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Rhode Island Hospitality Economic Outlook

September 26, 2012 7:47 pm

Presented by Rachel Roginsky

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GBCVB Outlook 2013 MLA Presentation – Matthew Arrants

July 10, 2012 7:50 pm

Presented by Matthew Arrants

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Outlook 2013 MLA Presentation – Rachel Roginsky

7:48 pm

Presented by Rachel Roginsky

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Lasting Impact of the “Great Recession” on the Ultra Luxury Caribbean Hotel Market

April 1, 2012 11:55 am

This purpose of this article is to briefly analyze and discuss the impact of the global economic recession spanning the years 2007 to 2009 on the operations of ultra-luxury resorts in the Caribbean Basin. For purposes of this analysis, we sampled via questionnaire and/or interviewed selected representatives of ownership and management at a group of Caribbean resorts which we identified, based on our research, as being those with the likely highest average rate performance. We have, for purposes of this article, used the term “ultra-luxury” to describe these properties. Smith Travel Research (STR) supplied us with two Trend reports for our analysis – one comprising approximately 264 properties categorized as “Luxury Class” hotels in the Caribbean region and a second “Custom Trend” report for our chosen subset – comprising 29 of those properties. To lend perspective to the difference in strata, the chosen ultra luxury subset achieved an average daily rate of $648 in 2011, more than 80% higher than the $358 ADR reported for the overall STR Luxury Class set.

The impact of downturns in performance at all resorts is problematic to hosting area economies, but the impact of business slowdowns at this sub-set of ultra-luxury properties has, based on input received during our research, more direct implications. Many of the top-tier ultra-luxury resorts are located on islands with relatively small economies. In many cases, the economy of the hosting island is driven almost entirely by tourism and a drop in the fortunes of the major employers -the resorts – reverberates through the economy of the entire island. In many cases, ultra-luxury level resorts comprise a very large percentage of the resort inventory.

Scuttlebutt was abundant during and immediately after the Recession and before more historical data was available that the ultra-luxury resorts were LESS impacted during the recession than luxury resorts in general. The often presented rationale for this thinking was that the very wealthy clientele who frequent such resorts was less affected as far as their leisure travel plans by economic adversity than were clients of resorts with more modest pricing structure. To shed light on this issue, Occupancy, Average Daily Rate and RevPAR among STR’s “Luxury Class” sample is compared with the narrower sample we have defined as “ultra-luxury” for purposes of this analysis in the charts below:

As noted in the charts:

• In terms of occupancy, the broader-based Luxury sample began its slide during the period 2006 into 2007 while the ultra-luxury properties peaked in 2007 and then began declining. Moving from 2007 to 2008 and onward, the occupancy progression pattern was very similar. Of note when examining the chart is the fact that the gap between occupancy levels reached at luxury properties and occupancy at ultra-luxury properties was quite wide in 2006 – 8 points. The gap narrowed to only 1 occupancy point in 2008 and 2009 before beginning to widen again. There is a 4-point gap in 2011 data.
• Average daily rate progression was similar with the Luxury properties almost paralleling the Ultra-Luxury in terms of rate movement. Interesting, the margin between the two tiers stayed very similar with Ultra-luxuries remaining in a narrow band between 81% and 85% higher in rate than the Luxury segment in every year of the analysis.
• Overall performance as measured by RevPAR also ran fairly parallel. The beginning of the business downturn from 2007 to 2008 can be seen clearly. Based on information provided during our interviews and the survey conducted, the brunt of the decline began to be felt in late 2008 subsequent to the collapse of Lehman Brothers in September, 2008.

In terms of future performance, the outlook is guardedly positive for the ultra-luxuries.

• Based on information from our survey, more than 20% of the GMs surveyed/interviewed expect 2012 occupancy to increase by 1 to 3 points and an additional 30%+ expect an increase of between 4 and 6 points. While this is a positive trend for the ultra-luxuries, it is important to point out that 2012 occupancy, based on that prognostication, would still be well below the 2007 peak of 65%.
• Increases in average daily rate are, in general, expected to be healthy. More than 40% of those interviewed said that they expect average daily rate to increase between 4% and 6% in 2012 with another 10%+ indicating that rate increases might be in the 7% to 10% range.

