STATE OF THE U.S. LODGING
INDUSTRY
October 23, 2015
Robert Mandelbaum – Director of Research Information Services
ECONOMETRIC ADVISORS
PRESENTATION OUTLINE
• The U.S. Economy and Lodging Demand
• The Supply Story
• Tracking the Business Cycles of U.S. Hotels
• U.S. Lodging Market Forecast
• Profit Trends
• Questions and Answers
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ECONOMETRIC ADVISORS
HOTEL HORIZONS® FORECAST REPORTS
Prepared For:
• 59 major cities
• 6 national chain-scales
• 6 location types
Five Year Forecasts Of:
•
•
•
•
•
Supply
Demand
Occupancy
ADR
RevPAR
3
ECONOMETRIC ADVISORS
HOTEL HORIZONS® FORECAST REPORTS
Sources of Variables
STR, Inc.
• Historical rooms occupied, room available,
rooms revenue
• Pipeline of future hotel construction
Moody’s Analytics
• Economic forecasts
4
ECONOMETRIC ADVISORS
THE U.S. ECONOMY AND LODGING DEMAND
ECONOMETRIC ADVISORS
THE ECONOMICS OF HOTEL DEMAND
6%
4%
2%
0%
-2%
Forecast
-4%
-6%
-8%
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
2014
2015
2016
2017
2018
2019
2020
Percent Change (4 Qtr. Moving Avg.)
8%
Demand
Income
Source: Moody‘s Analytics; PKF-HR, a CBRE Company; STR,6 Inc.
Employment
ECONOMETRIC ADVISORS
THE OUTLOOK FOR THE DRIVERS THAT ARE MOST
IMPORTANT TO HOTELS REMAINS FAVORABLE
10
8
GDP Component
3.9%
6
4
3.9%
1.7%
2.0%
4.6%
2.7%2.5%
2.9%
1.3%
1.9%
1.1%
0.1%
0.5%
0.8%
2
3.8%
3.0%
2.7%
1.9%
Forecast
4.6%
4.3%
3.8%3.7%3.4%
2.6%
3.4%
3.0%
2.1%
3.7%
0.6%
0
I
-2
-4
II III IV I
II III IV I
II III IV I
II III IV I
II III IV I
II III IV I
2008
2009
2010
2011
2012
2013
-1.5%
-2.7%
-1.9%
II III IV I
-0.9% 2014
II III IV I
II III IV
2015
2016
(GOVERNMENT) Government consumption expenditures
and gross investment
TRADE (Net exports of goods and services)
-0.5%
-6
BUSINESS (Gross private domestic investment)
-8
-5.4%
-8.2%
-10
These matter
the most.
CONSUMERS (Personal consumption expenditures)
Source: BEA, Moody’s Analytics, PKF Hospitality Research, a CBRE Company
Hotel Horizons: September – November 2015, STR, Inc.
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ECONOMETRIC ADVISORS
THE CONFERENCE BOARD L.E.I.
The ten components of The Conference Board Leading Economic
Index® for the U.S. include:
1.
2.
3.
4.
5.
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
ISM® Index of New Orders
Manufacturers' new orders, nondefense capital goods excluding aircraft
orders
6. Building permits, new private housing units
7. Stock prices, 500 common stocks
8. Leading Credit Index™
9. Interest rate spread, 10-year Treasury bonds less federal funds
10. Average consumer expectations for business conditions.
8
ECONOMETRIC ADVISORS
LEADING ECONOMIC INDICATORS
Percent Change In the Last 6 Months
August 2015
20.0%
15.0%
Leading Economic Indicators (% change in the last 6 months)
U.S. Hotel Demand
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
6 to 8 month lag
Looks good for at
least another six
months!
Source: The Conference Board, PKF-HR, STR
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ECONOMETRIC ADVISORS
THOUGHTS ON THE ECONOMY
10
ECONOMETRIC ADVISORS
THOUGHTS ON THE ECONOMY
11
ECONOMETRIC ADVISORS
THE SUPPLY STORY
ECONOMETRIC ADVISORS
U.S. SUPPLY CHANGE
When did we hit our last peak number of new hotels entering the
market?
