Today’s Wall Street Journal reports that the Hotel Industry “Expects Record Year as Rates Rise”. The report quotes industry savant Randy Smith as saying “we can say with confidence that the industry has rebounded, and for the next two years we expect further excellent results”. The smart money seems to be going with that strain of thought as by any predictive measure currently available, the industry’s revenue trend line is gravity defying. Most analysts too have been pushing lodging stocks with Goldman’s anaylst noting that “Supply low [and] demand high, buy hotel stocks,”.
But the principal players, Marriott, Starwood and Hilton and a fair number of long term hotel owners, big and small, have oddly taken inventory of the table, preferring instead to go with the revenue streams that come from franchising and management fees. Private equity firms such as the Blackstone Group, have stepped in – aggressively – to fill those ownership shoes. Do the legacy owners know something that the wall street cowboys don’t? For starters, the cyclicality of the industry, may be a distant memory to the new players but the last downturn occurred a mere two years ago with 2004 seeing the end of three consecutive years of declining Revpar. That fact is probably vivid in the memories of the traditional hotel owners. Further, at 68%, nationwide occupancy is still far below the post war high of 74% set in 1980. Combined with profit growth being susceptible to pressures from the big operating cost components such as energy insurance and labor, for the real smart money, the time may indeed be right to be asset light.