Mark Woodworth, President of PKF Hospitality Research, presentation at The Lodging Conference 2008,...

8/14/2019 Mark Woodworth, President of PKF Hospitality Research, presentation at The Lodging Conference 2008, Arizona Biltmore Hotel

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Lodging Conference 2008Lodging Conference 2008

What Lies Ahead?

The Panic When Will it End?

September 24, 2008Arizona Biltmore Resort & Spa

[email protected]


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Jan Freitag -Jan Freitag -

Bruce Ford Bruce Ford

David Loeb David Loeb


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PKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality Researchresen a on u neresen a on u neresen a on u neresen a on u ne

Part 1:Part 1:I. Th E n mPart 1:Part 1:I. Th E n m

- A Panic on Wall Street


II. Current Horizon:II. Current Horizon:

Have We Seen this Before?III. Some Thoughts to Take-away



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GoodGoodOkayOkay

BaBa


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How are ou feelin ?How are ou feelin ?GoodGood

BadBadI Dont KnowI Dont Know


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Panic is a sudden fear which Panic is a sudden fear which

thinkingthinking and often affects and often affects . .

Panics typically occur in Panics typically occur in isaster situations.isaster situations.

Wikipedia


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The Bursting HousingThe Bursting Housing

200

180

160-20.2%

140

100

Fiserv Case Shiller National House Price Index, 2000Q1=100


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Ignites a Mortgage CrisisIgnites a Mortgage Crisis3,000

First mortgage loan defaults, thousands, SAARFirst mortgage loan defaults, thousands, SAAR

2,500

2,000

1,500

500

,

00 01 02 03 04 05 06 07 08

Sources: Equifax, Moody's Economy.com


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e ...e ...

0

ouse pr ce ome sa es ous ng s ar s

-20

-

-40

-30

Current dow nturn to date

-50Early 1990s

Early 1980s

u rren ow n u rn orecas

-60

Sources: Fiserv Lending Solutions, Census, Moody's Economy.com


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...With Big Differences Across the...With Big Differences Across the

Projected peak-to-trough house price decline

< -30%

Sources: Fiserv Lending Solutions,Moody's Economy.com, OFHEO

-10 to -20%

0 to -10% No decline

-20 to -30%


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Loan Delinquencies EscalateLoan Delinquencies EscalateLoan Delinquencies EscalateLoan Delinquencies EscalateThe Peak is Around the CornerThe Peak is Around the CornerThe Peak is Around the CornerThe Peak is Around the Corner

2.006.00

1.40

1.60

1.80

5.001.78% Q109

0.80

1.00

1.20

3.00

.

5.06% Q209

0.72% Q408

0.20

0.40

0.60

1.00

2.00

0.000.00

Source: PKF Hospitality Research, Moodys Economy.com

30 Day Cre it Car De iquency %, ABA Le t 30 Day Home Equity De iquency %, ABA Rig t

60 Day Prime Loan Deliquency %, MBA (Right)


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GoodGoodOkayOkay

BaBa


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This Downturn is Relatively MildThis Downturn is Relatively MildAverage monthly job losses, peak to trough, thousands

Source: Moodys Economy.com


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Change in Total EmploymentChange in Total Employment U.S. U.S.Q109 Low PointQ109 Low Point

1988 - 2012F 1988 - 2012F Source: Moodys Economy.com


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20072007--2009 Economic Outlook2009 Economic Outlook20072007--2009 Economic Outlook2009 Economic OutlookExpectations Decline Dramatically Expectations Decline Dramatically

Forecast Point Employment Income GDP CPIPercent Change 2007 - 2008

. . . .January 2008 0.4% 1.4% 1.5% 2.7%

September 2008* 0.0% 0.3% 1.9% 4.4%

Forecast Point Employment Income GDP CPIPercent Change 2008 - 2009

October 2007 1.1% 3.3% 3.2% 1.9%January 2008 0.9% 3.2% 3.4% 2.0%

Source: Moodys Economy.com

eptem er 2008 . . . .