5.8%
4.8%
Forecast
Q2 1999
4.0%
Q1 2009
3.8%
3.0%
2.8%
1.8%
0.8%
Long Run
Average = 1.9%
-0.2%
Source: PKF Hospitality Research, STR, Inc.
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ECONOMETRIC ADVISORS
TODAY VS. THE PREVIOUS PEAK
OF CONSTRUCTION ACTIVITY
U.S. Pipeline, Number of Rooms by Phase, August 2015 and March 2008
Phase
2015
Q1/2008
% Difference
Change
In Construction
132,401
2.5%
207,468
-36.1%
Final Planning
175,090
0.7%
113,419
54.4%
Planning
132,353
3.5%
344,363
-61.6%
Active Pipeline
439,844
2.1%
665,250
-33.9%
Source: STR, Inc.
Change from July
2015
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ECONOMETRIC ADVISORS
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.
p
4. Scarcity
citty of brands
brands that lenders are willing to finance.
15
A NEW DISRUPTOR?
ECONOMETRIC ADVISORS
AIRBNB – U.S.
Roughly 215,000 Units available in the U.S. (July 2015)
Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company
17
ECONOMETRIC ADVISORS
HOW MANY ARE COMPETITIVE WITH HOTELS?
We Estimate 68% of Airbnb Units are competitive with U.S. Hotels
Entire home/apt
Private room
95,169 Units = 182,495 Rooms
1.9 Rooms per Unit
50,651 Units
35%
65%
Source: Insideairbnb.com (July 2015); PKF Hospitality Research,
a CBRE Company
18
Portland, OR
Sacramento, CA
Massachusetts Area
New Orleans, LA
Seattle, WA
California Central
Coast
Orlando, FL
Chicago, IL
California North
Boston, MA
Washington, DC-MDVA
San Diego, CA
Miami/Hialeah, FL
Riverside/San
Bernardino, CA
Austin, TX
Colorado Area
New York, NY
Los Angeles/Long
Beach, CA
San Francisco/San
Mateo, CA
New York State
233,146 Competitive Rooms in the U.S.
Top 20 Markets
25,000
20,000
15,000
10,000
5,000
0
ECONOMETRIC ADVISORS
20.0%
0%
Austin, TX
New York, NY
Long Island
San Francisco/San Mateo, CA
Oakland, CA
Los Angeles/Long Beach, CA
Sacramento, CA
Portland, OR
Miami/Hialeah, FL
Seattle, WA
Boston, MA
San Diego, CA
New Orleans, LA
San Jose/Santa Cruz, CA
Oahu Island, HI
Nashville, TN
Philadelphia, PA-NJ
Fort Lauderdale, FL
Charleston, SC
Phoenix, AZ
Denver, CO
Washington, DC-MD-VA
West Palm Beach/Boca…
Omaha, NE
Salt Lake City/Ogden, UT
Tucson, AZ
Anaheim/Santa Ana, CA
Chicago, IL
Louisville, KY-IN
Albany/Schenectady, NY
Orlando, FL
Savannah, GA
Baltimore, MD
Jacksonville, FL
Tampa/St Petersburg, FL
Raleigh/Durham/Chapel…
Pittsburgh, PA
Minneapolis/St Paul, MN-WI
Albuquerque, NM
Richmond/Petersburg, VA
Newark, NJ
Cleveland, OH
Cincinnati, OH-KY-IN
Atlanta, GA
Indianapolis, IN
Hartford, CT
Houston, TX
San Antonio, TX
Charlotte, NC-SC
Memphis, TN-AR-MS
Columbus, OH
St Louis, MO-IL
Dallas, TX
Norfolk/Virginia Beach, VA
Detroit, MI
Fort Worth/Arlington, TX
Kansas City, MO-KS
Columbia, SC
Dayton/Springfield, OH
INDUCED SUPPLY?
Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company, STR, Inc.
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ECONOMETRIC ADVISORS
INCREASING THREAT FROM AIRBNB
Competitive Airbnb Rooms as a Percent of Hotel Rooms
25.0%
19 Markets above 5%
15.0%
10.0%
5.0%
Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company, STR, Inc.
ECONOMETRIC ADVISORS
INCREASING THREAT FROM AIRBNB
Data suggests that increases in Airbnb
supply negatively impacts ADR growth.
