Fundamental Certainty

Transcription

1 Fundamental Certainty.or No? a presentation at: R. Mark Woodworth PKF Hospitality Research, LLC May 7, 2013 mark.woodworth@pkfc.com

2 Hotel Horizons Forecasting Model Smith Travel Research Historical rooms occupied, room available, rooms revenue Pipeline of future hotel construction Moody s Analytics Economic forecasts For a Copy: 2

3 Happy Thoughts May 2013 History: - # of Consecutive Quarters of Increases Demand 13 Quarters Occupancy 13 Quarters ADR 11 Quarters RevPAR 12 Quarters Source: PKF-HR; STR 3

4 More Happy Thoughts May 2013 Forecast: - # of Consecutive Quarters above (below) Long Run Average Demand (2.1%) 10* Quarters *(starting Q4 2013) (Supply) (2.0%) 14 Quarters ADR (2.9%) 18 Quarters RevPAR (2.9%) 16 Quarters Source: PKF-HR; STR 4

5 May 2012 What Did We Say a Year Ago?

6 Hotel Horizons May 2012 April 2012 United States STR Actual April 2012 Most Recent Update Occupancy 60.7% 61.4% 61.9% 62.0% ADR 4.7% 4.2% 5.3% 5.0% RevPAR 6.7% 6.8% 7.3% 6.1% Stronger than Expected Demand Growth ADR Recovery Slower than Expected Source: PKF Hospitality Research, LLC Hotel Horizons March--May 2012, 2013, Smith Travel Research 6

7 United States Q Forecast PKF-HR Forecast Q STR Q Actual Supply 0.8% 0.7% Demand 2.3% 2.6% Occupancy 1.6% 1.8% ADR 5.8% 4.5% RevPAR 7.4% 6.4% Stronger than Expected Demand Growth (again) ADR Lift Very Good; Not Great Source: PKF Hospitality Research, LLC Hotel Horizons March--May 2012, 2013, Smith Travel Research 7

8 Key Economic Measures for the Lodging Industry

9 U.S.: All But Employment Has Recovered Leisure and Hospitality Employment Real Personal Income Total Employment Rooms Sold Forecast Source: PKF-HR, Moody's Analytics, STR (Historical Rooms Sold) 9

10 GDP Component Forecast 10.0% 8.0% Forecast 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV (GOVERNMENT) Government consumption expenditures and gross investment TRADE (Net exports of goods and services) BUSINESS (Gross private domestic investment) CONSUMERS (Personal consumption expenditures) -10.0% -12.0% These matter the most. Demand change Source: BEA, Moody s Analytics 10

11 Historic and Projected International Visitors to the U.S. Arrivals in Millions Forecast Source: International Trade Administration 11

12 Good News Summary 1. Supply Growth: Below Average through Demand Growth: Above Average through Occupancy: Above Average Level through ADR Growth: 2 x s Average through RevPAR Growth: 2.5 x s Average through

13 These Strong Market Conditions will Persist through 2017 ADR Historic and Forecast Occupancy and ADR 10% 8% 4 Quarter Moving Average Forecast 66% 64% 6% 4% 2% 0% -2% -4% -6% 62% 60% 58% 56% 54% 52% Occupancy -8% ADR Occ LRA = Long Run Average 50% -10% Source: PKF Hospitality Research LLC, Smith Travel Research 48% 13

14 Profit Growth Will be Above Average as Well % 20.0% 10.0% 0.0% -10.0% Forecast -20.0% -30.0% -40.0% Percent Change in NOI Long Run Average Source: PKF Hospitality Research, LLC 14

15 Nominal Dollar Operating Profits* Will Continue to Increase Dollars Per Available Room $10,483 $11,510 $12,972 $14,692 $16,191 $18, F Forecast $18,000 $14,000 $10,000 $6,000 Source: PKF Hospitality Research LLC s Annual Trends Database Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization. 15

16 Nominal Dollar Operating Profits* Surpass Previous Peak in 2014 Dollars Per Available Room $15,357 $16,908 $13,628 $12,320 $10,792 $12,022 $13,886 $15,735 $16,868 $16,227 $10,483 $11,510 $12,972 $14,692 $16,191 $18,894 $18, F $14,000 $10,000 $6,000 Source: PKF Hospitality Research LLC s Annual Trends Database Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization. 16

17 Real Changes In NOI* Still Below All-Time High and Previous Peak Dollars Per Available Room $21,951 $17,345 $15,285 $12,983 $14,023 $15,744 $17,385 $17,974 $17,363 $10,939 $11,847 $12,972 $14,458 $15,644 $17,818 $30,000 $20,000 $10,000 $0 Source: PKF Hospitality Research LLC s Annual Trends Database Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization Constant value dollars

