03 Apr2015

2015 Hunter Conference Recap


Prepared by:

Vince Ciepiel   

(216) 649-7253





Bob Hunter Intro

  • Development Plans – 61% say develop a new hotel in 2015 (in line with the 59% at conf last yr)
  • Baseball again – 6th or 7th inning of a double header (same view as last yr)


The Opening Panelists

  • Liam Brown (Marriott), Javier Rosenberg (Carlson) , Pratik Patel (REM) , Rajiv Trivedi (La Quinta)

Key Quotes:

  • “Brands looking at my P&L and saying here is how we would help…that’s my dream.”
  • “AirBNB…don’t be taxi drivers….Adapt vs. complain.”


  • Acquisition costs – now exceed replacement in many cases…development should increase
  • Own the guest experience – that’s the recipe to compete w/OTA’s
  • AirBNB – “don’t be taxi drivers.” “Adapt vs. complain.” “That business has been in existence since WW2.” “Make sure we are all playing on a level playing field.” “few incidents happen and then people get more cautious.”
  • Brand vs. 3rd Party Mgt – “it depends.” Some cases go to dealership in others local mechanic.
  • Minimum Wage – The train has left the station with regards to minimum wage.
  • Lock in – When rates rise…they will rise fast and you won’t have time to lock in. Do it now.
  • Individualized marketing – making guest feel you are paying better attention to the guests individual needs and helping them enjoy their stay while they are there…needs to happen more.
  • My Dream for Brands – Brands looking at my P&L and saying here is how we would help…that’s my dream. Focus on bottom line of owners…not just top lines.
  • All these New Brands – If they hang their hats on loyalty, cross brand impact should be a concern.


The Economist

  • Greg Miller (Sun Trust)

Key Quotes:

  • “there is a recession out there somewhere”
  • “Mumble with obscurity….so if anything seems unusually clear…you must have misunderstood me.”


  • Rising rates spurs lending – In initial stages of rising rates, lending accelerates. Not going to shut down the economy soon. It will take…normal progression of interest rate hikes to get to the point where we normally start worrying about rate pulling the economy backwards.
  • Consumers got their first raise in 8 yrs. – 2 car family driving standard miles – you are bringing in an extra $2,500 bucks ($1,250 per individual). This compares to the avg. impact of minimum wage raise…$250 per individual.
  • Acceleration Mode – GDP should grow 3.5%  in 2015 and then moderate in 2016. Business spending reaccelerates, housing adds sales to production, government contributes, energy supports low business/household costs, global malaise boosts US
  •  Risks – Cycle risk, Credit transmission risk, Government/Political Circus risk, Consumer spending/wage risk


The Data Geeks

  • Vail Brown (STR), Katie Moro (Travelclick), Mark Woodworth (PKF)


  • Inflation adjusted Rate is back – Occupancy ahead of prior peak. ADR inflation adjusted in line. 2015 Demand growth YTD exceeding Supply by good margin – should support another yr of occupancy builds and accelerating rate growth.
  • Pipeline – 130,000 rooms under construction up 30% yr/yr but down from 220,000 in 2006. All going upper midscale and upscale.
  • Group – Tracking up 5% yr/yr. Looks strong in 4Q. Supporting rate growth.
  • FX and Oil – Lower gas prices should support occupancy growth. Stronger USD could hurt international arrivals (Europe especially in gateway markets). Could be a bigger issue this summer.


The Presidents Panel

  • Michael Medzigian (Chairman and Managing Partner Watermark), Dave Johnson (CEO Aimbridge), Jim Merkel (CEO Rockbridge), David Kong (CEO Best Western), Roger Bloss (CEO Vantage)


  • In 10 yrs….lifestyle hotels will just be hotels.
  • Candidly the brands got their butt kicked.
  • Can’t have the whole place so dark that I need my iPhone flashlight to find my way around.


