BRUCE BALTIN THE ROAD AHEAD …. a DIP? or a BLIP? · Source: CBRE Hotels’ Trends in the Hotel...
Transcript of BRUCE BALTIN THE ROAD AHEAD …. a DIP? or a BLIP? · Source: CBRE Hotels’ Trends in the Hotel...
THE ROAD AHEAD ….a DIP? or a BLIP?
BRUCE BALTINCBRE HOTELS ADVISORY
2 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
• The Economy• Too Much New Supply?• The ADR Conundrum• Our Forecasts• Conference Center Update
Agenda
THE ROAD AHEAD …. A DIP OR A BLIP?
3 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
- The Economic Outlook Remains Favorable Well Into 2020.
- U.S. Hotels Remain Fundamentally Sound.
- Look for a “Blip” in Performance in 2021.
- Conference Venues Will Feel it First.
TODAY’S MESSAGE:
4 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
WHAT COULD END THE CURRENT CYCLE?
4. Oil/Energy Price Increases5. Asset Price Bubble
1. The Economy 2. Over Building 3. Unpredictable Demand Shock
THE ECONOMY
6 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
-2.7%
2.0%
-1.9%
-8.2%
-5.4%
-0.5%
1.3%
3.9%1.7%
3.9%
2.7%2.5%
-1.5%
2.9%
0.8%
4.6%
2.7%1.9%
0.5%0.1%
2.8%
0.8%
3.1%
4.0%
-0.9%
4.6%5.2%
2.0%
3.3%
3.3%
1.0%0.4%
1.5%2.3%
1.9%
1.8%
1.8%
3.1%2.8%
2.3%2.2%
4.2%
3.4%
2.6%2.4%3.0%
2.0%
1.3%
0.5%0.3%
1.0%1.6%
-10
-8
-6
-4
-2
0
2
4
6
8
10
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 I II III IV I II III IV I II III IV I II III IV
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(GOVERNMENT) Government consumption expenditures and gross investment
TRADE (Net exports of goods and services)
BUSINESS (Gross private domestic investment)
CONSUMERS (Personal consumption expenditures)
Lodging Demand
CBRE HOTELS’ LODGING INSIGHTSOUTLOOK ON MOST IMPORTANT HOTEL DRIVERS REMAINS FAVORABLE
Source: STR, Moody’s, BEA, CBRE Hotels Americas Research, Q4 2018
TOO MUCH NEW SUPPLY?
8 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
WHAT COULD END THE CURRENT CYCLE?
4. Oil/Energy Price Increases5. Asset Price Bubble
1. The Economy 2. Over Building 3. Unpredictable Demand Shock
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NEW ROOMS ADDED
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,00019
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
1720
1820
19
Source: STR, CBRE Hotels’ Americas Research, Jan. 2019.
12 MMA of New Hotel Room Added in the U.S.
Well Below Previous Peaks
Do We Have a Problem?
10 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
PIPELINEROOMS UNDER CONSTRUCTION
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
2015 2016 2017 2018 2019
InconstructionSource: STR, Q1 2019
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PIPELINEROOMS IN FINAL PLANNING & UNDER CONSTRUCTION
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
2015 2016 2017 2018 2019
Inconstruction Final PlanningSource: STR, Q1 2019
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PIPELINEROOMS IN PLANNING, FINAL PLANNING & UNDER CONSTRUCTION
120,000
140,000
160,000
180,000
200,000
220,000
240,000
260,000
2015 2016 2017 2018 2019
Inconstruction Final Planning PlanningSource: STR, Q1 2019
13 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2017 2018
B&B HOTEL NOT HOTEL
SEARCHING FOR GROWTH – AIRBNB IS NOW ALLOWING HOTEL LISTINGS
Y-O-Y Growth in Units on Airbnb
Source: CBRE Hotels’ Americas Research, Airdna, Q1 2019.Note: Based on self-classification by host on Airbnb.com (Excludes B&B properties)
AirBNB
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Year Hotel Rooms Hotel^ Airbnb Units Airbnb^ Airbnb+Hotels Airbnb+Hotels^
2012 4,848,884 0.3% 13,000 150% 4,848,885 0.5%
2013 4,873,095 0.5% 28,000 115% 4,873,095 0.8%
2014 4,902,655 0.6% 58,000 107% 4,902,655 1.2%
2015 4,947,954 0.9% 115,235 99% 5,063,189 2.1%
2016 5,017,721 1.4% 223,710 98% 5,241,431 3.5%
2017 5,103,984 1.7% 342,865 53% 5,446,848 3.9%
2018 5,205,425 2.0% 469,425 37% 5,674,851 4.2%
Previous Peak @ 3.1% Q1 2009
AIRBNB & HOTEL SUPPLY IN THE US
Average Daily Active Airbnb & Hotel Supply in U.S.
Source: CBRE Hotels’ Americas Research, Airdna, Google Trends, STR, Q1 2019.
