08 Jun2015

2015 NYU Lodging Conference Recap and 2Q Update


Last week, we attended a lodging conference where we had the opportunity to catch up with a number of lodging professionals (Owners/Asset Managers, Revenue Managers, Third Party Management Co’s, Developers, Lenders, etc) and sit in on conference sessions (panels primarily made up of Brands/REIT’s/PE executives). We remain positive on the space, and are coming away from the conference with a constructive outlook for the industry. In this note, we a.) include our sessions notes from the conference, b.) provide some thoughts on 2Q-to-date trends, c.) walk through the Supply/Demand dynamics of the cycle and the RevPAR growth implications.


Recap: Industry Conference – Tone Remains Upbeat

  1. What’s making headlines? – Big announcement out of the Brand Co’s, was Starwood’s 10 point plan to refresh the Sheraton brand. Feedback from owners/industry participants suggests that a brand refresh without a significant capital investment on the part of the owners is likely to only modestly move the needle. Barry Sternlicht’s comments on Starwood (on valuation levels, on management/company focus, on consolidation) were also in focus.
  2. What’s the tone? – This conference felt similar to the other’s we have attended in that the tone was quite upbeat as most industry participants feel quite good about the propensity for this cycle to continue for another few years. Financing is readily available/quite competitive for the right deal in the right markets, but standards are still high/good track record required.
  3. Where are we in the cycle? – This question seems to come up on every panel at every conference. The consensus answer is the 5th-7th inning. We heard this answer 6 mo’s ago, 12 mo’s ago, and 18 mo’s ago, meaning these mid/late innings are quite long innings.
  4. What the discussions centered around? – The hot topics continue to be the competitive landscape (Expedia/Priceline/AirBnB), brand proliferation, lifestyle & boutique hotels, the success of the select serve boom, fate of full service, engaging millennials/loyalty programs, discussions on the trajectory of hotel values/interest & cap rates,  international travel (and expansion for the Brands), and New York (had a worse than expected 1Q, but is likely the low point of the yr for the city).
  5. Conference sessions, speakers, and key quotes below. Full Notes from the Conference in the Appendix A on page 3.


Initial Read on 2Q – Solid RevPAR growth continued into 2Q

  1. Our work suggests that April and May U.S. RevPAR performance looks to have continued the positive momentum from 1Q; growth appears to be tracking in line with industry participants expectations. Some have noted that 2Q growth levels (through May) are maybe 50-100bps off of 1Q yr/yr growth levels, but that June looks quite strong.
  2. Survey feedback continues to show Transient and Group business on the books for this summer and into the 2H pacing ahead of last yr with both roomnights and rates positive,  supportive for continued mid-single digit growth
  3. Group demand on the books for the next 12-18 months continues to pace positive; operators feeling more confident in the trajectory of Group from a rate, occupancy, and Food & beverage perspective


Where we are in the Cycle/Longer Term Thoughts – Fundamentals Quite Strong

  1. Cycle - We continue to received feedback that suggests this should be an elongated upcycle; demand is expected to outpace supply for at least the next 12-18 months supporting a modest build in occupancy and solid rate growth
  2. Supply - While supply growth is creeping up modestly, “over-building” does not appear to be a concern/something likely for the foreseeable future. Supply growth is expected to remain below 2% through 2017, below the anticipated demand growth of ~2.5%
  3. Duration - 2015 marks the 6th year of the upcycle with YTD demand growth of 4.5% (in line with 2014 levels) outpacing supply growth of 0.9% (also in line with 2014 levels).  57 months into the current upcycle vs. 56 in the prior and 112 from the 90’s cycle.
  4. Occupancy - Levels are at all-time highs north of 65%, ahead of the prior peak of 63.1% in 2007 and 64.9% in 1995. Occupancy build YTD has been higher than anticipated 6-12 months ago.
  5. Rate - Rate is anticipated to grow just above 5% in 2015, which is in line with the levels anticipated 6-12 months ago and just ahead of 2014 growth of 4.6%. As of 2014, rates were 11% ahead of prior peak (00’s cycle saw 23% peak to peak ADR growth, 90’s cycle saw 45% peak to peak ADR growth) and in line with the prior peak on an inflation adjusted basis (00’s cycle saw inflation adjusted ADR 2% ahead of prior peak, 90’s cycle reached 11% ahead of prior peak).
  6. Full charts on the cycle in the Appendix B on page 16.


List of Lodging Conference Sessions & Key Quotes from Conference

In this section, we include a list of panels/sessions that we attended as well as the key quote(s) from the session. For full notes, please see the Appendix.

