31002261 mark woodworth pkf consulting what better time
DESCRIPTION
Presentation PKF Consulting at Meet the Money 2010TRANSCRIPT
Prepared for Prepared for
Meet the Money 2010Meet the Money 2010
By:By:
Mark WoodworthMark WoodworthPKF Hospitality ResearchPKF Hospitality Research
May 4, 2010www.pkfc.com
U.S. LODGING INDUSTRY U.S. LODGING INDUSTRY OVERVIEWOVERVIEW
1. How accurate was our MTM 2009 forecast ?
1. How accurate was our MTM 2009 forecast ?
WHAT BETTER WHAT BETTER TIME?TIME?
- Was Q1 2010 a fluke?- Was Q1 2010 a fluke?
2. When will profit growth return and be sustained?
2. When will profit growth return and be sustained?
1.1. Asian Astrology:Asian Astrology:
2010 is the Year of the 2010 is the Year of the ___? ___?
1.1. Asian Astrology:Asian Astrology:
2010 is the Year of the 2010 is the Year of the ___? ___?
WHAT BETTER TIME?WHAT BETTER TIME?
2010:2010:The Year of Jim ButlerThe Year of Jim Butler
Meet the Meet the MoneyMoney®®
2010: and the Year of the 2010: and the Year of the Metal (White) TigerMetal (White) Tiger
2010: Year of the Metal 2010: Year of the Metal (White) Tiger(White) Tiger
In Asian Astrology, the New Moon In Asian Astrology, the New Moon on February 14 began the Year of on February 14 began the Year of the Metal or White Tiger.the Metal or White Tiger.
Tiger Years are the Autumn of Tiger Years are the Autumn of Very Very LongLong Cycles. Cycles.
Build Reserves and StrengthBuild Reserves and Strength Prepare to Pounce on Prepare to Pounce on
OpportunitiesOpportunities Beware of Beware of CharismaticCharismatic Leaders Leaders
6Source: Wintonbury Risk ManagementSource: Wintonbury Risk Management
1.1. How accurate was our MTM 2009 How accurate was our MTM 2009 forecast ?forecast ?- Was Q1 2010 a fluke?- Was Q1 2010 a fluke?
2.2. When will profit growth return and be sustained?When will profit growth return and be sustained?
1.1. How accurate was our MTM 2009 How accurate was our MTM 2009 forecast ?forecast ?- Was Q1 2010 a fluke?- Was Q1 2010 a fluke?
2.2. When will profit growth return and be sustained?When will profit growth return and be sustained?
WHAT BETTER WHAT BETTER TIME?TIME?
20092009 20102010MTM MTM 20092009
2009 2009 ActualActual
MTMMTM20092009
Current Current ForecastForecast
Occupancy 55.7% 55.1% 55.2% 55.2%
ADR -6.4% -8.8% -2.3% -1.5%
RevPAR -13.7%-13.7% -16.7%-16.7% -3.2%-3.2% -1.1%-1.1%
MTM MTM 20092009 ACCURACY ACCURACY ASSESSMENTASSESSMENT
Not Too BadNot Too Bad A Little More A Little More OptimisticOptimistic
1.1. How accurate was our MTM 2009 forecast ?How accurate was our MTM 2009 forecast ?
- - Was Q1 2010 a fluke?Was Q1 2010 a fluke?
2.2. When will profit growth return and be When will profit growth return and be sustained?sustained?
1.1. How accurate was our MTM 2009 forecast ?How accurate was our MTM 2009 forecast ?
- - Was Q1 2010 a fluke?Was Q1 2010 a fluke?
2.2. When will profit growth return and be When will profit growth return and be sustained?sustained?
WHAT BETTER WHAT BETTER TIME?TIME?
The Economy
WHAT BETTER WHAT BETTER TIME?TIME?