18 Mixed Signals on New Hotel Construction Source: Engineering News Record Q Report 18

19 Question What do you care more about? The magnitude of the upside? The depth of the downside? 19

20 A Different Way to Look at Markets Variance Semi-Variance Semi-Variance Semi-variance only considers values (below) above the target value. 20

21 A Close Look at Two Markets 30.0% RevPAR Change ( ) 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% San Francisco St. Louis -40.0% -50.0% Source: STR Focus is Here 21

22 Which Market Has a Higher Return Requirement? Downside Variance Upside Variance Difference San Francisco 7.7% 6.4% -1.2% St. Louis 2.9% 3.7% 0.7% Source: STR, PKF Hospitality Research, LLC 22

23 SAN FRANCISCO BOSTON Semi-Variance Differential: Smaller Markets In the Positive NEWARK MINNEAPOLIS CHICAGO DALLAS OAKLAND JACKSONVILLE SACRAMENTO PHOENIX TUCSON DETROIT CINCINNATI KANSAS CITY RICHMOND LOS ANGELES SEATTLE MIAMI SAN DIEGO PHILADELPHIA RALEIGH-DURHAM BALTIMORE DENVER SAINT LOUIS ATLANTA TAMPA CHARLOTTE ORLANDO AUSTIN CLEVELAND ALBUQUERQUE ANAHEIM WEST PALM BEACH MEMPHIS COLUMBUS SALT LAKE CITY SAN ANTONIO NASHVILLE PITTSBURGH PORTLAND FORT WORTH FORT LAUDERDALE OAHU LONG ISLAND INDIANAPOLIS NEW ORLEANS HOUSTON 2.5% 2.0% 1.5% 1.0% 0.5% San Francisco, Boston, New York, All U.S. 0.0% -0.5% NEW YORK ALL U.S. HARTFORD WASHINGTON DC -1.0% -1.5% Source: SemiVariance Differential PKF Hospitality Research LLC, Smith Travel Research 23

24 Longer Term Outlook Remains Strong Across Markets Oakland Oahu Tucson West Palm Beach Baltimore Newark Chicago Denver San Diego Dallas Hartford Houston Orlando Seattle Atlanta San Francisco San Antonio Anaheim New York Tampa Jacksonville Fort Lauderdale Boston Los Angeles Charlotte Sacramento Long Island Cleveland Portland Columbus Fort Worth Raleigh-Durham Minneapolis Miami Detroit Pittsburgh Phoenix Kansas City Indianapolis Salt Lake City Washington DC Memphis Austin Nashville Saint Louis Cincinnati Albuquerque Richmond New Orleans Philadelphia 9.0% 8.0% Average Annual RevPAR Change ( ) 7.0% 6.0% U.S. Average 5.9% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: PKF Hospitality Research LLC, Smith Travel Research 25

25 Forecast Occupancy Levels By Chain-Scale 80% 74.0% 71.2% 70% 71.1% 73.3% 70.7% 70.9% 60% 71.0% 63.7% 69.3% 69.5% 55.1% 54.9% 50% 62.8% 54.9% 54.3% 40% 61.3% 53.2% 53.4% 30% 20% 10% 0% This is where meetings go F Source: STR, PKF Hospitality Research, LLC, March-May 2013 Hotel Horizons 26

26 Where are Cap Rates Going? When Interest Rates Increase So do Cap Rates When Cash Flows Accelerate Cap Rates Increase Three Main Drivers of Cap Rate Change Volatility The more there is, the higher the Cap Rate

27 Hotel Risk Premium Slowly Contracts Hotel Cap Rates, 10 Year Treasuries and Risk Premium Spread 10-Year Treasury Hotel Cap Rate 2Q % 4Q % 1Q % Forecast Hotel Risk Spreads at Their Minimum 4.0 3Q % Source: PKF Hospitality Research LLC, Moody's Analytics, RERC, RCA 28

28 Summary 1. Uncertainty continues to be a drag an important impediment to the recovery of the group segment and pricing overall. 2. Industry growth, while still positive, will slow relative to what we have become used to. Q2 and Q will be weaker ; 2014 should be next really good year. 29

29 Summary 3. Positive momentum will persist as industry fundamentals solidify and greater levels of debt and equity find their way into the market. The hotel risk premium contracts as a result. 4. It is a great time to be in the hotel business! (But when will the window begin to close?) 30

30 2007 Hotel Real Estate Emotions ? st Half nd Half

31 Thanks for Your Time Fundamental Alignment For a Copy: 32