Ohio Chapter of the Appraisal Institute 40 th Annual Economic Seminar Ohio and National Lodging Industry Overview: Statistics, Appraisal Issues, and New Supply Presented by: David J. Sangree, MAI, CPA, ISHC
Presentation Outline: National Hotel Overview Cleveland Market Overview Columbus Market Overview Cincinnati Market Overview Dayton Market Overview National Hotel Pipeline and Forecasts Appraisal Process for Hotels
Overall U.S. Lodging Performance Occupancy % Change ADR % Change RevPAR % Change 2012 61.4% 4.2% $106.02 3.8% $65.10 8.1% 2013 62.3% 1.5% $109.98 3.7% $68.47 5.2% 2014 64.4% 3.4% $114.92 4.5% $74.02 8.1% 2015 65.5% 1.7% $120.01 4.4% $78.63 6.2% 2016 65.5% 0.0% $123.97 3.3% $81.19 3.3% Source: STR
Ohio Performance Summary Year Occ % change ADR % change REVPAR % change 2012 58.4% 4.8% $82.98 4.8% $48.42 9.8% 2013 58.5% 0.2% $86.98 4.8% $50.89 5.1% 2014 59.8% 2.2% $90.42 4.0% $54.12 6.3% 2015 60.2% 0.7% $94.59 4.6% $56.98 5.3% 2016 59.7% -0.8% $97.40 3.0% $58.16 2.1% Source: STR
Cleveland MSA Summary Year Occ % change ADR % change REVPAR % change 2012 61.0% 6.7% $88.79 5.4% $54.18 12.4% 2013 61.8% 1.3% $93.94 5.8% $58.06 7.2% 2014 61.2% -1.0% $98.64 5.0% $60.33 3.9% 2015 62.9% 2.9% $102.45 3.9% $64.49 6.9% 2016 61.2% -2.8% $109.39 6.8% $66.95 3.8% Source: CBRE Hotels Americas Research, STR, Q2 2017
Date Occ % change ADR % change REVPAR % change Aug-17 60.9% -3.8% $ 105.30-4.6% $ 64.15-8.2% Source: STR Cleveland MSA YTD Summary YTD occupancy and ADR decline from fewer major events (no RNC Convention) and large supply increases (600-room Hilton and others)
Hotel Cleveland MSA Hotel Supply Changes & Conversions Location Number of Rooms Open Date Hotel Location Number of Rooms Open Date Avon Place Residence Inn Avon 116 Mar 2016 Home2 Suites by Hilton Middleburg Heights 112 Mar 2017 Kimpton Hotel Downtown Cleveland 123 Mar 2016 aloft Hotel North Olmsted North Olmsted 135 Aug 2017 Drury Plaza Hotel Downtown Cleveland 180 Apr 2016 Hampton Inn & Suites Oakwood Village Oakwood Village 86 Sep 2017 Holiday Inn Cleveland Clinic Cleveland 276 May 2016 Crowne Plaza at Playhouse Square Cleveland (downtown) Unchanged Sep 2017 Hilton Hotel Cleveland Convention Center Downtown Cleveland 600 Jun 2016 Four Points by Sheraton Cleveland-Eastlake Eastlake Unchanged 1Q 2018 Hyatt Place Hotel Legacy Village Lyndhurst 135 Jun 2016 C omfort Suites Brunswick 84 1Q 2018 Springhill Suites by Marriott Independence 121 Jun 2016 Residence Inn by Marriott Middleburg Heights 100 2Q 2018 Holiday Inn Express Westlake 91 Jun 2016 TownePlace Suites by Marriott Solon 101 2Q 2018 Holiday Inn Express & Suites Medina 92 Jun 2016 Innova Residence Inn by Marriott Cleveland 175 4Q 2018 Fairfield Inn & Suites Medina 76 Oct 2016 AC Hotel by Marriott Pinecrest Orange 145 1Q 2019 Hampton Inn North Olmsted Cleveland Airport North Olmsted 118 Nov 2016 Curio Collection by Hilton Cleveland (downtown) 279 1Q 2019 Home2 Suites by Hilton Independence 120 Nov 2016 Tru by Hilton Cleveland Midtown Cleveland 114 1Q 2019 Four Points by Sheraton Cleveland Airport Cleveland Unchanged Dec 2016 Total 3,470 Home2 Suites by Hilton Beachwood 91 Feb 2017 Source: Hotel & Leisure Advisors Cleveland MSA Hotel Supply Changes & Conversions
Cincinnati MSA Summary Year Occ % change ADR % change REVPAR % change 2012 56.6% 1.1% $86.27 1.8% $48.85 2.9% 2013 58.5% 3.4% $89.59 3.8% $52.44 7.4% 2014 60.6% 3.6% $95.01 6.1% $57.60 9.8% 2015 63.2% 4.3% $98.58 3.8% $62.32 8.2% 2016 64.3% 1.7% $101.32 2.8% $65.13 4.5% Source: CBRE Hotels Americas Research, STR, Q2 2017
Date Occ % change ADR % change REVPAR % change Aug-17 66.2% 0.7% $ 105.56 3.1% $ 69.93 3.8% Source: STR Cincinnati MSA YTD Summary 2017 achieving modest occupancy growth and above inflationary ADR growth
