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Hotel Values & CAP Rates Meet The Money® 2015 May 6, 2015 – Sheraton Gateway Hotel Los Angeles
Presented by: Suzanne Mellen, MAI, CRE, FRICS, ISHC
Senior Managing Director Hotel and Casino Consulting & Valuation HVS San Francisco, Los Angeles, and Las Vegas 415-268-0351 [email protected]
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Historical Sales (Total Assets >$2.5M)
Source: Real Capital Analytics (RCA)
$136,001
$203,248
$0
$5
$10
$15
$20
$25
$30
$35
$60,000
$90,000
$120,000
$150,000
$180,000
$210,000
$ in
Bill
ion
s
Pri
ce P
er
Ke
y
Sales Volume Price Per Key
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Hotel Sales Volume Trends
$0
$5
$10
$15
$20
$25
$30
$35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ in
Bill
ion
s
>$10M
$2.5-10M
Source: Real Capital Analytics (RCA)
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Comparison of # Properties Sold
Source: Real Capital Analytics (RCA)
924 1,044
907
607
243 325
526 701
937 995
626
723 746
284
79
236
449 381
483
755
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
>$10M
$2.5-10M
+56.3%
+6.2%
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2014 Sales By Price Per Room: $10M+
Source: Real Capital Analytics (RCA)
124 177
206
354 61
117
48
62
21
30
11
15
0
100
200
300
400
500
600
700
800
2013 2014
# o
f P
rop
ert
ies $750k+
$500-750k
$300-500k
$200-300k
$100-200k
<$100k
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Portfolio Sales Driving Overall Sales Volume 1Q2015 Notable Portfolio Sales
Equity Inns 116 Limited & Full Service Properties
Buyer: American Realty Capital Hospitality Trust
Seller: Whitehall Real Estate Funds
Price: $1,800,000,000
Price/Room: $132,120
Prudential RE Investors 28 Full & Limited Service Properties
Buyer: Ashford Hospitality Trust
Seller: Prudential RE Investors
Price: $1,735,000,000
Price/Room: $227,094
Apple Hospitality REIT 48 Limited & Full Service Properties
Buyer: MCR Development LLC
Seller: Apple Hospitality REIT
Price: $206,400,000
Price/Room: $114,730
Source: Real Capital Analytics (RCA)
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Major Hotel Sales Transactions (Assets $10M+)
Source: Real Capital Analytics (RCA)
Year Number of
Hotels % Change Average Price
per Room % Change
1Q 2015 269 102% $286,860 49%
1Q 2014 133 $192,870
2014 755 56% $211,020 5%
2013 483 27% $200,905 6%
2012 381 -15% $189,393 -3%
2011 449 90% $196,147 5%
2010 236 199% $185,943 44%
2009 79 -72% $129,074 -30%
2008 284 -62% $183,409 4%
2007 746 3% $175,729 -9%
2006 723 15% $183,409 22%
2005 626 $159,317
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Major Hotel Sales Transactions (Assets $10M+)
Source: Real Capital Analytics (RCA)
Year Number of
Hotels % Change Average Price
per Room % Change
1Q 2015 269 102% $286,860 49%
1Q 2014 133 $192,870
2014 755 56% $211,020 5%
2013 483 27% $200,905 6%
2012 381 -15% $189,393 -3%
2011 449 90% $196,147 5%
2010 236 199% $185,943 44%
2009 79 -72% $129,074 -30%
2008 284 -62% $183,409 4%
2007 746 3% $175,729 -9%
2006 723 15% $183,409 22%
2005 626 $159,317
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Major Hotel Sales Transactions (Assets $10M+)
Source: Real Capital Analytics (RCA)
Year Number of
Hotels % Change Average Price
per Room % Change
1Q 2015 269 102% $286,860 49%
1Q 2014 133 $192,870
2014 755 56% $211,020 5%
2013 483 27% $200,905 6%
2012 381 -15% $189,393 -3%
2011 449 90% $196,147 5%
2010 236 199% $185,943 44%
2009 79 -72% $129,074 -30%
2008 284 -62% $183,409 4%
2007 746 3% $175,729 -9%
2006 723 15% $183,409 22%
2005 626 $159,317
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Montage Laguna Beach $1,440,000 per key
5 Sales Exceeding $1 Million Per Key YTD 2015
Waldorf Astoria, Manhattan, NY $1,368,421 per key
Mandarin Oriental, San Francisco, CA $1,000,000 per key
Source: HVS and RCA