Source: PKF Hospitality Research, STR, Airbnb.com
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ECONOMETRIC ADVISORS
TRACKING THE BUSINESS CYLCES OF U.S. HOTELS
ECONOMETRIC ADVISORS
THE LODGING INDUSTRY BUSINESS CYCLE
Rapid
Development
Long Run
Occupancy
Equilibrium ADR
Development
Picks Up
Lodging Decline,
Leads Other
Sectors
Accelerated
Development
?
p
U.S. is Here
2017/8
2015
ADR and
Margins
Recover
Occupancy
Declines, ADR
Follows
Development
Slows
Occupancy
Recovers
Development at
Minimum Levels
Lodging Recovers, Lags
Other Sectors (Not this
Time!)
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ECONOMETRIC ADVISORS
REAL ADR PERFORMANCE – U.S.
A Look at Past Cycles – 1991 Recession
The Path and Duration of Occupancy and Real ADR Recovery
Occupancy Level
68%
End: 1997 Q1
66%
64%
62%
Start: 1990 Q2
60%
Duration:
7 Years
58%
56%
54%
$95
$100
Source: PKF Hospitality Research, STR, Inc.
$105
$110
$115
$120
$125
$130
$135
Real Average Daily Rate Level (2014 $’s)
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ECONOMETRIC ADVISORS
REAL ADR PERFORMANCE – U.S.
A Look at Past Cycles – 2001 Recession
The Path and Duration of Occupancy and Real ADR Recovery
Occupancy Level
68%
66%
End: 2007 Q1
64%
62%
Start: 2001 Q1
60%
Duration:
6 Years – 1 Quarter
58%
56%
54%
$95
$100
$105
$110
$115
$120
$125
$130
$135
Real Average Daily Rate Level (2014 $’s)
Source: PKF Hospitality Research, STR, Inc.
25
ECONOMETRIC ADVISORS
REAL ADR PERFORMANCE – U.S.
Current Cycle
The Path and Duration of Occupancy and Real ADR Recovery
Occupancy Level
68%
Present
66%
64%
Start: 2008 Q1
62%
60%
58%
56%
54%
$95
$100
$105
$110
$115
$120
$125
$130
$135
Real Average Daily Rate Level (2014 $’s)
Source: PKF Hospitality Research, STR, Inc.
26
ECONOMETRIC ADVISORS
REAL ADR PERFORMANCE – U.S.
Current Cycle – cont’d
The Path and Duration of Occupancy and Real ADR Recovery
Occupancy Level
68%
2015 Q2
66%
64%
End: 2015 Q4
62%
Forecast
Start: 2008 Q1
60%
Forecast Duration:
8.5 Years
58%
56%
Current Cycle – Sept 2015
54%
$95
$100
$105
$110
$115
$120
$125
$130
$135
Real Average Daily Rate Level (2014 $’s)
Source: PKF Hospitality Research, STR, Inc.
27
ECONOMETRIC ADVISORS
REAL ADR PERFORMANCE – U.S.
Current Cycle – cont’d
The Path and Duration of Occupancy and Real ADR Recovery
O
c
c
u
p
a
n
c
y
68%
2015 Q2
66%
64%
End: 2015 Q4 Forecast
62%
Start: 2008 Q1
60%
Occupancy Level
58%
L
e 56%
v
e 54%
$95
l
Forecast Duration:
8.5 Years
Cycle
1990
2001
2008
$105
$115
Cycle
Start
64.4%
63.1%
62.3%
$125
At Real
ADR
Recovery
64.3%
62.9%
65.4%
Cycle
Peak
64.8%
63.5%
65.8%
Delta
-0.1%
-0.2%
3.1%
$135
Real Average Daily Rate Level (2014 $’s)
Source: PKF Hospitality Research, STR, Inc.
