AEC PKF HR 5-15-2013 FNLatlantaeconomicsclub.org/wp-content/uploads/2013/... · 5/15/2013 · United States Q1 2013 Forecast 13 PKF-HR Forecast Q1 2013 STR Q1 2013 Actual Supply

Familiar Themesa presentation to the:

U.S. Lodging Industry Update

R. Mark WoodworthJamie Lane

PKF Hospitality Research, LLCMay 15, 2013

Atlanta Economics Club

Hotel Horizons®Forecasting Model

•Smith Travel ResearchHistorical rooms occupied, room available, rooms revenuePipeline of future hotel construction

•Moody’s AnalyticsEconomic forecasts

2

Familiar Themes

3

1. The economic outlook, while rife with uncertainty, remains essentially unchanged.

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

2008 2009 2010 2011 2012 2013 2014

(GOVERNMENT) Government consumptionexpenditures and gross investmentTRADE (Net exports of goods and services)

BUSINESS (Gross private domestic investment)

CONSUMERS (Personal consumption expenditures)

Demand change

GDP Component Forecast

4

Source: BEA, Moody’s AnalyticsThese matter the most.

The Outlook for the Drivers that are Most Important to Hotels Remains Favorable

5

Historic and Projected International Visitors to the U.S.

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Arr

ival

s in

Mill

ions

Forecast

Source: International Trade Administration

This Includes In-Bound International Visitation

Familiar Themes

6

1. The economic outlook, while rife with uncertainty, remains essentially unchanged

2. Supply growth remains in check in most markets.

New Supply Outlook Varies Across Markets

7

Mixed Signals on New Hotel Construction

8Source: Engineering News Record Q1 2013 Report

Nominal Dollar Operating Profits* Surpass Previous Peak in 2014

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

Source: PKF Hospitality Research LLC’s Annual Trends Database

9

2009 – 2014F

Real Changes In NOI* Still Below All-Time High and Previous Peak

Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization2012 Constant value dollars

Source: PKF Hospitality Research LLC’s Annual Trends Database

10

Familiar Themes

11



3. The fundamentals have become more predictable and the outlook remains very attractive.

Hotel Horizons® May 2012

12

2012 2013May

2012STR

ActualMay2012

Most RecentUpdate

Occupancy 60.7% 61.4% 61.9% 62.0%

ADR 4.7% 4.2% 5.3% 5.0%

RevPAR 6.7% 6.8% 7.3% 6.1%

Stronger than Expected Demand Growth

United States

ADR Recovery Slower than Expected

Source: PKF Hospitality Research, LLC – Hotel Horizons® March--May 2012, 2013, Smith Travel Research

United States Q1 2013 Forecast

13

PKF-HR ForecastQ1 2013

STR Q1 2013Actual

Supply 0.8% 0.7%

Demand 2.3% 2.6%

Occupancy 1.6% 1.8%

ADR 5.8% 4.5%

RevPAR 7.4% 6.4%

Stronger than Expected Demand Growth (again)

ADR Lift Very Good; Not Great

Source: PKF Hospitality Research, LLC – Hotel Horizons® March--May 2012, 2013, Smith Travel Research

Good News Summary

14

1. Supply Growth: Below Average through 2016.

2. Demand Growth: Above Average through 2015.

3. Occupancy: Above Average Level through 2016.

4. ADR Growth: 2 x’s Average through 2015.

5. RevPAR Growth: 2.5 x’s Average through 2015.

15

These Strong Market Conditions will Persist through 2017

48%

50%

52%

54%

56%

58%

60%

62%

64%

66%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

ADR Occ

Occupancy

AD

R

Forecast

LRA = Long Run Average

Source: PKF Hospitality Research LLC, Smith Travel Research

Historic and Forecast Occupancy and ADR4 Quarter Moving Average

Profit Growth Will be Above Average as Well

16

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Percent Change in NOI Long Run Average

