Hotel Metrics, Debt Markets Bounce Back

The hotel sector continues to bounce back from a devastating 2020, according to new reports from STR and JLL Hotels.

STR, Hendersonville, Tenn., said U.S. hotel gross operating profit for July came in at 111 percent of the 2019 comparable. The data firm compares current performance to 2019 rather than to 2020 because the pandemic hit the sector so hard last year.

“It is first important to note that one month or even a few months with higher gross operating profit than 2019 does not mean the industry has recovered,” said Raquel Ortiz, STR Assistant Director of Financial Performance. “The industry is heading into the lower season as summer wraps up, but looking back, we see just how high the surge in leisure demand pushed U.S. profitability in recent months.”

Ortiz said she expects similar or perhaps a bit lower results in the August data, followed by a drop-off in September.

“The July numbers were less impressive when focusing in on just the major markets, which are mostly below 50 percent of 2019 revenue,” Ortiz said. “However, like the rest of the country, those key metro areas are showing margins in line with 2019 because of leaner operations.”  

In its annual Global Hotel Investor Sentiment Survey JLL Hotels, Chicago, said investment activity reached $30 billion in first-half 2021, up 66 percent year-over-year and down only 4 percent from first-half 2019 activity. “With 2021 very much a year of two halves, the pace of investment activity is expected to accelerate throughout the second half,” the report said. More than half of the investors surveyed plan a more aggressive investment acquisition strategy as they become more forward-looking, JLL noted.

With 70 percent of respondents saying they anticipate their property or portfolio revenue per available room to return to 2019 levels within three to four years, investors are keen on operational changes and re-evaluating strategy, JLL said. Investors indicated several key operational focus areas going forward, including profitability improvement measures such as service and amenity offering evaluations and labor optimization, sustainable operation programming and enhanced focus on environmental, social and governance factors.

In a separate report, JLL Hotels said hospitality debt markets were “on an impressive tear” in first-half 2021, with spreads tightening 100 to 200 basis points since January. A bank loan that would have priced in the high 300s or low 400s in January would price in the high 200s or low 300s today, JLL said in its Hotel Debt Market Overview. Similarly, a debt fund deal that would have priced in the low to mid 500s in January would price in the low to mid-300s today.

“Additionally, we’ve seen financing transaction volume accelerate exponentially since that start of the year,” JLL said. “Based on the amount of available liquidity and improving fundamentals, we expect this strong pace to continue through the balance of the year.”