Hotel Industry Outlook - LW Hospitality Advisors

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Hotel Industry Outlook: presentations from Meet the Money® 2016, now available 07 May 2016 Meet the Money® 2016 – Deals, dialog and learning Conference presentations now available JMBM’s Meet the Money® 2016, completed its 26th national hotel finance and investment conference this week in Los Angeles. While all seem to agree that hotel fundamentals remain strong and that interest rates will remain low in the immediate future, hotel industry leaders expressed more caution than in recent years. They are still doing deals – particularly those that fit into established strategies. In fact, there are a number of creative deals going on, of all sizes, and it is always exciting to hear from so many developers and capital providers who are enthusiastic about their work and the industry. Many expressed a healthy respect for stricter underwriting and shared the lessons learned from the Great Recession. All our speakers and participants exchanged perspectives, ideas, business cards and lots of good stories. Presentations available from Vail Brown of STR, Suzanne Mellen of HVS, Mike Cahill of LIIC and HREC, Dan Lesser of LW Hospitality Advisors, Alan Reay of Atlas Hospitality, and Bill Linehan of RLHC Select presentations from Meet the Money® 2016 can be found on HotelLawyer.com. Individual presentations include: Innovation in finance, ownership, and operation: Enhancing the bottom line. Bill Linehan, VP & Chief Marketing Officer, RLHC, guides his panel at Meet the Money® 2016 through discussion about the Fed and interest rates, the Marriott and Starwood deal, soft brands, serviced apartments & mixed use, and loyalty programs. May 2016. Some thoughts on profits and cap rates. R. Mark Woodworth, Senior Managing Director, CBRE Hotels, asks participants at Meet the Money®: Why be happy? Why be concerned? He gives all plenty to think about. May 2016. California Hotel Overview 2016. Alan Reay, President, Atlas Hospital compares 2006 with 2014 and asks, California déjà vu? See his presentation…May 2016. U.S. Lodging Industry – 2016 Offensive or Defensive Game Plan? Daniel Lesser, President & CEO, LW Hospitality Advisors, does a SWOT analysis of the U.S. hotel industry and tells Meet the Money® participants to make hay while the sun shines. May 2016. 2016 LIIC Top Ten. Mike Cahill, CEO and Founder of Hospitality Real Estate Advisors (HREC), compiles the annual Lodging Industry Investment Counsel (LIIC) Top Ten, which reveals the challenges and investment trends identified through an annual survey of LIIC members. May 2016.

Jim Butler, Chairman Global Hospitality Group® Jeffer Mangels Butler & Mitchell LLP (310) 201-3526 • [email protected] www.HotelLawyer.com

Hotel Values and Cap Rates. Suzanne Mellen, Senior Managing Director, HVS. In this presentation made at Meet the Money®, Mellen gives statistics that show why 2015 will be remembered as the peak year of the post Great Recession cycle, and explains what is happening with cap rates. May 2016. Hotel industry, what lies ahead. Vail Brown, Senior VP, Global Business Development & Marketing, STR, gives a statistical review of the US hotel market, as well as a forecast for 2016/2017. May 2016.

Meet the Money® 2017 — May 8-10, 2017 We hope you can join us next year for the 27th annual Meet the Money® – the national hotel finance and investment conference! It will be held May 8-10, 2017 at the Hyatt Regency LAX.

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. Why don’t you give us a call (or send an email) and let us know what you working on? We would like to see if our experience might help you create value or avoid unnecessary pitfalls. Who’s your hotel lawyer?

