Good Times Roll for Some Hotels

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This headline may be confusing, depending on what you read and how you process the information. Nationally, the hotel market is softening from its multi-year charge that has caused it to surpass its record 2007 RevPAR levels. That’s not soft in my book. But the growth rate is declining, and that’s called “softening” in Wall Street terms.

Some individual markets have become saturated with new product, and the revenue of every hotel in those markets is affected. I see this coming soon in certain areas where we have been looking, and we’re running away from those markets. No doubt those locales will temporarily see be a decline in RevPAR as three, five, or even more new hotels open within 18 months of one another.

RevPAR has declined in energy-sector-dependent locales such as Austin, TX (dramatic) and Pittsburgh, PA (not as dramatic). This is why Springwood has always sought locations in high barrier-to-entry markets with diverse economies. We’ve never chased the fracking boom even though it would have been an easy play given our Pennsylvania location. Now, we and our investors are glad that Springwood had restraint. Those markets will eventually rebound, but we don’t enjoy roller coasters of that sort.

So, what about the headline of this article? Simply stated, Springwood’s focused approach to hotel development works. As of today, we have seven hotels open (two of them have been open less than a year). In our offerings we tell prospective investors that we anticipate distributing cash TWICE a year: within a month after the end of the second and third quarters of every year. Hotels are a seasonal business, and those are times of year when we can readily predict that we’ll have cash to distribute.

This year, six of our seven hotels are distributing cash to investors at the end of the first quarter, as well. The skinniest of these distributions is $50,000; several are many times that figure. That’s when you know it’s been a good winter!

We never promise these “spring” distributions, but we’re delighted when we can do it. This is the first time in our history that so many of our properties have been able to make a spring distribution. Let the good times roll.

by David Hogg April 26, 2017

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