The Very Good Will Continue

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Presented By: Andrea Foster, Managing Director,

1 The Very Good Will Continue HOTEL SECTOR UPDATE - SEPTEMBER 2015 PKF Consulting USA, A CBRE Company Presented By: Andrea Foster, Managing Director, PKF Consulting USA, a CBRE Company September 17, 2015

2 LODGING INDUSTRY UPDATE The Economy U.S. Lodging Market Overview Hotel Business Cycle Profit Trends Boston 2

3 THE U.S. ECONOMY

4 WHAT COULD DERAIL THE GOOD TIMES? 1. The Economy Is the economy: Good? Okay? Bad? What about in a year from today? 4

5 WHAT COULD DERAIL THE GOOD TIMES? 1. The Economy Okay, moving to good 2. Asset Price Bubble??? 3. Unpredictable Demand Shock? 4. Oil/Energy Price Increases Not on the horizon 5. Over Building Mostly no, some yes. 5

6 THOUGHTS ON THE ECONOMY (continued) 6 6

7 THOUGHTS ON THE ECONOMY (continued) 7 7

8 THOUGHTS ON THE ECONOMY (continued) 8 8

THE OUTLOOK FOR THE DRIVERS THAT ARE MOST IMPORTANT TO HOTELS REMAINS FAVORABLE 10 8 GDP Component Forecast 6 4 2 2.0% 1.3% 3.9% 1.7% 3.

4% 3.0% 0-2 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2008 2009 2010

5% (GOVERNMENT) Government consumption expenditures and gross investment TRADE (Net exports of goods and services) -8-10 -8.2% -5.

9 THE OUTLOOK FOR THE DRIVERS THAT ARE MOST IMPORTANT TO HOTELS REMAINS FAVORABLE 10 8 GDP Component Forecast % 1.3% 3.9% 1.7% 3.9% 2.5% 2.7% 2.9% 0.8% 4.6% 2.7% 1.9% 0.1% 0.5% 1.9% 1.1% 3.0% 3.8% 4.6% 4.3% 2.1% 0.6% 3.7% 3.8% 3.7% 2.6% 3.4% 3.4% 3.0% 0-2 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV % % -1.9% -0.5% -1.5% (GOVERNMENT) Government consumption expenditures and gross investment TRADE (Net exports of goods and services) % -5.4% These matter the most. BUSINESS (Gross private domestic investment) CONSUMERS (Personal consumption expenditures) Lodging Demand Source: BEA, Moody s Analytics, PKF Hospitality Research, a CBRE Company Hotel Horizons: September November 2015, STR, Inc. 9

10 U.S. LODGING MARKET OVERVIEW

11 THE HOTEL MARKET CYCLE Our Opinion Rapid Development Lodging Decline, Leads Other Sectors Development Picks Up Accelerated Development? 2016/7 Long Run Occupancy U.S. is Here Equilibrium ADR Occupancy Declines, ADR Follows A Year Ago ADR and Margins Recover Development Slows Occupancy Recovers Development at Minimum Levels Lodging Recovers, Lags Other Sectors (Not this Time!) 11

12 NATIONAL FORECAST ALL U.S. HOTELS Long Run Average F 2016F Supply 1.9% 0.4% 0.7% 0.8% 1.1% 1.8% Demand 2.0% 2.8% 2.0% 4.4% 3.3% 2.2% Occupancy 62.0% 61.4% 62.2% 64.4% 65.8% 66.1% ADR 3.0% 4.2% 3.9% 4.5% 5.0% 5.9% RevPAR 3.2% 6.6% 5.2% 8.2% 7.2% 6.3% RevPAR driven by ADR Growth Source: PKF Hospitality Research - Hotel Horizons September-November, 2015, STR, Inc. 12

13 REVPAR FORECAST BY LOCATION Only Interstate and Small Town Behind Pre-Recession Occupancy Location F 2016F Urban 7.3% 6.9% 6.2% Suburban 9.2% 8.3% 6.0% Airport 9.7% 8.7% 8.8% Interstate 7.3% 6.1% 5.2% Resort 8.4% 7.3% 7.4% Small Town / Metro 7.0% 5.5% 5.6% All Hotels 8.2% 7.2% 6.3% Source: PKF Hospitality Research - Hotel Horizons September-November, 2015, STR, Inc. 13