Our Perspective. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $71 billion of hotel transactions, involving more than 3,800 properties all over the world. We bring this experience to any hotel project — big or small. Let’s explore how it might work for you. For more information, please contact Jim Butler at [email protected] or +1 (310) 201-3526. Jim Butler is a founding partner of JMBM, and the founder and chairman of JMBM’s Global Hospitality Group® and Chinese Investment Group™. He is recognized as one of the top hotel lawyers in the world and has authored or co-authored The HMA & Franchise Agreement Handbook, How to Buy a Hotel Handbook, and The Lenders Handbook. Jim has led the Global Hospitality Group® in more than $71 billion of hotel transactional experience, involving more than 3,800 hotel properties located around the globe. 310.201-3526 or [email protected]

Jim Butler, Chairman Global Hospitality Group® Jeffer Mangels Butler & Mitchell LLP (310) 201-3526 • [email protected] www.HotelLawyer.com

U.S. Lodging Industry - 2016 Offensive or Defensive Game Plan?

Presented by:

Daniel Lesser, President & CEO LW Hospitality Advisors® 200 West 41st Street, Suite 805 New York, NY 10036 USA (212) 300-6684 X101 [email protected] www.lwhospitalityadvisors.com May 4, 2016

Hotels: What Makes Them Different? Operating Business Unlike other classes of real estate, hotels typically contain hundreds (in some cases over one thousand) of employees. Properties are reliant on the quality of management, the brand, the employees and other factors.

No Credit Hotels do not benefit from long-term leases or credit tenancies; the inventory is sold on a daily/nightly basis resulting in a high degree of revenue and net income volatility.

Compounded Complexity The success of a hotel investment is heavily influenced by multiple parties, each of which may have competing and/or complimentary interests in the underlying property. In addition to the traditional interests of owner/sponsors, third party equity investors, and lenders, additional complexity is derived from the interests of the property manager and/or brand. These complexities can result in competing economic and operating influences that may not be common to other forms of real estate investment.

Highly Leveraged, High Fixed Cost Business: Regardless of whether a hotel property is 10% occupied, or 100% occupied, ownership is still exposed to fixed costs.

Reliance On Other Intermediaries: The hotel business is directly tied to uncontrollable “outside” parties including travel agents, internet sites, etc.

The Hotel Industry is a Complex and Volatile Business LW Hospitality Advisors | Page 2

Random Dan Lesser Thoughts • • • • • • • • • • • • • •

If you bought between ‘09 and ‘11 consider selling now Hotels are fundamentally long term hold assets Off market does not equal below market Be vigilantly aware of new supply Brand overload Without Airbnb data its impact cannot be fully defined A hotel company should merge with Airbnb Flight to yield expanding to secondary/tertiary markets Increase implementation of fees and surcharges Independent hotel instantly becomes a new brand Industry obsession with “millennials” and “lifestyle” “Newbies” once again entering the hotel space Industry should aggressively raise room rates • Airline industry moves in tandem Except for MTM…Too many hotel conferences LW Hospitality Advisors | Page 3

U.S. Hotel Industry Macro Overview 1/1/2009

11/1/2012

3/31/2016

Contracting

Expanding (Slowly)

Expanding (Modestly)

Jobs

Declining

Increasing (Slowly)

Increasing (Modestly)