Forecast

Source: PKF Hospitality Research, LLC

17

Longer Term Outlook Remains Strong Across Markets

Source: PKF Hospitality Research LLC, Smith Travel Research

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

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U.S. Average 5.9%

Average Annual RevPAR Change (2013 - 2017)

Familiar Themes

18



4. Group meeting demand needs to recover.

3. The fundamentals have become more predictable and the outlook remains very attractive.

Forecast Occupancy LevelsBy Chain-Scale

19

71.0% 69.3% 69.5%

61.3% 53.2% 53.4%

73.3% 70.7% 70.9%

62.8% 54.9% 54.3%

74.0% 71.2% 71.1%

63.7% 55.1% 54.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2011 2012 2013F

Source: STR, PKF Hospitality Research, LLC, March-May 2013 Hotel Horizons®

This is where meetings go.

Hotel ValuesHotel Values

20

Total Financial Returns

21

1. Asset appreciation (hopefully).

2. Annual cash flow (income).

Come from:

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

Apartment Hotel Industrial Office Retail

22

NCREIF Total Returns

Q1 2005 – Q4 2012

Hotel

Source: National Council of Real Estate Investment Fiduciaries

Quarterly Measures

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012


23

NCREIF Total ReturnsA Closer Look

Q1 2010 – Q4 2012

Hotel


Quarterly Measures

1.00%

1.20%

1.40%

1.60%

1.80%

2.00%

2.20%

2.40%

2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012


24

NCREIF Income Return

Q1 2010 – Q4 2012

Hotel


Quarterly Measures

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012


25

NCREIF Appreciation Return

Q1 2010 – Q4 2012

Hotel


Quarterly Measures

What Explains the Lodging

Disconnect with Other Property

Types?

What Explains the Lodging

Disconnect with Other Property

Types?26

Uncertainty! It Remains Elevated

Source: Scott R. Baker, Nicholas Bloom, and Steven J. Davis

“Since 2008, economic policy uncertainty has averaged about twice the level of the previous 23 years.”

Some Findings from 2012 Trends®

Survey

Some Findings from 2012 Trends®

Survey28

Salaries, Wages, and

Benefits45.3%

Cost of Goods Sold8.5%

Management Fees3.9%

Property Taxes and Insurance

6.5%

Operating Expenses

35.8%

Where Did The Dollars Go in 2012?Percent of Total Operating Expenses*

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

Source: PKF Hospitality Research, LLC, 2013Trends® in the Hotel Industry sample (2012 Data) 29

Average Hotel in PKF-HR 2013 Trends® Database215 Rooms, 70.5% Occupancy, $149.10 ADR

(45.7%)

(35.4%)(6.4%)

(3.8%)

(8.8%)

(2011 Results)

U.S. Hotel Labor Costs - $PORAnnual Change: 2011 – 2012

0% 2% 4%

Total Hotel

Maintenance

Marketing

Administrative and General

Other Operated

Food and Beverage

Rooms

Dollars Per Occupied Room ($POR)

Source: PKF Hospitality Research, LLC, 2013 Trends® in the Hotel Industry

Annual Increase Occupied Rooms = 1.8%

Rooms Sold And Total Labor Costs

POR Both Increased By 1.8%.

Is This a Good Thing?

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Change in Average Hourly Compensation

Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics

0%

1%

2%

3%

4%

5%

6%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est

BLS - Change in Average Hourly Compensation for HospitalityEmployees (Left Axis)

Can these low increases be sustained?

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Change in Average Hourly Compensation vs. Unemployment


4.0%

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6.0%

7.0%

8.0%

9.0%

10.0%

0%

1%

2%

3%

4%

5%

6%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est

BLS - Change in Average Hourly Compensation for HospitalityEmployees (Left Axis)

U.S. Unemployment Level (Right Axis)

32

Annual Change inTotal Hours Worked


-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est

Change in Total Hours Worked

Since 2011, the Rate of Increase in the Percentage Change of Hours Worked Declined.

Is This A Good Thing?

