a tale of two markets: hotel valuations and hotel development feasibility (greg hartmann) - uli fall...
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Hotel Valuations and Development Feasibility ULI Fall Conference
October 26, 2011
Steve Haggerty – Global Head R.E. & DevelopmentHyatt Hotels & Resorts
Michael Barnello – President & CEOLaSalle Hotel Properties
Mathew Sparks – SVP Luxury LodgingHilton Worldwide
Karim Alibhai – Founder & PrincipalThe Gencom Group
Greg Hartmann, MAI, CHA – Moderator
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Hotel 101 – The Basics Occupancy, ADR & RevPAR
Source: Smith Travel Research
Occupancy and RevPAR % change in 4-week moving avg.
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
9/28
/200
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9
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/201
0
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0
3/28
/201
1
RevPAR 4-week moving average chg. Occupancy 4-week moving average chg.
3
U.S. hotel transaction volume to increase to $16B in 2011
Source: Jones Lang LaSalle Hotels. Note: Transactions $10M and above. Excludes land site and casino deals
Buy
Sell
Buy
Sell
Significant Sales in 2011
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Property name Location Closing
date Price ($M) Rooms
Price per key ($)
Buyer Seller
Hyatt Lodgeworks 20 Hotels Aug-11 660.0 2,928 225,410 Hyatt Hotels LodgeWorks Corp.Rosewood Portfolio 5 Hotels Jul-11 570.0 678 840,708 Cheng-Yu Tung Maritz Wolf & RosewoodHyatt Manchester Grand San Diego, CA Mar-11 570.0 1,625 350,769 Host Hotels & Resorts, Inc. Manchester Financial GroupHilton San Diego Bayfront (75%) San Diego, CA Mar-11 356.0 1,190 398,880 Sunstone Hotel Investors Hilton Worldwide
Radisson Lexington New York, NY Jun-11 335.0 712 470,506 DiamondRock Hospitality Highgate Holdings, Inc. New York Helmsley New York, NY Mar-11 315.5 775 407,097 Host Hotels & Resorts, Inc. Estate of Leona HelmsleyYotel New York New York, NY Jun-11 315.0 669 470,852 IFA Hotels JV Kuwait R.E. Related CompaniesParamount Hotel New York, NY Oct-11 254.0 597 425,461 RFR Holding LLC Walton Street Capital, L.L.C.
Balboa Bay Club Newport Beach, CA Sep-11 170.0 160 1,062,500 Seven-One Capital Business International Bay Club Inc.
InterContinental Chicago (49%) Chicago, IL Jun-11 141.3 807 357,333 Strategic Hotels & Resorts GIC Real EstateMondrian Los Angeles Los Angeles, CA May-11 137.0 237 578,059 Pebblebrook Hotel Trust Morgans Hotel GroupRoyal Palm Miami Miami, FL Apr-11 130.0 409 317,848 KSL Capital Partners, LLC Sunstone Hotel InvestorsW Chicago City Center Chicago, IL May-11 128.8 368 350,000 Chesapeake Lodging Trust Starwood HotelsMarriott Denver City Center Denver, CO Sep-11 119.0 613 194,127 Chesapeake Lodging Trust Walton Street CapitalInterContinental Montelucia Scottsdale, AZ May-11 115.0 293 392,491 KSL Capital Partners Eurohypo AGFour Points Midtown New York, NY Jun-11 112.0 243 460,905 The Gehr Group The Lam GroupWestin Gaslamp San Diego, CA Apr-11 110.0 450 244,444 Pebblebrook Hotel Trust Starwood HotelsCheeca Lodge & Spa Islamorada, FL Jul-11 101.3 214 473,131 Northwood Investors Ocean Front Development St. Regis Washington, D.C. May-11 100.0 182 549,451 Westbrook Partners Claret CapitalSt. Regis Buckhead Atlanta, GA Feb-11 100.0 151 662,252 Tavistock Capital Group Ken Levenson & Paul
Freeman JW Marriott San Francsico, CA Feb-11 96.0 338 284,024 Thayer Lodging Group Ashford Hospitality TrustJW Marriott New Orleans, LA Feb-11 93.8 494 189,879 Sunstone Hotel Investors Clearview Hotel Capital, LLCMadison Hotel Washington, D.C. Feb-11 92.4 353 261,644 Jamestown Bentall KennedyWestin Pasadena Pasedena, CA May-11 92.0 350 262,857 HEI Hotels & Resorts MPG Office TrustSheraton Universal Los Angeles, CA Jan-11 90.0 451 199,557 Shenzhen New World Prudential Asset ResourcesViceroy Santa Monica Santa Monica, CA Mar-11 80.1 162 494,444 La Salle Lubert-AdlerVilla Florence San Francsico, CA Oct-11 67.2 243 276,543 La Salle Larkspur & Farallon CapitalRitz Carlton Cocunut Grove Miami, FL Jun-11 10.2 115 88,696 Gencom & Continental Co's Grove Ocean Condo
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U.S. market RevPAR and supplyRevPAR performs best during periods of low annual supply increases
Source: Smith Travel Research, Jones Lang LaSalle Hotels
U.S. RevPAR and supply % change 1998 - 2014F
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%19
88
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
F
2014
F
Annu
al %
cha
nge
RevPAR Supply
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Lodging REIT Cap Rates – Reflect or Set the Market?
