Familiar Themesa presentation to the:
U.S. Lodging Industry Update
R. Mark WoodworthJamie Lane
PKF Hospitality Research, LLCMay 15, 2013
Atlanta Economics Club
Hotel Horizons®Forecasting Model
•Smith Travel ResearchHistorical rooms occupied, room available, rooms revenuePipeline of future hotel construction
•Moody’s AnalyticsEconomic forecasts
2
Familiar Themes
3
1. The economic outlook, while rife with uncertainty, remains essentially unchanged.
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
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
2008 2009 2010 2011 2012 2013 2014
(GOVERNMENT) Government consumptionexpenditures and gross investmentTRADE (Net exports of goods and services)
BUSINESS (Gross private domestic investment)
CONSUMERS (Personal consumption expenditures)
Demand change
GDP Component Forecast
4
Source: BEA, Moody’s AnalyticsThese matter the most.
The Outlook for the Drivers that are Most Important to Hotels Remains Favorable
5
Historic and Projected International Visitors to the U.S.
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Arr
ival
s in
Mill
ions
Forecast
Source: International Trade Administration
This Includes In-Bound International Visitation
Familiar Themes
6
1. The economic outlook, while rife with uncertainty, remains essentially unchanged
2. Supply growth remains in check in most markets.
New Supply Outlook Varies Across Markets
7
Mixed Signals on New Hotel Construction
8Source: Engineering News Record Q1 2013 Report
Nominal Dollar Operating Profits* Surpass Previous Peak in 2014
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.
Source: PKF Hospitality Research LLC’s Annual Trends Database
9
2009 – 2014F
Real Changes In NOI* Still Below All-Time High and Previous Peak
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization2012 Constant value dollars
Source: PKF Hospitality Research LLC’s Annual Trends Database
10
Familiar Themes
11
1. The economic outlook, while rife with uncertainty, remains essentially unchanged
2. Supply growth remains in check in most markets.
3. The fundamentals have become more predictable and the outlook remains very attractive.
Hotel Horizons® May 2012
12
2012 2013May
2012STR
ActualMay2012
Most RecentUpdate
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
United States
ADR Recovery Slower than Expected
Source: PKF Hospitality Research, LLC – Hotel Horizons® March--May 2012, 2013, Smith Travel Research
United States Q1 2013 Forecast
13
PKF-HR ForecastQ1 2013
STR Q1 2013Actual
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
Good News Summary
14
1. Supply Growth: Below Average through 2016.
2. Demand Growth: Above Average through 2015.
3. Occupancy: Above Average Level through 2016.
4. ADR Growth: 2 x’s Average through 2015.
5. RevPAR Growth: 2.5 x’s Average through 2015.
15
These Strong Market Conditions will Persist through 2017
48%
50%
52%
54%
56%
58%
60%
62%
64%
66%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
ADR Occ
Occupancy
AD
R
Forecast
LRA = Long Run Average
Source: PKF Hospitality Research LLC, Smith Travel Research
Historic and Forecast Occupancy and ADR4 Quarter Moving Average
Profit Growth Will be Above Average as Well
16
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Percent Change in NOI Long Run Average
Forecast
Source: PKF Hospitality Research, LLC
17
Longer Term Outlook Remains Strong Across Markets
Source: PKF Hospitality Research LLC, Smith Travel Research
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
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Col
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U.S. Average 5.9%
Average Annual RevPAR Change (2013 - 2017)
Familiar Themes
18
1. The economic outlook, while rife with uncertainty, remains essentially unchanged
2. Supply growth remains in check in most markets.
4. Group meeting demand needs to recover.
3. The fundamentals have become more predictable and the outlook remains very attractive.
Forecast Occupancy LevelsBy Chain-Scale
19
71.0% 69.3% 69.5%
61.3% 53.2% 53.4%
73.3% 70.7% 70.9%
62.8% 54.9% 54.3%
74.0% 71.2% 71.1%
63.7% 55.1% 54.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2011 2012 2013F
Source: STR, PKF Hospitality Research, LLC, March-May 2013 Hotel Horizons®
This is where meetings go.
