New Data Suggests That We're Past the Bottom Reached in Those Dreadful April Numbers

While National Association of Real Estate Investment Trusts statistics in May did not illustrate the recovery experts sought, it is a staunch improvement to the dismal April figures. The new numbers, including the jobs report, suggested that the worst is now behind us.

In its report, BMO Capital Markets said “there were rays of sunshine” for the lodging sector, but the 34% gain in activity for the week was short of the bounce it suspected. The report stated that the industry’s recovery would likely take several years, with most management teams predicting 2023 as the year when the critical formula, revenue per available room, will return to levels seen in 2019.

Several real estate investment trust companies have experienced a challenging recovery. These include Host Hotels & Resorts. In May, the company saw a sharp increase from the dismal numbers during April. In the month of April, revenue per available room was down 96% for the year and around 35 of its hotels had to suspend operation.

James F. Risoleo, president and chief executive officer for Host Hotels & Resorts, said the company is in a position of strength due to its immediate actions that took into account the effect the coronavirus could have on the company. Risoleo stated its “prudent and disciplined capital allocation strategy that prioritizes maximizing balance sheet capacity and liquidity toward the end of the cycle.” Right now, the company has $2.5 billion of cash on hand.

Pebblebrook Hotel Trust was a second real estate investment trust that had to quickly decrease its expenditures to take into account the effects of the coronavirus and stay-at-home orders. Before fixed expenses, Pebblebrook reduced go-forward monthly operating expenses by over 85%. Also, the company’s regular quarterly common dividend was reduced to $0.01 per share, per quarter, which will conserve $50 million of cash per calendar quarter that saves $150 million in cash savings by 2020.

These drastic moves are indicative of the turmoil brought by the coronavirus on the industry. But there is an expectation that the reopening phase of the economy will continue the recent boost seen. Adding to the optimism is the most recent jobs report from the Department of Labor’s Bureau of Labor Statistics, which indicated on Friday that 2.5 million jobs were added in May. The release supported earlier projections that the vast majority of hotels should reopen by the end of summer.

Moving forward, there is still a challenge as to when business transient and group segments will display an increased demand as a decline will be seen in across-the-board work from home mode. For instance, Transportation Security Administration checkpoint data declined 87% last week due to limited demand, showing travelers remain apprehensive about traveling amid the global pandemic.

Fortunately for the industry, in the long term, lodging real estate investment trusts do not expect the use of collaboration tools, such as Zoom, to suppress demand. But the BMO Capital Markets report said that could be “wishful thinking” because it is “hard to handicap how behaviors may change.”