For Immediate Release
Chicago, IL – August 15, 2012 – Today, Zacks Equity Research discusses the U.S. Hotels & Lodging, including Morgans Hotel Group Co. (MHGC), Red Lion Hotels Corporation (RLH), Great Wolf Resorts Inc. (:WOLF), Starwood (HOT) and Marriott (MAR).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at
In the U.S., Smith Travel Research noticed growth of 3.5% in demand and an upside of 0.4% in supply during the second quarter of 2012. The firm expects the same trend to continue in the second half of 2012, but at a slower pace. In the U.S., PwC expects supply in 2012 to inch up 0.5% but demand to increase 1.8%.
Room rates are on the rise 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 June, the total active U.S. hotel development pipeline comprises 2,741 projects totaling 296,333 rooms, down 6.7% year over year. Among the chain scale segments, Luxury reported the largest increase in rooms in the total active pipeline, with 6,358 rooms (up 54.4%). Among the rooms under construction, the upscale segment reported the maximum increase of 52.9% with 18,692 rooms.
Shift Toward Asset-Light Model
Since late 2010, transition to an "asset light" business model has gained prominence in the hotels and REIT industries. Asset sales remains a long-term strategy to strengthen financial flexibility, which help 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.
Focus on Acquisitions
According to Jones Lang LaSalle, hotel operators are becoming proactive on the acquisition front, a trend which emerged last year and gaining momentum in 2012. Hotel operators are presently focusing on purchasing assets, mainly to aid brand development, in a small number of key cities. Consistent with this trend, industry behemoth Marriott (MAR) has inked a definitive acquisition agreement with Gaylord Entertainment Co for an upfront payment of $210 million in cash by October 2012.
Increased Capital Expenditure on 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 position 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 tread 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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