mark woodworth, pkf consulting: what better time?

8/9/2019 Mark Woodworth, PKF Consulting: What better time?

1/49

Prepared forPrepared for

Meet the Money 2010Meet the Money 2010

By:By:

Mark WoodworthMark WoodworthPKF Hospitality ResearchPKF Hospitality Research

May 4, 2010

www.pkfc.com

U.S. LODGING INDUSTRYU.S. LODGING INDUSTRY

OVERVIEWOVERVIEW


2/49

1. How accurate was our MTM 2009forecast ?

1. How accurate was our MTM 2009forecast ?

WHAT BETTERWHAT 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?


3/49

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?


4/49

The Year of JimThe Year of Jim

ButlerButler

Meet theMeet the

MoneyMoney


5/49

Year of theYear of the

Metal (White)Metal (White)

TigerTiger


6/49

Metal (White)Metal (White)

TigerTiger In Asian Astrology, theIn Asian Astrology, theNew Moon on FebruaryNew Moon on February

14 began the Year of the14 began the Year of the

Metal or White Tiger.Metal or White Tiger. Tiger Years are theTiger Years are the

Autumn of VeryAutumn of Very LongLong

Cycles.Cycles. Build Reserves andBuild Reserves and

StrengthStrength

Prepare to Pounce onPrepare to Pounce on

OpportunitiesOpportunities 6Source: Wintonbury Risk ManagementSource: Wintonbury Risk Management


7/49

1.1. How accurate was our MTM 2009How accurate was our MTM 2009forecast ?forecast ?


1.1. When will profit growth return and be sustained?When will profit growth return and be sustained?

1.1. How accurate was our MTM 2009How accurate was our MTM 2009forecast ?forecast ?


1.1. When will profit growth return and be sustained?When will profit growth return and be sustained?


TIME?TIME?


8/49

20092009 20102010

MTMMTM

20092009

20092009

ActualActual

MTMMTM

20092009

CurrentCurrent

ForecastForecastOccupancy 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%

MTMMTM 20092009 ACCURACYACCURACY

ASSESSMENTASSESSMENT

Not Too BadNot Too Bad A Little MoreA Little More

OptimisticOptimistic


9/49

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?

1.1. When will profit growth return and beWhen 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?

1.1. When will profit growth return and beWhen will profit growth return and be

sustained?sustained?


TIME?TIME?


10/49

The Economy


TIME?TIME?


11/49

11

The Great Recession Is OverThe Great Recession Is OverRecessions since World War II

Sources: NBER, BEA, FRB, BLS, Moodys Economy.com

Duration in Months Peak-to-Trough % Change Jobless Rate

Peak Trough RecessionPeak to Trough

ExpansionTrough to Peak

RealGDP

IndustrialProduction

NonfarmEmployment

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%


12/49

1990 Q2

109.81991 Q3

108.3

2000 Q4132.5

2003 Q2

129.8

2008 Q1

137.9

2009 Q4

129.6

2012 Q4

137.9

100.00

105.00

110.00

115.00

120.00

125.00

130.00

135.00

140.00

145.00

1988Q 1 1988Q 4 1989Q 3 1990Q 2 1991Q 1 1991Q 4 1992Q 3 1993Q 2 1994Q 1 1994Q 4 1995Q 3 1996Q 2 1997Q 1 1997Q 4 1998Q 3 1999Q 2 2000Q 1 2000Q 4 2001Q 3 2002Q 2 2003Q 1 2003Q 4 2004Q 3 2005Q 2 2006Q 1 2006Q 4 2007Q 3 2008Q 2 2009Q 1 2009Q 4 2010Q 3 2011Q 2 2012Q 1 2012Q 4 2013Q3

U.S. TOTAL EMPLOYMENTU.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: Moodys Economy.com, April 2010

