Persistence at the Peak

The View from Where You Sit Presented By:

Mark Woodworth, Senior Managing Director PKF Hospitality Research, a CBRE Company

March 25, 2015

Real RevPAR Change What We Learn From Past Cycles

Party like it is 1995!

10.0% 4.7% 4.5%

5.0%

5.3%

5.9% 4.9%

3.4%

0.0%

0.5%

0.4%

3.9% 3.0%

1.8% 0.6%

5.3%

3.3%

6.6% 6.7% 4.4% 3.8%4.1% 3.8% 1.3%

1.2%

0.2% ‐0.1%

‐1.4% ‐5.0% ‐4.1% ‐10.0%

‐6.7%

‐4.6%

‐6.1%

RealADR^ Occ Supply^

‐15.0%

‐12.7%

Lower Supply Growth Leads to Higher RevPAR  Increases this Time Around ‐20.0%

Source: PKF Hospitality Research– Hotel Horizons® March‐May 2014, 2015,  STR, Inc.

Our Forecasts

ECONOMETRIC ADVISORS 

10

The Drivers Most Important to Hotels Remain Favorable GDP Component        Forecast

8 3.9%

6

4.6% 4.5%

3.9%

4

2.7% 2.5%

1.7%

2.0%

3.6% 3.8%

2.7%

2.9%

2.3%

1.3%

2

4.6% 5.0% 3.5%

2.5% 1.6%

0.8%

2.3%

1.8%

0.1%

3.9%

3.1%

0 I ‐2 ‐4

II

III

IV

I

2008

II

III

2009

IV

I

II

III

I

2010

II

III

2011

IV

I

II

III

IV

I

2012

‐1.5%

‐2.7%

II

III

IV

I

2013

II

III

IV

I

2014

‐0.5%

‐5.4% ‐8.2%

III

IV

2015

‐2.1%

 BUSINESS (Gross private domestic investment)

‐8

II

(GOVERNMENT) Government consumption expenditures and gross investment TRADE (Net exports of goods and services)

‐1.9%

‐6

‐10

IV

These matter  the most.

CONSUMERS (Personal consumption expenditures) Lodging Demand

Source: BEA, Moody’s Analytics, PKF‐ HR Hotel Horizons: March – May 2015, STR, Inc.

What Did We Say a Year Ago?

2014

2015

2014

STR Actual

April 2014

Most Recent Update

Occupancy

1.7%

3.6%

1.3%

1.9%

ADR

4.9%

4.5%

5.7%

5.3%

RevPAR

6.6%

8.3%

7.0%

7.3%

March

Stronger Demand

Essentially the Same

Source: PKF Hospitality Research– Hotel Horizons® March‐May 2014, 2015,  STR, Inc.

National Forecast

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%

Occupancy

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%

ExpensePAR

2.7%

3.2%

3.7%

4.7% (p)

3.7%

3.7%

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

RevPAR Forecast by Chain Scale Chain-Scale

2013

2014

2015F

Luxury*

7.6%

6.5%

7.2%

Upper-Upscale*

5.8%

7.5%

8.0%

Upscale*

5.5%

8.4%

8.8%

Upper-Midscale

4.2%

8.2%

7.2%

Midscale

4.1%

8.3%

7.0%

Economy

4.7%

8.7%

6.7%

All Hotels

5.4%

8.3%

7.3%

Note‐ * ‐ Record Occupancy Level in 2014 Source: PKF Hospitality Research, March – May 2015 Hotel Horizons®, STR, Inc. 

The View From Where You Sit Colors represent 2015 year over year change in RevPAR

12

36

11

Source: PKF Hospitality Research, March – May 2015 Hotel Horizons®

A View From The Good Seats Top Markets for RevPAR Growth 2014‐2016

A View From The Good Seats

Reasons for above average growth  These markets will see an average supply growth rate of 2% during 2015  & 2016; only slightly higher than the national average.  Employment growth of 2.5% compared to 2.0% for the Nation.  Most cities have an existing or expanding concentration of technology  employment.  Many markets are benefiting from reduced gas prices.

A View From The Good Seats Top Markets for RevPAR Growth 2014‐2019

A Longer Term Perspective

Downward Trend in Oil Prices West Texas Intermediate (WTI) 1998 – 2015, $ per barrel

160 140

58% Decline  since June, 2014

120 100 80 60 40 20 0 1998

1998

1999

2000

2001

2002

2003

2004

2005

Source: US. Energy Information Administration as of 3/24/2015

2006

2007

2008

2009

2010

2011

2012

2013

2014

Non‐Oil South, Mountain States Would Gain Gasoline expenditure share of disposable income, % 2012

A View From The Cheap Seats Bottom Markets for RevPAR Growth 2014‐2016

A View From The Cheap Seats Reasons for below average growth:

 These markets will see an average supply growth rate of 5%  during 2015 & 2016 (vs. the national average of 1.6%).

