Hotel - Motel Market Overview and Trends

Inland Empire Hotel Market Trends
Brandon J. Feighner
PKF Consulting Los Angeles
Mark Woodworth
June 5, 2014
[email protected]
The Path to the Peak
• Some
Happy Facts
• Our
Forecasts
• The
Supply Story
• Cap
Rate Expectations
22
Some (mostly) Happy Facts:
1.
Demand has fully recovered.
•
2.
2013 Occupancy level was above the long run average.
•
3.
To be followed by Airport locations in 2014.
Profits have increased > 10% per year since 2011.
•
6.
Below long run average Nationally and in 47 of 50 top markets.
Urban locations at record occupancy levels.
•
5.
Occupancy has increased four years in a row – 2014 will be a record 5th.
Limited supply growth persists.
•
4.
Nationally and in 45 of 50 Top Markets.
A run that should last through 2015.
Real average rates have a way to go.
3
Next Topic
Our Forecasts
4
4
Major Factors in the PKF Demand Equation
Income
Employment
Room Rates
(Negative effect)
Lodging Demand
5
5
The Outlook for the Drivers that are Most
Important to Hotels Remains Favorable
10
GDP Component
8
4.9%
3.9%
6
2.8%
2.8%
3.9%
4
2.0%
Forecast
4.1%
2.6%
3.7%
3.2%
1.6%
4.0%4.1%4.5%
3.8%3.8%
3.9%
2.9%
2.8%
1.3%
1.4%
2
2.5%
1.1%
0.1%
1.2%
0.1%
0
I
III IV
I
II
2008
-2
-4
II
III IV
2009
I
II
III IV
2010
-2.0%
-0.4%
-10
II
III IV
2011
-1.3%
-2.7%
-6
-8
I
I
II
III IV
I
2012
II
III IV
2013
I
II
III IV
I
2014
II
III IV
2015
(GOVERNMENT) Government consumption expenditures
and gross investment
TRADE (Net exports of goods and services)
BUSINESS (Gross private domestic investment)
CONSUMERS (Personal consumption expenditures)
-5.4%
-8.3%
These matter
the most.
Lodging Demand
Source: BEA, Moody’s Analytics, PKF Hospitality Research, LLC Hotel
Horizons: December - February 2014, Smith Travel Research
6
National Forecast – 2014/2015
Long
Term
Average
Very Limited New
Supply
2009 2010 2011 2012
2013 2014F 2015F
Supply
1.9%
2.8%
1.7%
0.5%
0.5%
0.7%
1.0%
1.3%
Demand
2.1%
-6.2%
7.2%
4.7%
3.0%
2.2%
3.0%
3.0%
Occupancy
61.9%
54.5% 57.5% 59.9%
61.4%
62.2%
63.4%
64.5%
ADR
2.9%
-8.7%
0.0%
3.8%
4.2%
3.9%
4.3%
5.4%
RevPAR
2.9%
-16.7% 5.4%
8.2%
6.8%
5.4%
6.3%
7.1%
Passing Through Long
Run Average Level
Source: PKF Hospitality Research, LLC – Hotel Horizons® Preliminary Update May 6, 2014, STR, Inc.
7
Forecast Occupancy Levels
By Chain-Scale
75.6%
80%
70%
60%
50%
75.0%
74.6%
72.3%
72.1%
72.0%
71.9%
58.0%
57.0%
63.8%
70.0%
69.0%
57.3%
64.5%
71.7%
40%
30%
65.2%
72.1%
68.7%
63.5%
20%
55.8%
57.3%
56.2%
55.0%
57.8%
10%
0%
This is where meetings go.