14 REVPAR FORECAST BY CHAIN-SCALE Lower-Priced Categories Moving Up The Recovery Curve Chain-Scale F 2016F Luxury 6.3% 6.4% 7.0% Upper-Upscale 7.1% 6.1% 6.0% Upscale 8.5% 6.4% 6.5% Upper-Midscale 8.3% 6.8% 7.1% Midscale 8.3% 7.7% 6.0% Economy 8.7% 7.3% 7.1% All Hotels 8.2% 7.2% 6.3% Source: PKF Hospitality Research - Hotel Horizons September-November, 2015, STR, Inc. 14

15 TRACKING THE BUSINESS CYCLES OF U.S. HOTELS 15

16 REAL ADR PERFORMANCE U.S. A Look at Past Cycles 1991 Recession The Path and Duration of Occupancy and Real ADR Recovery O c c u p a n c y L e v e l 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% 1990 Q Q1 Duration: 6 Years 3 Quarters 54.0% $95.00 $ $ $ $ $ $ $ Real Average Daily Rate Level (2014 $ s) Source: PKF HR, STR, Inc. 16

17 REAL ADR PERFORMANCE U.S. A Look at Past Cycles 2001 Recession The Path and Duration of Occupancy and Real ADR Recovery O c c u p a n c y 66.0% 64.0% 62.0% End: Q Start: Q L e v e l 60.0% 58.0% 56.0% Duration: 6 Years 0 Quarters 54.0% $95.00 $ $ $ $ $ $ $ Real Average Daily Rate Level (2014 $ s) Source: PKF HR, STR, Inc. 17

18 REAL ADR PERFORMANCE U.S. Current Cycle The Path and Duration of Occupancy and Real ADR Recovery O c c u p a n c y L e v e l 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% Present Start Q1 54.0% $95.00 $ $ $ $ $ $ $ Real Average Daily Rate Level (2014 $ s) Source: PKF HR, STR, Inc. 18

19 REAL ADR PERFORMANCE U.S. Current Cycle cont d O c c u p a n c y L e v e l The Path and Duration of Occupancy and Real ADR Recovery 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% 2015 Q1 Start Q1 Forecast 54.0% $95.00 $ $ $ $ $ $ $ $ Real Average Daily Rate Level (2014 $ s) End Q4 Forecast Duration: 8.5 Years Current Cycle June 2015 Source: PKF HR, STR, Inc. 19

20 REAL ADR PERFORMANCE U.S. Current Cycle cont d O c c u p a n c y L e v e l The Path and Duration of Occupancy and Real ADR Recovery 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% 2015 Q1 Start Q1 Forecast 54.0% $95.00 $ $ $ $ $ $ $ $ Real Average Daily Rate Level (2014 $ s) End Q4 Occupancy Level At Real ADR Recovery Cycle Cycle Start Cycle Peak Delta % 64.8% 64.3% -0.1% % 63.5% 62.9% -0.2% % 65.8% 65.4% 3.1% Source: PKF HR, STR, Inc. 20

21 U.S. SUPPLY CHANGE Components of the Net Annual Change in Available Supply 200,000 Independents Economy Midscale Upper Midscale Upscale Upper Upscale Luxury 150, ,000 50,000 - (50,000) (100,000) Upper Upscale: 11.7% Upscale: 15.6% Upper Upscale: 11.4% Upscale: 19.4% Upper Upscale: 12.6% Upscale: 32.9% Upper Upscale: 17.3% Upscale: 49.9% Upper Upscale: 11.7% Upscale: 30.4% Source: PKF Hospitality Research, STR, Inc. 21

22 U.S. SUPPLY CHANGE When did we hit our last peak number of new hotels entering the market? 5.8% 4.8% 3.8% 2.8% Q % Q % Forecast 1.8% 0.8% Long Run Average = 1.9% -0.2% Source: PKF Hospitality Research, STR, Inc. 22

23 TODAY VS. THE PREVIOUS PEAK OF CONSTRUCTION ACTIVITY U.S. Pipeline, Number of Rooms by Phase, July 2015 and March 2008 Phase 2015 Q1/2008 % Difference Change In Construction 129, % 207, % Final Planning 173, % 113, % Planning 127, % 344, % Active Pipeline 430, % 665, % Change from June 2015 Source: STR, Inc. 23

24 WHY SO LITTLE NEW CONSTRUCTION? 1. Financing remains a challenge. 2. Elevated uncertainty that characterized this past cycle has not yet been forgotten. 3. Construction costs are rising faster than property values in many markets, undermining the feasibility of new development. 4. Scarcity of brands that lenders are willing to finance. 24

