U.S. Lodging Industry Update. Are You Tired of Being at the Peak?

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1 U.S. Lodging Industry Update Question for Jan: Are You Tired of Being at the Peak? R. Mark Woodworth CBRE Hotels Americas Research March 23, 2017

2 Bright Horizons.. Dusty Dawns.. U.S. Lodging Industry Update March 23, 2017 GLOBAL RESEARCH AND CONSULTING ECONOMETRIC ADVISORS

3 AGENDA The Economy The Impact of New Supply Airbnb What Happened in 2016? Labor Costs! Our Forecasts 3 29 TH HUNTER HOTEL CONFERENCE

4 AGENDA The Economy 4 29 TH HUNTER HOTEL CONFERENCE

5 COMPONENTS OF GDP The Outlook for the Drivers that are Most Important to Hotels Remains Favorable 10 8 GDP Component Forecast % 3.9% 3.9% 2.7% 2.5% 1.7% 1.3% 4.6% 4.0% 2.8% 3.1% 2.9% 2.7% 1.9% 0.8% 0.5% 0.1% 0.8% 5.0% 4.0% 2.3%2.0% 1.4% 3.5%1.9% 3.0% 2.9% 3.1% 3.1% 2.7% 2.3% 2.6% 2.1% 2.5% 2.0% 0.9% 0.8% I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV % -2.7% -1.5% GOVERNMENT (Government consumption expenditures and gross investment) -1.9% -0.5% TRADE (Net exports of goods and services) % -5.4% These matter the most. BUSINESS (Gross private domestic investment) CONSUMERS (Personal consumption expenditures) Lodging Demand Source: BEA, Moody s Analytics, CBRE Hotels Americas Research Hotel Horizons: February 2017, STR, Inc TH HUNTER HOTEL CONFERENCE

6 LEADING ECONOMIC INDICATORS Percent Change In the Last 6 Months Feb % 15.0% Leading Economic Indicators (% change in the last 6 months) U.S. Hotel Demand 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% -30.0% 6 to 8 month lag Source: The Conference Board, CBRE Hotels Americas Research, STR Economic indicators have trended up after the election 6 29 TH HUNTER HOTEL CONFERENCE

7 RETAIL SALES AN INCREASING SHARE OF THE WALLET Changes in the Share of the Retail Dollar (10 Year Trend to 2016) Hotel Rooms Food services and drinking places Nonstore retailers Miscellaneous stores retailers General merchandise stores Sporting goods; hobby; book; and music stores Clothing stores Gasoline stations Health and personal care stores Food and beverage stores Building mat. and garden equip. and supplies dealer Electronics and appliance stores Furniture and home furnishings stores -40% -20% 0% 20% 40% 60% Source: U.S. Census Bureau, Moody s Analytics, STR, CBRE Hotels Americas Research, Q TH HUNTER HOTEL CONFERENCE

8 CHANGES IN EMPLOYMENT % 20.0% 15.0% 10.0% Leisure and Hospitality has been one of the fasting growing employment groups. 5.0% 0.0% -5.0% Total Natural Nonagricultural Resources and Mining Construction Manufacturing Trade; Transportation; and Utilities Information Financial Activities Professional and Business Services Education and Health Services Leisure and Hospitality Other Services Government -10.0% -15.0% Source: U.S. Bureau of Labor Statistics (BLS), Q TH HUNTER HOTEL CONFERENCE

9 EFFECT OF STRONG DOLLAR Exchange Rate Index and International Tourism Spending Total Travel and Tourism-Related Exports FRB Broad Currency Index (Right) 21, , , , , , , , , Source: Federal Reserve Board, International Trade Association, Q Note: Quarterly data in real terms, '97 = TH HUNTER HOTEL CONFERENCE

