Hotel asset managers are on the front lines when it comes to the bottom line for hotels. Hotel Business spoke to Bill Robinson, executive director, hotels, Claremont Companies; Michelle Russo, founder/CEO, Hotel Asset Value Management (hotelAVE); and Steve Steinberg, president, Murphy Asset Management, to get their takes on how things are shaping up.
—Gregg Wallis
Has 2024 lived up to expectations so far?
Robinson: Relative to our budget, the first four months of the year have been positive with revenues up 1.1% over budget and up 3.9% over prior year. Unfortunately, expenses have been relentless, up 2.6% to budget and up 7.9% to prior year. We have 10 hotels in our portfolio, and with six up to budgeted NOI and four are down, which overall might be in line with what you’d expect in a normalized year. Most of those hotels that are down in our portfolio have been undergoing some sort of renovation activity during Q1. The impact from these renovations was budgeted, but the timeline to complete them has been prolonged due to delays in receiving materials in many cases.
Bill Robinson , Claremont Companies
Russo: Slower top-line growth combined with increased wages and higher insurance expenses are negatively impacting EBITDA margins. The public companies reported an average 152 bps of EBITDA margin loss in Q1 24 vs STLY, and we project the industry’s margins will be flat to down 200 bps for the full year. Our portfolio achieved approximately 46% flow thru on EBITDA growth in Q1 24, which is incredibly strong in this environment and compares to roundly 30% flowthrough for the public REITs in 2023. Believing that top line was at risk, we have been hyper-focused on cost management initiatives and leveraging our operational efficiency team resources year-to-date.
Steinberg: If you had asked me in 2021 or 2022 how I thought 2024 was going to perform, I would have been very optimistic, considering that we thought we’d have cleared any residual impact of COVID and related economic drag. However, we could see in late 2023 that 2024 was not going to be as rosy as we might have once believed. Revenge travel began waning pretty dramatically in many markets, and a throttled return to pre-COVID business travel volume was occurring. Some markets are performing rather nicely. Chicago, for example, is generally healthy. But many markets are down double digits on a percentage basis in revenue versus 2023. Almost all of our projects are fairly close to our 2024 projections, but sadly, 2024 is not breaking any records in most markets.
Steve Steinberg, Murphy Asset Management
We’re halfway into the year. How do you see the rest of the year going?
Robinson: Talk of a recession appears to be receding as time marches on and the U.S. economy remains surprisingly strong and resilient. Having said that, with each passing month, achievement of budgeted revenues seems to be more and more difficult. The plateauing of leisure demand had to be expected but is truly impactful to continuing revenue growth. We are hopeful that with our renovations behind us and our markets strong, we can continue to drive revenues and believe we will achieve our full-year revenue budgets. The expense headwinds are unlikely to subside, and inflation remains relatively high, so we are probably looking at the status quo on that front. It is anyone’s guess as to the outcome of the presidential election and how that outcome will impact our industry.
Russo: Our RevPAR forecast for the rest of 2024 is for much stronger performance to finish the year. The public companies are forecasting 2-5% RevPAR growth, while the industry experts are predominately around 3%. Note that the public companies are more indicative of upper-upscale and luxury trends, while the national forecasts incorporate all asset classes (including the economy and mid-scale segments that are the poorest performing). From a margin standpoint, we project the industry’s margins will be flat to down 200 bps for the full year.
Steinberg: I think the second half will be better in most markets than the first half. Many secondary and suburban markets haven’t yet rebounded well. While they will have a positive trajectory this year, it’s still a difficult outlook for the next 12-24 months. Between market conditions, franchisor renovation pressures, interest rate pressures and maturing debt, we think the market is ripe for a higher volume of transactions. To date, owners have (admirably) been trying to get out at par with no loss of investor equity. Unfortunately for some groups, the calculus is going to start to change soon, as the pressures to double down are going to present a pretty significant fork in the road for them: invest more capital (probably a significant amount) or exit without all of the equity intact. These pressures will reduce the spread between the purchase price sellers are expecting versus what buyers are willing to pay, and the shrink in that spread will drive a lot more deals to close.
