The Hotel Times - June 2008 - (Page 30) ASSET MANAGERS OUTLOOK » BY RICK SWIG Hotel industry concerns are cyclical Several factors converged to make the first quarter less than memorable obody can argue there is a distinct shift in the economic trends of the U.S. As the political embers of debate are being buffeted into flame, hotel industry blazes are emerging on multiple fronts and having an impact on hotel operating businesses and hotel real-estate. Current questions relate to general business growth, asset valuations, transaction activity and the general challenges of operating hotels in the short and mid terms. First quarter 2008 revenue performance was not significantly impressive one way or another. Supply/ demand ratios were nearly an offset. Room rate growth was generally in a favorable range. None of the trends implied the decline of the hotel empire. The combination of failing housing markets, disintegrating financial structures and the $4-per-gallon gas price are certainly real forces on travel. Many hotels are beginning to look for the replacement of demand from companies exercising travel austerity, including corporate restrictions on individual travel and meetings. A real leisure transient trend did emerge in the first quarter in some ª snow birdº destinations, as some traditional travelers did forego their winter migrations from the icy north because of higher travel costs. The most dynamic impacts have been felt in hotel transaction trends. The combination of revised loan pricing, restrictive lending rules and a general lack of credit has brought the markets to a screeching halt. Now, even more owners are confused about how their operations can be yielding more than last yearÐ yet the asset' s market value is significantly less. N Rick Swig is president of RSBA & Associates, a hospitality industry consulting firm. Hotel operators must focus on restraint from reactive panic tactics, such as exaggerated room rate discounting, to restrict further undermining of the valuation and cash flow integrity of their businesses. The advent of inexperienced revenue managers, the influence of automated revenue management tools and the pressure to secure revenue per available room budgets provide the risk to repeat nonsensical declines in room rates in the early part of this decade. If hotel revenue declines do happen, hotel owners will find themselves at odds with brands on two fronts: service and product standards. The brands were banking on continued growth in the hotel segment to improve general product standards and competitive positioning. Brand initiatives with the requirement for significant physical product and laborintensive service enhancements now will be fought by owners with reduced financial means to accomplish those initiatives. Prior to 2007, transaction activity with available financing for capital improvements and repositioning underwrote a significant portion of property improvement plans, which were well beyond traditional replacement reserve guidelines of 4 percent to 5 percent of annual gross revenue. Aside from the issues above, there are other important considerations related to hotel industry growth and prosperity, including the flattening of federal government travel barriers for incoming international visitors, the discovery of qualified human resources for the hotel industry' s work force, and the balancing of expense growth with revenue growth. Each has impact on hotel operations and investment stabilization. hmm@questex.com 30 The Hotel Times June 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com
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