meet the money 2011® mark woodworth, pkf: expensive oil

8/6/2019 Meet the Money 2011 Mark Woodworth, PKF: Expensive Oil

1/28

Accelerating success.

May 3, 2011

U.S. Lodging Industry Overview

Prepared for:

Meet the Money - 2011

by

R. Mark Woodworth

PKF Hospitality Research


2/28

2

2. Lodging forecast:

1. The lodging cycle and theeconomy.

G ood and G etting B etter

- Base case.

- Alternative scenarios.

3. Cap rate outlook.

For a Copy:

[email protected]


3/28

The Hotel Market Cycle

3

RapidDevelopment

OccupancyDeclines,ADR Follows

Developmentat Minimum

Levels

LodgingDecline, LeadsOther Sectors

OccupancyRecovers

ADR andMarginsRecover

Development

Picks Up

DevelopmentSlows

Lodging Recovers,Lags Other Sectors

Long RunOccupancy

RapidDevelopment

EquilibriumADR

U.S. is Here

2011-2012

2013-2014

MTM 2010

Moving Along the Road to Recovery


4/28

-50

-25

0

25

50

-6

-4

-2

0

2

4

6

70 75 80 85 90 95 00 05 10

Profits Surge and Jobs ShouldFollow

Sources: BLS, BEA

Profit growth,lagged 3 qtrs (R)

Job growth (L)

% change yr ago

as Will Lodging Demand Growth


5/28

-16

-12-8

-4

0

4

8

12

16

00 01 02 03 04 05 06 07 08 09 10 11 12

Although More House PriceDeclines Will be a Drag

Sources: Fiserv, Moodys Analytics

Case ShillerHome Price Index, 2000Q1=100


6/28

E conomic A s s umptions DrivingOur Forecas ts :

Payroll

Employment

Real Personal

IncomeReal GDP CPI (Inflation)

2009 -4.3% -4.3% -1.9% -1.9% -2.6% -2.6% -0.3% -0.3%

2010 -0.5% -0.5% 1.3% 1.3% 2.9% 2.9% 1.6% 1.6%

2011 1.2% 1.7% 3.7% 4.0% 3.3% 3.9% 2.1% 1.5%

20122.3% 2.4% 4.7% 3.8% 4.3% 4.0% 2.0% 2.5%

2013 2.6% 2.5% 5.0% 4.6% 3.9% 3.7% 2.9% 3.2%

L.R.A. 1.2% 2.7% 2.7% 2.9%

Source: Moodys Analytics, April 2011 L.R.A. = Long Run Average(January 2011) 6

Base Case Scenario


7/28

7


1. The economy and the lodgingcycle.


- Base case.- Alternative scenarios.



8/28

Happy Thoughts

8

History:- # of Consecutive Quarters of Increases

Demand 5 Quarters Occupancy 5 Quarters

ADR 4 Quarters RevPAR 4 Quarters

Forecast (Base Case Scenario):

- # of Consecutive Quarters above (below) Long Run Average Demand (1.5%) 11 Quarters (Supply) (2.2%) 14 Quarters ADR (2.9%) 19 Quarters (as far as we can see) RevPAR (2.3%) 19 Quarters (ditto)


9/28

Long TermAverage 2006 2007 2008 2009 2010 2011F 2012F

Supply 2.2% 0.2% 1.3% 2.5% 3.0% 1.9% 0.4% 0.5%

Demand 1.5% 0.5% 0.7% -2.5% -6.1% 7.7% 5.2% 5.3%

Occupancy 62.2% 63.1% 62.8% 59.8% 54.5% 57.6% 60.3% 63.2%

ADR 2.9% 7.6% 6.4% 2.9% -8.5% -0.2% 2.6% 5.8%

RevPAR 2.3% 7.9% 5.9% -2.1% -16.6% 5.4% 6.8% 7.6%

National Horizon- Forecasts through 2012

And a QuickerDemand

TurnaroundFor a Record

Decline

Source: PKF Hospitality Research June-August 2011HorizonsReport (preliminary), Smith Travel Research

9

Severe RateDiscounting Set

the Stage

Surpasses Long

Run Average

Base Case Scenario


10/28

Nominal RevPAR Levels Return toHistorical Maximum in Year

Source: Colliers PKF Hospitality Research March - May 2011 Hotel HorizonsReport, Smith Travel Research10

The map below displays the year in which nominal RevPAR levelsare forecast to once again achieve their historical maximum: 1market in 2010, 0 in 2011, 10 markets in 2012, 23 markets in 2013, 8markets in 2014, and 8 markets in 2015 or later.

Already There20112012201320142015 & Beyond


11/28

-1.3%

-0.3%

1.0%

1.7%

1.9%

7.1%

8.1%

8.3%

8.4%

8.9%

7.8%

-4% 0% 4% 8% 12%

Washington DC

Indianapolis

Philadelphia

Raleigh-Durham

New York

National Average

Minneapolis

Portland

San Diego

Oakland

Seattle

Source: Colliers PKF Hospitality Research, March - May 2011 Hotel Horizonsreport.