Based upon what we have discussed thus far, it is clear that the Ultra Luxury properties were not, in any significant way, immune to the difficulties presented by the Great Recession. In fact, their performance during the downturn paralleled, in many ways, the performance in the broader Luxury segment.

As for maintaining profitability during the downturn, the respondents to the survey shared some of the cost-savings measures they took in order to mitigate the dropping revenues:

• One of the most common responses involved selective cuts in payroll of regular employees. There was reluctance to decrease payroll levels severely in that service levels must be maintained and consistent for the ultra-luxury guest. Some properties – primarily smaller ones – recruited temporary help (albeit quickly and heavily trained temporary help) as needed during peak season times such as Presidents week, Christmas week, Easter week etc. The limited selection of branded properties appears to have been able to take advantage of “sister” properties in order to borrow qualified staff.
• Another measure taken by the management of the properties was to cut expenses in utilities. By mainland US standards, the cost of utilities in most island locations can, without hesitation, be described as “enormous”. In addition to standard utility costs, many of the ultra-luxury resorts must produce their own supply of potable water. Some of the strategies implemented at ultra-luxury properties include investment is solar panels which proved to be both a money saver and even a revenue generator in some cases; switch to low consumption lighting fixtures that included LED lighting for common areas and fluorescent lighting for guest rooms; and low water consumption plumbing fixtures in guest rooms and public areas.

Based on our interviews, operators of ultra-luxury properties seem guardedly optimistic that the current business recovery will continue. European travelers comprise a very large portion of visitors to the Caribbean at the ultra-luxury end of the market. With the concurrent reliance on European economic health, operators are anxious about the painful deleveraging and resulting economic contraction currently taking place in key demand-generating countries in the Euro Zone. However, there seems to be consensus that they ultra-luxury market in the Caribbean has survived the effects of the “Great Recession” and has emerged as a stronger contender than before in the global market to capture luxury travelers.

Since 1991, Pinnacle has provided advice and analysis on the full spectrum of hospitality properties: hotels, resorts, conference centers, timeshare and other residential resort facilities, golf courses, ski slopes, marinas, and such public assembly facilities as theme parks, arenas, convention centers and exhibition centers.

2012 Outlook for the National and Regional Lodging Industry by: Matt Arrants

February 1, 2012 11:58 am

Presented by: Matt Arrants

National Perspective

The America’s Lodging Investment Summit (ALIS) recently concluded in Los Angeles and the message was mixed. Much was made of the optimism in the air and the conference theme of “Rebound”, however, if you look closely, the prognosticators were a bit more cautious. Specifically, while they were projecting growth, their projections were more conservative than they were last year.

At last year’s conference Jan Freitag of STR projected growth in Revenues per Available Room (RevPAR) of 6.1 percent for the national lodging market while Mark Woodworth of Colliers PKF Hospitality Research projected RevPAR growth of 9.0 percent. In fact, according to STR, RevPAR actually increased by 8.2 percent in 2011. For both Freitag and Woodworth, lodging demand was stronger than anticipated while average rate growth was weaker.

Looking toward 2012, both prognosticators are expecting occupancy growth to slow, while average rate growth outpaces 2011. Specifically, STR is projecting that occupancy will grow 0.5% and average daily rates will grow by 3.8 percent resulting in RevPAR growth of 4.3 percent. PKF is slightly more optimistic. They are projecting occupancy growth of 0.7 percent, average rate growth of 4.7 percent and RevPAR growth of 5.4 percent.

At the conference, John Silvia, Chief Economist for Wells Fargo Securities had some interesting (and positive) observations:

• The U.S. economy is undergoing a sustained growth of approximately 2.5 percent;
• Lending in nearly every sector increased steadily during the past year;
• The economic recovery is not even across the country; and
• The presidential election – and the questions about fiscal policy that surrounds it – presents a major hurdle for recovery.

