mark woodworth, president of pkf hospitality research, presentation at the lodging conference 2008,...
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8/14/2019 Mark Woodworth, President of PKF Hospitality Research, presentation at The Lodging Conference 2008, Arizona Biltmore Hotel
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Lodging Conference 2008Lodging Conference 2008
What Lies Ahead?
The Panic When Will it End?
September 24, 2008Arizona Biltmore Resort & Spa
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Jan Freitag -Jan Freitag -
Bruce Ford Bruce Ford
David Loeb David Loeb
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PKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality Researchresen a on u neresen a on u neresen a on u neresen a on u ne
Part 1:Part 1:I. Th E n mPart 1:Part 1:I. Th E n m
- A Panic on Wall Street
- A Panic on Wall Street
II. Current Horizon:II. Current Horizon:
Have We Seen this Before?III. Some Thoughts to Take-away
Have We Seen this Before?III. Some Thoughts to Take-away
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GoodGoodOkayOkay
BaBa
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How are ou feelin ?How are ou feelin ?GoodGood
BadBadI Dont KnowI Dont Know
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Panic is a sudden fear which Panic is a sudden fear which
thinkingthinking and often affects and often affects . .
Panics typically occur in Panics typically occur in isaster situations.isaster situations.
Wikipedia
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The Bursting HousingThe Bursting Housing
200
180
160-20.2%
140
100
Fiserv Case Shiller National House Price Index, 2000Q1=100
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Ignites a Mortgage CrisisIgnites a Mortgage Crisis3,000
First mortgage loan defaults, thousands, SAARFirst mortgage loan defaults, thousands, SAAR
2,500
2,000
1,500
500
,
00 01 02 03 04 05 06 07 08
Sources: Equifax, Moody's Economy.com
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e ...e ...
0
ouse pr ce ome sa es ous ng s ar s
-20
-
-40
-30
Current dow nturn to date
-50Early 1990s
Early 1980s
u rren ow n u rn orecas
-60
Sources: Fiserv Lending Solutions, Census, Moody's Economy.com
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...With Big Differences Across the...With Big Differences Across the
Projected peak-to-trough house price decline
< -30%
Sources: Fiserv Lending Solutions,Moody's Economy.com, OFHEO
-10 to -20%
0 to -10% No decline
-20 to -30%
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Loan Delinquencies EscalateLoan Delinquencies EscalateLoan Delinquencies EscalateLoan Delinquencies EscalateThe Peak is Around the CornerThe Peak is Around the CornerThe Peak is Around the CornerThe Peak is Around the Corner
2.006.00
1.40
1.60
1.80
5.001.78% Q109
0.80
1.00
1.20
3.00
.
5.06% Q209
0.72% Q408
0.20
0.40
0.60
1.00
2.00
0.000.00
Source: PKF Hospitality Research, Moodys Economy.com
30 Day Cre it Car De iquency %, ABA Le t 30 Day Home Equity De iquency %, ABA Rig t
60 Day Prime Loan Deliquency %, MBA (Right)
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GoodGoodOkayOkay
BaBa
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This Downturn is Relatively MildThis Downturn is Relatively MildAverage monthly job losses, peak to trough, thousands
Source: Moodys Economy.com
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Change in Total EmploymentChange in Total Employment U.S. U.S.Q109 Low PointQ109 Low Point
1988 - 2012F 1988 - 2012F Source: Moodys Economy.com
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20072007--2009 Economic Outlook2009 Economic Outlook20072007--2009 Economic Outlook2009 Economic OutlookExpectations Decline Dramatically Expectations Decline Dramatically
Forecast Point Employment Income GDP CPIPercent Change 2007 - 2008
. . . .January 2008 0.4% 1.4% 1.5% 2.7%
September 2008* 0.0% 0.3% 1.9% 4.4%
Forecast Point Employment Income GDP CPIPercent Change 2008 - 2009
October 2007 1.1% 3.3% 3.2% 1.9%January 2008 0.9% 3.2% 3.4% 2.0%
Source: Moodys Economy.com
eptem er 2008 . . . .
