Hospitality Consulting Update 12-31-10 from the Mgmt Experts at PGI

Several articles appeared recently in publications that we follow as part of our hospitality consulting services advising clients continue to suggest 2011 is shaping up to be a much better year for the hotel industry in terms of investor interest, rising asset values, increased ADR and room demand. Important highlights from the commentary include: – According to PKF Consulting “Concurrent with the improved2011 Image outlook for revenue is growth of the bottom line. For 2010, PKF-HR is projecting that the average hotel in the U.S. will achieve a 5.6 percent increase in net operating income (NOI). This will represent a marked turnaround from the record 35.4 percent decline experienced in 2009. The pace of profit growth picks up in 2011 when PKF-HR is projecting a hotel NOI (net operating income) increase of 11.1 percent, a rate which is expected to rise by more than 15 percent in both 2012 and 2013.” – The AH&LA Smart Brief reports “So far this year, 77 lodging deals have been struck in the U.S. with a total value of $8.5 billion, according to Dealogic. Last year, during the same time period, 30 deals were done at a value of $1.2 billion.” – At HotelNewsNow.com “A rebounding, albeit tepid, economic recovery is driving the rebound of fundamentals of the U.S. hotel sector. An anticipated rise in profits along with muted new hotel supply during the next five years is fueling deployment of equity earmarked for investment in U.S. hotel assets. The loosening of credit markets and the emergence of a variety of hotel lending sources are further stimulating U.S. hotel transaction activity. It appears the “Up” cycle has begun, and many anticipate epic appreciation of U.S. hotel assets during the next several years.” – On the ADR front and according to HotelNewsNow.com, the company summarizes that “1) ADR for the week ending 4 December was up by just 0.5%, while occupancy and RevPAR jumped by 4.7% and 5.3%, respectively, 2) Hoteliers are going to push rate next year, said Brad Garner, COO at STR, and 3) A slowdown in supply will aid pricing power.” – Lastly, Lodging Hospitality’s editor Ed Watkins sums it up with “Clearly, 2011 will be a better year for the lodging industry than was 2010 and, of course, much better than the dark days of 2009.” View the full articles here: U.S. HOTEL OUTLOOK CONTINUES AS EXPECTED – Uncertainty Begins To Dissipate Hotel investors start to see sector rebounding Evidence of Rising Hotel Asset Values ADR growth could accelerate in 2011 Stellar 2011 – Or, Just Not As Bad One issue well worth noting from a hospitality consulting perspective is that we appear to be heading into the traditional 7 to 10 year cycle of growth then flattening then potential rescission again. Still, the impact of the “Great Recession” as its being dubbed by many, may slow the economic up ticks and down ticks in the future hotel income and investment curve. More importantly from our hospitality consulting vantage point – the combination of continued growth in demand (i.e. occupancy) coupled with anticipated room rate increases in 2011 will accelerate the return to similar RevPAR (revenue per available room) that we experienced before the recession. This should be further evident going into 2012 as investors and lenders continue to perceive the lodging sector to be a once again viable and highly appreciated longer term value.