Hotel Location Number of Rooms Open Date AC Hotels by Marriott C incinnati at Liberty C enter Liberty Township 130 Feb 2016 Hampton Inn & Suites by Hilton Cincinnati Kenwood Cincinnati, OH 118 Feb 2016 Hampton Inn by Hilton Cincinnati Blue Ash Blue Ash, OH 118 Jun 2016 Hampton Inn & Suites by Hilton Cincinnati Mason Mason, OH 112 Jun 2016 Home2 Suites by Hilton Cincinnati Liberty Township Center Liberty Township 91 Aug 2016 Hotel Covington Covington, KY 114 Aug 2016 Fairfield Inn & Suites Cincinnati Uptown University Area Cincinnati, OH 115 Sep 2016 The Blu Hotel, An Ascend Collection Hotel Blue Ash, OH Unchanged Oct 2016 Holiday Inn & Suites Cincinnati Cincinnati, OH 117 Dec 2016 Hampton Inn & Suites by Hilton Newport/Cincinnati Newport, KY 122 Dec 2016 Aloft Newport on the Levee Newport, KY 144 Jan 2017 Best Western Plus Cincinnati Riverfront Downtown Covington, KY 20 Jun 2017 Hyatt Place Sharonville Convention Center Sharonville, OH 119 Jun 2017 SpringHill Suites Cincinnati Blue Ash Blue Ash, OH 100 Jul 2017 Residence Inn Rookwood Exchange Cincinnati, OH 118 Sep 2017 Home2 Suites by Hilton Florence Florence, KY 109 Sep 2017 AC Hotels by Marriott The Banks Cincinnati, OH 171 Oct 2017 Holiday Inn Express & Suites Wilder Wilder, KY 93 Q1 2018 The Summit, A Dolce Hotel Madisonville, OH 239 Q1 2018 Homewood Suites by Hilton Oakley Station Cincinnati, OH 108 Q1 2018 The Lytle Park Hotel, Autograph Collection by Marriott Cincinnati, OH 106 Q2 2018 The Cincinnatian Hotel, Curio Collection by Hilton Cincinnati, OH Unchanged Q2 2018 Sonesta ES Blue Ash Blue Ash, OH Unchanged Q2 2018 Total 2,364 Source: Hotel & Leisure Advisors Cincinnati MSA Hotel Supply Changes & Conversions
Columbus MSA Summary Year Occ % change ADR % change REVPAR % change 2012 62.0% 3.8% $85.74 5.5% $53.14 9.5% 2013 62.1% 0.3% $89.81 4.7% $55.80 5.0% 2014 63.0% 1.4% $94.07 4.8% $59.28 6.2% 2015 64.8% 2.9% $99.26 5.5% $64.38 8.5% 2016 65.9% 1.7% $101.93 2.7% $67.18 4.4% Source: CBRE Hotels Americas Research, STR, Q2 2017
Date Occ % change ADR % change REVPAR % change Aug-17 67.0% 0.1% $ 103.55 2.0% $ 69.40 2.1% Source: STR Columbus MSA YTD Summary 2017 will finish with stable occupancy and ADR will be consistent with inflationary growth
Hotel Location Number of Rooms Open Date Hampton Inn & Suites New Albany Columbus New Albany 114 Feb 2016 Staybridge Suites University Area OSU Columbus 90 Sep 2016 Courtyard Columbus OSU Columbus 135 Oct 2016 Hampton Inn & Suites Columbus Scioto Downs Lockbourne 118 Mar 2017 Autograph Collection Hotel LeVeque Columbus 149 Mar 2017 Courtyard Columbus Grove City Grove C ity 104 Aug 2017 Residence Inn Columbus OSU Columbus 114 Aug 2017 Marriott C olumbus OSU Columbus 240 Aug 2017 Staybridge Suites Columbus Polaris Polaris 119 Sep 2017 Home2 Suites by Hilton Dublin, OH 129 Sep 2017 AC Hotel by Marriott Columbus Dublin Dublin 150 Sep 2017 Aloft Hotel Westerville Westerville 99 1Q 2018 Home2 Suites by Hilton Columbus Airport East New Albany 90 1Q 2018 Renaissance Hotel & Conference Center Westerville 224 2Q 2018 Home2 Suites by Hilton Columbus Downtown Columbus 107 2Q 2018 BrewDog Hotel Canal Winchester 125 4Q 2018 Canopy by Hilton Downtown Columbus Columbus 168 1Q 2019 Aloft Hotel Columbus 164 1Q 2019 Moxy Hotel Short North Columbus 111 2Q 2019 Total 2,550 Source: Hotel & Leisure Advisors Columbus MSA Hotel Supply Changes & Conversions
Dayton MSA Summary Year Occ % change ADR % change REVPAR % change 2012 55.6% 0.2% $71.41 3.8% $39.67 4.0% 2013 54.3% -2.2% $73.79 3.3% $40.08 1.0% 2014 57.3% 5.4% $76.06 3.1% $43.55 8.7% 2015 61.1% 6.6% $77.31 1.7% $47.21 8.4% 2016 63.3% 3.6% $81.39 5.3% $51.48 9.1% Source: CBRE Hotels Americas Research, STR, Q2 2017
Date Occ % change ADR % change REVPAR % change Sep-17 64.6% -1.7% $ 85.75 4.8% $ 55.36 3.0% Source: STR Dayton MSA YTD Summary 2017 will finish with a decline in occupancy and ADR will be above inflationary growth
