Lodging stages gradual recovery post Sept. 11

By Paul A. Harris

St. Louis, Mo., Nov. 19 - The terrorist attacks of Sept. 11 dealt a staggering blow to the US lodging sector, which had been struggling to maintain its footing in the soft economy that preceded those attacks.

Now, nine weeks after the blows fell, lodging is slowly but steadily getting back on its feet.

"We've seen improvements week after week," Stephen A. Schafer, director of investor relations for FelCor Lodging LP, told Prospect News Monday.

"We continually improve on our occupancies," Schafer added. "Granted the past couple of weeks the improvements have stabilized. But they do continue to improve."

Late in Friday's session FelCor priced a $100 million add-on to its 9½% senior notes due Sept. 15, 2008.

Pricing the same day was Vail Resorts, Inc.'s $160 million add-on to its 8¾% senior subordinated notes due May 15, 2009 - a deal that was upsized from $100 million.

Both deals were drive-bys, and were rumored to have had some support from the buy-side prior to emergence.

Craig Parmelee, a director for Standard & Poor's, who tracks lodging, told Prospect News that the mere fact that these two deals priced is good news for the sector.

"If you go back to late September I think it would have been difficult for a lodging company to issue paper," Parmelee commented. "That they are doing so now does speak positively about the environment, to some degree."

Citing weekly data from Smith Travel Research, Parmelee said that there has been improvement across the sector.

"You can certainly see that since Sept. 11 the environment has improved," he said. "The question is, when does it get back to where it was."

Parmelee pointed to recent RevPAR (revenue per available room) numbers, statistics that are derived from a combination of room rate and occupancy.

"The worst performance was really the second week following Sept. 11," he said. "That's the week of Sept. 16 to Sept 22. The upper-upscale hotels - the Marriotts, the Hiltons and the Four Seasons, Ritz Carltons - showed RevPARs that had declined by about 62%.

Parmelee added that RevPAR numbers for upscale properties for that same week were down 37%, mid-scale chains with food and beverage were down 31%, mid-scale chains without food and beverage were down 18%, and economy class chains were down 15%.

The most current data, for the week ending Nov. 3 - eight weeks after the events of Sept. 11 -show improvement, with the upper-upscale properties down 27%, the upscale properties were 18%, mid-scale with food and beverage down 21%, mid-scale without food and beverage down 10%, and economy chains down 11%, Parmelee said.

"Essentially what you're seeing is that people are beginning to go back to hotels, at least versus where things were seven days after Sept. 11," he said. "I think that probably has something to do with what you're seeing, both from an equity and a bond valuation perspective."

FelCor's Schafer said that 25% of the company's assets are in the full-service mid-scale range, with the majority of the remainder in the upper-upscale segment - the one that seems to be suffering the most intense effects of the downturn in the U.S. economy.

"We're very comfortable with our portfolio in this environment," he said. "We've been affected like everyone else. We've seen our results impacted similar to the rest of the industry.

"We're coming back, although the improvements are getting a little smaller. We're in good financial shape. The balance sheet is strong. So we feel comfortable that we'll come out of the downturn, healthy.

"We expect to get back to normal operating environments maybe late 2002."

End

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