THE VERY GOOD..WILL GET EVEN BETTER

Transcription

1 THE VERY GOOD..WILL GET EVEN BETTER October 29, 2014 Robert Mandelbaum Director of Research Information Services 1

2 WHO WE ARE PKF Consulting USA, a CBRE Company Experts in Hospitality and related industries Market Feasibility Appraisals & Valuation Operational Analysis Asset Management Specialty Expertise in Hospitality (Spa, Conv Ctrs, F&B, Public, etc.) PKF Hospitality Research, a CBRE Company Annual Trends in the Hotel Industry Hotel Horizons (quarterly econometric forecast) Trends in the Hotel Spa Industry Trends in the Conference Center Industry (IACC), and more 2

3 GOOD WILL GET BETTER U.S. Lodging Market Overview Highlights for 2015 The National Economy The Supply Story Market Forecasts National / Location / Chain-Scale / Cities Operating Performance Revenues (focus on spa) / Expenses / Profits 3

4 Next Topic U.S. LODGING MARKET OVERVIEW The Very Good.. Will Get Even Better. 4

5 THE HOTEL MARKET CYCLE Rapid Development Lodging Decline, Leads Other Sectors Development Picks Up Accelerated Development? 2017/8 Long Run Occupancy U.S. is Here Equilibrium ADR Occupancy Declines, ADR Follows ADR and Margins Recover Development Slows Occupancy Recovers Development at Minimum Levels Lodging Recovers, Lags Other Sectors (Not this Time!) 5

6 BY 2015, THE HOTEL INDUSTRY WILL HAVE ACHIEVED: A fourth year of accommodated demand in excess of the pre-recession peak of 2.8 million room nights. Six consecutive years of increasing occupancy, the longest since An occupancy level of 65.0 percent, the highest level of occupancy ever recorded by STR, Inc. 49 of 55 markets are above their long run average occupancy level. 14 of the 55 markets in the Hotel Horizons universe will achieve their highest occupancy levels in the past 25 years. 6

7 WHY PEOPLE TRAVEL Jobs Corporate Profits Income What Drives Travel? Income 7 Employment

8 THE ECONOMICS OF HOTEL DEMAND 10.0% 8.0% Forecast Demand Income Employment 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Source: Moody s Analytics, PKF Hospitality Research, Hotel Horizons: September-November 2014, STR, Inc. 8

9 THE OUTLOOK FOR THE DRIVERS THAT ARE MOST IMPORTANT TO HOTELS REMAINS FAVORABLE % 3.9% 3.9% 2.7% 2.5% 1.7% 1.3% GDP Component Forecast 4.6% 4.5% 4.2% 3.5% 2.7% 3.0% 3.4% 3.7% 3.9% 3.5% 2.9% 2.3% 2.5% 2.7% 0.1% 1.8% 1.6% 0.8% 0-2 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 I II III IV % -1.9% -0.5% -1.5% -2.1% (GOVERNMENT) Government consumption expenditures and gross investment TRADE (Net exports of goods and services) % BUSINESS (Gross private domestic investment) % These matter the most. CONSUMERS (Personal consumption expenditures) Lodging Demand Source: BEA, Moody s Analytics, PKF Hospitality Research, LLC Hotel Horizons: September November 2014, STR, Inc. 9

10 WHY PEOPLE DON T TRAVEL: 2 x s 10 x s 2 x s Lowest level since November 2007 Source: policyuncertainty.com 10

11 WHY PEOPLE DON T TRAVEL: 10% 8% 6% FEAR! 4% 2% 0%? -2% -4% -6% -8% -10% 12-quarter moving average change in demand per STR, Inc. 11

12 Next Topic THE SUPPLY STORY 12

13 2014: NEAR TERM SUPPLY OUTLOOK BEGINS TO STABILIZE 3.0% 2.5% Supply Forecast As of: Current % 1.5% 1.0% 0.5% 0.0% Source: PKF Hospitality Research, STR, Inc. 13

