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Moderator: Lyle Hall, HLT Advisory Inc. Panel: David Larone , Director, PKF Consulting Inc
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Transcript of Moderator: Lyle Hall, HLT Advisory Inc. Panel: David Larone , Director, PKF Consulting Inc
Sick Patient or Post-Mortem? Diagnosing the Canadian Hotel Investment Industry
What Will It Take To Survive?
Sick Patient or Post-Mortem? Diagnosing the Canadian Hotel Investment Industry
What Will It Take To Survive?
Moderator:
Lyle Hall, HLT Advisory Inc.
Panel:
David Larone, Director, PKF Consulting Inc
Betsy MacDonald, Managing Director, HVS
Abid J. Gilani, SVP Treasury, Marriott International
Chuck Henry, President, Hotel Capital Advisers, Inc.
Craig Wright, Senior VP & Chief Economist, RBC Capital Markets - Real Estate Group
Moderator:
Lyle Hall, HLT Advisory Inc.
Panel:
David Larone, Director, PKF Consulting Inc
Betsy MacDonald, Managing Director, HVS
Abid J. Gilani, SVP Treasury, Marriott International
Chuck Henry, President, Hotel Capital Advisers, Inc.
Craig Wright, Senior VP & Chief Economist, RBC Capital Markets - Real Estate Group
Occupancy (2007-2015)Occupancy (2007-2015)
YearSupply % Change
Rooms Available Supply (+000)
Demand % Change
Demand (+000)
OccupancyOccupancy %
Change
2007 1.9% 4,475 1.1% 2,820 63.0% -0.8%
2008 2.7% 4,596 -1.6% 2,775 60.4% -4.2%
2009 2.5% 4,711 -6.0% 2,609 55.4% -4.3%
2010 1.2% 4,767 -1.0% 2,582 54.2% -1.4%
2011 0.6% 4,796 3.0% 2,660 55.5% 0.4%
2012 0.4% 4,815 4.0% 2,766 57.4% 1.6%
2013 0.6% 4,844 5.0% 2,905 60.0% 2.9%
2014 1.0% 4,893 5.0% 3,050 62.3% 3.5%
2015 2.0% 4,966 3.5% 3,157 63.6% 2.2%
• Occupancy reaches a low point of 54.2% in 2010 – the lowest level in 40 years
• Occupancy rapidly recovers to 2007 levels in 2015 – due in part to slow supply growth
• Occupancy reaches a low point of 54.2% in 2010 – the lowest level in 40 years
• Occupancy rapidly recovers to 2007 levels in 2015 – due in part to slow supply growth
Source: HVS Source: HVS
Projected Average RateProjected Average Rate
Year OccupancyPercent Change
Average RatePercent Change
2008 60.4% -4.2% $106.55 2.5%
2009 55.4% -8.3% $102.29 -4.0%
2010 54.2% -2.2% $101.27 -1.0%
2011 55.5% 2.4% $102.28 1.0%
2012 57.4% 3.6% $105.35 3.0%
2013 60.0% 4.4% $111.14 5.5%
2014 62.3% 4.0% $118.36 6.5%
2015 63.6% 2.0% $126.05 6.5%Source: HVS
Projected RevPARProjected RevPARYear Occupancy
Percent Change
Average RatePercent Change
RevPARPercent Change
2008 60.4% -4.2% $106.55 2.5% $64.36 -1.8%
2009 55.4% -8.3% $102.29 -4.0% $56.64 -12.0%
2010 54.2% -2.2% $101.27 -1.0% $54.85 -3.2%
2011 55.5% 2.4% $102.28 1.0% $56.72 3.4%
2012 57.4% 3.6% $105.35 3.0% $60.52 6.7%
2013 60.0% 4.4% $111.14 5.5% $66.64 10.1%
2014 62.3% 4.0% $118.36 6.5% $73.78 10.7%
2015 63.6% 2.0% $126.06 6.5% $80.13 8.6%Source: HVS and STRSource: HVS and STR
• Current recession will see declining RevPAR for a record three years• Current recession will see the largest RevPAR decline of 12% in 2009• The hotel market will bottom out during 2011 and then start to recover• Strong recovery will commence in 2012• RevPAR will return to record 2007 levels ($66.64) in 2013• Rapid turnaround due to limited supply growth
