U.S. Lodging Industry 2017 Record Fundamentals; Declining Growth Yet Growth Nonetheless; Yields:?????? Presented by: Daniel Lesser, President & CEO daniel.lesser@lwhadvisors.com LW Hospitality Advisors 200 West 41 st Street, Suite 805 New York, NY 10036 USA (212) 300-6684 X101 www.lwhospitalityadvisors.com November 15, 2017
U.S. Lodging Industry: October 2016 Cautious Optimism LW Hospitality Advisors Page 2
U.S. Lodging Industry: November 2017 Cautious Optimism LW Hospitality Advisors Page 3
U.S. Hotel Industry Macro Overview Economy Jobs 1/1/2009 1/1/2013 11/1/2017 Contracting Declining Expanding (Slowly) Increasing (Slowly) Expanding Increasing Consumer Spending Declining Increasing Increasing Business Spending Declining Increasing Increasing Supply Growth Accelerating Muted Accelerating Room Night Demand Declining Record Levels Continued Record Levels U.S. Hotel Performance 2008 2009 2010 2011 2012 2013 2014 2015 2016 Projected 2017 Projected 2018 Supply 2.6% 3.2% 2.0% 0.6% 0.5% 0.7% 0.9% 1.1% 1.6% 2.0% 2.1% Demand 1.9% 5.8% 7.8% 5.0% 3.0% 2.2% 4.5% 2.9% 1.7% 2.0% 1.9% Occupancy 4.4% 8.7% 5.7% 4.4% 2.5% 1.5% 3.6% 1.7% 0.1% FLAT 0.2% ADR 2.7% 8.8% 0.1% 3.7% 4.2% 3.9% 4.6% 4.4% 3.1% 2.3% 2.5% RevPAR 1.8% 16.7% 5.5% 8.2% 6.8% 5.4% 8.3% 6.3% 3.2% 2.3% 2.3% Source: STR, Inc. LW Hospitality Advisors Page 4
Random Dan Lesser Thoughts Hotels are fundamentally long term hold assets Generally, from 2015 peak hotel values today: best flat; worst down 10% New supply issues, if any, are submarket based Smart money seeking yield in secondary and tertiary plus markets OTA s are not partners for hotel industry Airbnb s claim of being a champion of the middle class is at best misleading Airbnb s accusation of hotel sector price gouging is disingenuous Lodging industry should follow airline sector unbundling of services and amenities Boycotting travel to U.S. is counterproductive LW Hospitality Advisors Page 5
U.S. Hotel Industry SWOT Analysis- Strength Two consecutive years of industry record rooms revenue operating metrics LW Hospitality Advisors Page 6
U.S. Hotel Industry SWOT Analysis- Strength USA: Freedom, safety, and security LW Hospitality Advisors Page 7
U.S. Hotel Industry SWOT Analysis- Strength Increasing U.S. Gross Domestic Product LW Hospitality Advisors Page 8
U.S. Hotel Industry SWOT Analysis- Strength Record U.S. stock market metrics LW Hospitality Advisors Page 9
U.S. Hotel Industry SWOT Analysis- Strengths Nation in second largest housing boom ever LW Hospitality Advisors Page 10
U.S. Hotel Industry SWOT Analysis- Strengths U.S. consumer confidence highest in 17 years LW Hospitality Advisors Page 11
U.S. Hotel Industry SWOT Analysis- Strength Sector now a $200 billion industry LW Hospitality Advisors Page 12
U.S. Hotel Industry SWOT Analysis- Strength U.S. hotel industry revenue & house profit reached all-time highs in 2016 LW Hospitality Advisors Page 13
U.S. Hotel Industry SWOT Analysis- Strength Nation s demographic trends boosting demand for experiences over physical goods s LW Hospitality Advisors Page 14
U.S. Hotel Industry SWOT Analysis- Strength Nationwide new hotel supply is not devastating LW Hospitality Advisors Page 15
U.S. Hotel Industry SWOT Analysis- Strength Construction labor shortage LW Hospitality Advisors Page 16
U.S. Hotel Industry SWOT Analysis- Strength Banks tighten construction lending standards LW Hospitality Advisors Page 17
U.S. Hotel Industry SWOT Analysis- Strength Group meeting demand is growing LW Hospitality Advisors Page 18
U.S. Hotel Industry SWOT Analysis- Strength Continued low interest and cap rate environment LW Hospitality Advisors Page 19
U.S. Hotel Industry SWOT Analysis- Strength Abundant availability of debt and equity LW Hospitality Advisors Page 20
U.S. Hotel Industry SWOT Analysis- Strength Continued strong pricing LW Hospitality Advisors Page 21
U.S. Hotel Industry SWOT Analysis- Strength Technological advances = increased operating efficiencies LW Hospitality Advisors Page 22
U.S. Hotel Industry SWOT Analysis- Strength Hotels are durable brick and mortar businesses LW Hospitality Advisors Page 23
U.S. Hotel Industry SWOT Analysis- Strength H.R.3441 - Save Local Business Act LW Hospitality Advisors Page 24
U.S. Hotel Industry SWOT Analysis- Strength LW Hospitality Advisors Page 25
U.S. Hotel Industry SWOT Analysis- Strength Airbnb impact and growth slowing LW Hospitality Advisors Page 26
U.S. Hotel Industry SWOT Analysis- Weakness Fear of economic recession never far away LW Hospitality Advisors Page 27
