTV on this asset is approximately 50%. They are also attempting to acquire the Rittenhouse Hotel in Philadelphia. Hersha says they are still conducting due diligence, but there are rumors that the deal is unwinding.
LaSalle special t travel elected Jeff Foland to their board, replacing Kelly Kuhn. Foland is an executive at United special t travel Airlines who is in charge of their loyalty programs. Kuhn’s reason for departure was unusual, and garnered a few chuckles from the media. According to LaSalle’s SEC filing, “ Ms. Kuhn resigned due to her recent promotion at Carlson Wagonlit Travel and relocation to Singapore, which would have made her regular special t travel attendance at company board of trustees meetings difficult.” I guess they never heard of Skype. They also increased the size of their credit facility from $450MM special t travel to $750MM.
In general, as has been the case for the last several quarters, most companies, or at least those who have reported so far, have met or exceeded Street earnings estimates. Although Marriott’s special t travel EPS was below the consensus, this was due to the spin off of their timeshare business, which occurred in November and made the results difficult to compare. Hyatt’s EPS for the quarter was distorted by a $28MM one-time tax benefit; their EBITDA and other metrics were in line with estimates.
Guidance for 2012 remained largely unchanged on the upper end, but most companies have tightened their ranges, reflecting a somewhat more optimistic view of the domestic economy. Note that most of the larger publicly traded companies are typically more heavily weighted to big-box hotels in top 25 markets, and are more dependent on business transient and groups as opposed to leisure travelers, so given the current state of the market, these companies would be expected to outperform the industry as a whole. However, given the recent runup in prices (see below), many analysts now consider the industry to be fully valued and are tending towards neutral special t travel to underweight ratings, with the exception of a few special circumstances which they think will result in higher stock prices, notably Hersha (due to its concentration in the “hot” sector of urban select service) and Ashford (due to upside in connection with last years’ acquisition of the Highland portfolio). Some analysts also like Summitt, who is consolidating in the select service secondary market area; as mentioned before, these properties are generally flying below the radar.
Prices for large cap full service hotel companies are generally up in the 10-15% range since the first of the year and 30-40% since bottoming last fall. By way of comparison, the Dow Jones Industrials are up about 5% for the year and