IRR Viewpoint Caribbean Hospitality Market Update 4th Quarter 2019 Report By James V. Andrews MAI, CRE, FRICS, ASA/BV
Caribbean Market Update
Q4 2019 Report
Caribbean Hospitality Market Update 4th Quarter 2019 Report By James V. Andrews, MAI, CRE, FRICS, ASA/BV
Blue Waters Resort Antigua
Overview As we move further away from the devastating hurricanes that occurred in the Leeward Islands and Puerto Rico in 2017, more hotel resorts re-opened in 2019 and the tourism industry in the Caribbean made great strides in reaching pre-storm highs. Stay-over arrivals to the region in the top markets are up by nearly 6% year to date, while average daily rates for conventional hotels are up nearly 5%. Conventional hotel occupancy is down over 3%; however, which continues to imply that more tourists are using non-conventional hotel options for their accommodations, such as vacation rentals and units marketed through online booking agencies like Airbnb, VRBO, HomeAway, etc. In addition, the increasing supply of hotel rooms coupled with a growing pipeline of proposed projects is likely to be diluting the occupancy percentages for existing resorts.
Tourism Arrivals Continue to Rise Of the 24 destinations reporting stayover arrivals in 2019 year to date, 21 reported growth in arrivals while only 3 reported declines. Based on the growth rates reported thus far in 2019, we interpolate that the Caribbean (without Mexico) will see about 24.5 million arrivals in 2019, with growth of between 5% and 6% over that of 2018. The destinations reporting the largest increases in stayover arrivals are those which were the most affected by the 2017 hurricanes and are now rebounding (Anguilla +111%, St. Maarten +107%, U.S. Virgin Islands +44%, British Virgin Islands +77% and Puerto Rico +31%). Other double-digit growth rates were reported in the Bahamas (+15%), Curacao (+11%) and the Cayman Islands (+10%). Note that arrivals to the Dominican Republic are down slightly in 2019, likely due in part to negative publicity related to several tourist deaths. In addition, there is the added factor that there has been significant growth in arrivals to that destination in the last five years leading up to 2019.
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Caribbean Market Update
Q4 2019 Report
CARIBBEAN STAYOVER ARRIVALS - LEADERS 2016 Arrivals 5,959,347 4,200,000 2,181,684 1,391,813 1,101,954 1,790,229 519,304 631,513 385,583 385,451 796,889 408,782 441,262 347,872 244,491 235,295 265,187 453,612 407,764 135,359 528,154 78,751 78,085 79,239
% Chg 6.43% 19.16% 2.76% 0.06% -10.04% 0.21% 6.55% 6.70% 13.03% 0.02% 3.62% -7.04% -5.80% 0.86% 11.23% 13.77% 5.88% 17.50% 3.75% 2.10% 4.53%
2017 Arrivals 6,187,542 4,700,000 2,352,915 1,335,933 1,070,548 1,598,559 535,646 661,160 427,111 418,403 612,702 394,650 397,886 386,127 269,576 247,309 247,320 416,434 334,630 146,375 338,933
4.47% 4.85% 8.20%
75,972 60,855 68,254
% Chg 3.80% 11.90% 7.80% -4.01% -2.90% -10.70% 3.10% 4.70% 10.80% 8.50% -14.30% -3.50% -9.80% 11.00% 10.30% 5.10% -6.70% -8.20% -17.90% 8.10% -0.30% -3.50% 7.90% -13.90%
2018 Arrivals 6,568,888 4,711,910 2,472,727 1,627,121 890,134 1,260,821 537,391 678,528 489,261 463,001 477,840 375,485 431,705 394,780 281,886 286,732 268,949 167,760 192,312 160,970 177,590 74,237 80,080 62,875 54,533