Hotel Dayton MSA Hotel Supply Changes & Conversions Location Number of Rooms Open Date Mills Park Hotel Yellow Spring 28 Apr 2016 Springhill Suites Dayton Beavercreek Beavercreek 118 Sep 2016 Springhill Suites Dayton North Dayton 91 Dec 2016 Dayton Grand Hotel (closed) Dayton -184 Jan 2017 Staybridge Suites Miamisburg Miamisburg 109 May 2017 Holiday Inn Express Dayton Dayton 95 Q4 2017 Home2 Suites by Hilton Dayton Vandalia Dayton 106 Q2 2018 Fairfield Inn & Suites Water Street Dayton 115 Q4 2018 Total 478 Source: Hotel & Leisure Advisors Updated October 18, 2017
Comparison of Ohio Cities to State and National Performance 2015 2016 YTD 2017 Occ ADR RevPAR Occ ADR RevPAR Occ ADR RevPAR United States 65.5% 120.01 78.63 65.5% $123.97 $81.19 67.4% $127.14 $85.70 Ohio 60.2% 94.59 56.98 59.7% $97.40 $58.16 62.2% $97.99 $61.00 C leveland 62.9% 102.45 64.49 61.2% $109.39 $66.95 60.9% $105.30 $64.15 Cincinnati 63.2% 98.58 62.32 64.3% $101.32 $65.13 66.2% $105.56 $69.93 Columbus 64.8% 99.26 64.38 65.9% $101.93 $67.18 67.0% $103.55 $69.40 Dayton 61.1% 77.31 47.21 63.3% $81.39 $51.48 64.6% $85.75 $55.36 Source: STR
Ohio performance lags behind the nation for occupancy and ADR Cincinnati and Columbus offer the strongest of Ohio s four markets in terms of ADR and Occupancy Cleveland has experienced the most supply growth in recent years, which accounts for its lower performance figures Cincinnati, Columbus, and Dayton have all seen steady supply growth over the past three years All Ohio markets expect continued supply additions, which will impact overall performance metrics heading into 2018 and beyond
H&LA is tracking proposed new hotel development in each major Ohio market: Cincinnati: 20 projects Cleveland MSA: 18 projects Columbus: 25 projects Dayton: 7 projects Numerous proposals for hotels in all markets will affect demand and overall occupancy levels
Hotel Openings 2014-2018 Year No. of Rooms Growth Rate 2014 63,468-2015 82,094 29.3% 2016 99,872 21.7% 2017 (Forecast) 114,906 15.1% 2018 (Forecast) 133,880 16.5% 2019 (Forecast) 137,393 2.6% Source: Lodging Econometrics
Industry Forecasts STR CBRE PwC STR CBRE PwC 2017 2018 Supply 2.0% 1.9% 1.9% 2.1% 2.0% 1.9% Demand 2.0% 2.2% 2.1% 1.9% 2.0% 1.6% Occupancy 0.0% 0.3% 0.1% -0.2% -0.1% 0.0% ADR 2.3% 2.5% 2.1% 2.5% 2.3% 2.1% RevPAR 2.3% 2.8% 2.3% 2.3% N/A 2.0% Source: STR/C BRE/PWC
Hotel and Leisure Property Appraisals have Unique Challenges Going concerns Very management intensive Hotels and waterparks have new customers every single day as compared to apartments and office buildings which have annual leases Waterparks are riskier than hotels as they are entertainment-based leisure real estate and are seasonal
Economics and Demographics When gathering economic and demographic data, the appraiser should look within a market of the subject property and gather the following data: Population trends Household growth Household economics Area economics Area transportation Major employers New Developments
A thorough market analysis of the local hospitality and resort market is an essential component of a hotel appraisal The value conclusion will depend heavily upon the data gathered for this section Market research encompasses a large range of data Requires interviews with various competitors, brokers, CVB, and other knowledgeable people in the market
