southern california lodging forecast - cpp.educollins/partners/outlook-conference/documents/... ·...

VISITOR INDUSTRY OUTLOOK CONFERENCE

SOUTHERN CALIFORNIA LODGING FORECAST

OCTOBER 18, 2016 OPERATING AT A HIGH LEVEL

CBRE HOTELS | CONSULTING

2 VIOC – SOUTHERN CALIFORNIA LODGING FORECAST| OCTOBER 18, 2016

OPERATING AT A HIGH LEVEL

1. MUCH TO THINK ABOUT – THE ECONOMY 2. A REVIEW OF HISTORY 3. OUR NATIONAL FORECAST 4. THE SUPPLY STORY 5. LOCAL LODGING FORECAST 6. DATABASES USED

TOPICS FOR TODAY


MUCH TO THINK ABOUT

WHY BE HAPPY?

HIGH OCCUPANCY LEVELS

SUPPLY GROWTH ACCELERATING

INFLATION & INTEREST RATES ARE LOW WAGES INCREASING PROFITS CONTINUE TO GROW

INFLATION & INTEREST RATES GOING UP? WAGES INCREASING EXPENSE GROWTH ACCELERATING

WHY BE CONCERNED?


A STRONGER 2017 IS EXPECTED ECONOMIC ASSUMPTIONS BEHIND OUR FORECASTS

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•  No Recession Any Time Soon •  Energy/Trucking/Railroads Are Hurting

–  All Else = Fine •  Economy Not Growing Fast •  Retail Sales: Volume Good; Too Many Stores

SOME THOUGHTS ON THE ECONOMY

MAIN TAKEAWAY:

WE’RE SLOWING DOWN, NOT STOPPING

OUR NATIONAL FORECAST


Long Run Average 2013 2014 2015 2016F 2017F

Supply 1.9% 0.6% 0.7% 1.1% 1.6% 2.0%

Demand 2.0% 2.0% 4.3% 2.7% 1.7% 1.8%

Occupancy 62.0% 62.2% 64.4% 65.4% 65.5% 65.4%

ADR 3.0% 3.8% 4.5% 4.5% 3.5% 4.1%

RevPAR 3.2% 5.2% 8.2% 6.2% 3.6% 3.9%

OCCUPANCY PEAKS AND ADR GROWTH PICKS UP

U.S. BASELINE FORECAST

Source: CBRE Hotels’ Americas Research - Hotel Horizons® September – November 2016; STR

RECORD HIGH OCCUPANCY WAS ACHIEVED IN 2015, WILL 2016 BE EVEN BETTER?


REVPAR FORECAST BY CHAIN-SCALE

Chain-Scale 2015 2016F 2017F

Luxury 4.5% 1.5% 2.5%

Upper-Upscale 4.8% 2.5% 3.6%

Upscale 5.6% 2.5% 3.5%

Upper-Midscale 6.3% 2.6% 3.4%

Midscale 6.2% 1.2% 3.6%

Economy 6.5% 2.8% 4.6%

All Hotels 6.2% 3.6% 3.9%

Source: CBRE Hotels’ Americas Research - Hotel Horizons® September – November 2016 (PRL); STR, Inc.


REVPAR CHANGE FROM PREVIOUS PEAK

TIMES ARE GOOD FOR MOST, BUT NOT ALL – CHAIN SCALES

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BLLA | OCTOBER 24, 2016

OUR REGIONAL FORECASTS


U.S. supply has increased more slowly than in prior cycles, but the pace of hotel construction could accelerate if past patterns repeat.

WHERE ARE WE IN THE SUPPLY CYCLE?

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000

1,000,000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120

Rooms

Months After Start of Expansion

Cumulative Supply Changes

Aug 1992-Nov 2002 Nov 2002-May 2010 May 2010-Current

Sources: CBRE Hotels, STR Inc. Q2 2016.

