U.S.

LODGING INDUSTRY
OVERVIEW
Prepared for

Meet the Money 2010

By:
Mark Woodworth
PKF Hospitality Research

May 4, 2010
www.pkfc.com
 WHAT BETTER
TIME?
1. How accurate was our MTM 2009
forecast ?
- Was Q1 2010 a fluke?
2. When will profit growth return and be
sustained?
 WHAT BETTER TIME?

1. Asian Astrology:
2010 is the Year of the ___?
 2010:
The Year of Jim
Butler

Meet the
Money®
 Year of the
Metal (White)
Tiger
 2010: Year of the
Metal (White)
Tiger
 In Asian Astrology, the
New Moon on February
14 began the Year of the
Metal or White Tiger.
 Tiger Years are the
Autumn of Very Long
Cycles.
 Build Reserves and
Strength
 Prepare to Pounce on
Opportunities
Source: Wintonbury Risk Management 6
 WHAT BETTER
TIME?

1. How accurate was our MTM 2009

forecast ?
- Was Q1 2010 a fluke?
1. When will profit growth return and be sustained?
 MTM 2009 ACCURACY
ASSESSMENT

2009 2010
MTM 2009 MTM Current
2009 Actual 2009 Forecast
Occupancy 55.7% 55.1% 55.2% 55.2%

ADR -6.4% -8.8% -2.3% -1.5%

RevPAR -13.7% -16.7% -3.2% -1.1%

Not Too Bad A Little More

Optimistic
 WHAT BETTER
TIME?
1. How accurate was our MTM 2009 forecast ?
- Was Q1 2010 a fluke?

1. When will profit growth return and be

sustained?
 WHAT BETTER
TIME?

The Economy
 The Great Recession Is Over…
Recessions since World War II

Duration in Months Peak-to-Trough % Change Jobless Rate

Peak Trough Recession Expansion Real Industrial Nonfarm Low High Change
Peak to Trough Trough to Peak GDP Production Employment
Dec-07 Aug-09 20 73 -3.9% -19.2% -6.1% 4.4% 10.2% 5.9%
Mar-01 Nov-01 8 120 -0.4% -6.3% -2.0% 3.8% 6.3% 2.5%
Jul-90 Mar-91 8 92 -1.3% -4.3% -1.5% 5.0% 7.8% 2.8%
Jul-81 Nov-82 16 12 -2.9% -9.5% -3.1% 7.2% 10.8% 3.6%
Jan-80 Jul-80 6 58 -2.2% -6.2% -1.3% 5.6% 7.8% 2.2%
Nov-73 Mar-75 16 36 -3.1% -14.8% -2.7% 4.6% 9.0% 4.4%
Dec-69 Nov-70 11 106 -1.0% -5.8% -1.4% 3.4% 6.1% 2.7%
Apr-60 Feb-61 10 24 -1.3% -6.2% -2.3% 4.8% 7.1% 2.3%
Aug-57 Apr-58 8 39 -3.8% -12.7% -4.4% 3.7% 7.5% 3.8%
Jul-53 May-54 10 45 -2.7% -9.0% -3.3% 2.5% 6.1% 3.6%
Nov-48 Oct-49 11 37 -1.7% -8.6% -5.1% 3.4% 7.9% 4.5%
Average 10 57 -2.0% -8.3% -2.7% 4.4% 7.6% 3.2%

Sources: NBER, BEA, FRB, BLS, Moody’s Economy.com

11
 U.S. TOTAL EMPLOYMENT
LEVELS
7.1 Million Jobs Lost – 5 Years From Peak-to-Peak

145.00
19 Quarters

140.00

17 Quarters 2012 Q4
2008 Q1 137.9
135.00 137.9

2000 Q4
130.00
132.5
2003 Q2 2009 Q4
129.8 129.6

125.00

120.00

12 Quarters
115.00

110.00
1990 Q2 1991 Q3
109.8 108.3
105.00

100.00
Q
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8
9
1
4
8
9
1
3
8
9
1
2
0
9
1
9
1
4
9
1
3
2
9
1
2
3
9
1
4
9
1
4
9
1
3
5
9
1
2
6
9
1
7
9
1
4
7
9
1
3
8
9
1
2
9
1
1
0
2
4
0
2
3
1
0
2
0
2
1
3
0
2
4
3
0
2
3
4
0
2
5
0
2
1
6
0
2
4
6
0
2
3
7
0
2
8
0
2
1
9
0
2
4
9
0
2
3
1
0
2
1
0
2
1
0
2
4
1
0
2
3
1
0
2
Source: Moody’s Economy.com, April 2010
 U.S. UNEMPLOYMENT
Six Months to Go Before Unemployment Peaks
RATE
12.0%

