PKF Presentation

May 2012

Bruce Baltin [email protected]

ALIS 2012

U.S. Lodging Market Outlook

Prepared for:

Some Headwinds… More Tailwinds

Meet the Money 2012

Topics

2

Our Current Forecasts

Profit Outlook

A Look at Productivity

Our Current

Forecasts

3

4

Employment Levels

>2000 >Peak

2011 28 3

2012 34 6

2013 41 12

Source: Moody’s Analytics

This is True in 20% of Our 50 Hotel Horizons® Markets

Fewer Jobs Today...and the Return to

Past Peaks will be Slow.

5

A Fundamentally Good Sign:

Market

Number of Markets at

or Above Past Peak

Demand as of Q4

2011*

All Hotels 30

Upper-Priced 47

Lower-Priced 10

Source: Smith Travel Research

* Four Quarter Moving Average

Lodging Demand Has Recovered in Over Half of Our 50 Hotel Horizons® Markets

6

There is a Disconnect:

Employment is Weak

Lodging Demand is Strong

Why?

The Answer: Part 1

7

Total Real Personal Income Levels

>2000 >Peak

2011 49 13

2012 49 37

2013 49 43


Consumers, Businesses have the $’s to Travel

2011 ADR Percentage Point Difference From Previous Peak

8

50 U.S. Horizons® Markets

Source: PKF Hospitality Research, March – May 2012 Hotel Horizons®

The Answer: Part 2

Room Rates Still Have a Long Way to Go!

U.S. is 5.4% below the

previous peak.

LA is 4.5% below the

previous peak.

Pittsburgh +

New Orleans

Meet the Money 2011 Accuracy Assessment

9 Source: PKF Hospitality Research, LLC – March-May 2012 Hotel Horizons®, Smith Travel Research

2011 2012 MTM

2011

2011

Actual MTM

2011 Current

Forecast

Occupancy 60.3% 60.1% 63.2% 61.0%

ADR 2.6% 3.7% 5.8% 4.1%

RevPAR 6.8% 8.2% 7.6% 5.8%

Full Demand Recovery

United States

Less Optimistic

Why?

Factors Impacting ADR in 2012

- Real personal income growth

10

Main drivers of the demand

recovery 2010 - 2011:

- Corporate profit growth

- Low room rates

4-Quarter Moving Average Change

Change in U.S. Corporate Profits Forecast


11

Rate of Corporate Profit Growth

Not as Robust in 2012

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Jan-11 Apr-11 Oct-11 Jan-12

Source: Moody's Analytics

Change in Total Real Personal Income

Date of Forecast:

12

A little more pessimistic

going into 2012

Today April

2011

April

2011

Leading Economic Indicators % change in last 6 months –February 2012

Source: The Conference Board, PKF-HR, STR 13

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Leading Economic Indicators (% change in the last 6 months) U.S. Hotel Demand

A Contraction

Coming?

6 to 8 Month Lag

Leading Economic Indicators % change in last 6 months –April 2012

Source: The Conference Board, PKF-HR, STR 14

April 2012 Reading:

An Encouraging

Sign

15

Many Important Unknowns for 2013:

Some Headwinds

But Fundamentals are Improving

16

Average

Daily

Rates Occupancy

2008 47 4

2009 0 0

2010 9 49

2011 48 49

2012F 50 44

2013F 50 48

2014F 50 49

2015F 50 48

Number of Top U.S. Markets with

Increasing:

Source: STR, PKF Hospitality Research, March – May 2012 Hotel Horizons®

Atlanta and San Antonio

Houston

New Orleans Atlanta and San Antonio

Houston

New Orleans

Rates and Occupancies are Going Up !

Outliers Outliers

Expected Case Scenario

• Unemployment is expected to remain above 8% through 2012 even with the addition of 2 million jobs.

• Extend payroll tax holiday and emergency unemployment insurance through the rest of 2012 (done).

• Housing prices continue to fall through Q2 2012 as foreclosures and short sales increase.

• Mild European Recession.

• Business Investment increases 8.9%.

17 Source: Moody’s Analytics

2012 Expected Case Economic Forecast

Income Employment CPI GDP

2.5% 1.1% 2.1% 2.6%

Expected Case Scenario

18

Measure 2011 2012

Supply 0.6% 0.6%

Demand 5.0% 2.2%

Occupancy 60.1% 61.0%

Average Daily Rate 3.7% 4.1%

RevPAR 8.2% 5.8%

Source: PKF Hospitality Research; Smith Travel Research

19

2012 RevPAR Forecast By Chain-Scale

Chain-Scale 2012 RevPAR

Change

Luxury (Ritz-Carlton, Four Seasons, InterContinental,..) 6.0%

Upper-Upscale (Marriott, Hilton, Hyatt, ..) 6.5%

Upscale (Courtyard, Crowne Plaza, Hyatt Place,…) 7.4%

Upper-Midscale (Hampton, Holiday Inn, Comfort..) 4.8%

Midscale (Best Western, LaQuinta, Quality …) 3.2%

Economy (Days Inn, Red Roof, Motel 6 …) 4.6%

Source: PKF Hospitality Research, March-May 2012 Hotel Horizons® report.

