CBRE HOTELS & PKF HOSPITALITY RESEARCH MAY 2015

HOTEL Technology

5 TECHNOLOGY TRENDS 1. Mobile keys 1.

Download an app and have access to you room.

2.

Starwood Hotels has already started rolling this out across the U.S.

2. Wearable technology 3. PMS mobility 1.

Managers can remotely manage occupancy, housekeeping, and rateand-inventory channels.

2.

Guest can wirelessly control temperature, lighting, TV, and order room service.

4. Cloud reduces costs 5. Innovation in guest acquisition Source: HotelNewsNow.com - http://www.hotelnewsnow.com/Article/14016/5-tech-trends-that-will-shape-hospitality

ECONOMETRIC ADVISORS

TECHNOLOGY

DISRUPTION?

Big Data & Emerging Research ECONOMETRIC ADVISORS

HOTEL PERFORMANCE A Sweet Spot

THE HOTEL MARKET CYCLE Rapid Development Lodging Decline, Leads Other Sectors

Accelerated Development ?

Development Picks Up

2016/7

U.S. is Here

Long Run Occupancy

2015 2014

Equilibrium ADR

Occupancy Declines, ADR Follows

ADR and Margins Recover

A Year Ago

Development Slows

Occupancy Recovers Development at Minimum Lodging Recovers, Lags Levels Other Sectors (Not this Time!)

ECONOMETRIC ADVISORS

U.S. OCCUPANCY & ADR Record Occupancy Levels & Increasing ADR Growth 0.66

10% 8%

0.64

6% 4%

0.62 2% 0% 0.6 -2% -4% 0.58 -6% 0.56

-8%

Occupancy (4 qrt Moving Avg.) - Left

Change in Average Daily Rate -Right -10%

0.54

-12%

Source: STR, Inc., PKF Hospitality Research ECONOMETRIC ADVISORS

NATIONAL FORECAST – ALL U.S. HOTELS 2014-2016 Long Run Average 2012

2013

2014

2015F

2016F

Supply

1.9%

0.5%

0.7%

0.9%

1.2%

1.7%

Demand

2.1%

3.0%

2.2%

4.5%

3.1%

1.9%

Occupa ncy

61.9%

61.4% 62.2%

64.4%

65.6%

65.8%

ADR

2.9%

4.2%

3.9%

4.6%

5.3%

6.3%

RevPAR

2.9%

6.8%

5.4%

8.3%

7.3%

6.5%

RevPAR driven by ADR Growth Source: PKF Hospitality Research - Hotel Horizons® March-May, 2015, STR, Inc.

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U.S. HOTELS - DISRUPTION Change in Telecommunications and Movie Rental Revenue

-4.8%

Telecommunications -42.4%

$1.72 – $0.92

-12.3%

Movie Rental $0.83 – $0.39

-48.8%

-60% Change: 2013 to 2014

-40%

-20%

0%

Change: 2007 to 2014

Source: PKF Hospitality Research, a CBRE Company Trends® in the Hotel Industry Report

ECONOMETRIC ADVISORS

MARKETING DEPARTMENT EXPENSES* Distribution of Unit-Level Marketing Department Expenses*

2007

2013

Selling 26.4%

Salaries & Wages 43.6%

Selling 27.0%

Salaries & Wages 44.8%

Other Marketing 4.7%

Other Marketing 5.0% Advertising 10.0%

E Commerce 1.2%

Employee Benefits 14.0%

Advertising 5.9% E Commerce 2.4%

$2,837 PAR

Employee Benefits 15.3%

$2,996 PAR

Note: * Exclusive of franchise related costs. Source: PKF Hospitality Research, Trends® in the Hotel Industry ECONOMETRIC ADVISORS

MARKETING DEPARTMENT EXPENSES* Compound Annual Growth Rate Percentage: 2007 - 2013 1.4% 0.5%

Salaries & Wages

2.5% 3.9%

Employee Benefits E Commerce Advertising Other Marketing

9.3% -7.5% -7.1%

Full-Service

0.7%

-8.4%

Limited-Service 1.4%

Selling -15%

15.7%

-10%

-5%

0%

5.0%

5%

10%

15%

20%

Note: * Exclusive of franchise related costs, per available room Source: PKF Hospitality Research, Trends® in the Hotel Industry ECONOMETRIC ADVISORS

TRANSIENT HOTEL BOOKING BY CHANNEL Q1 2015 y-o-y Change in Channel Bookings +15.1% OTA, 15.9%

+1.1%

GDS, 15.2%

Brand Website, 33.6%

+7.1%

Direct to Hotel, 21.0% -8.4% Source: TravelClick

CRO-Central Reservation -6.1% Office, 14.3%

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INTERNATIONAL HOTEL BOOKINGS

Source: International Trade Administration

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INTERNATIONAL TRAVELERS International Visitation to the United States 2005 - 2013

Source: Department of Commerce ECONOMETRIC ADVISORS

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ONLINE TRAVEL AGENCIES Online Travel Agency Market Share for the U.S.