T0=Real RevPAR trough (start of cycle)

Real RevPAR Peak RevPAR trough (end of cycle)


SOUTHERN CALIFORNIA HOTEL MARKETS COMPARISON Area YE 2015 YE 2016E YoY Change National 65.4% 65.5% 0.1% Los Angeles County 81.8% 83.0% 1.5% Orange County 77.9% 78.1% 0.2% San Diego County 77.8% 77.3% -0.6%

Area YE 2015 YE 2016E YoY Change National $120.23 $124.42 3.5% Los Angeles County $187.77 $203.41 8.3% Orange County $148.73 $155.59 4.6% San Diego County $179.17 $182.82 2.0%

Source: CBRE Hotels’ Americas Research - Hotel Horizons® September – November 2016; STR, Inc.; CBRE Hotels Southern California Lodging Forecast


SOUTHERN CALIFORNIA HOTEL MARKETS COMPARISON Area YE 2016E YE 2017F YoY Change National 65.5% 65.4% -0.1% Los Angeles County 83.0% 80.8% -2.7% Orange County 78.1% 77.0% -1.4% San Diego County 77.3% 76.7% -0.8%

Area YE 2016E YE 2017F YoY Change National $124.42 $129.46 4.1% Los Angeles County $203.41 $210.16 3.3% Orange County $155.59 $161.04 3.5% San Diego County $182.82 $188.13 2.9%

Source: CBRE Hotels’ Americas Research - Hotel Horizons® September – November 2016; STR, Inc.; CBRE Hotels Southern California Lodging Forecast


LOS ANGELES COUNTY

PORTER RANCH GAS LEAK IMPACTED THE MARKET SIGNIFICANTLY

MANY SUBMARKETS ARE EXCEEDING HISTORICAL LEVELS & OCCUPANCY WILL DECLINE SOME

PROJECTED RATE GROWTH IS IN LINE WITH THE NATIONAL AVERAGE FOR 2017

LUXURY HOTELS PERFORMING WELL AND AMONG THE HIGHEST IN THE U.S.

MOST OF THE NEW SUPPLY WILL GET ABSORBED; THE MOST ACTIVITY IS IN DTLA, THEN LAX

LONG-RUN SUPPLY GROWTH (1988-2015) WAS 0.8%

Los Angeles County Historical Market Performance of the Competitive Supply

Daily Annual Percent Occupied Percent Market Average Percent Percent Year Supply Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 98,212 35,847,380 N/A 26,941,391 N/A 75.2% $145.74 N/A $109.53 N/A 2012 97,061 35,427,265 -1.2% 27,208,316 1.0% 76.8% 154.51 6.0% 118.67 8.3% 2013 96,963 35,391,495 -0.1% 28,296,601 4.0% 80.0% 162.11 4.9% 129.61 9.2% 2014 97,673 35,650,645 0.7% 28,917,760 2.2% 81.1% 174.88 7.9% 141.85 9.4% 2015 98,198 35,842,270 0.5% 29,331,200 1.4% 81.8% 187.77 7.4% 153.66 8.3%

2016E 98,994 36,132,795 0.8% 30,003,891 2.3% 83.0% 203.41 8.3% 168.91 9.9% 2017F 103,872 37,913,439 4.9% 30,627,372 2.1% 80.8% 210.16 3.3% 169.77 0.5% CAAG 0.9% 0.9% 2.2% 6.3% 7.6%

Source: CBRE Hotels


SAN DIEGO COUNTY San Diego County

Historical Market Performance of the Competitive Supply Annual Percent Occupied Percent Market Average Percent Percent

Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 13,228,330 N/A 9,569,106 N/A 72.3% $151.54 N/A $109.62 N/A 2012 13,326,211 0.7% 9,830,398 2.7% 73.8% 156.21 3.1% 115.23 5.1% 2013 13,471,055 1.1% 10,022,271 2.0% 74.4% 161.43 3.3% 120.10 4.2% 2014 13,610,283 1.0% 10,384,073 3.6% 76.3% 170.52 5.6% 130.10 8.3% 2015 13,790,552 1.3% 10,723,085 3.3% 77.8% 179.17 5.1% 139.32 7.1%

2016E 14,163,886 2.7% 10,952,627 2.1% 77.3% 182.82 2.0% 141.37 1.5% 2017F 14,474,410 2.2% 11,101,719 1.4% 76.7% 188.13 2.9% 144.29 2.1% CAAG 1.5% 2.5% 3.7% 4.7%