  • The CEO Check In: A View From The Top - Panel: Geoff Ballotti (Wyndham), Sebastien Bazin (Accor), Mark Hoplamazian (Hyatt), Christopher Nassetta (Hilton)
    • Key Quote: Chris Nassetta -”The big mega trend….it’s limited service around the world. Look at demand patters or price point that you are seeing greatest demand in largest number of regions around world it would be limited service.  Entire objective is to be following those demand patterns and deploying right brands at the right time and right locations.”
  • Titans of Real Estate - Panel: Jonathan D. Gray (Blackstone), Barry Sternlicht (Starwood Capital)
    • Key Quote: Barry Sternlicht on Starwood (HOT) -“I think it’s unclear…the stock trades pretty well.  That’s one of the biggest’s not cheap where it’s trading. In terms of consolidation/merging, there were strategic fits for the company when I ran it. Whether it can make financial sense, I don’t know.  My vision of Aloft was different than what the current administration came out with.  Starwood did something interesting - I think they spend more time in the back of the house with tech stuff then in the consumer-fronting stuff.  I would say Starwood fell a little behind and they weren’t the easiest to do business with, didn’t do a good job being willing to change and make adjustments. There’s scarcity of these companies in the word. Will a sovereign wealth fund come behind somebody? … Very possible. These don’t come up for sale very often.”
  • Same Goals, Different Strategies - Panel: Monty Bennet (Ashford), Tyler Henritze (Blackstone), Mit Shah (Noble), Edward Walter ( Host Hotels)
    • Key Quote: Monty Bennet on Interest Rates -“Presumption is they have to go back up, I don’t think that is the case.  Already seeing negative rates in Europe….nothing written anywhere that just because you are a borrower that you need to pay the lender instead of the other way around.  I think they can go negative in a material way.  Lower they go the more valuable the cash streams are from the assets we own.  Quantitative easing is just about out of gas so what else can they do?  Taking interest rates negative is one of the options.
  • The Leaders Forum - Panel: Jim Abrahamson (Interstate Hotels), Kirk Kinsell (Loews), Lou Plasencia (Plasencia Group), Allen Smith (Four Seasons), Simon Turner (Starwood)
    • Key Quote: “Most surprising right now is the amount of capital coming in from China and Mid E. Seeing major buyers getting money out of China/Asia and coming into the U.S. and paying big prices. The Chinese investor…while we think in 5-7 yr horizons…they think in 50-100 yr horizons.”
  • A View from the Owners Seat: Panel - Mark W. Brugger (Diamond Rock), Chad Crandell (CHMWarnick), Dan Hansen (Summit), Michael Medzigian (Watermark Capital Partners), Marcel Verbaas (Xenia)
    • Key Quote 1: “Highest occupancy on record…we don’t even know what kind of pricing power we will have (have never seen this before). Our view is…go do more, if wrong can always pull back. We are telling our guys to push rates harder, and it sticking in 90% of the cases.”
    • Key Quote 2: “If we lose a couple customers, its strong enough that we can backfill it. Good position to take chances and raise price. Outlook for group pace on a comp basis to prior yrs has never been better.”
  • Growth Strategy Runs the Gamut. A Focus on the Growth and Brand Expansion: The Best Way to Go - Panel: Ben Brunt (Noble), Collin (Ashford), Troy Furbay (DiamondRock), Mike Garcia (Omni), John Hamilton (Pyramid)
    • Key Quote 1: Ben Brunt on Lenders - “No shortage of lenders today. Had a choice of 2 in 2009…now we have 20 plus choices.”
    • Key Quote 1: John Hamilton on Development -“Cost to develop is going crazy. Goes up every month”
  • Private Equity Revisited- Panel: Rick Kirkbride (Paul Hastings LLP), Jonathan Mehlman (American Reality Capital), Sujan Patel (Northstar), Suri Shah (Starwood)
    • Key Quote: Sujan Patel on Hotels as Asset Class – “We believe there is still room to run in cycle—investors understand why we have deployed a significant amount of equity into the space.  Property prices in US have surpassed peak pricing in almost all asset classes, but lodging is still below”
  • The Leaders Check In Part 2 – Panel: David P. Berg (Carlson), William J. Ferguson (Ferguson Partners), David Kong (Best Western), Elie Maalouf (Intercontinental), Cyril Ranque (Expedia)
    • Key Quote: Cyril Ranque on Mobile – “Out of the 145 million who booked travel in the U.S. last yr, 90% of them search for travel on mobile. 25% of all our transactions are mobile and in China, well over 50% is mobile. “
  • Revenue Management and Profit Maximization: Maximizing the Total Asset - Panel: Brad Beakley (Carlson), Paul Breslin (Horwath), Erik Browning (Rainmaker Group), Edward Maynard (Denihan Hospitality), Amy Severson (Expedia)
    • Key Quote:“Want occupancy that drives other areas of revenue as well.”


A.) Full NYU Lodging Conference Notes

Opening Panel - Dennis Di Lorenzo and Jonathan Tisch Intro

  • The Good- Room demand, ADR, RevPar increases all hit all time highs last year
  • International Travel- The growing number of international travelers can spur growth for years to come
    • 75 million international visitors arrived in U.S last year & spent 222B
    • National Travel & Tourism Strategy= Goal to get 100M visitors by 2021
    • 2.1T in Economic impact last year supports over 8M jobs
  • Policy Victories- Travel promotion act- brand USA responsible for bringing 1 million new international travelers to the US market in turn generated 3.4B in visitor spending (28,000 jobs)
    • Expansion of Visa waiver program, Improvements to visa process, Reforms to customs process, “Growth drives policy wins which drives growth”
  • Air Travel Experience (Negative)- The experience for individuals traveling to and within the U.S needs improved
    • 9/10 say air travel has become more of a hassle or same as it was last year, 7/10 say options are inadequate
    • 2011 airports handled 33M more passengers than they did in 2001 but they have not expanded
  • Air Travel Improvements- Give option to local communities and airports to raise PFC (stuck @ $4.50) to inflation adjusted levels
    • Raise fee only to fund projects that will modernize, expand and improving airports
    • Speed development of next gen aviation technology
    • Congress reauthorize FAA (last one done in 2012 after multiple short term extensions)
  • U.S Travel Report- Average employee leaves 3.2 “off days” on the table each year
    • If Americans used all their paid leave would spend additional 67 billion dollars on travel

