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Transcript of Pkf-hr Hunter 2012
ALIS 2012ALIS 2012
U.S. Lodging Market Outlook U.S. Lodging Market Outlook
March 19, 2012Mark Woodworth
Accelerating success.PKF Hospitality Research
TopicsTopics
Accuracy AssessmentAccuracy AssessmentYou Pick the Forecast !You Pick the Forecast !Cap Rate OutlookCap Rate Outlook
For a Copy:
2
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Hunter Conference Hunter Conference 20112011Accuracy AssessmentAccuracy AssessmentAccuracy AssessmentAccuracy Assessment
United StatesUnited States20112011 20122012
HunterHunter20112011
2011 2011 A t lA t l
HunterHunter20112011
Current Current F tF t20112011 ActualActual 20112011 ForecastForecast
Occupancy 59.4% 60.1% 61.0% 61.0%
ADR 3.8% 3.7% 6.0% 4.1%
RevPAR 7 1%7 1% 8 2%8 2% 8 9%8 9% 5 8%5 8%RevPAR 7.1%7.1% 8.2%8.2% 8.9%8.9% 5.8%5.8%
Full Demand RecoveryFull Demand Recovery Less Optimistic on Less Optimistic on ADR PotentialADR Potential
3Source: PKF Hospitality Research, LLC – March-May 2012 Hotel Horizons®, Smith Travel Research
Why?Why?
Factors Impacting ADR in 2012Factors Impacting ADR in 2012
Main drivers of the demand recovery 2010 - 2011:
Real personal income growth- Corporate profit growth- Real personal income growth- Low room rates
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Rate of Corporate Profit GrowthRate of Corporate Profit GrowthNot as Robust in 2012Not as Robust in 2012
50 0% 4 Q t M i A Ch
Not as Robust in 2012Not as Robust in 2012
40.0%
50.0% 4-Quarter Moving Average ChangeChange in U.S. Corporate Profits ForecastForecast
20.0%
30.0%
0.0%
10.0%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
-20.0%
-10.0% 198
199
199
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
200
200
201
201
201
201
-30.0%Source: Moody’s Analytics
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Change inChange inTotal Real Personal IncomeTotal Real Personal Income
J 11 A 11 O tO t 1111 JJ 1212
Total Real Personal IncomeTotal Real Personal Income
Date of Forecast:
Hunter 2011
6.0%
8.0%Jan-11 Apr-11 OctOct--1111 JanJan--1212
2.0%
4.0%
-2.0%
0.0%
A little more pessimistic
-6.0%
-4.0% going into 2012
Source: Moody's Analytics6
TodayHunter 2011
Leading Economic IndicatorsLeading Economic Indicators% change in last 6 months % change in last 6 months ––February 2012February 2012gg yy
15%
20%Leading Economic Indicators (% change in the last 6 months) U.S. Hotel Demand
5%
10%
15%
-5%
0%
5%
-15%
-10%
-25%
-20%
A Contraction A Contraction
6 to 8 Month Lag6 to 8 Month Lag
Source: The Conference Board, PKF-HR, STR 7
-30%Coming?Coming?
Room Rates Remain Well Below Room Rates Remain Well Below Past Peak in Most MarketsPast Peak in Most Markets
2011 ADR2011 ADRPercentage Point Difference From Previous PeakPercentage Point Difference From Previous Peak
0%
5%Percentage Point Difference From Previous PeakPercentage Point Difference From Previous Peak
U.S. is 5.4% below the previous peak.
-5%
0%
-10%
®®
-15%50 U.S. Horizons50 U.S. Horizons®® MarketsMarkets
Room Rates Still Have a Room Rates Still Have a LongLong Way to Go!Way to Go!
-20%8Source: PKF Hospitality Research, March – May 2012 Hotel Horizons®
But Fundamentals are ImprovingBut Fundamentals are ImprovingBut Fundamentals are ImprovingBut Fundamentals are Improving
Number of Top U.S. Markets with Number of Top U.S. Markets with Increasing:Increasing:
Average Daily Rates Occupancy
Increasing:Increasing:
Rates Occupancy2008 47 42009 0 02010 9 49 Houston
Outliers Outliers
2010 9 492011 48 49
2012F 50 44
Atlanta and San AntonioHouston
New Orleans
2013F 50 482014F 50 492015F 50 48
9Source: STR, PKF Hospitality Research, March – May 2012 Hotel Horizons®
Rates and Occupancies are Going Up !Rates and Occupancies are Going Up !
