hotel industry trends & predictions · rodeway inn americas best value inn - 28 - high cost...

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Hotel Industry Trends & Predictions

Presented by:

Stephen Rushmore Jr., MAI, CRE

[email protected]

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The HVI measures changes in value and provides a tool for identifying hotel acquisition and disposition opportunities

The 2014 HVS-STR Hotel Valuation Index (HVI)

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HVS Focuses on Value

Every year HVS values thousands of hotels throughout the world

In the U.S., the HVI shows the value of a typical hotel in 65 markets from 1987-2018

Income

Cost

Sales

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$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

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U.S. Hotel values projected to taper slowly over next four years

Projected

Source: HVS/STR Hotel Valuation Index

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-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Eight to nine years of continual value growth

Projected


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Softening around Seventeen (2017)

Positive Impact

Economic recovery will continue to gradually improve

Negative Impact

Interest rates will slowly increase

New supply will gradually increase

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Annual feasibility studies are gradually recovering

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013

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Supply growth with be gradual

y = 4318x + 84.117R² = 0.6771

0

50

100

150

200

250

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%

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Florida markets were hot in 2013

Rank City Value

1 Sacramento 43%

2 Tallahassee 41%

3 West Palm Beach 33%

4 Jacksonville 32%

5 Phoenix 27%

6 Detroit 27%

7 Houston 26%

8 Nashville 25%

9 Dallas 25%

10 San Francisco 24%

United States 16%


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Only a handful of declining markets in 2013

Rank City Value

65 Huntsville -18%

64 Norfolk -7%

63 Richmond -6%

62 Washington DC -5%

61 Philadelphia -3%

60 Tucson 1%

59 Charlotte 1%

58 Pittsburgh 1%

57 Buffalo 2%

56 Baltimore 2%

United States 16%


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Growth this year is expected to come from secondary and tertiary markets

Rank City Value

1 Tallahassee 36%

2 Tampa 29%

3 Phoenix 23%

4 Indianapolis 22%

5 Oakland 19%

6 Austin 17%

7 Winston-Salem 16%

8 Minneapolis 16%

9 St. Louis 16%

10 Orlando 16%

United States 13%


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Secondary and tertiary markets to show the greatest value increase through 2018

Rank City Value

1 Richmond 58%

2 Tampa 53%

3 Hartford 52%

4 Tallahassee 51%

5 Jacksonville 49%

6 Phoenix 47%

7 Norfolk 47%

8 Las Vegas 46%

9 Orlando 38%

10 Atlanta 38%

United States 36%


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21 of 65 markets won’t appreciate above anticipated inflation over next four years


Rank City Value

65 Cleveland -5%

64 Detroit 0%

63 Portland 0%

62 Huntsville 2%

61 Seattle 2%

60 Los Angeles 4%

59 Chicago 4%

58 Nashville 5%

57 San Antonio 6%

56 New Haven 6%

United States 36%

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Typical financing terms

Leverage Interest Rate Equity YieldTotal

Property Yield

Trophy (Top 3%) 70 - 75% 4.75 – 5.5% 15 - 18% 9 - 9.5%

High Quality 65 - 70% 5 – 5.75% 17 - 19% 9.5 - 11%

Middle Quality 65 - 70% 5.25 – 5.75% 18 - 21% 10.5 – 11.5%

Lower Quality 60 - 65% 5.5 - 6% 19 - 23% 12+%

Source: HVS

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2014 Franchise Cost Guide

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Ongoing financial commitments to brands

Hard

Royalty fee

Reservation fee

Marketing fee

Frequent traveler program fee

Misc fees for training, conferences

10 - 15% of Rooms Revenue

Soft

Royalty fee

Reservation fee

2% of Rooms Revenue

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All of our costing data comes from UFOC’s –Uniform Franchise Offering Circular

Initial Fee

Royalty Fee

Reservation Fee

Marketing Fee

Frequent Traveler Fee

Misc. Fee

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Property Assumptions

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Average room count

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Occupancies & Average Rate

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Average length of stay

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Food and Beverage as a percentage of rooms revenue

