You are on page 1of 20

R M

R. Mark
kWWoodworth
d th
President
PKF Hospitality Research
J b B
Jobs Becoming
i M More Scarce
S
Total Payroll Employment in a Long
Contraction

Source: Moody's Economy.com
Current Contraction Looks Like the Last One
Remember the Jobless Recovery?
Forecast
Long Run Employment Levels
15 Qtrs
16 Qtrs

10 Qt
Qtrs

9 Qt
Qtrs

Beginning / End of Contraction Period
Turning Point Source: Moody's Economy.com
Turning Points:
Distance from Beginning of Official NBER
Recession (Quarters)

Source: Moody's Economy.com
Loan Delinquencies Increase
Pain Will Escalate into Late 2010

Source: PKF Hospitality Research, Moody’s Economy.com
H t l CMBS D
Hotel Delinquency
li R
Rate
t
1998 - 2008
2008

Source: Trepp, LLC
Protracted Disconnect
B t
Between P
Property
t C
Cycle
l and
d
Business Cycle
Forecast

Cycle Disconnect
Source: PKF Hospitality Research, Smith Travel Research
Protracted Declines Lead to
Record Low Occupancy in 2009

Forecast

Source: PKF Hospitality Research, Smith Travel Research
Weak Occupancy Postpones
ADR Growth Until 2Q 2010

Forecast

Source: PKF Hospitality Research, Smith Travel Research
High ADR Changes
Fuel NOI Growth
Forecast

THIS IS A “MODERN RECORD”

Source: PKF Hospitality Research, Smith Travel Research
Forecast Spreads Above LRA
But Below 2Q 2003 Peak

Source: PKF Hospitality Research, Moody’s Economy.com, Real Estate Research Corporation
Forecasts of Return Components
Cap Rates Exploding – Up 210 bps by 2010
10 Year Treasury
Treasury Spread % Δ NOI Cap Rate
2005 4.3% 4.0% 15.5% 8.3%

2006 4.3% 3.8% 13.3% 8.1%

2007 4 6%
4.6% 3 0%
3.0% 7 2%
7.2% 7 6%
7.6%

2008E 3.7% 4.1% -1.7% 7.8%

2009F 3.6% 5.2% -18.8% 8.8%

2010F 4 8%
4.8% 4 9%
4.9% 0 0%
0.0% 9 7%
9.7%

Source: PKF Hospitality Research, RERC, Moody’s Economy.com
Cumulative Value Decline Falls
Sh t off 2001 – 2003 E
Short Experience
i
Factors Influencing Value of Upper Priced Hotels
Note: Cap Rate Influence = Change In Value – Change In NOI (after reserve)

Source: PKF Hospitality Research, Real Estate Research Corporation
A Longer Journey This Time Around
Number of Quarters from Beginning of Official
NBER Recession Until Turning Point

*Until supply falls below its LRA
Source: PKF Hospitality Research
Nothing
g Looks Normal
Supply Up – Demand Down:
Big RevPAR Declines in ‘09
2009 = the Low Point Going Forward

= Below/Above Long Run Average
Long
Term
Average 2004 2005 2006 2007 2008E 2009F 2010F

Supply 1.9% 0.4% -0.1% 0.2% 1.3% 2.7% 2.9 1.0%

Demand 1.9% 4.0% 2.8% 0.5% 1.0% -1.4% -2.8% 1.3%

Occupancy
p y 62.8% 61.3% 63.1% 63.3% 63.1% 60.5% 57.2% 57.4%

ADR 3.5% 4.2% 5.5% 7.5% 6.1% 2.4% -4.6% 1.0%

RevPAR 3.5% 7.9% 8.5% 7.8% 5.7% -1.7% -9.8% 1.3%

Source: PKF Hospitality Research – Preliminary Fourth Quarter 2008 Hotel HorizonsSM Report, Smith Travel Research
Impact of Revenue Declines on
NOI Depends on Where You Start
Low and High Occupancy Hotels

Hotels with Occupancy
Greater than 70%

Hotels with Occupancy
Less than 70%

Note: * After capital reserve expense and before rent , interest, income taxes, and amortization.

Source: PKF Hospitality Research
Negative Impact on Debt Service
Coverage Capability is Significant
Resulting Debt Coverage Ratio

Source: PKF Hospitality Research
E it is
Equity i Evaporating
E ti
1 of 3 CMBS Loans Since 2005 LTV > 70%

Are these hotels
under water?

Source: Trepp, LLC
Final Thoughts

ƒ Nothing really new ahead,
although all that is bad about this
phase
h off the
th cycle
l iis protracted
t t d
in nature.
ƒ NOI and asset value declines are
big but not unprecedented –
owners and lenders will still
experience significant stress.
ƒ The Turning Point: consensus
view is mid-2010.
T Download
To D l d A Copy
C Of This
Thi
Presentation
www pkfc com/presentations
www.pkfc.com/presentations