11
The Great Recession Is Over…The Great Recession Is Over…Recessions since World War II
Sources: NBER, BEA, FRB, BLS, Moody’s Economy.com
Duration in Months Peak-to-Trough % Change Jobless Rate
Peak TroughRecession
Peak to TroughExpansion
Trough to PeakReal GDP
Industrial Production
Nonfarm Employment Low High Change
Dec-07 Aug-09 20 73 -3.9% -19.2% -6.1% 4.4% 10.2% 5.9%
Mar-01 Nov-01 8 120 -0.4% -6.3% -2.0% 3.8% 6.3% 2.5%
Jul-90 Mar-91 8 92 -1.3% -4.3% -1.5% 5.0% 7.8% 2.8%
Jul-81 Nov-82 16 12 -2.9% -9.5% -3.1% 7.2% 10.8% 3.6%
Jan-80 Jul-80 6 58 -2.2% -6.2% -1.3% 5.6% 7.8% 2.2%
Nov-73 Mar-75 16 36 -3.1% -14.8% -2.7% 4.6% 9.0% 4.4%
Dec-69 Nov-70 11 106 -1.0% -5.8% -1.4% 3.4% 6.1% 2.7%
Apr-60 Feb-61 10 24 -1.3% -6.2% -2.3% 4.8% 7.1% 2.3%
Aug-57 Apr-58 8 39 -3.8% -12.7% -4.4% 3.7% 7.5% 3.8%
Jul-53 May-54 10 45 -2.7% -9.0% -3.3% 2.5% 6.1% 3.6%
Nov-48 Oct-49 11 37 -1.7% -8.6% -5.1% 3.4% 7.9% 4.5%
Average 10 57 -2.0% -8.3% -2.7% 4.4% 7.6% 3.2%
1990 Q2109.8
1991 Q3108.3
2000 Q4132.5
2003 Q2129.8
2008 Q1137.9
2009 Q4129.6
2012 Q4137.9
100.00
105.00
110.00
115.00
120.00
125.00
130.00
135.00
140.00
145.00
19
88
Q1
19
88
Q4
19
89
Q3
19
90
Q2
19
91
Q1
19
91
Q4
19
92
Q3
19
93
Q2
19
94
Q1
19
94
Q4
19
95
Q3
19
96
Q2
19
97
Q1
19
97
Q4
19
98
Q3
19
99
Q2
20
00
Q1
20
00
Q4
20
01
Q3
20
02
Q2
20
03
Q1
20
03
Q4
20
04
Q3
20
05
Q2
20
06
Q1
20
06
Q4
20
07
Q3
20
08
Q2
20
09
Q1
20
09
Q4
20
10
Q3
20
11
Q2
20
12
Q1
20
12
Q4
20
13
Q3
U.S. TOTAL EMPLOYMENT U.S. TOTAL EMPLOYMENT LEVELSLEVELS7.1 Million Jobs Lost – 5 Years From Peak-to-Peak7.1 Million Jobs Lost – 5 Years From Peak-to-Peak
Source: Moody’s Economy.com, April 2010
12 Quarters
17 Quarters
19 Quarters
U.S. UNEMPLOYMENT U.S. UNEMPLOYMENT RATERATE
1989 Q15.2%
1992 Q37.6%
2000 Q43.9%
2003 Q26.1%
2006 Q44.4%
2010 Q410.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
19
88
Q1
19
88
Q4
19
89
Q3
19
90
Q2
19
91
Q1
19
91
Q4
19
92
Q3
19
93
Q2
19
94
Q1
19
94
Q4
19
95
Q3
19
96
Q2
19
97
Q1
19
97
Q4
19
98
Q3
19
99
Q2
20
00
Q1
20
00
Q4
20
01
Q3
20
02
Q2
20
03
Q1
20
03
Q4
20
04
Q3
20
05
Q2
20
06
Q1
20
06
Q4
20
07
Q3
20
08
Q2
20
09
Q1
20
09
Q4
20
10
Q3
20
11
Q2
20
12
Q1
20
12
Q4
20
13
Q3
Source: Moody’s Economy.com, April 2010
Six Months to Go Before Unemployment PeaksSix Months to Go Before Unemployment Peaks
What Industries Can Drive What Industries Can Drive This Recovery?This Recovery?
•1. Healthcare and education provide stability•2. Manufacturing and construction level off;
• Inventory restocking; capital goods
•3. Export industries• Tech products, info tech., advanced materials and equipment
•4. Professional services• Accounting, legal, engineering, advertising etc.