THE ADR CONUNDRUM
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Gap
54
56
58
60
62
64
66
68
(20)
(15)
(10)
(5)
0
5
10
19
89
19
90
19
91
19
92
19
93
19
94
19
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19
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97
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99
20
00
20
01
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14
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18
Occupancy (%)Y-o-Y % Change
STR HISTORY OF U.S. HOTEL FINANCIAL PERFORMANCE
1989 – 2018 Y-o-Y Percent Change in ADR/Occ/RevPAR & Occupancy Level
Notes: Previous historical peak occupancy 66.2% (2018 Q2), Current occupancy 66.1% (2018 Q4) Sources: CBRE Hotels' Americas Research, STR Q4 2018
Contribution from ∆RADR Contribution from ∆Occupancy
∆RRevPAR
OCC (4-Qtr Moving Average)
Area of Interest
17 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
54
56
58
60
62
64
66
68
-11.0
-9.0
-7.0
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
19
94
19
95
19
96
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97
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98
19
99
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00
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Occupancy (%)Y-o-Y % Change
Real ADR (∆RADR) ∆Occupancy
Additional Contribution from Modeled ∆RADR ∆RRevPAR
2015 Q2
MODELED ADR - IF HISTORY WAS REPEATED?!
1994 – 2018 Y-o-Y Percent Change in Real ADR/Occ/RevPAR with Occupancy Levels
Notes: Previous historical peak occupancy 66% (2017 Q4), Current occupancy 66.1% (2018 Q1) Sources: CBRE Hotels' Americas Research, STR Q4 2018.
18 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
New York, NYSan Francisco/San Mateo,
CAMiami/Hialeah, FLAustin, TXAnaheim/Santa Ana, CACharlotte, NC-SCDenver, COOahu Island, HIPittsburgh, PABoston, MAHouston, TXFort Lauderdale, FLNashville, TNNew Orleans, LAPortland, OROakland, CAFort Worth/Arlington, TXSan Diego, CASeattle, WA
San Jose/Santa Cruz, CACharleston, SCWest Palm Beach/Boca Raton, FLTampa/St Petersburg, FLNewark, NJDallas, TXChicago, ILLos Angeles/Long Beach, CAWashington, DC-MD-VAAlbany/Schenectady, NYBaltimore, MDLouisville, KY-INRaleigh/Durham/Chapel Hill, NCAtlanta, GAPhiladelphia, PA-NJLong IslandSavannah, GASt Louis, MO-IL
Columbus, OHCincinnati, OH-KY-INPhoenix, AZDetroit, MIJacksonville, FLMinneapolis/St Paul, MN-WIMilwaukee, WISan Antonio, TXOrlando, FLCleveland, OHColumbia, SCOmaha, NESalt Lake City/Ogden, UTMemphis, TN-AR-MSSacramento, CAKansas City, MO-KSRichmond/Petersburg, VAHartford, CTIndianapolis, INDayton/Springfield, OHTucson, AZAlbuquerque, NMNorfolk/Virginia Beach, VA
CITIES WITH THE DISEASE AND THOSE WITHOUT (TOTAL = 60)WITH (37) WITHOUT (23)
19 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
CBRE HOTELS’ LODGING INSIGHTSAN ONGOING QUESTION: HIGH OCCUPANCIES/WEAK ADR GROWTH
- New Supply- Traditional Hotels- Sharing Economy
- Intermediaries Capturing an Increasing Share- Uncertainty
20 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
When you are uncertain about something, what do you typically do?
ANOTHER QUESTION:
Delay, Postpone or Nothing if you can!
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CBRE HOTELS’ LODGING INSIGHTSPOLICY UNCERTAINTY INDEX –
0
50
100
150
200
250
300Pre 2008 Post 2008
BalanceBudget Act Black
Monday
1st Gulf War
Russian Crisis/LTCM
9/112nd Gulf
War Large Interest
Rate Cuts
Lehman& TARP
Banking Crisis
Debt CeilingDispute; Euro Debt
FiscalCliff Gov’t
Shutdown Gov’tShutdown
Brexit
TrumpElection
Source: PolicyUncertainty.com
DOES ELEVATED UNCERTAINTY IMPACT ADR?
22 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
CBRE HOTELS’ LODGING INSIGHTSYES!
Using our Econometric Models, we can estimate the impact of Policy Uncertainty:
• Negative Impact on both Demand & ADR (Largest Impact on ADR)• Price Elasticity of 0.02 in our national model
While additional research is required, these preliminary observations suggest that these elevated levels of uncertainty since 2008, which can mostly be attributed to actions in Washington D.C., may have caused annual ADR growth to be 0.5% lower than would have been the case if more normal levels of uncertainty were present, holding everything else constant.
Seems to be more of an issue for Upper-Upscale and Luxury hotels.