2013
2014F
2015F
Long Run Average
Source: STR, Inc., PKF Hospitality Research, LLC, March-May 2014 Hotel Horizons®
8
RevPAR Forecast By Chain-Scale
Chain-Scale
2012
2013
2014F
Luxury (Ritz-Carlton, Four Seasons)
7.8%
7.5%
8.0%
Upper-Upscale (Marriott, Hyatt)
6.7%
5.9%
5.3%
Upscale (Courtyard, B.W. Premier)
6.3%
5.4%
6.1%
Upper-Midscale (Hampton, B.W. Plus)
6.6%
4.2%
4.3%
Midscale (Best Western, LaQuinta)
6.1%
4.1%
5.6%
Economy (Days Inn, Red Roof)
5.7%
4.9%
6.5%
All Hotels
6.7%
5.5%
6.6%
Source: PKF Hospitality Research, LLC March-May 2014 Hotel Horizons®
9
Southern California Hotels
Historical Annual Performance
Area
YE 2012
$120.35
YE 2013
$127.29
YoY Change
$130.51
$136.86
4.9%
$87.10
89.16
2.4%
$132.13
$135.58
2.6%
YE 2012
73.0%
YE 2013
74.9%
YoY Change
Los Angeles
County
75.3%
76.8%
1.9%
Inland Empire
63.9%
67.1%
5.1%
San Diego County
70.5%
71.6%
1.5%
Orange County
Los Angeles
County
Inland Empire
San Diego County
Area
Orange County
5.8%
Source: PKF Consulting HR Hotel Horizons, and PKF Consulting Los Angeles Trends in the Hotel Industry
2.6%
10
Southern California Hotels
Forecasted Performance
Area
YE 2013
YoY Change
Orange County
$127.29
2014F
$135.75
Los Angeles
County
$136.86
$145.33
6.2%
$89.16
$91.79
2.9%
$135.58
$142.33
5.0%
YE 2013
YoY Change
Inland Empire
San Diego County
Area
6.6%
Orange County
74.9%
2014F
75.5%
Los Angeles
County
76.8%
77.8%
1.4%
Inland Empire
67.1%
69.9%
4.1%
San Diego County
71.6%
73.3%
2.4%
0.9%
11
Source: PKF Consulting HR Hotel Horizons, and PKF Consulting Los Angeles Trends in the Hotel Industry
Inland Empire – Outlook
Opportunities
• Things will only get better
• Population growth
• Declining vacancy in Industrial (near
historic lows) & Office
• 50,000+ jobs created 2012-13; 40K new
jobs forecast for 2014
Challenges
• Unemployment remains high
• Older hotel product (changes ahead?)
• Local airport control
12
Next Topic
The Supply Story
13
13
Troubling Signs in the Pipeline?
Phase
2014
2013
% Change
In Construction
102,855
72,509
41.9%
Final Planning
133,090
96,365
38.1%
Planning
145,558
151,876
-4.2%
Active Pipeline
381,503
320,750
18.9%
Total U.S. Pipeline, Number of Rooms by Phase, March 2014 and 2013
Source: STR, Inc.
14
Question:
When Was Overbuilding
Last an Issue?
15
15
U.S. Supply Change
6.0%
5.0%
Q2 1999
4.0%
4.0%
Q1 2009
3.0%
3.0%
2.0%
1.0%
Long Run
Average =
1.9%
-1.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0.0%
Source: PKF Hospitality Research LLC, STR, Inc.
16
Today vs. the Previous Peak of
Construction Activity – Q1 2008
Phase
2014
Q1/2008
%
Difference
Change
In Construction
102,855
207,468
-50.4%
Final Planning
133,090
113,419
17.3%
Planning
145,558
344,363
-57.7%
Active Pipeline
381,503
665,250
-42.7%
Total U.S. Pipeline, Number of Rooms by Phase, March 2014 and March 2008
Source: STR, Inc.
17
Summary Thoughts:
1.
The Economic Outlook for 2014 Has Remained
Relatively Consistent Over the Past Three Years;
Uncertainty is Dissipating.
2.
Industry Fundamentals Remain Solid.
3.
Supply Growth will Remain in Check for at Least
Another Two Years as Real ADR’s Recover.
4.
Attractive Hotel Profit Growth Continues and will Serve
to Mitigate the Impact of Rising Interest Rates.
Owners and Investors will be Rewarded as a Result.
5.
18
Next Topic
Cap Rate
Expectations
19
Where are Cap Rates Going?
When
Interest
Rates
Increase
So do Cap
Rates
When Cash
Flows
Accelerate
Cap Rates
Decline
Three Main
Drivers of
Cap Rate
Change
Volatility
The more
there is, the
higher the
Cap Rate
20
Hotel Profits:
A Strong, Favorable Run
20%
Change in NOI
Forecast
10%
0%
-10%
-20%
-30%
-40%
Source: PKF Hospitality Research, LLC
21
Historical Sales Volume
(Assets >$10M)
Source: Real Capital Analytics
22
Recent IE Hotel Sales
Inland Empire Recent Hotel Sales
Sale No.
Hotel
Location Rooms Sale Date
Price
$/Room Cap Rate
1 Chino Hills Hotel Chino Hills
99 November 2013 $ 7,900,000 $ 79,798 5.9%
2 Hilton Garden Inn Rancho Mirage 120 September 2013 13,262,500 110,521 7.4
3 Best Western Palm Springs
70 September 2013 6,400,000 91,429 9.6
Potential Sale of the Hilton San Bernardino?
23
Key Valuation Takeaways
• Transaction activity is 2014 is expected to
exceed 2013 ($5B+ in CA).
• Wide array of buyers will continue to pursue
hotel investments (Int’l $’s in S. CA).
• More sellers will come to the table as sales
prices near peak pricing.
• Availability of debt will continue, with lender
competition putting pressure on interest rates.
• Cap rates anticipated to remain steady due to
availability of capital and buyer competition.
24
Inland Empire
Hotel Market
Trends Seminar
Think 2016/17
Thanks for Your Time

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