% Chg 2019 YTD Arrivals 6.2% 5,359,903 1.3% 3,327,392 5.1% 2,020,508 12.9% 1,457,890 1.3% 476,682 -21.8% 1,109,615 0.3% 415,844 2.6% 520,881 14.6% 383,182 10.7% 386,290 -25.0% 497,676 -4.9% 322,241 8.2% 346,435 2.2% 320,331 4.6% 217,148 15.9% 229,037 8.7% 162,287 -10.3% -40.9% 224,185 10.0% 135,128 -55.8% 241,590 11.8% 59,099 5.4% 62,345 -12.9% 64,863 -20.1% 73,633
% Chg
2019 Months
-1.20% -6.00% 9.10% 14.70% 6.30% 31.20% 6.00% 4.10% 3.30% 10.30% 43.90% 3.30% 11.30% 7.90% -4.50% 8.30% 9.60%
Jan-Oct Jan-Sep Jan-Sep Jan-Sep Jan-May Jan-Aug Jan-Aug Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Oct Jan-Sep Jan-Sep Jan-Sep Jan-Sep Jan-Jun
76.60% 2.80% 106.90% 12.80% 6.30% 59.60% 110.80%
Jan-Aug Jan-Oct Jan-Sep Jan-May Jan-Sep Jan-Sep Jan-Aug
Source: Caribbean Tourism Organization, except Various Govt. Tourism Departments Where Noted *
The following chart illustrates the top 15 markets in terms of growth in arrivals.
Growth in Arrivals by Country, YTD 2019 120.0% 110.8% 106.9% 110.0% 100.0% 90.0% 80.0% 70.0% 60.0% 43.9%
50.0% 40.0%
31.2%
30.0%
Dominican Republic
Turks and Caicos
Trinidad & Tobago
Barbados
Martinique
Aruba
Saint Lucia
Jamaica
11.3% 10.3% 9.1% 7.9% 6.3% 6.0% 4.1% 3.3% 0.0% -1.2%
Cayman Islands
Bahamas
Puerto Rico
-10.0%
St. Maarten
0.0%
US Virgin Islands
10.0%
Curacao
14.7%
20.0%
Anguilla
Coconut Court Barbados
Destination Dominican Republic Cuba Jamaica Bahamas Aruba Puerto Rico Martinique Barbados Belize Cayman Islands US Virgin Islands Trinidad & Tobago Curacao Saint Lucia Bermuda Guyana Antigua & Barbuda Turks and Caicos British Virgin Islands Grenada St. Maarten St. Kitts & Nevis St. Vincent & the G’dines Dominica Anguilla
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Caribbean Market Update
Q4 2019 Report
Hotel Performance Mixed in 2019 For the year to date through October 2019, rates continue to climb despite the overall occupancy rates for participating hotels continuing to decline slightly based on data from STR Inc. The net effect is an increase in revenues per available room. For the year-to-date October, occupancy in the region is down 3.2%. For same period, the average daily rate increased 5.0% for the Caribbean. As a result, RevPar is up 2.5% for the year to date.
Caribbean Hotel Performance, Year to Date October $220.00
100.00% 95.00%
$200.00
90.00% 85.00%
$180.00
80.00%
Cap Maison St. Lucia
$160.00
75.00% 70.00%
$140.00
65.00% 60.00%
$120.00
55.00% $100.00
2016
2017
2018
2019
Average Daily Rate
$196.47
$198.68
$200.51
$210.46
RevPar
$135.64
$134.91
$133.91
$137.24
Occupancy
67.12%
66.64%
65.64%
63.55%
50.00%
The slight increase in ADR coupled with a slight decrease in occupancy results in a minor improvement in RevPAR for the period. In our opinion, the flat occupancy figures reflect the continued increase in supply due to new projects as well as the effect of Airbnb and other booking engines featuring private homes, villas and condominiums. As of October 2019, the total number of rooms in inventory (regardless of closures) in the Caribbean grew by 1.54% to 254,119 in 1,923 projects over the same period in the prior year.