Hotel ValuesHotel Values
20
Total Financial Returns
21
1. Asset appreciation (hopefully).
2. Annual cash flow (income).
Come from:
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
Apartment Hotel Industrial Office Retail
22
NCREIF Total Returns
Q1 2005 – Q4 2012
Hotel
Source: National Council of Real Estate Investment Fiduciaries
Quarterly Measures
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012
Apartment Hotel Industrial Office Retail
23
NCREIF Total ReturnsA Closer Look
Q1 2010 – Q4 2012
Hotel
Source: National Council of Real Estate Investment Fiduciaries
Quarterly Measures
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
2.20%
2.40%
2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012
Apartment Hotel Industrial Office Retail
24
NCREIF Income Return
Q1 2010 – Q4 2012
Hotel
Source: National Council of Real Estate Investment Fiduciaries
Quarterly Measures
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012
Apartment Hotel Industrial Office Retail
25
NCREIF Appreciation Return
Q1 2010 – Q4 2012
Hotel
Source: National Council of Real Estate Investment Fiduciaries
Quarterly Measures
What Explains the Lodging
Disconnect with Other Property
Types?
What Explains the Lodging
Disconnect with Other Property
Types?26
Uncertainty! It Remains Elevated
Source: Scott R. Baker, Nicholas Bloom, and Steven J. Davis
“Since 2008, economic policy uncertainty has averaged about twice the level of the previous 23 years.”
Some Findings from 2012 Trends®
Survey
Some Findings from 2012 Trends®
Survey28
Salaries, Wages, and
Benefits45.3%
Cost of Goods Sold8.5%
Management Fees3.9%
Property Taxes and Insurance
6.5%
Operating Expenses
35.8%
Where Did The Dollars Go in 2012?Percent of Total Operating Expenses*
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, LLC, 2013Trends® in the Hotel Industry sample (2012 Data) 29
Average Hotel in PKF-HR 2013 Trends® Database215 Rooms, 70.5% Occupancy, $149.10 ADR
(45.7%)
(35.4%)(6.4%)
(3.8%)
(8.8%)
(2011 Results)
U.S. Hotel Labor Costs - $PORAnnual Change: 2011 – 2012
0% 2% 4%
Total Hotel
Maintenance
Marketing
Administrative and General
Other Operated
Food and Beverage
Rooms
Dollars Per Occupied Room ($POR)
Source: PKF Hospitality Research, LLC, 2013 Trends® in the Hotel Industry
Annual Increase Occupied Rooms = 1.8%
Rooms Sold And Total Labor Costs
POR Both Increased By 1.8%.
Is This a Good Thing?
30
Change in Average Hourly Compensation
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est
BLS - Change in Average Hourly Compensation for HospitalityEmployees (Left Axis)
Can these low increases be sustained?
31
Change in Average Hourly Compensation vs. Unemployment
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est
BLS - Change in Average Hourly Compensation for HospitalityEmployees (Left Axis)
U.S. Unemployment Level (Right Axis)
32
Annual Change inTotal Hours Worked
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est
Change in Total Hours Worked
Since 2011, the Rate of Increase in the Percentage Change of Hours Worked Declined.
Is This A Good Thing?