Jim Burba, the conference coordinator also cited some interesting statistics based on surveys taken of the ALIS delegates. Specifically, he noted that 92 percent of respondents were feeling positive about U.S. hotel RevPAR growth while no significant changes were expected for cap rates. “The closest year in our data base that we can find to the mood today is 2006,” Burba noted.

We at Pinnacle Advisory Group are fairly bullish on the national outlook for 2012. We have seen several positive signs for growth. Demand in the group segment has begun to pick up across the country at both resorts and convention centers. We are also seeing moderate to strong rate growth as a result of stronger corporate demand with limited and in many cases no, new supply. Additionally, a large number of hotels are completing major renovations and repositioning to attract higher paying travelers. As a result of these positive signs we expect that that national market will finish closer to PKF’s projections than STR’s.

New England

After dramatically outperforming the country as a whole in 2010, the New England region posted a respectable performance in 2011. Specifically, according to STR, RevPAR for the region grew by 8.6 percent as compared to a national average of 8.2 percent. Demand in the region was slightly above the national average. This, coupled with no growth in supply helped increase occupancy by 5.2 percent compared to a national average of 4.4 percent. Average rates for the region grew by 3.2 percent compared to 3.7 percent for the country as a whole.

The strong performance of the Greater Boston Market in 2010 was one of the factors behind the region’s performance in that same year. In 2011, RevPAR growth was still strong but it did not exceed that of the country as a whole. Overall, the Greater Boston market’s performance in 2011 was relatively strong given that it was an off-year for conventions. This suggests that a very strong convention year for Boston in 2012 should help that market area and the region as a whole to outperform the national average. In fact, Pinnacle Advisory Group is projecting RevPAR growth of 9.5 percent for the Boston/Cambridge market and growth of 9.2 percent for the Suburban Boston Market.

A review of the individual states in the New England Region shows that Connecticut and New Hampshire were the two states that had the strongest grow in RevPAR in 2011. Connecticut hotels benefited from two natural disasters (Hurricane Irene, and the October snow storm) that knocked out power for extended periods in large parts of the state, forcing residents into hotel rooms. New Hampshire benefitted from the Presidential Primary that brought campaign employees and the national press to the state in December.

Massachusetts maintained the highest occupancy at 65.8 percent followed by Rhode Island at 61.2 percent in 2011. Maine had the lowest occupancy in the region at 56.8 percent. Connecticut,Rhode Island, and Vermont all ranged between 57 percent and 59 percent occupancy. From a historical perspective the state by state occupancy rates have generally returned to their most recent high in 2007. This bodes well for average rate growth in 2012. As demand continues to outpace supply during peak demand periods, operators will be able to increase rates more dramatically.

Looking forward to 2012, we expect the region to outperform the country as a whole. Massachusetts will be helped by a very strong convention year in Boston as well as continued growth in the Technology, Bio-tech and Pharmaceutical industries. Boston is already near capacity from an occupancy standpoint. The additional convention demand in 2012 will lead to compression into the suburbs and help operators there to increase room rates. Connecticut is expected to benefit from incentives that have lured new companies to the state such as Starwood hotels and NBC sports group in Stamford. Rhode Island will be hosting America’s Cup World Series events in June that should help the hotels in the Newport area. Northern New England (Vermont, New Hampshire, and Maine) will likely experience moderate growth as their economies grow at the national average.

In 2011 the New England Region finished the year at an occupancy rate of 61.4 percent with an average daily rate of $119.97. With limited new supply in 2012 and the aforementioned growth factors, we expect that RevPAR for the region will grow by between 6.0 and 8.0 percent in 2012 with most of that growth being in average rate.

Matt Arrants has been with Pinnacle Advisory Group since 1996. Matt is the Director of asset management and focuses on long-term strategic planning for clients in transition periods, including asset repositioning, restructuring of management, development of operational policies and practices and budget planning and development.

So Far, So Good by: Karen Johnson

11:56 am

With the national unemployment rate falling to 8.3 percent in January, hoteliers have reason for cautious optimism. The year-to-date trends suggest that last year’s 8.2 percent RevPAR change may well continue. Even with an aberrant first week, the average RevPAR performance for the first five weeks of 2012 was 7.6 percent – within striking distance of last year’s average.