2010 Q4
10.2%

10.0%

1992 Q3
7.6%
8.0%

2003 Q2
6.1%
6.0% 1989 Q1
5.2% 2006 Q4
4.4%
2000 Q4
3.9%
4.0%

2.0%

0.0%
Q
Q
Q
Q
Q
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Q
1
8
9
4
8
9
1
3
8
9
1
2
0
9
1
9
1
4
9
1
3
2
9
1
2
3
9
1
4
9
1
4
9
1
3
5
9
1
2
6
9
1
7
9
1
4
7
9
1
3
8
9
1
2
9
1
1
0
2
4
0
2
3
1
0
2
0
2
1
3
0
2
4
3
0
2
3
4
0
2
5
0
2
1
6
0
2
4
6
0
2
3
7
0
2
8
0
2
1
9
0
2
4
9
0
2
3
1
0
2
1
0
2
1
0
2
4
1
0
2
3
1
0
2
Source: Moody’s Economy.com, April 2010
 What Industries Can Drive
This Recovery?
Potential order of industry recovery:
•1. Healthcare and education provide stability
•2. Manufacturing and construction level off;
• Inventory restocking; capital goods

•3. Export industries

• Tech products, info tech., advanced materials and equipment

•4. Professional services

• Accounting, legal, engineering, advertising etc.

•5. Finance, retail, leisure & hospitality

Source: Moody’s Economy.com

 ECONOMIC ASSUMPTIONS DRIVING
OUR FORECASTS
Upturn Accelerates in 2011

Payroll Real Real CPI

Employm Personal GDP (Inflation)
ent Income
2009 -4.3% -1.9% -2.4% -0.3%

2010 -0.7% -0.2% 2.9% 2.0%

2011 1.6% 3.3% 3.9% 2.0%

2012 3.1% 4.8% 5.1% 2.8%

2013 3.1% 4.8% 3.4% 2.5%

Source: Moody’s Economy.com, April 2010

 RECOVERY TIMELINES MIXED ACROSS
MARKETS
Quarter When Employment Levels Turn Positive

1Q 2010
2Q 2010
3Q 2010
4Q 2010
2011 or later Source: Moody's Economy.com 6
 THE HOTEL MARKET CYCLE
Moving Past the Trough

Rapid Rapid
Development Development Development
Lodging Picks Up
Equilibrium Decline, Leads
ADR Other Sectors

Long Run U.S. is Here 2011-2012

Occupancy
ADR and
Occupancy Margins
Meet The
Declines, Recover Money 2011
ADR Follows

Development Occupancy
Slows Recovers

Development
at Minimum Lodging Recovers,
Levels Lags Other Sectors
 What Happened in the First
Quarter?

2010
Q1F Q1 Act Variance
Supply 2.8% 2.9% 0.1%
Demand 2.6% 5.3% 2.7%
Occupancy -0.2% 2.3% 2.5%
ADR -4.9% -4.3% 0.6%
RevPAR -5.1% -2.1% 3.0%
Sources: PKF Hospitality Research; Smith Travel Research
 Preliminary Update - Income and Demand
Estimates
May 2010
Q1 2010
Q4 2002

2 Quarter Lag
6
Sources: PKF-HR; STR; Moody’s Economy.com
 Published Income and Demand Estimates
March 2010

Q1 2010
Q4 2002

2 Quarter Lag
6
Sources: PKF-HR; STR; Moody’s Economy.com
 WHAT BETTER
TIME?

Other Signs the

Turning Point has
been Reached
 A Look into the Future from
The Rubicon Group
Rubicon’s Primary Data…

42 million future competitive rates are collected each day.