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Caribbean Market Update
Q4 2019 Report
Caribbean Hotel Inventory Caribbean Hotel Inventory 260,000
1,950
255,000
1,940 1,930
250,000
1,920
245,000
1,910 240,000
Hotel Rooms
1,900 235,000
Projects
1,890 230,000
1,880
225,000
1,870
220,000
1,860
215,000
Courtyard by Marriott Nassau, Bahamas
1,850 2015
Rooms
2016
2017
2018
2019
Projects
Based on a comparison of the total number of rooms in inventory and occupancy overall, we can interpolate the number of room nights sold in each year, and the growth rate in demand versus supply. Demand growth exceeded that of supply in 2015 through 2017 but has lagged behind supply growth in the last two years. Over the last five years (YTD October), supply has increased 11.3% while demand has increased 3.0%.
Supply/Demand Comparison Year to Date October 260,000
170,000
250,000 160,000 240,000
230,000 150,000 220,000
210,000
140,000 2015
2016
2017 Supply Rooms
2018
2019
Demand Rooms
For the twelve months through October 2019, the Cayman Islands is reporting the highest ADR for the reporting countries in the region at $462.74, (up 24.7%) followed by St. Kitts & Nevis ($386.77) and St. Lucia ($365.06). We note that Cayman is leading the region (the Caribbean islands) for growth in ADR; and also indicating strong growth in arrivals and occupancy.
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Caribbean Market Update
Q4 2019 Report
Sonesta Maho and Ocean Point Sint Maarten
Note that the above data excludes the Turks and Caicos Islands; which reported ADRs above $1,000 based on very few reporting hotel/condo resorts which are all at the top end of the price range for accommodations there. As such, the reported ADR for that destination is not a good comparison within the greater market. The highest growth in ADR was reported by the Cayman Islands, at 24.71% above the same period last year, followed by Puerto Rico (11.3) and Aruba (11.2%).
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Caribbean Market Update
Q4 2019 Report
Pipeline Continues to Grow As of October 2019, STR reported 134 projects “Under Contract” in the Caribbean (excluding Mexico); totaling 30,184 rooms. This represents an astounding 55% increase in rooms “Under Contract” compared with December 2018; and an 57% increase in rooms “In Construction”. The projects “Under Contract” include those in the “In Construction”, “Final Planning” and “Planning” stages, but do not include projects in the “Unconfirmed” or “Deferred” stages.
Caribbean Pipeline By Country As Of October 2019 10,000
30.0%
9,000 25.0%
8,000 7,000
20.0%
6,000
Cap Juluca, Anguilla
5,000
15.0%
4,000 10.0%
3,000 2,000
5.0%
1,000 -
0.0% Bahamas Turks and Caicos
USVI
Barbados Cayman St. Lucia Rooms in Contract
Aruba
Puerto Rico
Jamaica Dominican Republic
Percent of Total Rooms
The Dominican Republic leads the Caribbean in terms of the destination with the most rooms “In Contract” at 9,116 rooms, followed by Jamaica (5,395 rooms, including the proposed 2,000-room Celebration Jamaica; which remains in the Final Planning stage). As the graph above indicates, the rooms which St. Lucia has in the pipeline represent more than 25% of the total existing room stock in that destination, with Cayman potentially adding rooms representing 16% of the existing inventory. There are five other destinations are potentially adding more than 10% to their existing inventory. The largest projects in the Planning, Final Planning, or In Construction Stage are shown following. Largest Projects Under Contract Project Moon Palace Punta Cana Celebrations Jamaica Paladium Hotel Grand Autograph Collection Punta Cana Huxley Hotel Havana
Grand Fiesta Americana
Unit Count 2,149 2,000 850 650 600 558
Location Punta Cana, Dominican Republic Montego Bay, Jamaica Montego Bay, Jamaica Punta Cana, Dominican Republic Cuba Punta Cana, Dominican Republic
Stage In Construction Final Planning Final Planning Final Planning Final Planning In Construction
Source: STR, Inc.
We note that all the largest projects are all-inclusive in nature, and in markets that are dominated by that type of product.