OUR FORECASTS
24 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
2022F1.7%
2.5%
65.1%
0.6%
1.4%
CBRE HOTELS’ LODGING INSIGHTSHOTELS TO PEAK IN MID-2020 – SLOWDOWN WILL BE A MILD ONE
2022F1.7%
2.5%
65.1%
0.6%
1.4%
Long Run Average 2017 2018 2019F 2020F 2021FSupply 1.8% 1.7% 2.0% 1.9% 1.8% 1.8%
Demand 2.0% 2.5% 2.5% 1.9% 1.2% -0.1%
Occupancy 62.3% 65.9% 66.2% 66.2% 65.8% 64.6%
ADR 3.0% 2.2% 2.4% 2.6% 2.6% 1.3%
RevPAR 3.3% 2.9% 2.9% 2.5% 2.0% -0.6%
Source: STR, CBRE Hotels’ Americas Research, Hotel Horizons® Q4 2018
A Blip!
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2022F2.4%
2.5%
71.9%
1.4%
1.4%
U.S. TOP 25 MARKETS – ALL HOTELSAN EVEN MILDER SLOWDOWN IN THE LARGER MARKETS
2022F1.7%
2.5%
65.1%
0.6%
1.4%
Long Run Average 2017 2018 2019F 2020F 2021FSupply 1.8% 2.4% 2.7% 3.3% 3.1% 2.5%
Demand 2.2% 2.9% 2.5% 3.0% 2.6% 0.9%
Occupancy 67.3% 73.7% 73.6% 73.4% 73.0% 71.9%
ADR 3.1% 1.7% 2.7% 2.4% 2.5% 1.6%
RevPAR 3.5% 2.2% 2.5% 2.2% 2.0% 0.1%Source: STR, CBRE Hotels’ Americas Research, Hotel Horizons® Q4 2018
A Smaller Blip!
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-30%-20%-10%
0%10%20%30%40%50%60%70%
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Markets in Expansion Markets in ContractionMarkets in Recovery
REAL REVPAR CHANGE FROM PRE-RECESSION PEAK
Not All Markets Have Fully Recovered From the Last Recession
Source: STR, CBRE Hotels’ Americas Research, Hotel Horizons® Q4 2018
As of Q4 2018 As of Q4 2020
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CBRE HOTELS’ LODGING INSIGHTSU.S. LODGING INDUSTRY: CHAIN-SCALE FORECAST – REVPAR CHANGE
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2017 2018 2019F 2020F 2021F 2022F
All Hotels Luxury Upper-Upscale Upscale Upper-Midsacle Midscale EconomySource: STR, CBRE Hotels’ Americas Research, Hotel Horizons® Q4 2018
28 CBRE HOTELS | 2019 OUTLOOKSource: CBRE Hotels’ Trends in the Hotel Industry National Market with reproduction and use of information subject to CBRE Limited Disclaimer|Terms of Use as detailed at http://www.cbre.ca/EN/services/valuationservices/hotels/Pages/hotels-vas-disclaimer.aspx
Summary Thoughts• The U.S. lodging industry has been operating at peak levels for the past three years
– 2018 played out somewhat better than expected.• Accelerated supply growth in recent years has been readily absorbed in most
markets because of the expanding economy. This has; however, contributed to weaker than normal ADR growth.
• Despite rising salary and wage rates and slowing revenue growth, operators have controlled costs sufficiently to achieve increases in profit margins. GOP margins are at their highest levels since the 1960s.
• While the fundamentals remain attractive across the vast majority of markets, elevated uncertainty (among other factors) has impaired management’s ADR pricing power. This has also contributed to weaker-than-expected NOI growth.
• Watch for a Blip, and not a Dip!
THE ROAD AHEAD …. A DIP OR A BLIP?
MARK WOODWORTHSenior Managing Director+ 1 404 809 3969
CBRE © 2019 All Rights Reserved. All information included in this proposal pertaining to CBRE—including but not limited to its operations, employees, technology and clients—are proprietary and confidential, and are supplied with the understanding that they will be held in confidence andnot disclosed to third parties without the prior written consent of CBRE. This proposal is intended solely as a preliminary expression of general intentions and is to be used for discussion purposes only. The parties intend that neither shall have any contractual obligations to the other withrespect to the matters referred herein unless and until a definitive agreement has been fully executed and delivered by the parties. The parties agree that this proposal is not intended to create any agreement or obligation by either party to negotiate a definitive lease/purchase and saleagreement and imposes no duty whatsoever on either party to continue negotiations, including without limitation any obligation to negotiate in good faith or in any way other than at arm’s length. Prior to delivery of a definitive executed agreement, and without any liability to the other party,either party may (1) propose different terms from those summarized herein, (2) enter into negotiations with other parties and/or (3) unilaterally terminate all negotiations with the other party hereto.
The information contained in this document has been obtained from sources believed reliable. While CBRE, Inc. does not doubt its accuracy, CBRE, Inc. has not verified it and makes no guarantee, warranty or representation about it. It is your responsibility to independently confirm itsaccuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the property. The value of this transaction to you depends on tax and other factors which should be evaluated by your tax,financial and legal advisors. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction the suitability of the property for your needs.
CBRE HOTELSThe World’s Leading Hotel Experts.
Q & A APRIL 11, 2019
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