Hotel Valuation and Transaction Trends for the U.S. Lodging Industry - PowerPoint PPT Presentation

Hotel Valuation and Transaction Trends for the U.S. Lodging Industry Presented by Stephen Rushmore Jr. srushmorejr@hvs.com - 1 -

A little about myself…  Graduated from the Cornell Hotel School in 1996  Joined HVS in 2002  Co-President and COO  State certified appraiser  Active biker and hiker - 2 -

Married with two kids - 3 -

Talking points for today 1. Valuation trends and predictions 2. Transaction trends 3. Cap rate trends 4. Who is buying and selling? 5. The state of new construction 6. HVS research 7. Hotel Valuation Software - 4 -

Let's start with the ending… 1. Less buying, but more selling opportunities 2. Still plenty of upside potential in value growth 3. Average rate will drive REVPAR and NOI growth 4. Extended period of increased values through 2016 5. Limited growth of new hotel supply 6. Construction financing still scarce - 5 -

The 2012 Hotel Valuation Index (HVI) The HVI measures changes in value and provides a tool for identifying hotel acquisition and disposition opportunities - 6 -

HVS Focuses on Value  Each year HVS values thousands of hotels throughout the world  In the U.S. the HVI shows the value of a typical hotel in 66 markets from 1987-2016 - 7 -

U.S. Hotel values projected to surpass 2006 peak in 2013 Projected $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - 8 - Source: HVS/STR Hotel Valuation Index

United States value growth projected to persist through 2016 Projected 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% -40.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - 9 - Source: HVS/STR Hotel Valuation Index

Miami and San Francisco values per room increased the most between 2010-2011 Rank 1 Miami $83,280 2 San Francisco $81,389 3 New York $63,493 4 Boston $41,523 5 Los Angeles $40,918 6 San Jose $38,057 7 West Palm Beach $35,244 8 Las Vegas $33,786 9 Oahu $32,412 10 Oakland $30,329 33 United States $13,205 - 10 - Source: HVS/STR Hotel Valuation Index

Santa Fe values per room decreased the most between 2010-2011 Rank 59 Rochester ($2) 60 Huntsville ($1,280) 61 Albuquerque ($1,996) 62 Syracuse ($2,151) 63 Norfolk ($2,156) 64 Omaha ($4,207) 65 Tucson ($5,240) 66 Santa Fe ($9,186) - 11 - Source: HVS/STR Hotel Valuation Index

Las Vegas values per room increased the most between 2010-2011 Rank 1 Las Vegas 125% 2 Hartford 80% 3 Tampa 76% 4 Oakland 54% 5 Detroit 52% 6 Wilmington 52% 7 WPB - Boca Raton 42% 8 Nashville 40% 9 San Jose 38% 10 West Palm Beach 37% 27 United States 20% - 12 - Source: HVS/STR Hotel Valuation Index

Tucson values per room decreased the most between 2010-2011 Rank 60 Huntsville -2% 61 Syracuse -3% 62 Albuquerque -4% 63 Omaha -8% 64 Santa Fe -8% 65 Norfolk -9% 66 Tucson -15% - 13 - Source: HVS/STR Hotel Valuation Index

Convention cities projected to capture largest value growth in 2012 Rank 1 Las Vegas 57% 2 New Orleans 50% 3 Tampa 47% 4 Sacramento 46% 5 Richmond 43% 6 WPB - Boca Raton 39% 7 Chicago 34% 8 Nashville 33% 9 Winston-Salem 33% 10 Oakland 32% 47 United States 15% - 14 - Source: HVS/STR Hotel Valuation Index

Tucson values expected to decline the most in 2012 Rank 57 Atlanta 10% 58 St. Louis 8% 59 Rochester 7% 60 Santa Fe 7% 61 Dallas 5% 62 San Diego 2% 63 Denver 1% 64 Phoenix -5% 65 Washington DC -8% 66 Tucson -23% - 15 - Source: HVS/STR Hotel Valuation Index

Tucson value not expected to fully recover in the foreseeable future Projected $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - 16 - Source: HVS/STR Hotel Valuation Index

Tucson occupancy also not expected to fully recover in foreseeable future Projected 70% 68% 66% 64% 62% 60% 58% 56% 54% 52% 50% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 - 17 - Source: HVS/STR Hotel Valuation Index

However…Tucson expected to show the most significant value increase through 2016 Rank 1 Tucson 170% 2 Tallahassee 94% 3 Las Vegas 92% 4 Norfolk 89% 5 Sacramento 88% 6 Hartford 76% 7 WPB - Boca Raton 74% 8 Kansas City 72% 9 United States 69% 10 Wilmington 65% - 18 - Source: HVS/STR Hotel Valuation Index

Cities with the smallest value appreciation projection through 2016 Rank 57 Oahu 24% 58 Albuquerque 22% 59 Washington DC 21% 60 Denver 20% 61 Miami 16% 62 Anaheim 15% 63 Buffalo 14% 64 Charlotte 10% 65 Boston 7% 66 San Francisco -1% 33 United States 39% - 19 - Source: HVS/STR Hotel Valuation Index