* Pre-Lehman, AIG, Merrill, $700 billion Federal plan, Stock market bottom-out, post Fanny, Freddy
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Available Airline Seats vs. Lodging DemandAvailable Airline Seats vs. Lodging Demanduar er y ange rom r or earuar er y ange rom r or ear
10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand10.0% Change in Capacity = 3.9% Change in Demand
10.0%
15.0%
0.0%
5.0%
1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7
10.0%
5.0% 1 9
1 , 9 1
9 1 9
1 , 9 1
9 1 9
1 9
1 9
1 9
1 9
1 9
1 9
1 9
1 9
1 9
1 9
1 9
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
2 0
15.0%
Change in Available Airline Seats Change in Lodging Demand
Sources: Department of Transportation, Smith Travel Research, PKF Hospitality Research
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Seat Capacity and Chain ScaleSeat Capacity and Chain Scaleeman angeeman ange
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Historical RelationshipsHistorical Relationships Chain ScalesChain Scaleso g ng eman : r ne apac tyo g ng eman : r ne apac ty
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The Negative Economic Fallout IsThe Negative Economic Fallout IsSignificantSignificant
Real GDP Growth, Annualized % ChangeReal GDP Growth, Annualized % Change
4Pre-panicPost-panic
3
1
1
0
08 09 10
Source: Moodys Economy.comSource: Moodys Economy.com
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PKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality Researchresen a on u neresen a on u neresen a on u neresen a on u ne
Part 1:Part 1:I. Th E n mPart 1:Part 1:I. Th E n m
- A Panic on Wall Street
- A Panic on Wall Street
II. Current Horizon:II. Current Horizon:
Have We Seen this Before?III. Some Thoughts to Take-away
Have We Seen this Before?III. Some Thoughts to Take-away
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Forecasts Come fromorecasts Come from
H t l H it l H i smmHotel Horizonsotel Horizons smm
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Continuing Signs of aContinuing Signs of a
Number of Markets with Declining YearNumber of Markets with Declining Year- -OverOver--Year DemandYear Demand
40
4550
25
30
35
5
10
15
Number of Markets
Source: PKF-HR , STR
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HighHigh Supply Growth Preceded Last TwoSupply Growth Preceded Last TwoHighHigh Supply Growth Preceded Last TwoSupply Growth Preceded Last Two
6.0%
DownturnsDownturns Will this Happen Again?Will this Happen Again?DownturnsDownturns Will this Happen Again?Will this Happen Again?
4.0%
5.0%
LRA Demand : 1.9%
1.0%
2.0%
3.0%
2.0%
1.0%
0.0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
4.0%
3.0%
Supply Demand^
Source: PKF Hospitality Research, STR, BLS, Moodys Economy.com
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Historical ChangeHistorical Change
--. .. .12 Month Moving Average12 Month Moving Average
4.0%
.
June 2008
2.0%April 2007:
2.0%
.1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59
November 1991:
6.0%
4.0%
April 2002:
1989 1994 1999 2004 2004 2009
Sources: PKF-HR, Smith Travel Research
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Historical Change in U.S. LodgingHistorical Change in U.S. Lodging
-- 12 Month Moving Average12 Month Moving Average
4.0%
6.0%
June 2008
April 2007 - 2.0%
November 1991 - 2.0%
.1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59
November 2008:
April 2002 -
4.0%
Sources: PKF-HR, Smith Travel Research
.
1989 1994 1999 2004 2004 2009 Forecast
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The Mild DoubleThe Mild Double--Dip Extends RecoveryDip Extends Recovery
4.0%
6.0%
April 2007:
June 2008
2.0%
2.0%
.
1 9 8 9
1 9 8 9
1 9 8 9
1 9 9 0
1 9 9 0
1 9 9 1
1 9 9 1
1 9 9 1
1 9 9 2
1 9 9 2
1 9 9 3
1 9 9 3
1 9 9 4
1 9 9 4
1 9 9 4
1 9 9 5
1 9 9 5
1 9 9 6
1 9 9 6
1 9 9 6
1 9 9 7
1 9 9 7
1 9 9 8
1 9 9 8
1 9 9 9
1 9 9 9
1 9 9 9
2 0 0 0
2 0 0 0
2 0 0 1
2 0 0 1
2 0 0 1
2 0 0 2
2 0 0 2
2 0 0 3
2 0 0 3
2 0 0 4
2 0 0 4
2 0 0 4
2 0 0 5
2 0 0 5
2 0 0 6
2 0 0 6
2 0 0 6
2 0 0 7
2 0 0 7
2 0 0 8
2 0 0 8 F
2 0 0 9 F
2 0 0 9 F
2 0 0 9 F
November 1991:
4.0%April 2002:
ovem er : < . >
.