33

Change In Hours Worked vs.Change In Rooms Occupied


-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Est

Change in Total Hours Worked PKF-HR Change in Occupied Rooms

Total Hours Worked Now Growing Faster Than

Rooms Sold

34

Change in Hourly Wages and Hours Worked vs Change in Occupied Rooms


-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est


BLS - Change in Average Hourly Compensation for Hospitality Employees

Change In Occupied Rooms

Productivity Has Been Declining Since 2011 at

an Increasing Rate

35

Change in Hourly Wages and Hours Worked = Change in Labor Costs


-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Est


BLS - Change in Average Hourly Compensation for Hospitality Employees

PKF-HR - Annual Change in Total Labor Costs

Although Productivity has been Declining, the Rate of Increase

in Labor Costs is Less than what We Saw During the Last

Expansion Phase

36

Components of Labor CostAnnual Change

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Salaries, Wages, and Bonuses - LRA = 3.7%

Payroll Related Expenses (Benefits) - LRA = 4.9%

Note: 9th Edition of USALI prior to 2007

Source: PKF Hospitality Research, LLC, Trends® in the Hotel Industry 37

Atlanta

1990 Q31612.43

1992 Q31623.00

2001 Q12309.93

2003 Q12329.07

2008 Q12458.23

2013 Q12384.30

2014 Q22471.13

1500.00

1700.00

1900.00

2100.00

2300.00

2500.00

2700.00

1988

Q1

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Q4

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Q3

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2012

Q1

2012

Q4

2013

Q3

2014

Q2

2015

Q1

2015

Q4

2016

Q3

2017

Q2

9 Quarters

13 Quarters

26 Quarters

Atlanta Total Employment Levels

…are climbing

Source: Moody’s Analytics

We’re here

2000 Q42.9%

2007 Q14.4%

2009 Q410.5%

2013 Q18.4%

0.00

2.00

4.00

6.00

8.00

10.00

12.00

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Q1

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Q1

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2012

Q3

2013

Q2

2014

Q1

2014

Q4

2015

Q3

2016

Q2

2017

Q1

2017

Q4

Atlanta’s Unemployment Rate

… Has a long way still to go


We’re here

Real Personal Income(Indexed 1988 = 100)

100

120

140

160

180

200

220

240

260

280

300

1988

Q1

1989

Q1

1990

Q1

1991

Q1

1992

Q1

1993

Q1

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

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2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

Atlanta U.S. Forecast


Total Employment(Indexed 1988 = 100)

100

110

120

130

140

150

160

170

180

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Q1

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Q1

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Q1

1991

Q1

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2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

Atlanta U.S. Forecast


City Wide Demand and the Impact on Atlanta Hotel Performance

Source: Trends, Analysis, Projections, LLC

THE TAP REPORT Atlanta Period Ending March 31, 2013Report Date: April 9, 2013

2013Atlanta 2013 R/N JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTALDefinite Room Nights 119,131 103,510 99,804 119,998 32,897 115,157 177,760 116,435 58,588 109,699 67,487 49,019 1,169,485Pace Targets 145,538 90,176 131,696 111,636 76,200 111,179 167,753 90,795 87,483 117,015 89,654 67,298 1,286,423Variance (26,407) 13,334 (31,892) 8,362 (43,303) 3,978 10,007 25,640 (28,895) (7,316) (22,167) (18,279) (116,938)Consumption Benchmark 145,538 90,176 131,696 113,806 78,973 117,144 179,074 97,953 95,523 129,851 101,238 77,014 1,357,986Pace Percentage 82% 115% 76% 107% 43% 104% 106% 128% 67% 94% 75% 73% 91%Total Demand Room Nights 548,512 570,410 683,603 564,320 546,471 857,139 635,529 319,047 332,492 617,928 489,197 150,225 6,314,873Lost Room Nights 429,381 466,900 583,799 444,322 513,574 741,982 457,769 202,612 273,904 508,229 421,710 101,206 5,145,388Conversion Percentage 22% 18% 15% 21% 6% 13% 28% 36% 18% 18% 14% 33% 19%Tentative Room Nights 0 0 0 10,700 10,910 48,446 38,343 23,806 8,244 51,740 24,350 31,331 247,870Annual Tentative Room Nights 0 0 0 0 0 0 20 20 1,357 0 0 0 1,397