14 WHY SO LITTLE NEW CONSTRUCTION? 1. Financing remains a challenge. 2. Elevated uncertainty that characterized this past cycle has not yet been forgotten. 3. Construction costs are rising faster than property values in many markets, undermining the feasibility of new development. 4. Scarcity of brands that lenders are willing to finance. 14

15 TROUBLING SIGNS IN THE PIPELINE? Phase % Change In Construction 108,853 78, % Final Planning 123, ,591 <1.1%> Planning 159, , % Active Pipeline 391, , % Total U.S. Pipeline, Number of Rooms by Phase, August 2014 and 2013 Source: STR, Inc. 15

16 TODAY VS. THE PREVIOUS PEAK OF CONSTRUCTION ACTIVITY Q Phase 2014 Q1/2008 A CBRE Company % Difference Change In Construction 108, , % Final Planning 123, , % Planning 159, , % Active Pipeline 391, , % Total U.S. Pipeline, Number of Rooms by Phase, August 2014 and March 2008 Source: STR, Inc. 16

17 New York Austin Pittsburgh Miami Seattle West Palm Beach Raleigh-Durham Houston Cincinnati Nashville Charleston San Jose-Santa Cruz Cleveland Denver Salt Lake City Louisville Columbus San Diego Chicago Washington DC Dallas Baltimore Savannah Anaheim New Orleans San Antonio Detroit Boston Richmond Newark Phoenix Philadelphia Atlanta Saint Louis Portland Jacksonville Orlando Memphis Norfolk-VA Beach Fort Lauderdale Minneapolis Charlotte Tampa Hartford Albuquerque Kansas City Los Angeles San Francisco Sacramento Indianapolis Fort Worth Oahu Long Island Oakland Tucson NET SUPPLY CHANGE % 6.0% 4.0% United States Major Cities 40,000 New Rooms in ,800 New Rooms in % 0.0% Source: PKF-HR Hotel Horizons September-November 2014 Edition, STR, Inc. 17

18 Next Topic OUR FORECASTS 18

19 NATIONAL FORECAST Long Term Average F 2015F 2016F Supply 1.9% 2.8% 1.7% 0.5% 0.5% 0.7% 0.9% 1.3% 1.7% Demand 2.1% -6.2% 7.2% 4.7% 3.0% 2.2% 4.5% 2.2% 1.6% Occupancy 61.9% 54.5% 57.5% 59.9% 61.4% 62.2% 64.4% 64.9% ADR 2.9% -8.7% 0.0% 3.8% 4.2% 3.9% 4.5% 5.7% 5.9% RevPAR 2.9% -16.7% 5.4% 8.2% 6.8% 5.4% 8.2% 6.7% 5.8% Source: PKF Hospitality Research Hotel Horizons September November 2014, STR, Inc. 19

20 REVPAR FORECAST BY CHAIN-SCALE Lower-Priced Categories Moving Up The Recovery Curve Chain-Scale F 2015F Luxury 7.6% 5.9% 6.4% Upper-Upscale 5.8% 7.2% 6.5% Upscale 5.4% 8.1% 6.2% Upper-Midscale 4.2% 8.1% 5.1% Midscale 4.1% 7.9% 5.9% Economy 4.8% 9.1% 6.5% All Hotels 5.4% 8.2% 6.7% Source: PKF Hospitality Research, September-November 2014 Hotel Horizons, STR, Inc. 20

21 REVPAR FORECAST BY LOCATION Only Interstate and Small Town Behind Pre-Recession Occupancy A CBRE Company Location F 2015F Urban 6.1% 6.7% 6.5% Suburban 5.3% 9.3% 7.8% Airport 5.6% 8.8% 6.3% Interstate 3.1% 7.2% 4.8% Resort 7.1% 9.3% 6.8% Small Town / Metro 3.7% 7.0% 4.8% All Hotels 5.4% 8.2% 6.7% Source: PKF Hospitality Research, September November 2014 Hotel Horizons, STR, Inc. 21

