IRR Viewpoint. Caribbean Hospitality Market Update 1 st Quarter 2018 Report. By James V. Andrews MAI, CRE, FRICS, ASA/BV

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1 IRR Viewpoint Caribbean Hospitality Market Update 1 st Quarter 2018 Report By James V. Andrews MAI, CRE, FRICS, ASA/BV

2 Caribbean Hospitality Market Update 1 st Quarter 2018 Report By James V. Andrews, MAI, CRE, FRICS, ASA/BV Grand Cayman s Seven Mile Beach Overview Obviously 2017 was not a normal year in terms of Caribbean tourism. Prior to the unfortunate arrivals of two severe hurricanes which struck the Leeward Islands and northern Caribbean in September, the year 2017 was shaping up to be another year of robust growth for tourist arrivals to the region. The Caribbean Tourism Association reports that stayover arrivals were up 4.8% through the first half of the year, but only up 1.7% for the entire year, taking into account the hurricane effects. Hotel performance was relatively flat overall both before and after the September hurricanes, but new hotel development continues to flourish with an unprecedented pipeline of planned projects. Meanwhile, the recovery phase continues for some destinations. Total estimated damages are $14.8 billion from Hurricane Irma with 11 destinations affected, while a staggering $103.4 billion in damages are reported from Hurricane Maria over seven affected destinations (the majority in Puerto Rico). Tourism Arrivals Growth Slows Due to Hurricanes The Caribbean Tourism Organization (CTO) is reporting nearly 30.1 million stayover arrivals in 2017 for the Caribbean region including Cancun, Cozumel and Belize. This approximates 1.7% growth in arrivals for the 31+/- markets reporting. For the 28 Caribbean markets excluding Mexico which are the focus of our report, arrivals are estimated at just over 24 million for the year. 2

3 Of the top fifteen reporting countries (excluding Mexico), the average rate of growth is flat (+0.06%). This includes reported estimates from the press regarding arrivals to Cuba, which did not report to the CTO in Assuming this data is correct, Cuba leads growth in the region at 11.9%, closely followed by St. Lucia (11.0%) and the Cayman Islands (8.5%). The latter two are examples of destinations that were outside of the pathways for these hurricanes and have reported growth which is likely to be partly due to tourists that changed plans to avoid the affected areas. St. Thomas, USVI CARIBBEAN STAYOVER ARRIVALS - LEADERS Destination 2014 Arrivals % Chg 2015 Arrivals % Chg 2016 Arrivals % Chg 2017 YTD Arrivals % Chg 2017 Months Dominican Republic 5,141, % 5,599, % 5,959, % 6,187, % Jan-Dec Cuba 3,001, % 3,524, % 4,200, % 4,700, % Jan-Dec * Jamaica 2,080, % 2,123, % 2,181, % 2,352, % Jan-Dec Puerto Rico 1,688, % 1,786, % 1,790, % 1,533, % Jan-Nov Bahamas 1,343, % 1,390, % 1,391, % 1,335, % Jan-Dec * Aruba 1,072, % 1,224, % 1,101, % 1,070, % Jan-Dec US Virgin Islands 730, % 769, % 796, % 583, % Jan-Aug Barbados 519, % 591, % 631, % 588, % Jan-Nov Sint Maarten 499, % 505, % 528, % Martinique 489, % 487, % 519, % 535, % Jan-Dec Turks and Caicos 368, % 386, % 453, % 416, % Jan-Dec Trinidad & Tobago 412, % 439, % 408, % 394, % Jan-Dec BVI 383, % 393, % 407, % 334, % Jan-Dec Cayman Islands 382, % 385, % 385, % 418, % Jan-Dec St. Lucia 338, % 344, % 347, % 386, % Jan-Dec Curacao 450, % 468, % 441, % 397, % Jan-Dec Average Increase 5.88% 5.68% 21,545, % 0.06% Source: Caribbean Tourism Organization, except Various Govt. Tourism Departments Where Noted * The BVI had the greatest decline in arrivals in the region, although it is not clear if this was entirely related to hurricane effects. We note that, although still positive, growth to the Dominican Republic has slowed dramatically from prior years, despite significant expansion of hotel inventory in that market. Growth in Arrivals by Country, YTD % 12.00% 10.00% 8.00% 6.00% 7.80% 8.50% 11.00% 4.00% 2.00% 0.00% -2.00% -4.00% -5.10% -3.50% -2.90% 1.80% 3.10% 3.80% 4.40% -6.00% -8.00% % -9.80% -8.20% % % % % % % It is interesting to note that tourist arrivals to Cuba are reportedly continuing to grow by leaps and bounds despite a reversal of some of the travel policies for Americans by the Trump Administration. In 2016, American visitors to Cuba increased dramatically following on relaxation of the travel rules by the Obama administration which allowed more Americans to travel there, yet 3

