Select-service brands drive U.S. hotel RevPAR increases

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Rising room demand at select-service hotels in the U.S. spurred continued revenue and earnings increases at publicly traded hotel companies, as both room rates and occupancy were pushed up by more travelers while supply remained relatively steady.

With hotel developers gravitating toward select-service brands like Marriott International's Courtyard, Hilton Worldwide's Hilton Garden Inn and Hyatt Hotels' Hyatt Place as a way to build less expensive urban properties, such hotels are getting higher rates, pushed even further by a resurgence in group demand.

Meanwhile, revenue growth within the luxury sector, which had led the resurgence in hotel-room demand as wealthier customers resumed travel habits after the most recent economic downturn, has tapered off slightly as supply gradually increased.

As a result, hoteliers' gains in revenue and income are no longer coming from the top of the income scale.

Marriott, the largest publicly traded U.S. hotelier by sales, reported that its North American revenue per available room (RevPAR) advanced 6% from a year earlier. It was pushed largely by select-service brands such as Courtyard and TownePlace Suites, whose RevPAR increases outpaced those of luxury brand Ritz-Carlton. Marriott's net income rose 7.3%, to $192 million, while revenue increased 6.8%, to $3.48 billion.

No. 2 Hilton reported a U.S. RevPAR increase of 7.3%. Hilton Garden Inn, Homewood Suites and Home2 Suites all recorded RevPAR increases of at least 7.6%, compared with the 6.6% RevPAR increase of Hilton's Waldorf Astoria luxury group.

The company, which went public in December, reported that its net income jumped 35% from a year earlier, to $209 million, while revenue was up 12%, to $2.67 billion.

Hyatt showed a similar pattern, with an 8.4% RevPAR increase for its select-service brands Hyatt House and Hyatt Place properties. Demand growth for Hyatt's luxury properties was slower, as Park Hyatt and Grand Hyatt's RevPAR rose 5.7% and 3.3%, respectively.

Overall, Hyatt's revenue grew 6%, to $1.16 billion. Its net income of $74 million marked a 34% decline from a year earlier, when the company reported $99 million in gains from real estate sales.

Sector differences aside, increased travel among both Americans and overseas tourists continued to drive revenue increases. U.S. year-over-year RevPAR growth accelerated to 8.2% in Q2 from 6.8% in Q1, according to STR. While room supply increased just 0.8%, room rates rose 4.4%, to $115.46, and occupancy advanced 2.4 percentage points, to 68.1%.

"Nothing leads us to believe that pricing power should wane this year," said Jan Freitag, senior vice president of strategic development at STR. "All signs are positive and life is good if you are an owner or operator."

Hoteliers with a narrower range of brands also fared well. On the higher end, Starwood Hotels & Resorts' North American RevPAR advanced 6.3%, as W, Westin, Sheraton and Four Points all had RevPAR increases of between 5% and 6.5%. The company's second-quarter net income rose 12% from a year earlier, to $153 million. Revenue fell 1.5% from a year earlier, to $1.54 billion, almost solely as a result of selling its St. Regis Bal Harbour luxury-residential project in Florida.

Hoteliers with a greater focus on the more moderate end of the spectrum also continue to increase earnings as more travelers traded down for better room rates at economy hotels, a market in which there are "very, very few" new properties, according to Freitag.

At Wyndham Worldwide's Wyndham Hotel Group, domestic RevPAR jumped 8.8%, driven by increased occupancy and room rates at its Microtel Inns & Suites, Wingate by Wyndham and Hawthorn Suites badges. The division's revenue rose 8%, to $283 million, while earnings before interest, taxes, depreciation and amortization increased 12%, to $87 million.

And at Choice Hotels International, second-quarter RevPAR was up 7.6%, with RevPAR at Comfort Inn, Comfort Suites, Sleep and Econo Lodge RevPAR all up at least 8.5%. Choice Hotels' net income rose 11%, to $35.4 million, while revenue grew 4%, to $197.7 million.

"The U.S. hotel industry is doing well," Freitag said. "The only question is really how much more growth is possible. Right now, there is no real end in sight."

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