•5. Finance, retail, leisure & hospitality
Potential order of industry recovery:
Source: Moody’s Economy.com
ECONOMIC ASSUMPTIONS DRIVING ECONOMIC ASSUMPTIONS DRIVING OUR FORECASTSOUR FORECASTS
Upturn Accelerates in 2011Upturn Accelerates in 2011
PayrollEmployment
Real Personal Income Real GDP CPI (Inflation)
2009 -4.3% -1.9% -2.4% -0.3%
2010 -0.7% -0.2% 2.9% 2.0%
2011 1.6% 3.3% 3.9% 2.0%
2012 3.1% 4.8% 5.1% 2.8%
2013 3.1% 4.8% 3.4% 2.5%
Source: Moody’s Economy.com, April 2010
RECOVERY TIMELINES MIXED ACROSS RECOVERY TIMELINES MIXED ACROSS MARKETSMARKETS
Quarter When Employment Levels Turn PositiveQuarter When Employment Levels Turn Positive
Source: Moody's Economy.com 6
1Q 20101Q 2010
2Q 20102Q 2010
3Q 20103Q 2010
4Q 20104Q 2010
2011 or later2011 or later
THE HOTEL MARKET CYCLETHE HOTEL MARKET CYCLE Moving Past the TroughMoving Past the Trough
Rapid Development
Occupancy Declines, ADR Follows
Development at Minimum
Levels
Lodging Decline, Leads Other Sectors
Occupancy Recovers
ADR and Margins Recover
Development
Picks Up
Development Slows
Lodging Recovers, Lags Other Sectors
Long RunOccupancy
Rapid Development
Equilibrium ADR
U.S. is HereU.S. is Here 2011-20122011-2012
Meet The Meet The Money 2011Money 2011
What What HappenedHappened in the First in the First Quarter?Quarter?
Q1F Q1 Act VarianceSupply 2.8% 2.9% 0.1%Demand 2.6% 5.3% 2.7%Occupancy -0.2% 2.3% 2.5%ADR -4.9% -4.3% 0.6%RevPAR -5.1% -2.1% 3.0%Sources: PKF Hospitality Research; Smith Travel Research
2010
6
Preliminary Update - Income and Demand Preliminary Update - Income and Demand EstimatesEstimatesMay 2010May 2010
Q1 2010Q4 2002
2 Quarter LagSources: PKF-HR; STR; Moody’s Economy.com
6
Published Income and Demand EstimatesPublished Income and Demand EstimatesMarch 2010March 2010
Q1 2010Q4 2002
2 Quarter LagSources: PKF-HR; STR; Moody’s Economy.com
Other Signs the Other Signs the Turning Point has Turning Point has
been Reachedbeen Reached
WHAT BETTER WHAT BETTER TIME?TIME?
A Look into the Future fromA Look into the Future fromThe Rubicon GroupThe Rubicon Group
Rubicon’s Primary Data…Rubicon’s Primary Data…
42 million future competitive rates are collected each day.Daily load of reservation and block information for the coming 12 months provided for all brands operated by Gaylord, Hilton, Hyatt, InterContinental, Loews, Marriott and Starwood.Daily load of all GDS transactions that pass through the Pegasus switch.
A Look into the Future fromA Look into the Future fromThe Rubicon GroupThe Rubicon Group
Rubicon’s Primary Data…Rubicon’s Primary Data…
The data is forward looking based on future reservations activity (as of May 1). The concept of “new business added” describes the percent increase in the number of reservations taken during April for the future period when compared to April of 2009 and its respective future period.
Aggregate Demand & ADRAggregate Demand & ADRTop 25 North American Markets
© 2010 Rubicon – All Rights Reserved
Committed Demand is Committed Demand is Positive in Many MarketsPositive in Many Markets
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
Group Committed Demand Group Committed Demand has Improvedhas Improved
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
Transient Business Demand is Transient Business Demand is Vastly ImprovedVastly Improved
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
Transient Leisure Demand Transient Leisure Demand Also Shows GainsAlso Shows Gains