Pi k Y OPi k Y OPi k Y OPi k Y OPick Your Own Pick Your Own F tF t
Pick Your Own Pick Your Own F tF tForecastForecastForecastForecast
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Pick Your Own Forecast:Pick Your Own Forecast:
Three Scenarios
1 Mild Second Recession
2 Expected Case
1. Mild Second Recession
2. Expected Case
3. Strong Near-term Reboundg
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Mild Second RecessionMild Second Recession
• European Sovereign and banking debt problems intensify causing the European recession to worsenintensify, causing the European recession to worsen.
• U.S. business confidence weakens and total U.S. exports level off and begin to decline.exports level off and begin to decline.
• Lack of progress on the U.S. fiscal situation further undermines business confidence.
• A mild second recession occurs during first and second quarters of 2012.U l t t i ki t 11 1% i Q1• Unemployment rate rises, peaking at 11.1% in Q1 2013.
2012 Mild Second Recession Economic ForecastI E l t CPI GDP
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Income Employment CPI GDP1.5% -0.3% 0.8% 0.1%
Source: Moody’s Analytics
Mild Second RecessionMild Second Recession
MeasureMeasure 20112011 20122012Supply 0.6% 0.7%
Demand 5.0% -0.1%5.0% 0.1%Occupancy 60.1% 59.6%
Average Daily Rate 3 7% 2 7%Average Daily Rate 3.7% 2.7%RevPAR 8.2% 1.9%
13Source: PKF Hospitality Research; Smith Travel Research
Expected Case ScenarioExpected Case Scenario
• Unemployment is expected to remain above 8% through 2012 even with the addition of 2 million jobsthrough 2012 even with the addition of 2 million jobs.
• Extend payroll tax holiday and emergency unemployment insurance through the rest of 2012.unemployment insurance through the rest of 2012.
• Housing prices continue to fall through Q2 2012 as foreclosures and short sales increase.
• Mild European Recession.• Business Investment increases 8.9%.
2012 Expected Case Economic ForecastIncome Employment CPI GDP
14Source: Moody’s Analytics
Income Employment CPI GDP2.5% 1.1% 2.1% 2.6%
Expected Case ScenarioExpected Case Scenario
MeasureMeasure 20112011 20122012Supply 0.6% 0.6%
Demand 5.0% 2.2%5.0% 2.2%Occupancy 60.1% 61.0%
Average Daily Rate 3 7% 4 1%Average Daily Rate 3.7% 4.1%RevPAR 8.2% 5.8%
15Source: PKF Hospitality Research; Smith Travel Research
Strong NearStrong Near--term Reboundterm Rebound
• Better than expected progress on the European sovereign debt crisis and the U S federal fiscal debatesovereign debt crisis and the U.S. federal fiscal debate raises business confidence, speeding up fixed investment & hiring.g
• Consumer sentiment rebounds strongly.• No further declines in house prices.• Unemployment rate declines to less than 8%.• Federal Reserve begins to raise the federal funds rate
l l th f 2012slowly over the course of 2012.2012 Strong Near-term Rebound Economic Forecast
Income Employment CPI GDP
16Source: Moody’s Analytics
Income Employment CPI GDP3.4% 1.7% 2.3% 3.7%
Strong NearStrong Near--term Reboundterm Rebound
MeasureMeasure 20112011 20122012Supply 0.6% 0.6%
Demand 5.0% 2.9%5.0% 2.9%Occupancy 60.5% 61.6%
Average Daily Rate 4 7% 4 6%Average Daily Rate 4.7% 4.6%RevPAR 5.4% 7.3%
17Source: PKF Hospitality Research; Smith Travel Research
You Pick the ForecastYou Pick the Forecast
20122012Mild Mild Strong Strong
MeasureMeasureSecond Second
RecessionRecessionExpected Expected
CaseCaseNearNear--term term ReboundRebound
Demand 0.6% 2.2% 2.9%Occupancy 60.1% 61.0% 61.6%
Average Daily Rate 2.1% 4.1% 4.6%RevPAR 2.3% 5.8% 7.3%
18Source: PKF Hospitality Research1.1. 2.2. 3.3.