10 INTERNATIONAL TRAVEL SPENDING IN U.S. Trends Look Encouraging Going into 2017 Change in Total International Travel and Tourism-Related Spending Change in International Arrivals 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% % -4.0% -6.0% -8.0% Source: Bureau of Economic Analysis, National Travel and Tourism Office (NTTO), U.S. Department of Commerce TH HUNTER HOTEL CONFERENCE

11 CHAIN SCALES/MARKETS IMPACTED Research by CBRE Hotels Americas Research Upper-Priced U.S. hotels are vulnerable to fluctuations in exchange rates Strong Dollar has a negative impact on U.S. lodging demand. Among Upper-Priced chain scales, the luxury segment appears particularly sensitive to exchange rate movements. Gateway cities show greatest impact from changes in the exchange rate: Boston Chicago Los Angeles Miami New York San Francisco Washington DC Source: How current exchange rates affect the demand for U.S. hotel rooms: Corgel, Lane, Walls. International Journal of Hospitality Management TH HUNTER HOTEL CONFERENCE

12 AGENDA The Impact of New Supply TH HUNTER HOTEL CONFERENCE

13 BRIGHT HORIZONS.DUSTY DAWNS: U.S. GATEWAY CITIES An Uneven Landscape Low Supply:Strong ADR Growth U.S. Gateway Cities * Sensitive to Exchange Rate Fluctuations Gateway City Cumulative ADR Change (23.9%) Cumulative Supply Change (4.6%) 2016 Occupancy (65.5%) Boston* 40.1% 6.1% 74.2% Chicago* 25.2% 4.0% 69.0% Los Angeles* 60.0% 0.1% 81.3% Miami* 37.2% 12.2% 75.9% New York* 12.9% 25.9% 85.8% Oahu 51.5% -0.3% 84.2% Orlando 42.9% 3.1% 75.6% San Francisco* 68.7% 0.1% 84.3% Washington, D.C.* 14.7% 5.0% 72.1% U.S. Averages Source: CBRE Hotels Americas Research; STR, Inc TH HUNTER HOTEL CONFERENCE

14 BRIGHT HORIZONS.DUSTY DAWNS: U.S. GATEWAY CITIES An Uneven Landscape High New Supply:Weak ADR Growth U.S. Gateway Cities * Sensitive to Exchange Rate Fluctuations Gateway City Cumulative ADR Change (23.9%) Cumulative Supply Change (4.6%) 2016 Occupancy (65.5%) Boston* 40.1% 6.1% 74.2% Chicago* 25.2% 4.0% 69.0% Los Angeles* 60.0% 0.1% 81.3% Miami* 37.2% 12.2% 75.9% New York* 12.9% 25.9% 85.8% Oahu 51.5% -0.3% 84.2% Orlando 42.9% 3.1% 75.6% San Francisco* 68.7% 0.1% 84.3% Washington, D.C.* 14.7% 5.0% 72.1% U.S. Averages Source: CBRE Hotels Americas Research; STR, Inc TH HUNTER HOTEL CONFERENCE

15 AGENDA Airbnb What Happened in 2016? TH HUNTER HOTEL CONFERENCE

16 RECENT RESEARCH TH HUNTER HOTEL CONFERENCE

17 AIRBNB CONTINUES TO GROW A LOT Airbnb Metric Growth Rate Units 383, , % Total Supply 37,344,113 81,037, % Demand 17,988,315 39,836, % Revenue $2.7 billion $6.8 billion 147.8% Occupancy 48.2% 49.2% 2.1% ADR $ $ % RevPAR $ $ % Source: CBRE Hotels Americas Research; Airdna.co, Q TH HUNTER HOTEL CONFERENCE

18 U.S. AIRBNB UNITS 25 Largest U.S. Airbnb Markets Y-o-Y Change 300% Orlando 250% 200% Las Vegas Riverside, CA 150% Atlanta 100% San Diego Miami 50% Oakland San Francisco Los Angeles New York 0% 0 5,000 10,000 15,000 20,000 25,000 30, Avg. Active Units Source: CBRE Hotels Americas Research; Airdna.co, Q TH HUNTER HOTEL CONFERENCE

