Hotel Revenue, Profits Increase While Transactions Slow

U.S. hotel industry revenue topped $189 billion in 2015, up nearly $14 billion from 2014, reported STR, Hendersonville, Tenn.

Hotel sector profits increased 9.4 percent year-over-year to more than $72 billion, STR said.

“Industry revenues and profits continue to reach record highs [and] we saw profit margin finally surpass the previous peak from 2007,” said STR Director of Financial Performance Joseph Rael. “Of course, at this point in the cycle, we’re seeing both revenue and profit growth starting to slow and we expect growth to continue to taper over the next couple of years as well.”

Adjusted for inflation, the industry’s 2015 revenue surpassed 2007’s prior-peak levels but remained below 2000’s peak, Rael said. Similarly, the house profit realized in 2015 represented the second-best profit level since 1990, behind only the peak $15,248 per available room in 2000.

Hotel transaction activity started the year off slowly, reported Lodging Econometrics, Portsmouth, N.H. Just 252 hotel properties changed hands in the first quarter–the lowest transaction volume since 2012–and LE reported seeing no merger and acquisition activity. Portfolio transactions fell to their lowest point in four years with only 42 transactions; the remaining 210 hotels sold in single-asset transactions.

Hotel sales prices also fell year-over-year, Lodging Econometrics said. The average sales price per room fell 7 percent from last year’s record level to $148,918. But LE noted that it expects both transaction volume and sales prices per room to return to their upward trend line pace later this year.

“Hotel investors are worried about acquisition financing,” Hospitality Real Estate Counselors CEO and Founder Mike Cahill said at last week’s Meet the Money hotel finance conference. He noted that 55 percent of those surveyed think debt availability will become worse while one-third predict that lending will remain stable. In addition, 57 percent predicted that loan/value-cost ratios will go down and two-thirds believe senior debt interest rates will increase “slightly” over the next one to two years.