Articles - Fall travel season to drive 4% ADR growth Nov ’11

29 November 2011 10:41 AM
By Patrick Mayock
News Editor-International
patrick@hotelnewsnow.com

Story Highlights

The group segment is driving moderate demand growth for the year ahead, said Tim Hart, executive VP of business intelligence for TravelClick.
Reserved RevPAR posted a moderate 3.3% gain year-over-year during October 2011, however, it is expected to increase 9.3% during November and 8.2% during December 2011.
The group segment is driving moderate demand growth for the year ahead.

NEW YORK—The North American fall travel season is expected to end 2011 with a bump in both average daily rate and revenue per available room, according to forward-booking data from TravelClick, a provider of hotel business process-management solutions.

Reserved RevPAR posted a moderate 3.3% gain year-over-year during October 2011, however, it is expected to increase 9.3% during November and 8.2% during December 2011.

Reserved ADR is expected to end the quarter up 4%.

The increases especially are notable given the muted growth in committed occupancy, said Tim Hart, executive VP of business intelligence for TravelClick.

“In terms of reservations on the books—either stays that have already happened in the fourth quarter or business on the books—it’s up 2% over last year,” he said. “This fourth quarter has not grown appreciably over last fourth quarter from what we see right now.”

12-month outlook
The group segment is driving moderate demand growth for the year ahead, Hart said.

Committed group occupancy on the books for the next 12 months is up 4% compared to the same time last year; transient occupancy is up 2.4%.

Total occupancy for the North American hotel industry is up 3.3%.

“We’re kind of tapering down to 3-5% growth in occupancy going forward,” Hart said. “It’s positive but still leaves us questioning whether we’re teetering perilously close to the edge, much like the rest of the economy is showing.”

Reserved ADR for the year ahead is up 4% year over year and RevPAR is up 5.9%.

“Everybody’s felt like that’s been an underwhelming level of ADR growth given how far we fell. But again, it’s positive and has been positive across all the three major segments. We’re seeing ADR growth across the board,” Hart said.

Market winners and losers
Business markets still are leading year-over-year occupancy growth.

	Committed occupancy	Reserved ADR	Reserved RevPAR
Charlotte, North Carolina	26%	2.8%	13.9%
Detroit	14.8%	4.1%	17.5%
Indianapolis	11.3%	1.9%	1.6%
Houston	9.7%	2.6%	9.5%
Seattle	9.2%	-0.3%	5.8%

“It’s the business markets where the business travelers are driving demand,” Hart said. “That segment remains the healthiest, at least of the two transient segments, (which includes business and leisure). (The markets are) benefiting from sustained strength in business travel.”

North American hotel markets that showed the largest decreases include those heavily impacted by negative group demand, he said.

	Committed occupancy	Reserved ADR	Reserved RevPAR
Honolulu	-8.1%	13.7%	19.2%
Minneapolis/St. Paul	-6.6%	7.5%	4.1%
Denver	-5.9%	-4.8%	-11.4%
Dallas	-4.6%	1%	3.3%
Phoenix	-2.1%	2.4%	-1.8%

Articles - Section 179 Deduction

For Full Article click here

the section 179 deduction

Section 179 for 2011 at a glance

2011 Deduction Limit – $500,000 (up from $250k previously). Good on new and used equipment, including new software.
2011 Limit on equipment purchases – $2 Million Dollars (up from $800k previously).
“Bonus” Depreciation – 100% (taken after the $500k deduction limit is reached). Note, bonus depreciation is only for new equipment. This can also be taken by businesses that exceed $2 million in capital equipment purchases.

The above is an overall, "simplified" view of the Section 179 Deduction for 2011. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please peruse this entire website.

An example of Section 179 at work:

More detailed Section 179 Information

What is the Section 179 Deduction?
Most people think the Section 179 deduction is some arcane or complicated tax code. It really isn't, as the following will show you.

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It's an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves.

Several years ago, Section 179 was often referred to as the "SUV Tax Loophole" or the "Hummer Deduction" because many businesses have used this tax code to write-off the purchase of qualifying vehicles at the time (like SUV's and Hummers) – but that particular benefit of Section 179 has been severely reduced in recent years, see 'Vehicles & Section 179' for current limits on business vehicles.

Today, Section 179 is one of the few incentives contained in any of the recent Stimulus Bills that actually helps small business. Although large businesses also benefit from Section 179 or Bonus Depreciation, the original target of this legislation was much needed tax relief for Small Business – and millions of small businesses are actually taking action and getting real benefit.

Essentially, Section 179 works like this:
When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example).

Now, while it's true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.

In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting. That's the whole purpose behind Section 179… to motivate the American economy (and your business) to move in a positive direction. For most small businesses (adding total equipment, software, and vehicles totaling less than $500,000 in 2011), the entire cost can be written-off on the 2011 tax return.

For large businesses adding even more than $500,000, the write-offs are just as substantial. See the following graphic for an example of the savings that is currently available to you after the 'Tax Relief Act of 2010' passed in December 2010.

