GHN Market Report: PhoenixSponsored by Red Lion Hotels

METROPOLITAN PHOENIX HOTEL MARKETS

The hotel recovery continues to gain traction. Fundamentals are not yet at their pre-recession highs. Demand for rooms in both the full- and limited-service sectors was stagnant (on a year-over-year basis) during the second quarter of 2013. Supply growth remains low but signs of increases in underway hotel projects are showing up in some submarkets, but nowhere near the supply produced during the peak and right before the downturn. Slow Occupancy and ADR growth rates resulted in a 2.0% uptick in RevPAR. Looking forward CBRE Econometric Advisors forecast continual slow growth in 2014 with demand growth closer to 4.4%.

Economy

The population of the Phoenix area stands at 4.36 million, 11th largest of the hotel markets that CBRE Econometric Advisors analyzes. The average per capita income (according to recent data

!

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Jay A. Ramos, MAIValuation & Advisory ServicesHospitality & Gaming GroupCBRE, Inc.

Scott F. Beithan, MAI, CRE, FRICSSenior Managing Director-Industry LeaderHospitality & Gaming GroupCBRE, Inc

from Moody's Economy.com) is estimated to be $38,565, approximately 10% below the national average. Total employment stands at 1.78 million workers.

Hotel Construction

In 2013, no new hotels have yet to be delivered and supply has been flat since the beginning of 2013. Though some hotels are currently under construction, projected supply will be significantly lower than 2007-2009, when deliveries outpaced demand by a 2-1 ratio. Looking forward the lack of new supply coupled with growing demand should help with the ongoing recovery and drive both occupancy and ADR. Looking ahead, supply is projected at a more normalized pace.

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Supply Change Demand Change

All Service Types Occupancy, ADR & RevPAR

Hotel performance in the 2Q 2013 experienced marginal gains when compared to the same time last year. Occupancy grew by 150 basis points with ADR up 2.4%. This moved RevPAR by 5%.

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Occupancy Rate vs. % Change RevPAR

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Full-Service Segment

The full-service segment reported slightly inferior ADR growth at 2.4% in comparison to all property types in metropolitan Phoenix; however, occupancy was up 150 basis points leading to slightly better RevPAR performance with a 5% growth over the trailing 12 months.

Limited-Service Segment

The limited-service segment reported the best overall performance with occupancy growing by 200 basis points leading to RevPAR growth of 5.9%.

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YearSupply

(Rooms)Demand(Rooms)

Occ. Rate(%)

ADR($/Rm)

RevPAR($/Rm)

RevPAR(% Chg YOY)

2003 26,175 15,715 60.00 60.44 36.29 na2004 25,545 16,480 64.50 62.75 40.48 11.502005 25,647 17,358 67.70 70.05 47.41 17.102006 25,425 17,572 69.10 78.67 54.37 14.702007 25,435 17,067 67.10 85.76 57.55 5.802008 26,836 15,578 58.00 88.43 51.33 -10.802009 28,981 14,552 50.20 75.47 37.90 -26.202010 29,951 16,492 55.10 72.27 39.80 5.002011 29,964 17,336 57.90 75.29 43.56 9.402012 30,161 17,327 57.40 76.45 43.92 0.802013 30,132 17,510 58.10 77.98 45.31 3.30

Source: CBRE Econometric Advisors 2Q 2013

METROPOLITAN PHOENIX LIMITED SERVICE HOTELS

Hotel Submarkets

In the following paragraphs we touch upon a few of the key submarkets in Metropolitan Phoenix that have either experienced below or above average declines or increases. The data is provided by CBRE Econometric Advisors.