Consumer Spending

Declining

Increasing

Increasing

Business Spending

Declining

Increasing

Leveling off

Accelerating

Muted

Low & Accelerating

Declining

Record Levels

Continued Record Levels

Economy

Supply Growth Room Night Demand

U.S. Hotel Performance

2008

2009

2010

2011

2012

2013

2014

2015

Projected Projected 2016

2017

Supply

▲ 2.6% ▲ 3.2% ▲ 2.0% ▲ 0.6% ▲ 0.5% ▲ 0.7% ▲ 0.9% ▲ 1.1% ▲ 1.7% ▲ 1.9%

Demand

▼ 1.9% ▼ 5.8% ▲ 7.8% ▲ 5.0% ▲ 3.0% ▲ 2.2% ▲ 4.5% ▲ 2.9% ▲ 2.3% ▲ 2.1%

Occupancy

▼ 4.4% ▼ 8.7% ▲ 5.7% ▲ 4.4% ▲ 2.5% ▲ 1.5% ▲ 3.6% ▲ 1.7% ▲ 0.6% ▲ 0.2%

ADR

▲ 2.7% ▼ 8.8% ▼ 0.1% ▲ 3.7% ▲ 4.2% ▲ 3.9% ▲ 4.6% ▲ 4.4% ▲ 4.4% ▲ 4.3%

RevPAR

▼ 1.8% ▼16.7% ▲ 5.5% ▲ 8.2% ▲ 6.8% ▲ 5.4% ▲ 8.3% ▲ 6.3% ▲ 5.0% ▲ 4.5%

Source: (Data Only) STR, Inc.

LW Hospitality Advisors | Page 4

U.S. Hotel Industry SWOT Analysis- Strengths • • • • • • • • • • •

Little evidence U.S. is near recession Industry has been in a ‘Goldilocks’ equilibrium Construction limited however escalating Declining gasoline prices Increasing inbound foreign visitation U.S. is worlds beacon for safety & security Availability of equity and low cost debt Inbound overseas capital chasing yield  Record setting hotel prices Strong group demand  Technology increase efficiency and profits

LW Hospitality Advisors | Page 5

U.S. Hotel Industry SWOT AnalysisWeaknesses

• • • • • •

Underwhelming U.S. economic recovery (Rapidly changing technology) Strong U.S. dollar OTA’s place negative pressure on room pricing Rising influence of labor unions Rising hotel property taxes International brands expanding competition

LW Hospitality Advisors | Page 6

U.S. Hotel Industry SWOT AnalysisOpportunities • Industry well positioned to react to any inflation • Pricing power with owners/operators negotiating  • Rapidly changing technology corporate rates • Physical and/or functionally obsolete hotel product  situated on excellent sites/locations  • Hotel company/REITs ripe for M&A  Opportunities • Unlock value: Hilton to spin off owned hotel into REIT • Industry well positioned to react to any  • inflationary increases Virtual reality has become an ROI reality • • Ancillary revenue opportunities similar to  Exhibition and trade show business driving  airline industry convention hotel developments • Hotel brands morph into experiential  • identities expanding into retail goods and  Ancillary revenue opportunities similar to airlines other services • Industry blowback against Airbnb • No shortage of old functionally obsolete  • hotel product situated on excellent  Rise of secondary markets provides opportunities •

sites/locations  Rapidly changing technology

LW Hospitality Advisors | Page 7

U.S. Hotel Industry SWOT Analysis- Threats • • • • • • • • • • • • • • • • • •

U.S. lodging expansion now in its seventh year Rising interest rates & tighter underwriting Volatile overseas economies creates unpredictable U.S. economy There will be another recession between now and 2020  Unusually low oil prices a drag on portions of U.S. economy Global stock & bond market turmoil; Investor fear CMBS maturities: 2016 – 2018 U.S. bank risk retention Labor unrest Cyber security risk America’s crumbling infrastructure; airport, roads, electric Brands pushing standards updates  Event risk: terrorism and/or war Proliferation of new hotel brands Airbnb, Homeaway and other travel industry disrupters Obsolescence risk that is difficult to  understand Rise of hostels NLRB Browning‐Ferris ruling altering definition of “joint employer”

LW Hospitality Advisors | Page 8

Final Thoughts

LW Hospitality Advisors | Page 9

U.S. Lodging Industry - 2016 Offensive or Defensive Game Plan?

Presented by:

Daniel Lesser, President & CEO LW Hospitality Advisors® 200 West 41st Street, Suite 805 New York, NY 10036 USA (212) 300-6684 X101 [email protected] www.lwhospitalityadvisors.com May 4, 2016

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Hotel Industry Outlook - LW Hospitality Advisors

Hotel Industry Outlook: presentations from Meet the Money® 2016, now available 07 May 2016 Meet the Money® 2016 – Deals, dialog and learning Conferenc...

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