4 now some of those travel restrictions are back in place; in particular, leisure travel outside of tour groups is no longer allowed. Hotel Performance Flat in 2017 For the year to date through October 2017, hotel performance has generally been flat based on data from STR Inc. For the year-to-date December, occupancy in the region is down 1.0%. For same period, the average daily rate increased 1.3% for the Caribbean. According to the data, however, RevPar is down 0.4% for the year to date. Jolly Harbour, Antigua Caribbean Hotel Performance, Year to Date December $ $ $ $ $ $ $ $ Average Daily Rate $ $ $ $ RevPar $ $ $ $ Occupancy 67.80% 68.72% 66.98% 66.33% % 95.00% 90.00% 85.00% 80.00% 75.00% 70.00% 65.00% 60.00% 55.00% 50.00% The slight increase in ADR coupled with a slight decrease in occupancy results in flat RevPAR for the period. It is our opinion that while occupancy rates may have been skewed if hurricane affected hotels weren t categorized as closed (and removed from inventory) the day after the relative storms, the reduced inventory of rooms in these markets has actually caused an increase in occupancy and rates for hotels that are open in the affected areas. In the USVI and Puerto Rico, many open hotels were housing FEMA and relief workers only; and at inflated rates in some cases. All in all, we don t think the effects of the hurricanes have had a major effect on the greater Caribbean hotel statistics which would have likely been similar had the hurricanes not occurred. As of December 2017, the total number of rooms in inventory (regardless of closures) in the Caribbean grew by 3.8% to 250,267 in 1,938 projects over the same period in the prior year. 4

5 Caribbean Hotel Inventory Caribbean Hotel Inventory 255, , , , , , , , ,000 1,950 1,940 1,930 1,920 1,910 1,900 1,890 1,880 1,870 1,860 Hotel Rooms Projects Montego Bay, Jamaica 210,000 Rooms 1, Projects Based on a comparison of the total number of rooms in inventory and occupancy overall, we can interpolate the number of room nights sold in each year, and the growth rate in demand versus supply. Demand growth exceeded that of supply in 2014 and 2015, but has lagged behind supply growth in the last two years. Over the last five years, supply has increased 11.2% while demand has increased 10.2%, 260,000 Supply/Demand Comparison Year to Date December 170, , , , , , , , ,000 Supply Rooms Demand Rooms For the twelve months through October 2017, the Cayman Islands is reporting the highest ADR for the reporting countries in the region at $381.25, (up 6.97%) followed by St. Lucia ($346.59, down 16.51%) and the U.S. Virgin Islands ($345.26, up 2.75%). We note that, apart from Cuba, St. Lucia is leading the region in growth in arrivals at 11%, so it is possible that this is related to a decline in hotel rates over the same period, which were previously averaging well over $400. St. Lucia s overall occupancy likely dropped due to the opening of the Park Hyatt hotel in Q4. 5