* Pre-Lehman, AIG, Merrill, $700 billion Federal plan, Stock market bottom-out, post Fanny, Freddy


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Available Airline Seats vs. Lodging DemandAvailable Airline Seats vs. Lodging Demanduar er y ange rom r or earuar er y ange rom r or ear

10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand

10.0%

15.0%

0.0%

5.0%

1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7

10.0%

5.0% 1 9

1 , 9 1

9 1 9

1 , 9 1

9 1 9

1 9

1 9

1 9

1 9

1 9

1 9

1 9

1 9

1 9

1 9

1 9

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

2 0

15.0%

Change in Available Airline Seats Change in Lodging Demand

Sources: Department of Transportation, Smith Travel Research, PKF Hospitality Research


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Seat Capacity and Chain ScaleSeat Capacity and Chain Scaleeman angeeman ange


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Historical RelationshipsHistorical Relationships Chain ScalesChain Scaleso g ng eman : r ne apac tyo g ng eman : r ne apac ty


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The Negative Economic Fallout IsThe Negative Economic Fallout IsSignificantSignificant

Real GDP Growth, Annualized % ChangeReal GDP Growth, Annualized % Change

4Pre-panicPost-panic

3

1

1

0

08 09 10

Source: Moodys Economy.comSource: Moodys Economy.com


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Forecasts Come fromorecasts Come from

H t l H it l H i smmHotel Horizonsotel Horizons smm


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Continuing Signs of aContinuing Signs of a

Number of Markets with Declining YearNumber of Markets with Declining Year- -OverOver--Year DemandYear Demand

40

4550

25

30

35

5

10

15

Number of Markets

Source: PKF-HR , STR


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HighHigh Supply Growth Preceded Last TwoSupply Growth Preceded Last TwoHighHigh Supply Growth Preceded Last TwoSupply Growth Preceded Last Two

6.0%

DownturnsDownturns Will this Happen Again?Will this Happen Again?DownturnsDownturns Will this Happen Again?Will this Happen Again?

4.0%

5.0%

LRA Demand : 1.9%

1.0%

2.0%

3.0%

2.0%

1.0%

0.0%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

4.0%

3.0%

Supply Demand^

Source: PKF Hospitality Research, STR, BLS, Moodys Economy.com


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Historical ChangeHistorical Change

--. .. .12 Month Moving Average12 Month Moving Average

4.0%

.

June 2008

2.0%April 2007:

2.0%

.1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

November 1991:

6.0%

4.0%

April 2002:

1989 1994 1999 2004 2004 2009

Sources: PKF-HR, Smith Travel Research


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Historical Change in U.S. LodgingHistorical Change in U.S. Lodging

-- 12 Month Moving Average12 Month Moving Average

4.0%

6.0%

June 2008

April 2007 - 2.0%

November 1991 - 2.0%

.1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

November 2008:

April 2002 -

4.0%


.

1989 1994 1999 2004 2004 2009 Forecast


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The Mild DoubleThe Mild Double--Dip Extends RecoveryDip Extends Recovery

4.0%

6.0%

April 2007:

June 2008

2.0%

2.0%

.

1 9 8 9

1 9 8 9

1 9 8 9

1 9 9 0

1 9 9 0

1 9 9 1

1 9 9 1

1 9 9 1

1 9 9 2

1 9 9 2

1 9 9 3

1 9 9 3

1 9 9 4

1 9 9 4

1 9 9 4

1 9 9 5

1 9 9 5

1 9 9 6

1 9 9 6

1 9 9 6

1 9 9 7

1 9 9 7

1 9 9 8

1 9 9 8

1 9 9 9

1 9 9 9

1 9 9 9

2 0 0 0

2 0 0 0

2 0 0 1

2 0 0 1

2 0 0 1

2 0 0 2

2 0 0 2

2 0 0 3

2 0 0 3

2 0 0 4

2 0 0 4

2 0 0 4

2 0 0 5

2 0 0 5

2 0 0 6

2 0 0 6

2 0 0 6

2 0 0 7

2 0 0 7

2 0 0 8

2 0 0 8 F

2 0 0 9 F

2 0 0 9 F

2 0 0 9 F

November 1991:

4.0%April 2002:

ovem er : < . >

.