The Oil Threat Slumbers
Jack Corgel of PKF Hospitality Research has theorized that a rapid run-up in oil prices could slow RevPAR growth to inflationary levels. Recent geopolitical events suggest we may dodge that bullet this year. On January 23, 2012 the European Unions voted to embargo oil from Iran to member nations. Perhaps because this will not take effect until July 2012, the US Department of Energy forecasted on February 7 that the average price per barrel for crude would increase by only $0.15 to $100.40, well within Corgel’s baseline scenario. That being said, oil futures jumped 1.0 percent on February 14 when a rumor circulated that Iran had cut off six European nations prematurely. A rapid run up on oil prices is a bigger threat than the Euro’s dissolution. Assuming no problems in oil supplies, Summer gasoline prices are forecast to peak in May and August at $3.65 per gallon, pricing that the US consumer has seen before.

The Euro Muddles Along
Fears of a European double dip triggering a double dip on our side of the pond seems to be ebbing. In January, the IMF downgraded estimates for the world economies, but still forecast a 1.8 percent growth for the US. It forecast a mild recession for the Euro zone, with a 0.5 percent decrease in GDP. However, this pain is not spread evenly, with our major tourism markets still showing positive growth. The UK, Germany, and France (the top three source markets among the 17 member countries) are all forecast to achieve positive growth. Meanwhile, Mexico, which sends as many visitors as the three European countries combined, is expected to show robust growth. While Europe’s preferred destinations of New York, Miami and Orlando may see a fall off this year due to Euro woes, the rest of the country is less likely to be affected.

Costa Concordia Fallout
While no one wants to profit from a tragedy in which 32 lives were lost, spring season resort destinations may get a lift from travelers making alternate vacation plans. Images of the partially submerged ship that were broadcast worldwide caused a downturn of 20 percent in cruise ship bookings for rival Royal Caribbean in the first two weeks after the disaster. The rate of decline has abated to something in the low teens, but in the most affected periods (spring and summer), vacationers may be locking in to resort vacations. Smart resort operators will practice rate discipline early. With 225,000 cabins available globally, even a 5.0 percent “relocation” has the same effect of taking 11,250 rooms out of order.

More Labor Cost Pressure on the Horizon
The biggest threat to hotel profits in 2012 does not appear to be a top line problem, but a bottom line issue. Though the Senate was not technically in recess between Christmas and New Year’s , President Obama declared it in recess and seized the opportunity to name two pro-union individuals to the National Labor Relations Board. While it is being challenged on procedural grounds by Senate Republicans, the appointments of Richard Cordray and Richard Griffin are an attempt at an end-run around the stalemate on card check legislation. Labor is the most significant expense in hotel operations, averaging 44.0 percent of all expenses since the 1960’s. Increasing the ratio of employees governed by more rigid job classifications, work rules could have a profound effect on hotel bottom lines in the non-unionized markets, but this is not likely to hit profit and losses until 2013.

Drive Rate, Drive Rate, Drive Rate
Having caught a few key breaks in 2012, and to fortify itself against the increased costs of unionization, the US hotel industry should practice more rate discipline. Having finished 2011 at 60.1 percent, future occupancy gains will become harder to pattern to reach the pre-recessionary 63.1 percent occupancy logged in 2007. New supply is at its lowest levels in decades and the time is right to push rates. It’s not just where the opportunity is, but where the most profit is.

Karen Johnson MAI, ISHC is Principal of Pinnacle Advisory Group West located in Newport Beach, California. Ms Johnson has been active as a hospitality consultant since 1981. Ms Johnson has prepared valuations and analyses for urban hotels, suburban hotels, resort hotels, casino hotels, conference centers, economy lodging, convention hotels, branded residences, condo-hotels, fractionals and entire resort communities. She has testified or provided expert witness reports throughout the US as well as arbitration proceedings in the UK.

Ms. Johnson is an MAI and a member of the Urban Land Institute, sitting on the Entertainment Council. She was also admitted to the International Society of Hospitality Consultants (ISHC.)

