Hospitality Lawyer on State of the Hotel Industry - Mark Woodward at JMBM's Meet the Money 2008

8/14/2019 Hospitality Lawyer on State of the Hotel Industry - Mark Woodward at JMBM's Meet the Money 2008

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U.S. Lodging Horizon 2008U.S. Lodging Horizon 2008

What Lies Ahead?

1818thth AnnualAnnual

Meet the MoneyMeet the MoneyWednesday, May 7, 2008

R. Mark [email protected]


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Presentation Outline

I. The Economy

II. Current Horizon:

Have We Seen this Before?

III. Some Thoughts to Take-away


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Question:Question:

Are we headed for aAre we headed for arecession?recession?

Or just a healthyOr just a healthy

correction?correction?


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Much Happening in theMuch Happening in the

National EconomyNational Economy

I. Credit Crunch:

Stifles Consumer & Business Activity

II. High Oil Prices:

Fuels Inflation; Impacts Travel

III. Low Dollar Valuation

Helps In-Bound International Travel

Increases Exports, InflationInflation

IV. Employment Growth Slowing


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-400 -300 -200 -100 0 100 200 300

Autos

Grocery

Restaurants

Sport, book & mus ic

Clothing

Home furnishings

Electronics

Health and Personal

Building Mater ials

Nonstore

Gas Stations

Basis-point change - share of retail dollar 2002 - 2007

Consumers Continue to MakeConsumers Continue to Make

Tough DecisionsTough Decisions

Source: BOC

Gasoline + 26%

from a year ago


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10

20

30

40

50

60

7080

90

100

110

02 03 04 05 06 07 08

1.0

1.5

2.0

2.5

3.0

3.5

4.0

$100+ Oil Implies $4$100+ Oil Implies $4

for a Gallon of Gasolinefor a Gallon of Gasoline

WTI$ per barrel (L)

Gasoline price$ per gallon (R)

Sources: WSJ,Energy Department, Economy.com


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One of Six Leisure Travelers Plans toOne of Six Leisure Travelers Plans toTake Fewer Trips This YearTake Fewer Trips This Year

Not Because of Time PovertyNot Because of Time Poverty

Reasons For Taking Fewer Leisure Trips: 2007% 2008%

Current economic conditions make it difficult for me to travel 16 19

Havepro jec ts/thingsIneedto do atho m e

22 15

No tableto getaw ayfro m m yjo b/w o rk/lessvac atio ntim e

24 12

The overall cost of leisure travel is too high NA 12

There are other things Id rather do with my

vacation/leisure time than travel NA 11

Pric eo fgaso lineisto o high

5 9

Air travel is too big of a hassle 3 4

1 4

Denotes statistically significant difference from prior year.

NA Not asked in 2007.

Source: YPartnership Leisure Travel Monitor


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-15%

-10%

-5%

0%

5%

10%

15%

1960 1970 1980 1990 2000 201

Revenues Expenses C.P.I.

Inflation Rarely a Problem for HotelInflation Rarely a Problem for Hotel

ProfitsProfitsAnnual ChangeFrom 1960 to 2007

Revenue Change Greater Than CPI 30 of 48 Years

Expense Change Greater Than CPI 30 of 48 Years

PKF Hospitality Research,BLS


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Interest coverage ratio for nonfinancial corporations

Corporate Balance Sheets Are StillCorporate Balance Sheets Are Still

StrongStrong

Sources: BEA, Moodys Economy.com

0

10

20

30

40

50

80 85 90 95 00 05


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Where Are Cap Rates Going?Where Are Cap Rates Going?

PKF HospitalityResearch


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Forecasts of Return ComponentsForecasts of Return ComponentsCap Rates Moving Up 150 bps by 2010Cap Rates Moving Up 150 bps by 2010

10 Year

Treasury

Treasury

Spread % NOI Cap Rate2005 4.3% 4.0% 15.5% 8.3%

2006 4.8% 3.3% 13.3% 8.1%

2007 4.6% 3.0% 7.2% 7.6%

2008F 4.1% 3.4% 1.3% 7.5%

2009F 5.4% 3.2% 4.9% 8.6%

2010F 5.7% 3.4% 5.0% 9.1%

PKF Hospitality Research, MoodysEconomy.com


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The Economy

Current Horizon:

Have We Seen This Before?



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LRA Demand : 1.9%

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

Forecast

HighHighSupply Growth Preceded Last TwoSupply Growth Preceded Last TwoDownturnsDownturns

Not This Time AroundNot This Time Around


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

Demand Demand A Double-DipA Double-Dip12 Month Moving Average12 Month Moving Average

Sources: PKF-HR, Smith Travel Research

April 2002 -

November 1991 -

April 2007 -

March 2008

November 2008:


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Historical ChangeHistorical Change

in U.S. Lodging Supply + Demandin U.S. Lodging Supply + Demand12 Month Moving Average12 Month Moving Average

Sources: PKF-HR, Smith Travel Research

April 2002:

November 1991:

April 2007:

March 2008

November 2008:


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Supply Demand Occupancy ADR RevPAR