Limits of Section 179
Section 179 does come with limits – there are caps to the total amount written off ($500,000 in 2011), and limits to the total amount of the equipment purchased ($2,000,000 in 2011). The deduction begins to phase out dollar-for-dollar after $2 million is spent by a given business, so this makes it a true small and medium-sized business deduction.

After passage of the 'Tax Relief Act of 2010', large businesses that exceed the threshold of $2 million in capital expenditure can take a Bonus Depreciation of 100% on the amount that exceeds the above limit. Nice.

Who Qualifies for Section 179?

All businesses that purchase, finance, and/or lease less than $2 million in new or used business equipment during tax year 2011 should qualify for the Section 179 Deduction. If a business is unprofitable in 2011, and has no taxable income to use the deduction, that business can elect to use 100% Bonus Depreciation and carry-forward to a year when the business is profitable.

Most tangible goods including "off-the-shelf" software as well as business-use vehicles (restrictions apply) qualify for the Section 179 Deduction. For basic guidelines on what property is covered under the Section 179 tax code, please refer to this list of qualifying equipment. Also, to qualify for the Section 179 Deduction, the equipment and/or software purchased must be placed into service between January 1, 2011 and December 31, 2011.

The deduction begins to phase out if more than $2 million of equipment is purchased – in fact, the deduction decreases on a dollar for dollar scale after that, making Section 179 a deduction specifically for small and medium-sized businesses. However, as noted above, large businesses can expense all qualifying capital expenditures with 100% Bonus Depreciation for the 2011 tax year.

What's the difference between Section 179 and Bonus Depreciation?
The most important difference is both new and used equipment qualify for Section 179 Deduction (as long as the used equipment is "new to you"), while Bonus Depreciation covers new equipment only. Bonus Depreciation is useful to very large businesses spending more than $2 million on new capital equipment in 2011; also businesses with a net loss in 2011 qualify to deduct the cost of new equipment.

When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in 2011 (the unprofitable business is allowed to carry the loss forward to future years.)

Section 179's "More Than 50% Business-Use" Requirement
The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the $amount eligible for Section 179.

Articles - Every Dollar Counts: What Hotels Should Know About Repair & Maintenance Studies

Repair & Maintenance Studies

Recent tax courts cases have paved the way for R&M studies,which are generating significant tax benefits for many business owner

With a thorough analysis of your expenses for repairs and maintenance, ETS can help you reduce your tax liability and improve cash flow by properly reclassifying these expenditures.

A proposed regulation, likely to be released this year, may also allow certain cosmetic and remodeling expenses, such as those that would improve branding, retail or merchandising, or provide a property "facelift", as deductible under the repairs and maintenance rules.

First, we will identify which asset costs are not properly classified, then reclassify them as deductible repairs as defined by IRS Code Sections 162 and 263. Deductible repairs may include "incidental repairs" that help to maintain efficient operating condition but do not necessarily prolong its life, add material value or adapt the property for new or different use.

Expenses incurred or paid for incidental repairs and maintenance are not considered as capital expenditures and may be reclassified to accelerate deductions in the current year.

How it works
If you perform regular maintenance and repairs to your assets, you may be able to recapture thousands of dollars by reclassifying improperly classified capital expenses as deductible costs to accelerate depreciation. Through IRC Section 481(a), routine and incidental repairs and maintenance costs may be adjusted to reduce taxable income in the current tax year and increase any net operating loss (NOL) for a potential carry-back up to five years.

Capital Expenditures vs. Deductible Repairs
Capital expenditures include those for building improvements or other long-term betterments, new equipment, architects' fees – even the cost of defending or perfecting your title to the property. Generally, a capital expenditure either adds an asset or increases the value of an existing one. Whether it's a deductible repair or a capital improvement often depends on the context. For example, if an expenditure is part of a general plan of rehabilitation, modernization or improvement to equipment or other business property, it usually must be capitalized, even though by itself it would be currently deductible.
According to IRS Code, you must capitalize expenses that:

Substantially prolong useful life (including replacement of deteriorating assets),
Materially increase value, or
Adapt the property to a new or difference use

On the other hand, you are allowed to deduct fees and expenses related to routine repairs and maintenance that help maintain the property in efficient operating condition. You can deduct the cost of parts and labor in order to repair or maintain your business assets, provided that this expense does not increase the value of the asset or prolong the useful life of the asset.

Deductible repair and maintenance expenses may include:

Roof repairs
Replacing lighting
Resurfacing parking lots
Replacing doors and windows
Resurfacing interior or external floors
Painting (interior or exterior)
Rekeying locks

Who can benefit from an R&M Analysis?
A variety of industries may benefit from these rules, including those in the banking, retail, hospitality, manufacturing, pharmaceutical, warehouse, distribution and utility industries, to name a few. The rules may apply to most capital-intensive companies that invest significant dollars on routine and incidental repairs and maintenance expenses.

An analysis of your capitalized remodeling costs might uncover significant tax deduction opportunities. Contact us today to get your repair & maintenance study started.