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Metro Phoenix Hotel Market - Hotel :: Phoenix :: Annualized Occupancy Rate [Current Quarter]

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Data Value

Black Canyon Corridor 51.2%

Mesa/Chandler AZ 57.2%

Phoenix Airport 61.4%

Phoenix Central 59.4%

Phoenix West 57.2%

Scottsdale, AZ 63.8%

Tempe, AZ 60.4%

Geography

When it comes to performance the Scottsdale submarket continues to set the pace. The Scottsdale submarket remains the crown jewel of Metropolitan Phoenix reporting the highest metrics across the board including 63.8% occupancy, $154.97 ADR leading to a $98.88 RevPAR for the 2Q 2013. Bolstered by its location, upscale demographics and reputation as being the entertainment center, of not just the region but the entire state of Arizona, the submarket continues to perform well and is moving in the right direction as it continues to recover from the downturn.

The submarket is characterized by several luxury resorts and upper upscale properties including the Phoenician, W Hotel Scottsdale, Fairmont Scottsdale Princess, Royal Palms Resort, Hyatt Regency Scottsdale Resort and Spa at Gainey Ranch, the Four Seasons Resort at Troon North, Montelucia, The Boulders, JW Marriott Camelback Inn and the Sanctuary. Further bolstering the popularity of the submarket is the plethora of five-star golf courses, many of which are in Golf Digest’s top 100 golf courses in the US.

WHAT IS NEXT?

The future of the market is hard to predict. During the recession, the city’s hotels posted some of the most depressed results in the United States. Despite all its challenges, the Phoenix market began to rebound strongly during 2011 and 2012. Growth has slowed in 2013; however, this is expected after the large RevPAR spike in 2011. The Waste Management Open, the most attended tour stop on the Professional Golfers Association Tour (500,000+ attendance over the four days) and Major League Baseball’s Cactus League, spring training for 15 professional baseball teams, again reported record attendance figures in 2013.

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Whether these are signs that rate growth will continue at such an aggressive pace is yet to be seen. Signs for continued growth in demand are good with the revitalization of downtown Phoenix and the popularity of Scottsdale. This includes the convention center, attractive tourist amenities, good employment drivers and favorable winter temperatures. All these factors are positives for mid- and long-term health for the region.

Sponsored by Red Lion Hotels

Red Lion Hotels Experiencing Increased Growth

With over 50 properties open or under development, Red Lion has positioned itself for sustainable growth. Important to the chain’s lasting success is the redefinition of brand segmentation and strengthened brand identity for both Red Lion Hotels and Red Lion Inn & Suites, along with the addition of the Leo Hotel Collection, a collection of unique, boutique, historic and/or destination hotels.

Publicly traded on the NYSE (RLH), Red Lion is an owner, operator and franchisor. Red Lion grew out of the Pacific Northwest with historic roots dating back more than 50 years and is showing hotel owners how they can tap into their deep experience and resulting national chain.

More hoteliers are finding that franchise partners with skin in the game truly have their franchisee’s return on investment in mind. As owners, Red Lion never asks their franchisees to do anything that they would not do for their own properties. The biggest benefit for hotel owners is the ability to plug their properties into a finely tuned franchise system. Red Lion offers franchisees the highest level of

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Red Lion Inn & Suites Phoenix/Tempe – ASU

support including access to industry leading technology, business intelligence and revenue management systems.

With a keen eye on the market, Red Lion’s new website will create direct interaction with guests, offer local experiences and provide an improved booking engine. Red Lion expects the new site will increase reservations through redlion.com and drive higher margin revenues for the company and its franchisees.

The 2012 annual franchise contribution rate of 51.2 percent drives the success of Red Lion’s business model home. Franchise growth numbers are clearly showing a strong migration toward this business mindset. Red Lion Hotels and Red Lion Inn & Suites increased the number of franchised rooms in its network by 35 percent in the past year alone.

Join a growing brand that takes pride in ownership too.

Ron Burgett, CHAExecutive Vice President of Lodging and Brand DevelopmentTel. 509-459-6100Ron.Burgett@redlion.comwww.redlion.com

Red Lion Hotels is a GHN Silver Member. James P. Evans, Interim President and CEO of Red Lion Hotels, serves on GHN’s Advisory Editorial Board.

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