Panelists in the closing general session of The Lodging Conference shared their perspectives on the hotel industry at the macro and micro levels.
PHOENIX—Until the cycle drops or shoots back up, everyone in the hotel industry will continue to make their own forecasts and hope whatever they’re doing carries them through whatever actually happens.
During the final general session of The Lodging Conference, panelists offered differing viewpoints of where the hotel industry is and where it’s headed. The discussion came during the “Hotel owners, lenders and investors forum” session.
Predicting the future
The market can get a number of things right before the numbers show up in the fundamentals, said Richard Hightower, managing director and research analyst at Evercore ISI. Lodging real estate investment trust stocks peaked in early 2015, he said, but the industry didn’t experience the slowdown until about six months later. Stocks bottomed out in January of this year, he said, and the industry has seen better trends in some respects later on.
“REITs were out of the market for a long time with a few exceptions,” he said. “That impacts you (attendees) in the depth and breadth of the market and what it’s willing to pay.”
Nelson Knight, EVP and chief investment officer at Apple Hospitality REIT, disagreed somewhat with Hightower’s assessment on REITs.
“I think it’s fair to say REITs, on average, at this point in the cycle are not necessarily growing their portfolio, with the exception of us with the (Apple REIT Ten) merger, but to say they’re inactive is an inaccurate statement at this point,” he said. “They’re looking to reposition the portfolio. They’re looking at selling noncore assets, taking proceeds from those sales and either reinvesting in traditionally core branded assets or strengthening the (balance sheets).”*
Half empty, half full
Michael Tall, president and COO of Charlestowne Hotels, said “trepidation” was the word he heard frequently during the conference, and he said that might be a good thing.
“Certainly, sharpening a pencil at a time like this may put us in a better place than we were in 2008,” he said. “Drilling down tighter might keep things fitter than they were.”
The consensus takeaway from the conference is that industrywide revenue per available room will muddle along the bottom and will stay modestly positive, Hightower said. However, he said he believes RevPAR will go negative sooner rather than later, and that an appropriate level of caution is required to manage balance sheets. That said, Hightower also said the overall leverage in the system is in a much better spot than it was in 2007.
Occupancy in the industry is at its structural peak, Hightower said, and it’s hard to push occupancy even in the shoulder periods because, to a certain extent, that’s not the nature of how people travel. It’s going to be tough to increase RevPAR through occupancy, he said.
As for average daily rates, if industry demand is a function of the economy, he said, international shipping volume has had its slowest growth since 2009, and rail shipments are falling along with trucking volumes.
“The indicators we see say the economy is slowing while costs are going up,” Hightower said, referencing wages, utilities and other factors. “I think corporate travelers and even leisure travelers who contribute to the overall pie are slowing down how they’re spending money and how much is allocated to lodging.”
While RevPAR growth is slowing on the national level, Knight said, that’s only a macro view of the industry. There’s strength in Southern California, the Phoenix area and Dallas, but he acknowledged there is softness in New York City, Houston and Miami.
Apple Hospitality has been in the hotel industry for more than 16 years, Knight said, and there’s opportunity in all points of the lodging cycle. He added that the company has taken a conservative approach to investment, focusing mainly on brands like Marriott International and Hilton Worldwide Holdings, which have broad consumer appeal.
“Our job is to create the best return we can for our shareholders,” he said. “Part of that is maintaining a healthy balance sheet. … We maintain one of the most flexible balance sheets in the industry. That allows us to weather a lot of things. We feel, at this point in the cycle, we’re going to perform very well.”
*Correction, 6 October 2016: An earlier version of this story included a typo that changed the meaning of a statement by Nelson Knight, EVP and chief investment officer at Apple Hospitality REIT.