Hotel Asset Value Enhancement, LLChotelave.blazonco.com/files/Outlook 2017.pdfCreating Value...

Creating Value – Protecting the Owner’s Interests™

Headquarters333 Westminster Street

Providence, RI 02903p 401.865.6900 | f 401.865.6999

www.hotelAVE.com

Additional OfficesNew York

Los Angeles

Hotel Asset Value Enhancement

Presenting 2017 Outlook

By

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Economic Assumptions

1 Confidential. Copyright © Hotel Asset Value Enhancement, Inc. 2017. All rights reserved.

Year CPI GDP Income Employment

2012 2.0% 2.2% 2.8% 1.7%

2013 1.4% 1.7% -0.4% 1.6%

2014 1.7% 2.4% 2.8% 1.9%

2015 0.1% 2.6% 4.3% 2.1%

2016 1.1% 1.6% 2.8% 1.7%

2017 2.9% 1.5% 3.4% 1.3%

Source: CBRE

Market Trends









YE 2016 Industry Performance


hotelAVE’s total portfolio RevPAR grew 3.5% YOY (excluding non-comparables)

Occupancy & ADR Growth rate


US Hotel Trend (2015) vs. PY

STR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mo

nth

Supply 1.0% 1.0% 1.1% 1.2% 1.0% 1.1% 1.2% 1.1% 1.2% 1.3% 1.4% 1.5%

Demand 5.2% 4.3% 3.5% 3.1% 1.9% 3.2% 3.5% 0.3% 4.6% 2.9% 2.5% 2.3%

Occ 4.2% 3.2% 2.3% 1.9% 0.8% 2.1% 2.3% 1.4% 3.3% 1.6% 1.1% 0.8%

ADR 4.3% 4.7% 5.0% 4.5% 5.0% 5.0% 5.9% 3.6% 4.6% 4.8% 3.2% 2.4%

RevPAR 8.6% 8.0% 7.4% 6.4% 5.9% 7.2% 8.3% 2.2% 8.0% 6.5% 4.3% 3.2%

US Hotel Trend (2016) vs. PY

STR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mo

nth

Supply 1.5% 1.6% 1.6% 1.5% 1.5% 1.6% 1.6% 1.7% 1.6% 1.7% 1.7% 1.8%

Demand 1.2% 0.8% 1.2% 3.7% 1.1% 1.9% 0.6% 1.3% 3.3% 1.3% 4.2% 1.7%

Occ -0.3% 0.8% 0.4% 2.2% -0.5% 0.3% -1.0% -0.4% 1.6% -0.3% 2.5% -0.1%

ADR 2.8% 3.6% 3.2% 2.8% 2.4% 3.5% 3.6% 2.5% 3.9% 1.9% 3.4% 2.4%

RevPAR 2.4% 2.8% 2.7% 5.0% 1.9% 3.8% 2.5% 2.1% 5.6% 1.6% 5.9% 2.3%

Source: Smith Travel Research

YE 2016 Performance – Top 25 Markets


• Markets with hotelAVE properties

-

2.0

4.0

6.0

8.0

10.0

12.0

2016 Top 25 Markets RevPAR % Chg

Industry Performance – 2017 Forecast


STR - Performance by Market Segment - % Change over PY

Occupancy ADR RevPAR

Chain Scale 2014 2015 2016 2017F 2014 2015 2016 2017F 2014 2015 2016 2017F

Luxury 0.9% 0.5% 0.5% -0.3% 5.6% 4.2% 2.6% 3.5% 6.5% 4.7% 3.1% 3.2%

Upper Upscale 2.3% 0.7% -1.4% -0.3% 5.0% 4.0% 0.9% 3.4% 7.5% 4.8% -0.5% 3.0%

Upscale 3.3% 0.7% -1.8% -1.1% 5.0% 4.9% 0.9% 2.7% 8.4% 5.6% -0.8% 1.5%

Upper Midscale 4.0% 1.9% -1.3% -0.8% 4.1% 4.3% 1.2% 2.7% 8.2% 6.3% -0.1% 1.9%

Midscale 4.3% 2.1% 1.0% 0.1% 3.9% 4.2% 1.5% 2.7% 8.3% 6.3% 2.5% 2.8%

Economy 3.8% 1.4% 0.4% 0.0% 4.7% 5.0% 2.7% 2.6% 8.7% 6.5% 3.1% 2.6%

Independent 3.7% 2.5% 1.1% -0.4% 4.4% 4.4% 4.4% 3.2% 8.3% 7.1% 5.6% 2.8%

