occupancy rates, AHLA says. “This pace means a loss of $3.5 billionevery week and will only further escalate as the situation worsens.”It adds that most hoteliers are already reporting projected revenuelosses of greater than 50% for the first half of the year. “Individualhotels and major operators are projecting occupancies below 20%for upcoming months. At an occupancy rate of 35% or lower,hotels may simply close their doors,” it said.
Until the coronavirus hit, the outlook for lodging fundamentalswas positive, “resulting in continued deployment of domestic andforeign investment, and institutional capital into single assets andportfolios of all types and locations of US hotels,” according to LWHospitality Advisors’ year end 2019 Major US Hotel Sales Survey.Prior to COVID- 19’s spread across the US, Q1 2020 transactionstotaled $1.97 billion and included approximately 7,600 hotel roomswith an average sale price per room of $259,000.
Since then deals, not surprisingly, have all but ceased, as haslending for the sector. Hotels are surviving the coronavirus with amix of strategies that range from shutting down properties and tapping credit lines.
Properties that are well-capitalized with relatively sane leveragesand access to capital are seen as having the best chance of survival.Pebblebrook Hotel Trust, for example, is sitting on a little over$700 million, which should allow the REIT, with a fairly significantcash burn, to get through the better part of next year, CEO JonBortz told Nareit, an industry association. All but eight ofPebblebrook’s 54 hotels had been suspended and more than 7,500employees furloughed.
In the meantime, hotel companies that can afford to be generous are repurposing their rooms for healthcare providers withoutcharge. At the beginning of April, as just one example, HiltonHotels and American Express revealed they would donate up to 1million rooms to medical workers on the frontlines of the coronavirus pandemic. Many hotels are also being recruited to house thehomeless by various cities and states during the pandemic.
Beyond these signs of activity, it cannot be ignored that the vastmajority of hotels will struggle to remain afloat during this crisisperiod. Many will fail.
Analysts that specialize in the space say the industry needs to havecourage. “Although the world is currently in unchartered territory,having recovered from prior economic and demand shocks,America’s hotel industry has a proven track record of resiliency,”says Daniel H. Lesser, president & CEO of LW Hospitality Advisors.
On its website, Joseph David International, a hotel recruiting
firm, reminds hotels that there are steps they can take to prepare for
the recovery, when it does come. For instance, it noted that after the
2008 financial crisis, hotels made dramatic price-drops, which
resulted in lost revenue and a struggle to recover ADRs. If at all pos-
sible, maintain pricing, the site urges. “Studies have shown that
hotels that are the fastest to drop their rates and who drop their
rates the deepest can be the last ones to recover when demand
comes back,” Dan Skodol, a hospitality and travel industry revenue
management expert, told JDI.
Hotels can also incorporate long-term strategies aimed at
improving operational efficiency when the impact of COVID- 19
lessens, says Ralph Hollister, travel and tourism analyst at GlobalData.
For instance, upskilling remaining team members could be invalu-
able in the longer term, he says. “Companies could also re-evaluate
services and policies. Management should take the time to look at
where the company has received negative feedback in the past and
see if they can rectify it to enhance its reputation for the future.”
It may also pay to remember the trends that were directing hotel
investment before the coronavirus hit. A JLL lodging report that
came out at the time, for example, said that US hotel projects are
focusing on specialization to fit a particular location and target
market including much smaller room sizes, lobbies with integrated
bars and restaurants, and more outdoor space, all of which impact
the cost to build and type of materials needed for a project.
Companies, like Ashford Hospitality Trust, for example, focusedon diversifying their portfolio geographically, which, at least
according to Douglas Kessler, president and CEO of AshfordHospitality Trust, provided a huge advantage with respect to operating performance.
Those in the trenches are not underestimating the road ahead.Pebblebrook’s Bortz says the hotel industry will likely be one of thelast to benefit from an eventual upturn. “We think it’s going to be avery slow recovery,” he told Nareit.
He predicts that leisure is likely to be the first hotel segment torecover, especially resorts within driving distance, while grouptravel will be “very slow” to see any improvement.
As hotels slog through this period, resiliency seems to be abyword that they are clinging to. Marriott Vacations Worldwide isanother company girding itself for a sharp drop in visitors, butaccording to Stephen P. Weisz, president and CEO, the company“has a resilient business model” with nearly half of its adjustedEBITDA contribution coming from recurring revenue streams. Itsays it can manage through the disruption.
“We expect that we can make the changes needed so that we canrun the business at close to cash flow neutral until the businessreturns to a more normal level,” says Weisz. “Thanks to the resilience of our business model and the extremely difficult decisionswe are making, I firmly believe that we will come through this aneven stronger company.” ◆
“COMPANIES COULD ALSO RE-EVALUATE SERVICES AND POLICIES. MANAGEMENT SHOULDTAKE THE TIME TO LOOK AT WHERE THE COMPANY HAS RECEIVED NEGATIVE FEEDBACK INTHE PAST AND SEE IF THEY CAN RECTIFY IT TO ENHANCE ITS REPUTATION FOR THE FUTURE.”
TRAVEL AND TOURISM ANALYST AT GLOBALDATA