For questions or a benefit proposal, please contact:
Chris Lewis, Director of Energy Solutions
Tel: 888.229.0213 ext 803 Fax: 888.229.0213

www.ecogreenhotel.com – www.ecogreenhotel.co.uk

Articles - What’s the best distribution strategy?

HOTELS Interview: What’s the best distribution strategy?

By Nathan Greenhalgh on 11/25/2011

In this article:

A landmark study about hotel distribution channels made headlines earlier this year when one of its conclusions was revealed to be that US$2.5 billion is lost to the industry by booking online travel agencies.

However, the study’s authors say this item is less headline-worthy than the other results of the study, which is set to be released in full in the near future. The study, conducted by the American Hotel & Lodging Association, STR Global and the Hospitality Sales and Marketing Association International Foundation with additional support from Asian American Hotel Owners Association, the IHG Owners Association and the Hospitality Asset Managers Association, concluded that demand for U.S. hotels is largely flat and that hotels typically only win more customers at the expense of competitors.

After seeing a seminar at this year’s IHMRS about the study, HOTELS talked to its co-author, Cindy Estis Green, CEO of The Estis Group, Washington, D.C., to find out more about its conclusions on channel distribution.

HOTELS: What was your role in the study?

Cindy Estis Green: I initiated the study with a group of hotel ownership groups who contacted me two years ago about exploring the costs and benefits of distribution channels. This is a sequel to the "Demystifying Distribution" series I published with the HSMAI Foundation in 2005 and 2008. I am a co-author of the current study with Mark Lomanno and the project leader.

HOTELS: What was the study's most important conclusion for hoteliers?

Green: The most important conclusion is that playing in the U.S. hotel market is a zero-sum game — one hotel wins at the expense of its competitors. Year-on-year demand growth in lodging is so small on average as to be insignificant — the average over the last 20 years is between 1.5% and 2% year-on-year demand growth in the U.S. market — which makes any incremental contribution by channel partners marginal at best. Therefore, all that can be expected of any channel partner is to shift share from a competitor. Learning to share shift is not that difficult, but doing it in a cost-effective way while maintaining a strong rate structure is the real challenge.

HOTELS: Is hotel demand largely inelastic, as Mark Lomanno said at the IHMRS seminar? Do you agree with his statement that, "If there was no such thing as OTAs, two things would happen: the industry’s occupancy would be slightly lower, and room rates would be considerably higher"?

Green: Mark's comment is hypothetical, of course. If OTAs didn't exist and if no other entity filled that role, then that statement is accurate. However, if OTAs didn't exist, it is more likely that another vendor type would have emerged and filled a similar role as the OTAs, and we would still be where we are today. Contrary to the claims of many distribution channel vendors, they do not bring meaningful incremental demand, so if a channel partner causes a reduction in rates, due to the demand elasticities we confirmed in the study, the increase in demand will not be enough to compensate for the rate reduction, and the result will be net negative on an industry basis.

HOTELS: How do you recommend that hotels shift their distribution share to all channels?

Green: Every channel has its own dynamic for shifting share. The OTAs are adept at doing it quickly, although it can be at a high cost, and due to their high visibility in the market can impact all rates across the board.

Shifting share from a hotel's "brand.com" or voice tends to be more difficult. The study data shows that customers seem to cross over between brand.com and the OTA channel (they rise and fall in an inverse relationship) so there is an opportunity for brands to use tools such as Best Rate Guarantee, loyalty benefits and other incentives to create a bias for brand.com which can generally be a more cost-effective channel for a hotel.

There is no better mechanism for sustaining market share in a channel than making that channel more appealing to the users of it. More relevant content, more intelligence known about the customer conveyed during their shopping experience and a generally more personalized user experience will create a bias that is hard to match whether it is brand.com, voice, property direct or GDS. All channels can be used to shift share, but the hotel has to be mindful of the costs, the benefits and any collateral impact of those actions to arrive at a mix that delivers profit and customers that are a good fit for the property.

HOTELS: Could you give an example of an optimal channel mix for a specific property?

Green: Optimal channel mix reflects the best potential for the hotel in each channel when considering how that hotel stacks up against its competitors. It is not the aspirational goals of a hotel, but rather a realistic assessment of what it can expect to achieve given its brand, physical condition, demand generators and the needs of those customers, and the pricing and marketing approaches of its competitors.

HOTELS: Looking ahead, do you have any predictions about which channels will have an overall increase in revenue share and which will decrease?

Green: I anticipate a rapid growth in channels like social, mobile and travel-specific (meta) search. I think they will all participate as marketing channels and many as booking channels as well. This will be partially at the expense of the OTAs, as most of the fast-growing channels will send more business direct to a hotel's website.

HOTELS: Are you working on any other hospitality market studies or similar research currently?

Green: Mark [Lomanno] and I are still finishing the analysis and writing of the study under discussion, "Distribution Channel Analysis: A Guide for Hotels," which will be published by the end of the year.

Uncategorized - The 2012 Forecast and You – Get Your Fair Share!