Source: CBRE Hotels

UNCERTAINTY OF SAN DIEGO CONVENTION CENTER EXPANSION AND SAN DIEGO CHARGERS

CONVENTION CENTER CAPITAL IMPROVEMENTS PROJECT FUNDING

CONTINUED ENHANCEMENTS TO AIRPORT

CONTINUED DECLINE IN SEAWORLD VISITATION AND ABANDONED TANK PROJECT

SIGNIFICANT SUPPLY GROWTH EXPECTED THROUGH 2017

LONG-RUN SUPPLY GROWTH (1988-2015) 2.0%


VENTURA COUNTY

VENTURA COUNTY LODGING ASSOCIATION (VCLA) CONTINUED INVESTMENT IN MARKETING

PORTER RANCH SECONDARY OVERFLOW MARKET

NO SUPPLY GROWTH EXPECTED IN THE NEXT TWO YEARS

CONTINUED INVESTMENT IN HOTEL RENOVATIONS

NFL TRAINING CAMP – COWBOYS AND RAMS

Ventura County Historical Market Performance of the Competitive Supply

Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 1,673,890 N/A 1,078,694 N/A 64.4% $98.07 N/A $63.20 N/A 2012 1,673,890 0.0% 1,115,862 3.4% 66.7% 100.03 2.0% 66.69 5.5% 2013 1,673,890 0.0% 1,138,217 2.0% 68.0% 101.71 1.7% 69.16 3.7% 2014 1,673,525 0.0% 1,214,067 6.7% 72.5% 109.07 7.2% 79.13 14.4% 2015 1,652,720 -1.2% 1,235,540 1.8% 74.8% 117.57 7.8% 87.90 11.1%

2016E 1,652,720 0.0% 1,270,689 2.8% 76.9% 123.79 5.3% 95.18 8.3% 2017F 1,651,990 0.0% 1,263,380 -0.6% 76.5% 127.54 3.0% 97.54 2.5% CAAG -0.2% 2.7% 4.5% 7.5%

Source: CBRE Hotels


ORANGE COUNTY

OVER 3.5 MILLION SQUARE FEET OF OFFICE SPACE UNDER CONSTRUCTION NEW PLANS ANNOUNCED FOR DISNEYLAND NEW AND UNDER CONSTRUCTION HOTEL ADDITIONS ANAHEIM – VISIT ANAHEIM, HOTEL INCENTIVES PROGRAM, & DISNEYLAND CONVENTION CENTER EXPANSION SCHEDULED FOR FALL 2017 COMPLETION OC SUBMARKETS SHOWING RATE RESISTANCE LONG-RUN SUPPLY GROWTH (1988-2015) WAS 1.5%

Orange County Historical Market Performance of the Competitive Supply

Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 15,532,940 N/A 11,069,315 N/A 71.3% $119.10 N/A $84.87 N/A 2012 15,616,160 0.5% 11,445,068 3.4% 73.3% 125.97 5.8% 92.33 8.8% 2013 15,641,345 0.2% 11,720,289 2.4% 74.9% 133.35 5.9% 99.92 8.2% 2014 15,807,755 1.1% 12,077,989 3.1% 76.4% 142.12 6.6% 108.59 8.7% 2015 16,155,995 2.2% 12,589,677 4.2% 77.9% 148.73 4.6% 115.90 6.7%

2016E 16,635,149 3.0% 12,992,456 3.2% 78.1% 155.59 4.6% 121.52 4.9% 2017F 17,299,373 4.0% 13,319,741 2.5% 77.0% 161.04 3.5% 123.99 2.0% CAAG 1.8% 3.1% 5.2% 6.5%