The CEO Check In: A View From The Top

  • Moderator: Katherine Lugar (American Hotel and Lodging Association)
  • Panel: Geoff Ballotti (Wyndham), Sebastien Bazin (Accor), Mark Hoplamazian (Hyatt), Christopher Nassetta (Hilton)
  • Culture and Leadership – Who or what inspires your leadership?
    • Sebastien- Went from managing 40 people to 180,000, with no management experience in terms of turnaround.  Company needed a shift in mindset, started by listening to 3,000 people in 40 countries, not saying anything for 3 months.  Just listened to what people wanted.  Previously 90% of decisions were made by French people in the French headquarters; now hope 70% of decisions are made locally.  Simplified the decision process and cut layers.  Biggest difficulty that I need to fix is the intergeneration between millennial & the older generation who has power and experience today.  Need interaction between those two generations.
    • Chris- Interesting opportunity almost 8 years ago to hit reset button and take 100 year old company and transform it into one globally integrated and aligned organization.  Establishing true purpose as an organization.  Common cause bigger than them: creating opportunities for customers, owners, teams and communities.  It’s about distributing leadership: succeed by serving your customers.
  • Where are we in the cycle & how many good years do we have left?
    • Chris - “I think next few years are going to be exceptionally good in this business.”  Simple laws of economics at work, supply itching up a little (still at historically low levels.)  Demand while not raging is growing at a fairly steady pace consistent with what is going on in the U.S economy (exception 1Q).  ). US economy stable moderate growth and recovery for next few years versus very modest supply additions.  Supply less than demand is good things for our business.
    • Mark- Echo what Chris said.  In US context people are focused on GDP and link to revpar.  GDP important because we are in an area of world growth.  Added dimension in US context is corporate profitability is growing at a rate in excess of GDP growth which is driving group business travel to recover.  We expect to see durable strength in our business over the next few years. 
    • Sebastien- Echo again.  Numbers/Demand for international travel demand will grow at rate of 4-5% and supply 2-3% so next few years we will be ok.  Puzzled about for 50 years we have been in value chain proposition 90-10 (traditional travel agent) which has been modified to 80-10-10 (my pie will get lower in 5-10 years due to sharing economy).  We need to wake up because if we don’t adapt things will change in 5-10 years.
    • Geoff- Great point. In terms of cycle in month 57, feels like 92-2000 cycle.  That 112 month cycle has similar characteristics to the cycle we are in today.  Cycle has long way to run.
  • When you look at international development give me one country that excites you?
    • Geoff: China
    • Sebastien: Columbia
    • Mark: China
    • Chris: Brazil
  •  Globally where are you looking to acquire new customers and how much of your strategy is customer specific vs country specific?
    • Chris: All of the above answer; want to serve every customer anywhere they want to be for any travel need they have.  Need broad distribution but also different price points and products.  Very balanced strategy looking at every region of the world and current demand patterns.  Most striking to me about what is happening around the world is that if you look at the big mega trend; limited service around the world is quite pervasive.  Look at demand patters or price point that you are seeing greatest demand in largest number of regions around world it would be limited service.  Entire objective is to be following those demand patterns and deploying right brands at the right time and right locations.
    • Mark:  MICE business growing significantly in Middle East and India plus a big driver in China.  Go back to comments earlier about corporate customers understanding what is going on with corporate customers, meeting business is a key focus in how we go to market.  Two impacts: able to serve corporations for meeting needs and expose ourselves to a number of executives and growing commercial class.  In china in particular the mega trend I see evolving is a real move toward affordability and over caution or even rejection of the red carpet treatment.  Biggest trend we will see as a demographic matter in our lifetime maybe century.  Select/limited service through china.
    • Sebastien (Going to have you do a little different angle-only one operating in Cuba)- Been in Cuba for last ten years, only have two hotels there now but it is a small market. 11M population, 3M visitors.  Not same growth potential as China.  In Cuba we have 2 then 4 then hopefully 10.  In China lost money for first 25 years and barely made money the last 10, so decided last December to do joint venture with Chinese partner (one of 4 Chinese hotels) in lower economic segment (limited service).  The 4 Chinese hotels brands open 3-400 hotels a year where we struggle to open 30.  Chinese operators do it better and put pressure on pricing.  120M Chinese travelers which will go to 250M & 90% stay in the Asian Pacific
    • Geoff (big policy debate around open skies in Washington, what is it really about):   100 open skies agreements that our nation is in the midst of…. big three (American, United & Delta) are challenging the gulf carriers on unfair subsidies. Standing for open competition.  Those 3 do 140,000 arrivals and 2B of economic value brought into our country they also have the most backup orders on the Boeing 747 and Dreamliner. 
  • Chris as a passionate advocate for International travel to the U.S, where are the big opportunities?
    • Marketing- America has been woefully inadequate in marketing the wonderful destinations here in the U.S  We can do more
    • Make it a friendly place to come to when you cross our boarders
    • Need Infrastructure (Get them around once they are  here)
  • What development do you see five years from now that most intrigues you?
    • Geoff: Continued growth in China.  Opened 200 hotels in 13’ over 220 last year. On track to have another great year in China
    • Sebastien: 80% new openings are away from Europe. Main two markets to spend money time and resources India and African continent. Last 50 yrs time spent on product and brand….. next 50 is client and database
    • Mark: Number one issue extending the identity and definition of the brand beyond the stay.  Engagement before and after the stay (digital). Brand needs to mean more than just the one-two times a year you stay in our hotel.
    • Chris: Agree with Mark.  Also, massive doubling of middle class and in turn is the doubling of the tourist arrivals.  Hotel business that outside of US is about 10% of the capacity of the US that is not able to adequately serve which is amazing growth opportunity

Titans of Real Estate

  • Moderator: Craig Karmin, Panel: Jonathan D. Gray (Blackstone), Barry Sternlicht (Starwood)
  • How much longer good times will last, where we are in cycle and if there is anything people should be worried about at this stage?
    • John: No, we are not near the end at this point. YTD new supply 1% Demand 4% which is a healthy spread.  In this environment hotel business should do well.  Revpar growth could moderate from the 7-8%, favorable fundamentals will be good for real estate and hotel valuations. Some markets beginning to see more supply (NY, MIAMI, TX) which will translate into lower or neg revpar  and in China lot of building starting to slow.
    • Barry: Split fundamentals of the business.  I think valuations are getting pretty extreme.. will see demand grow faster than supply.  We have EB5 financing to bring projects into cities that shouldn’t be built (which is why they need the EB5 financing).  Pockets of new supply and will hit new supply at same time the dollar has appreciated dramatically particularly against the Canadian currency and they are number one tourist seen 24% drop in their currency.  Think we will see 4-5% revpar growth organically out of this asset growth for a while but you need to be cautious of what you buy and where.  Rates will rise and cap rates will stop falling.  I think markets will burp and you should be careful.
  • In contrast to solid fundamentals what do you think public equity investors are seeing that rest of market isn’t picking up on?
    • John:  Not just lodging also yield oriented stocks you’ve seen a sell off more broadly, more about interest rates.  I think Barry is right when you think about it in a multiple context the multiples are high level by historic standpoint and have risk of compression.  Branded companies accelerating supply can be a benefit to growth.
    • Barry: Economy is stronger than the numbers suggest.  Even the malls we own sales are ok and across country the economy is not great but it is not terrible for investors.  I think you will see a big movement out of yield sensitive stuff
  • Talk about foreign investment in the industry- Is this the beginning of the sustained tide of Chinese, middle eastern money into the market?
    • I think it is early days in foreign investment, particularly Chinese.  Insurance companies got the right to invest 15% outside for their home market and they logically look at property.
    • I think we are in the early stages of Chinese investment in this country, underweighted compared to any other sovereign nation.  80% of homes sold in Laguna are going to Chinese Americans or Chinese.  Long term investment, not trying to pick cycle right. 
  • You cannot make money on Food & Beverage with a Union hotel in Manhattan 
    • Broadly what is happening in hotel business outside of some businesses running a full service hotel is extremely challenging.  Seeing move to limited service or full service light hotels.  Major change happening in hotel industry is less service, move toward what the customer really wants—select service model.  Will always be a place in the super luxury cities where you can charge a lot it is just shrinking.
    • We own the end of the end (either very low ore very high) not anti union but must be flexible or end up hurting the number of jobs because companies will adjust to the current cost structure.
  • Starwood (HOT) probable outcome?
    • Barry:  “I think it’s unclear, stock trades pretty well.  That’s one of the biggest issues..its not cheap where it’s trading. In terms of consolidation/merging, there were strategic fits for the company when I ran it. Whether it can make financial sense, I don’t know.  My vision of  Aloft was different than what the current administration came out with.  Starwood did something interesting - I think they spend more time in the back of the house with tech stuff then in the consumer-fronting stuff.  I would say Starwood fell a little behind and they weren’t the easiest to do business with, didn’t do a good job being willing to change and make adjustments. There’s scarcity of these companies in the word. Will a sovereign wealth fund come behind somebody? … Very possible. These don’t come up for sale very often. (Starwood’s executive team) may do nothing. It’s not easy to find these companies. There are very few of them.”
    • John: What board of Starwood did was very logical, it was lacking in select service so acquiring or merging with someone that does that makes  a great deal of sense.  Easier to say then do because of cultural and valuation issues. 
  • Is the industry ripe for consolidation?
    • I think so; I think you will see more market share going to the bigger companies.  More leverage with OTA’s, more reach with customers, can invest more into the customer and I think big companies will do better. looking out ten years continue to grow.
    • Problem with buying all these companies is forgoing the opportunity for organic growth.  Is it offensive or defensive move? When making these additions are we adding new customers or splitting existing ones?
  • What is going on in Vegas with the Cosmopolitan?
    • John: Thought it was great price, great location at a substantial discount to physical replacement cost.  Big believers in Las Vegas they had excess supply but now have no new construction so it is the opposite of NY.  Will be putting in Capital and revamping.
  • Barry new  hotel brand and what you are doing there?
    • Two hotels brands actually.. Baccarat? And One hotel luxury eco brand ( W with green twist possibly higher end) opening in central park in July then Brooklyn at the end of the year. One is open in Miami next to W and is “kicking ass”. We will be doing a One in China. 