The latest estimates for 2012 have just been published from STR, PwC and PKF: firstly, a drumroll – each are projecting continued growth into next year albeit at a lower level than 2011

Forecast	2012 RevPar	2011 RevPar
STR	3.9%	7.7%
PwC	6.5%	7.8%
PKF	6.2%	8.1%

Full article is available here

Interestingly, around 80% of this growth in RevPar is anticipated in higher rate. According to the most recent TravelClick Perspective (November '11), transient ADR is showing the strongest growth over the upcoming 3 future quarters of committed bookings. Groups rate is growing but at half that rate (in the top 25 markets). See full report here

So, more importantly, how can you benefit from this maximally?

Your properties are towards the tail end of their RFP season, for the most part – hopefully they have been firm in the rate proposals and had some good discussions with national account reps and travel managers to explain the value proposition for these increases: now the focus shifts to your local negotiated rate accounts (LNR). Here your sales team should have a good relationship with the local contacts through whom these negotiations will likely take place.

To increase ADR is not necessarily synonymous with raising the face rate higher: you can chip away at the bottom end of your rate scale and still achieve a higher ADR – and it's less painful for the client and your sales team.

Assess contribution over 2011
1. Assess DOW stay pattern – if there is displacement, consider this when you formulate rate
2. Review LOS – this should impact your rate determination – shoulder days are most valuable
1. Know if the contribution was project based or ongoing traffic – and how it will fare in 2012

Planning for 2012
1. If you have multiple room types, provide a rate that is tiered as well – that way you can collect a premium when your standard rooms are full: this will have a significant impact on your account ADR
1. If the pattern is primarily M/T/W: let your account know of the impact to you and the reason for the higher increase – definitely, here you want to tier
2. Consider a season variation in rate – although not viewed favorably, it will help offset displacement cost and it will allow you to keep increases at a lower level.
3. Don't forget to consider the source – commissionable or net rate.
4. If the pattern is going to be focused as a project, consider this as a group rate rather than an LNR. You can offer a more appropriate rate in this situation.
5. Lower priced accounts – if the account is large and courted by many others, it is important to accurately determine what your value proposition is and how you can offer a value-add that will trump your competition. Often, it will start with an open-minded conversation with the decision-maker about what they value and then exploring how you can deliver this at a lower cost to you. Perhaps the account has become under-priced at your hotel over the years of concessions: shop the competition and you'll know what the market is willing to offer – this will give you comfort in how far you can raise the bottom.
6. Shop the comp set for the rates they are offering to key demand generators – are you in line? If you are branded, check your account IDs and GDS codes for some large accounts – then shop your comp brand sites with theses codes – you'll be surprised what you learn!

Remember, market are trending upwards – don't be shy about soliciting for your fair share of the increase the company will be facing in every market they work in.

Good luck and please contact me for any specific assistance in strategizing for your 2012 planning.

Wishing you all a Happy Thanksgiving weekend ahead – hope you will all be blessed with joyous time with your friends and family.

Articles - The TravelClick Perspective (November ’11)

Current Market Overview

As of October 2011, committed occupancy for hotels in the top 25 North American markets is showing an increase of 4.8% year-over-year (YoY) for the next 12 months. This improved demand is led by an increase in group commitments of 5.4% YoY, followed by transient demand up 3.1%. The overall average daily rate (ADR), based on reservations on the books for the current and future three quarters, is also up 4.0% compared to the same time last year. Group ADR improved 2.2%, while transient ADR has grown 5.3% YoY.

Shawn Flanagan
Enterprise Solutions Manager

The top 25 markets are showing improvements in demand and rate for Q4 2011. Overall committed occupancy has increased 3.6% YoY, with ADR holding strong – up 4.1%. At this point in the booking window, Q1 2012 committed occupancy and ADR are showing modest YoY gains of 2.4% and 2.8% respectively. Revenue per available room (RevPAR) is showing YoY increases of 4.6%, 10.8%, and 7.1% for the months of October, November, and December respectively.

A profile of the top five performing markets in North America

One key performance metric that hotel companies frequently use to define success is RevPAR. This month we are taking a closer look at the top five performing markets in North America for Q4 2011, based on transient RevPAR performance. Good RevPAR performance typically results from strategic actions at the detailed level of segment and channel, in addition to strong demand. The objective of this analysis is to look at the detailed profiles of these top five markets to understand how segment and channel mix impact or influence RevPAR performance, specifically for the transient segment.

The top five markets in North America for transient RevPAR performance are:

top5

These five markets show strong double digit RevPAR growth driven by a combination of improved demand and ADR increases. As expected, these markets show a good balance between increased demand and ADR growth. However, there are key insights to be gained by looking at the mix of segment and channel activity.

total rooms

YoY

The key themes from these top five performing markets are:

· Market Segment Mix

o Decreases in transient qualified business across the markets

o Decreases in transient discount business across the markets (with the exception of Honolulu)

o Transient retail pricing power

o Traditional leisure markets Honolulu and Miami are showing significant activity in wholesale demand, but only Honolulu had a corresponding increase in ADR for that segment

· Channel Mix

o Significant increases in ADR for OTA and GDS channels

o Small and/or declining OTA share of room nights

· Pricing

o Strong ADR growth in the OTA channel

o Significant increases in other segments like retail and qualified

Overall, it is interesting to note that the distribution of demand across the segments and channels is fairly consistent compared to last year, with the exception of the variations outlined above. By analyzing activity data at the booking detail (segment & channel) level, we can gain good insights on the key contributors to RevPAR.

