Posted on: Tuesday, October 30, 2001

Cash-flow woes may hit more hotels in 2002

Bloomberg News Service

NEW YORK — The number of U.S. hotels lacking the cash flow to make their debt payments may rise about 75 percent next year as leisure and business travel slips, according to a report by hotel research firm PKF Consulting.

About 37 percent of hotels may not generate enough cash flow to service their debt in 2002, up from 21 percent this year, and face an increased risk of foreclosure by lenders, PKF said.

U.S. hotels will suffer the biggest decline in demand since the Great Depression of the 1930s because of a slowing economy and drop in travel since the September terrorist attacks, PKF said. Revenue per available room, a measure of average occupancy and room rate, will fall 8.9 percent this year and 9.1 percent next year, according to the firm.

"Any hotel, when you get low occupancies, is vulnerable," to missing debt payments, said Robert Mandelbaum, a research director for San Francisco-based PKF.

In one of the largest hotel-related defaults since the drop off began, the Aladdin casino on the Las vegas Strip filed for Chapter 11 bankruptcy protection just a year after opening, hurt by the resort's failure to attract as many gamblers as expected.

So-called limited service hotels, which don't offer restaurant or other services, that already have occupancy rates below 70 percent will have the hardest time making payments.

Full-service hotels with occupancy levels above 70 percent will be less likely to miss debt payments, the firm said. Full-service hotels, which include Hiltons and Marriotts, tend to have more rooms and generate more cash to cover fixed costs such as staffing, said Mandelbaum.

PKF made the estimates by looking at hotel industry data compiled over the past 80 years on hotels that experienced a 10 percent or more revenue per room decline in a one-year period.