12 Quarters

17 Quarters

19 Quarters


13/49

U.S. UNEMPLOYMENTU.S. UNEMPLOYMENT

RATERATE

1989 Q1

5.2%

1992 Q3

7.6%

2000 Q4

3.9%

2003 Q2

6.1%

2006 Q4

4.4%

2010 Q4

10.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1988Q 1 1988Q 4 1989Q 3 1990Q 2 1991Q 1 1991Q 4 1992Q 3 1993Q 2 1994Q 1 1994Q 4 1995Q 3 1996Q 2 1997Q 1 1997Q 4 1998Q 3 1999Q 2 2000Q 1 2000Q 4 2001Q 3 2002Q 2 2003Q 1 2003Q 4 2004Q 3 2005Q 2 2006Q 1 2006Q 4 2007Q 3 2008Q 2 2009Q 4 2010Q 3 2012Q 1 2012Q 4 2013Q3


Six Months to Go Before Unemployment PeaksSix Months to Go Before Unemployment Peaks


14/49

What Industries Can DriveWhat 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: Moodys Economy.com


15/49

ECONOMIC ASSUMPTIONS DRIVINGECONOMIC ASSUMPTIONS DRIVING

OUR FORECASTSOUR FORECASTSUpturn Accelerates in 2011Upturn Accelerates in 2011

PayrollEmploym

ent

RealPersonalIncome

RealGDP

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%



16/49


17/49

THE HOTEL MARKET CYCLETHE HOTEL MARKET CYCLEMoving 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 Run

Occupancy

Rapid

Development

Equilibrium

ADR

U.S. is HereU.S. is Here 2011-20122011-2012

Meet TheMeet The

Money 2011Money 2011


18/49

WhatWhat HappenedHappened in the Firstin the First

Quarter?Quarter?

Q1F Q1 Act Variance

Supply 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


19/49

6

Preliminary Update - Income and DemandPreliminary Update - Income and Demand

EstimatesEstimates

May 2010May 2010

Q1 2010Q4 2002

2 Quarter LagSources: PKF-HR; STR; Moodys Economy.com


20/49

6

Published Income and Demand EstimatesPublished Income and Demand Estimates

March 2010March 2010

Q1 2010Q4 2002

2 Quarter LagSources: PKF-HR; STR; Moodys Economy.com


21/49

Other Signs theOther Signs the

Turning Point hasTurning Point has

been Reachedbeen Reached


TIME?TIME?


22/49

A Look into the Future fromA Look into the Future from

The Rubicon GroupThe Rubicon Group

Rubicons Primary DataRubicons Primary Data

42 million future competitive rates are collected each day.

Daily load of reservation and block information for thecoming 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 thePegasus switch.


23/49

A Look into the Future fromA Look into the Future from

The Rubicon GroupThe Rubicon Group

Rubicons Primary DataRubicons Primary Data

The data is forward looking based on future

reservations activity (as of May 1). The concept ofnew 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.


24/49

Aggregate Demand & ADRAggregate Demand & ADRTop 25 North American Markets

2010 Rubicon All Rights Reserved


25/49

Committed Demand isCommitted Demand is

Positive in Many MarketsPositive in Many Markets


Top 25 North American Markets


26/49

Group Committed DemandGroup Committed Demand

has Improvedhas Improved




27/49

Transient Business Demand isTransient Business Demand is

Vastly ImprovedVastly Improved




28/49

Transient Leisure DemandTransient Leisure Demand

Also Shows GainsAlso Shows Gains




29/49

If There is a ConcernIf There is a Concern




30/49

But ADR Improvement isBut ADR Improvement is

EvidentEvident




31/49

The Pace of New Business ShowsThe Pace of New Business Shows

Recovery StrengthRecovery Strength




32/49

FORECASTS COME FROM

HOTEL HORIZONS

32U.S. by Chain Scale, All Hotels, 50 MSAsU.S. by Chain Scale, All Hotels, 50 MSAs

