..!Oi...... 11 " It.... ' "' ' e one May 9, 2011 Sheraton Gateway Hotel Los Angeles Presented by: Suzanne Mellen, MAl, CRE, FRICS, ISHC Senior Managing Director Hotel and Casino Consulting and Valuation HVS San Francisco and Las Vegas 415-268-0351 smellen@hvs.com
Major Hotel Sales Transactions Number of Major Sales 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Avg. Price Per Room Number of Hotels Average Price per Room Source: HVS - 2 -
2011 - No. of Sales By Price Per Room Source: HVS - 3 -
Major Sales by Quarter 100 90 80 70 60 50 40 30 20 10 0 Major Sales by Quarter Source: HVS - 4 -
Major Sales by Quarter 100 90 80 70 60 50 40 30 20 10 0 Major Sales by Quarter Source: HVS - 5 -
Major Hotel Sales Transactions Year Number of Hotels % Change Average Price per Room % Change YTD April 2012 20-58.3% 212,000 3.3% YTD April 2011 48 205,000 2011 199 54.3% 209,000 6.2% 2010 129 180.4% 196,000 31.6% 2009 46-59.6% 134,000-31.3% 2008 114-54.8% 176,000-9.7% 2007 252-6.7% 193,000-4.7% 2006 270-18.4% 202,000 16.8% 2005 331 75.1% 168,000 19.0% 2004 189 33.1% 136,000 2.2% 2003 142 34.0% 133,000 15.8% 2002 106 1.0% 112,000-30.4% 2001 105-30.0% 146,000 20.5% 2000 150 17.2% 116,000-27.6% 1999 128-46.9% 148,000 8.1% 1998 241-13.9% 136,000 14.0% 1997 280 23.3% 117,000 9.4% 1996 227 54.4% 106,000 24.5% 1995 147 36.1% 80,000-1.3% 1994 108 103.8% 81,000-14.8% 1993 53-24.3% 93,000 11.8% 1992 70 25.0% 82,000-17.1% 1991 56-56.9% 96,000-41.7% 1990 130 136,000 Source: HVS - 6 -
Roller Coast from Q2 2011 to Q2 2012 Year ago market was robust, with REIT acquisitions driving transaction activity Low interest rates, competitive lender frenzy and positive outlook drove cap rates down Market stalled in summer of 2011 due to debt crisis in US and Europe Many lenders and most REITS withdrew from the market Cap rates rose and value gains moderated - 7 -
Market Reactivated After slow winter, market activity is on upswing Capital readily available; investors wait for property to come to market Some REITS in disposition mode, creating opportunity for private investors Lenders have returned to the market with interest rates more favorable than a year ago Lower interest rates and rise in hotel NOI has resulted in stabilization of cap rates - 8 -
Hotel Mortgage Interest Rates 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 % Hotel Mortgage Interest Rate 10- year T- Bill Yield Source: ACLI / HVS - 9 -
Hotel Mortgage Interest Rates 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 % Hotel Mortgage Interest Rate 10- year T- Bill Yield Source: ACLI / HVS - 10 -
Cap and Discount Rates Select Set of Full Service Hotels Cap Rate based on Historical NOI Cap Rate based on 1st Yr. Projected NOI Unlevered Discount Rate Equity Yield 2011 6.1 7.1 11.7 16.8 2010 4.6 5.4 11.8 15.9 2009 8.0 6.4 13.7 16.9 2008 6.7 5.8 11.6 19.3 2007 6.0 6.8 11.6 21.3 2006 5.5 5.7 10.8 18.9 2005 5.2 6.9 11.4 19.7 2004 5.8 7.4 12.2 19.7 2003 7.9 8.2 14.0 21.4 2002 8.9 9.8 13.6 21.0 2001 8.2 9.8 14.6 22.2 2000 9.2 10.4 14.0 21.0 Source: HVS - 11 -