6 $ Hotel Statistics by Country 2017 $ $ $ $ $ $ $ % 65.00% 76.20% 68.00% 72.50% 63.10% 71.10% $ % Maho Bay, Sint Maarten 56.00% Aruba Cayman USVI Barbados Jamaica Bahamas St. Lucia Puerto Rico Dominican Republic ADR Occupancy Note that the above data excludes the Turks and Caicos Islands; with reported ADRs above $900 across very few reporting hotel/condo resorts which are at the top end of the range for accommodations there. The highest growth in ADR was reported by the Cayman Islands, at 6.97% above the same period last year. It is likely that the ADR for Cayman was buoyed by the opening of the Kimpton Seafire in December 2016 as well as the fact that many travelers previously planning on trips over the holidays to the USVI, St. Maarten, BVI, Anguilla, Antigua and St. Barth may have diverted to Cayman instead. Growth in ADR and Occupancy by Country % 10.00% 10.90% 6.97% 5.00% 0.00% -5.00% 0.25% 0.73% St. Lucia Bahamas Dominican -0.54% Republic 3.95% 2.15% 2.53% 2.75% 1.39% 2.01% 2.69% 0.00% Barbados Puerto Rico Aruba USVI -1.42% Jamaica Cayman -3.85% % % -7.07% % % % Growth in ADR Growth in Occ Pipeline Continues to Increase As of October, 2017, STR reported 78 projects Under Contract in the Caribbean (excluding Mexico); totaling 19,485 rooms. This represents a whopping 73.59% increase in rooms Under Contract compared with December, 2016; and a 86.16% increase in rooms In Construction. 6

7 The projects Under Contract include those in the In Construction, Final Planning and Planning stages, but do not include projects in the Unconfirmed or Deferred stages. 6,000 Caribbean Pipeline By Country As Of December % 5, % 4, % 3, % 2, % Sugar Beach, St. Lucia 1, % - Turks and Caicos USVI Puerto Rico Barbados Cayman Bahamas Aruba St. Lucia Jamaica Dominican Republic 0.0% Rooms in Contract Percent of Total Rooms The Dominican Republic leads the Caribbean in terms of the destination with the most rooms In Contract at 5,277 followed by Jamaica (3,505, due to the proposed 2,000-room Celebration Jamaica; which is in the Final Planning stage). As the graph above indicates, the rooms which St. Lucia has in the pipeline represents more than 25% of the total existing room stock in that country, while six other destinations are adding between 10% and 17% to their existing inventory. The largest projects in the Planning, Final Planning, or In Construction Stage are shown following. Largest Projects Under Contract Project Unit Count Location Stage Celebrations Jamaica 2,000 Montego Bay, Jamaica Final Planning Lopesan Costa Bavaro Resort & Spa 1,020 Punta Cana, Dominican Republic In Construction Melia Internacional 934 Veradero, Cuba In Construction H10 Hotel Punta Cana 909 Punta Cana, Dominican Republic In Construction Paladium Hotel Grand 850 Montego Bay, Jamaica Final Planning Paradisus Cayo Santa Maria 802 Cayo Santa Maria, Cuba In Construction Grand Fiesta Americana 554 Punta Cana, Dominican Republic In Construction Source: STR, Inc. We note that many of the newest projects, and all of the largest, are in the top three largest markets in terms of existing and proposed hotel rooms, and all three of these markets (Dominican Republic, Jamaica and Cuba) have a predominance of All-Inclusive Resorts in their inventory. Analysis of Increasing Supply and Pipeline We have compared overnight tourist arrival statistics for each destination and compared with the number of rooms in each market. The top ten markets which we analyze have arrivals/room ratios for 2017 ranging from 84 to 175, and average Based on the overall ratio, the Caribbean will need to increase its overnight tourist arrivals by 8.9% to account for additions to supply and maintain consistent occupancy levels. Presumably these new properties will come 7

