If you want to know how the hospitality business is doing these days, call up a nice hotel and try to make a reservation for next weekend. Or try to get yourself a bargain room at a good hotel in any big city in America.
Hotel occupancies are rising, room rates right along with them. Together they are pushing most hotel stocks to their highest levels since before 9/11.
Marriott International Inc., the granddaddy of Washington lodging companies, hit a post-9/11 high of $50.50 a share on Friday. In the past month, five of the other six local lodging stocks also have climbed to their highest levels since terrorists took down the World Trade Center towers and, with them, the airline and hotel industries.
The airlines have never recovered -- bad management is as much to blame as bin Laden -- but the hotel business is back.
"Right now the recovery is very strong," said J.W. "Bill" Marriott Jr., chairman of Marriott, the world's largest lodging company. "Business travel is up, leisure travel is up, international arrivals are up."
Always cyclical, the hotel business usually lags an economic recovery by six to nine months, he said. Since the economy began gaining momentum last fall, the hotel business is right on track. It'll be next year before the business strengthens to the point that rates rise in all parts of the country, but already Marriott is boosting prices in cities like Washington, New York and Los Angeles.
"The urban markets are on fire," said Mike Barnello, chief operating officer of LaSalle Hotel Properties in Bethesda, a real estate investment trust, or REIT, the stock of which hit a new high last week of $24.45 and closed Friday at $24.19. "That's reflected in the stock prices. Hotel stocks and hotel REITs have done well over the past 12 to 15 months."
LaSalle owns 19 upscale hotels, eight in the Washington area, and recently paid $59 million for the four-year-old, 241-room Hilton Alexandria Old Town.
Hotel industry executives say their industry is at or near a crucial inflection point where profit starts growing faster than revenue. Hotel occupancy rates nationwide climbed to 64.6 percent last month, a 13.5 percent improvement over last year, according to Smith Travel Research, the industry's semi-official statistics source. Average room rates rose 7.6 percent from a year ago, to $85.57 a night.
Multiply the higher occupancy by the higher rates and you get a 22.2 percent increase in what hoteliers consider to be the crucial statistic: revenue per available room. That's now up to $55.30 a night when you average together the entire industry -- from the $300-a-night Four Seasons in Georgetown to the $30-a-night tourist courts in the middle of nowhere.
Higher occupancies plus higher rates produce disproportionately larger increases in profits, say hoteliers. In the industry, those profits trickle up from the hotel operator to the franchiser to the building owner.
The Washington area's seven lodging companies occupy four different levels in the hotel food chain. Marriott International is a hotel operator and franchiser. It doesn't own real estate but has an affiliated company, Host Marriott Corp., which is one of the biggest hotel REITS. Other local landlords include LaSalle, Humphrey Hospitality Trust Inc. of Columbia and Interstate Hotels and Resorts Inc. of Arlington. Interstate, too, has a sister company, Meristar Hospitality Corp., which operates hotels. Choice Hotels International Inc. of Silver Spring neither owns nor operates hotels but franchises thousands of them under the names Quality, Comfort, Clarion, Sleep Rodeway, Econo Lodge and MainStay, collecting a percentage of revenue from the hotels for which it provides advertising and marketing, reservations systems, supplies and services.
Depending on their niche, the stocks have performed differently.
Since franchise fees come off the top of hotel revenue, Choice's sales and profits are often more stable than those of hotel operators and REITS.
"We've actually performed pretty well all along," chief executive Charles Ledsinger Jr. said. Choice stock took a smaller hit than the others after 9/11 and since then has come back more steadily. The stock closed at an all-time high of $48.26 on Wednesday and closed Friday at $47.90.
Choice's turnaround started in the fourth quarter last year, and now room rates and occupancies have risen across all its brands, Ledsinger said. Choice hotels get 75 percent of their business from leisure travelers.
Then there are the REITS, companies that invest solely in property or mortgages and are traded like stocks, offering investors an easy way to invest in real estate, and which have certain tax advantages. The REITs may have the most upside potential, their executives say.
That's because their stocks suffered the most when the industry got hit, so they have more room to rise, argued Paul Whetsell, chairman of Meristar Hospitality Corp. and its affiliated REIT, Interstate Hotels and Resorts.
The trouble for REITs is that as the economy improves, interest rates rise, supposedly taking away something that made REITs popular and successful investments over the past couple of years: low rates, which enable REITs to finance acquisitions of buildings more easily and make the dividends they pay more attractive.
These days REITs in general are losing their appeal. But for the hotel REITs, "you are seeing Wall Street take a look at hospitality as one sector of real estate that has some upside," Whetsell said.
Wall Street analysts generally are positive on the lodging industry but worry the stocks may have risen too fast recently.
Within the industry there is caution as well, because as Lasalle's Barnello, Marriott and Whetsell all point out, the lodging business has been hurt by more than 9/11. The start of the Iraq war a year ago prompted a sharp drop in domestic travel, and last year's SARS virus scare badly hurt business in Asia and on the West Coast.
"Every time we seem to start a little bit of a recovery, something else comes along," said Whetsell, just back from a two-and-a-half month tour of his companies' properties. "But I believe the recovery this time is real."
Bill Marriott, who is opening another hotel this week -- and adding 25,000-plus rooms this year -- describes his outlook as "very, very optimistic." The expanding economy is boosting the business travel that upscale hotels depend on, he said. "Companies are on the road again, corporate travel is robust, . . . the employment numbers are improving, . . . the economy is strong."
As the summer travel season begins, the industry is also looking at other pluses -- the political conventions which will bring thousands of people to Boston and New York, and the Olympics, which will focus attention on Athens, where Marriott has just opened a big hotel. Don't even think about trying to get a room there for the games, though -- it's sold out.
Jerry Knight's e-mail address is email@example.com.