28
ECONOMETRIC ADVISORS
U.S. LODGING MARKET FORECAST
ECONOMETRIC ADVISORS
NATIONAL FORECAST – ALL U.S. HOTELS
2014-2016
Long Run
Average
2012
2013
2014
2015F
2016F
Supply
1.9%
0.4%
0.7%
0.8%
1.1%
1.8%
Demand
2.0%
2.8%
2.0%
4.4%
3.3%
2.2%
Occupancy
62.0%
61.4%
62.2%
64.4%
65.8%
66.1%
ADR
3.0%
4.2%
3.9%
4.5%
5.0%
5.9%
RevPAR
3.2%
6.6%
5.2%
8.2%
7.2%
6.3%
RevPAR driven by ADR Growth
Source: PKF Hospitality Research - Hotel Horizons® September-November, 2015, STR, Inc.
30
ECONOMETRIC ADVISORS
REVPAR FORECAST BY CHAIN-SCALE
Lower-Priced Categories Moving Up The Recovery Curve
Chain-Scale
2014
2015F
2016F
Luxury
6.3%
6.4%
7.0%
Upper-Upscale
7.1%
6.1%
6.0%
Upscale
8.5%
6.4%
6.5%
Upper-Midscale
8.3%
6.8%
7.1%
Midscale
8.3%
7.7%
6.0%
Economy
8.7%
7.3%
7.1%
All Hotels
8.2%
7.2%
6.3%
Source: PKF Hospitality Research - Hotel Horizons® September-November, 2015, STR, Inc.
31
ECONOMETRIC ADVISORS
U.S. HOTEL MARKETS
GREATEST AND LEAST CHANGE IN REVPAR
Forecast Change 2015 to 2016
Oakland
11.6%
San Jose-Santa Cruz
10.4%
Nashville
9.6%
Atlanta
8.3%
Seattle
7.9%
National Average
6.3%
Omaha
0.6%
New York
0.3%
Miami
0.3%
Pittsburgh
0.3%
Houston
-7.6%
-10%
-5%
0%
5%
10%
15%
Source: PKF Hospitality Research - Hotel Horizons® September-November, 2015, STR, Inc.
32
ECONOMETRIC ADVISORS
PROFIT TRENDS
ECONOMETRIC ADVISORS
PKF HOSPITALITY RESEARCH, A CBRE COMPANY
Trends® in the Hotel Industry – Financial Benchmarking
•
Annual voluntary survey of thousands
of U.S. hotel financial statements
•
First survey conducted in 1937
– Occ: 64.4%
– ADR: $3.04
•
•
Data converted to USALI to ensure
comparability
2015 Survey Sample
•
7,135 hotels across the U.S.
•
Occupancy: 74.3%
•
ADR: $158.62
34
ECONOMETRIC ADVISORS
MORE HOTELS ENJOYING GROWTH IN PROFITS*
Percent of Hotels** Posting an Increase in Total Revenue or Profits From Prior Year
(*) - Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
(**) - Trends® in the Hotel Industry sample.
100%
80.8%
80%
70.2%
61.6%
60%
72.3%
67.4%
58.9%
77.1%
70.4%
79.3%
70.4%
86.2%
78.2%
47.9%
44.4%
40%
20%
8.6%
4.5%
0%
2007
2008
2009
2010
2011
Total Hotel Revenue
2012
2013
2014
Profits*
Source: PKF Hospitality Research, a CBRE Company, 2015 Trends® in the Hotel Industry
35
ECONOMETRIC ADVISORS
2014 U.S. HOTEL REVENUES
Change – 2013 to 2014
$ Per Available Room
$ Per Occupied Room
Total Hotel Revenue
6.9%
3.8%
Rooms
7.3%
4.1%
Food and Beverage
3.1%
Other Operated Departments
3.1%
Rentals and Other Income
6.2%
4.3%
1.2%
0%
6.2%
3%
6%
9%
Source: PKF Hospitality Research, a CBRE Company, 2015 Trends® in the Hotel Industry
36
ECONOMETRIC ADVISORS
REVENUE VS EXPENSE* GROWTH
Annual Real Change
(*) - Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
12%
8%
4%
4.9%
5.4%
3.7%
3.1% 5.0%3.0%2.6%
1.9%
3.2%
1.7%
5.3%
3.1%
3.9%
3.2%
2.9%
2.3%
1.0%
1.2%
0%
-4%
-4.1%
-5.1%
-8%
-12%
-11.5%
-16%
-20%
2004
2005
2006
2007
Rev
2008
-18.2%
2009
Exp
2010
CPI
2011
2012
2013
2014
Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry
37
ECONOMETRIC ADVISORS
WHERE DID THE DOLLARS GO?