22 U.S. LODGING MARKETS SURPASS THEIR PREVIOUS PEAKS Counts Based On 2014 Forecast Occupancy ADR RevPAR Number of Markets Above Previous Peak Number of Markets Below Previous Peak Source: PKF Hospitality Research Hotel Horizons September November 2014, STR, Inc. 22

23 U.S. HOTEL MARKETS GREATEST AND LEAST CHANGE IN REVPAR Forecast Change 2014 to 2015 San Jose-Santa Cruz 12.3% Nashville Oakland 10.9% 10.5% San Francisco Denver 9.0% 8.8% National Average 6.7% Phoenix Houston Pittsburgh Oahu Norfolk-VA Beach 3.5% 3.3% 2.6% 2.2% 1.5% 0% 3% 6% 9% 12% 15% Source: PKF Hospitality Research, September 2014 Hotel Horizons reports. 23

24 Next Topic OPERATING PERFORMANCE 24

25 2013 U.S. HOTEL REVENUES Change From 2012 Total Hotel Revenue 3.7% 5.4% Rooms 4.2% 5.9% Food and Beverage 2.6% 4.3% Other Operated Departments 2.5% 4.3% Rentals and Other Income 5.5% 7.3% 0% 2% 4% 6% 8% $ Per Available Room $ Per Occupied Room Source: PKF Hospitality Research, 2014 Trends in the Hotel Industry report. 25

26 2013 HOTEL F&B DEPARTMENT REVENUES Full-Service Hotels Restaurant Bar/Lounge Room Service Mini Bar Banquet Public Room Rental A/V Rental Service Charges Other F&B Income Total F&B Department Revenue -5.6% 1.0% 2.2% 4.1% 4.3% 7.9% 5.8% 1.9% 4.3% 15.3% -10% -5% 0% 5% 10% 15% 20% Change: 2012 to 2013 Source: PKF Hospitality Research, LLC, Trends in the Hotel Industry Report 26

27 SELECT OTHER HOTEL REVENUES Change From 2012 to 2013 Golf Spa 3.1% 4.6% Parking 7.0% Movie Rental 1.3% Retail -8.2% Guest Laundry -1.4% Telecommunications -4.5% -12% -6% 0% 6% 12% Sample: Only properties that reported respective revenue source. Source: PKF Hospitality Research, 2014 Trends in the Hotel Industry Report 27

28 TRAVEL AND HEALTH Our Deteriorating Profile Aging population Less healthy More overweight More stressed Traveling more than ever before More Travel, More Stress Record level of hotel rooms sold in the last 4 years Stress is interwoven in today s travel experience Source: Center for Disease Control (CDC); AgeWave; STR 28

29 HOW DOES WHAT WE DO MATTER? To Whom? Guests Management Owners In What Way? Experience Perception/Rating Competitive Differentiated Revenue Profitability Drives Asset Value 29

30 GREATER REVENUE GROWTH IN URBAN HOTEL SPAS All Hotel Spas 4.6% Urban Hotel Spas 7.7% Resort Hotel Spas 3.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% *Data from 2013 and 2012* sourced for PKF s 2014 Trends in the Hotel Spa Industry 30

31 COMPONENTS OF HOTEL SPA REVENUE INCREASES Total Departmental Revenue Massage Skin Care/Body Work Salon Services 4.6% 4.9% 2.6% 3.1% Daily Facility Use 11.1% Fitness and Personal Training 16.8% Health and Wellness N/C Membership Fees Retail 5.5% 4.8% 0.0% 5.0% 10.0% 15.0% 20.0% *Data from 2013 and 2012* sourced for PKF s 2014 Trends in the Hotel Spa Industry 31

