Meet the Money 2009: Mark Woodworth PKF 5-6-09

8/14/2019 Meet the Money 2009: Mark Woodworth PKF 5-6-09

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1919thth AnnualAnnual

ee

e

oney

ee

e

oney

R. Mark WoodworthR. Mark WoodworthPKF Hospitality Research

Atlanta, Georgia

May 6, 2009

www.pkfc.com


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W atDiW atDi II SayaYearAgoSayaYearAgo

Actual/

-

RevPAR Forecasts

Forecast Update

2008 1.0% -1.9% Not Too Bad

2009 4.0% -13.7% What Ha ened?

Sources: PKF-HR; STR (historical)


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TheEconomy


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44--Quarter Moving AverageQuarter Moving Average U.S. AllU.S. All

Total Payroll Employment Change,

6.0%

Average Daily Room Night Demand

4.0%

Employment Demand

2.0%

2.0%

.

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

4.0%

8.0%

6.0%

Source:Moody'sEconomy.com;STR;PKFHR


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TotalPayrollEmploymentinaTotalPayrollEmploymentina

Aug08 Oct08 FebFeb0909 MarMar0909 AprApr0909

Date of Forecast:

2.0%

3.0%

0.0%

1.0%

2.0%

1.0%

4.0%

3.0%

Source:Moody'sEconomy.com


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RemembertheJoblessRemembertheJobless

LongRunEmploymentLevelsLongRunEmploymentLevels

16 Qtrs16 Qtrs 15 Qtrs15 Qtrs

ForecastForecast

rsrs

rsrs


Beginning / End of Contraction Period

Turning Point


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ManyMoreLostJobstoComeManyMoreLostJobstoCome

ForecastForecast


Local Maxima


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DifficulttoEvenSpeculateontheDifficulttoEvenSpeculateonthe

U t mateImpact

o

t e

St mu usU t mate

Impact

o

t e

St mu us


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HaveWeSeenThisBefore?HaveWeSeenThisBefore?


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This is the 11This is the 11thth Recession SinceRecession Since

Peak Trough

(Months)

GDP

Nov 1973 Mar 1975 16 -3.5%

Jan 1980 Jul 1980 6 -2.8%

- .

Jul 1990 Mar 1991 8 -1.4%

Mar 2001 Nov 2001 8 -0.5%

Dec 2007 2009 Q2(est) 17+/- -4.0% (proj)

Source: NBER, Moodys Economy.com, Leamer


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122recessions

around

the

world:

1960122

recessions

around

the

world:

1960

2007.2007.

Onl four 4 hadeachofthefollowin :Onl four 4 hadeachofthefollowin :

CreditCrunchCreditCrunch

HousePrice

BustHouse

Price

Bust

EquityPriceBustEquityPriceBust

Whenallthreeconditionsarepresent,themagnitudeWhenallthreeconditionsarepresent,themagnitude

ofoutput

losses

(declines

in

GDP)

are

of

output

losses

(declines

in

GDP)

are

two

to

three

two

to

three

timesgreater.timesgreater.


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TurningPoints:TurningPoints:

RecessionRecession(Quarters(Quarters))



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RecoveryTimelinesMixedAcrossRecoveryTimelinesMixedAcross

QuartersUntilEmploymentLevelsTurnPositiveQuartersUntilEmploymentLevelsTurnPositive 4Q084Q08

Growth PositiveGrowth Positive

1 Quarter1 Quarter

uar ersuar ers

3 Quarters3 Quarters

> 4 Quarters> 4 Quarters



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ProfitOutlookProfitOutlook


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ProtractedDisconnectProtractedDisconnectBetween

Property

Cycle

and

Business

CycleBetween

Property

Cycle

and

Business

Cycle

ForecastForecast

Source: PKF Hospitality Research, Smith Travel ResearchCycle Disconnect


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BigADRChangesBigADRChanges

ue

w ngsue

w ngs

ForecastForecast

THIS IS A MODERN RECORDTHIS IS A MODERN RECORD

30.1%

Source: PKF Hospitality Research, Smith Travel Research


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U.S.LodgingIndustryU.S.LodgingIndustry

**(Peak(PeaktotoTroughChangeinUnitTroughChangeinUnitLevelPerformance)LevelPerformance)

Inflation a Big Factor in the 1980s

Note: * National Bureau of Economic Research

** Forecast as of March 4, 2009

Source: PKF Hospitality Research


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U.S.LodgingIndustryU.S.LodgingIndustry

Historical

Performance

Durin

Recessions*Historical

Performance

Durin

Recessions*(Peak(PeaktotoTroughChangeinUnitTroughChangeinUnitLevelPerformance)LevelPerformance)

Note: * National Bureau of Economic Research

** Forecast as of March 4, 2009

*** Before deductions for capital reserve, rent, interest, income taxes, amortization, and depreciation.Source: PKF Hospitality Research


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NumberofMarketsExperiencingNumberofMarketsExperiencing

SustainedRevPAR

GrowthSustained

RevPAR

Growth

Forecast



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Local Market Outlook VariesLocal Market Outlook Varies

Time frame when RevPAR begins a sustained positiveTime frame when RevPAR begins a sustained positivegrowth trendgrowth trend

22ndnd Half of 2009Half of 2009

11stst Half of 2010Half of 2010

22ndnd Half of 2010Half of 2010

2011 and beyond2011 and beyond


None of the 50 market s in our universe will achieve positive growth in RevPAR in 2009 Record low occupancies in 28 of our 50 market universe in 2009.