75%

Source: PhoCusWright U.S. Online Travel Overview

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EXPEDIA In addition to it’s U.S. site, Expedia has localized websites for 30 countries… Argentina

Denmark

India

Mexico

Spain

Australia

Finland

Ireland

Netherlands

Sweden

Austria

France

Italy

New Zealand

Taiwan

Belgium

Germany

Japan

Norway

Thailand

Brazil

Hong Kong

South Korea

Philippines

UK

Canada

Indonesia

Malaysia

Singapore

Vietnam

… and multiple consumer brands to choose from:

ECONOMETRIC ADVISORS

CHANGING DEMOGRAPHICS “I generally book accommodations…” Millennials Xers Boomers % % % Through hotel provided website Through an OTA Over the phone, from a traditional travel agent Haven’t booked a Hotel

Matures %

40

49

51

60

42

31

27

14

8

7

8

10

3

5

7

8

ECONOMETRIC ADVISORS

TRIPBAM

ECONOMETRIC ADVISORS

TRIPBAM

ECONOMETRIC ADVISORS

A NEW DISRUPTOR? GLOBAL RESEARCH AND CONSULTING

● PKF Hospitality Research

WHAT IS AIRBNB? Part of the new “share economy” – putting stranded assets to work. • List a spare room, an extra couch, your vacation home, etc… on their website. 1,000,000+ rooms in inventory world wide. • 3,000+ castles, 2,000 treehouses, 900 islands and 400 lighthouses. Who benefits: • Host receives “found money”. • Guest has a different experience, often at a attractive price. • Airbnb earns a fee from both. Headwinds: • Jurisdictional compliance issues, business travelers

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INCENTIVES FOR NEW SUPPLY Origins

• In 2007, San Francisco’s Occupancy Level was 74.5% • There was a design conference coming to San Francisco and the city’s hotels were fully booked, so a few guys came up with the idea of renting out three airbeds on their living-room floor and cooking their guests breakfast. • The next day they created a website, airbedandbreakfast.com • 6 days later they had their first guests • In 2014 San Francisco’s occupancy level was 84.1% and there are now roughly 6,000 hosts in the city.

ECONOMETRIC ADVISORS

INDUCED SUPPLY?

Size of circle reflects hotel supply

Dark Green Circle Indicates Record Occupancy levels by 2015 Source: PKF-HR Hotel Horizons® June – August 2014 Edition, Airbnb.com as of July 2014

ECONOMETRIC ADVISORS

IS AIRBNB A THREAT? • Roughly 1 Million units available worldwide • Latest round of funding values them at $20 billion 30000

NYC Airbnb Monthly Reviews 25000

20000

15000

10000

5000

0 2009

2010

2011

2012

2013

2014

“Our belief is that lodging rental websites are stimulating demand, rather than displacing existing demand,” – Ian Carter , Hilton’s President of Development ECONOMETRIC ADVISORS

SHOULD WE BE WORRIED? • Only seeing large number of hosts in major MSAs with high occupancy levels

According to “Airbnb in the city” from the New York State Attorney General

• • According to Airbnb 20% of guests stay 30 days or longer1, 39% of guests wouldn’t have otherwise made a trip if it wasn’t available on Airbnb2.

• Increase your cities ability to host large events (~120,000 people stayed in Airbnb rooms for the World Cup equating to $38 million in Revenue) 1

- Quote from Skift interview with Chip Conley 2 - From Airbnb survey on Portland, OR

Revenues collected by Airbnb and its host were roughly $200 million in 2013. This is equivalent to a average performing 2000 room hotel in the city. ~1.8% of NYC supply. Up to 300 million in 2014.