19 AGENDA Labor Costs! TH HUNTER HOTEL CONFERENCE

20 UNEMPLOYMENT RATES CONTINUE TO FALL U3 vs. U6 Unemployment Rate U6 includes discourage, marginally attached, and part-time workers % 3.7% 4.5% Source: BEA, Q U6 Unemployment U3 Unemployment TH HUNTER HOTEL CONFERENCE

21 UNEMPLOYMENT IMPACT ON COMPENSATION Annual Change in Hospitality Hourly Compensation versus Unemployment Rate 6% 10% 5% 9% 4% 8% 3% 7% 2% 6% 1% 5% 0% 4% -1% E 2017F 3% BLS - Change in Average Hourly Compensation for Hospitality Employees (Left Axis) U.S. Unemployment Level (Right Axis) Source: Trends in the Hotel Industry, Bureau of Labor Statistics TH HUNTER HOTEL CONFERENCE

22 COMPONENTS OF TOTAL LABOR COSTS Annual Change in Components to Total Labor Costs 10% 5% 0% -5% -10% -15% E 2017F Change in Total Hours Worked BLS - Change in Average Hourly Compensation for Hospitality Employees CBRE - Annual Change in Total Labor Costs Source: Trends in the Hotel Industry, Bureau of Labor Statistics CBRE TH HUNTER HOTEL CONFERENCE

23 AGENDA Our Forecasts TH HUNTER HOTEL CONFERENCE

24 TOP AND BOTTOM MARKETS Compound Annual RevPAR Growth Dayton 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Houston Sacramento Bright Horizons San Francisco Cincinnati All Saint Louis Charlotte Raleigh-Durham Dusty Dawns Baltimore Philadelphia Source: CBRE Hotels Americas Research; STR, Inc TH HUNTER HOTEL CONFERENCE

25 U.S. BASELINE FORECAST Forecast calls for a continual decline in RevPAR growth mainly due to slowing employment gains and new supply diluting ADR. Long Run Average F F 2017F Supply 1.9% 0.7% 0.6% 1.0% 0.7% 1.6% 1.0% 2.0% 1.6% 2.1% 1.8% Demand 2.0% 4.1% 2.0% 2.7% 4.1% 1.7% 2.7% 1.9% 1.7% 1.8% 1.5% Occupancy 62.0% 64.3% 62.2% 65.4% 64.3% 65.5% 65.4% 65.4% 65.5% 65.1% 65.3% ADR 3.0% 4.6% 3.8% 4.5% 4.6% 3.1% 4.5% 3.1% 2.9% 3.3% RevPAR 3.2% 8.2% 5.2% 6.2% 8.2% 3.2% 6.2% 3.0% 3.2% 2.5% 3.0% Sources: CBRE Hotels Americas Research - Hotel Horizons March 2017 May 2017, STR TH HUNTER HOTEL CONFERENCE

26 SUMMARY THOUGHTS LEANING TOWARDS THE UPSIDE 1. The fundamentals remain attractive across the vast majority of markets. 2. Industry growth will persist comfortably through 2018 and likely beyond. 3. High occupancy levels should provide the leverage needed to achieve attractive ADR increases for the next two-three years. 4. Increasing hotel construction will continue; the threat of over building is the exception and not the rule. 5. Above long run average occupancy levels will lead to revenue growth, but increasing labor costs will become more of an issue. Profit growth will remain favorable. 6. Steady, if unremarkable, growth is to be expected overall. Some markets certainly better than others TH HUNTER HOTEL CONFERENCE

27 CBRE HOTELS The World s Leading Hotel Experts. Mark Woodworth Senior Managing Director mark.woodworth@cbre.com ALTERNATE OPTION FOR PHOTOS AVAILABLE IN SLIDE MASTER PAGES 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 TH HUNTER HOTEL CONFERENCE