hotels values & cap rates...8.0% 10.0% 1q07 3q07 1q08 3q08 1q09 3q09 1q10 3q10 1q11 3q11 1q12...

Hotels Values & Cap Rates

Suzanne Mellen, MAI, CRE, FRICS, ISHC | Practice Leadersmellen@hvs.com | (415) 268-0351

SUNNY, HAZY SKIES AHEAD

Historical Sales (Total Sales $2.5M+)

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$0

$20

$40

$60

$80

$10020

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

17

2017

Q1

2018

Q1

Pric

e Pe

r Key

$ Bi

llion

s

Sales Volume ($2.5M+ in Billions) $2.5M+ Price Per Key

Source: HVS, RCA

5%

74%

Year-over-Year Transaction Volume Change

Source: HVS, RCA

-100%

-50%

0%

50%

100%

150%

'13 '14 '15 '16 '17 '18

63%

Q1 2018 Quarterly Volume Breakdown

Source: HVS, RCA

Vol ($ Bilions) YOY

Hotel Total 10.9 63%Full-Service 7.2 63%Limited-Service 3.6 63%Single Asset 7.2 30%Portfolio 3.6 229%Major Metros 4.3 101%Secondary Mkts 3.6 39%Tertiary Mkts 2.8 48%

Total Hotel Quarterly Transaction Volume

Source: HVS, RCA

02468

1012141618

'13 '14 '15 '16 '17 '18

$ Bi

llion

s

Individual Portfolio Entity

Q1 Portfolio Sales > $500 million

Source: HVS, RCA

Portfolio Name

GIC Iconic U.S. Hotel Portfolio Hyatt Hotels MassMutual U.S.

Hotel Portfolio Woodspring Suites Hotel Acquisition

Date Apr-18 Mar-18 Jan-18 Feb-18

No. of Properties 3 3 7 107

No. of Rooms 2,327 1,414 2,041 12,340

Total Price $1,635,000,000 $1,000,000,000 $800,000,000 $767,500,000

Average PPK $702,621 $707,214 $391,965 $62,196

Buyer Blackstone Host Hotels & Resorts Junson Capital Brookfield AM

Seller GIC Hyatt Hotels Mass Mutual Life Insurance

WoodSpring Hotels, Lindsay Goldberg

Notable Sales: GIC Iconic U.S. Hotel Portfolio

Source: HVS, RCA. * Estimated

Arizona Biltmore Resort & Spa$403,400,000$566,573 PPK

Cap Rate: 6.5% *

Grand Wailea Resort & Spa $1,100,000,000$1,312,649 PPKCap Rate: 5.0% *

La Quinta Resort & Spa

$148,790,500$191,494 PPK

Notable Sales: Hyatt Hotels Portfolio

Source: HVS, RCA. * Estimated

$136,413,179$300,470 PPK

Cap Rate:5.0% *

AndazMaui

$288,198,471$960,662 PPK

Cap Rate: 5.0% *

Grand Hyatt San Francisco$575,388,247$871,800 PPK

Cap Rate: 5.0% *

Hyatt Regency Coconut Point Resort

PWC RE Investor Survey Cap Rate Trend Data

Source: HVS, PWC

4.0%

6.0%

8.0%

10.0%

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17

3Q17

1Q18

Full-Service Lodging Luxury Lodging Select-Service LodgingLimited-Service Lodging Regional Mall CBD OfficeSuburban Office Apartment

PWC RE Investor Survey Cap Rate Trend Data

Source: HVS, PWC

6.0%

8.0%

10.0%

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

1Q16

1Q17

1Q18

Full-Service Lodging Luxury LodgingSelect-Service Lodging Limited-Service Lodging

Sale Derived Cap Rates

Source: HVS

6.2%6.7%

6.4%7.0%

7.5%7.0%

7.4%7.8%

8.2% 8.3%8.6%

8.3%

9.2% 9.0% 9.2% 9.1% 9.0% 8.9%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2013 2014 2015 2016 2017 2018 YTD

Full Service Incl. Luxury Select Service & Extended StayLimited Service

2.0

7.0

12.0

17.0

22.0

% P

erce

ntag

e

Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI

Unlevered Discount Rate Equity Yield

Going-In Cap Rate Spread

Source: HVS

2.0

7.0

12.0

17.0

22.0

% P

erce

ntag

e

Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI

Unlevered Discount Rate Equity Yield

Discount Rate to Cap Rate Spread Tightened

Source: HVS

Cap Rates Derived from Hotel Sales YTD 2018

Source: HVS

* Cap rate and discount rates derived from actual transactions appraised by HVS at the time of sale.