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Caribbean Market Update
Q4 2019 Report
Analysis of Increasing Supply and Pipeline Once again, we have compared overnight tourist arrival statistics for each destination with the number of rooms in each market. The top ten markets which we analyze have ratios of arrivals to rooms ranging from 78 (St. Lucia) to 203 (USVI) for 2018, and average 102.5. Most of the ratios of arrivals per room are between 90 and 110, and the average did not change much from 2017 to 2018. Based on the overall ratio of arrivals to rooms, the Caribbean will need to increase its overnight tourist arrivals by 15% to account for additions to supply and maintain consistent occupancy levels. Presumably these new properties will come online within three years and this would equate to just about 5% per year which is a slightly optimistic expectation. The destinations that will need to increase their tourist arrivals by the most significant amount (based on the average ratio of arrivals per room) in order to maintain the same occupancy rates include: St. Lucia (32%), Jamaica (21%) and USVI (21%).
Financing and Cap Rate Analysis Beaches Turks and Caicos Providenciales
Based on the 2019 edition of the KPMG Caribbean Hotel Financing Survey, lending criteria for Caribbean hotels appears to be slightly more lenient than in recent years, with average metrics for debt coverage ratios having dropped slightly and average loan to value ratios having risen slightly. Interest rates, however, appear to have also risen, with the average reported rate at 464 basis points above U.S. Prime. As a result of changes in lending policy as well as changes to the Prime Rate (as well as LIBOR), implied cap rates were above 10% in 2017, declined to around 9.5% in 2018 and increased slightly above that in 2019. In this analysis, capitalization rates are a function of interest rates, mortgage constants and loan to value ratios. It should be noted that the resulting cap rate indicators are consistent with cap rates derived from transactions we have seen recently, though these transactions do not occur often in the Caribbean.
Implied Financing and Cap Rate Indicators 12.00% 11.00% 10.00% Implied Interest Rates
9.00%
Implied Cap Rates 8.00% 7.00% 6.00% 2015
2016
2017
2018
2019
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Caribbean Market Update
Q4 2019 Report
Conclusions and Forecasts Arrivals to the region continue to grow as the Caribbean competes well against other regional and international destinations, and yet hotel performance demonstrates increasing revenues despite flat occupancy rates. Inventory of hotel room stock continues to increase, and the number of rooms in the pipeline continues to grow at higher and higher rates. The data suggests that some destinations will have to take on creative marketing initiatives in order to increase their stayover arrivals to a sufficient degree in order to maintain a relatively consistent occupancy rate. More and more of the hurricane damaged properties which closed in 2017 have re-opened, and these destinations are seeing significant rebounds in tourist arrivals. Other than concerns regarding increasing supply, the region continues to benefit from tourism growth which predominantly comes from the American market.
Curtain Bluff Antigua
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Caribbean Market Update
Q4 2019 Report
Part of the greater network of Integra Realty Resources offices, IRR-Caribbean provides real property and business valuation and consulting services throughout the Caribbean region; specializing in hotel and resort investment assets and businesses.
James V. Andrews MAI, CRE, FRICS, ASA/BV Senior Managing Director Integra (IRR) Miami | Caribbean Miami │ Cayman Islands │ Virgin Islands │ Puerto Rico Main: (844) 952-7304 ext. 402 Email: jandrews@irr.com Website: www.irr.com/caribbean
Sources for Underlying Data Used in Charts: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Caribbean Stopover Arrivals: Caribbean Tourism Association Caribbean Stayover Arrivals – Leaders: Caribbean Tourism Association Growth in Arrivals by Country: Caribbean Tourism Association Hotel Performance, Year to Date December: STR, Inc. Caribbean Hotel Inventory: STR, Inc. Supply/Demand Comparison Year to Date December STR, Inc. and Integra Realty Resources Hotel Statistics by Country: STR, Inc. Growth in ADR and Occupancy by Country: STR, Inc Caribbean Pipeline by Country: STR, Inc. Latest Projects Under Contract: STR, Inc
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