U.S. Hotel Industry SWOT Analysis- Weakness Strong (though softening) U.S. Dollar (Rapidly changing technology) LW Hospitality Advisors Page 28
U.S. Hotel Industry SWOT Analysis- Weakness U.S. travel ban efforts create negative postures & restrictions (Rapidly changing technology) LW Hospitality Advisors Page 29
U.S. Hotel Industry SWOT Analysis- Weakness China scrutiny of cross-border capital flows (Rapidly changing technology) LW Hospitality Advisors Page 30
U.S. Hotel Industry SWOT Analysis- Weakness Lodging expansion now in its seventh year (Rapidly changing technology) LW Hospitality Advisors Page 31
U.S. Hotel Industry SWOT Analysis- Weakness Slow RevPAR growth LW Hospitality Advisors Page 32
U.S. Hotel Industry SWOT Analysis- Weakness More hotel brands REALLY? (Rapidly changing technology) LW Hospitality Advisors Page 33
U.S. Hotel Industry SWOT Analysis- Threat LW Hospitality Advisors Page 34
U.S. Hotel Industry SWOT Analysis- Weakness Airbnb now impacting business travel (Rapidly changing technology) LW Hospitality Advisors Page 35
U.S. Hotel Industry SWOT Analysis- Weakness Airbnb launching premium service to compete with luxury hotels (Rapidly changing technology) LW Hospitality Advisors Page 36
U.S. Hotel Industry SWOT Analysis- Weakness Target generational confusion (Rapidly changing technology) LW Hospitality Advisors Page 37
U.S. Hotel Industry SWOT Analysis- Weakness OTA s now dominate consumer point of entry (Rapidly changing technology) LW Hospitality Advisors Page 38
U.S. Hotel Industry SWOT Analysis- Weakness Inventory management challenges (Rapidly changing technology) LW Hospitality Advisors Page 39
U.S. Hotel Industry SWOT Analysis- Weakness Industry labor shortage (Rapidly changing technology) LW Hospitality Advisors Page 40
U.S. Hotel Industry SWOT Analysis- Weakness Strong influence of labor unions LW Hospitality Advisors Page 41
U.S. Hotel Industry SWOT Analysis- Weakness Rising tax burdens (Rapidly changing technology) LW Hospitality Advisors Page 42
U.S. Hotel Industry SWOT Analysis- Weakness Rising commercial property insurance rates (Rapidly changing technology) LW Hospitality Advisors Page 43
U.S. Hotel Industry SWOT Analysis- Threat Rising interest rates LW Hospitality Advisors Page 44
U.S. Hotel Industry SWOT Analysis- Threat Increasing political isolationism LW Hospitality Advisors Page 45
U.S. Hotel Industry SWOT Analysis- Threat Technology is diminishing importance of physical location and redefining social interaction LW Hospitality Advisors Page 46
U.S. Hotel Industry SWOT Analysis- Threat NASA s supersonic transport LW Hospitality Advisors Page 47
U.S. Hotel Industry SWOT Analysis- Threat Hyperloop LW Hospitality Advisors Page 48
U.S. Hotel Industry SWOT Analysis- Threat Niido powered by Airbnb LW Hospitality Advisors Page 49
U.S. Hotel Industry SWOT Analysis- Threat OTA s moves into hotel ownership LW Hospitality Advisors Page 50
U.S. Hotel Industry SWOT Analysis- Threat Resort fees back in the spotlight LW Hospitality Advisors Page 51
U.S. Hotel Industry SWOT Analysis- Threat Gatekeepers of technology LW Hospitality Advisors Page 52
U.S. Hotel Industry SWOT Analysis- Threat WeWork LW Hospitality Advisors Page 53
U.S. Hotel Industry SWOT Analysis- Threat Online hotel booking scams LW Hospitality Advisors Page 54
U.S. Hotel Industry SWOT Analysis- Threat Spread of contagious diseases LW Hospitality Advisors Page 55
U.S. Hotel Industry SWOT Analysis- Threat Terrorism LW Hospitality Advisors Page 56
U.S. Hotel Industry SWOT Analysis- Threat Geopolitical turbulence reaching a tipping point LW Hospitality Advisors Page 57
U.S. Hotel Industry SWOT Analysis- Threat Domestic political polarization LW Hospitality Advisors Page 58
U.S. Hotel Industry SWOT Analysis- Threat Cyberwarfare LW Hospitality Advisors Page 59
U.S. Hotel Industry SWOT Analysis- Threat Climatic events LW Hospitality Advisors Page 60
U.S. Hotel Industry SWOT Analysis- Threat Global Warming LW Hospitality Advisors Page 61
U.S. Hotel Industry SWOT Analysis- Threat Rising guest acquisition costs Source: Kalibri Labs LW Hospitality Advisors Page 62
U.S. Hotel Industry SWOT Analysis- Threat Technology is an enemy of ADR growth LW Hospitality Advisors Page 63
U.S. Hotel Industry SWOT Analysis- Threat Drive by lawsuits LW Hospitality Advisors Page 64
U.S. Hotel Industry SWOT Analysis- Threat Real time damage control LW Hospitality Advisors Page 65
U.S. Hotel Industry SWOT Analysis- Threat Movie theaters: alternate site for conferences LW Hospitality Advisors Page 66
U.S. Hotel Industry SWOT Analysis- Opportunity Blurring boundaries between work, play, and travel Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 67