8 online within three years and this would equate to just about 3% per year which is a reasonable expectation. There are some destinations, however, that are of some concern given their significant planned increases in inventory when adding the currently planned projects. Based on its ratio of arrivals to rooms, St. Lucia would have to increase its arrivals by about 93,000, or 27%. Planned projects in St. Lucia include the independently branded, 80-room Honeymoon Bay Resort, the 330-room Sandals LaSource, the 120-room Fairmont, the 180-room Ritz Carlton on Black Bay and the 140- room Courtyard in Castries. Royal Island, Bahamas In the last year, St. Lucia also saw the opening of three new resorts: the Harbour Club (soon to be joining Hilton s Curio Collection) as well as two Royalton-branded resorts. These new resorts are likely a large part of the reason that St. Lucia saw an 11% increase in arrivals in The question, of course, is whether or not the airlift and infrastructure of any of these destinations can handle an additional 27% increase in arrivals in such a short period of time. Most recent news articles also suggested that Sandal s has plans to acquire more properties in St. Lucia which would presumably be renovated and re-branded. For Grand Cayman, the data suggests that destination will need to increase its arrivals by about 77,000 or roughly 16.5% in order to maintain steady occupancy levels, once the three projects listed in the current pipeline are opened. The documented pipeline in Grand Cayman includes the 351-room Grand Hyatt to be built at Pageant Beach in George Town, the 90-key NCB project (brand yet to be announced) also in George Town and the 200-room St. James Point resort to be developed at Beach Bay (also yet to be formally branded). This data does not include the preplanned hotel to be built by Dart on Seven Mile Beach opposite Camana Bay (rumoured to be branded Four Seasons). There are three planned projects in St. Kitts & Nevis; the 226-room Embassy Suites in Pelican Bay, the 170-room Wyndham Grand Nevis Resort and a proposed 125-room Ritz Carlton in Friars Bay. Although 2017 tourism statistics were not published for this destination, stopover arrivals would have to increase about 45% over 2016 figures to accommodate this increase in inventory and maintain consistent occupancy. Other destinations which would need to increase arrivals significantly to accommodate the proposed projects include Jamaica (+/-15%), Aruba (+/-15%), and Barbados (+/-11%). Conclusions and Forecasts Occupancy and ADR for existing hotels likely to increase moderately in 2018 despite projected overall flat demand, due to a significant reduction in available rooms in the northeastern Caribbean through the peak of tourist season 2018 due to hurricane damage. We estimate approximately 4,000-5,000 rooms that were previously open will be closed throughout the primary tourist season of 2018 (at least through April) because of hurricane damage. Despite these challenges, the CTO is projecting 2% - 3% growth in arrivals for There is a slight amount of concern with the growing number hotel rooms in inventory and the number of new projects in the pipeline. Although increases in demand for the overall region are attainable, some individual destinations will need to concentrate more heavily on marketing and making improvements in infrastructure to support the necessary growth in tourist arrivals to support the new resorts to be opened in the next three years. Based on these concerns, and assuming no major changes in economic conditions in the US, we project slight decline in occupancy for the overall region in the next few years following the 2018 season. 8

9 Part of the greater network of Integra Realty Resources offices, IRR-Caribbean provides real property and business valuation and consulting services throughout the Caribbean region; specializing in hotel and resort investment assets and businesses. James V. Andrews MAI, CRE, FRICS, ASA/BV Senior Managing Director Integra (IRR) Caribbean Cayman Islands Virgin Islands Bahamas Puerto Rico Main: (844) ext Website: Sources for Underlying Data Used in Charts: 1. Caribbean Stopover Arrivals: Caribbean Tourism Association 2. Caribbean Stayover Arrivals Leaders: Caribbean Tourism Association 3. Growth in Arrivals by Country: Caribbean Tourism Association 4. Hotel Performance, Year to Date December: STR, Inc. 5. Caribbean Hotel Inventory: STR, Inc. 6. Supply/Demand Comparison Year to Date December STR, Inc. and Integra Realty Resources 7. Hotel Statistics by Country 2017: STR, Inc. 8. Growth in ADR and Occupancy by Country 2017: STR, Inc 9. Caribbean Pipeline by Country as of December, 2017: STR, Inc. 10. Latest Projects Under Contract: STR, Inc 9