Cap and Discount Rates Select Set of Full Service Hotels Cap Rate based on Historical NOI Cap Rate based on 1st Yr. Projected NOI Unlevered Discount Rate Equity Yield 2011 6.1 7.1 11.7 16.8 2010 4.6 5.4 11.8 15.9 2009 8.0 6.4 13.7 16.9 2008 6.7 5.8 11.6 19.3 2007 6.0 6.8 11.6 21.3 2006 5.5 5.7 10.8 18.9 2005 5.2 6.9 11.4 19.7 2004 5.8 7.4 12.2 19.7 2003 7.9 8.2 14.0 21.4 2002 8.9 9.8 13.6 21.0 2001 8.2 9.8 14.6 22.2 2000 9.2 10.4 14.0 21.0 Source: HVS - 12 -
Cap and Discount Rates Select Set of Full Service Hotels Cap Rate based on Historical NOI Cap Rate based on 1st Yr. Projected NOI Unlevered Discount Rate Equity Yield 2011 6.1 7.1 11.7 16.8 2010 4.6 5.4 11.8 15.9 2009 8.0 6.4 13.7 16.9 2008 6.7 5.8 11.6 19.3 2007 6.0 6.8 11.6 21.3 2006 5.5 5.7 10.8 18.9 2005 5.2 6.9 11.4 19.7 2004 5.8 7.4 12.2 19.7 2003 7.9 8.2 14.0 21.4 2002 8.9 9.8 13.6 21.0 2001 8.2 9.8 14.6 22.2 2000 9.2 10.4 14.0 21.0 Source: HVS - 13 -
Cap and Discount Rates Derived from Sales 22.5 % 17.5 12.5 7.5 2.5 Cap Rate - Historical NOI Unlevered Discount Rate Cap Rate - 1st Yr. Projected NOI Equity Yield Source: HVS - 14 -
Cap and Discount Rates Derived from Sales 22.5 % 17.5 12.5 7.5 2.5 Cap Rate - Historical NOI Unlevered Discount Rate Cap Rate - 1st Yr. Projected NOI Equity Yield Source: HVS - 15 -
Derived Cap and Discount Rates 22.5 % 17.5 12.5 7.5 2.5 Cap Rate - Historical NOI Unlevered Discount Rate Cap Rate - 1st Yr. Projected NOI Equity Yield Source: HVS - 16 -
Capitalization Rates PWC Investor Survey 13.0 12.0 % 11.0 10.0 9.0 8.0 7.0 6.0 5.0 Regional Mall CBD Office Suburban Office Apartment Full- Service Lodging Limited- Service Lodging Luxury Lodging Source: PWC Real Estate Investor Survey - 17 -
16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 % Discount Rates PWC Investor Survey Regional Mall CBD Office Suburban Office Apartment Full- Service Lodging Limited- Service Lodging Luxury Lodging Source: PWC Real Estate Investor Survey - 18 -
Average Capitalization Rates PWC Investor Survey 10 8 % 8.28 8.79 8.05 8.05 7.96 8.04 8.4 1Q11 3Q11 1Q12 9.8 8.4 8.5 9.8 9.75 6 4 2 0 Luxury/Upper- Upscale Full Service Select Service Ltd Service Mid & Economy Source: PWC Real Estate Investor Survey - 19 -
Select Service Products Proving Highly Attractive Hilton Garden Inn, Omaha, NE $168,000 per room Courtyard, Culver City, CA $183,000 per room Hyatt Place, Birmingham, AL $128,000 per room Select Service Hotels Accounted for Over 40% of the # of Major Sales Transactions in 2011 Source: HVS - 20 -
Upscale Extended- Stay Garnering High Prices Homewood Suites Conv. Ctr., Seattle $272,000 per room Residence Inn Tysons Corner Mall, VA: $255,000 per room Homewood Suites, Knoxville, TN $146,000 per room Proposed New Supply is Concentrated in the Broadly Defined SS Product Category Source: HVS - 21 -
Rates of Return Derived from Actual Sales 2010-2012 25.0 % Full Service Select Service Limited Service 21.2 20.0 15.0 10.0 5.0 13.6 12.3 11.4 18.3 15.9 5.4 7.0 7.5 6.3 8.0 9.1 0.0 Unlevered Discount Rate Equity Yield Cap Rate Historical NOI Cap Rate Projected Year One NOI Source: HVS - 22 -
Average Residual (Terminal) Cap Rates PWC Investor Survey 10.5 10.0 % 9.79 10.05 10.00 10.00 9.95 9.5 9.0 8.5 8.0 9.05 9.13 9.00 8.88 8.66 8.68 8.60 7.5 Luxury/Upper- Upscale Full Service Select Service Ltd Service Midscale & Economy 1Q11 3Q11 1Q12 Source: PWC Real Estate Investor Survey - 23 -