•

6% of Hosts make of 37 percent of revenues

•

72% of Airbnb rentals are in violation of state and local laws

•

In April 2014, in direct response to NYAG’s investigation, Airbnb publically claimed it had barred many large commercial users. ECONOMETRIC ADVISORS

25.0%

MarketName New York Austin Los Angeles Miami San Francisco Oakland Long Island Portland San Jose-Santa Cruz Seattle Boston Salt Lake City Oahu New Orleans Anaheim San Diego Fort Lauderdale Denver Phoenix Washington DC Tucson Philadelphia Raleigh-Durham Nashville Chicago West Palm Beach Orlando Charleston Savannah Newark Louisville Baltimore Pittsburgh Albuquerque Tampa Minneapolis Atlanta Hartford Sacramento Cleveland Charlotte Richmond Houston Indianapolis Dallas Fort Worth Norfolk-VA Beach Memphis Kansas City Columbus Detroit Jacksonville San Antonio Cincinnati

INCREASING THREAT FROM AIRBNB Airbnb Units as a Percent of Hotel Supply

30.0%

18 Markets above 5%

20.0%

15.0%

10.0%

5.0%

0.0%

Source: PKF Hospitality Research, STR, Airbnb.com ECONOMETRIC ADVISORS

Phoenix Norfolk-VA Beach Raleigh-Durham Newark New York Richmond Cleveland Salt Lake City Kansas City San Antonio Atlanta Philadelphia Pittsburgh Tucson Columbus Denver Orlando Memphis Houston Detroit Fort Worth Jacksonville Dallas Austin Nashville Charleston Minneapolis San Jose-Santa Cruz West Palm Beach Seattle Tampa Cincinnati Albuquerque Louisville Hartford Fort Lauderdale Miami Sacramento Baltimore Oahu Anaheim Los Angeles New Orleans Boston Savannah Chicago Portland Long Island Washington DC Oakland San Francisco San Diego Charlotte Saint Louis Indianapolis

INCREASING THREAT FROM AIRBNB

Percent increase in Airbnb Units over the Past Year (Left) & 2014 ADR Change (Right) Data indicates that increases in 250% Airbnb supply negatively impacts ADR growth. 200%

150%

100%

0%

Source: PKF Hospitality Research, STR, Airbnb.com ECONOMETRIC ADVISORS

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

50% 2.0%

0.0%

INCREASING THREAT FROM AIRBNB

~ 20,000 Reviews Per Month in Q4 2014 at an average stay of 5.8 nights = 116,000 Room Nights or 4% of total demand for New York City Hotels Source: Insideairbnb.com ECONOMETRIC ADVISORS

INCREASING THREAT FROM AIRBNB New York City

Source: Insideairbnb.com

ECONOMETRIC ADVISORS

INCREASING THREAT FROM AIRBNB New York City # of Units

• 76% of NYC Listings are less than $200 • Current Listing are only about 15% occupied

Price Levels Source: Insideairbnb.com ECONOMETRIC ADVISORS

A TOOL TO FIND UNSATISFIED DEMAND?

219 Properties = 30% of Atlanta’s Airbnb supply

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A TOOL TO FIND UNSATISFIED DEMAND? Only Hotel within a 2 Mile Radius

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EMERGING TECHNOLOGIES

REVIEWPRO GUEST INTELLIGENCE = ORM + GSS Guest Surveys

Online Reputation

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ECONOMETRIC ADVISORS

INFORMATION IS POWER Information is power. You already apply rigorous financial analysis on your hotel projects, and now you can supplement that with trend information from online reviews to provide guidance on how those hotels will perform in the future. ReviewPro synthesizes millions of pieces of hotel guest feedback from hundreds of sources into competitive benchmarking and trending consumer preferences to help you make the best transaction recommendations. Hotel guests today are more talkative than ever, saying anything they want about any aspect of a hotel, neighborhood or city - at any time. It's time to turn all that feedback into intelligence that gives you and your clients the advantage.

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AIRSAGE – CHARLESTON, SC ON JULY 4TH Home Locations for Visitors

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AIRSAGE – CHARLESTON, SC ON JULY 4TH Length of Stay

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AIRSAGE – CHARLESTON, SC ON JULY 4TH Income of Visitors

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AIRSAGE - FINAL FOUR ANALYSIS

ECONOMETRIC ADVISORS

AIRSAGE – FINAL FOUR ANALYSIS

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PKF Hospitality Research 3475 Lenox Road, Suite 720 Atlanta, GA 30326 Tel: +1 404 842 1150 www.pkfc.com

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