News for the Hospitality Executive |
CHICAGO, Aug. 15, 2012-- Today, Zacks Equity
Research discusses the U.S. Hotels & Lodging, including Morgans
Hotel Group
Co. (Nasdaq: MHGC),
Red Lion Hotels Corporation (NYSE: RLH),
Great
Wolf Resorts Inc. (Nasdaq: WOLF),
Starwood (NYSE: HOT) and
Marriott (NYSE: MAR). Link: http://www.zacks.com/stock/news/81025/hotel-and-lodging-stock-outlook-august-2012 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. (Nasdaq: MHGC), Red Lion Hotels Corporation (NYSE: RLH), Great Wolf Resorts Inc.WOLF) and Starwood (NYSE: 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 (NYSE: 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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