Forecast Change 2010 to 2011

U.S. Hotel MarketsGreatest and Least Change in RevPAR

11

(6.8)%Preliminary

Update


12/28

12


1. The economy and the lodgingcycle.





13/28

Consumers Are Making Tough DecisionsThe Oil Spike of 2005

-200 -150 -100 -50 0 50 100 150 200 250

Grocery

Home furnishings

Clothing

Sport, book & music

Restaurants

Health & personal

Electronics

Autos

Building materials

Nonstore

Gas stations

Basis-point change in share of overall retail sales between February, 2002 and July, 2005

Source: U.S. Census Bureau

Then


14/28


15/28


16/28

0

5

10

15

20

25

70 75 80 85 90 95 00 05 10

No Margin for Error in Global Oil Markets

Sources: OPEC, EIA, IEA, Moodys Analytics

OPEC spare capacity as a % of global oil demand


17/28


18/28

Potential Effect of anOil Price Spike on U.S GDP

Every $1 increase in the price of crude oil raises gasoline prices by 2.2 cents

per gallon and costs consumers about $3 billion over the course of a year.

- Moodys Analytics

18

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4

Baseline Scenario

$125 Scenario

$150 Scenario

Recession


19/28

Potential effect of Oil Price Increaseson RevPAR

19

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2010 2011 2012 2013

Baseline Scenario (CurrentForecast)$125 Scenario

$150 Scenario

Source: PKF Hospitality Research

Long Run Average per STR = 2.3%


20/28

Different Regions = Different Effects

Drive to effect from Boston

20


21/28

Cumulative Change in RevPAR2010 2012 By Location

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Current

Forecast

Current

Forecast

Current

Forecast

Current

Forecast

Current

Forecast

Current

Forecast

Urban

Sub

urban

Airport

Interstat

e

Resort

Town

Source: PKF Hospitality Research

Base Case Scenario Oil at $150 Scenario

Location

Percent Change in RevPAR

21

Resort and SuburbanLocations take the Big Hit


22/28

BaseCase Oil at $125 Oil at $150

Year 2011 2012 2011 2012 2011 2012

Occupancy 60.3% 63.2% 59.7% 61.6% 59.2% 60.2%

ADR 2.6% 5.8% 2.1% 1.3% 2.4% 0.1%

RevPAR 6.8% 7.6% 5.7% 4.6% 5.2% 1.8%

NOI 10.4% 13.5% 6.5% 1.9% 6.2% -2.2%

Summary Estimates

Source: PKF Hospitality Research June-August 2011HorizonsReport (preliminary), Smith Travel Research 22


23/28

23


1. The economy and thelodging cycle.





24/28

-80

-60-40

-20

0

20

40

60

80

-50

-40

-30

-20

-10

0

1020

30

40

50

90 92 94 96 98 00 02 04 06 08 10

The Credit Spigot Is Opening

Source: Federal Reserve Senior Loan Officer Survey May 2, 2011

Net % of senior loan officers

Willing to make aconsumer loan (L)

Tightening standards for C&Iloans to small businesses (R)


25/28

8.4

7.9

0

2

4

6

8

10

12

RERC Investor Survey Cap Rates

RCA Observed Transaction Cap Rates

Perceptions and Reality Coming Together

25Source: RERC, RCA

RatesConverging


26/28

Forecasts of Return ComponentsLodging Risk Premium Stays Below L.R.A.

10 Year Treasury Market Risk PremiumLodging Risk Premium Hotel Cap Rate

2005 4.3% 1.8% 2.8% 8.9%

2006 4.8% 1.7% 2.0% 8.5%

2007 4.6% 1.9% 1.5% 7.9%

2008 3.7% 3.8% 0.9% 8.4%

2009 3.3% 4.0% 2.0% 9.3%

2010 3.2% 2.8% 2.0% 7.9%

2011F 3.8% 2.6% 2.0% 8.4%

2012F 5.4% 2.2% 2.2% 9.8%

2013F 5.8% 1.8% 2.3% 9.9%

L.R.A. 5.3% 2.3% 2.7% 10.0%

Source: Colliers PKF Hospitality Research, RERC, RCA, Moodys Analytics

Long Run Average (L.R.A.) = 1992-2010

26

Base Case Scenario


27/28

Summary

27

No Tailwinds Yet:* Persistent high levels of unemployment* Continued weakness in housing* Higher inflation lifts appeal of hotels* Oil prices a B ump on the P ath.

F orecast bias = very s light positive.


28/28

Thank you for your time.

28

[email protected] Vargo:

meet the money 2011® mark woodworth, pkf: expensive oil

Documents