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Lower oil prices could boost US lodging demand

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Hydrocarbon Engineering,

According to research conducted by Fitch Ratings, a strong dollar could pressure visitation to the US, while the roughly 50% drop in oil prices since summer 2014 should provide a net benefit to domestic lodging demand.

The strong dollar raises acquisition costs for foreign buyers in their local currency. However, the appeal of hotel assets may increase if foreign investors anticipate further dollar gains, which could boost returns from price appreciation when profits are taken and converted back into the investor's local currency. Fitch expects currency translation losses caused by US dollar strength to temper system wide RevPAR growth for most lodging C-Corps by 100 to 200 basis points (i.e. 4 - 6% versus 5 - 7% in constant currency). The strong dollar will also lower inbound international visitation rates to the US and prompt more Americans to travel abroad. A predominantly domestic focus protects lodging REITS from currency losses, but not lower visitation rates. The global focus of most lodging C-Corps will balance the effect from lower net visitation to the US.

The drop in oil prices should help lodging demand and provide cover for price increases, boosting consumer discretionary income and reducing gasoline and jet fuel costs, making travel more affordable. Lower price tier hotels and leisure oriented drive-to and destination resorts are likely to benefit most, according to Fitch Ratings.

Adapted from press release by Rosalie Starling

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