Total US 3.6% 1.7% -0.1% -0.3% 4.6% 4.4% 2.4% 3.1% 8.3% 6.3% 2.3% 2.8%

Hotel Values









Top/Bottom 10 Markets for Value Change


Sources: HVS; Smith Travel Research

2017 Outlook









Macro


S+P Corporate• 4Q16 represents the first time since 1Q15 that the earnings growth rate

had Y/Y growth for two consecutive quarters

• Earnings growth projected to continue thru 2017

• 52% of companies exceeded revenue targets (below 5 year avg) while 67% beat EPS estimates

• IT, Real Estate and Energy sectors had the most companies that represented revenue above estimate

• Utilities, Telecom services and Consumer Staples had the fewest companies exceeding revenue estimates

Leisure• While vacations booked were up 18% in 2016, average spend was 20%

lower due to a strong US dollar, surplus of supply, and world issues such as Zika and Terrorism (Source: Travel Trends 2017, Ovation Vacations)

• Falling oil prices and travel bans are causing top oil nations to cut back on travel spending

U.S. Baseline Forecast


CBRE forecast calls for a continual decline in RevPAR growth mainly due to

slowing employment gains and new supply diluting ADR.

Long Run

Average2013 2014 2015 2016F 2017F

Supply 1.9% 0.6% 0.7% 1.0% 1.6% 1.8%

Demand 2.0% 2.0% 4.1% 2.7% 1.7% 1.5%

Occupancy 62.0% 62.2% 64.3% 65.4% 65.5% 65.0%

ADR 3.0% 3.8% 4.6% 4.5% 3.1% 3.3%

RevPAR 3.2% 5.2% 8.2% 6.2% 3.2% 2.9%

Source: CBRE, STR Q4 2016

2017 Outlook


• The major industry forecasters (PwC, PKF, STR) projected 2017 RevPAR growth to decelerate from 2016

• Corporate RFP season occurred during election uncertainty and with declines in business demand

• Group pricing may also become weaker as more hotels seek to lock-in more group and new business pace is less than STLY.

• Greatest concern months are July-September

2016

Actual

2017

CBRE

2017

PWC

2017

STR

2017

Travelclick

(Top 25)

Supply 1.6% 1.8% 1.9% 2.0% N/A

Demand 1.7% 1.5% 1.6% 1.7% N/A

Occupancy 0.1% -0.5% -0.3% -0.3% -1.0%

ADR 3.1% 3.3% 2.6% 2.8% 2.0%

RevPAR 3.2% 2.9% 2.3% 2.5% 1.0%

Source: CBRE Hotels’ Americas Research; PwC; STR

2017 Topline Outlook Comparison

Business OTB Is Down 1.2% vs STLY


• Short term group is not picking up• Continued decline in corporate demand is a concern• Interestingly, brand.com and GDS demand continues

to grow

Segment Occupancy % ADR %

Group 0.3% 3.1%

Trans-Business -5.5% 2.8%

Trans-Leisure -3.8% 1.4%

Source: Travelclick

2017 vs 2016 OTB

Forward Group Demand


Pace

03/17

Pace

02/17

Pace

11/16Pace 10/16 Pace 9/16 Pace 8/16 Pace 7/16 Pace 6/16 Pace 5/16 Pace 4/16 Pace 3/16 Pace 2/16