Our ForecastsOur Forecasts


33/49

PublishedPublished March 2010March 2010

ForecastForecast

Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 F Q 3 F Q 4

S u p p ly 3 .2 % 3 .1 % 3 .2 % 3 .1 % 2 .9 % 1 . 2 % 0 .6 % 0D e m a n d -8 .1 % -8 .1 % -5 .0 % -1 .4 % 5 . 3 % 1 .8 % 1 .1 % 0

O c c u p a n c y -1 1 .0 % -1 0 .9 % -7 .9 % -4 .4 % 2 . 3 % 0 .7 % 0 .4 % 0

A D R -7 .7 % -9 .7 % -9 .8 % -7 .6 % -4 .3 % -2 .0 % 0 . 4 % 0

R e v P A R -1 7 .8 % -1 9 .6 % -1 6 .9 % -1 1 .7 % -2 .1 % -1 .4 % 0 . 9 % 1

2 0 0 9 2 0 1 0

S o u rce s : P K F H o s p ita lity R e s e a r ch ; S m ith T ra v e l R e s e a

6


34/49

Preliminary Updated ForecastPreliminary Updated Forecast

-May 2010 a-May 2010 a QuickerQuickerTurnaroundTurnaround

Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 F Q 3 F Q 4

S u p p ly 3 .2 % 3 .1 % 3 .2 % 3 .1 % 2 .9 % 1 . 2 % 0 .6 % 0D e m a n d -8 .1 % -8 .1 % -5 .0 % -1 .4 % 5 . 3 % 4 .8 % 4 .3 % 5

O c c u p a n c y -1 1 .0 % -1 0 .9 % -7 .9 % -4 .4 % 2 . 3 % 3 .6 % 3 .7 % 4

A D R -7 .7 % -9 .7 % -9 .8 % -7 .6 % -4 .3 % -2 .1 % -0 .8 % 0 .7

R e v P A R -1 7 .8 % -1 9 .6 % -1 6 .9 % -1 1 .7 % -2 .1 % 1 . 4 % 2 .8 % 5

2 0 0 9 2 0 1 0

S o u rce s : P K F H o s p ita lity R e s e a r ch ; S m ith T ra v e l R e s e a

6

a ona or zona ona or zon


35/49

LongTerm

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

a ona or zona ona or zonA Slow Recovery from aA Slow Recovery from a

Deep FallDeep Fall

6

Record DeclineRecord Decline Record IncreaseRecord Increase

a ona or zona ona or zon


36/49

LongTerm

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

a ona or zona ona or zonPreliminary Update MayPreliminary Update May

20102010

6

A QuickerA Quicker

Turnaround?Turnaround?

RevPAR Inflection Point MixedRevPAR Inflection Point Mixed


37/49

RevPAR Inflection Point MixedRevPAR Inflection Point Mixed

Across MarketsAcross MarketsQuarter When RevPAR Change TurnsQuarter When RevPAR Change Turns

PositivePositive

Source: PKF Hospitality Research

1Q 20101Q 2010

2Q 20102Q 2010

3Q 20103Q 2010

4Q 20104Q 2010

2011 or later2011 or later

Virtually Everyone SufferedVirtually Everyone Suffered


38/49

Virtually Everyone SufferedVirtually Everyone Suffered

In 2009In 2009Percent of Hotels* Posting an IncreasePercent of Hotels* Posting an Increase

or Decrease From 2008 to 2009or Decrease From 2008 to 2009

.%

.%

.%

.%

Net Operating

Income**

Total Revenue

Rooms Revenue

Number of Rooms

Rented

Notes: * 2010 Trends in the Hotel Industrysample.

** Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.

Source: PKF Hospitality Research, 2010 Trends in the Hotel Industryreport.

nnua ren s


39/49

nnua ren sChange In Operating

Results2008 to 2009

Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.