Daily load of reservation and block information for the
coming 12 months provided for all brands operated by
Gaylord, Hilton, Hyatt, InterContinental, Loews, Marriott and
Starwood.
Daily load of all GDS transactions that pass through the
Pegasus switch.
 A Look into the Future from
The Rubicon Group
Rubicon’s Primary Data…

The data is forward looking based on future

reservations activity (as of May 1). The concept of
“new business added” describes the percent
increase in the number of reservations taken during
April for the future period when compared to April of
2009 and its respective future period.
 Aggregate Demand & ADR
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 Committed Demand is
Positive in Many Markets
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 Group Committed Demand
has Improved
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 Transient Business Demand is
Vastly Improved
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 Transient Leisure Demand
Also Shows Gains
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 If There is a Concern…
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 …But ADR Improvement is
Evident
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 The Pace of New Business Shows
Recovery Strength
Top 25 North American Markets

© 2010 Rubicon – All Rights Reserved

 Our Forecasts

FORECASTS COME FROM

HOTEL HORIZONS®

32
U.S. by Chain Scale, All Hotels, 50 MSA’s
 Published March 2010
Forecast
2009 2010
Q1 Q2 Q3 Q4 Q1 Q2F Q3F Q4F

S u p p ly 3 .2 % 3 .1 % 3 .2 % 3 .1 % 2 .9 % 1 .2 % 0 .6 % 0.
D em and -8 .1 % -8 .1 % -5 .0 % -1 .4 % 5 .3 % 1 .8 % 1 .1 % 0.
O c c u p a n c y -1 1 .0 % -1 0 .9 % -7 .9 % -4 .4 % 2 .3 % 0 .7 % 0 .4 % 0.
AD R -7 .7 % -9 .7 % -9 .8 % -7 .6 % -4 .3 % -2 .0 % 0 .4 % 0.
R evP AR -1 7 .8 % -1 9 .6 % -1 6 .9 % -1 1 .7 % -2 .1 % -1 .4 % 0 .9 % 1.

S o u rce s : P K F H o s p ita lity R e s e a rch ; S m ith T ra v e l R e s e a

6
 Preliminary Updated Forecast
-May 2010 – a Quicker Turnaround
2009 2010
Q1 Q2 Q3 Q4 Q1 Q2F Q3F Q4F

S u p p ly 3 .2 % 3 .1 % 3 .2 % 3 .1 % 2 .9 % 1 .2 % 0 .6 % 0.
D em and -8 .1 % -8 .1 % -5 .0 % -1 .4 % 5 .3 % 4 .8 % 4 .3 % 5.
O c c u p a n c y -1 1 .0 % -1 0 .9 % -7 .9 % -4 .4 % 2 .3 % 3 .6 % 3 .7 % 4.
AD R -7 .7 % -9 .7 % -9 .8 % -7 .6 % -4 .3 % -2 .1 % -0 .8 % 0 .7
R evP AR -1 7 .8 % -1 9 .6 % -1 6 .9 % -1 1 .7 % -2 .1 % 1 .4 % 2 .8 % 5.

S o u rce s : P K F H o s p ita lity R e s e a rch ; S m ith T ra v e l R e s e a

6
 National Horizon
A Slow Recovery from a
Deep Fall
Long 2006 2007 2008 2009 2010F 2011F 2012F
Term
Average

Supply 1.9% 0.2% 1.3% 2.6% 3.2% 1.2% -.01% 0.0%

Demand 1.6% 0.5% 0.9% -1.8% -5.8% 1.5% 2.2% 3.4%

Occupancy 62.6% 63.3% 63.0% 60.3% 55.1% 55.2% 56.5% 58.4%

ADR 3.4% 7.5% 6.2% 2.6% -8.8% -1.4% 3.4% 6.8%

RevPAR 3.1% 7.8% 5.8% -1.8% -16.7% -1.1% 5.8% 10.5%

Record Decline Record Increase

Source: PKF Hospitality Research – March 2010 Hotel Horizons® Report, Smith Travel Research 6
 National Horizon
Preliminary Update – May
2010
Long 2006 2007 2008 2009 2010F 2011F 2012F
Term
Average

Supply 1.9% 0.2% 1.3% 2.6% 3.2% 1.2% -.01% -.01%

Demand 1.6% 0.5% 0.9% -1.8% -5.8% 4.8% 2.9% 3.3%

Occupancy 62.6% 63.3% 63.0% 60.3% 55.1% 56.6% 58.4% 60.3%

ADR 3.4% 7.5% 6.2% 2.6% -8.8% -1.6% 5.6% 6.4%

RevPAR 3.1% 7.8% 5.8% -1.8% -16.7% 1.8% 8.8% 10.0%

A Quicker
Turnaround?