Anaheim/Santa Ana, CA

Atlanta, GA -1.2% -0.5% -4.4% -0.5% 2.6% -4.8% -3.4% -8.9% -1.5% -8.9% 5.7% 1.4%

Boston, MA -1.8% -0.3% -1.0% 2.2% -0.3% 1.6% -7.7% -4.5% -5.4% -12.5% -4.8% 4.8%

Chicago, IL -2.1% -1.2% -0.4% 3.9% -0.2% -1.7% -10.1% -3.9% -2.0% -3.2% -1.0% 1.4%

Dallas, TX -1.7% -1.2% -6.4% 3.0% -6.5% -4.4% -12.2% -9.6% 6.5% -2.1% 1.2% 6.7%

Denver, CO -1.7% -0.5% -7.1% -5.5% -6.7% -3.0% 1.6% -7.8% -9.7% -9.4% -8.7% -2.1%

Detroit, MI -0.3% 1.1% -6.1% 0.0% -1.3% 7.1% -16.8% -2.3% -0.9% 8.2% -4.5% -13.8%

Houston, TX -1.6% -3.4% -3.2% -19.2% -12.0% -5.8% -12.2% -13.1% -4.7% -20.6% -2.4% 1.1%

Los Angeles/Long Beach, CA -1.0% -3.0% 3.0% -2.9% -3.5% -4.6% 3.6% -7.1% 1.4% -2.7% 0.4% 8.7%

Miami/Hialeah, FL 0.5% 1.6% -15.2% -15.2% -12.5% -9.1% 0.8% 5.7% 2.9% 0.2% -5.8% -3.9%

Minneapolis/St Paul, MN-WI -3.1% -0.3% -15.8% -7.8% -3.4% 4.6% -7.3% -9.6% -0.5% 7.4% -1.9% 3.2%

Nashville, TN

New Orleans, LA

New York, NY -2.5% -0.1% -4.7% -1.2% -1.7% -8.5% 0.0% -5.2% -1.9% -16.6% 1.7% 0.1%

Norfolk/Virginia Beach, VA

Oahu Island, HI

Orlando, FL -1.2% -1.4% 5.2% -15.2% -15.3% 8.5% -2.2% -12.9% 45.2% -10.6% 6.1% 1.9%

Philadephia, PA-NJ -1.2% 0.3% -5.6% -15.5% -0.8% -14.7% -6.8% -0.1% 9.3% 0.2% -0.5% 5.3%

Phoenix, AZ -3.0% -0.6% -0.4% -8.8% 19.9% 10.0% -10.8% 13.1% 3.8% -12.1% -2.9% 8.9%

San Diego, CA -2.0% -1.1% 3.0% -2.8% 5.5% -2.5% -5.5% -3.1% -8.2% -21.7% 3.8% 0.2%

San Francisco/San Mateo, CA -2.8% -1.7% -4.6% 2.2% 2.2% -3.5% 3.7% -10.3% 0.4% -1.8% 1.8% -3.1%

Seattle, WA -0.5% 0.1% -1.7% -10.7% -2.9% 4.0% -2.7% 4.6% -5.5% -21.5% -3.0% 0.7%

St Louis, MO-IL -0.4% 1.7% 8.1% -13.5% -3.0% 0.0% 2.3% -3.6% -4.1% -4.2% -8.9% -10.0%

Tampa/ St Petersburg, FL -1.6% 0.0% -8.8% -6.2% 2.9% -1.6% 2.0% 2.7% 1.8% 9.9% -11.5% -5.7%

Washington, DC-MD-VA -1.8% 1.6% 2.7% 11.4% -0.3% -0.2% -11.7% 4.2% 3.1% -7.6% -0.7% -4.0%

Total United States -1.6% -0.8% -1.7% -2.2% -2.3% -2.8% -3.6% -4.4% 2.4% -7.1% -0.2% 1.0%

Source: TravelClick and hotelAVE

TRAVELCLICK DATA

Preformance in Top 25 Markets

Forward 12 Month Pace As Of: March 2017

ADR


• ADR is growing in 21 of the top 25 North American markets.• ADR growth is slowing (3.1% in 2016 to 2.6% in 2017), but is still

expected to drive RevPAR growth above inflationary levels but not above many markets wage rate.

