The affirmation primarily reflects positive industry fundamentals, the company's strong market position and brand awareness, its public commitment to manage leverage between 2.0 times (x) and 2.5x over the long term, and its ongoing transition to an asset-light business model that will reduce cash flow volatility. Concerns reflected in the current rating include the inherent cyclicality in the lodging industry, the company's limited track record of maintaining investment grade metrics through a lodging cycle, and the potential for a large acquisition, increased investment spending, or an increase in shareholder friendly actions. However, there is room within the current rating for these actions given the current core lease-adjusted leverage at
KEY RATING DRIVERS
Leverage Below Target
Given no change in its financial policy, Fitch expects an increase in
Lower borrowings, in combination with EBITDA growth, has reduced
Although the company's current leverage is well below Fitch's 2.75x target for
Committed to Capital Light
Fitch believes that
However, Fitch expects asset sales to increase during the forecast period due to strong investor demand for hotel properties.
Bending on Return of Capital Strategy
All things equal, Fitch views the improved visibility provided by
Leveraged to More Volatile Segments
Fitch generally views
Positive Industry Fundamentals
The affirmation reflects Fitch's positive outlook for the lodging industry in 2014 with a conservative base care scenario for U.S. RevPAR growth of 5.5%. This level of growth is roughly in-line with the 5.4% growth in 2013 and a modest deceleration from the 6.8% growth in 2012, according to STR Global industry data. Fitch expects average daily rate (ADR) increases will drive a majority of the RevPAR improvement given that occupancies are at or above peak levels in many markets. Fitch expects
Fitch expects supply to grow by 1.1% in 2014 - a modest acceleration from the 0.7% growth in 2013, but still well below the 1.9% long-term average since 1987. Low new supply growth continues to support greater pricing flexibility for the industry generally and
The ratings incorporate Fitch's current macroeconomic outlook, including annual U.S. GDP growth of 2.8% and 3.1% in 2014 and 2015 and world economic growth of 3.6% and 3.4% during the same respective periods. Fitch recognizes the cyclical nature of the lodging industry and the potential for heightened global macroeconomic. However,
--The company has ample flexibility at the current rating to pursue special dividends, debt funded acquisitions or share repurchases as long as it maintains core lease adjusted leverage below 2.75x.
--A negative rating action could occur if management changes its financial policy and increases leverage substantially to return capital to shareholders.
--There is tolerance in the rating to temporarily increase leverage above the target level for a 'BBB' rating so long as Fitch anticipates a reduction in leverage to 2.75x or below within 12-18 months.
Fitch has affirmed
--IDR at 'BBB';
Additional information is available at 'www.fitchratings.com'.
--'Inn the Footnotes: Comparison of Adjusted Credit Metrics and Contingency Risk for U.S. Lodging C-Corps' (
--'2014 Outlook: Cross-Sector Lodging & Timeshare - The Penthouse View' (
--'Corporate Rating Methodology' (
2014 Outlook: Cross-Sector Lodging & Timeshare (The Penthouse View)
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
Inn the Footnotes: Comparison of Adjusted Credit Metrics and Contingency Risk for U.S. Lodging C-Corps
Source: Fitch Ratings
Most Popular Stories
- Florida Warns Beach-goers About Flesh-eating Bacteria
- Sutherland Responds to 'Unprofessional' Jibe
- LivePro Is a Mobile Hot Spot, Projector in One
- Adrienne Bailon Disses Ex-Lover Rob Kardashian
- Business Leaders Set for CHCC Convention
- Islamic State Fights for Control of Syrian Oil Wealth
- How to Fit Green Energy Into Your Portfolio
- U.S. Economy Grows at Fastest Pace in 10 Years
- Is California Going to Land Tesla's Battery Plant?
- Sanctions Will Hit Russia Hard if Not Lifted Quickly