C R t F tC R t F tC R t F tC R t F tCap Rate ForecastCap Rate ForecastCap Rate ForecastCap Rate Forecast
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The Credit Spigot Is OpeningThe Credit Spigot Is OpeningNet % of senior loan officers…
8050Willi t k
40
60
20
30
40 Willing to make a consumer loan (L)
0
20
0
10
-40
-20
-30
-20
-10
Tightening standards for C&I loans to small
-80
-60
-50
-40
90 92 94 96 98 00 02 04 06 08 10 12
businesses (R)
90 92 94 96 98 00 02 04 06 08 10 12
Source: Federal Reserve Senior Loan Officer Survey – January, 2012
Hotel Cap Rate Forecasting ModelHotel Cap Rate Forecasting Model
Accounting for Growth and Risk Accounting for Growth and Risk (Gordon Growth Model)(Gordon Growth Model)
Moody’s AnalyticsMoody’s AnalyticsPKF Hotel PKF Hotel RERC Survey/ RCA
RERC Survey/ RCAData Moody s AnalyticsMoody s AnalyticsHorizons/ STRHorizons/ STRSurvey/ RCA
Trans.Survey/ RCA
Trans.Data
10-Year Treasuries Moody’s Baa Corp Bond
Changes in Income
Hotel Cap RateVariables
R Hotel ΔRevPAR Risk Free AlternativeT10
Market RiskBaa - T10
The equity risk Change in Risk free Proxy for all
21
applied to hotels
incomeRisk free
alternative toany investment
Proxy for allother rated
debt
Forecasts of Return ComponentsForecasts of Return ComponentsLodging Risk Premium Stays Below L.R.A.Lodging Risk Premium Stays Below L.R.A.
10 Year Treasury Market Risk PremiumLodging Risk Premium Hotel Cap Rate
2005 4 3% 1 8% 2 8% 8 9%
Base Case ScenarioBase Case Scenario
2005 4.3% 1.8% 2.8% 8.9%
2006 4.8% 1.7% 2.0% 8.5%
2007 4.6% 1.9% 1.5% 7.9%
2008 3.7% 3.8% 0.9% 8.4%
2009 3.3% 4.0% 2.0% 9.3%
2010 3.2% 2.8% 1.9% 7.9%
2011 2.8% 2.8% 2.5% 8.1%
2012F 2 5% 2 9% 2 3% 7 7%
3.5%5 0%
2.4%2 0%
2.3%1 8%
8.2%8 8%2012F 2.5% 2.9% 2.3% 7.7%
2013F 4.0% 2.4% 2.2% 8.6%
L.R.A. 5.3% 2.3% 2.7% 10.0%
5.0%
5.2%
2.0%
1.7%
1.8%
1.7%
8.8%
8.6%
Source: PKF Hospitality Research, RERC, RCA, Moody’s Analytics
Long Run Average (L.R.A.) = 1992-2011
22Hunter 2011 = REDHunter 2011 = RED
S Thi tS Thi tS Thi tS Thi tSome Things to Some Things to Think AboutThink About
Some Things to Some Things to Think AboutThink AboutThink AboutThink AboutThink AboutThink About
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In Asian Astrology…..In Asian Astrology…..
J 23rd 2012 bJ 23rd 2012 bJanuary 23rd, 2012 began the year of the
January 23rd, 2012 began the year of theyy
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In Asian Astrology…..In Asian Astrology…..
• This should be a year of aggressive positioning for the future.
• This should be a year of aggressive positioning for the future.p gp g
• “Conventional wisdom” should not be allowed to stand in the way of
• “Conventional wisdom” should not be allowed to stand in the way ofbe allowed to stand in the way of progress.be allowed to stand in the way of progress.
Th h fid t i th iTh h fid t i th i• Those who are confident in their ideas and ventures should proceed.
• Those who are confident in their ideas and ventures should proceed.
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A Final ThoughtA Final Thought
“Each New Day “Each New Day Brings a Rising Tide”Brings a Rising Tide”
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