25 A NEW DISRUPTOR? GLOBAL RESEARCH AND CONSULTING ECONOMETRIC ADVISORS

26 AIRBNB AND OTHER SHORT-TERM RENTALS Google Trends Search Data 120 Airbnb VRBO HomeAway FlipKey Source: Google Trends; PKF Hospitality Research, a CBRE Company 26

27 AIRBNB U.S. Roughly 215,000 Units available in the U.S. (July 2015) Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company 27

28 HOW MANY ARE COMPETITIVE WITH HOTELS? We Estimate 68% of Airbnb Units are competitive with U.S. Hotels Entire home/apt 95,169 Units = 182,495 Rooms 1.9 Rooms per Unit Private room 50,651Units 35% 65% 25,000 20,000 15,000 10,000 5, ,146 Competitive Rooms in the U.S. Top 20 Markets New York, NY Los Angeles/Long Beach, CA San Francisco/San Mateo, CA Colorado Area Austin, TX New York State Riverside/San Bernardino, CA Miami/Hialeah, FL San Diego, CA Washington, DC-MD-VA Boston, MA California North Chicago, IL Orlando, FL Seattle, WA California Central Coast New Orleans, LA Massachusetts Area Sacramento, CA Portland, OR Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company 28

29 INDUCED SUPPLY? Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company, STR, Inc. 29

30 INCREASING THREAT FROM AIRBNB Competitive Airbnb Rooms as a Percent of Hotel Rooms 25.0% 20.0% 19 Markets above 5% 15.0% 10.0% 5.0% 0% Austin, TX New York, NY Long Island San Francisco/San Mateo, CA Oakland, CA Los Angeles/Long Beach, CA Sacramento, CA Portland, OR Miami/Hialeah, FL Seattle, WA Boston, MA San Diego, CA New Orleans, LA San Jose/Santa Cruz, CA Oahu Island, HI Nashville, TN Philadelphia, PA-NJ Fort Lauderdale, FL Charleston, SC Phoenix, AZ Denver, CO Washington, DC-MD-VA West Palm Beach/Boca Raton, FL Omaha, NE Salt Lake City/Ogden, UT Tucson, AZ Anaheim/Santa Ana, CA Chicago, IL Louisville, KY-IN Albany/Schenectady, NY Orlando, FL Savannah, GA Baltimore, MD Jacksonville, FL Tampa/St Petersburg, FL Raleigh/Durham/Chapel Hill, NC Pittsburgh, PA Minneapolis/St Paul, MN-WI Albuquerque, NM Richmond/Petersburg, VA Newark, NJ Cleveland, OH Cincinnati, OH-KY-IN Atlanta, GA Indianapolis, IN Hartford, CT Houston, TX San Antonio, TX Charlotte, NC-SC Memphis, TN-AR-MS Columbus, OH St Louis, MO-IL Dallas, TX Norfolk/Virginia Beach, VA Detroit, MI Fort Worth/Arlington, TX Kansas City, MO-KS Columbia, SC Dayton/Springfield, OH Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company, STR, Inc. 30

31 AIRBNB - BOSTON Source: Insideairbnb.com (June 2015); STR, Inc.; PKF Hospitality Research, a CBRE Company 31

32 BOSTON- DOWNTOWN/AIRPORT Source: Insideairbnb.com (June 2015); STR, Inc.; PKF Hospitality Research, a CBRE Company 32

33 PROFIT TRENDS 33

PKF HOSPITALITY RESEARCH, A CBRE COMPANY Trends in the Hotel Industry Financial Benchmarking Annual voluntary survey of thousands of U.S. hotel financial statements First survey conducted in 1937 Occ: 64.

34 PKF HOSPITALITY RESEARCH, A CBRE COMPANY Trends in the Hotel Industry Financial Benchmarking Annual voluntary survey of thousands of U.S. hotel financial statements First survey conducted in 1937 Occ: 64.4% ADR: $3.04 Data converted to USALI to ensure comparability 2015 Survey Sample 7,135 hotels across the U.S. Occupancy: 74.3% ADR: $

35 MORE HOTELS ENJOYING GROWTH IN PROFITS* Percent of Hotels** Posting an Increase in Total Revenue or Profits From Prior Year (*) - Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization. (**) - Trends in the Hotel Industry sample. 100% 80% 60% 70.2% 61.6% 47.9% 44.4% 67.4% 58.9% 80.8% 77.1% 79.3% 72.3% 70.4% 70.4% 86.2% 78.2% 40% 20% 0% 8.6% 4.5% Total Hotel Revenue Profits* Source: PKF Hospitality Research, a CBRE Company, Trends in the Hotel Industry reports. 35

