Wait
Till the
Year After Next
Not much is expected in the way of recovery for lodging
REITs in 2009. Or even 2010.
By Maria Wood
WITH LEASES THAT ARE RENEWED ALMOST DAILY,
hotels are the first to feel the sting of an economic downturn as
both business and leisure travelers slash discretionary spending. Nowhere is that trend more evident than in the financial
results of lodging REITs. As last year drew to a close, a number
of hotel trusts announced dividend cuts and other measures to
preserve their cash flow. Several also reassessed their RevPAR
guidance downward for 2009. All in all, it’s a rather bleak outlook for the sector this year.
John Arabia, managing director at Green Street Advisors in
Newport Beach, CA, says that 2009 could be even worse than
2001, when the industry was battered by a recession coupled
with flight restrictions in the aftermath of 9/11, causing
RevPAR to fall by 7%. For this year, RevPAR could decline
between 7% and 10%, he says.
“However, that is an incredibly volatile number, and one
that is ripe for revision,” Arabia cautions. “But keep in mind
that with a 7% to 10% RevPAR drop, you are looking at a
same-property EBITDA decrease in the neighborhood of
20%, maybe a little more, and that includes pretty aggressive
operating cost cuts from the operators. What is probably a
shocking statistic to many is that peak to trough, from 2007 to
2010, we’re calling for a cumulative 40% decline in same store
EBITDA. That alone shows you the volatility of hotel earnings
relative to, say, a standard office building or mall or a strip
center. Generally, on a portfolio basis, you are not going to see
such wide swings in earnings in most of the other property
sectors.”
