For Immediate Release
Chicago, IL – May 2, 2012 – Today, Zacks Equity Research discusses the Hotels & Lodging Industry, including Morgans Hotel Group Co. (MHGC), Red Lion Hotels Corporation (RLH), Great Wolf Resorts Inc. (:WOLF) and Starwood (HOT).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/74176/hotel-lodging-stock-outlook-may-2012
The hotel industry continues to witness upside and remains on track for improved performance. We expect the positive demand growth trend to continue in 2012 and beyond. According to Smith Travel Research, the leading information and data provider for the lodging industry, the U.S. hotel industry reported increased results across all three key performance measures -- occupancy level, ADR and RevPAR for the first quarter of 2012 as well as for the third week of April.
Comparing the operating metrics on a year-over-year basis, the industry's occupancy, average daily rate and RevPAR at the end of the week increased 12.6%, 7.8% and 21.4% to 65.5%, US$106.66 and US$69.91, respectively.
In its April projection, The International Monetary Fund's (IMF) also raised its US growth forecast for 2012 to 2.1% from its previous projection of 1.8% in January.
Demand Exceeds Supply
In the U.S., Smith Travel Research expects supply in 2012 to inch up 0.8% but demand to increase 1.3%. In 2013, supply is estimated to rise 1.4%, but demand is expected to jump 2%.
Room rates swung back to profit in an environment marked with higher demand and lower supply, thus resulting in RevPAR growth in 2012.
According to data published by Smith Travel Research in March, the total active U.S. hotel development pipeline comprises 2,752 projects totaling 293,850 rooms, down 9.5% year over year. Among the chain scale segments, Luxury reported the largest increase in rooms in the total active pipeline, up 17.8% with 16,772 rooms. However, despite reporting maximum upside in both rooms under construction and rooms in the total active pipeline, the Luxury segment still accounts for a small number of actual rooms compared to other segments.
Shift Toward Asset-Light Model
Since late 2010, transition to an "asset light" business model has gained prominence in the hotels and REIT industry. Asset sale remains a long-term strategy to strengthen financial flexibility, which help the companies grow through management and licensing arrangements instead of direct ownership of real estate. A higher concentration of management and franchise fees reduces earnings volatility and provides a more stable growth profile.
Hence, the hoteliers are focused on rebalancing their portfolios by increasing contributions from managed and franchised hotels. This fee-based business is attractive as growth is powered by multiple sources like RevPAR growth, unit additions and incentive fee escalation. The business is also capital efficient as owner/developer partners provide the capital and the company earns a fee by managing/franchising the property.
Following the industry trend, many industry players like Morgans Hotel Group Co. (MHGC), Red Lion Hotels Corporation (RLH), Great Wolf Resorts Inc. (:WOLF) and Starwood (HOT) embarked on an asset disposition strategy.
Increased Capital Expenditure in Renovation
Most of the hoteliers are increasingly investing on property renovations in recent times. Hotel companies are working hard on guest satisfaction to enhance their positions in a cut-throat environment. Brand conversion and remodeling has emerged as a trend for major hoteliers. Many industry biggies like Starwood, Marriott, and others have treaded the same path.
There are several well positioned, older hotels in metro markets, which are good candidates for restructuring. Hence, we believe that 2012 will likely witness further renovations.
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