Gateway cities are the most volatile Rank 1 New York 121% 2 Miami 98% 3 Los Angeles 69% 4 Las Vegas 67% 5 WPB - Boca Raton 67% 6 Tallahassee 61% 7 West Palm Beach 54% 8 Anaheim 54% 9 Austin 48% 10 Omaha 38% - 20 - Source: HVS/STR Hotel Valuation Index

Secondary cities are the least volatile Rank 1 Santa Fe -56% 2 Dayton -47% 3 Cincinnati -47% 4 Albuquerque -47% 5 Syracuse -46% 6 Rochester -40% 7 Winston-Salem -39% 8 Indianapolis -33% 9 Orlando -31% 10 St. Louis -31% - 21 - Source: HVS/STR Hotel Valuation Index

Long-Term Hold: Average Annual Compounded Growth in Value 1987-2016 Rank 1 Miami 11% 2 Austin 10% 3 New York 10% 4 Houston 8% 5 Omaha 7% 6 Oahu 7% 7 Portland 7% 8 New Orleans 6% 9 Denver 6% 10 San Antonio 6% 31 United States 4% - 22 - Source: HVS/STR Hotel Valuation Index

Long-Term Hold: Average Annual Compounded Growth in Value 1987-2016 Rank 57 Hartford 2% 58 Dayton 2% 59 Long Island 2% 60 New Haven 1% 61 Tucson 1% 62 Winston-Salem 1% 63 Albuquerque 1% 64 Detroit 1% 65 Rochester 1% 66 Norfolk 0% - 23 - Source: HVS/STR Hotel Valuation Index

Where are the buying and selling opportunities? - 24 -

The Southwest has buying opportunities  Tucson  Phoenix  Las Vegas - 25 -

Where and when to sell  Sell Now  Sell Next Year  San Francisco  New Orleans  Boston  Atlanta  Washington DC  Chicago  Philadelphia  Cleveland - 26 -

Transactional Trends - 27 -

Major hotel sales transactions ($10+ million) are rebounding from 2009 lows 100 90 80 70 60 50 40 30 20 10 0 Q1 - 2005 Q3 - 2005 Q1 - 2006 Q3 - 2006 Q1 - 2007 Q3 - 2007 Q1 - 2008 Q3 - 2008 Q1 - 2009 Q3 - 2009 Q1 - 2010 Q3 - 2010 Q1 - 2011 Q3 - 2011 - 28 - Source: HVS San Francisco

Annual transaction volume converges with 21 year average 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 - 29 - Source: HVS San Francisco

California tops most active market for transactions in 2011 Market $ Volume (Millions) $/Room No. Properties San Diego 1,700 279,000 18 SF Metro 700 231,000 16 NYC Metro 2,700 417,000 16 South Fla. 500 237,000 12 DC Metro 700 296,000 10 LA Metro 600 228,000 10 Chicago 400 232,000 4 Dallas 100 104,000 4 Hawaii 200 149,000 3 Boston 100 381,000 1 - 30 - Source: HVS San Francisco

Room Price Property Name City State Count Per Room Hilton Garden Inn Birmingham SE Liberty Park Birmingham AL 130 $88,462 Hotel Milano San Francisco CA 108 $277,778 Marriott San Francisco Airport Waterfront Burlingame CA 685 $157,664 Hotel Palomar Washington D.C. Washington DC 335 $429,254 Perry South Beach Miami Beach FL 340 $676,471 Indian Creek Hotel Miami Beach FL 61 $196,721 Homewood Suites Gainesville Gainesville FL 103 $141,262 Royal Plaza Lake Buena Vista FL 394 $40,609 Courtyard Atlanta Downtown Atlanta GA 150 $190,000 Renaissance Waverly Atlanta Atlanta GA 521 $184,599 Marriott Lexington Griffin Gate Resort Lexington KY 409 $184,599 Holiday Inn Baltimore Inner Harbor Downtown Baltimore MD 365 $56,712 Hilton Saint Louis Downtown Saint Louis MO 195 $115,897 King & Grove Williamsburg Brooklyn NY 64 $520,000 Novotel New York Times Square New York NY 480 $191,667 Rittenhouse Hotel Philadelphia PA 111 $215,315 Renaissance Austin Arboretum Austin TX 492 $184,599 Le Meridien Arlington Arlington VA 154 $300,000 - 31 - Source: HVS

Who is buying and selling?  Increasing investments from Asia and Brazil  Hotel owners that cannot justify the cost of mandated PIPs will put properties in the market  Loan maturities are expected to stimulate more sales of underperforming hotels in 2012 / 2013 - 32 -

Typical financing terms Total Leverage Interest Rate Equity Yield Property Yield Trophy (Top 3%) 65 - 70% 5 - 6% 13 - 15% 9 - 9.5% High Quality 65 - 70% 5.5 - 6.5% 15 - 17% 9.5 - 11% Middle Quality 60 - 65% 6.5 - 7% 17 - 18% 11.5 - 13% Lower Quality 60% 7.5 - 9% 19 - 22% 13.5 - 16% - 33 - Source: HVS

Derived capitalization rates by product type 2010 2011 Full Service 5.30% 5.60% Select and Extended-Stay 7.80% 6.70% Limited Service 8.50% 9.40% - 34 - Source: HVS