Source: Thompson, EDGAR Online, Morningstar, RW Baird, Morgan Stanley, Jones Lang LaSalle Hotels
March 2 June 2 Oct. 6 July 18 Oct. 242009 (A) 2009 (B) 2009 (C) 2011 2011
HOST HOTELS & RESORTS 15.4% 11.5% 6.8% 3.8% 5.7%HOSPITALITY PROPERTIES TRUST 13.7% 12.2% 9.8% 9.8% 8.9%SUNSTONE HOTEL INVESTORS 11.9% 10.9% 8.6% 4.8% 7.5%LASALLE HOTEL PROPS 13.4% 10.7% 7.2% 5.5% 8.0%STRATEGIC HOTELS 9.6% 7.9% 5.7% 3.0% 5.5%FELCOR LODGING TRUST 13.2% 11.8% 6.1% 4.9% 7.8%DIAMONDROCK HOSPITALITY 12.8% 9.1% 6.8% 6.8% 6.1%CHESAPEAKE LODGING TRUST 2.7% 6.3%PEBBLEBROOK HOTEL TRUST N/A 6.8%
CHATHAM LODGING TRUST 1.4% 4.5% AVERAGES 12.9% 10.6% 7.3% 4.7% 6.7%
------------------------------------PRE-Filing-------------------------------------
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"REIT Cap Rates Likely to Decline in 2009" - April, 09 Hotel News Now (A)
"...I believe cap rates based on TTM income are at their high points (in 3/09)"
"So whether you are lowering your income on a TTM basis or forecasting 2009, you can safely anticipate most of those cap rates to trend downward through 2010"
"Cap Rates Continue Trend Downward in Q-2" - June, 09 HVS Global Report (B)
Annual EBITDA will have likely declined year over year by 25% to 30% on average. This would result in another 200-basis-point decline in cap rates from June to December (2009).
"Bid/Ask Chasm Created by Buyers and Sellers" - November, 09 Hotel Business (C)
“private equity firms will have to either get comfortable with an 8% or lower cap rate in the short term if they want to buy now or we will likely see the public REITS starting to use their lower cost of capital to buy up those assets …. (long-term) we should see average cap rates remain in the 7 to 8% range.
Recognizing Capital Trends - “On the Record ” Back in 2009
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Capital trends: buyer and seller compositionREITs dominate acquisitions of institutional grade assets
Source: Jones Lang LaSalle Hotels
U.S. hotel transactions by buyer and seller volume YTD August 2011
44%
7%
33%
24%
10%
37%
6%
11%
4%
6%
10%
5%1%
0%
20%
40%
60%
80%
100%
% of buyer volume % of seller volume
% o
f tot
al d
eal v
olum
e
REIT Investment fund/Private equity Hotel owner/operator HNWI Institutional investor Developer Other
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Capital trendsLodging stock issuance
Capital trends - lodging stock issuance 1998 - YTD 2011
-
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD2011
$Mill
ions
Source: Morgan Stanley
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Capital trendsU.S. hotel CMBS issuance
Source: Commercial Mortgage Alert
Capital trends - U.S. hotel CMBS issuance 1998 - YTD 2011
-
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
40,000.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD2011
$Mill
ions
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U.S. hotel CMBS loans
Source: Morningstar, Jones Lang LaSalle Hotels
Hypothetical three-year loan extensions
Hypothetical three-year hotel CMBS loan extensions
$-
$5
$10
$15
$20
$25
2011 2012 2013 2014 2015 2016 2017 2018 2019+
Cur
rent
unp
aid
bala
nce
($B
)
Extended loans Loan maturities
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Current market attitudesFlight to quality to primary markets and best-in-class, top tier branded hotels in major secondary markets
High
High
Low
LowPricing
Prob
abili
ty
Primary market
Full service
Urban select service
Best-in-class
Top tier brand
Secondary market
Full service
Select service
Best-in-class
Top tier brand
Secondary market
Full service
Select service
Non-strategic asset
Secondary brand
Tertiary market
Full service
Select service
Non-strategic asset
Top tier and secondary brands
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Leveraged IRR requirements generally contract
Source: Jones Lang LaSalle Hotels’ Hotel Investor Sentiment Survey (April 2011)
U.S. average cap rate (initial yield) for new acquisition U.S. average leveraged IRR for new acquisition
Cap rates remain lowest in international gateway markets
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
New
Yor
k
Was
hing
ton
D.C
.
Bost
on
San
Fran
cisco
Haw
aii
Los
Ange
les
Pacif
ic N
orth
wes
t
Chi
cago
San
Die
go
Mia
mi
Den
ver
Phila
delp
hia
Tam
pa
Hou
ston
Orla
ndo
Dal
las
Atla
nta
Phoe
nix
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
New
Yor
k
Was
hing
ton
D.C
.
Bost
on
San
Fran
cisco
Pacif
ic N
orth
wes
t
Los
Ange
les
San
Die
go
Haw
aii
Chi
cago
Phila
delp
hia
Den
ver
Tam
pa
Hou
ston
Mia
mi
Atla
nta
Dal
las
Orla
ndo
Phoe
nix
U.S. average: 7.7%U.S. average: 18.4%
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Capital trendsHotel DPP sales
Capital trends - hotel DPP sales 1998 - YTD 2011
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD2011
$Mill
ions
Source: A. Stanger & Co., Inc., Jones Lang LaSalle Hotels