U.S. Hotel Industry SWOT Analysis- Opportunity Produce differentiated authentic unique experiences Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 68
U.S. Hotel Industry SWOT Analysis- Opportunity Industry well positioned to react to any inflation Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 69
U.S. Hotel Industry SWOT Analysis- Opportunity Benefits of potential tax reform Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 70
U.S. Hotel Industry SWOT Analysis- Opportunity 2018 corporate hotel rate negotiation equilibrium Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 71
U.S. Hotel Industry SWOT Analysis- Opportunity Booking direct campaigns Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 72
U.S. Hotel Industry SWOT Analysis- Opportunity Expansion of modular hotel construction Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 73
U.S. Hotel Industry SWOT Analysis- Opportunity Develop co-working spaces within hotels Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 74
U.S. Hotel Industry SWOT Analysis- Opportunity Expansion of lodging options Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into LW Hospitality Advisors Page 75
U.S. Hotel Industry SWOT Analysis- Opportunity Voice-enabled cognitive rooms Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 76
U.S. Hotel Industry SWOT Analysis- Opportunity Use of big data Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 77
U.S. Hotel Industry SWOT Analysis- Opportunity Late cancellation fees Rapidly changing technology LW Hospitality Advisors Page 78
U.S. Hotel Industry SWOT Analysis- Opportunity Availability of smart hotel centric private equity Rapidly changing technology LW Hospitality Advisors Page 79
U.S. Hotel Industry SWOT Analysis- Opportunity Multi-brand facilities Rapidly changing technology LW Hospitality Advisors Page 80
U.S. Hotel Industry SWOT Analysis- Opportunity On demand model Rapidly changing technology LW Hospitality Advisors Page 81
U.S. Hotel Industry SWOT Analysis- Opportunity Mergers & Acquisitions and spinoffs : Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry LW Hospitality Advisors Page 82
U.S. Hotel Industry SWOT Analysis- Opportunity Venture capital execution Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 83
U.S. Hotel Industry SWOT Analysis- Opportunity Houston, New York City, & Amazon HQ2 City Rapidly changing technology LW Hospitality Advisors Page 84
U.S. Hotel Industry SWOT Analysis- Opportunity Unbundling hotel services Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 85
U.S. Hotel Industry SWOT Analysis- Opportunity Increased Airbnb regulation LW Hospitality Advisors Page 86
U.S. Hotel Industry SWOT Analysis- Opportunity Secondary and tertiary markets Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 87
U.S. Hotel Industry SWOT Analysis- Opportunity Post hurricane rebuilding Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 88
U.S. Hotel Industry SWOT Analysis- Opportunity Israel bond market: liquidity & low cost of capital Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 89
U.S. Hotel Industry SWOT Analysis- Opportunity Demise of telecommuting Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 90
U.S. Hotel Industry SWOT Analysis- Opportunity Expansion of hotel branding to yachts and jets Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases LW Hospitality Advisors Page 91
U.S. Hotel Industry SWOT Analysis- Opportunity Solar power: viable, affordable, alternative resource Rapidly changing technology Opportunities Industry well positioned to react to any inflationary increases Ancillary revenue opportunities similar to airline industry Hotel brands morph into experiential identities expanding into retail goods and other services No shortage of old functionally obsolete hotel product situated on excellent sites/locations Rapidly changing technology LW Hospitality Advisors Page 92
U.S. Hotel Industry SWOT Analysis- Opportunity Theft protection Rapidly changing technology LW Hospitality Advisors Page 93
U.S. Hotel Industry SWOT Analysis- Opportunity Unmanned aerial vehicles ( Drones) Rapidly changing technology LW Hospitality Advisors Page 94
Final Thought: Moderate Uncertainty LW Hospitality Advisors Page 95
U.S. Lodging Industry 2017 Record Fundamentals; Declining Growth Yet Growth Nonetheless; Yields: Cautious Optimism Presented by: Daniel Lesser, President & CEO daniel.lesser@lwhadvisors.com LW Hospitality Advisors 200 West 41 st Street, Suite 805 New York, NY 10036 USA (212) 300-6684 X101 www.lwhospitalityadvisors.com November 15, 2017