For Immediate Release
Chicago, IL – May 2, 2012 – Today, Zacks Equity Research discusses the Hotels & Lodging Industry, including Morgans Hotel Group Co. , Red Lion Hotels Corporation (RLH - Snapshot Report), Great Wolf Resorts Inc. and Starwood (HOT - Analyst Report).
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. , Red Lion Hotels Corporation (RLH - Snapshot Report), Great Wolf Resorts Inc. and Starwood (HOT - Analyst Report) 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.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2679.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment
Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4581.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Zacks Investment Research
800-767-3771 ext. 9339