Same Goals, Different Strategies

  • Moderator: Jeffrey Horwitz
  • Panel: Monty Bennet (Ashford), Tyler Henritze (Blackstone), Mit Shah (Noble), Edward Walter ( Host Hotels)
  • Can you talk about overall economy and how it matters to you?
    • Monty- Interest rates have a strong impact on value, when looking at buying an asset you look at income stream compared to cost of capital (which has a lot to do with rates) there has been a downward movement in interest rates since 1980 and now we have hit zero on the short side of things.  Presumption is they have to go back up, I don’t think that is the case.  Already seeing negative rates in Europe, nothing written anywhere that just because you are a borrower that you need to pay the lender instead of the other way around.  I think they can go negative in a material way.  Lower they go the more valuable the cash streams are from the assets we own.  Quantitative easing is just about out of gas so what else can they do?  Taking interest rates negative is one of the options. If interest goes negative it solves a number of problems it pays borrowers….and  savers if they don’t spend money will slowly be eroded against. 
      • Mismatch in markets on public lodging rates… Fundamentals in our business are tremendous demand continues to outstrip new supply, revpar is going up, margins up, ebitda flows up, and pricing has pulled back a little bit because fear of interest rates going up.  However, historically lodging stock have done well when rates have gone up.  These mismatches correct themselves.  Now, private market values have outstripped public market values (self-correcting) I believe there will be a comeback in the pricing of lodging stocks.
    • Tyler: Two things that scare us an excess of cranes and an excess of capital.  Low interest rates facilitate an ease of capital that drives down yields.  We see it more likely that rates go up in the future versus down, which impact how we underwrite assets and how we think about exit multiples relative to entry cap rates or multiples.  We anchor on basis and replacement costs.  Best way to manage risk is to buy assets at a discount to physical replacement cost.  How do you balance that?   If I had to pick one it would be physical replacement cost, b/c as an investor in assets, your risk is new competition. 
      • we try to compete a bit differently.  Use the scale of our capital base allows us to be one of the only people in the room as a solution provider… someone looking to sell billion or ten billion dollar portfolio.  Recent fund we raised was 15B.  All goal is to 20% levered return and 2x multiple on our investors capital.  Focus is large complex situations. 
  • What are you hearing from those investors having just raised that large of a fund?
    • We told them it would be difficult to replicate the outsized returns of our last fund. They understand that in this environment.  Investors buy into our strategy and our job to make sure we perform on that.
  • Mit- Interest rate question is tied to yield question.  Our entire business strategy is based on creating yield, we feel like if we can get the yield creation part right there will be enough buyers with a different sense of where they think interest rates will be.  Our entire focus has been limited service/extended stay and figuring out how we can get assets in markets that have a revpar that today is over 100 bucks (NOI 35-40%)  and  have that durable income stream  so you can always find yourself in market once you create it with a willing buyer on the other side.  Nashville hotels trading at 300,000 a room.  Interest rates very much matter in how you make money near term and long term focused on how we get to double digit unlevered yield somewhere midway through your investment.
  • Ed: Thesis is instead of going big and larger we have decided to stay the same size and invest in these 25M assets 10M equity checks 1-2 a month over 2 year period and harvest it going forward.  Want to be first and last call on 25M opportunities.  Our niche over time has really worked for us over time.
  • Let’s talk about M&A.  What are you seeing in pursuing your strategies in aggregating assets?
    • Tyler (unsure): Lodging strategy right now is three distinct strategies..1) focused on select service assets inside of 15 yrs average age & we like to focus on assets branded Hilton and Marriot. 2) Large scale big box hotel assets, they are uniquely positioned to bring to bear our operational expertise (cosmopolitan example).  3) Buying additional brands.
    • Mit- Specializing in something is far more healing over cycles then doing a lot of different things, as an organization we never want to be in the middle.  25M & 10M Equity checks, did 23 of those last year where we bought or opened and we sold 7 last year where we had created an income stream.  This year I believe there could be a flip to that maybe sell 20+ and have opened four.  This is because of opportunities in the market place.  Interesting math is the market is focused on select service extended stay lots of bidders for this.  Value higher as portfolio versus as an individual asset (50 basis). 
    • Edward (unsure): we’ve purchased a little over 3B in course of this cycle and invested a lot in this cycle.  Last 12-18 months just struggled to find transactions that meet our parameters.  Don’t need to get bigger just to get bigger.  One thing that has changed in how we pursue acquisitions is where we are seeing a bit more opportunity is in those difficult transactions where we need to invest capital into the property to achieve its potential. 
    • Monty- Core platform was in lending business but changing to be a little more specific.. Ashford Hospitality prime (high end hotel)  and Ashford trust (all other type) and Ashford inc (asset manager)… thinking about taking Remington property manager and rolling into asset manager.  Then grow to scale with these because we see a premium in the market for more liquidity. 