Corporate

• CWT and BCD reported clients saw ADR Increase 1.3% Y/Y. (higher on west coast)

• Marriott reported to be “more accommodating” vs in prior years, responding more quickly.

• Marriott decline to bid 18% of time, 2x as frequent as Hilton• Pricing compressed from beginning of season at 2.4% over 2016 to

1.3%• Corporate included fewer hotels in programs, instead switching to

rate caps per market.• How long can ADR growth continue in the face of declining

occupancy?

2017 Outlook - TravelClick Highlights


As of: March 10, 2017

Full Year Overall Group Transient Business Leisure Overall Group Transient Business Leisure

Committed Occupancy -1.2% -0.1% -2.3% -3.6% -1.7% 2.0% 3.2% 1.5% 2.0% 1.1%

Reserve Occupancy

New Reservations Added -1.6% -0.8% -2.5%

As of: Feb 1, 2017

Full Year Overall Group Transient Business Leisure Overall Group Transient Business Leisure

Committed Occupancy 0.5% 0.9% -0.1% -2.3% 0.8%

Reserve Occupancy

New Reservations Added -0.8% -0.9% -0.5% 2.6% 3.4% 2.4% 2.7% 2.1%

Occupancy ADR

Occupancy ADR

2017 Outlook - TravelClick Highlights


Q1 - 2017

Q2 - 2017

As of: Jan 1, 2017

1Q vs STLY Overall Group Transient Business Leisure Overall Group Transient Business Leisure

Committed Occupancy 3.2% 4.2% 1.8% -1.4% 2.7% 3.0% 2.6% 3.2% 4.1% 2.6%

Reserve Occupancy 2.8% 4.8%

New Reservations Added -0.8% -1.0% -2.5% -0.2%

over prior 30 days

Occupancy ADR

As of: March 10, 2017


Committed Occupancy -0.6% -0.8% -0.2% -4.5% 1.7% 2.8% 1.7% 3.1%

Reserve Occupancy

New Reservations Added -2.2% -0.8% -4.9% -7.0% -3.8%

As of: Jan 1, 2017


Committed Occupancy 3.5% 2.2% 10.4% 8.6% 10.8% 3.5% 2.6% 3.5%

Reserve Occupancy

New Reservations Added -0.5% 1.7% 1.4% 1.8%

over prior 30 days

(March 10, 2017 & January 13th, 2017)Source: TravelClick NA Hospitality Review 1Q17-4Q17

Occupancy ADR

Occupancy ADR

New Supply









Supply


• In 2016, the US had a 1.6% increase in supply• CBRE is predicting supply growth at 1.8% in 2017 • Upscale and Upper Midscale segments currently have the largest