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Asset ValuesAsset Values


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As Lending Standards Increase,As Lending Standards Increase,

D m n f r R.E. L n D linD m n f r R.E. L n D lin

100NetPercentageofDomesticRespondentsTighteningStandards

60

80

forCommercialRealEstateLoans

NetPercentage

of

Domestic

Respondents

Reporting

Stronger

DemandforCommercialRealEstateLoans

20

40

20

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

60

40

??80

Source: Federal Reserve April 30, 2009


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ForecastForecast

793 bp785 bp

417417 bpbp LRALRAS readS read

Q210

-220 bp

Q2 84

118 bp

Q3 06


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ForecastsofReturnComponentsForecastsofReturnComponentsCapRatesExplodingCapRatesExploding Up490bpsby2010Up490bpsby2010

Treasury Spread %

NOI Cap Rate2005 4.3% 4.0% 15.5% 8.3%

2006 4.3% 3.8% 13.3% 8.1%

2007 . . . .

2008 3.7% 4.1% -3.8% 7.9%

2009F 2.6% 7.9% -30.1% 10.5%

. . - . .

Source:PKFHospitalityResearch, RERC,MoodysEconomy.com


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Takeawa s


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Employment

Bottoms

Failures Abate

Foreclosures House Prices

Stock Market

Bottoms

Housing Starts

Bottom

Peak Resume Rising

Fed Tightens

09q2 09q3 09q4 10q1 10q2 10q3 10q4

08q1 08q2 08q3 08q4 09q1

Home SalesBottom

House Prices

Bottoms

Jobless Rate

Peaks

Peak

28

End$ Rises



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HowMuchStressinHowMuchStressin

theMarket?

the

Market?

Approach:

LoanAmount,Terms,LTV,DSC@

Ori ination

actual

er ormancedata

PKFHRHotelHorizonssm Forecasts

PKFHRCapRateForecasts


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HowMuchStressinHowMuchStressin

theMarket?

the

Market?

Hotel CMBS LoansA Look at Atlanta

Vintage

Number of

Properties

Number of

Rooms

Pre-2006 20 5,098

2006 22 3,136

2007 16 2,153

2008 - -

Total 58 10,387

Source: Trepp


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HowMuchHowMuchStressStress inin

Atlanta?

Atlanta?

2008 Debt Service Coverage

.

Pre-2006 0.61 2.50 1.72 3

2006 0.59 2.36 1.48 5

2007 0.83 2.12 1.34 5

2008 N.A. N.A. N.A. N.A.

Vinta e Low Hi h Avera e #< 1.0

2009 Debt Service Coverage

Pre-2006 0.1 1.69 1.03 8

2006 0.24 1.69 0.95 14

2007 0.37 1.34 0.85 11

2008 N.A. N.A. N.A. N.A.

Source: Trepp; PKF-HR


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Atlanta?

Atlanta?

Debt Service Coverage Comparison

Vintage

2008

Average

2009

Average

p

Delta

re- . .

2006 1.48 0.95 (53)

2007 1.34 0.85 (49)

. . . . . .

Source: Trepp; PKF-HR

A Lot!A Lot!


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Atlanta?

Atlanta?

Estimated 2009 Loan-to-Value

Vintage

Estimated

2009 LTV

# Loans

>100%

Pre-2006 48.6% 7/20

2006 114.0% 11/22

2007 122.6% 11/16

2008 N.A.Source: Trepp; PKF-HR

Even MoreEven More

U S N hi L k N lU S N hi L k N l


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U.S.:NothingLooksNormalU.S.:NothingLooksNormalSupplyUpSupplyUp DemandDown:DemandDown:

BIAS:NegativeBIAS:Negative

2009=theLowPointGoingForward2009=theLowPointGoingForward

LongTermAverage 2004 2005 2006 2007 2008 2009F 2010F

=Below/AboveLongRunAverage

Supply 1.9% 0.4% 0.1% 0.2% 1.3% 2.7% 2.6 0.9%

Demand 1.9% 4.0% 2.8% 0.5% 0.9%1.6%

5.4% 0.0%

Occupancy 62.8% 61.3% 63.1% 63.3% 63.1% 60.4% 55.7% 55.2%

ADR 3.5% 4.2% 5.5% 7.5% 6.2% 2.4%6.4%

2.3%

RevPAR 3.5% 7.9% 8.5% 7.8% 5.8% 1.9% 13.7% 3.2%

Source: PKF Hospitality Research Preliminary First Quarter 2009 Hotel HorizonsSM Report, Smith Travel ResearchOccupancy: 50s are the new 60sOccupancy: 50s are the new 60s


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QuarterWhenTheTurningPointQuarterWhenTheTurningPointWill

OccurWillOccur

UnitedUnited StatesStates

ADRADR 2Q 20102Q2010

RevPARRevPAR 2Q

20102Q

2010SupplySupply 4Q 20094Q2009

DemandDemand 1Q 20101Q2010

GDPGDP /GMP/GMP 1Q

20101Q2010

Leisure&Leisure& HospitalityEmploymentHospitalityEmployment 2Q 20102Q2010

Source:PKFHospitalityResearch,Moody'sEconomy.com


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The Cycle of Real EstateThe Cycle of Real Estate

-- u yu y

20072008 1st

Half

2008 2nd

Half

2011-12

2009-20102011


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WhatWillOurNextUpdate

LookLike?

2009

Employment Assumption in these Forecasts -2.9%

April 2009 Update - Economy.com -3.7%

Downgrade -0.8%

Source: Moody's Economy.com

The -13.7% RevPar for 2009 Will be Downgraded


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Implications From theImplications From the

urrent conom c tuat onurrent conom c tuat on

InAsian

Astrology,

theNewMoonof

January26,2009began

e

earo

e

x.


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Implications From theImplications From the

urrent conom c tuat onurrent conom c tuat on

InOxYears,Patience,Fortitude and

,

Leverage,

Leadto

Prosperity


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Meet the Money 2009: Mark Woodworth PKF 5-6-09

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