Supply Demand



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ADR Growth SlowsADR Growth SlowsSu ly USu ly U Demand Down:RevPAR Declines in 09Demand Down:RevPAR Declines in 09

ADR Growth SlowsADR Growth SlowsSu ly USu ly U Demand Down:RevPAR Declines in 09Demand Down:RevPAR Declines in 09

2009 = the Low Point Going Forward2009 = the Low Point Going Forward2009 = the Low Point Going Forward2009 = the Low Point Going Forward

LongTermAverage 2004 2005 2006 2007 2008F 2009F 2010F

= Below/Above Long Run Average

Supply 1.9% 0.4% -0.1% 0.2% 1.3% 2.6% 3.5% 1.4%

- -. . . . . . . .

Occupancy 62.8% 61.3% 63.1% 63.3% 63.1% 61.3% 58.7% 60.0%

ADR 3.5% 4.2% 5.5% 7.5% 6.0% 3.6% 1.3% 2.3%

RevPAR 3.5% 7.9% 8.5% 7.8% 5.7% 0.8% -3.0% 3.0%

Source: PKF Hospitality Research Third Quarter 2008 Hotel HorizonsSM

Report, Smith Travel Research


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Local Market RevPAR HorizonLocal Market RevPAR Horizonorecast angeorecast ange - -

.

The PKFHR Hotel Horizon MSA Universe 2009 RevPAR ForecastRevPAR < 0% 0% < RevPAR < 3.5% 3.5% < RevPAR < 7% 7.5% < RevPAR


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Operating Profits*Operating Profits*

A Decade of NoA Decade of No RealReal GrowthGrowth(2007 Constant Dollars)(2007 Constant Dollars)

$18,962$17,765

,

$14,744

$13,096$12,150

$15,109

$13,621

$14,996, $15,658

$14,755

$13,000 t e d

t e d

t e d

$11,173

$9,000E

s t i m

E s t i m

E s t i m

Dollars per Available Room

Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.

Source: PKF Hospitality Research


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Change In Select Unit LevelChange In Select Unit Level

20062006 -- 20072007

7.8%5.5%5.0%

.

Labor Costs

Total Revenue

Food and Beverage Revenue

ooms evenue

6.9%

7.4%3.6%

Maintenance

A&G

Total Operated Department Expenses

7.9%4.6%

7.9%4.6%

Insurance

Property Taxes

Management Fees

Utility Costs

7.2%

0% 3% 6% 9%

NOI*

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

Source: PKF Hospitality Research


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Inflation Rarely a Problem forInflation Rarely a Problem for

Annual Change Annual Change From 1960 to 2007

Revenue Change Greater Than CPI 30 of 48 Years

15%

Expense Change Greater Than CPI 30 of 48 Years

0%

5%

10%

10%

5%

1960 1970 1980 1990 2000 201

Revenues Expenses C.P.I.

PKF Hospitality Research, BLS


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Utility ExpensesUtility ExpensesAnnual Change Compared to Energy CPIAnnual Change Compared to Energy CPI

30%

10%

-10%

0%

-20%1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008

-

Source: PKF Hospitality Research, U.S. Bureau of Labor Statistics, Moodys Economy.com


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U.S. Economy Might be in a Recession, Hotels JustBelow Average

ou e eman p s yc e s n que:(1) High ADRs (2) Weak Economy

Supply/Demand Imbalance Will Drag Rate Growth -Recovery in 2010

Profits Should Decline Slightly in 2009

Watch those Expenses!


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Home Sales Foreclosures House Prices

F in an cia F ai u resAbate

-Economic Expansion

Begins

Stock M arket

Bottoms

BottomHousin g StartsBottom

Peak

Resume Rising

09q4 10q1 10q2 10q3 10q4

Employment

09q2 09q308q1 08q2 08q3 08q4 09q1

Peako oms

House Prices

Jobless RatePeaks

Fed TightensExtraordinary Writedow nsEn d

$ Rises


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Something to Take AwaySomething to Take AwayThe Wild CardsThe Wild Cards

Capital Market Turmoil Slows New Construction -- We Assume a Pause in Starts Until 2010

Airline Capacity Cuts are Real and Continue in

2009- We Assume Demand Loss in 2009

No Meaningful Relief in Oil Prices

- If There is, Demand Will Jump


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Thank YouThank YouFor copies of this presentation :Claude.Var [email protected]

Econometric forecasts for50 U.S. markets, plus six

na ona c a n-sca es.www.pkfc.com/horizons

Mark Woodworth, President of PKF Hospitality Research, presentation at The Lodging Conference 2008,...

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