Malibu Beach Inn, Malibu, CA $1,640,000 per key
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Cap and Discount Rates – Derived from Sales
Source: HVS
%
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI
Unlevered Discount Rate Equity Yield
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Cap and Discount Rates – Derived from Sales
Source: HVS
%
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
Cap Rate - Historical NOI Cap Rate - 1st Yr. Projected NOI
Unlevered Discount Rate Equity Yield
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Derived Cap Rates Steady (based on historical NOI)
Source: Derived from hotels appraised by HVS at time of sale
6.1
7.7
9.5
5.8
7.4
9.3
6.2
7.4
9.2
6.7
7.8
9.0
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Full Service Select Service Ltd. Service
2011 2012 2013 2014
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Comparative Rates of Return
Source: Derived from hotels appraised by HVS at time of sale
6.7 7.5
10.6
17.8
7.8 9.0
11.1
19.2
9.0 9.8
12.3
21.3
0
5
10
15
20
25
Historical NOI 1st Year NOI Discount Rate Equity IRR
Full Service SS & ES Ltd. Service
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Luxury Hotel Cap Rates in High Barrier to Entry Markets
Source: Real Capital Analytics (RCA)/HVS
Location Sale Date
San Diego, California Apr-15 $260,227,273 249 $1,045,089 2.2%
San Francisco, California Feb-15 $530,000,000 1,024 $517,578 5.0%
Malibu, California Feb-15 $79,900,000 47 $1,700,000 3.2%
Laguna Beach, California Jan-15 $360,000,000 248 $1,451,613 5.0%
Honolulu, Hawaii Oct-14 $286,238,820 338 $846,860 2.6%
Seattle, Washington Jul-14 $62,000,000 120 $516,667 3.4%
Wailea Maui, Hawaii Jul-14 $325,500,000 544 $598,346 5.2%
Fort Lauderdale, Florida Jul-14 $159,000,000 296 $537,162 2.2%
New York, New York Jun-14 $273,600,000 480 $570,000 2.1%
Coronado, California Jun-14 $787,000,000 757 $1,039,630 4.8%
Napa, California Jun-14 $60,000,000 86 $697,674 5.4%
Overall
CapPrice Rooms Price/Rm
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Hotel Cap Rates in Energy Driven Markets With Low Barriers to Entry
Location Sale Date
Year
Opened
Kenedy, Texas Jan-15 $8,700,000 68 $127,941 33.6% 2013
Pearsall, Texas Aug-14 $9,300,000 66 $140,909 8.5% 2012
Cotulla, Texas Aug-14 $9,990,000 73 $136,849 23.1% 2013
Pleasanton, Texas Aug-14 $8,900,000 63 $141,270 25.1% 2012
Beeville, Texas Dec-13 $8,700,000 70 $124,286 9.9% 2012
Odessa, Texas Aug-13 $12,000,000 118 $101,695 35.4% 1973
Sonora, Texas Aug-13 $3,900,000 54 $72,222 18.6% 2000
Midland, Texas Apr-13 $6,500,000 66 $98,485 16.0% 2009
Victoria, Texas Feb-13 $9,500,000 82 $115,854 25.0% 2009
Hobbs, New Mexico Jan-13 $2,750,000 54 $50,926 15.6% 1996
Price Rooms Price/Rm
Overall
Cap
Source: Real Capital Analytics (RCA)/HVS
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Hotels Maintain Return Premium
%
Source: PWC Real Estate Investor Survey
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
Regional Mall CBD Office Suburban Office Apartment
Full-Service Lodging Limited-Service Lodging Luxury Lodging Select Service Lodging
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Luxury Cap Rates Dip Below Full Service
Source: PriceWaterhouseCoopers Real Estate Investor Survey
%
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
Full-Service Lodging Limited-Service Lodging Luxury Lodging Select Service Lodging
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Slight Uptick in Terminal Cap Rates
Source: PWC Real Estate Investor Survey
10.26 11.25
9.75
NA
8.17 9.25
7.62 8.34 8.31
9.63
7.38
8.65
0%
2%
4%
6%
8%
10%
12%
Full-Service Lodging Limited-ServiceLodging
Luxury Lodging Select ServiceLodging
5 Years Ago (1Q2010) 1 Year Ago (1Q2014) 1Q2015
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Cap Rates Remain Well Above Hotel Mortgage Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield
Source: Federal Reserve, ACLI, and HVS
