The weakest US companies in the short-term rental sector, those that prioritize growth over earnings, are having a tough time at the start of the summer.
Inflation has soared, fuel prices have led to joke moments at the gas pump, and third-quarter US occupancy rates are currently at 39%., compared to an exceptional 45% during the same period in 2021, according to Melanie Brown, director of analytics at Dashboard of key data, that tracks vacation rental data.
Although there was a dramatic drop in occupancy in the third quarter compared to a year ago, it is still 4% higher than before the pandemic in 2019, she said.
Revenue per available room for U.S. vacation rentals in the “third quarter is down 7%,” Brown said. “Revenues are still significantly higher than 2019. Supply has increased over the last 12 months, which has contributed to lower occupancy rates.”
The Key Data Dashboard estimates fourth-quarter U.S. vacation rental occupancy will be down 5.3% year-over-year.
Deteriorating average daily rates and occupancy rates will make August, September and beyond difficult, forcing some companies to re-forecast for the rest of the year, said Steve Milo, Founder and CEO of Vtripsproperty manager.
There has been a flurry of recent developments:
- New public companies Sonder and Vacasa are trading at $1.04 and $2.77 respectively.
- BTIG reported that Airbnb’s traffic was down 2% in June compared to the same period in 2019, and Vrbo’s fell 16%.
- Wanderjaunt, a Phoenix-based property manager that had received $26 million in funding, abruptly closed on June 30, leaving hosts and guests alike puzzled.
- Property manager Avantstay revamped its operations under a new chief operating officer and cut around 43 jobs in the June period.
Issuance of main lease
There are some in the industry who believe that part of the current pressures is that property managers are stuck with onerous long-term leases. Short-term rental companies still have to make rental payments when demand slows, as many discovered at the start of the pandemic. Sonder, Avantstay, and the now-defunct Wanderjaunt had some of those prime leases, or long-term leases, but reworked some to provide more flexibility or changed their business models in favor of revenue or commission in some cases. .
A handful of short-term rental companies, such as StayAlfred, Domio and Lyric, that were struggling with these master leases went out of business during the pandemic.
WanderJaunt gave almost no closure notice to some managers
Mila Bahamolski, founder of Hostkeyper, who performed cleaning services for Wanderjaunt at 300 units, Lyric, Sonder and Landing, much of it in Texas, said, “The way they closed was so weird. No warning, and from one day to the next.
Bahamolski claimed Wanderjaunt owed her company $12,000 and had to pay her employees out of her own pocket. Wanderjaunt did not respond to a request for comment on the closure of his business.
A former WanderJaunt employee, who declined to be identified, said Wanderjaunt offered no explanation as to why it was ceasing to operate other than general statements about the state of the economy.
Looking back, the former employee said that two months earlier, there was a sign that the WanderJaunt business was in trouble when the company said it was not getting additional funding, closed its health department. growth and laid off about seven people in Houston and maybe 30 people. across the country from this unit, promising that the company would then have more resources to focus on ongoing operations.
“They kind of lied to us back then,” the former employee said.
The ex-employee added that “operationally we were smooth” with an occupancy rate of around 80% in Houston, and drew excellent customer feedback.
WanderJaunt informed lower-level managers that he would shut down his business the day he went out of business, and simply notified higher-level managers a day or two early, the former employee said.
AvantStay reorganizes
Skift reported a week ago that BeforeStay said its roster of employees had seen 43 “job cuts” in the past 30 days.
These were not layoffs, as they were part of a “gradual reorganization”, the company said. There was actually a net reduction of 19 employees during that time because the company, which has about 600 employees, also hired, AvantStay said.
“The restructuring of our brand is due to a reorganization under new management,” Founder and CEO Sean Breuner said in a statement. “As we shared, we hired a new chief operating officer in May, which clarified employee roles and responsibilities, removed levels of leadership and simplified our organizational structure.”
Breuner said AvantStay had acquired six property management companies in the past three months, and none of them had long-term leases.
“The overwhelming majority of AvantStay’s portfolio is based on a management fee partnership with owners, as is customary in the industry,” Breuner said. “Most of our leases were signed over 2 years ago, many of which have been converted to partnership fee contracts as our landlords make more money with this structure.”
The company probably has sufficient cash. It raised $160 million in a Series B round in December and a “$500 PropCo funding round, which secured over $100 million in real estate,” Breuner said. “The brand is growing rapidly as we are now present in over 30 markets nationwide and we will continue to launch new markets this year and grow our team accordingly.”
Sonder strives for positive cash flow in 2023
As Wall Street hammers unprofitable companies, Sonder, who made public in January, announced a positive cash flow plan last month. This plan calls for cost reduction, slower growth, and a desire for real estate partners to cover some of the initial costs involved in open buildings. The goal is to achieve positive quarterly free cash flow over the next year.
“Additionally, in June, we reaffirmed our guidance for the second quarter of 2022 of revenue growth above 140% year-over-year, compared to $47 million in the second quarter of 2021, thanks to a solid recovery in RevPAR and moderate growth in bookable nights,” the company said in a statement. statement.
Like Sonder, Vacasa is in the red. Vacasa reported a net loss of $56 million in the first quarter, for example. The two companies do somewhat different businesses, and Vacasa uses commission-based models rather than long-term leases to handle both whole homes and multi-family units. Vacasa declined to comment for this article.
The major booking sites, Booking Holdings, Airbnb and Expedia are expected to report their second quarter results next month. They will no doubt provide comments on the impact of the current weakness in short-term rentals on their business.
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