Potential Rise in Cost of Capital May Limit Future Appreciation 2012 2013 2014 2,015 2,016 NOI Increase 13.4% 15.6% 10.8% 7.9% 6.2% Interest Rate 5.25% 5.75% 6.25% 6.75% 7.25% Mortgage Constant 6.63% 7.00% 7.39% 7.78% 8.19% Equity Cash on Cash 6.0% 7.0% 8.0% 9.0% 10.0% Loan- to- Value 70% 70% 75% 75% 75% Cap rate 6.4% 7.0% 7.5% 8.1% 8.6% Value Per Room 193,821 206,103 212,029 213,325 212,094 % Change 6.3% 2.9% 0.6% - 0.6% - 24 -
Aging US Hotel Stock Average Age Independents Economy Chains Midscale Chains Upper Midscale Chains Upscale Chains Upper Upscale Chains Luxury Chains 0 5 10 15 20 25 30 35 40 Increase of Reserve from 4% to 7% Decreases Value NPV by 10% - 25 -
Change in Investment Parameters Valuation Input Q2 2011 Q2 2012 Loan/Value 65% 70% Amortization 25 Years 25 Years Term 10 Years 10 Years Interest Rate 6.00% 5.25% Terminal Cap Rate 9.50% 9.00% Transaction Costs 2.00% 2.00% Equity Yield 17.0% 18.0% - 26 -
Impact on Discount and Cap Rates 7% Increase In Value With Same NOI Valuation Output Q2 2011 Q2 2012 Valuation Output $86,400,000 $92,600,000 Value per Room $171,000 $183,000 Unlevered Discount Rate 10.81% 10.11% Overall Rate - Historical NOI 6.5% 6.1% Overall Rate (1st Year NOI) 7.3% 6.8% Debt Coverage Ratio (TTM NOI) 1.24 1.34 Debt Coverage Ratio (Year One) 1.45 1.46 Debt Yield 11.5% 10.5% - 27 -
As of Q2 2012: Lower interest rates Increasing leverage Rising income levels Capitalization Rate Stabilization - 28 -
Outlook Market picking up steam anticipate increase in sales and refinancing as 2012 progresses CMBS active again, resuming competitive lender environment and driving down interest rates for strong cash flowing hotels Outlook is favorable, with only a 50 bp rise in T- bill rate projected through Q2 2013 Values expected to continue to rise due to combined effect of RevPAR gains and favorable lending environment Capitalization rates should remain stable over the remainder of 2012-29 -
Please, Call Me or e- mail Me With Any Questions smellen@hvs.com 415-268- 0351 Thank You! - 30 -
Suzanne R. Mellen, MAI, CRE, FRICS, ISHC Suzanne R. Mellen is Senior Managing Director of Consulting & Valuation for HVS San Francisco and Las Vegas and President of HVS Gaming Services. HVS is a full-service consulting and valuation firm specializing in hotel, gaming, and hospitality properties worldwide. Under Ms. Mellen s leadership, HVS San Francisco and Las Vegas have become renowned for excellence and integrity. Suzanne Mellen s professional experience includes consulting and appraisal positions with HVS New York, Morgan Guaranty Trust, Laventhol & Horwath, and Helmsley-Spear Hospitality Services, Inc. in New York City and Harley-Little Associates in Toronto, Canada. Ms. Mellen has a B.S. degree in Hotel Administration from Cornell University and holds the following designations: MAI (Appraisal Institute), CRE (Counselor of Real Estate), FRICS (Fellow of the Royal Institution of Chartered Surveyors), and ISHC (International Society of Hospitality Consultants). She has been appraising hotels, gaming assets and related real estate for over 30 years, has authored numerous articles, and is a frequent lecturer and expert witness on the valuation of hotels, casinos and related issues - 31 -