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- 1 -
Hotel Industry Trends & Predictions
Presented by:
Stephen Rushmore Jr., MAI, CRE
sr@hvs.com
- 2 -
The HVI measures changes in value and provides a tool for identifying hotel acquisition and disposition opportunities
The 2014 HVS-STR Hotel Valuation Index (HVI)
- 3 -
HVS Focuses on Value
Every year HVS values thousands of hotels throughout the world
In the U.S., the HVI shows the value of a typical hotel in 65 markets from 1987-2018
Income
Cost
Sales
- 4 -
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
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20
13
20
14
20
15
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20
18
U.S. Hotel values projected to taper slowly over next four years
Projected
Source: HVS/STR Hotel Valuation Index
- 5 -
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Eight to nine years of continual value growth
Projected
Source: HVS/STR Hotel Valuation Index
- 6 -
Softening around Seventeen (2017)
Positive Impact
Economic recovery will continue to gradually improve
Negative Impact
Interest rates will slowly increase
New supply will gradually increase
- 7 -
Annual feasibility studies are gradually recovering
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 2011 2012 2013
- 8 -
Supply growth with be gradual
y = 4318x + 84.117R² = 0.6771
0
50
100
150
200
250
0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%
- 9 -
Florida markets were hot in 2013
Rank City Value
1 Sacramento 43%
2 Tallahassee 41%
3 West Palm Beach 33%
4 Jacksonville 32%
5 Phoenix 27%
6 Detroit 27%
7 Houston 26%
8 Nashville 25%
9 Dallas 25%
10 San Francisco 24%
United States 16%
Source: HVS/STR Hotel Valuation Index
- 10 -
Only a handful of declining markets in 2013
Rank City Value
65 Huntsville -18%
64 Norfolk -7%
63 Richmond -6%
62 Washington DC -5%
61 Philadelphia -3%
60 Tucson 1%
59 Charlotte 1%
58 Pittsburgh 1%
57 Buffalo 2%
56 Baltimore 2%
United States 16%
Source: HVS/STR Hotel Valuation Index
- 11 -
Growth this year is expected to come from secondary and tertiary markets
Rank City Value
1 Tallahassee 36%
2 Tampa 29%
3 Phoenix 23%
4 Indianapolis 22%
5 Oakland 19%
6 Austin 17%
7 Winston-Salem 16%
8 Minneapolis 16%
9 St. Louis 16%
10 Orlando 16%
United States 13%
Source: HVS/STR Hotel Valuation Index
- 13 -
Secondary and tertiary markets to show the greatest value increase through 2018
Rank City Value
1 Richmond 58%
2 Tampa 53%
3 Hartford 52%
4 Tallahassee 51%
5 Jacksonville 49%
6 Phoenix 47%
7 Norfolk 47%
8 Las Vegas 46%
9 Orlando 38%
10 Atlanta 38%
United States 36%
Source: HVS/STR Hotel Valuation Index
- 14 -
21 of 65 markets won’t appreciate above anticipated inflation over next four years
Source: HVS/STR Hotel Valuation Index
Rank City Value
65 Cleveland -5%
64 Detroit 0%
63 Portland 0%
62 Huntsville 2%
61 Seattle 2%
60 Los Angeles 4%
59 Chicago 4%
58 Nashville 5%
57 San Antonio 6%
56 New Haven 6%
United States 36%
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Typical financing terms
Leverage Interest Rate Equity YieldTotal
Property Yield
Trophy (Top 3%) 70 - 75% 4.75 – 5.5% 15 - 18% 9 - 9.5%
High Quality 65 - 70% 5 – 5.75% 17 - 19% 9.5 - 11%
Middle Quality 65 - 70% 5.25 – 5.75% 18 - 21% 10.5 – 11.5%
Lower Quality 60 - 65% 5.5 - 6% 19 - 23% 12+%
Source: HVS
- 16 -
2014 Franchise Cost Guide
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Ongoing financial commitments to brands
Hard
Royalty fee
Reservation fee
Marketing fee
Frequent traveler program fee
Misc fees for training, conferences
10 - 15% of Rooms Revenue
Soft
Royalty fee
Reservation fee