Percent of Total Operating Expenses*
Cost of Goods
Sold
8.6%
Salaries, Wages,
and Benefits
44.2%
Management Fees
4.9%
Property Taxes
and Insurance
6.2%
Operating
Expenses
36.1%
Note: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization
Source: PKF Hospitality Research, a CBRE Company, 2015
38
ECONOMETRIC ADVISORS
CHANGE IN HOSPITALITY EMPLOYMENT
COMPENSATION
Change in Average Hourly Compensation for Hospitality Employees
U.S. Unemployment Rate
Change In Hourly Compensation
U.S. Unemployment Rate
6%
10%
5%
9%
4%
8%
3%
7%
2%
6%
1%
5%
0%
4%
-1%
3%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: PKF Hospitality Research, A CBRE Company, Bureau of Labor Statistics, 2015
39
ECONOMETRIC ADVISORS
CHANGE IN HOURS WORKED VS. CHANGE IN
ROOMS OCCUPIED
Annual Change
10%
Change in Total Hours Worked
Change in Occupied Rooms
5%
0%
-5%
-10%
-15%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: PKF Hospitality Research, A CBRE Company, Bureau of Labor Statistics, 2015
40
ECONOMETRIC ADVISORS
SELECT COMPONENTS OF OPERATING COSTS
Annual Change in ExPAR: 2013 to 2014
8%
6.5%
6%
5.3%
4.8%
3.7%
4%
2%
0%
Labor Costs
C.C. Commissions +
Franchise and
Management Fees
Cost of Goods Sold
Utilities
Source: PKF Hospitality Research, a CBRE Company, Trends® in the Hotel Industry
41
ECONOMETRIC ADVISORS
REVENUE VS EXPENSE* GROWTH
Annual Nominal Change
12%
8%
5.4%
6.2%
5.0%
4.8%
3.7%
4.3%
3.3%
3.4%
5.5%
4.8%
4%
6.9%
6.9%
6.1%
4.9%
3.7%
3.5%
0%
-1.3% -0.3%
-4%
-8%
-12%
-12.1%
-16%
Total RevPAR
-20%
ExPAR*
C.P.I.
-18.5%
-24%
2007
2008
2009
2010
2011
2012
2013
2014
2015F
2016F
Note: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization
Source: PKF Hospitality Research, a CBRE Company, Moody’s Analytics 2015
42
ECONOMETRIC ADVISORS
NOMINAL DOLLAR OPERATING PROFITS*
Six Years of Double Digit Growth
Nominal Dollars Per Available Room
$25,000
Compound Annual Growth 2010 – 2016F: 12.0%
$20,000
$15,000
$22,928
2016F
$20,490
$17,849
2014
2015F
$15,894
2013
$11,629
2010
$14,442
$10,591
2009
2012
$16,394
2008
$13,105
$17,042
$0
2011
$5,000
2007
$10,000
Note: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization
Source: PKF Hospitality Research, a CBRE Company, 2015
43
ECONOMETRIC ADVISORS
HISTORICAL BUDGET ACCURACY
Percent Difference Actual Compared To Budgeted Dollars*
14%
9.2%
7%
0.1%
1.3%
3.5% 1.6%
3.5%
3.8%
0%
-14%
-8.0%
-0.1%
-0.5%
-4.2%
-1.9%
-7%
0.1%
-1.3%
0.4%
0.07% 0.4%
-0.04%
-8.0%
-10.9%
-14.0%
-14.6%
-21%
-28%
0.8%
-22.3%
-28.2%
-29.1%
-35%
2001
2003
2004
2005
2006 2007 2008
Total Revenue
2009 2010
Profit**
2011
2012
2013
2014
Note: * - Sample of properties that reported budget data.
** - Before deducting capital reserves, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, a CBRE Company, 2015
44
ECONOMETRIC ADVISORS
THANK YOU FOR YOUR TIME
PKF HOSPITALITY RESEARCH | CBRE HOTELS
www.pkfc.com
Robert Mandelbaum
[email protected]
45
ECONOMETRIC ADVISORS