Smith Travel Research Trend report profiles the daily, monthly, and annual occupancy, average daily rate, and RevPAR of a market area. The information is used to answer the following questions: Existing competitors: How many competitors exist in the market? To what degree are they competitive? How have they performed in past years in terms of occupancy, ADR and RevPAR? Recent hotel openings: How many hotels have opened in the past few years in the market? Potential hotel openings: How many hotel projects are in the works? What types of hotels will they be? How many rooms? What is their projected impact? Market segmentation and market penetration: What is the market segmentation and penetration of each competitor in the market? Projections: Synthesize the data gathered in the previous steps and project the performance potential for the subject property. Based on the current market situation, is the subject likely to perform well in terms of occupancy and ADR? What are its potential penetration rates and market segmentation?
Information specific to the subject property is collected in the following areas. Financial data: When appraising an existing property one needs to interview the management and obtain historical financial statements from them. For a proposed property, the interview will be with the developer, and the appraiser will need to obtain the financial forecast and the development budget. Performance data: If the property is existing, historical market segmentation reports, usage figures, and other performance statistics are needed. Physical plant information: For an existing property one will look at the building plans. For a proposed property, the appraiser will obtain the architectural plans. Governmental impacts: The subject s ad valorem taxes, zoning information, sales history, governmental restrictions, environmental regulations and other factors which may affect the subject property should be collected.
The discounted cash flow (DCF) analysis is most appropriate for hospitality properties The appraiser should analyze and estimate various revenue and expense departments in determining the projected net operating income and value for the property Direct capitalization approach appropriate for stabilized property only Capitalization and discount rates are higher for hotels than apartments and other commercial real estate (even higher for waterparks) Franchise fee, management fee, reserve for replacement should be deducted for a hotel analysis Many data sources STR, CBRE, PwC, etc.
Because of this heavy reliance on market data, this approach is more difficult for properties with limited sales in the immediate area, but there is a lot of hotel sales data available regionally. Limited sales data available for many leisure properties such as waterparks. When using the sales comparison approach, the appraiser should fully analyze sales of comparable quality. Information should be obtained on sale price, historical performance, occupancy and ADR or per capita spending, financial performance, renovation cost information, amenity offerings of the property, and special circumstances concerning the sale. Once the sales data have been fully analyzed, the appraiser will probably find a wide range of values. Use an adjustment grid to account for differences in location, size of the property, time and circumstances of the sale, etc.
The cost to replace the improvements is estimated. Once replacement costs are determined, a deduction is made for any depreciation. The result is then combined with the estimated value of the underlying land. This approach is most appropriate when appraising a proposed development where development budgets and land cost are available. It is typically not appropriate for an older hotel due to the difficulty in estimating depreciation.
All three approaches to value are reconciled to a final value conclusion: The income approach is generally given greatest consideration, while the sales comparison approach and the cost approach support the value conclusion
Breakdown of the Going Concern Personal Property Real Estate Business Value
David J. Sangree, MAI, CPA, ISHC Hotel & Leisure Advisors, LLC Phone: 216-810-5800 dsangree@hladvisors.com www.hladvisors.com