• Current recession will see declining RevPAR for a record three years• Current recession will see the largest RevPAR decline of 12% in 2009• The hotel market will bottom out during 2011 and then start to recover• Strong recovery will commence in 2012• RevPAR will return to record 2007 levels ($66.64) in 2013• Rapid turnaround due to limited supply growth
Historical Cap RatesHistorical Cap Rates
YearCap Rate based on Historical NOI
Cap Rate based on 1st Yr. Projected NOI
Free and Clear Discount Rate
Equity Yield
1988 9.1 9.7 14.7 21.41989 9.5 9.4 17.6 28.81990 8.0 10.0 15.1 22.41991 6.4 8.9 19.4 24.01992 4.8 7.7 15.1 21.91993 8.5 12.0 20.8 34.31994 5.7 8.3 14.8 21.81995 7.0 11.1 14.1 20.51996 7.0 9.8 13.5 21.41997 9.3 10.5 15.4 23.91998 8.8 9.7 14.5 22.21999 10.3 11.4 15.5 24.92000 9.2 10.4 14.0 21.02001 8.2 9.8 14.6 22.22002 8.9 9.8 13.6 21.02003 7.9 8.2 14.0 21.42004 5.8 7.4 12.2 19.72005 5.2 6.9 11.4 19.72006 5.5 5.7 10.8 18.92007 6.0 6.8 11.6 21.32008 6.6 5.3 11.9 20.0
Source: HVS
Value Trend for a Typical U.S. HotelValue Trend for a Typical U.S. Hotel1987 1988 1989 1990 1991 1992
Value Per Room $37,000 $37,000 $38,000 $32,000 $27,000 $30,000Percent Change 0.0% 2.7% -15.8% -15.6% 11.1%
Per Room Change $0 $1,000 -$6,000 -$5,000 $3,0001993 1994 1995 1996 1997 1998
Value Per Room $33,000 $37,000 $45,000 $50,000 $59,000 $60,000Percent Change 10.0% 12.1% 21.6% 11.1% 18.0% 1.7%
Per Room Change $3,000 $4,000 $8,000 $5,000 $9,000 $1,0001999 2000 2001 2002 2003 2004
Value Per Room $61,000 $69,000 $52,000 $52,000 $51,000 $65,000Percent Change 1.7% 13.1% -24.6% 0.0% -1.9% 27.5%
Per Room Change $1,000 $8,000 -$17,000 $0 -$1,000 $14,0002005 2006 2007 2008 2009 2010
Value Per Room $82,000 $100,000 $95,000 $81,000 $73,000 $77,000Percent Change 26.2% 22.0% -5.0% -14.7% -9.9% 5.5%
Per Room Change $17,000 $18,000 -$5,000 -$14,000 -$8,000 $4,0002011 2012 2013 2014 2015
Value Per Room $82,000 $95,000 $104,000 $110,000 $116,000Percent Change 6.5% 15.9% 9.5% 5.8% 5.5%
Per Room Change $5,000 $13,000 $9,000 $6,000 $6,000Source: HVS
Market vs. Liquidation ValueMarket vs. Liquidation Value
Market Value
• Willing Seller
• Neither Buyer or Seller under pressure to buy or sell
• Sufficient time to expose the hotel to all market participants– Current adequate marketing
time: 1-2 years
Market Value
• Willing Seller
• Neither Buyer or Seller under pressure to buy or sell
• Sufficient time to expose the hotel to all market participants– Current adequate marketing
time: 1-2 years
Liquidation Value
• Unwilling Seller – facing foreclosure / bankruptcy
• Seller under extreme pressure to sell
• Limited time to adequately market and sell hotel– Inadequate marketing time = less than
1 year
• Discount 20-50% below market value
Liquidation Value
• Unwilling Seller – facing foreclosure / bankruptcy
• Seller under extreme pressure to sell
• Limited time to adequately market and sell hotel– Inadequate marketing time = less than
1 year
• Discount 20-50% below market value