May 2012
Bruce Baltin [email protected]
ALIS 2012
U.S. Lodging Market Outlook
Prepared for:
Some Headwinds… More Tailwinds
Meet the Money 2012
Topics
2
Our Current Forecasts
Profit Outlook
A Look at Productivity
Our Current
Forecasts
3
4
Employment Levels
>2000 >Peak
2011 28 3
2012 34 6
2013 41 12
Source: Moody’s Analytics
This is True in 20% of Our 50 Hotel Horizons® Markets
Fewer Jobs Today...and the Return to
Past Peaks will be Slow.
5
A Fundamentally Good Sign:
Market
Number of Markets at
or Above Past Peak
Demand as of Q4
2011*
All Hotels 30
Upper-Priced 47
Lower-Priced 10
Source: Smith Travel Research
* Four Quarter Moving Average
Lodging Demand Has Recovered in Over Half of Our 50 Hotel Horizons® Markets
6
There is a Disconnect:
Employment is Weak
Lodging Demand is Strong
Why?
The Answer: Part 1
7
Total Real Personal Income Levels
>2000 >Peak
2011 49 13
2012 49 37
2013 49 43
Source: Moody’s Analytics
Consumers, Businesses have the $’s to Travel
2011 ADR Percentage Point Difference From Previous Peak
8
50 U.S. Horizons® Markets
Source: PKF Hospitality Research, March – May 2012 Hotel Horizons®
The Answer: Part 2
Room Rates Still Have a Long Way to Go!
U.S. is 5.4% below the
previous peak.
LA is 4.5% below the
previous peak.
Pittsburgh +
New Orleans
Meet the Money 2011 Accuracy Assessment
9 Source: PKF Hospitality Research, LLC – March-May 2012 Hotel Horizons®, Smith Travel Research
2011 2012 MTM
2011
2011
Actual MTM
2011 Current
Forecast
Occupancy 60.3% 60.1% 63.2% 61.0%
ADR 2.6% 3.7% 5.8% 4.1%
RevPAR 6.8% 8.2% 7.6% 5.8%
Full Demand Recovery
United States
Less Optimistic
Why?
Factors Impacting ADR in 2012
- Real personal income growth
10
Main drivers of the demand
recovery 2010 - 2011:
- Corporate profit growth
- Low room rates
4-Quarter Moving Average Change
Change in U.S. Corporate Profits Forecast
Source: Moody’s Analytics
11
Rate of Corporate Profit Growth
Not as Robust in 2012
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jan-11 Apr-11 Oct-11 Jan-12
Source: Moody's Analytics
Change in Total Real Personal Income
Date of Forecast:
12
A little more pessimistic
going into 2012
Today April
2011
April
2011
Leading Economic Indicators % change in last 6 months –February 2012
Source: The Conference Board, PKF-HR, STR 13
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Leading Economic Indicators (% change in the last 6 months) U.S. Hotel Demand
A Contraction
Coming?
6 to 8 Month Lag
Leading Economic Indicators % change in last 6 months –April 2012
Source: The Conference Board, PKF-HR, STR 14
April 2012 Reading:
An Encouraging
Sign
15
Many Important Unknowns for 2013:
Some Headwinds
But Fundamentals are Improving
16
Average
Daily
Rates Occupancy
2008 47 4
2009 0 0
2010 9 49
2011 48 49
2012F 50 44
2013F 50 48
2014F 50 49
2015F 50 48
Number of Top U.S. Markets with
Increasing:
Source: STR, PKF Hospitality Research, March – May 2012 Hotel Horizons®
Atlanta and San Antonio
Houston
New Orleans Atlanta and San Antonio
Houston
New Orleans
Rates and Occupancies are Going Up !
Outliers Outliers
Expected Case Scenario
• Unemployment is expected to remain above 8% through 2012 even with the addition of 2 million jobs.
• Extend payroll tax holiday and emergency unemployment insurance through the rest of 2012 (done).
• Housing prices continue to fall through Q2 2012 as foreclosures and short sales increase.
• Mild European Recession.
• Business Investment increases 8.9%.
17 Source: Moody’s Analytics
2012 Expected Case Economic Forecast
Income Employment CPI GDP
2.5% 1.1% 2.1% 2.6%
Expected Case Scenario
18
Measure 2011 2012
Supply 0.6% 0.6%
Demand 5.0% 2.2%
Occupancy 60.1% 61.0%
Average Daily Rate 3.7% 4.1%
RevPAR 8.2% 5.8%
Source: PKF Hospitality Research; Smith Travel Research
19
2012 RevPAR Forecast By Chain-Scale
Chain-Scale 2012 RevPAR
Change
Luxury (Ritz-Carlton, Four Seasons, InterContinental,..) 6.0%
Upper-Upscale (Marriott, Hilton, Hyatt, ..) 6.5%
Upscale (Courtyard, Crowne Plaza, Hyatt Place,…) 7.4%
Upper-Midscale (Hampton, Holiday Inn, Comfort..) 4.8%
Midscale (Best Western, LaQuinta, Quality …) 3.2%
Economy (Days Inn, Red Roof, Motel 6 …) 4.6%
Source: PKF Hospitality Research, March-May 2012 Hotel Horizons® report.