The Leaders Forum

  • Moderator: Scott Berman
  • Panel: Jim Abrahamson (Interstate Hotels), Kirk Kinsell (Loews), Lou Plasencia (Plasencia Group), Allen Smith (Four Seasons), Simon Turner (Starwood)
  • One word to describe the industry?
    • Simon: Buoyant
    • Allen: Competitive
    • Lou: Fortunate
    • Kirk: Denial
    • Jim: Changing
  • What should we be looking at as leader beyond occupancy, room rate and revpar? What are the fundamentals?
    • Kirk: Revenue, revenue share, guest experience, how we engage team members across the organization.  Ultimately, focused on EBITDA, returns on equity a critical element.  Mindful of how we engage the broader stakeholder group as well. 
    • Allen: Abundance of macro factors you could say you should be worried about.  Disruptive events have been highly localized.  Have confidence because of the absence of new supply on luxury side.
    • Simon: Looking at the constituents of the business, guests, and customers, OTA’s as a channel (how are they affecting business from delivery and cost standpoint). Skill is sorting and sifting performance indicators and focus on the ones most relevant.  (Guest Satisfaction Index)
  • Lou two deals in last 6-12 months that defies logic?
    • Baccarat Hotel and Waldorf in NYC are two deals defy logic bc speed/price at which they were done
      • Question mark to what drove that (flow of capital from China)
      • Private investors getting their money out of Asia bc fear of gov. involvement
  • How does that affect the playbook?
    • Kirk: “Challenge in industry particularly for ownership is on the cost side, rising labor cost, tax cost, material & on transaction basis”.  Our growth ambition is built on a development (brand led) strategy. 
    • Jim: “Lots of positives, Feel good about demand increase driven by corporate earnings, good economy, low gas, consumer confidence”.  Lot of transactional volume, and a lot of confidence and capital coming in to the business. Concerns; Labor Environment, NLRB, Gov regulations—15 dollar minimum hotel wage.  “Increased pressure from macroeconomic cost trends.”
    • Allen: Focused on making sure we are in best markets, best locations with good partners.  Key to our growth in many places is combination of hotel and residential.  In our case branded residential has been key.
    • Simon: Good news feeling pretty buoyant. Signings, openings up since last year.  From growth standpoint strategy is what it was before. Starwood is great company today and will be in the future. 
    • Kirk: Capital is not a constraint on almost anything in the market today.  About choosing right opportunities to act on. Certainty of executing deals in US is easier than anywhere else in the world- easy to take for granted
  • Competitive landscape, map of brands (so many) have we reached a point of no return?
    • Kirk: Concept of brand has to resonate with the transaction with the guest and needs guest has during his stay away from home
      • Consistency of that (2nd, 3rd night)  and ability to replicate across platform, communicate that in effective means and create a value proposition
      • Brand needs to be defined around guest or need.
  • How do you innovate, stay current, what’s your secret sauce today?
    • Allen - Product consistent with a four season and what people expect from the upper end of the market.  Themes around customization and empowerment go beyond technology to how people use and interact with space.  Rolling out a mobile app next week which will be responsive to the empowerment people are looking for.  How we touch consumer, in terms of social media and ways that are relevant to them.  The key is people and the service experience.
  • What should priorities be for industry leaders and most concerned shareholder?
    • Jim: What should priorities be for industry leaders and most concerned shareholder?
      • Never been more critical then it is today to be involved in your association.  Expedia and Orbit planning merger (together make up more than 75% of OTA marketplace)
      • Under attack by OTA’s
      • Misleading ads and phantom sites – 80 million impressions on book direct
      • Labor agenda – critical impacting bottom lines
      • Short term online rental marketplace- must be regulated (half airbnb rooms illegal)