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Loyalty program guests

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Reservation sources

Central reservations

Internet from brand

website

GDS: Global Distribution

System

Online travel

agencies

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Our Findings…

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Low cost franchises

12.7%

9.9%

9.7%

9.5%

8.2%

8.1%

7.8%

7.7%

7.5%

7.4%

5.8%

0% 2% 4% 6% 8% 10% 12% 14%

Industry Average

Westin

TownePlace Suites

Sheraton

Knights Inn

Vagabond Inn

Luxury Collection

Best Western

Le Meridien

Rodeway Inn

Americas Best Value Inn

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High cost franchises

12.7%

15.9%

16.3%

16.4%

16.5%

16.8%

17.0%

17.0%

17.1%

17.3%

18.1%

0% 5% 10% 15% 20%

Industry Average

Doubletree Hotels

Cambria Suites

Comfort Inn & Suites

Radisson

Holiday Inn

La Quinta Inn & Suites

Hilton Garden Inn

Hampton Inn

Hotel Indigo

Holiday Inn Express

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All Hilton brands were above the industry average

12.7%

13.6%

14.4%

15.8%

15.9%

17.0%

17.1%

0% 5% 10% 15% 20%

Industry Average

Homewood Suites

Hilton Hotels

Embassy Suites

Doubletree Hotels

Hilton Garden Inn

Hampton Inn

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Hyatt brands were all higher than industry average

12.7%

13.5%

14.0%

14.1%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Industry Average

Hyatt House

Hyatt Regency

Hyatt Place

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IHG brands were all higher than industry average

12.7%

15.4%

16.8%

17.3%

18.1%

0% 5% 10% 15% 20%

Industry Average

InterContinental Hotels

Holiday Inn

Hotel Indigo

Holiday Inn Express

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Carlson brands were all higher than industry average

12.7%

15.2%

15.2%

16.5%

0% 5% 10% 15% 20%

Industry Average

Park Inn

Country Inn

Radisson

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Most Choice brands were above industry average

7.4%

12.3%

12.7%

12.7%

13.1%

13.4%

14.2%

15.5%

15.8%

16.3%

16.4%

0% 5% 10% 15% 20%

Rodeway Inn

Suburban Extended Stay

Mainstay Suites

Industry Average

Econolodge

Ascend

Clarion

Quality Inn & Suites

Sleep Inn

Cambria Suites

Comfort Inn & Suites

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Most Wyndham brands were below industry average

8.2%

10.5%

10.9%

11.4%

11.4%

11.6%

11.8%

12.1%

12.2%

12.2%

12.3%

12.7%

15.2%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Knights Inn

Microtel

Howard Johnson

Wyndham

Travelodge

Ramada Inn

Wyndham Garden

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Most Marriott brands are below the industry average

9.7%

10.0%

11.0%

11.2%

11.5%

12.5%

12.6%

12.7%

13.4%

0% 2% 4% 6% 8% 10% 12% 14% 16%

TownePlace Suites

Residence Inn

Fairfield Inn

SpringHill Suites

Marriott

Courtyard

Autograph

Industry Average

Renaissance

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All Starwood brands were below industry average

7.5%

7.8%

9.5%

9.9%

11.3%

11.9%

12.2%

12.7%

0% 2% 4% 6% 8% 10% 12% 14%

Le Meridien

Luxury Collection

Sheraton

Westin

Four Points

element

aloft

Industry Average

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Franchise fees by segment

Economy 10.3%

First-class 13.0%

Mid-rate 13.7%

Limited Service 12.3%

Full Service 12.9%

Select Service 13.9%

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Final thoughts on franchise fees

Franchise fees as a percentage of rooms revenue have been increasing and will negatively impact hotel values

Franchisors must fully leverage their guest loyalty programs to create more value:

1. Take ownership interests into greater consideration for guest perks

2. Full service properties can factor potential overall profitability of guest when quoting room rates

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Stephen Rushmore Jr., MAI, CRE

[email protected]

+1 617-868-6840

mailto:[email protected]

hotel industry trends & predictions · rodeway inn americas best value inn - 28 - high cost...

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