A Look at
20
Productivity
A Look at Productivity
21
22
Drivers of Labor Costs
1. Business Volume – rooms sold; covers served.
2. Compensation Levels – wages; benefits.
3. Productivity – Output achieved per hour worked.
23
Data Analyzed
1. Year-Over-Year Change in Labor Costs (PKF-Hospitality Research)
2. Year-Over-Year Change in Average Hourly Compensation Levels (BLS)
3. Year-Over-Year Change in Total Hours Worked (1 - 2)
24
Estimating the Number of Hours Worked
• According to the BLS, the average weekly hours worked per employee has remained generally stable.
• Therefor:
total labor costs -
average hourly $ levels =
• Total hours worked
Change in Average Hourly Compensation
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010
BLS - Change in Average Hourly Compensation for Hospitality Employees
Source: PKF Hospitality Research, Bureau of Labor Statistics
Compensation and Hours Worked
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010
Change in Total Hours Worked
BLS - Change in Average Hourly Compensation for Hospitality Employees
Source: PKF Hospitality Research, Bureau of Labor Statistics
Annual Change in Labor Costs
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010
Change in Total Hours Worked
BLS - Change in Average Hourly Compensation for Hospitality Employees
PKF-HR - Annual Change in Labor Costs
Source: PKF Hospitality Research, Bureau of Labor Statistics
What Happened in 2011?
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Change in Total Hours Worked
BLS - Change in Average Hourly Compensation for Hospitality Employees
PKF-HR - Annual Change in Labor Costs
Source: PKF Hospitality Research, Bureau of Labor Statistics
+3.1%
+1.0%
+4.1%
Productivity Was Flat in 2011
-3.9%
3.1%
-12.5%
1.5%
3.1%-0.1%
4.3%
-0.1%-7.7%
6.2%3.1%
-15%
-10%
-5%
0%
5%
10%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Change in Total Hours Worked PKF-HR Change in Occupied Rooms
Source: PKF Hospitality Research, Bureau of Labor Statistics
Change in Total Hours Worked v. Change in Occupied Rooms
Profit Outlook
30
RevPAR Components and NOI* Change
-40%
-30%
-20%
-10%
0%
10%
20%
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
2011
2012F
2013F
Occupancy A.D.R. Change in NOI*
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.
Source: PKF Hospitality Research’s Annual Trends® Database
31
What is better: Occupancy or ADR?
32
-40%
-20%
0%
20%
40%
60%
1937 1942 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2013F
+64.6% - 1943
-22.4% - 1938
-19.4% - 2001
-35.4% - 2009
+12.7% - 2011
+9.3% - 2012F
+11.7% - 2013F
Note: * Before deductions for capital reserve, rent, interest, income taxes, depreciation, and amortization.
Source: PKF Hospitality Research, Trends® in the Hotel Industry sample.
Annual Change – All U.S. Hotels
Unit-Level NOI*
Nominal Dollar Operating Profits* Surpass 2005 Dollars in 2012
$1
5,3
57
$1
6,9
08
$1
3,6
28
$1
2,3
20
$1
0,7
92
$1
2,0
22
$1
3,8
86
$1
5,7
35
$1
6,8
68
$1
6,2
27
$1
0,4
83
$1
1,5
10
$1
2,9
72
$1
4,1
84
$1
5,8
37
$6,000
$10,000
$14,000
$18,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
F
2013
F
Do
llars P
er A
vail
ab
le R
oo
m
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.
Source: PKF Hospitality Research’s Annual Trends Database
33
33
$2
0,7
08
$2
2,1
03
$1
7,1
86
$1
5,2
65
$1
3,0
24
$1
4,1
62
$1
5,8
77
$1
7,4
80
$1
8,2
32
$1
6,8
44
$1
0,9
49
$1
1,8
47
$1
2,9
72
$1
3,9
06
$1
5,2
27
$0
$10,000
$20,000
$30,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
F
2013
F
Do
llars P
er A
vail
ab
le R
oo
m
34
Peak to Trough Decline in Operating Profits* 50% Decline in Real Terms
Note: * Before capital reserve, debt service, rent, income taxes, depreciation, amortization.
Source: PKF Hospitality Research’s Annual Trends Database
34
-41.3%
Some Things to Think About
35
Summary
1. Personal incomes and corporate profit growth will continue, but at less robust levels. Lodging demand growth in 2012, while still positive, will pale relative to the past two years.
- Higher rooms rates will help to slow demand growth as well.
2. Unemployment will remain high – helps to keep
labor costs in check and profit growth up.
36
3. Oil is a wild card for 2012 – too big an increase will undermine the economy – lodging demand will suffer as a result.
4. Overall, the 2nd and 3rd quarters of 2012 will be the
weakest given the economic slow down currently
underway.
Summary
37
A Final Thought
38
For a Copy:
PKFC.COM/Presentations
“Each New Day
Brings a Rising Tide”