Public Companies Signal Strong Year for Hotels

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If the first quarter is any guide, the U.S. lodging industry may be destined for a record-breaking year. Like most of corporate America, U.S. public hotel companies had a great start to 2012: improving profits, rising occupancies and rates and, most impressively, strong gains in RevPAR.

Both hotel brand companies and ownership groups posted solid numbers in the first quarter. Wyndham said RevPAR at its domestic hotels rose 9%. Starwood, whose profits quadrupled from a quarter earlier, saw North American RevPAR increase by 7.1%. For Marriott, the RevPAR gain was 6.8%, while its group bookings for the remainder of 2012 are up 11%.

Hotel REITs performed equally well in the quarter. RevPARs increased 8.8% for DiamondRock, 8.4% for Pebblebrook and 6.7% for Ashford's hotels, excluding those in the Washington, DC market. There's no way to know for sure, but it's highly probable private hotel companies have had similar success so far in 2012.

Even more heartening is yesterday's news from Pegasus Solutions showing a sharp increase in hotel rates in recent months, especially for leisure business. In March, said the distribution technology supplier, leisure ADRs in North America rose a record 8.5%, beating the previous record of 7.3% set a month earlier. Corporate rates improved an equally impressive 6.5% in March. This is particularly good news because as every hotelier knows, increased rate means increased profits.

Of course, the wet blanket thrown on all this good news is the continued softening in hotel financing. By all accounts, few banks or other lenders are ready to jump back into the hotel sector of the real estate market, despite the indisputable improvement in lodging operating performance. Even institutions with money to lend still seem to view hotels as a risky play, even though all demographic and long-term economic trends point otherwise. At some point—perhaps after the fall elections and perceived political certainty crystallizes—lenders will be more comfortable to once again finance the expansion of an industry that seems assured to be the success story of U.S. business for years and decades to come.

Even though financing is generally scarce, there are a few lenders still active in the lodging arena, and a number of them will be featured in the new Lenders Pavilion at the upcoming Midwest Lodging Investors Summit. In the Pavilion, delegates will be able to meet with representatives of eight firms that are active lenders in the hotel industry. Delegates can pre-arrange appointments to see lenders or simply stroll through the Pavilion to chat with representatives from the firms. Go to the MLIS website for more information on the event, which will be held July 16-18 at the Hyatt Regency McCormick Place in Chicago.

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