33
Change In Hours Worked vs.Change In Rooms Occupied
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Est
Change in Total Hours Worked PKF-HR Change in Occupied Rooms
Total Hours Worked Now Growing Faster Than
Rooms Sold
34
Change in Hourly Wages and Hours Worked vs Change in Occupied Rooms
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est
Change in Total Hours Worked
BLS - Change in Average Hourly Compensation for Hospitality Employees
Change In Occupied Rooms
Productivity Has Been Declining Since 2011 at
an Increasing Rate
35
Change in Hourly Wages and Hours Worked = Change in Labor Costs
Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est
Change in Total Hours Worked
BLS - Change in Average Hourly Compensation for Hospitality Employees
PKF-HR - Annual Change in Total Labor Costs
Although Productivity has been Declining, the Rate of Increase
in Labor Costs is Less than what We Saw During the Last
Expansion Phase
36
Components of Labor CostAnnual Change
-15%
-10%
-5%
0%
5%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Salaries, Wages, and Bonuses - LRA = 3.7%
Payroll Related Expenses (Benefits) - LRA = 4.9%
Note: 9th Edition of USALI prior to 2007
Source: PKF Hospitality Research, LLC, Trends® in the Hotel Industry 37
Atlanta
1990 Q31612.43
1992 Q31623.00
2001 Q12309.93
2003 Q12329.07
2008 Q12458.23
2013 Q12384.30
2014 Q22471.13
1500.00
1700.00
1900.00
2100.00
2300.00
2500.00
2700.00
1988
Q1
1988
Q4
1989
Q3
1990
Q2
1991
Q1
1991
Q4
1992
Q3
1993
Q2
1994
Q1
1994
Q4
1995
Q3
1996
Q2
1997
Q1
1997
Q4
1998
Q3
1999
Q2
2000
Q1
2000
Q4
2001
Q3
2002
Q2
2003
Q1
2003
Q4
2004
Q3
2005
Q2
2006
Q1
2006
Q4
2007
Q3
2008
Q2
2009
Q1
2009
Q4
2010
Q3
2011
Q2
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
2016
Q3
2017
Q2
9 Quarters
13 Quarters
26 Quarters
Atlanta Total Employment Levels
…are climbing
Source: Moody’s Analytics
We’re here
2000 Q42.9%
2007 Q14.4%
2009 Q410.5%
2013 Q18.4%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1990
Q1
1990
Q4
1991
Q3
1992
Q2
1993
Q1
1993
Q4
1994
Q3
1995
Q2
1996
Q1
1996
Q4
1997
Q3
1998
Q2
1999
Q1
1999
Q4
2000
Q3
2001
Q2
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
2017
Q4
Atlanta’s Unemployment Rate
… Has a long way still to go
Source: Moody’s Analytics
We’re here
Real Personal Income(Indexed 1988 = 100)
100
120
140
160
180
200
220
240
260
280
300
1988
Q1
1989
Q1
1990
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
Atlanta U.S. Forecast
Source: Moody’s Analytics
Total Employment(Indexed 1988 = 100)
100
110
120
130
140
150
160
170
180
1988
Q1
1989
Q1
1990
Q1
1991
Q1
1992
Q1
1993
Q1
1994
Q1
1995
Q1
1996
Q1
1997
Q1
1998
Q1
1999
Q1
2000
Q1
2001
Q1
2002
Q1
2003
Q1
2004
Q1
2005
Q1
2006
Q1
2007
Q1
2008
Q1
2009
Q1
2010
Q1
2011
Q1
2012
Q1
2013
Q1
2014
Q1
2015
Q1
2016
Q1
2017
Q1
Atlanta U.S. Forecast
Source: Moody’s Analytics
City Wide Demand and the Impact on Atlanta Hotel Performance
Source: Trends, Analysis, Projections, LLC
THE TAP REPORT Atlanta Period Ending March 31, 2013Report Date: April 9, 2013