36 2014 U.S. HOTEL REVENUES AND PROFITS Change 2013 to 2014 (*) - Before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization. Full-Service 7.0% 13.0% Limited-Service Suite Hotels With F&B Suite Hotels Without F&B 7.9% 7.8% 7.8% 10.6% 11.5% 12.3% Convention Hotels 5.6% 9.2% Resorts 7.4% 15.0% All Hotels 6.9% 12.3% 0% 6% 12% 18% Total Hotel Revenues Profits* Source: PKF Hospitality Research, a CBRE Company, 2015 Trends in the Hotel Industry report. 36

37 2014 U.S. HOTEL REVENUES Change 2013 to 2014 $ Per Available Room $ Per Occupied Room Total Hotel Revenue 3.8% 6.9% Rooms 4.1% 7.3% Food and Beverage 3.1% 6.2% Other Operated Departments 3.1% 6.2% Rentals and Other Income 1.2% 4.3% 0% 3% 6% 9% Source: PKF Hospitality Research, a CBRE Company,

38 COMPOSITION OF CHANGE IN REVPAR Impact On Change in NOI* Change in ADR (left axis) Change in Occupancy (left axis) Change in NOI* (right axis) 15% 10% 5% 0% -5% -10% -15% -20% -25% F 2016F 20% 10% 0% -10% -20% -30% -40% Note: * Before deductions for capital reserves, rent, interest, depreciation, and amortization Source: PKF Hospitality Research, a CBRE Company,

39 REVENUE VS EXPENSE* GROWTH Annual Nominal Change 12% 8% 4% 5.5% 4.8% 4.8% 3.4% 6.9% 6.2% 5.0% 5.4% 4.3% 3.3% 3.7% 4.9% 6.9% 3.7% 6.1% 3.5% 0% -4% -1.3% -0.3% -8% -12% -16% -20% -18.5% -12.1% Total RevPAR ExPAR* C.P.I. -24% F 2016F Note: * Before deductions for capital reserves, rent, interest, depreciation, and amortization Source: PKF Hospitality Research, a CBRE Company, Moody s Analytics

NOMINAL DOLLAR OPERATING PROFITS* Six Years of Double Digit Growth Nominal Dollars Per Available Room $25,000 Compound Annual Growth 2010 2016F: 12.

40 NOMINAL DOLLAR OPERATING PROFITS* Six Years of Double Digit Growth Nominal Dollars Per Available Room $25,000 Compound Annual Growth F: 12.0% $20,000 $15,000 $10,000 $5,000 $17,042 $16,394 $10,591 $11,629 $13,105 $14,442 $15,894 $17,849 $20,490 $22,928 $ F 2016F Note: * Before deductions for capital reserves, rent, interest, depreciation, and amortization Source: PKF Hospitality Research, a CBRE Company,

41 A LOOK AT GREATER BOSTON

42 GREATER BOSTON WILL CONTINUE TO EXPAND Boston s economy will expand in the near term, keeping up with the national pace in contrast with the overall slow growth in New England. Healthcare, high tech and financial services will be the primary drivers. Over the long run, Boston will benefit from a highskilled labor force and research universities. However, high business and living costs and belowaverage population additions will limit the gains, causing the metro division to be an average performer. Source: Moody s Economy.com 42

43 GREATER BOSTON S BALANCED SEGMENTATION PKF Consulting s Boston Monthly Trends Report 43

44 BOSTON CITYWIDE DEMAND 600, % 500, % 70.0% Roomnights From Citywides 400, , , % 50.0% 40.0% 30.0% Occupancy 100, % 10.0% F 2016F 2017F 2018F 2019F 0.0% Citywide Greater Boston Occupancy 44

45 GREATER BOSTON- ALL HOTELS ADR Growth Begins to Power Ahead F 2016F Long- Term Average Occupancy 71.7% 73.1% 75.3% 76.8% 76.3% 67.9% % Change 0.9% 2.0% 3.0% 2.1% -0.7% - ADR $ $ $ $ $ % Change 7.4% 3.5% 7.6% 7.4% 7.4% 3.2% RevPAR $ $ $ $ $ % Change 8.3% 5.6% 10.8% 9.7% 6.6% 3.7% Source: PKF Hospitality Research September-November 2015 Hotel Horizons Report, STR, Inc

46 SELECT BRANDS UPPER AND LOWER TIERS A CBRE Company Upper-Priced Courtyard by Marriott Hilton Garden Inn Hyatt Loews Marriott Hotels Ritz-Carlton Westin Lower-Priced Days Inn Fairfield Inn Hampton Inn Holiday Inn Express InTown Suites TownPlace Suites Source: STR, Inc