These five top performing markets in North America were able to increase their demand while also increasing ADR. Each of these top five markets has their own unique problems to solve, but understanding where your business is coming from and via which channels and segments, can give you key pointers on where to focus and what actions to take.

In summary:

· Understand and act at the segment and channel level

· Leverage historical and future demand data to understand and improve business mix to enhance RevPAR performance

· Understand what your competition is doing at the segment and channel level, to remain one step ahead

Performance Summary

The chart below shows the year-over-year position by market of committed occupancy, reserved occupancy, ADR and RevPAR, based on business on the books for the future 12 months. Committed occupancy is group blocks plus transient reservations. Reserved occupancy, ADR and RevPAR are based only on reservations (group pickup and transient reservations). Shades of green indicate performance better than the market average. Shades of orange/red indicate performance worse than the market average.

Performance Summary

About TravelClick

TravelClick (www.TravelClick.com) is a leading provider of profitable revenue generating solutions for hoteliers worldwide. TravelClick offers hotels world-class reservation solutions, business intelligence products and comprehensive media and marketing solutions to help hotels grow their business. With local experts around the globe, we help more than 30,000 hotel clients in over 140 countries drive profitable room reservations through better revenue management decisions, proven reservation technology and innovative marketing. Since 1999, TravelClick has helped hotels leverage the web to effectively navigate the complex global distribution landscape. TravelClick has offices in Atlanta, Barcelona, Chicago, Dubai, Hong Kong, Houston, London, Melbourne, New York, Orlando, Shanghai, Singapore and Tokyo. Follow us on www.twitter.com/TravelClick and www.facebook.com/TravelClick

Articles - Hotel Foreclosures an Oncoming ‘Train Wreck’ Nov ’11

Nov 22, 2011 9:00 AM, By Eric Stoessel, Lodging Hospitality Managing Editor

Q&A with Steve Van, CEO of Prism Hotels & Resorts

Steve Van hates being the pessimist, but he can’t help it. The CEO of Prism Hotels & Resorts says comparing the last two years of hotel distress to what’s coming is like comparing “a car wreck and a train wreck.”

He doesn’t see any other way to avoid the oncoming flood of CMBS maturities that originated in 2007, at the absolute pinnacle of the lodging industry, as well as a wave of costly property improvement plans now being mandated by franchise companies emboldened by strong operating results.

Van knows a thing or two about hotel distress. The Dallas-based hotel management company he founded in 1983 has handled more than 150 receivership assignments since 2000. It currently is acting as receiver at approximately 30 properties and Van believes many more are coming.

“How long can you hold your breath?” he asks of the extend-and-pretend strategy employed by many lenders and owners the past two years. “At some point you start getting brain damage.”

The delinquency rate on securitized hotel loans was at 14.12% through October, highest among all commercial real estate classes, according to Trepp, a New York-based analytics firm that tracks the commercial mortgage-backed securities (CMBS) industry. Van believes the number could reach 50% next year with all the loans coming due that originated in 2007 and earlier that were extended.

He’s not alone. At the Bloomberg Commercial Real Estate Summit in New York this month, hotel developer Robert Sonnenblick described the wave of CMBS loans coming due and the lack of replacement capital available as a “close-to-catastrophic problem.”

Van believes Prism will add approximately 25 more receivership assignments in the first quarter alone next year, tipping the scale of his portfolio of 55 properties to more short-term than long-term assignments.

The 33-year industry veteran with a law degree from Texas and author of the Hotel Default Blog recently discussed the oncoming train wreck, as well as his optimistic view of lodging fundamentals and the future of the industry.

Steve Van, CEO of Prism Hotels & Resorts

Stoessel: Are you surprised we haven’t had more defaults and foreclosures to date?

Van: I kept thinking we’d have a tidal wave, but it’s been more a steady stream.

Stoessel: But you expect that to change sooner than later?

Van: With all the tens of billions of dollars in hotel debt that is coming due next year because it originated in 2007 or because it was pushed back because of extend and pretend, there’s just not enough replacement capital out there.

There are two huge forces driving this: One is the loan maturities and the lack of replacement capital to repay them. Underwriting strategies have changed, it’s night and day from 2007 to 2012. A $50 million loan then is now a $30 million loan. And two, the brands: Bill Marriott is tired of giving two- and three-year hall passes on [property improvement plans]. Hilton, Starwood, really everyone is cranking this up.

All these owners are no longer owners in many cases and the mezzanine funds are. So who’s going to come up with that money for the PIPs? And if the Marriott flag comes off the building, its value just got cut in half.

