NEW YORK (December 20, 2012) — Link to Fitch Ratings’ Report: 2013 Outlook: Cross-Sector Lodging & Timeshare
The lodging industry will continue to outperform the broader economy in 2013, but at a slower rate than in the past three years, according to Fitch Ratings’ ‘The Penthouse View: Cross-Sector Outlook for Lodging and Timeshare’. Despite slowing growth, positive operating fundamentals support a Stable Outlook across four subsectors, including lodging C-Corps, lodging REITs, CMBS with high hotel exposures, and timeshare ABS.
RevPAR growth will slow in 2013 to 4.5% from Fitch’s 2012 expectation of 6.5%, but will be higher quality as increasing portions continue to come from Average Daily Rate growth. When coupled with decelerating occupancy growth, the industry shows signs of a maturing lodging cycle, a trend that will remain through 2013.
Should the macroeconomic environment significantly worsen in the next year, most issuers would be cushioned from a double-dip recession by low U.S. supply growth and strong corporate balance sheets. While this is not Fitch Ratings’ base case scenario for 2013, it remains a concern as lodging RevPAR is highly correlated to the overall economy, particularly unemployment levels, GDP and corporate profits.
Fitch expects lodging transaction volume to be fairly healthy in 2013 because it is still more economical to buy rather than build. The lodging upcycle has increased investment demand in hotel assets, but property-level profit margins have not yet reached a level that will lead to a significant build-out of new supply. Fitch expects hotel concentrations in new CMBS issuance should continue to increase.
In addition, timeshares are expected to see stability next year due to solid cash flow generation. As many companies turned their attention away from building new properties during the recession to focus on stabilizing sales at existing properties, the lack of cash outlays creates a favorable environment for free cash flow. However, Fitch Ratings believes these dynamics are only short-term, and not indicative of a longer-term trend.
The report, ‘2013 Outlook: Cross -Sector Lodging and Timeshare; The Penthouse View,’ is available at ‘www.fitchratings.com‘.
Source: Fitch Ratings