7.0 7.710.1

17.2

8.3 8.611.3

18.9

8.9 9.511.5

19.6

Historical NOI 1st Year NOI Discount Rate Equity IRR

Full Service SS & ES Ltd. Service

REITS – Cap Rates Decline Modestly

Source: Investment Banking Bulletins, SEC, HVS

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

4/13

/20

18

9.0%

12.5%

6.6%5.1%

6.3% 6.5% 7.0% 7.2%8.3%

7.5% 7.3% 7.2%

Implied REIT Cap Rates

Source: HVS

Hotel Cap Rates and Mortgage Interest Rates vs. 10 Year T-Bill Yields

0.0

2.0

4.0

6.0

8.0

10.020

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

17Q

1 20

18

% P

erce

ntag

e

Cap Rate -HistoricalNOI

HotelMortgage Int.Rate - ACLI

10-Year T-BillYield

Source: HVS

NOI Growth and Interest Rate Impact - Hotel Value Per Room

4 Year NOI

CAGR

Hotel Mortgage Interest Rate

4.0% 4.5% 5.0% 5.5% 6.0%

-2.5% 200,000 196,000 192,000 188,000 185,000

0.0% 223,000 218,000 214,000 210,000 205,000

2.5% 245,000 240,000 235,000 230,000 226,000

5.0% 273,000 268,000 262,000 254,000 248,000

7.5% 292,000 286,000 280,000 269,000 263,000

Source: HVS

NOI Growth and Interest Rate Impact - Hotel Value Per Room

4 Year NOI

CAGR

Hotel Mortgage Interest Rate

4.0% 4.5% 5.0% 5.5% 6.0%

-2.5% 200,000 196,000 192,000 188,000 185,000

0.0% 223,000 218,000 214,000 210,000 205,000

2.5% 245,000 240,000 235,000 230,000 226,000

5.0% 273,000 268,000 262,000 254,000 248,000

7.5% 292,000 286,000 280,000 269,000 263,000

Source: HVS

NOI Growth and Interest Rate Impact on Baseline Value

4 Year NOI

CAGR

Hotel Mortgage Interest Rate

4.0% 4.5% 5.0% 5.5% 6.0%

-2.5% -15% -17% -18% -20% -21%

0.0% -5% -7% -9% -11% -13%

2.5% 4% 2% 0% -2% -4%

5.0% 16% 14% 11% 8% 6%

7.5% 24% 22% 19% 14% 12%

Source: HVS

NOI Growth and Interest Rate Impact on Baseline Value

4 Year NOI

CAGR

Hotel Mortgage Interest Rate

4.0% 4.5% 5.0% 5.5% 6.0%

-2.5% -15% -17% -18% -20% -21%

0.0% -5% -7% -9% -11% -13%

2.5% 4% 2% 0% -2% -4%

5.0% 16% 14% 11% 8% 6%

7.5% 24% 22% 19% 14% 12%

Source: HVS

NOI Growth and Interest Rate Impact - Cap Rate (Historical TTM NOI)

4 Year NOI

CAGR

Hotel Mortgage Interest Rate

4.0% 4.5% 5.0% 5.5% 6.0%

-2.5% 9.1 9.3 9.5 9.7 9.9

0.0% 8.2 8.4 8.6 8.7 8.9

2.5% 7.5 7.6 7.8 8.0 8.1

5.0% 6.7 6.8 7.0 7.2 7.4

7.5% 6.3 6.4 6.5 6.8 7.0

Cimate Change

Where are we?

Source: HVS

Higher GDP Growth

Higher Inflation

Tax Laws Favoring Real EstateLooser Lending StandardsReduced Regulation

Upsid

e Fa

ctor

Postponed Risk of Recession Labor – Shortage & Increased Cost

New Supply Slowing

Industry Disruptors

Socio/geopolitical Risks

Dow

nsid

e Fa

ctor

Rising Interest Rates

Higher Demand Growth

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Any Questions?

Suzanne Mellen, MAI, CRE, FRICS, ISHCPractice Leader

smellen@hvs.com | (415) 268-0351