Source: CBRE Hotels


SANTA BARBARA COUNTY

SANTA BARBARA AIRPORT ADDED A NON STOP FLIGHT FROM DALLAS/FORTH WORTH

MAJOR OPPORTUNITIES IN HOTEL RENOVATIONS AND REPOSITIONINGS

EXCITING FUTURE ADDITIONS TO SUPPLY

Santa Barbara County Historical Market Performance of the Competitive Supply

Annual Percent Occupied Percent Market Average Percent Percent Year Supply Change Rooms Change Occupancy Daily Rate Change REVPAR Change 2011 1,954,210 N/A 1,365,334 N/A 69.9% $168.80 N/A $117.93 N/A 2012 1,980,855 1.4% 1,415,645 3.7% 71.5% 174.72 3.5% 124.87 5.9% 2013 2,011,241 1.5% 1,460,900 3.2% 72.6% 182.57 4.5% 132.61 6.2% 2014 2,015,165 0.2% 1,517,573 3.9% 75.3% 196.45 7.6% 147.94 11.6% 2015 1,986,573 -1.4% 1,533,045 1.0% 77.2% 207.13 5.4% 159.84 8.0%

2016E 1,986,391 0.0% 1,522,047 -0.7% 76.6% 214.00 3.3% 163.97 2.6% 2017F 2,132,026 7.3% 1,593,847 4.7% 74.8% 220.01 2.8% 164.47 0.3% CAAG 1.5% 2.6% 4.5% 5.7%

Source: CBRE Hotels


COACHELLA VALLEY

DEMAND CONTINUES, BUT STILL BELOW A STABILIZED LEVEL

TOURISM DRIVES LOCAL HOTEL DEMAND; FESTIVALS & EVENTS

RESORTS LEADING THE WAY, PALM SPRINGS CLOSELY BEHIND

AIRLIFT CAPACITY INCREASES, BUT WILL CONTINUE TO BE A GROUP RESTRAINT

STRONG DEVELOPER INTEREST & ECONOMIC INCENTIVES

RITZ-CARLTON RANCHO MIRAGE, PALM SPRINGS HOTEL PIPELINE GROWING

Coachella Valley Historical Market Performance of the Competitive Supply


2016E 3,756,945 0.0% 2,339,223 4.6% 62.3% 172.86 4.8% 107.63 9.6% 2017F 3,866,080 2.9% 2,402,204 2.7% 62.1% 178.25 3.1% 110.75 2.9% CAAG 0.9% 3.0% 4.6% 6.8%

Source: CBRE Hotels


SAN LUIS OBISPO COUNTY

MORE ACTIVE SUPPLY PIPELINE THAN IN PAST YEARS; SHOULD BE ABSORBED IN 1-2 YEARS

INCREASINGLY STRONG LEISURE DEMAND; POPULAR DRIVE DESTINATION

SMALL, BUT GROWING CORPORATE BASE (QUALITY OF LIFE AS A DRIVER)

CENTRALLY LOCATED BETWEEN LA & SF; SIGNIFICANT DRIVE DEMAND TEMPERS DOWNSIDE

RENOVATIONS OF OLDER PROPERTIES IN THE COASTAL REGION

HIGHER QUALITY HOTEL PROJECTS ON THE HORIZON (SLO CITY & PISMO BEACH)

San Luis Obispo County Historical Market Performance of the Competitive Supply


2016E 1,770,250 4.6% 1,258,673 1.7% 71.1% 158.14 4.8% 112.44 1.8% 2017F 1,788,865 1.1% 1,284,992 2.1% 71.8% 162.28 2.6% 116.57 3.7% CAAG 2.3% 3.6% 3.9% 5.2%

Source: CBRE Hotels


INLAND EMPIRE

ECONOMIC RECOVERY FUELED BY NEW HOUSING AND JOB GROWTH BARRING UNFORESEEN EVENTS, IE WILL EXHIBIT SOME OF THE STRONGEST GROWTH NEW AND MINIMAL SUPPLY ADDITIONS WILL BE QUICKLY ABSORBED WE’VE ADDED TEMECULA VALLEY AS A SEPARATE SUBMARKET; SIGNIFICANT SUPPLY GROWTH FOCUS SHOULD BE ON INCREASING ADR (NOT YET BACK TO PEAK) AT STABILIZATION CONTINUED EFFORTS BY THE GOCVB TO INCREASE LEISURE DEMAND LOCAL CONTROL OF THE LA/ONTARIO AIRPORT OFFERS FUTURE POTENTIAL…