Where is Supply a Concern? Increase in competition may lead to weak rate growth. Top 10 Markets for Supply Growth in 2015 New York Austin Pittsburgh Omaha Miami West Palm Beach Houston Charleston Cleveland Columbus 0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

A View From The Cheap Seats Reasons for below average growth:

 These markets will see an average supply growth rate of 5%  during 2015 & 2016 (vs. the national average of 1.6%).  Many markets in the middle of the country depend on the oil  industry for economic growth.

U.S. Will Benefit Oil Patch Will be Hurt Energy employment as a percent of total

A View From The Cheap Seats Reasons for below average growth:

 These markets will see an average supply growth rate of 5%  during 2015 & 2016 (vs. the national average of 1.6%).  Many markets in the middle of the country depend on the oil  industry for economic growth.  The effect of the strong dollar vs. international currencies will  hurt international travel demand in Gateway Cities.

Effect of the Strong Dollar Exchange Rate Index and International Travel Spending $ (Millions)

International Travel Spending(Left Axis)

FRB Broad Index (Right Axis)

Index 115

 19,000 110  17,000 105  15,000 100

 13,000

95

 11,000  9,000

90

 7,000

85

 5,000

80 1999

2000

2001

2002

2003

2004

2005

2006

2007

Sources: Federal Reserve Board, International Trade Association Note: Quarterly data in real terms, '97 = 100

2008

2009

2010

2011

2012

2013

2014

Effect of the Strong Dollar On Lodging Demand U.S. Hotels become more expensive

PKF‐HR’s 2013 Paper by PKF’s Corgel, Lane, & Walls, “How currency exchange rates  affect the demand for U.S. hotel rooms”. Exchange rates strongly influence hotel demand in luxury, upper‐upscale, and  upscale segments, with a much weaker relationship among lower‐price hotels. The exchange rate effect is strongest for upper‐price hotels in gateway cities, i.e.  Boston, Chicago, Los Angeles, Miami, New York, San Francisco, Washington DC.

Gateway City Q1 2015 RevPAR Change •

15.0%

Year‐to‐Date RevPAR Growth Versus Project 2015 Q1 Growth

10.0%

5.0%

0.0% San Francisco

Miami

Chicago

Boston

Los Angeles

Washington DC

‐5.0%

‐10.0%

RevPAR Growth YTD

2015 Q1 RevPAR Forecast

Source: STR, Inc., Hotel Horizons® March‐May 2015 Edition

Oahu

New York

A View From The Cheap Seats Lagging Markets for RevPAR Growth 2014‐2019

A Longer Term Perspective

Impact on Our Baseline Forecast Low Oil

Low Inflation* (‐) ADR

No Change in ADR

(+) ADR Higher Income &GDP (+) Demand

Higher Occupancy

Slightly Higher RevPAR * ‐ PKF‐HR econometric research shows a 1:1 relationship between change in inflation and ADR during expansionary  periods, holding the effect of occupancy constant

Source: PKF Hospitality Research

Increasing Threat from Airbnb? New York City • •

•

Roughly 30,000 Airbnb  Listings Almost double the  number of units from last  year New data now available  on 2 cities that we have  started to analyze

Source: Insideairbnb.com

Increasing Threat from Airbnb? New York City New York City

Source: Insideairbnb.com

Increasing Threat from Airbnb? New York City # of Units

76% of NYC Listings are less than $200

Price Levels Source: Insideairbnb.com

30.0%

20.0%

15.0%

10.0%

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 Saint Louis

Increasing Threat from Airbnb? Airbnb Units as a Percent of Hotel Supply

25.0%

18 Markets above 5%

Data indicates that increases in  Airbnb supply negatively impacts  ADR growth.

5.0%

0.0%

Source: PKF Hospitality Research, Airbnb

Happy Thoughts! In 2015, the Hotel Industry will Achieve:

 An occupancy level of 65.6 percent, the highest level of occupancy ever  recorded by STR, Inc.   Record occupancy levels in 20 of the 59 markets in the Hotel Horizons® universe (17 made it in 2014).   Above long run average occupancy levels in 54 of 59 markets .  Highest ADR level ever in 55 of these 59 markets.  A profit increase of 13.2%, which will be an all time high dollar PAR.

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

Thanks For Your Time ECONOMETRIC ADVISORS