Supply Demand
Sources: PKF-HR, Smith Travel Research
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ADR Growth SlowsADR Growth SlowsSu ly USu ly U Demand Down:RevPAR Declines in 09Demand Down:RevPAR Declines in 09
ADR Growth SlowsADR Growth SlowsSu ly USu ly U Demand Down:RevPAR Declines in 09Demand Down:RevPAR Declines in 09
2009 = the Low Point Going Forward2009 = the Low Point Going Forward2009 = the Low Point Going Forward2009 = the Low Point Going Forward
LongTermAverage 2004 2005 2006 2007 2008F 2009F 2010F
= Below/Above Long Run Average
Supply 1.9% 0.4% -0.1% 0.2% 1.3% 2.6% 3.5% 1.4%
- -. . . . . . . .
Occupancy 62.8% 61.3% 63.1% 63.3% 63.1% 61.3% 58.7% 60.0%
ADR 3.5% 4.2% 5.5% 7.5% 6.0% 3.6% 1.3% 2.3%
RevPAR 3.5% 7.9% 8.5% 7.8% 5.7% 0.8% -3.0% 3.0%
Source: PKF Hospitality Research Third Quarter 2008 Hotel HorizonsSM
Report, Smith Travel Research
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Local Market RevPAR HorizonLocal Market RevPAR Horizonorecast angeorecast ange - -
.
The PKFHR Hotel Horizon MSA Universe 2009 RevPAR ForecastRevPAR < 0% 0% < RevPAR < 3.5% 3.5% < RevPAR < 7% 7.5% < RevPAR
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Operating Profits*Operating Profits*
A Decade of NoA Decade of No RealReal GrowthGrowth(2007 Constant Dollars)(2007 Constant Dollars)
$18,962$17,765
,
$14,744
$13,096$12,150
$15,109
$13,621
$14,996, $15,658
$14,755
$13,000 t e d
t e d
t e d
$11,173
$9,000E
s t i m
E s t i m
E s t i m
Dollars per Available Room
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.
Source: PKF Hospitality Research
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Change In Select Unit LevelChange In Select Unit Level
20062006 -- 20072007
7.8%5.5%5.0%
.
Labor Costs
Total Revenue
Food and Beverage Revenue
ooms evenue
6.9%
7.4%3.6%
Maintenance
A&G
Total Operated Department Expenses
7.9%4.6%
7.9%4.6%
Insurance
Property Taxes
Management Fees
Utility Costs
7.2%
0% 3% 6% 9%
NOI*
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, andamortization.
Source: PKF Hospitality Research
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Inflation Rarely a Problem forInflation Rarely a Problem for
Annual Change Annual Change From 1960 to 2007
Revenue Change Greater Than CPI 30 of 48 Years
15%
Expense Change Greater Than CPI 30 of 48 Years
0%
5%
10%
10%
5%
1960 1970 1980 1990 2000 201
Revenues Expenses C.P.I.
PKF Hospitality Research, BLS
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Utility ExpensesUtility ExpensesAnnual Change Compared to Energy CPIAnnual Change Compared to Energy CPI
30%
10%
-10%
0%
-20%1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
-
Source: PKF Hospitality Research, U.S. Bureau of Labor Statistics, Moodys Economy.com
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PKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality ResearchPKF Hospitality Researchresen a on u neresen a on u neresen a on u neresen a on u ne
Part 1:Part 1:I. Th E n mPart 1:Part 1:I. Th E n m
- A Panic on Wall Street
- A Panic on Wall Street
II. Current Horizon:II. Current Horizon:
Have We Seen this Before?III. Some Thoughts to Take-away
Have We Seen this Before?III. Some Thoughts to Take-away
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U.S. Economy Might be in a Recession, Hotels JustBelow Average
ou e eman p s yc e s n que:(1) High ADRs (2) Weak Economy
Supply/Demand Imbalance Will Drag Rate Growth -Recovery in 2010
Profits Should Decline Slightly in 2009
Watch those Expenses!
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Home Sales Foreclosures House Prices
F in an cia F ai u resAbate
-Economic Expansion
Begins
Stock M arket
Bottoms
BottomHousin g StartsBottom
Peak
Resume Rising
09q4 10q1 10q2 10q3 10q4
Employment
09q2 09q308q1 08q2 08q3 08q4 09q1
Peako oms
House Prices
Jobless RatePeaks
Fed TightensExtraordinary Writedow nsEn d
$ Rises
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Something to Take AwaySomething to Take AwayThe Wild CardsThe Wild Cards
Capital Market Turmoil Slows New Construction -- We Assume a Pause in Starts Until 2010
Airline Capacity Cuts are Real and Continue in
2009- We Assume Demand Loss in 2009
No Meaningful Relief in Oil Prices
- If There is, Demand Will Jump
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Thank YouThank YouFor copies of this presentation :Claude.Var [email protected]
Econometric forecasts for50 U.S. markets, plus six
na ona c a n-sca es.www.pkfc.com/horizons