Skift Take

Data out of Asia shows just how bad border closures are hurting hotel business in major cities while it's business as usual on the investment transaction front.

Skift’s Daily Lodging Report is a subscription-required, email-only newsletter read by anyone and everyone in the hotel investor, owner, and operator space, including CEOs of some of the industry’s top brands. With two separate regional versions, it covers everything from North America to Asia Pacific. The report itself, curated by founder Alan Woinski, boils industry news down to a quick, easy-to-read daily digest known for keeping readers up to date in an efficient, effective way.

Here’s a sampling of what the Daily Lodging Report provided to its readers this past week. If you’re not a subscriber, you should be. Don’t wait. Sign up now here.

Sunday, Oct. 31

Washington, DC Mayor Muriel Bowser announced a $40 million program to provide additional relief to qualified hotels, inns, and bed and breakfasts which were affected by the pandemic. This is the second package, amounting to a total of $60 million, for the hospitality industry provided by the district. Under the program, eligible hotels will be provided with at least $2,000 per rooms, capped at 300 rooms. Priority will be given to hotels that didn’t receive Paycheck Protection Program loans. In 2020, Mayor Bowser and the Office of the Deputy Mayor for Planning and Economic Development announced a $100 million Bridge Fund which was distributed through four Bridge Fund programs: Restaurant, Hotel, Entertainment and Retail.

Skift Note: Targeted, municipal relief efforts like this are far more likely to gain traction for the hotel industry rather than the national relief consistently pitched by industry lobby groups on Capitol Hill.

Monday, Nov. 1

CBRE Hotels said hotel sales in Australia have grown to nearly $2 billion this year, despite the lockdowns and travel restrictions. CBRE noted this is a five-year record, way up from $681 million last year. One one-fifth of 2021 sales by value were made by purchasers considering residential and build-to-rent conversions. CBRE believes CBD hotels will take three to five years to return to 2019 performance. The sales totals were pushed up by major portfolio sales such as the Tucker Box Hotel group’s $620 million sale of 11 Travelodge hotels and landmark single-asset transactions, such as the $315 million sale of the Sofitel Wentworth in Sydney last week. As for the conversions, CBRE believes developers are capitalizing on the strong residential market and the interest in build-to-rent developments to acquire well located, fringe city hotels. Those assets are likely to have a slower trajectory than CBD accommodation assets and have a higher and better use as residential given their location. 

CBRE believes overall, the Asia Pacific region is set for a recovery. Hotel transaction volume in the region reached US$6.5 billion in the first three quarters of 2021, up 5 percent year over year. The region recorded the steepest decline in international visitor arrivals during the first seven months of 2021 with visitor numbers plunging -81 percent year over year. Countries with a large volume of domestic travelers – Australia, New Zealand, mainland China and Japan – have been leading the recovery thanks to the implementation of policies by their governments and investment to boost domestic travel. Resort locations have outperformed urban locations in the first half of the year.

Skift Note: Who needs open borders to fuel hotel transaction activity? There is plenty of dealmaking taking place in Asia Pacific, but domestic buyers are best situated to capitalize on these opportunities while borders are still heavily restricted.

Service Properties Trust reached an agreement with a subsidiary of Radisson Hospitality, Inc to amend their previous management agreement for nine hotels owned by subsidiaries of SVC. Under the amended agreement, Radisson will continue to manage eight of the hotels, including five Radisson Hotels and Resorts and three County Inn & Suites by Radisson for a 10-year term. SVC’s owner’s priority return is set at $10.2 million annually, supported by a $22.0 million guarantee for 75 percent of the aggregate annual owner’s priority return beginning in 2023. A management fee equal to 3 percent of gross revenue for Radisson branded hotels and 5 percent of gross revenue for Country Inn & Suites hotels payable to Radisson will be an operating cost paid senior to SVC’s owner’s priority return. Following payment of SVC’s owner’s priority return and reimbursement of certain advances, if any, Radisson may earn a 20 percent incentive management fee and SVC will receive the remaining cash flow. SVC will fund approximately $12 million for renovations expected to be completed by the end of 2022. As such funding is advanced by SVC, the aggregate annual owner’s priority return due to SVC under the amended agreement will increase by 6 percent of the amounts funded. SVC and Radisson transitioned management of one hotel to Sonesta International Hotels Corporation under the Royal Sonesta brand on October 31, 2021.

Skift Note: Radisson mostly avoided losing hotels to the rapidly growing Sonesta with a new agreement with a Boston-based real estate trust.

Tuesday, Nov. 2

Asia Pacific countries are rapidly reopening, generating a lot of enthusiasm that the worst is over and happy days are here again. Thailand and Australia are getting most of the attention, but Cambodia announced a full reopening of the country across all sectors as of November 1. All restrictions in Cambodia have been dropped, excluding international borders, with 86 percent of the population now vaccinated and a program in place to expand the vaccination program to school children. The government feels they are now well prepared to combat any future outbreaks, that significant supplies of booster shots were either available on or order and that citizens are better educated on how to protect themselves. Sihanoukville will become the first province in Cambodia to welcome back vaccinated international guests without the need for hotel quarantine from November 30 as part of a pilot program. If successful, Siem Reap will become the second destination to welcome tourists from January 2022. As for the rest, Thailand is probably getting the most attention right now, but a new survey conducted by Suan Dusit Rajabhat University in Bangkok suggests 60 percent of Thai residents do not think now is the right time to bring back tourists without quarantine requirements. It could be that Thailand is still reporting over 8,000 new Covid cases a day, and there is still a large proportion of citizens who have not yet been fully vaccinated.

Skift Note: Asia Pacific wasn’t the strongest region for many hotel companies that reported earnings this week, but reopening borders can change that quickly.

Wednesday, Nov. 3

STR said hotel industries in seven key Asia Pacific cities it is tracking reported profitability levels well below pre-pandemic levels in the September 2021 monthly P&L data release. Beijing was the only city to report above 40% of the 2010 comparable. Beijing’s gross operating profit per available room was 70% of September 2019 levels at US$29.91. Singapore was only 35% of the 2019 comp at US$39.99 and Hong Kong was at 10% at US$6.22. If you think Hong Kong was bad, coming in -90% below September 2019, Sydney, Bali, Bangkok and Tokyo did not even have a GOPPAR, all in negative territory. STR said Tokyo has seen the biggest profitability decline over the past several months. STR said only three of the region’s key markets reported positive profit conversion in September 2021 with Singapore, Beijing and Hong Kong showing resilience despite the Delta variant outbreak. STR expects Sydney, with the reopening and allowance of international travelers underway in New South Wales, should soon return to positive profitability. They believe Bali and Bangkok remain further behind in the recovery cycle with negative profit conversion at -55% and -44%, respectively.

Skift Note: If anyone needed another example of just how bad closed borders are impacting the largest cities in the Asia Pacific region, this is unfortunately it.

Thursday, Nov. 4

Choice Hotels International remains in the sweet spot with a good-sized beat and the commentary that the positive RevPAR trends have continued into the 4th quarter. CHH also repurchased $5 million of stock in 3Q and it doesn’t matter who is CEO, we have always said that if CHH purchases stock it is always a good sign for shareholders. When they don’t, you may want to reconsider your strategy.

Skift Note: Follow the stock buybacks. Choice Hotels was the earnings season winner among traditional hotel companies.

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Tags: cbre, daily lodging report, hotels, radisson, sonesta

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