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
If There is a Concern…If There is a Concern…
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
……But ADR Improvement is But ADR Improvement is EvidentEvident
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
The Pace of New Business Shows The Pace of New Business Shows Recovery StrengthRecovery Strength
© 2010 Rubicon – All Rights Reserved
Top 25 North American Markets
FORECASTS COME FROMHOTEL HORIZONS®
32 U.S. by Chain Scale, All Hotels, 50 MSA’sU.S. by Chain Scale, All Hotels, 50 MSA’s
Our ForecastsOur Forecasts
PublishedPublished March 2010 March 2010 ForecastForecast
Q1 Q2 Q3 Q4 Q1 Q2F Q3F Q4F
Supply 3.2% 3.1% 3.2% 3.1% 2.9% 1.2% 0.6% 0.3%
Demand -8.1% -8.1% -5.0% -1.4% 5.3% 1.8% 1.1% 0.7%
Occupancy -11.0% -10.9% -7.9% -4.4% 2.3% 0.7% 0.4% 0.4%
ADR -7.7% -9.7% -9.8% -7.6% -4.3% -2.0% 0.4% 0.8%
RevPAR -17.8% -19.6% -16.9% -11.7% -2.1% -1.4% 0.9% 1.2%
2009 2010
Sources: PKF Hospitality Research; Smith Travel Research
6
Preliminary Updated Forecast -Preliminary Updated Forecast -May 2010 – a May 2010 – a QuickerQuicker Turnaround Turnaround
Q1 Q2 Q3 Q4 Q1 Q2F Q3F Q4F
Supply 3.2% 3.1% 3.2% 3.1% 2.9% 1.2% 0.6% 0.3%
Demand -8.1% -8.1% -5.0% -1.4% 5.3% 4.8% 4.3% 5.0%
Occupancy -11.0% -10.9% -7.9% -4.4% 2.3% 3.6% 3.7% 4.6%
ADR -7.7% -9.7% -9.8% -7.6% -4.3% -2.1% -0.8% 0.7%RevPAR -17.8% -19.6% -16.9% -11.7% -2.1% 1.4% 2.8% 5.3%
2009 2010
Sources: PKF Hospitality Research; Smith Travel Research
6
Long Term Average 2006 2007 2008 2009 2010F 2011F 2012F
Supply 1.9% 0.2% 1.3% 2.6% 3.2% 1.2% -.01% 0.0%
Demand 1.6% 0.5% 0.9% -1.8% -5.8% 1.5%1.5% 2.2%2.2% 3.4%3.4%
Occupancy 62.6% 63.3% 63.0% 60.3% 55.1% 55.2% 56.5% 58.4%
ADR 3.4% 7.5% 6.2% 2.6% -8.8% -1.4% 3.4% 6.8%
RevPAR 3.1% 7.8% 5.8% -1.8%-1.8% -16.7%-16.7% -1.1%-1.1% 5.8%5.8% 10.5%10.5%
Source: PKF Hospitality Research – March 2010 Hotel Horizons® Report, Smith Travel Research
National HorizonNational HorizonA Slow Recovery from a Deep FallA Slow Recovery from a Deep Fall
6
Record DeclineRecord Decline Record IncreaseRecord Increase
Long Term Average 2006 2007 2008 2009 2010F 2011F 2012F
Supply 1.9% 0.2% 1.3% 2.6% 3.2% 1.2% -.01% -.01%
Demand 1.6% 0.5% 0.9% -1.8% -5.8% 4.8%4.8% 2.9%2.9% 3.3%3.3%
Occupancy 62.6% 63.3% 63.0% 60.3% 55.1% 56.6% 58.4% 60.3%
ADR 3.4% 7.5% 6.2% 2.6% -8.8% -1.6% 5.6% 6.4%
RevPAR 3.1% 7.8% 5.8% -1.8%-1.8% -16.7%-16.7% 1.8%1.8% 8.8%8.8% 10.0%10.0%
Source: PKF Hospitality Research – Preliminary May 2010 Hotel Horizons® Report, Smith Travel Research
National HorizonNational HorizonPreliminary Update – May 2010Preliminary Update – May 2010
6
A Quicker A Quicker Turnaround?Turnaround?
RevPAR Inflection Point Mixed RevPAR Inflection Point Mixed Across MarketsAcross Markets
Quarter When RevPAR Change Turns PositiveQuarter When RevPAR Change Turns Positive
Source: PKF Hospitality Research
1Q 20101Q 2010
2Q 20102Q 2010
3Q 20103Q 2010
4Q 20104Q 2010
2011 or later2011 or later
Virtually Everyone Suffered In 2009Virtually Everyone Suffered In 2009Percent of Hotels* Posting an Increase or Decrease Percent of Hotels* Posting an Increase or Decrease
From 2008 to 2009From 2008 to 2009
91.4%
95.5%
95.2%
81.5%
8.6%
4.5%
4.8%
18.5%
0% 20% 40% 60% 80% 100%
Net OperatingIncome**
Total Revenue
Rooms Revenue
Number of RoomsRented
Decrease Increase
Notes: * 2010 Trends® in the Hotel Industry sample.
** Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, 2010 Trends® in the Hotel Industry report.
PKF Annual Trends® Change In Operating Results
2008 to 2009
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
PKF Annual Trends®Change In Select Operating Expenses
2008 to 2009
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
** Includes franchise royalty payments, marketing assessments, and guest loyalty program costs.
Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
PKF Annual Trends® Change In Labor Costs
2008 to 2009
Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
2009 U.S. Hotel Operating Performance2009 U.S. Hotel Operating PerformanceAverage Change – 2008 to 2009Average Change – 2008 to 2009
-37.8%
-37.5%
-25.1%
-22.8%
-29.7%
-37.4%
-35.4%
-12.9%
-12.0%
-9.9%
-13.0%
-8.1%
-11.8%
-11.8%
-19.4%
-19.3%
-15.8%
-15.9%
-16.9%
-18.5%
-18.5%
-50% -40% -30% -20% -10% 0%
Resorts
Convention Hotels
Suite without F&B
Suite with F&B
Limited Service
Full Service
All Hotels
Net Operating Income* Operating Expenses Total Revenue
Notes: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, 2010 Trends® in the Hotel Industry report.
RECOVERY WILL BE STRONG THROUGH 2013RECOVERY WILL BE STRONG THROUGH 2013Annual Change in Unit-Level NOI*Annual Change in Unit-Level NOI*
-40%
-20%
0%
20%
40%
60%
80%
1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2013F
+64.6% - 1943
-22.4% - 1938
-19.4% - 2001
-35.4% - 2009F
+11.3% - 2011F+15.6% - 2012F+19.7% - 2013F
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, Trends® in the Hotel Industry sample.
November 20036.2%
April 201017.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Jun-
98
Dec
-98
Jun-
99
Dec
-99
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
Jun-
03
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
30 Days Delinquent > 30 Days Delinquent All Delinquencies
Source: Trepp LLC
BUT NOT SOON ENOUGH AS DELINQUENCIES SOARBUT NOT SOON ENOUGH AS DELINQUENCIES SOARApproaching 1 in 6Approaching 1 in 6
INTEREST PAYMENT ANALYSISINTEREST PAYMENT ANALYSISPercent of Hotels Not Covering Interest Payments*Percent of Hotels Not Covering Interest Payments*
Note: * Percent of Trends® in the Hotel Industry sample that reported interest payments.
Source: PKF Hospitality Research
SUMMARYSUMMARY1.1. How accurate was our MTM 2009 How accurate was our MTM 2009
forecast?forecast?a)a) Pretty good.Pretty good.
2.2. When will profit growth return and be When will profit growth return and be sustained?sustained?
a)a) Eight consecutive quarters of demand contraction Eight consecutive quarters of demand contraction ended in Q1 2010. Supply/demand imbalance; capital ended in Q1 2010. Supply/demand imbalance; capital market turmoil and depressed market values will keep market turmoil and depressed market values will keep development at a standstill. development at a standstill.
b)b) Signs are positive that recovery might have begun to Signs are positive that recovery might have begun to accelerate; however, a buyer’s market will persist into accelerate; however, a buyer’s market will persist into 2011. Eight consecutive quarters of rate declines will 2011. Eight consecutive quarters of rate declines will end in Q4 2010, leading to end in Q4 2010, leading to
c)c) Profit growth in 2011 – stays well-above average Profit growth in 2011 – stays well-above average through 2014.through 2014.
6
SUMMARYSUMMARY
3.3. Where are cap rates going?Where are cap rates going?a)a) Lack of liquidity and an absence of income growth have lifted Lack of liquidity and an absence of income growth have lifted
cap rates to a cyclical peak in 2009.cap rates to a cyclical peak in 2009.
b)b) Increasing profits and reduced risk premiums will overcome Increasing profits and reduced risk premiums will overcome escalating interest rates; cap rate compression will result.escalating interest rates; cap rate compression will result.
c)c) Although the cumulative loss in value has been substantial Although the cumulative loss in value has been substantial since 2008, significant asset appreciation will commence in since 2008, significant asset appreciation will commence in 2011 and persist through 2014 as cap rates fall further in 2011 and persist through 2014 as cap rates fall further in response to stabilizing incomes.response to stabilizing incomes.
4.4. Forecast bias is positive.Forecast bias is positive.
6
The Cycle of HotelThe Cycle of HotelReal Estate Emotions-Real Estate Emotions-
What Better Time?What Better Time?
2007
2004
2009-20102011
2008 – 1st Half
2008 – 2nd Half
2011-12
6
For a Copy of This Presentation:For a Copy of This Presentation:www.PKFC.COM/Presentationswww.PKFC.COM/Presentations
Thank You for the Thank You for the OpportunityOpportunity