Metropolitan Boston January 2015

Transcription

1 33 Arch Street, 28 th Floor Boston, MA Telephone (617) Fax (617) Metropolitan Boston January 2015 Boston Area Roundup The greater Boston area hotels reported increased operating results for January The 94 hotel operators in the PKF Trends in the Hotel Industry sample for the greater Boston area achieved an average 60.6 percent occupancy at a $ average daily rate (ADR) with a resulting $94.12 revenue per available room (RevPAR). These performance levels represented an occupancy increase of 4.9 percent, a 3.2 percent increase in ADR, and an overall 8.3 percent increase in RevPAR for January 2015 as compared to January For January 2015, the Route 495 North submarket is the only submarket that experienced an occupancy decrease, of 1.3 percent, specifically. The remaining five submarkets experienced occupancy increases, with Cambridge leading at 9.5 percent. In terms of ADR, the Cambridge submarket was the only submarket that experienced a decrease, of 0.5 percent, specifically. The Route 495 North submarket achieved the highest percent ADR increase at 8.2 percent. Overall, the Downtown submarket achieved the highest occupancy among all submarkets at 64.6 percent, followed by the Back Bay and Cambridge submarkets at 60.1 percent and 60.0 percent, respectively. Boston area hotel performance started the year strong, achieving gains in both occupancy and rate. Dynamics differed in the various submarkets, with group stronger than usual in some and weaker in others, and transient demand holding strong throughout. The latter allowed for strong rate growth in some submarkets. In comparison to last year, the weather was more favorable, leading increases in occupancies. In addition, this year s NFL playoff season for the New England Patriots extended into late January, which resulted in some increased demand in the Route 495 South and the southern portion of Route 128 submarkets. Compared to previous Januarys over the last ten years, based on our monthly Trends sample in each respective year, January 2015 performance for the greater Boston area hotels is the highest occupancy and RevPAR in the past ten years, and the highest ADR since Overall, most hotels in the greater Boston area finished January 2015 with significantly increased RevPAR results compared to January The following article and charts summarize a recent analysis we performed regarding hotel interest payments.

2 Interest For Hotels Falls, So Everyone Is Happy By Robert Mandelbaum Much has been written about how U.S. hotel owners and operators are profiting from the current strong lodging market conditions. Revenues have returned to pre-recession levels and are expected to experience real growth through On the bottom-line, net operating income (NOI) is in the fourth of a six year period of double-digit growth. Also benefitting from the strong market fundamentals are the institutions that have loaned money to today s hotel owners. Since 2009, the combination of rising profits and declining interest payments has led to a reduction in the number of hotels in default, and a rise in debt coverage ratios. To measure the ability of hotels to cover their interest payments, PKF Hospitality Research, a CBRE company, (PKF-HR) analyzed the performance of a same-store sample of U.S. hotels that reported a significant interest payment annually from 2008 through We then estimated the 2014 revenues, profits, and interest expenses for the sample. The data came from the firm s annual Trends in the Hotel Industry survey of hotel operating statements. For each year we compared the relationship between the interest payments reported, and the NOI generated from the operations of the hotel. For the purpose of this analysis, NOI is defined as income (profits) before the deduction for capital reserve, rent, interest, income taxes, depreciation and amortization. Profits Rise Since the depths of the recession in 2009, the NOI for the average hotel in our firm s annual Trends in the Hotel Industry has increased by an estimated 74 percent through This places unit-level profits above their 2007 previous peak levels and has enhanced the ability of U.S. hotels to cover their interest payments. In 2014, we estimate that interest payments are averaging 30.4 percent of NOI for the properties in our research sample. This is down from a high of 48.8 percent in Interest payments measured as a percent of NOI were lower for full-service hotels (30.3 percent) versus limited-service hotels (32.3 percent). With interest payments declining as a percent of NOI, the interest coverage ratio has increased from a low of 2.05 in 2009 to 3.29 in For comparison purposes, PKF-HR s annual Hospitality Investment Survey reveals that lenders have loosened their total debt coverage requirements somewhat within this time period from a high of 1.5 in 2010 to a low of 1.35 in By property type, we estimate that full-service hotels are achieving a higher interest coverage ratio (3.31) in 2014 compared to limited-service properties (3.09). Because of this, the lenders that participated in the Hospitality Investment Survey are currently requiring higher debt coverage ratios for limited-service mortgages.