%
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Cap Rates Remain Well Above Hotel Mortgage Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield
Source: Federal Reserve, ACLI, and HVS
%
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Cap Rates Remain Well Above Hotel Mortgage Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield
Source: Federal Reserve, ACLI, and HVS
%
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Cap Rates Remain Well Above Hotel Mortgage Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield
Source: Federal Reserve, ACLI, and HVS
%
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Cap Rates Remain Well Above Hotel Mortgage Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap Rate - Historical NOI Hotel Mortgage Int. Rate - ACLI 10-Year T-Bill Yield
Source: Federal Reserve, ACLI, and HVS
%
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REITS Outlook is Positive
Source: Investment Banking Bulletins, SEC, HVS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
YE2007
YE2008
YE2009
YE2010
YE2011
YE2012
YE2013
YE2014
YTD5/14
YTD5/15
Implied REIT Cap Rates
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REITS Outlook is Positive
Source: Investment Banking Bulletins, SEC, HVS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
YE2007
YE2008
YE2009
YE2010
YE2011
YE2012
YE2013
YE2014
YTD5/14
YTD5/15
Implied REIT Cap Rates
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REITS Outlook is Positive
Source: Investment Banking Bulletins, SEC, HVS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
YE2007
YE2008
YE2009
YE2010
YE2011
YE2012
YE2013
YE2014
YTD5/14
YTD5/15
Implied REIT Cap Rates
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Summary
Ideal conditions for another strong transaction year – activity expected to well exceed that of 2014 and prior peak achieved in 2006
Wide array of buyers continue to pursue hotel investments
More sellers are coming to the table as sales prices near peak pricing
Availability of debt will continue, with lender competition putting pressure on interest rates and loan-to-value ratios
Interest rates expected to rise only moderately – no major concern
Capitalization rates expected to remain steady despite rise in NOI due to availability of capital and buyer competition for quality assets
Values will continue to rise driven by ADR and profit gains coupled with low cost of capital and increasing leverage
Values likely to peak within next two to three years
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Please, Call Me or e-mail Me With Any Questions
415-268-0351
Thank You!
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Suzanne R. Mellen, MAI, CRE, FRICS, ISHC
Suzanne R. Mellen is the Senior Managing Director of Consulting & Valuation for HVS San
Francisco, Los Angeles, and Las Vegas, and President of HVS Gaming Services. HVS is a full-
service consulting and valuation firm specializing in hotel, gaming, and hospitality properties
worldwide. HVS offices under her leadership are renowned for excellence and integrity. Ms. Mellen
has appraised thousands of hotels, gaming assets, and related real estate over the past 37 years.
She has authored numerous articles and is a frequent lecturer and expert witness on the valuation
of hotels, casinos, and related issues.
Ms. Mellen has a B.S. degree in Hotel Administration from Cornell University and holds the following
designations: MAI (Appraisal Institute), CRE (Counselor of Real Estate), FRICS (Fellow of the Royal
Institution of Chartered Surveyors), and ISHC (International Society of Hospitality Consultants).
Suzanne Mellen’s professional experience includes consulting and appraisal positions with HVS
New York, Morgan Guaranty Trust, Laventhol & Horwath, and Helmsley-Spear Hospitality Services,
Inc. in New York City and Harley-Little Associates in Toronto, Canada.