Inland Empire Historical Market Performance of the Competitive Supply


2016E 3,875,205 1.5% 2,917,989 2.5% 75.3% 106.53 6.3% 80.22 7.4% 2017F 4,005,875 3.4% 2,990,764 2.5% 74.7% 110.65 3.9% 82.61 3.0% CAAG 1.8% 4.9% 4.5% 7.8%

Source: CBRE Hotels


SOUTHERN CALIFORNIA COASTAL

NEW SUPPLY AT OR EXCEEDING HISTORICAL HIGHS

ALL TIERS ACHIEVING RECORD ADR LEVELS, SLOWER GROWTH GOING FORWARD

LAST YEAR WAS LIKELY PEAK OCCUPANCY FOR THE SHORT TO MID-TERM, BUT LACK OF AVAILABLE SITE SHOULD PROTECT AGAINST DRAMATIC DECLINES

PASÉA HOTEL & SPA OPENED MEMORIAL DAY WEEKEND 2016

FUTURE ADDITIONS IN HUNTINGTON BEACH IN SANTA BARBARA

Southern California Coastal Historical Market Performance of the Competitive Supply


2016E 3,301,364 1.6% 2,397,543 0.4% 72.6% 363.11 2.7% 263.70 1.5% 2017F 3,383,003 2.5% 2,443,945 1.9% 72.2% 371.93 2.4% 268.69 1.9% CAAG 1.4% 3.0% 4.0% 5.6%

Source: CBRE Hotels


OPERATING AT THE PEAK 1.  THE FUNDAMENTALS REMAIN ATTRACTIVE ACROSS THE VAST MAJORITY OF

MARKETS. 2.  INDUSTRY GROWTH WILL PERSIST COMFORTABLY THROUGH 2017 AND LIKELY

BEYOND. 3.  HIGH OCCUPANCY LEVELS WILL PROVIDE THE LEVERAGE NEEDED TO

ACHIEVE ABOVE-AVERAGE ADR INCREASES FOR THE NEXT TWO-THREE YEARS.

4.  MODEST (BUT INCREASING) HOTEL CONSTRUCTION IS TO BE EXPECTED; THE THREAT OF OVER BUILDING IS ABSENT FROM MOST MARKETS.

5.  ABOVE LONG RUN AVERAGE OCCUPANCY LEVELS WILL LEAD TO REVENUJE GROWTH SUFFICIENT TO OFF-SET INCREASING LABOR COSTS, THUS RESULTING IN ABOVE-AVERAGE PROFIT GROWTH.

6.  SOUTHERN CALIFORNIA CONTINUES TO BE ONE OF THE NATION’S LEADING REGIONAL HOTEL MARKETS!

SUMMARY THOUGHTS


Q & A

WHAT QUESTIONS CAN WE ANSWER FOR YOU?


CBRE HOTELS The World’s Leading Hotel Experts.

Bruce Baltin Managing Director +1 213 613 3370 [email protected]

400 South Hope Street 25th Floor Los Angeles, CA 90071 www.cbrehotels.com

CBRE © 2016 All Rights Reserved. All information included in this proposal pertaining to CBRE—including but not limited to its operations, employees, technology and clients—are proprietary and confidential, and are supplied with the understanding that they will be held in confidence and not disclosed to third parties without the prior written consent of CBRE. This proposal is intended solely as a preliminary expression of general intentions and is to be used for discussion purposes only. The parties intend that neither shall have any contractual obligations to the other with respect to the matters referred herein unless and until a definitive agreement has been fully executed and delivered by the parties. The parties agree that this proposal is not intended to create any agreement or obligation by either party to negotiate a definitive lease/purchase and sale agreement and imposes no duty whatsoever on either party to continue negotiations, including without limitation any obligation to negotiate in good faith or in any way other than at arm’s length. Prior to delivery of a definitive executed agreement, and without any liability to the other party, either party may (1) propose different terms from those summarized herein, (2) enter into negotiations with other parties and/or (3) unilaterally terminate all negotiations with the other party hereto. The information contained in this document has been obtained from sources believed reliable. While CBRE, Inc. does not doubt its accuracy, CBRE, Inc. has not verified it and makes no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the property. The value of this transaction to you depends on tax and other factors which should be evaluated by your tax, financial and legal advisors. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction the suitability of the property for your needs.

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