Contrary to the run up in lodging stocks, real business trends aren't getting any better. Comps are only getting easier.

- Business isn’t improving

  • Stimulus is helping a little bit, with projects in most areas being stimulus driven.  Business isn’t improving sequentially; it just looks less bad as the comps get easier. 
  • As can be seen in the following chart, lodging trends went south in July 2008


- Banks are still looking to reduce exposure to lodging and are reluctant to lend

  • Community banks are in a really bad spot because they have higher exposure to real estate. They have been “extending and pretending” for now, because there is nothing else they can do to avoid defaults.  
  • One owner told us that when his loan came due on a mature midscale asset with 900k of NOI, the best loan he could get was 55% leverage based on a 12% cap and TTM NOI. That equates to less than an 8x EBITDA multiple (since NOI is post property level management costs) and a leverage cap of 4.5x NOI.

- Defaults on large upper upscale assets are picking up

  • We are hearing that actual defaults for upper upscale and luxury properties are accelerating although you won’t really see it advertised in the bankruptcy rags. There are many projects that are getting mothballed despite being fairly far along
    • Fontainbleau Miami
    • Greenbrier (earlier this year)
  • We wonder if this isn't partially driving the recent capital raises we've seen from the likes of HST and the coming Hyatt IPO

Per Keys are starting to look interesting to buyers

  • While per key value is only one of the many metrics we look when valuing lodging companies and assets, some of recent per keys are pretty attractive (to buyers that is) and may be low enough to get the transaction market going
    • HST sold 3 assets this July for just $56K/key. While they are not the most luxurious assets, they are still fairly attractive
    • The 120-room Former Rodeway Inn and Suites in Petersburg, Virginia was just auctioned for $600k or $5k/key ... I'm sure the property wasn't much to look at but this is probably the cheapest per key value that we've seen