Rhode Island Hospitality Economic Outlook Presentation

November 8, 2011 7:52 pm

Presented by Rachel Roginsky

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Highest and Best Use Analysis – Enhancing Hotel Value

June 1, 2011 12:01 pm

Presented by: Jonathan Jaeger

The highest and best use of a property as improved pertains to the use that should be made of the property as it exists. As a hotel property progresses through its life cycle, it is imperative for owners to determine if the subject improvements should be maintained as is, renovated, expanded, partly demolished, etc. – or should they be replaced with a use different in type or intensity? The use that maximizes the property’s net operating income (NOI) on a long-term basis is considered its highest and best use. An analysis of a property’s highest and best use as improved can result in a determination that little or no capital expenditure is required. However, significant expenditures may be required to rehabilitate and/or maximize the potential of the existing use. A highest and best use study can be done for the entire property, or for one specific space in the hotel which is not achieving its potential for profits.

Highest and Best Use is defined as “the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible and that results in the highest value” (The Appraisal of Real Estate, Thirteenth Edition, p. 277-278, The Appraisal Institute, Chicago, Illinois). A standard highest and best use analysis will consider four separate tests which are 1) Physically possible; 2) Legally permissible; 3) Financially feasible; and 4) Maximally productive.

Throughout Pinnacle Advisory Group’s experience, many full-service hotel properties have space which is under-utilized and does not represent the highest and best use which maximizes profitability of the overall asset. When conducting a typical highest and best use study, it is important to determine the physical limitations of the space under consideration, such as; how large is the space? What kind of access is available for prospective customers? Is electricity and plumbing readily available? In a highest and best use study, the physical test is always done first to determine which uses are possible to implement prior to undertaking further analysis.

Legal issues are often more palpable. For example, what is the ingress/egress requirements set forth by the local building codes? Hotel owners and managers need to be aware of what licenses and permits are required for specific uses. One of the many options for a hotel owner is to lease out the space in question to a third party operator. Leasing space can often be more profitable than operating internally, and usually presents less risk for the hotel owner. However, with leased space, the landlord loses control over the area, which could potentially become a detriment to value in the future. It is also important to examine franchise agreements to understand what F+B offerings and amenities are required by the brand.

After the physical and legal elements are considered, the analytical and quantitative approach to highest and best use is conducted through a test for financial feasibility. Based on the available uses for the space, a thorough analysis is conducted to determine which option generates the highest NOI and overall positive impact to total value. For example, a night club use may result in the largest increase to profitability of that particular space per square foot. However, the impact of noise and other factors of having a night club on property may be a detriment to the overall operation.

For each scenario, it is important to consider and analyze what, if any impact the alternative use would have on occupancy and average rate of the core business. Does the increase in value justify the cost associated with a new use? For a rooms addition scenario, it is important to analyze the profitability per each additional guest room using the existing financial performance data. This data will help determine the viability of that particular option. Additional rooms have a direct and positive impact on the NOI due to economies of scale with fixed and overhead expenses. To illustrate that statement, increasing the room count in a hotel will not necessarily cause a large increase to administrative and general or sales and marketing expenses. Rooms additions typically have a 40 to 60 percent flow through to the bottom line.

As experienced over the past decade, with many mixed use developments in the United States, ancillary amenities and various real estate uses can benefit hotel guests and enhance the value of the overall asset. It is important to select the particular use which will benefit the property and create the greatest benefit to incremental value. A highest and best use study will determine what is right for a particular asset in a defined market, and will enhance the long term potential for the hotel operation.

Jonathan Jaeger is a consultant with Pinnacle Advisory Group who specializes in valuation services at the Boston office. Mr. Jaeger is a graduate of the School of Hospitality Administration at Boston University and has been with Pinnacle for over three and a half years. During his tenure, Mr. Jaeger has completed over 350 hours of Appraisal Institute Qualifying Education in pursuit of the MAI designation.