A View from the Owners Seat

  • Moderator:  Rick Ross
  • Panel: Mark W. Brugger (Diamond Rock), Chad Crandell (CHMWarnick), Dan Hansen (Summit), Michael Medzigian (Watermark Capital Partners), Marcel Verbaas (Xenia)
  • Where are we in the current cycle and how does it impact decision making?
    • Mike: Look at S/D since downturn total demand grown 21% and supply grown only 4% in total.  Highest occupancy on record possible, don’t even know what kind of pricing power we will have (never seen before).  “Go do more, if wrong can always pull back, telling our guys to push rates harder.  Sticking in 90% of the cases”.
    • Chad: “Sweet spot of the cycle”.  Margins are good but could be better.  “Best of times we have ever experiences, so if not achieving goals now you need to ask yourself why aren’t you?”  Lot of disruptors (influencer) influencing and playing a role in our business. Goes to heart of acquisition of cost of a guest room & how much cost goes into it and how it impacts revpar
    • Mark: On revenue management side we have the leverage, “theme with operators is let’s take chances, hold the line”. It is a very frothy environment from occupancy standpoint.  “If we lose a couple customers its strong enough we can backfill it”  This year its really about taking chances
    • Dan: Supply is building- good projects in good markets.  Good position to push price and take chances. Don’t see supply being an issue the next few years, especially in the markets we are in.
    • Marcel: “In great part of the cycle”
  • Where we are in cycle? How long does this last?
    • Mark: Typically last 6-10 years.  “Given slow build up of supply and late arrival of group it is setting up to be a more elongated cycle (10+)”.
    • Chad: Piggyback on that, group is late arrival in this cycle, began to show up last year.  “Outlook for group pace on a comparison basis to previous years has never been better.”   Outlook is very promising at least on the group side.  “It seems to me the runway is out there for at least three to four year.”
    • Mike:  Couple very good years ahead of us (2,3,4).. only thing on horizon that could change that is brand proliferation.  Real risk of diluting position.
    • Dan:  Demand shock that you don’t know is coming is one thing that could derail the markets.  “Great runway ahead for the next several years”
    • Marcel: Getting very tough to build new hotels, especially full service
  • What are the trends that you think are driving investment decisions today?
    • Mark: Investment criteria: 1)  Cost of capital exceeds anything else in investment decision.  2) Trends within individual markets (san fran, seattle).  3) Opportunity Set (price). We also believe in Globalized cities: thesis that a NY over next 10-20 years as intl travel increases number 1 US destination (NY) where we think globalization trend will lead to markets.  & experiential travel trend- something besides just nice hotel and meeting (Sonoma).  (one reason soft brands are becoming more interesting, high quality but also distinguished)
    • Marcel: Focused on owning hotels in specific markets and bringing different experiences for your traveler.  Certainly focused on investing in full service and lifestyle  boutique
    • Dan: Investment thesis continues to evolve- have to go into market expecting new brands to be there and the differentiation they provide can be meaningful depending on operational team and how you decide to deliver.  Does change viewpoint on portfolio should evolve to- higher occupancy markets/barrier to entry markets that can absorb new supply.  Markets that are underserved by a particular brand.
    • Chad- Premise is shifting from buy low sell high to buy high sell higher—very good time for seller.  Need to renovate with a point of differentiation to make core branded hotel relevant in the market place.
    • Mike: Thinking a lot about supply- most supply is coming from urban limited service.  Split portfolio between select service, full and resort. Love resort/bigbox business
      • 2014 only two hotels in US built with 50k plus feet of meeting space—trying to focus on that area
      • Hyper growth markets – Nashville, Austin, Denver . (Denver last year revpar up 16%)
  • Thoughts on where value creation really comes from & how do you think about it?
    • Dan: Value Creation- core strength for us in our view.  Two angles
      • 1) Capital Investment- not afraid to invest in our properties.  Trying to take to higher level offering full service and boutique 
      • 2) Operations- plans to extract every last dollar through operations (sold 24 hotels in the last couple years where we felt we couldn’t create anymore value).
    • Mark:  3 Examples of adding value to property- LAX hotel reverse inquiry from Asian buyer who paid 15M more than standard market price
      • December- bought a Westin change to indep manager and pulled 3M in cost in first year (9cap next year)
      • Lexington hotel- Converted to Marriot autograph, went from 80% leisure & discount to 85% business & group
  • Chad: “Value creation is core to what we do, in our opinion starts at beginning of lifecycle, during and when you exit”.  Begin with underwriting of the asset..dont miss any cost add from cap standpoint.  PIP that you are going to execute on will have the desired results—always look towards exit.  “Do not value engineer PIP to the point that it is not impactful to the money that you are spending”
  • Value creation- seeing what we can do to drive margins, where to squeeze out the extra dollar (team goes in requires operator cooperation.)

Growth Strategy Runs the Gamut...A Focus on the Growth and Brand Expansion: The Best Way to Go

  • Moderator: Michael A. Fishbin
  • Panelist: Ben Brunt (Noble), Collin (Ashford), Troy Furbay (DiamondRock), Mike Garcia (Omni), John Hamilton (Pyramid)
  • Where are we in the cycle? A sense on growth for this year
    • Ben: I get paid to be a glass half empty kind of guy; I’d say in the bottom of the 7th
    • Collin: Earlier in cycle then Ben, healthy market fundamentals
      • Group business boosting occupancy higher than most thought
      • Favorable market from a fundamental standpoint
    • Troy: More bullish then Ben, 7th year of up market typically only last 8-9 years
      • Supply relatively in check (some markets like NY, Nashville, Austin different)
    • Mike: Next 2-3 years rev par growth mostly coming out of ADR lot of softness in NY (not on occupancy side)
      • Solid growth in portfolio, encouraged by rate increase in group business
    • John: 5/8 yrs out of what would be a good run (3-4 more years)
      • Fundamentals may say this cycle could be a longer run than the one in 92’
  • Recent projects and approaching development moving forward?
    • Mike: 75-80% projects today for us are new development
      • 600 room hotel Louisville with apartments on top
      • Partnership with Dallas Cowboys (50/50 venture)
      • Atlanta Braves partnership
    • Troy: Difficult for Reit to be  a active developer quarterly due to cash flow demands
    • John: Couple projects involved with demanding RFP process
      • Jet Blue- Orlando
      • Graceland- 600k guest a year
      • As management co, we like to be a partner in development – gives us longevity
        • Really like select service/near universities/hospitals where barriers to entry and demand
  • How does PE approach new brands and what do early adopter look at?
    • Ben: Opened second AC in US and have one under construction in Atl.  Also, branded hotel we are stripping and turning into a Moxy in New Orleans.  Three we have bought into have been Marriot.  Fit pieces together of market, brand, location and then parent company. 
  • Strategy/Thought behind the verticals
    • Collin: Strategy behind verticals of Ashford
      • Ashford Prime focused on luxury and upper scale assets (gateway-resort type market w/10 hotels in portfolio) formed as a spinoff of Ashford Trust
      • Ashford Trust will focus on full service & all other markets in US and potentially abroad
      • Ashford Select (select service hotels primarily in US)
    • Collin: Details on recent transaction: Feels like it gives us an advantage to go to market and seller can look to us & we can buy whole package and allocate to different reits
      • 9 Asset acquisition that just occurred- 8 select/1 full
      • Healthy cap rates in markets where we weren’t seeing a lot of new supply
      • “lot of health and robustness in market right now and we expect to continue to see that”
    • Troy: We like first tier markets would like to get more into San Fran, La, Boston
      • Ft. Lauderdale—no new supply, revpar upside next 3-4 years, airport has doubled in size and new billion dollar investment
  • Focused approach based on returns- share approach to acquisitions?
    • Ben: Try to underwrite to a ten unlevered yield in our year three post renovation or post opening. Criteria does not change with cycle. Determine market based on variety of indicators then approach it.  Approaching point in cycle where you could be forced into overpaying.
    • Mike: “From an acquisition standpoint it is very pricey right now, which is why most project we are looking at is new development”—acquisition is too pricey for our returns right now.  Long term opportunity  & gains in development.
  • 100 million dollar check put deal together
    • John: Grow company two way 1)retaining assets 2)adding new properties
      • Sellers market lot of our assets coming to market
      • CEO says “easier to grow if you keep what you have and it’s easier to keep what you have then to bring in new asset”  first 50mil buying asset in own portfolio, second 50mil underwrite
  • Opportunities to access debt
    • Ben: No shortage of lenders today. Choice of 2 in 09… now could be 20+
      • Value add exit oriented fund (develop it and stabilize income stream and exit or buy it, fix it stabilize and sell)
      • Deals that have significant pips (20k-30k a key) 65% financing total project cost. More income oriented deals 70% threshold we don’t go beyond
    • Collin: Within our Reits we use leverage Prime is typically a bit lower 50-60ltv with trust comfortable with a higher lever (70-80)
      • Debt market overall healthier than it was last cycle. Still healthy push and pull in market
      • Select service portfolio: leveraging those at 70-80% on asset level and driving 20% plus cash on cash yields
    • John: PE partners are financing a fixer upper at 65-70% leverage a stabilized asset could be 75-80%
  • What owners are doing from value creation perspective
    • Mike: One brand at Omni so we reinvent product. In Charlotte reimagining food and beverage.
    • Troy:  Not as ambitious on deep turns to assets, have done cyclical renovations.  At this point in cycle reluctant to buy that needs complete turn around
      • Always evaluating if assets we own and acquire if they have the right brand on them
    • Ben:  Repositioning to create value - part of initial underwriting of the asset
    • Collin:  Growth Capital Allocation among your three platforms—each platform and assets within the platform stand on their own.
      • Bias towards more profitable hotels (rank own portfolio by ebitda per room)
      • Highly profitable, guest facing areas - immediate returns
      • Look very analytically at guest feedback and where we can position ROI capital to drive higher returns
  • Technology Highlights
    • John: technology around revenue management and ecommerce.
      • “IT department is growing so that all the other departments can shrink as you become more efficient”
  • Hot Topic year from now
    • John: “Cost of development is crazy, going up monthly”
    • Mike: “new supply will remained tempered” 
    • Troy:  Labor Cost
    • Collin: “New and emerging tech for mobile room keys”            
    • Ben: 2017 looking at forecast for 18 &19 beginning to talk about thoughtful impact of new supply