Stoessel: You said this summer hotel analysts would revise and lower their 2012 revenue per available room forecasts for next year. I assume you saw STR lowered its RevPAR projection from 7% to 3.9% this month?

Van: I get accused of being the big pessimist, but look, the economy is slowing down and RevPAR is tied to GDP. That’s why I said everyone would start lowering their forecasts. It’s still going to grow, but you’d need to get RevPAR growth at 64% to pay off those loans coming due. 6-4, no decimal. There will be more extending and pretending, but at some point, that’s going to change. Two-thirds of the loans originated in 2005-2007 were extended because they were defaulted and nobody wants to take the loss. It’s going to be a whole new world these next two years.

Stoessel: Haven’t you and others been saying the same thing the last two years?

Van: Great question, but I look at it like ‘How long can you hold your breath? Maybe two minutes, but at some point you start getting brain damage.’ When you look at how much of this is stacked up, the ruler of planet Earth is the bondholder. REITs are having problems, there’s Italy [and the European debt crisis] and bondholders are saying, ‘Wait a minute.’

Extend and pretend made sense the last two years, but everyone assumed the world would get better. That’s no longer true. Many will extend and pretend as long as possible, but many are out of ammunition and time. Many loans have limits in pooling and servicing and the time is up. Extend and pretend has been permitted by bondholders who are now saying we want our money. Who knows, 2012 could be more of the same. I did think this would happen in 2010 and 2011. But it’s not like things are rosy: We’re at an all-time high now on defaults. Compared to what’s coming, though, is like the difference between a car wreck and a train wreck.

Stoessel: If there’s this much distress out there and a tidal wave of foreclosures coming, this has to be the ‘buying opportunity of a lifetime’ we’ve been hearing about, right?

Van: I think so. Private equity has hundreds of millions of dollar raised and they haven’t really put it to use. They’re not going to do anything stupid. The capital always finds the opportunities.

I am a total optimist about the U.S. economy in the next five years. We’ve got all these incredible economic drivers—pharmaceuticals, robotics and technology to name a few. We’ll come out of this just fine. You want to be buying hotels the next two years. And you want to own hotels the next three to five years. Another huge factor for buying hotels: Inflation is a friend of this business. You can raise rates this afternoon, it’s not like an office building with a five-year lease.

Stoessel: If there’s a successful European bailout and a return of some significant CMBS lending, could the tidal wave be avoided?

Van: It will help. I’ve talked to a lot of special services lately and let’s say there was maybe 50 or 60 billion dollars of CMBS lending this year, and the most optimistic estimates are for 100 billion dollars next year. That will help, but not enough.

Stoessel: What about more traditional lending?

Van: Banks aren’t lending. Maybe on a Marriott in New York or San Francisco, but I just don’t see where the money will come from. And it’s anybody’s guess on what will happen in Europe. [Last week] was the first tremor of the earthquake. On the front page of the Wall Street Journal was a story saying Norfolk Southern Corp. decided not to do business with European banks. A huge company like Norfolk Southern? That’s what happens when banks start failing.

Stoessel: It’s a strange time in the industry with operating performance so vastly different from the real estate and capital sides…

Van: It’s a fantastic time to own a hotel if you’re not overleveraged. Those are the smart people in this business. Or if you can buy a hotel for 50 cents on the dollar. Those two groups will make a huge capital appreciation in the next five years.

I’m bullish on the hotel business in the next five years. It’s the hotel capital structure that’s so screwed up. Not the industry—it’s robust. If you’re not overleveraged, it’s great. Otherwise you’re toast. I bet the owners of half the hotels aren’t the real owner. If values have dropped 40%, how can they be?

Stoessel: So extend and pretend could work for those owners and lenders still able to?

Van: If you can hang on, it’s the smart thing to do. I have never seen a time in the hotel real estate business so affected by things not in the hotel business. The Greek bond market? Who ever would have thought we’d be talking about that? It’s such an integrated world economy now. The industry fundamentals are great: rates, business travel, demand is increasing, international travel. But it’s so important to have a healthy capital structure in your hotel.

Articles - ‘Reputation management is revenue management’ Nov ’11

24 August 2011
By Jason Q. Freed
News Editor-Americas
jfreed@HotelNewsNow.com

Story Highlights

Today’s evolution of reputation management is often compared to the evolution of revenue management that occurred 10 to 15 years ago.
“You’re only worth as much as travelers think you’re worth.”
Peer scores, such as those calculated on TripAdvisor, help strengthen the link between reputation management and revenue management.

It’s a relatively new phenomenon—customers actually shaping a brand by commenting and sharing experiences. Yet travelers rely so heavily on peer experiences that to not manage it, to not stay on top of guest comments, is to ignore one of the most important parts of your brand. Part Three of the four-part series “Building a reputation” focuses on turning reputation management into revenue management.