The Economic Impact of Hotel Development by: Alan Suzuki

April 1, 2011 12:02 pm

Presented by: Alan Suzuki, Senior Consultant – Pinnacle Advisory Group

Hotels are considered an important economic component to any community. In some cases, cities and municipalities will offer incentives in order to stimulate hotel development. These incentives can be in the form of tax breaks, favorable land leases, or assistance with financing. Prior to establishing incentives for hotel development, a city or municipality should conduct an economic impact study to estimate the economic benefits that results from the development. This assessment should evaluate the economic benefits of the initial investment both in the short term and over the long-term. The economic impact to local and regional economies from hotel development is typically separated into four categories: direct, fiscal, indirect, and induced.

Direct Impact

Direct impact includes all projected revenues that will be generated from consumers at the new hotel. This will include all rooms revenues, food and beverage revenues from restaurants and banqueting, as well as other potential revenue sources such as spa or parking. Direct impact also includes total payroll paid out to employees hired at the hotel as well as all payroll paid out to temporary construction workers who construct the hotel.

Fiscal Impact

Fiscal impact refers to all federal, state, and local taxes that will be collected from the development and operations of the new hotel. Taxes include all sales taxes collected in association with the hotel generated revenues, as well as all payroll related taxes collected from full-time hotel employees and temporary construction workers. Local governments will also collect new property taxes from the operation of the hotel. Many local governments will also collect revenues through lodging taxes.

Indirect Impact

In addition to local governments and hotel owners/employees, contractors and suppliers to a newly developed hotel will also benefit. Indirect impact includes all jobs and income generated by businesses that supply goods and services to the hotel. Examples of businesses that will indirectly benefit from the development of a hotel include suppliers of rooms related goods (housekeeping supplies, room amenities, etc), telecommunication vendors (internet, cable, etc.), utility companies, food and beverage suppliers, and other hotel related vendors.

Induced Impact

Induced impact refers to economic effects generated when employees (full-time and temporary) and suppliers re-spend their wages on local consumer purchases. For example, an employee may purchase gas for their car on their way home from work.

Calculation of Impact

Pinnacle Advisory Group has conducted several economic impact studies as a result of hotel development. In most cases, direct and fiscal impacts can be calculated with relative confidence and accuracy. A hotel pro-forma will calculate the revenues in direct impact, while full-time and temporary payroll projections can be calculated from the preparation of staffing schedules combined with knowledge of local wages.

Indirect and induced impact, on the other hand involves a certain degree of subjectivity. While expenditures of goods and services can be estimated, it is difficult to accurately calculate how much of those expenditures will be generated from contractors and suppliers from the local area. Induced impact, which results from the re-spending of wages on local consumer products, is also difficult to estimate. Several complex models have been created by various economists that recommend multipliers that can be applied to total direct impact dollars. In general, depending on several factors including the size and economic diversity of the regional economy, multipliers typically range between 1.1 to 2 of total direct impacts.

A hotel’s impact to the local community is often more than just job creation and additional tax revenue. When all economic considerations are accounted for, the calculation of total direct, fiscal, indirect, and induced impact can give the public a more universal understanding of a hotel development’s impact.

The Gulf Oil Spill Post Mortem on the Magnitude of the Impacts to the Lodging Industry on Two Coasts by: Gregory T. Bohan

March 1, 2011 12:02 pm

Presented by: Gregory T. Bohan, Managing Director – Pinnacle Advisory Group – South Florida/Caribbean

By virtually any measure, the oil spill resulting from the April 20, 2010 explosion of BP’s Deepwater Horizon oil drilling platform in the Gulf of Mexico must be considered a disaster of epic proportions. Over the 3 months that the oil continued to flow into the once-pristine waters of the Gulf and even since the spill was contained, the damage to the environment, the economy and to the lives of those affected is almost unfathomable.

There have been many reports dealing with the impact of the spill on Florida’s lodging industry. The waters get a bit muddied (pun intended) because, in addition to the spill, Florida – like the rest of the world – was still suffering from the lingering effects of the “Great Recession”. Separating the impact of one from the other is an effort that is inexact at best and perhaps futile. Determining who was hit the hardest is equally difficult. However, we do believe that making performance comparisons between hotel industry performance along the most directly affected area – the Gulf Coast – with the Atlantic coast which was not directly affected presents a reasonable way of viewing impact. BOTH areas were, in all probability, on equal footing with regard to recessionary forces, but the same cannot be said with regard to proximity to the spill and commensurate impact.