Private Equity Revisited

  • Moderator: Francis Nardozza
  • Panelist: Rick Kirkbride (Paul Hastings LLP), Jonathan Mehlman (American Reality Capital), Sujan Patel (Northstar), Suri Shah (Starwood)
  • Why broad move into lodging space?
    • Sujan: Prior to this cycle focus was on debt side… moving to equity reit so lodging logical asset class
      • Select service assets… scale quickly initial focus on efficient larger transaction (3.2B 4 deals)
    • John: In order to take advantage of cap rates/financings entered into dialogue with Goldman to acquire equity portfolio
      • Because of higher dividend distribution we pay we needed to be in a durable income place
      • Have much lower leverage on balance sheet compared to others
  • If your private equity do you need to go after large portfolios?
    • Rick: Two types,  starwood-blackstone types with large amounts of money looking for critical mass and assets, then have smaller groups focused on significant major assets in gateway cities one at a time. 
  • Into 2016 is Starwood a buyer/seller?
    • Suril: Both always both.  Difficult time to buy assets (cap rate compression last 3 yrs)
      • Acquired 750 million in assets first five months of this year—opportunities out there but buy side is getting tighter
        • So far multi property deals
  • Millennials:
    • Not worried about them not spenders
    • Collect experiences do not spend as much at hotels
    •   34% of workforce and have least disposable income of any generation in the last ten generations
  • Product types that should be bought now and products that should be exits?
    • Predominantly select serve (buy) (groups like ours focus on sub 500mil transactions)
      • Room profit margins 70-80% in select  (food and beverage only 4-9%)
      • International more interesting than domestic at the moment
  • Reaction to strength of dollar and oil?
    • Rick: More difficult for a lot of money to come in.  (sovereign wealth funds still parking money in US)
    • Suril: Foreign investors say the dollar will continue to strengthen
      • Decrease in oil prices is going to have a great impact on the economy segment with disposable income increasing
  • Non Public Reit Structure
    • Rick: Peaked in 2013 for fundraising, trend is on a downslope… still 3-5 million a day being raised by groups out there
      • Test will be when they have to sell those assets
    • Sujan: A lot more regulation coming to this business. 
      • Still believe very good way to raise money
      • Very expensive (infrastructure) to get into the space
  • Non Traded Reit Space
    • 22-26 billion in liquidity events, Race to get money out before April next year (when reg. expected)
    • If out of space and trying to get in- bad proposition right now
  • Opportunities for distress
    • Suril: Hard to find in lodging space (if it is out there probably requires major overhaul and development_
      • Can still find opportunistic returns in US and Europe
  • 50% of real estate PE funds raised for Europe
    • Rick: Didn’t grow up like American market (institutional, branded, structured, 3rd party management
      • Europe, South America, Latin America hotels not branded not 3rd party managed ect.
  • At this point in cycle lodging sector easier/harder sell to investors versus office retail ect.
    • Sujan: Easier (specifically in US vs other asset classes) room to run in cycle—investors understand why we have deployed a significant amount of equity into the space.  “Property prices in US have surpassed peak pricing in almost all asset classes, lodging is still below”
  • Recognizing difference between hotels and other asset classes
    • John: Intentionally late into sector… need durable income (can’t afford rooms out of order to long)
      • Price makers (now) in conjunction with 15-20 yr lease applauded by investors
      • 5 brands we are buying resonate very well with our “investorship”. Knowledge base of where the hotels are and their distribution base has been very valuable to us
  • Capital Focused on Lodging Space
    • John: Equity levered 50% 2Billion in the next 12 months (driven by the deals)
    • Sujan: New money 1-1.5B  next 12 months.  Could be smaller driven by opp.
  • Ideal Deal
    • Suril: Ideal- buying off of our platforms—safer knowing management
    • Sujan: Lot of big trades, exits (1B+) in 16’
    • John: 10-15 properties majority (75-80% HLT/Marriot) revpar at 100-125 a night & low side property improvement plan less than 10,000 a key
  • Change in deal structure in PE?
    • Rick: Negotiating points are getting more compressed from a buyer perspective
      • Major differences in the European portfolios because they are entity based (some here)
      • Larger ones mostly corporate
  • Change in Underwriting
    • Suril:  Feel more comfortable underwriting future F&B growth due to group increasing and sustaining occupancy level that is higher in the next 24 months
      • Have not changed exit caps (underwriting cap rate expansion)
    • Sujan: Harder to look forward (3-5) and feel as good abt double digit rev growth where we are in cycle.
      • Bulk of supply being added in select service and we are one more year closer from the supply coming online have to be prepared for that as you get into 17’ and 18’
    • John: Approaching cost of replacement, not there but it is heavier to buy assets we desire
  • Alternate Investments
    • Suril: Very people intensive & to get into timeshare need strong platform (would look to partner with someone instead)
    • John: “We try not to style drift”
    • Rick: Most of the brands got out of the branded condominium, hotel, timeshare business…it is coming back working on condo hotel, timeshare (no fractional)
  • Exit Strategies
    • Sujan:  Portfolio Exit Strategy- we own about 3.2B today consider not enough scale for listing at that level
      • We are a different kind of capital don’t have to exit this cycle if we don’t get there
      • Thinking less about exit today
    • John: Don’t earn our asset management fee until liquidity is created
      • Focused on creating liquidity (merger, sale, listing) comes 3-6months after finalizing fundraising
      • Will be thinking about the decision this time next year