  • Seizing the Day is About… – Be as efficient as we can be. Brand/footprint expansion. Portfolio management. Market share with the customer base. Rate growth.
  • AirBNB and OTA’s –OTA’s selling more rooms, have more leverage, and can raise the commission. Going to get worse. What can we do???? We can control is customer experience. Strong brand is a great advantage. They drive a lot of revenue through loyalty and marketing efforts To say it’s the brand’s fault that the OTA’s is a misnomer. Look at our marketing budget…it pales in comparison to OTA’s marketing budget.
  • More Brands better? – Size matters…support distribution. Not all about size…about giving customer what they want the way they want it. Really bad for owners…really good for the brands. I am not sure Westin, le Meridian, Luxury Collection is a different customer.
  • Brands worth it? – Sometimes you are paying more than you are getting…not all brands are created equal. In 08 and 09, we saw our top brands really delivered and we gained share. It is easy to be hard on the brand in the good times, but we were very thankful in heart of recession that we had them.
  • Push Price – Our asset managers….going to management company and just saying raise rates. Any every time we push it sticks. It is really a good time to push rate. So much compression in the market…if everyone in this room just pushes it will stick. One of the best times in the history of industry to push pricing.


The Select Serve Portfolio Deal Panel

  • Jonathan Mehlman (CEO of American Realty Capital), Phillip Wade (CIO Xenia), Sujan Patel (Northstar), Brian Kim (Blackstone), Tyler Morse  (MCR)


  • If you look at new supply in 05/06, every dentist in America decided it was time to build a hotel. Banks were giving money away to anyone.
  • Saw better growth and better margin in select serve. I think it should get a premium valuation. But you could buy them cheaper. Light bulb went off for us.
  • Own a select serve Marriott branded that makes more in profit than the Ritz in Dallas.


  • Yr of the Select Serve – 2014 was a monumental yr for portfolio select serve deals. 2015 likely sees transaction volume remain elevated but the dollar volume likely takes a step down.  Could be a handful of deals in the $200–$500M range but most likely closer to $100M. Compares to 2014 with multiple $500M to $1B plus deals.
  • Buy vs. Sell – Northstar plans to be a net buyer for a while, looking at $50M plus deals. ARC is at 130 hotels and wants 200 by year end. Blackstone likely a buyer in 2015 and seller in 2016.
  • Durable Cash Flows – When we looked at 30 yrs of data, saw better growth and better margin in select serve. I think it should get a premium valuation. But you could buy them cheaper. Light bulb went off for us. Lot of tailwinds for our sector relative to others. Interesting arb available given availability of financing. Still very attractive time to finance the asset class.
  • Good Time for Everything – Not a bad time to buy or sell. Tough to time the cycle. Rates are probably going up but not by that much. Values could be relatively stable. Supply not an issue. Guys on stage are hunger for deals.


The Brand Landscape

  • Jim Holthouser (Hilton), Bill Linehan (CMO RLHC), Michael Muir (Best Western Development), Adam Glickman (EVEN, IHG), Richard Flores (Carlson Rez)



  • “We are not saying we don’t want OTA’s…we don’t want them on the current terms. If we don’t stand together, EXPE will be boss and brands won’t matter.”
  • “There are 237 different brands…as of yesterday….that’s a lot for customers to keep up with. Awareness and understanding takes years.”


  • Loyalty – Add simplicity to the program. X stays is a free night. All the customer wants is more recognition/appreciation in the hotel. Immediate gratification and less confusion. Don’t try to control or manipulate the loyal customers behavior – show appreciation. 
  • Millennial – There is some millennial in all of us. Less about an age than a mindset. This is what consumer wants now. Take a prototypical brand and begin to introduce millennial elements to it. Good feedback across age groups.
  • Brand Proliferation – There are 237 brands as of the conference. Some make sense…others don’t. All about A.) strong consumer proposition and B.) a guest delivery system. Brands job is to figure out how to the get the customer what they want. Awareness and understanding take years.
  • F&B – All about local and simple. Coffee and Alcohol are key. The bar area is key…creates good energy and attracts the right customer. 
  • Service – Easiest way to differentiate. Own the guest stay. OTA’s cannot compete here. Employees are first and last to engage customer make sure it’s a positive experience. Attract right employee.


