It's a great time to be in the hotel business, thanks to a booming economy and favorable supply and demand characteristics. Equity Inn's
For the first quarter, Equity Inns improved hotel revenue 15%, to $106 million. Adjusted EBITDA was up 16%, and adjusted funds from operation were up 12%, to $0.38 per share, compared to last year. Excluding the conversion of 18 properties to the Hyatt Place brand, revenue per available room (RevPAR) was up 4.9% as a result of a 6.4% increase in the average daily rate and a 0.98% decrease in occupancy. The decrease was expected due to a one-time boost in last year's occupancy because of Katrina.
Management of the real estate investment trust (REIT) was optimistic about future prospects, and noted that its occupancy levels were 980 basis points above the industry average, and forecast that supply in its markets would grow only 2%to 2.5% in 2007. As a result, Equity Inn's strategy of selling older hotels and reinvesting in newer hotels in better growth areas has paid off nicely.
In the past three years, Equity Inns bought more than 15 hotels for $50 million at capitalization rates slightly less than 10%. Those purchases are in the money now as cap rates have fallen, increasing the value of existing properties. Equity Inns also has a $200 million acquisition pipeline, so if it can repeat its past success, things should turn out well for shareholders. One thing investors might want to keep an eye on as the year unfolds is the hotel supply increase projected for 2008. Since all of Equity Inn's RevPAR growth so far has been due to pricing power, the impact of future supply will have a big effect on the company's future results.
Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.