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Serenity Alternative Investments Blog - Canary In The Coalmine? What Hotel Fundamentals Are Saying About The US Economy
August 2020
Serenity Alternative Investments Blog - Canary in the Coalmine? What Hotel Fundamentals are Saying About the US Economy
One of the un-sung virtues of the REIT market is the wide variety of insights that can be gleaned by closely following REIT fundamentals. The various REIT property types form a sort of spider-web of connectivity between real estate and the underlying drivers of the US economy. For investors paying close attention, there is always a fiber or two twitching that can indicate something new occurring that is tethered to the REIT market. It may be an unexpected jump in warehouse absorption due to Amazon increasing its capex spend, or a troubling drop in occupancy for a strip-mall company due to increased retailer bankruptcies.
While many of these small signals are relevant only within a specific property type, some carry outsized significance due to their strong ties to the economic cycle. Hotel REIT RevPAR is one of these such signals, which in the last few months has begun flashing a “warning” sign for the US economy.
Smith Travel Research (https://str.com/) is the leading provider of near real-time data on the hotel industry. They had this to say regarding RevPAR for hotels in June.
“This was just the industry’s second month in the past 112 with a negative year-over-year RevPAR comparison. The other was September 2018, which was due mostly to difficult-to-match levels from the post-hurricane time period the previous year. The longest overall expansion cycle in industry history lasted 112 months from December 1991 through March 2001.”
In other words, RevPAR (Revenue per available room, which is THE key performance metric in hotels) posted its worst month since the recession of 2008 in June of 2019. That’s not good, but a savvy analyst will point out that RevPAR has been mostly un-inspiring since mid 2016. So maybe this is just a blip.
The hotel REITs, however, aren’t projecting much positivity. As second quarter earnings season winds down, it’s become glaringly clear that all is not right in hotel-land. Of the top 5 players in the hotel space (by market cap), all five lowered their full year 2019 estimates for RevPAR growth in the second quarter. This includes Hilton and Marriot, the two largest hotel brands by a wide margin.
View the entire post here.