Source: PKF Hospitality Research – Preliminary May 2010 Hotel Horizons® Report, Smith Travel Research 6
 RevPAR Inflection Point Mixed
Across Markets
Quarter When RevPAR Change Turns
Positive

1Q 2010
2Q 2010
3Q 2010
4Q 2010
2011 or later
Source: PKF Hospitality Research
 Virtually Everyone Suffered
In 2009
Percent of Hotels* Posting an Increase
or Decrease From 2008 to 2009

Number of Rooms 18.5%

Rented

4.8%
Rooms Revenue

4.5%
Total Revenue

Net Operating 8.6%

Income**
Notes: * 2010 Trends® in the Hotel Industry sample.
** Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, 2010 Trends® in the Hotel Industry report.
 PKF Annual Trends®
Change In Operating
Results
2008 to 2009

Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
 PKF Annual Trends®
Change In Select Operating
Expenses
2008 to 2009

Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
** Includes franchise royalty payments, marketing assessments, and guest loyalty program costs.
Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
 PKF Annual Trends®
Change In Labor Costs
2008 to 2009

Source: PKF Hospitality Research 2010 Trends® in the Hotel Industry report.
 2009 U.S. Hotel Operating
Performance
Average Change – 2008 to 2009
-18.5%
All Hotels
-35.4%

-18.5%
Full Service
-37.4%

-16.9%
Limited Service
-29.7%

-15.9%
Suite with F&B
-22.8%

-15.8%
Suite without F&B
-25.1%

-19.3%
Convention Hotels
-37.5%
Notes: * Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, 2010 Trends® in the Hotel Industry report. -19.4%
Resorts
-37.8%
 RECOVERY WILL BE STRONG
THROUGH 2013
Annual Change in Unit-Level NOI*

80% +64.6% - 1943

+11.3% - 2011F
+15.6% - 2012F
60% +19.7% - 2013F

40%

-19.4% - 2001
20%
-22.4% - 1938
-35.4% - 2009F

0%
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, Trends® in the Hotel Industry sample.
 BUT NOT SOON ENOUGH AS
DELINQUENCIES SOAR
Approaching 1 in 6

20.0% 30 DaysDelinquent >30 DaysDelinquent All Delinquencies

18.0% April 2010
17.2%
16.0%
14.0%
12.0%
10.0%
8.0% November 2003
6.0% 6.2%

4.0%
2.0%
0.0%
-9
8

-9
9

-0
0

-0
1

-0
2

-0
3

-0
4

-0
5

-0
6

-0
7

-0
8

-0
9
-9
8

-9
9

-0
0

-0
1

-0
2

-0
3

-0
4

-0
5

-0
6

-0
7

-0
8

-0
9
n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju

n
Ju
D

D
e

e
c

c
Source: Trepp LLC
 INTEREST PAYMENT ANALYSIS
Percent of Hotels Not Covering Interest Payments*

Note: * Percent of Trends® in the Hotel Industry sample that reported interest payments.
Source: PKF Hospitality Research
 SUMMARY
1. How accurate was our MTM 2009
forecast?
a) Pretty good.
2. When will profit growth return and be
sustained?
a) Eight consecutive quarters of demand contraction
ended in Q1 2010. Supply/demand imbalance; capital
market turmoil and depressed market values will keep
development at a standstill.
b) Signs are positive that recovery might have begun to
accelerate; however, a buyer’s market will persist into
2011. Eight consecutive quarters of rate declines will
end in Q4 2010, leading to
c) Profit growth in 2011 – stays well-above average 6
 SUMMARY
3. Where are cap rates going?
a) Lack of liquidity and an absence of income growth have lifted
cap rates to a cyclical peak in 2009.
b) Increasing profits and reduced risk premiums will overcome
escalating interest rates; cap rate compression will result.
c) Although the cumulative loss in value has been substantial
since 2008, significant asset appreciation will commence in
2011 and persist through 2014 as cap rates fall further in
response to stabilizing incomes.
4. Forecast bias is positive.

6
 The Cycle of Hotel
Real Estate Emotions-
What Better Time?

2007
2008 – 1st
Half

2011-12
2008 – 2nd
Half
2004
2011
2009-2010
For a Copy of This Presentation:
www.PKFC.COM/Presentations

Thank You for the

Opportunity
6