The following paragraphs and the tabular data presented are relatively simplistic in nature but tell a compelling story. Despite fears and some evidence to the contrary, the impact on Florida’s east coast lodging industry was far less than that on the Gulf Coast. With the help of data generously provided by Smith Travel Research interpreted along with the insights gained in our interviews with operators, we compare lodging industry operating results for four key Florida destinations – two on the Gulf and two on the Atlantic side of the State:

• Panama City – where the impact of the spill was, arguably, the most severe – exacerbated by unrelenting coverage in the media
• Clearwater/St. Petersburg – where direct impact (oil on the beach) was far less of an issue than in the Panama City area but which, nonetheless, was impacted directly since the oil’s arrival appeared to be imminent for a period of months after the explosion
• Miami Beach – on the Atlantic near Florida’s southern tip – where doomsayers repeatedly warned that the “Loop Current” would deliver the oil “sometime soon” as it was expected to round the tip of Florida and enter the Florida Straits; and
• Daytona Beach – Several hundred miles north of Miami on the Atlantic coast and, while not completely out of the firing line – still included in the far distant “Loop Current” targets of the oil.

For each of these areas we looked at basic lodging performance measures – Occupancy and Average Daily Rate over a six month period following the explosion. We focus on 3 of those months – May, when the magnitude of the spill was just being realized; July – the month in which the spill was finally contained (July 15) and October, when media coverage had all but ceased and life was supposed to be returning to “normal” in the affected areas.

As shown in the graphs below, occupancy levels in Panama City and Clearwater/St. Petersburg dropped significantly in May 2010, when compared with the average May performance of 13 prior years. The two “Atlantic side” destinations, on the other hand experienced occupancy levels that were higher, in both cases than the average May occupancy of the prior 13 years. As shown in the charts, this differential continued into July and again into October. In all three periods, occupancy for the Gulf destinations lagged the 13 year average while occupancy for the Atlantic destinations was higher than the 13 year average.

In terms of average daily rate, the impact was somewhat more pronounced. Blue bars in the charts below examine the CHANGE in ADR compared with the same month in the prior year. Red bars represent the change in ADR in the month of May 2010 compared with May, 2009:

As shown, ADR dropped precipitously in both Panama City and Clearwater/St. Petersburg in the month of May 2010 which began just 11 days after the oil started flowing. While rates in Miami Beach and Daytona Beach did not increase as rapidly as they had historically done, they nonetheless exhibited an increase with Miami Beach being up approximately 4% and Daytona Beach being up by more than 2%.

In July, the impact on rates in the Panama City area was even more pronounced with ADRs dropping 7.9% compared with the prior May’s level. Clearwater/St. Petersburg’s rates dropped at a much more modest rate, as it become increasingly apparent that the oil might not reach the shores in that area and sales executives became more emboldened in terms of maintaining rate integrity. Rates at the two Atlantic coast destinations increased – in Miami by almost the same rate as the historical average from July to July and in Daytona by a more modest amount.

By October, a recovery in ADR was clearly exhibited by the Panama City figures, as rates increased approximately 6% from the prior October – this being a much faster pace than the average historical increase pace of the prior 13 years. The change in rate in Clearwater/St Pete for October, 2010, vs. October 2009 was in positive territory, but lagged the prior 13 years pace. Miami Beach’s rate increase from October 2009 to October 2010 was on par with the average such increase for the prior 13 years. Daytona rates were barely above the October 2009 levels in October 2010, however; as shown in the chart, ADR had increased at an average of almost 6 percent year over year in the typical October from 1997 to 2009.

In closing, it appears, based on this data, the impact of the Gulf oil spill was more dramatic and more immediate for the Gulf Coast destinations as one would expect. According to the information shared with us, expectations are that the effects may be lingering for some time. While there was wide belief that the Atlantic destinations were almost equally affected, the data suggests otherwise. No matter how the data is interpreted, the lingering impact of the explosion of the Deepwater Horizon will remain front-and-center with Florida hoteliers for some time to come.