rooms construction pipeline

Projects Rooms Projects Rooms Projects Rooms

Total Pipeline4,960 598,388 4,413 545,835 12% 10%

Luxury58 13,872 43 11,942 35% 16%

Upper

Upscale

242 53,142 173 40,924 40% 30%

Upscale1,257 163,719 1,127 149,977 12% 9%

Upper

Midscale

2,019 200,328 1,775 173,811 14% 15%

Midscale 566 45,047 397 29,639 43% 52%

Economy 148 12,396 151 16,462 -2% -25%

Casino 31 10,218 34 10,611 -9% -4%

Unbranded 639 99,666 713 112,469 -10% -11%

4Q16 Construction Pipeline by Chain Scale

Q4 2016 Q4 2015 % Variance

Source: Lodging Econometrics 4Q 2016

Supply Change and RevPAR


Q4 2015 – Q3 2016

Metric MarketsOccupancy

Level

RevPAR

Change

Supply Growth

Greater Than 2%19 70.6% 1.2%

Supply Growth

Lower Than 2%41 69.5% 6.1%

Source: CBRE

2016-2017

Metric MarketsOccupancy

Level

RevPAR

Change

Supply Growth

Greater Than 2%46 69.6% 2.6%

Supply Growth

Lower Than 2%14 68.7% 4.3%

Source: CBRE

Construction in Top 26 Markets: 20 with 2%+ of Supply


Source: Smith Travel Research as of Nov. 2016

Market Rooms U/C % Of Existing

New York, NY 16,462 13%

Seattle, WA 4,955 12%

Denver, CO 4,470 10%

Nashville, TN 3,549 9%

Dallas, TX 5,567 8%

Houston, TX 5,305 7%

Los Angeles/ Long Beach, CA 5,921 6%

Miami/ Hialeah, FL 3,377 6%

Philadelphia, PA-NJ 2,659 6%

Anaheim/ Santa Ana, CA 2,127 4%

Boston, MA 2,292 4%

Detroit, MI 1,270 4%

New Orleans, LA 1,786 4%

Phoenix, AZ 2,019 4%

San Diego, CA 1,866 4%

San Francisco/ San Mateo, CA 1,580 4%

Tampa/ St. Petersburg, FL 1,966 4%

Atlanta, GA 2,210 3%

Chicago, IL 4,175 3%

Washington, DC-MD-VA 3,137 3%

Las Vegas, NV 3,859 2%

Minneapolis/ St. Paul MN-WI 1,401 2%

St. Louis, MO-IL 864 2%

Norfolk/ Virginia Beach, VA 456 1%

Oahu Island, HI 410 1%

Orlando, FL 1,129 1%

Airbnb Continues to Grow – A Lot!


Metric 2015 2016 Growth Rate

Units 383,142 652,262 70.2%

Supply 37,344,113 81,037,452 117.0%

Demand 17,988,315 39,836,147 121.5%

Revenue $2.7 Billion $6.8 Billion 147.8%

Occupancy 48.2% 49.2% 2.1%

ADR 151.90$ $169.97 11.9%

RevPAR 73.17$ $83.55 14.2%

Source: CBRE

Airbnb

Labor Costs









Unemployment Impact On Compensation


3%

4%

5%

6%

7%

8%

9%

10%

-1%

0%

1%

2%

3%

4%

5%

6%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

BLS - Change in Average Hourly Compensation for Hospitality Employees (Left Axis) U.S. Unemployment Level (Right Axis)

Source: Trends® in the Hotel Industry, Bureau of Labor Statistics

Annual Change in Hospitality Hourly Compensation versus Unemployment Rate

Components Of Total Labor Costs


-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

Change in Total Hours Worked

BLS - Change in Average Hourly Compensation for Hospitality Employees

CBRE - Annual Change in Total Labor Costs

Source: Trends® in the Hotel Industry, Bureau of Labor Statistics

Annual Change in Components to Total Labor Costs

Other Factors Putting Upward Pressure On Salaries And Wages


• Continued Low Levels of Unemployment

• Minimum Wage / Living Wage Legislation

• Raising the Overtime Threshold – Now On Hold

• Joint-Employer Standards – New NLRB Leadership

• Affordable Care Act?

Expenses To Rise Greater Than Revenues


-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F

Revenues Expenses* C.P.I.

Annual Change in Revenues and Expenses*

Note: * Before deduction for Management Fees and Non-Operating Income and Expenses

Source: 2016 Trends® in the Hotel Industry, Bureau of Labor Statistics, December 2016 Hotel Horizons® Forecast

Planning for 2017 – A Discussion

28

• We have known that corporate has been negative and group has been slowing since July.• What did asset managers do in 2H16 to get ahead of this trend?• How are we proactively addressing demand management?

• In-bound International will be weaker in 2017 versus in past. What new sources of demand are you discussing with your hotels in high international markets?

• How addressing the high cancellation %?• What is the plan to replace fewer group in July-September?• What are we doing now for 2018?

• Do we need to add more sales people and group up more?• Flat corporate rates now?

Confidential. Copyright © Hotel Asset Value Enhancement, Inc. 2017. All rights reserved.

Hotel Asset Value Enhancement, LLChotelave.blazonco.com/files/Outlook 2017.pdfCreating Value...

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