Source: PKF Hospitality Research 2010 Trends in the Hotel Industryreport.

nnua ren s


40/49

nnua ren sChange In Select Operating

Expenses2008 to 2009


** Includes franchise royalty payments, marketing assessments, and guest loyalty program costs.


PKF Annual Trends


41/49

PKF Annual TrendsChange In Labor Costs

2008 to 2009


2009 U S H t l O ti2009 U S H t l O ti


42/49

2009 U.S. Hotel Operating2009 U.S. Hotel Operating

PerformancePerformanceAverage Change 2008 to 2009Average Change 2008 to 2009

-37.8%

-37.5%

-25.1%

-22.8%

-29.7%

-37.4%

-35.4%

-19.4%

-19.3%

-15.8

-15.9

-16.9%

-18.5%

-18.5%

Resorts

Convention Hotels

Suite without F&B

Suite with F&B

Limited Service

Full Service

All Hotels

Notes: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.

Source: PKF Hospitality Research, 2010 Trends in the Hotel Industryreport.

RECOVERY WILL BE STRONGRECOVERY WILL BE STRONG


43/49

RECOVERY WILL BE STRONGRECOVERY WILL BE STRONG

THROUGH 2013THROUGH 2013Annual Change in Unit-Level NOI*Annual Change in Unit-Level NOI*

0%

20%

40%

60%

80% +64.6% - 1943

-22.4% - 1938

-19.4% - 2001

-35.4% - 2009F

+11.3% - 2011F

+15.6% - 2012F

+19.7% - 2013F


Source: PKF Hospitality Research, Trends in the Hotel Industrysample.


44/49

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 Da s Delin uent >30 Da s Delin uent All Delin uencies

Source: Trepp LLC

BUT NOT SOON ENOUGH ASBUT NOT SOON ENOUGH AS

DELINQUENCIES SOARDELINQUENCIES SOARApproaching 1 in 6Approaching 1 in 6


45/49

INTEREST PAYMENT ANALYSISINTEREST PAYMENT ANALYSISPercent of Hotels Not Covering Interest Payments*Percent of Hotels Not Covering Interest Payments*

Note: * Percent ofTrends in the Hotel Industrysample that reported interest payments.

Source: PKF Hospitality Research


46/49

SUMMARYSUMMARY

1.1. How accurate was our MTM 2009How accurate was our MTM 2009

forecast?forecast?a)a) Pretty good.Pretty good.

2.2. When will profit growth return and beWhen will profit growth return and besustained?sustained?

a)a) Eight consecutive quarters of demand contractionEight consecutive quarters of demand contraction

ended in Q1 2010. Supply/demand imbalance; capitalended in Q1 2010. Supply/demand imbalance; capital

market turmoil and depressed market values will keepmarket 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 toSigns are positive that recovery might have begun to

accelerate; however, a buyers market will persist intoaccelerate; however, a buyers market will persist into

2011. Eight consecutive quarters of rate declines will2011. Eight consecutive quarters of rate declines will

end in Q4 2010, leading toend in Q4 2010, leading to

c)c) Profit growth in 2011 stays well-above averageProfit growth in 2011 stays well-above average 6


47/49

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 liftedLack 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 overcomeIncreasing profits and reduced risk premiums will overcomeescalating 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 substantialAlthough the cumulative loss in value has been substantial

since 2008, significant asset appreciation will commence insince 2008, significant asset appreciation will commence in

2011 and persist through 2014 as cap rates fall further in2011 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 Hotel


48/49

The Cycle of HotelThe Cycle of Hotel

Real Estate Emotions-Real Estate Emotions-

What Better Time?What Better Time?

2007

2004

2009-20102011

2008 1st

Half

2008 2nd

Half

2011-12


49/49

For a Copy of This Presentation:For a Copy of This Presentation:

www.PKFC.COM/Presentationswww.PKFC.COM/Presentations

Thank You for theThank You for the

OpportunityOpportunity

mark woodworth, pkf consulting: what better time?

Documents