47 GREATER BOSTON- ALL UPPER-PRICED HOTELS ADR GROWTH DRIVING REVPAR INCREASES A CBRE Company F 2016F Long- Term Average Occupancy 74.4% 76.1% 77.7% 78.9% 77.9% 71.2% % Change +1.4% +2.3% +2.1% +1.6% -1.3% -- ADR $ $ $ $ $ % Change +6.9% +2.9% +8.2% +8.0% +7.1% +3.3% RevPAR $ $ $ $ $ % Change +8.3% +5.3% +10.4% +9.7% +5.7% +3.9% Source: PKF Hospitality Research September-November 2015 Hotel Horizons Report, STR, Inc

48 GREATER BOSTON - ALL LOWER-PRICED HOTELS OCCUPANCY LEVEL BEGINS TO PLATEAU F 2016F A CBRE Company Long- Term Average Occupancy 66.3% 67.2% 70.5% 72.8% 73.0% 62.5% % Change -0.4% +1.3% +4.9% +3.2% +0.3% -- ADR $ $ $ $ $ % Change +7.3% +4.3% +6.8% +6.9% +6.6% +2.3% RevPAR $66.99 $70.75 $79.25 $87.44 $ % Change +6.9% +5.6% +12.0% +10.3% +6.9% +2.7% Source: PKF Hospitality Research September-November 2015 Hotel Horizons Report, STR, Inc. 48

49 METRO ATLANTA HOTEL SUBMARKETS A CBRE Company 49 49

50 WHERE IS THE GROWTH? H Submarket Performance vs H (All Hotels) Mid Year Occupancy Level Y-O-Y Occupancy Change Y-O-Y ADR Change Y-O-Y RevPAR Change Submarket CBD/Airport 79.8% 1.2% 7.4% 8.6% Woburn/ Tewksbury Northwe 71.2% 3.7% 7.1% 11.2% Southshore 69.7% 5.5% 4.6% 10.5% Cambridge/Waltham 76.5% 1.1% 7.8% 9.0% Dedham/Marlborough 67.0% 3.1% 6.6% 9.9% Andover/Danvers Northeast 66.3% 6.5% 6.3% 13.2% Source: PKF Hospitality Research September-November 2015 Hotel Horizons Report, STR, Inc. 50

51 ALL PROJECTS IN THE PLANNING PIPELINE SEPTEMBER 2015 A CBRE Company Source: STR, Inc. 51

GREATER BOSTON PROJECTS UNDER CONSTRUCTION SEPTEMBER 2015 City Sectors # Projects # Rooms A CBRE Company CBD/Airport 6 1,236 Woburn/Tewksbury Northwest 1

52 GREATER BOSTON PROJECTS UNDER CONSTRUCTION SEPTEMBER 2015 City Sectors # Projects # Rooms A CBRE Company CBD/Airport 6 1,236 Woburn/Tewksbury Northwest Southshore 1 22 Cambridge/Waltham Dedham/Marlborough Andover/Danvers Northeast , % of Existing Supply Source: STR, Inc. 52

53 SUMMARY THOUGHTS The Very Good Will Continue 1. The fundamentals are solid across the vast majority of markets. 2. Elevated industry growth will persist comfortably through 2017 and likely beyond. 3. High occupancy levels will provide the leverage needed to achieve large real ADR increases for the next two-three years. 4. Competition for building materials and labor will continue to present challenges for developers in most markets. Below average hotel construction will be the result for the next three years, nationally. 5. Above long run average occupancy levels will lead to strong profit growth comfortably through 2017, enough to off-set increasing labor costs. 6. It is a great time to be in the hotel business, especially in Boston! 53

2016 BOSTON LODGING PULSE DISRUPTIVE INNOVATION Brought to you by Cornell Hotel Society- New England Chapter and Boston University School of Hospitality Administration Thursday, October 29 th, 2015

54 2016 BOSTON LODGING PULSE DISRUPTIVE INNOVATION Brought to you by Cornell Hotel Society- New England Chapter and Boston University School of Hospitality Administration Thursday, October 29 th, :30 PM Registration Sopher Auditorium, BU School of Hospitality Administration Title Sponsor: Group One Partners, Inc. Gold Sponsor: Pyramid Hotel #BLP

55 THANKS FOR YOUR TIME CBRE HOTELS & PKF CONSULTING USA ANDREA FOSTER Managing Director 55

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