INTERNATIONAL REPORT—At the Manchester Grand Hyatt in San Diego, like most hotels, guests weren’t happy about paying for things they expected to be free, namely parking and Internet access. The complaint showed up frequently on feedback sites such as Twitter and TripAdvisor.

Fortunately, Electronic Sales and Marketing Manager Kristin Spitz was paying attention. Spitz, who uses third-party software to monitor the Hyatt’s guest reviews and mentions on social-media sites, took the negative feedback about extra fees to a weekly management meeting.

Working with the hotel’s revenue manager, Spitz and the team decided to create a package that offers free Internet and free parking for guests. Now, when guests comment online about the charges, Spitz will respond with a note about the new promotion.

“I’ll respond with, ‘We’ve heard others say the same thing, and we’ve now included Internet and parking,’” she said. “That package is doing extremely well.”

Introducing readily available online guest feedback into revenue management strategy is growing in popularity, and Spitz said the parking and Internet package is the first example of many pricing decisions she hopes to influence.

“It was our first kind of stab at it,” she said. “But I see us doing a lot more of that. The revenue manager and I work closely together all the time.”

In fact, today’s evolution of reputation management is often compared to the evolution of revenue management that occurred 10 to 15 years ago. At that time, revenue management was a new product and practice, said Daniel Edward Craig, former hotel GM and current online reputation management consultant. Today, hotels have a revenue management team that typically meets weekly and sets pricing strategy and tactics.

“That’s where reputation management is heading,” he said. “The reason for that is the direct connection between reviews and reputation and bookings. There is a direct connection, not only in demand for a property but the prices you’re willing to charge. You’re only worth as much as travelers think you’re worth.”

Peer scores, such as those calculated on TripAdvisor, help strengthen the link between reputation management and revenue management, said Josiah Mackenzie, director of business development at ReviewPro.

“Reputation management is revenue management,” he said. “There is a direct link.”

When booking, Mackenzie said 30% of travelers switch hotels at the last minute after looking at TripAdvisor scores. He said client hotels that have experimented with comparing reputation management data with pricing power have seen surprising results. One client in particular compared the boost it was able to realize on review sites by improving the hotels’ description and engaging with the guests more frequently to the flexibility it had with rates. Within four or five weeks, the return on investment paid dividends.

“This is what I see as the opportunity,” Mackenzie said. “Take these analytics and do something more creative. I see reputation management becoming a lot more sophisticated right now.”

Brian Payea, head of industry relations at TripAdvisor, agrees. He said there are plenty of studies that show the stronger your reputation online, the better your ability to garner a higher rate.

“There is definitely a correlation between the ability to get a price and your reputation,” he said. “It’s all part of the same equation.”

Optimizing value
At ZMC Hotels, a management company with a portfolio of 33 branded and independent hotels, the company admittedly is only in the beginning stages of using feedback to shape strategy. The company’s project specialist, Ellen Troeltzsch, monitors and responds to reviews remotely. She tries to keep the GMs aware of what is being said online about the hotels.

“Our revenue management team was one person, and she knew more about all of this before we even knew it existed,” Troeltzsch said. “Her department has grown to three people and most of the properties have a meeting once a week with this group.”

Recently, ZMC organized a social-media department, and for this first time earlier this month the revenue management and social media teams combined for a meeting.

“It’s very important that these two be connected on marketing and pricing,” she said.

Ultimately, reputation and revenue managers can work together to determine and optimize the actual value customers place on a property. The value score on TripAdvisor, for example, can be used to help hotels generate more revenue.

“If two hotels are in the same (competitive) set and priced competitively, yet one has a very high value score and the other is low, then it’s possible for the higher-rated hotel to raise rates to gain revenue and market share,” said Mike Wylie, founder of ReviewAnalyst. “Guests may be looking for value, but they’re also looking for the best experience. With collaboration between reputation and revenue management teams, you can find the right balance of rate based on the customer’s perception of the experience based on peer reviews.”

Wylie compares guest feedback to advice from a neighbor about a nice hotel before an upcoming trip. Helping avoid a bad travel experience is incredibly motivating for guests, he said, more so than saving money.

“Hotels should seize that motivation as a real revenue opportunity,” he said.

Spitz said reputation management teams and revenue management teams working together is the way of the future. In addition to monitoring feedback, she tags certain comments as what she calls “new business opportunities,” such as an online user typing, “I need a place to stay in San Diego,” or any tweets or blogs asking “Where should I stay?” Spitz then follows up or replies to those users with new offerings or specials.

“In the future, there will be the revenue manager and the reputation manager,” she said. “Those two positions really go hand in hand. Take advantage of the people who are doing the marketing for you online.”

Articles - Lodging Econometrics Releases Fall 2011 US Lodging Trends Report – Nov ’11

FINANCING CONSTRAINTS IMPEDE PROJECT MIGRATION TOWARD CONSTRUCTION – PROJECTS
BUILD UP IN EARLY PLANNING AS DEVELOPERS SCHEDULE MARKET ENTRY FOR 2014 & BEYOND

The lack of available financing and continued economic uncertainty remain major obstacles to Construction Pipeline growth, which is channeling in a bottoming formation for a 7th consecutive quarter. Project migration up the Pipeline toward construction is sluggish, resulting in extended timelines as developers wait for a more certain economic, lending and operating environment. Amidst a renewed emphasis by franchise companies to refresh their branded properties, many owners and investors who have accumulated funds from improving operations are now focusing on renovating existing hotels after a long period of postponement.