A Look at

20

Productivity

A Look at Productivity

21

22

Drivers of Labor Costs

1. Business Volume – rooms sold; covers served.

2. Compensation Levels – wages; benefits.

3. Productivity – Output achieved per hour worked.

23

Data Analyzed

1. Year-Over-Year Change in Labor Costs (PKF-Hospitality Research)

2. Year-Over-Year Change in Average Hourly Compensation Levels (BLS)

3. Year-Over-Year Change in Total Hours Worked (1 - 2)

24

Estimating the Number of Hours Worked

• According to the BLS, the average weekly hours worked per employee has remained generally stable.

• Therefor:

total labor costs -

average hourly $ levels =

• Total hours worked

Change in Average Hourly Compensation

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010

BLS - Change in Average Hourly Compensation for Hospitality Employees

Source: PKF Hospitality Research, Bureau of Labor Statistics

Compensation and Hours Worked

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Change in Total Hours Worked



Annual Change in Labor Costs

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010



PKF-HR - Annual Change in Labor Costs


What Happened in 2011?

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011



PKF-HR - Annual Change in Labor Costs


+3.1%

+1.0%

+4.1%

Productivity Was Flat in 2011

-3.9%

3.1%

-12.5%

1.5%

3.1%-0.1%

4.3%

-0.1%-7.7%

6.2%3.1%

-15%

-10%

-5%

0%

5%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Change in Total Hours Worked PKF-HR Change in Occupied Rooms


Change in Total Hours Worked v. Change in Occupied Rooms

Profit Outlook

30

RevPAR Components and NOI* Change

-40%

-30%

-20%

-10%

0%

10%

20%

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

2011

2012F

2013F

Occupancy A.D.R. Change in NOI*

Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.

Source: PKF Hospitality Research’s Annual Trends® Database

31

What is better: Occupancy or ADR?

32

-40%

-20%

0%

20%

40%

60%

1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2013F

+64.6% - 1943

-22.4% - 1938

-19.4% - 2001

-35.4% - 2009

+12.7% - 2011

+9.3% - 2012F

+11.7% - 2013F

Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.

Source: PKF Hospitality Research, Trends® in the Hotel Industry sample.

Annual Change – All U.S. Hotels

Unit-Level NOI*

Nominal Dollar Operating Profits* Surpass 2005 Dollars in 2012

$1

5,3

57

$1

6,9

08

$1

3,6

28

$1

2,3

20

$1

0,7

92

$1

2,0

22

$1

3,8

86

$1

5,7

35

$1

6,8

68

$1

6,2

27

$1

0,4

83

$1

1,5

10

$1

2,9

72

$1

4,1

84

$1

5,8

37

$6,000

$10,000

$14,000

$18,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

F

2013

F

Do

llars P

er A

vail

ab

le R

oo

m


Source: PKF Hospitality Research’s Annual Trends Database

33

33

$2

0,7

08

$2

2,1

03

$1

7,1

86

$1

5,2

65

$1

3,0

24

$1

4,1

62

$1

5,8

77

$1

7,4

80

$1

8,2

32

$1

6,8

44

$1

0,9

49

$1

1,8

47

$1

2,9

72

$1

3,9

06

$1

5,2

27

$0

$10,000

$20,000

$30,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

F

2013

F

Do

llars P

er A

vail

ab

le R

oo

m

34

Peak to Trough Decline in Operating Profits* 50% Decline in Real Terms


Source: PKF Hospitality Research’s Annual Trends Database

34

-41.3%

Some Things to Think About

35

Summary

1. Personal incomes and corporate profit growth will continue, but at less robust levels. Lodging demand growth in 2012, while still positive, will pale relative to the past two years.

- Higher rooms rates will help to slow demand growth as well.

2. Unemployment will remain high – helps to keep

labor costs in check and profit growth up.

36

3. Oil is a wild card for 2012 – too big an increase will undermine the economy – lodging demand will suffer as a result.

4. Overall, the 2nd and 3rd quarters of 2012 will be the

weakest given the economic slow down currently

underway.

Summary

37

A Final Thought

38

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