November 1991 2.1% -1.2% 62.0% 0.6% -2.7%+ 1 Year 1.1% 1.7% 62.4% 1.1% 1.8%

+ 2 Years 0.7% 2.1% 63.2% 2.4% 3.9%

April 2002 2.1% -4.8% 58.9% -3.9% -10.4%

+ 1 Year 1.4% 1.1% 58.6% 0.2% 0.0%

+ 2 Years 0.9% 2.6% 59.8% 1.0% 2.7%April 2007 0.5% -0.2% 63.1% 7.2% 6.5%

+ 1 Year 1.5% 1.2% 63.0% 5.7% 5.4%

+ 2 Years 2.6% 0.9% 61.6% 0.7% -0.9%

12 Month Moving Averages

Sources: PKF Hospitality Research; Smith Travel Research

This Recovery Looks DifferentThis Recovery Looks Different


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The Double-Dip Extends aThe Double-Dip Extends a

RecoveryRecovery

Supply Demand Occupancy ADR RevPAR

November 1991 2.1% -1.2% 62.0% 0.6% -2.7%

+ 1 Year 1.1% 1.7% 62.4% 1.1% 1.8%

+ 2 Years 0.7% 2.1% 63.2% 2.4% 3.9%April 2002 2.1% -4.8% 58.9% -3.9% -10.4%

+ 1 Year 1.4% 1.1% 58.6% 0.2% 0.0%

+ 2 Years 0.9% 2.6% 59.8% 1.0% 2.7%

April 2007 0.5% -0.2% 63.1% 7.2% 6.5%

+ 1 Year1.5%

1.2% 63.0% 5.7% 5.4%+ 2 Years 2.6% 0.9% 61.6% 0.7% -0.9%

November 2008F 2.3% -0.3% 61.6% 2.8% 0.1%

+ 1 Year 2.7% 3.0% 61.8% 0.4% 0.7%

+ 2 Years 2.7% 2.8% 61.8% 3.2% 3.2%

12 Month Moving Averages

Sources: PKF Hospitality Research; Smith Travel Research


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Strong ADR Growth Will ContinueStrong ADR Growth Will Continue

Superior RevPAR Performance Will ResultSuperior RevPAR Performance Will Result

2008 = the Low Point Going Forward2008 = the Low Point Going ForwardLongTermAvera

ge2

004

2

005

2

006 20072008

F

2009

F

2010

F

Supply 1.9% 0.4% -0.1% 0.2% 1.3% 2.5% 2.7% 2.3%

Demand 1.9% 4.0% 2.8% 0.5% 1.1% -0.1% 3.3% 2.5%

Occupan

cy62.8%

61.3

%

63.1

%

63.3

%63.1% 61.6% 62.0% 62.1%

ADR 3.5% 4.2% 5.5% 7.5% 6.0% 3.6% 3.4% 3.7%

RevPAR 3.5% 7.9% 8.5% 7.8% 5.7% 1.0% 4.0% 3.9%

Source: PKF Hospitality Research, Smith Travel Research

2008: 62.8%, 5.3%, 4.5%

2008: 62.2%, 4.7%, 3.0%

= Below/Above Long Run Average


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Lodging Same-Store SalesLodging Same-Store SalesNOI Stays Positive This Time AroundNOI Stays Positive This Time Around

Forecast

Source: PKF Hospitality Research, STR,

Forecast


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Real RevPAR GrowthReal RevPAR Growth 90 Days Ago90 Days Ago

Forecast Change 2007-2008Forecast Change 2007-2008

Top 5:

Anaheim

Oakland

Fort Lauderdale

Tucson

Richmond

Bottom 5:

Fort Worth

Houston

San Antonio

Indianapolis

Jacksonville

7.4%

7.3%

6.6%

6.4%

6.2%

-3.2%

-2.6%

-2.4%

-1.1%

-1.0%

Change

RevPAR growing on

par with CPI

RevPAR growing

slower than CPI

RevPAR growing

faster than CPI

Change

PKF Hospitality Research, Moodys


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Real RevPAR GrowthReal RevPAR Growth TodayToday

Revised Forecast Change 2007-2008Revised Forecast Change 2007-2008

Top 5:

Salt Lake City

Austin

San Francisco

Fort Lauderdale

Denver

Bottom 5:

Fort Worth

San Antonio

Long Island

Jacksonville

Houston

3.9%

3.7%

3.5%

3.3%

3.3%

-5.4%

-3.7%

-2.9%

-2.8%

-2.0%

Change

RevPAR growing on

par with CPI

RevPAR growing

slower than CPI

RevPAR growing

faster than CPI

Change

PKF Hospitality Research, Moodys


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I. The Economy

II. Current Horizon:

Have We Seen This Before?



24/25

Something to Take AwaySomething to Take Away

U.S. Economy Might be in a Recession, But NotHotels

Double Demand Dip This Cycle is Unique:

(1) High ADRs (2) Weak Economy

Trough of Current Downturn Q3 2008

Supply/Demand Imbalance Will Temper Recovery -2010

NOI Essentially Flat in 2008

Increasing Cap Rates Will Moderate Appreciationfor the Balance of the Decade


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For a copy of this presentationFor a copy of this presentation

please contactplease contact

Claude VargoClaude Vargo(404) 842 1150 ext. 237(404) 842 1150 ext. 237

[email protected]@pkfc.com

MTM 2008 Discount

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Hospitality Lawyer on State of the Hotel Industry - Mark Woodward at JMBM's Meet the Money 2008