Projects Under Construction saw a slight increase over Q2 2011, but remain at cyclical lows, with 408 projects/51,599 rooms currently underway. Scheduled Starts in the Next 12 Months decreased again, falling below the 100,000 rooms level for the first time in memory to a low of 834 projects/94,755 rooms. Due to the current complex economic environment, Scheduled Starts are expected to trend further downward, as developers, seeking the ideal time frame to open, continuously reassess the feasibility of getting their projects underway. In several cases, they have moved projects out of the 12 months to start window back into Early Planning while they await more favorable conditions.

At 1,609 projects/201,576 rooms, 56% of Total Pipeline projects and 58% of rooms are now disproportionately stockpiled in Early Planning. The back end of the Pipeline has built up due to the backward migration of projects from Scheduled Starts, and also because many New Project Announcements (NPAs) are entering the Pipeline at this stage and not being fast-tracked. Until the overall economy recovers more substantially and financing becomes more readily available, many developers continue to plan new projects, but anticipate that it will be 12-24 months before those projects move forward in the Pipeline.

Because timelines for projects exiting the Pipeline continue to be extended, LE has again revised its Forecast for New Hotel Openings slightly downward for the next three years. LE now projects a total of 375 new hotels/39,636 guest rooms to open in 2011, then 339 hotels/38,287 rooms in 2012. In 2013, 370 hotels/38,248 rooms are anticipated to enter Current Supply. Additional downward adjustments to LE’s Forecast may be ahead if there is not a near-term resurgence in the general economy.

Articles - Leisure Travel Turns Up The Internet Advertising Volume

The Interactive Advertising Bureau has released the results of First Half 2011 industry performance report for the US market. The research was conducted by PwC. I’d like to share some highlights.
First Half Industry highlights:

Internet advertising in the US increased 23% in the First Half 2011 vs. 2010 and totaled $14.9 billion. FYI – the 2002 total was less than $3 billion.
72% of all Internet advertising revenue is concentrated in just 10 companies. Where do you think Google fits in? (hint – see next bullet)
Search remains the #1 advertising format and accounts for 49% of all revenue – up from 47% last year.
Retail advertisers are the biggest spenders and account for nearly one-quarter (23%) of all Internet ad spending.
Performance based pricing (PPC) grew from 61% of all advertising to 64% in First Half 2011. Impressions based pricing (CPM) declined from 35% to 31%.
Here are the percentage increases for the top spending industries vs. First Half 2010:
- Retail +40%
- Telecom +24%
- Financial +27%
- Automotive +27%
- Computing + 25%
- Leisure Travel +43%
- Package Goods -12%
- Entertainment +1%
- Media +25%
- Health Care +1%

First Half Leisure Travel highlights:

Leisure Travel (including airfare, hotels and resorts) accounts for 8% of all Internet ad spending – up from 7% last year.
Leisure Travel spending increased a whopping 43% – nearly double the rate of the industry as a whole.
Leisure Travel breached the $1 billion mark in the first half, jumping from $841 million in 2010 to $1.2 billion in 2011.

Implications for Hotels

With marketing budgets remaining relatively flat it is obvious Leisure Travel companies are continuing to divert funds from traditional advertising to the Internet.
Marketers are increasingly interested in measuring the performance of their advertising and the Internet does this better than traditional advertising.
Internet marketing (advertising, social media, SEO, etc.) is becoming an increasingly important and complex marketing environment. Hotels need access to state-of-the art Internet thinking to succeed in this ever changing marketplace.

How has the allocation of funds between traditional and Internet advertising changed in your marketing budget? What are you planning for next year?

Hoteliers can receive a copy of the Interactive Advertising Bureau research report by sending an email to me with full signature/contact information.

Safe travels – Madigan Pratt

About Madigan Pratt

Madigan Pratt has more than 25 years of strategic marketing communications experience, including advising Fortune 500 companies, Tourism Boards, destinations, and luxury resorts. Madigan leads a team of marketing, public relations and social media professionals at Madigan Pratt & Associates. Originally founded in New York and now headquartered in Williamsburg, Virginia, Madigan Pratt & Associates is an award-winning marketing and advertising agency specializing in customer relationship marketing for hospitality and luxury service clients.

A well published author and popular conference speaker, Madigan provides expert counsel to the hospitality industry and publishes tips at Hospitality Marketing Blog. He has served on numerous travel industry association boards including the Caribbean Tourism Organization, The Association of Travel Marketing Executives and HSMAI Resort Marketing Advisory Board.

Contact
(757) 645-3113
madigan@madiganpratt.com
www.MadiganPratt.com
www.MadiganPratt.com/Calculator