3 Not only have hotels had the ability to cover their interest payments to a greater degree, but a declining number of properties are now unable to achieve sufficient levels of profits to cover their interest payments. In 2009, only 14.5 percent of the hotels in our research sample were unable to cover their interest payment. In 2014, this number has declined to an estimated 9.0 percent. Fewer limited-service hotels (4.9 percent) find themselves in default in 2014 compared to full-service properties (7.5 percent).

4 Interest Falls Contributing to the decline in properties unable to cover their interest payments has been a reduction in the amount of interest paid by a hotel to its lender. By year-end 2014 we estimate the average interest payment made by the hotels in our sample will be down 14.3 percent from 2008 levels. Interest payments have declined at full-service hotels (-14.9 percent) to a greater degree than limitedservice properties (-6.9 percent). Measured as a percent of total revenue, interest expense is down from 10.9 percent in 2009 to 8.5 percent in We attribute the decline in interest payments to a combination of refinancing and declining interest rates. Per the Hospitality Investment Survey, the interest rates for a hotel loan have declined from a high of 7.53 percent in 2009 to a low of 5.54 percent in Future Coverage As of September 2014 PKF-HR is forecasting double-digit gains in unit-level hotel profits through In addition, Moody s Analytics, PKF-HR s economic forecasting agent, is projecting a relatively low inflationary environment for the next few years. Combined, we foresee a continuation of healthy interest coverage ratios, and declining levels of deficiencies. Everyone will benefit from the favorable financial environment in the foreseeable future. Revenues are up for operators. Profits are up for owners. Defaults are down for lenders. * * * Robert Mandelbaum is the Director of Research Information Services for PKF- HR, a CBRE company. He works in the firm s Atlanta office. To purchase a copy of Trends in the Hotel Industry, or the Hospitality Investment Survey, please visit store.pkfc.com. This article was published in the January 2015 issue of Lodging.

5 BOSTON MONTHLY TRENDS MONTH OF JANUARY REPORT OF ROOMS BUSINESS BY LOCATION AVERAGE DAILY ROOM RATE OCCUPANCY PERCENT REVPAR VAR VAR VAR BACK BAY $ $ % 61.2% 60.1% 1.7% $ $ % DOWNTOWN % 68.1% 64.6% 5.4% % CAMBRIDGE % 65.7% 60.0% 9.5% % Boston Core Average $ $ % 65.9% 62.5% 5.4% $ $ % ROUTE % 55.3% 52.9% 4.5% % ROUTE 495 NORTH % 46.8% 47.5% -1.3% % ROUTE 495 SOUTH % 47.9% 45.0% 6.5% % Boston Suburbs Average $ $ % 51.1% 49.2% 3.9% $52.28 $ % OVERALL AVERAGE $ $ % 60.6% 57.7% 4.9% $94.12 $ % REPORT OF ROOMS BUSINESS BY AVERAGE DAILY RATE AVERAGE DAILY ROOM RATE OCCUPANCY PERCENT REVPAR VAR VAR VAR OVER $ $ $ % 65.0% 63.0% 3.2% $ $ % $ TO $ % 66.8% 64.9% 3.0% % $ TO $ % 58.3% 53.9% 8.1% % UNDER $ % 48.9% 46.5% 5.2% % OVERALL AVERAGE $ $ % 60.6% 57.7% 4.9% $94.12 $ % REPORT OF ROOMS BUSINESS BY SIZE OF PROPERTY AVERAGE DAILY ROOM RATE OCCUPANCY PERCENT REVPAR VAR VAR VAR UNDER 150 ROOMS $ $ % 53.1% 50.4% 5.3% $58.50 $ % 150 TO 400 ROOMS % 59.3% 55.7% 6.6% % OVER 400 ROOMS % 66.5% 64.7% 2.8% % OVERALL AVERAGE $ $ % 60.6% 57.7% 4.9% $94.12 $ % Survey includes 94 properties in the Boston area with 19,914 available rooms. 11 properties in Back Bay with 3,095 available rooms, 20 properties in Downtown with 6,178 available rooms, 10 properties in Cambridge with 2,859 available rooms, 25 properties in Route 128 with 3,3345 available rooms, 9 properties in Route 495 North with 1,480 available rooms, and 19 properties in Route 495 South with 2,328 available rooms. SOURCE: PKF CONSULTING

6 Boston Area Market Mix is compiled and produced by PKF Consulting. Readers are advised that PKF Consulting does not represent the data contained herein to be definitive. Neither should the contents of this publication be construed as a recommendation of policies or actions. Quotation and reproduction of this material are permitted with credit to PKF Consulting.