32 GREATER PROFIT GROWTH IN URBAN HOTEL SPAS *Data from 2013 and 2012* sourced for PKF s 2014 Trends in the Hotel Spa Industry 32

33 EXPAND BEYOND THE SPA WALLS Positioning More than Luxury, Focus on Wellbeing Broaden Revenue Drivers Create Unique Experiences Create a Connecting Thread of Wellness 33

34 REVENUE VS EXPENSE* GROWTH Annual Change 12% 8% 4% 7.6% 8.8% 6.4% 6.5% 8.2% 6.2% 5.5% 4.8% 4.8% 6.2% 3.4% 4.3% 5.0% 5.4% 3.3% 3.7% 0% -4% -1.3%-0.3% -8% -12% -16% -20% -24% -18.5% -12.1% Revenues Expenses C.P.I. Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research, Trends in the Hotel Industry, Moody s Analytics 34

35 WHERE DO THE DOLLARS GO? Percent of Total Expenses Salaries, Wages, and Benefits 44.8% Cost of Goods Sold 8.5% Management Fees 4.6% Operating Expenses 35.7% Property Taxes and Insurance 6.5% Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research, 2014Trends in the Hotel Industry 35

36 TOTAL U.S. HOTEL LABOR COSTS 46% Percent of Total Expenses 45% 44% 43% 42% 41% F Source: PKF Hospitality Research, Trends in the Hotel Industry 36

37 COMPENSATION VS. UNEMPLOYMENT Change in Average Hourly Wage 6% 10.0% 5% 9.0% 4% 8.0% 3% 7.0% 2% 6.0% 1% 5.0% 0% % BLS - Change in Average Hourly Compensation for Hospitality Employees (Left Axis) U.S. Unemployment Level (Right Axis) Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics 37

38 Annual Percentage Change HOURS WORKED VS. ROOMS OCCUPIED 10% 5% 0% -5% -10% -15% Change in Total Hours Worked PKF-HR Change in Occupied Rooms Source: PKF Hospitality Research, LLC, Bureau of Labor Statistics 38

39 HOTEL OPERATING EXPENSES Change from 2012 to 2013 Rooms Department 5.0% F&B Department Other Operated Departments A&G Sales and Marketing P.O.M. 3.0% 3.3% 3.3% 3.5% 3.3% Utilities 2.0% Management Fees 6.3% Property Taxes 4.1% Insurance 3.2% 0% 3% 6% 9% Source: PKF Hospitality Research, LLC, 2014Trends in the Hotel Industry report. 39

40 REVENUE VS EXPENSE* GROWTH Annual Change 12% 8% 4% 0% -4% -8% -12% -16% 7.6% 8.8% 8.2% 6.4% 6.5% 6.2% 5.5% 4.8% -1.3%-0.3% 7.7% 6.2% 4.8% 6.3% 5.0% 5.4% 5.5% 3.4% 4.3% 4.5% 3.7% 3.3% 3.7% 3.3% -12.1% -20% -24% -18.5% F 2015F 2016F Revenues Expenses C.P.I. Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research, Trends in the Hotel Industry, September 2014 Hotel Horizons forecast, Moody s Analytics 40

41 REVPAR COMPONENTS AND NOI* CHANGE 20% 10% 0% -10% -20% -30% -40% Occupancy A.D.R. Change in NOI* Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research, Trends in the Hotel Industry, September 2014 Hotel Horizons forecast, Moody s Analytics 41

42 $17,301 $16,644 $10,752 $11,806 $13,305 $14,662 $16,136 $18,715 $21,029 $23,182 Dollars Per Available Room NOMINAL DOLLAR OPERATING PROFITS* Six Years of Double Digit Growth $30, F CAGR: 11.9% $20,000 $10,000 $ F 2015F 2016F Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization. Source: PKF Hospitality Research, Trends in the Hotel Industry, September 2014 Hotel Horizons forecast report 42

43 THANK YOU 43