Atlanta 2013 EventsDefinite Events 37 65 58 52 31 48 59 36 28 39 20 13 486Pace Targets 39 52 56 50 29 39 51 22 25 28 18 8 417Variance (2) 13 2 2 2 9 8 14 3 11 2 5 69Consumption Benchmark 39 52 56 63 41 60 87 41 50 62 43 21 615Pace Percentage 95% 125% 104% 104% 107% 123% 116% 164% 112% 139% 111% 162% 117%Total Demand Events 140 162 169 163 117 148 137 84 98 138 75 29 1,460Lost Events 103 97 111 111 86 100 78 48 70 99 55 16 974Conversion Percentage 26% 40% 34% 32% 26% 32% 43% 43% 29% 28% 27% 45% 33%Tentative Events 0 0 0 20 35 34 111 42 27 34 16 13 332Annual Tentative Events 0 0 0 0 0 0 1 1 1 0 0 0 3

Change in Atlanta Demand and Change in Definite Room Nights Booked –

One Year in Advance

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013

Definite Room Nights Booked

Upper Priced Demand^

Downtown Upper Priced DemandSource: Smith Travel Research; Trends, Analysis, Projections, LLC

Change in Atlanta Demand and Change in Definite Room Nights Booked –

One Year in Advance

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014

Definite Room Nights Booked

Upper Priced Demand^

Downtown Upper Priced DemandSource: PKF-HR, Smith Travel Research; Trends, Analysis, Projections, LLC

Forecast

Q4 2013 Submarket Performance vs Q4 2012

Sub-Market Name Occ^ ADR^ RevPAR^Downtown 13% 12% 26%Midtown 8% 9% 18%Central Perimeter 3% 10% 13%Peachtree Corners 9% 3% 13%I-85 South 10% 2% 12%Buckhead 5% 6% 12%Town Center North 7% 3% 10%Six Flags 7% 2% 9%Georgia 400 North 2% 7% 9%I-85 Northeast 5% 4% 9%Gwinnett Place 5% 3% 8%Airport 7% 0% 8%I-20 East 5% 3% 7%Emory / Decatur 1% 5% 6%I-75 South 6% -1% 5%Cumberland / Central Cobb 0% 4% 4%Northlake / Stone Mountain -1% 3% 2%

2010 2011 2012 2013F 2014F

Long-Term

Average

Occupancy 57.4% 59.0% 61.0% 61.3% 62.3% 62.1%

% Change +9.6% +2.9% +3.4% +0.5% +1.6% -

ADR $82.90 $82.76 $85.75 $88.16 $92.76 -

% Change -0.7% -0.2% +3.6% +2.8% +5.2% +2.0%

RevPAR $47.60 $48.87 $52.35 $54.07 $57.81 -

% Change +8.8% +2.7% +7.1% +3.3% +6.9% +2.0%

Atlanta MSAAll Hotels

Improved Occupancy = Better ADR Performance in 2012

Source: PKF Hospitality Research –March-May 2013 Hotel Horizons® Report, Smith Travel Research

Summary

49

2. Industry growth, while still positive, will slow relative to what we have become used to.Q2 and Q3 2013 will be weaker ; 2014 should be next really good year.

1. Uncertainty continues to be a drag – an important impediment to the recovery of the group segment and pricing overall.

Summary

50

3. Positive momentum will persist as industry fundamentals solidify and greater levels of debt and equity find their way into the market. The hotel risk premium contracts as a result.

4. It is a great time to be in the hotel business – both here in Atlanta and just about everywhere else!

Documents

AEC PKF HR 5-15-2013 FNLatlantaeconomicsclub.org/wp-content/uploads/2013/... · 5/15/2013 · United States Q1 2013 Forecast 13 PKF-HR Forecast Q1 2013 STR Q1 2013 Actual Supply