Steve Joyce Lunch

  • Gold Medals – Steve began his address by introducing some principles from Dan Gable (arguably the most successful wrestler of all time) that could be applied to the lodging industry. In wrestling,  you have to be strong, nimble, and swift. Seize opportunities and strike with courage and conviction… that is what the industry should do. 
    • 1. Never give up – “Gold medals are made up of sweat, determination, and guts.”  Dan only lost 1 match in his entire Iowa state career. More impressive, he did not give up a single point in his Olympic gold medal run. 
    • 2. Focus on Excellence – Dan built the storied Iowa wresting program.  They have won 15 NCAA titles. We are in a brain based economy – people are biggest asset. Surround yourself with the brightest and hardest working. An employee’s worth is tied to his/her willingness to learn new skills and re–invent themselves.
    • 3. Stay on course of your dreams – Don’t lose focus of what set out to do. Being responsible means making people uncomfortable sometimes. Avoiding making difficult choices so not to ruffle any feathers will do you no good.
    • 4. Practice and Play to win – Dan stated, “My mind has never gone very far away from what I want to accomplish.”
    • 5. Have a warrior’s heart – Dan fought for what he was passionate about. When wrestling almost got nixed from Olympics, Dan was one to rally the troops and be an advocate and supporter of wrestling.
  • Have Fun – If you are not having fun now…you better get out of this business. B/c it doesn’t get any better than this. The time is now to seize the day. The stars are aligned for us to move forward.
  • Wanderlust – Important to remembers this business not just about financial rewards. This is the hospitality business. Wanderlust – right to travel…the need to travel. Let’s encourage the U.S. traveler to tap into the Wanderlust.
  • Technology Innovation – When I started…it was all about operations focused. Hotel has evolved into a technology play. Guests use phones, tablets, and computers throughout booking and stay. Need to push boundaries on front end consumer facing side and back office. Make lives of owners easier.
  • Not just Heads in Beds – View the industry more broadly than that…the time is here…the time is now…seize the day.


Buying & Selling Hotels in an Active Market

  • Mark Morris (Hunter) - Moderator, Ben Brunt (Noble), Chris Diffely (Rockbridge), David Emery (InterMountain), Michael Everett (Sage)


  • We see re–urbanization trend in every major market across the country.
  • We like college towns very much….so you all need to avoid them at all costs.
  • Very healthy debt market. I don’t want it to loosen up beyond what it is.


  • The opportunity – The really bad full service hotels surrounded by 10 yr old select service. Those are the full servs we look at. 100,000 purchase price and 25,000 pip. Renovated full service hotel competing against older select service set. Not going to see 5 to 6 hotels coming into that market. Fewer people interested in these box hotels.
  • Financing – Leverage in the 65–75% range. Getting low 200s on the 30 day Libor for low end of that. Premium to that 200 to get to 75%. If we want to own forever, it’s 65% with 10 yr money. For right balance sheet and right track record, you can get just about anything done. Very health debt market.


Asset Management – YTD Trends/Thoughts

  • Steve Nicholas (Noble) – Moderator, Timothy Dick (Three Wall), Paul Breslin (Horwath), Lawrence Trabulsi (CHM), Howard Isaacson (RLJ)


  • Group in the yr for the yr has been hot lately.
  • Corporations need to realize prices are going up.


  • YTD Trends Solid – Seeing more in the 6–8% range growth YTD than the 4–6% range. Feels better than expected through 1Q of this yr. Not all about finding higher rate – can be easy to just eliminate the lower rates.
  • Corporate Rate Growth Accelerating – Seeing 5–7% growth in corporate negotiated rates. Corporations need to realize prices are going up. Allotments are being reduced. Last room availability being reduced. Trying to find smaller more diversified corporate accounts.  Natural rate growth from mix alone is key. I see the Brands helping in this arena. Some of the brands negotiating the national accounts on your behalf and they are much more aggressive going after it this yr.
  • Group Up Again in 2015 – Generally at our big box Group is up. Came in with stronger bookings. In the yr for the yr has been hot. Groups coming in as expected, maybe slightly higher. We are below budget on cancelation revenue. Group F&B has been rock solid. Seeing last minute pop up in Group spend. It’s that one more/additional reception. Let’s upgrade this or that.






Buy:  The stock’s return is expected to exceed the market due to superior fundamentals and positive catalysts.

Underperform:  The stock’s total return is expected to underperform the market due to weak fundamentals and a lack of catalysts.

Neutral:  The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts.

Valuation and Risk:  Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings.  Price targets are not established for every stock.  The price target’s effectiveness may be affected by various outside factors.  Risk assessments can be found in the most recent research on these stocks.

Other Disclosures:  I, Vince Ciepiel, certify that the views expressed in the research report(s) accurately reflect my personal views about the subject security(s).  Further I certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company.

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