2% of Rooms Revenue
- 18 -
All of our costing data comes from UFOC’s –Uniform Franchise Offering Circular
Initial Fee
Royalty Fee
Reservation Fee
Marketing Fee
Frequent Traveler Fee
Misc. Fee
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Property Assumptions
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Average room count
- 21 -
Occupancies & Average Rate
- 22 -
Average length of stay
- 23 -
Food and Beverage as a percentage of rooms revenue
- 24 -
Loyalty program guests
- 25 -
Reservation sources
Central reservations
Internet from brand
website
GDS: Global Distribution
System
Online travel
agencies
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Our Findings…
- 27 -
Low cost franchises
12.7%
9.9%
9.7%
9.5%
8.2%
8.1%
7.8%
7.7%
7.5%
7.4%
5.8%
0% 2% 4% 6% 8% 10% 12% 14%
Industry Average
Westin
TownePlace Suites
Sheraton
Knights Inn
Vagabond Inn
Luxury Collection
Best Western
Le Meridien
Rodeway Inn
Americas Best Value Inn
- 28 -
High cost franchises
12.7%
15.9%
16.3%
16.4%
16.5%
16.8%
17.0%
17.0%
17.1%
17.3%
18.1%
0% 5% 10% 15% 20%
Industry Average
Doubletree Hotels
Cambria Suites
Comfort Inn & Suites
Radisson
Holiday Inn
La Quinta Inn & Suites
Hilton Garden Inn
Hampton Inn
Hotel Indigo
Holiday Inn Express
- 29 -
All Hilton brands were above the industry average
12.7%
13.6%
14.4%
15.8%
15.9%
17.0%
17.1%
0% 5% 10% 15% 20%
Industry Average
Homewood Suites
Hilton Hotels
Embassy Suites
Doubletree Hotels
Hilton Garden Inn
Hampton Inn
- 30 -
Hyatt brands were all higher than industry average
12.7%
13.5%
14.0%
14.1%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Industry Average
Hyatt House
Hyatt Regency
Hyatt Place
- 31 -
IHG brands were all higher than industry average
12.7%
15.4%
16.8%
17.3%
18.1%
0% 5% 10% 15% 20%
Industry Average
InterContinental Hotels
Holiday Inn
Hotel Indigo
Holiday Inn Express
- 32 -
Carlson brands were all higher than industry average
12.7%
15.2%
15.2%
16.5%
0% 5% 10% 15% 20%
Industry Average
Park Inn
Country Inn
Radisson
- 33 -
Most Choice brands were above industry average
7.4%
12.3%
12.7%
12.7%
13.1%
13.4%
14.2%
15.5%
15.8%
16.3%
16.4%
0% 5% 10% 15% 20%
Rodeway Inn
Suburban Extended Stay
Mainstay Suites
Industry Average
Econolodge
Ascend
Clarion
Quality Inn & Suites
Sleep Inn
Cambria Suites
Comfort Inn & Suites
- 34 -
Most Wyndham brands were below industry average
8.2%
10.5%
10.9%
11.4%
11.4%
11.6%
11.8%
12.1%
12.2%
12.2%
12.3%
12.7%
15.2%
0% 2% 4% 6% 8% 10% 12% 14% 16%
Knights Inn
Microtel
Howard Johnson
Wyndham
Travelodge
Ramada Inn
Wyndham Garden
- 35 -
Most Marriott brands are below the industry average
9.7%
10.0%
11.0%
11.2%
11.5%
12.5%
12.6%
12.7%
13.4%
0% 2% 4% 6% 8% 10% 12% 14% 16%
TownePlace Suites
Residence Inn
Fairfield Inn
SpringHill Suites
Marriott
Courtyard
Autograph
Industry Average
Renaissance
- 36 -
All Starwood brands were below industry average
7.5%
7.8%
9.5%
9.9%
11.3%
11.9%
12.2%
12.7%
0% 2% 4% 6% 8% 10% 12% 14%
Le Meridien
Luxury Collection
Sheraton
Westin
Four Points
element
aloft
Industry Average
- 37 -
Franchise fees by segment
Economy 10.3%
First-class 13.0%
Mid-rate 13.7%
Limited Service 12.3%
Full Service 12.9%
Select Service 13.9%
- 38 -
Final thoughts on franchise fees
Franchise fees as a percentage of rooms revenue have been increasing and will negatively impact hotel values
Franchisors must fully leverage their guest loyalty programs to create more value:
1. Take ownership interests into greater consideration for guest perks
2. Full service properties can factor potential overall profitability of guest when quoting room rates
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