2013Atlanta 2013 R/N JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALDefinite Room Nights 119,131 103,510 99,804 119,998 32,897 115,157 177,760 116,435 58,588 109,699 67,487 49,019 1,169,485Pace Targets 145,538 90,176 131,696 111,636 76,200 111,179 167,753 90,795 87,483 117,015 89,654 67,298 1,286,423Variance (26,407) 13,334 (31,892) 8,362 (43,303) 3,978 10,007 25,640 (28,895) (7,316) (22,167) (18,279) (116,938)Consumption Benchmark 145,538 90,176 131,696 113,806 78,973 117,144 179,074 97,953 95,523 129,851 101,238 77,014 1,357,986Pace Percentage 82% 115% 76% 107% 43% 104% 106% 128% 67% 94% 75% 73% 91%Total Demand Room Nights 548,512 570,410 683,603 564,320 546,471 857,139 635,529 319,047 332,492 617,928 489,197 150,225 6,314,873Lost Room Nights 429,381 466,900 583,799 444,322 513,574 741,982 457,769 202,612 273,904 508,229 421,710 101,206 5,145,388Conversion Percentage 22% 18% 15% 21% 6% 13% 28% 36% 18% 18% 14% 33% 19%Tentative Room Nights 0 0 0 10,700 10,910 48,446 38,343 23,806 8,244 51,740 24,350 31,331 247,870Annual Tentative Room Nights 0 0 0 0 0 0 20 20 1,357 0 0 0 1,397
Atlanta 2013 EventsDefinite Events 37 65 58 52 31 48 59 36 28 39 20 13 486Pace Targets 39 52 56 50 29 39 51 22 25 28 18 8 417Variance (2) 13 2 2 2 9 8 14 3 11 2 5 69Consumption Benchmark 39 52 56 63 41 60 87 41 50 62 43 21 615Pace Percentage 95% 125% 104% 104% 107% 123% 116% 164% 112% 139% 111% 162% 117%Total Demand Events 140 162 169 163 117 148 137 84 98 138 75 29 1,460Lost Events 103 97 111 111 86 100 78 48 70 99 55 16 974Conversion Percentage 26% 40% 34% 32% 26% 32% 43% 43% 29% 28% 27% 45% 33%Tentative Events 0 0 0 20 35 34 111 42 27 34 16 13 332Annual Tentative Events 0 0 0 0 0 0 1 1 1 0 0 0 3
Change in Atlanta Demand and Change in Definite Room Nights Booked –
One Year in Advance
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013
Definite Room Nights Booked
Upper Priced Demand^
Downtown Upper Priced DemandSource: Smith Travel Research; Trends, Analysis, Projections, LLC
Change in Atlanta Demand and Change in Definite Room Nights Booked –
One Year in Advance
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014
Definite Room Nights Booked
Upper Priced Demand^
Downtown Upper Priced DemandSource: PKF-HR, Smith Travel Research; Trends, Analysis, Projections, LLC
Forecast
Q4 2013 Submarket Performance vs Q4 2012
Sub-Market Name Occ^ ADR^ RevPAR^Downtown 13% 12% 26%Midtown 8% 9% 18%Central Perimeter 3% 10% 13%Peachtree Corners 9% 3% 13%I-85 South 10% 2% 12%Buckhead 5% 6% 12%Town Center North 7% 3% 10%Six Flags 7% 2% 9%Georgia 400 North 2% 7% 9%I-85 Northeast 5% 4% 9%Gwinnett Place 5% 3% 8%Airport 7% 0% 8%I-20 East 5% 3% 7%Emory / Decatur 1% 5% 6%I-75 South 6% -1% 5%Cumberland / Central Cobb 0% 4% 4%Northlake / Stone Mountain -1% 3% 2%
2010 2011 2012 2013F 2014F
Long-Term
Average
Occupancy 57.4% 59.0% 61.0% 61.3% 62.3% 62.1%
% Change +9.6% +2.9% +3.4% +0.5% +1.6% -
ADR $82.90 $82.76 $85.75 $88.16 $92.76 -
% Change -0.7% -0.2% +3.6% +2.8% +5.2% +2.0%
RevPAR $47.60 $48.87 $52.35 $54.07 $57.81 -
% Change +8.8% +2.7% +7.1% +3.3% +6.9% +2.0%
Atlanta MSAAll Hotels
Improved Occupancy = Better ADR Performance in 2012
Source: PKF Hospitality Research –March-May 2013 Hotel Horizons® Report, Smith Travel Research
Summary
49
2. Industry growth, while still positive, will slow relative to what we have become used to.Q2 and Q3 2013 will be weaker ; 2014 should be next really good year.
1. Uncertainty continues to be a drag – an important impediment to the recovery of the group segment and pricing overall.
Summary
50
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 – both here in Atlanta and just about everywhere else!