The Leaders Check In Part 2

  • Moderator: Adam Weissenberg
  • Panelist: David P. Berg (Carlson), William J. Ferguson (Ferguson Partners), David Kong (Best Western), Elie Maalouf (Intercontinental), Cyril Ranque (Expedia)
  • Thoughts around growth and markets you are focused on?
    • David: Growth have science and art piece.
      • Science: GDP growth, where revpar is growing, demographics that are attractive
      • Art: Where do we have infrastructure we can leverage, where can we make a difference to the customer
      • Break business down in 2 theatres: US Market very bullish on midscale and upscale select brand
        • Bought out partner in Latin America so have direct access bullish on : Columbia, Brazil and  Chile
        • Africa: long investment cycle, leadership role and will continue to invest in
        • Asian Pacific: Focused on Indonesia, Vietnam and Thailand (not china)
  • David: Historically supply growth is a huge factor in downturns—when supply growth outstrips demand
    • Currently at historical occupancy levels and predicted to go higher
    • Midscale-cheaper to build, cost efficient to operate, huge return on investment (no public space, meeting space)
    • Outside US regions are warming up to this idea, sometimes in Asian hotels the restaurant can make more than the rooms.
  • Cyril: Consumer trend around wanting to have differentiated experiences. 
    • First time in ten years seeing all big regions with really healthy growth
    • Grew NA 23% healthy demand pool continuously growing
    • Emerging markets in Asia, Indonesia, Malaysia, China - great markets for new hotels
    • Brands that do really well have new product/new positioning (the undecided consumer)
  • Thought on your recent acquisitions and will you continue to acquire?
    • Elie: Always looking for ways to innovate. 
      • Boutique and lifestyle segments we are leaders in today is fastest growing segment of all segments
      • Over 240 hotels in china and 200 in the pipeline
  • What is driving demand for new brands?
    • More brands is pushed by consumer because they want choices
      • Vibe- boutique lifestyle brand launched to cater to today’s traveler needs
      • Soft Brand- BW Premier or Autograph is a great alternative to independent hotels not interested in the rigid requirements
        • Competition to OTA’s
        • Pricing based on commission
  • Thought on Millennial as workers?
    • Bill: Millennial want to be engaged and are more interested holistically then previous generations
      • In order to attract and retain must communicate and provide what is going on within business.
      • Millennial gravitate more towards upscale brands
      • In the last two years at least ten CEO appointments…. Lot of succession going on (age 60 seems to be pushout)
  • How important is mobile moving forward?
    • Elie: Dreaming dimension, planning, booking and staying digital has very important role across all those dimensions
      • Rewards app number one rated app.. keep investing in it  
      • Launched a new reservation platform last month (multi-year project) want to reinvent the reservation project.
    • Cyril: Out of 145M who booked travel—90% searched at some point on a mobile device
      • 25% of our transactions on mobile—in china it is over 50%
      • Thinking mobile connectivity with the customer needs to go from search to booking to guest experience
      • RealTime Review launched a few months ago—when check in get a happy/unhappy survey and its feed back to the operating team in the hotel
    • David: Have to talk to guest and customers in the way they want to be communicated with (digital)
      • Recognize great or bad experience on spot, not two weeks later
  • What is the strategy in acquisitions acquiring other OTA’s
    • Cyril: Time for consolidation.  There is a time when Investments in supply and tech get so big it gets hard for the smaller guys to follow and there is value for our consumers being able to access our hotel portfolio through multiple brands also value for hotel partnerships having all access to all these customer segments.
      • Wouldn’t say all acquisitions are done yet
    • David: Consolidation is natural in any industry similar with Ota.. 75% of US market seems like a lot (monopoly) 
  • Disruption?
    • Elie- Focused on heavily branded competition not AirBnb but we do monitor them.

Revenue Management and Profit Maximization: Maximizing the Total Asset

  • Moderator:  Ron Pohl
  • Panelist: Brad Beakley (Carlson), Paul Breslin (Horwath), Erik Browning (Rainmaker Group), Edward Maynard (Denihan Hospitality), Amy Severson (Expedia)
  • What are early findings when you start to get involved in a hotel?
    • Ed: Analyzing where current evaluation of their indexes are to start then where they are currently
      • Meet with team and understanding team dynamics
      • Evaluation of asset as it stands and against a competitive set
    • Paul: Indexes are very important place to start & also the voice of the customer (are we missing mark)
      • Space management—are we maximizing the asset/branding it right/managing right
      • Successful developers do the most due diligence from customer or buyer perspective (end user)
    • Erik: forecasting occupancy growth for 15’ &16’ in upscale/upper up scale with most markets done and sold out why trying to get more occupants? Average rate is what goes down to the bottom line
    • Brad: Evaluates distribution strategies, revenue strategies and with operations teams the quality of service being provided, quality of service itself—create package to maximize bottom line
  • Do we have right mix of business?
    • Amy:  We are one piece of hotel distribution strategy, think of us being a leisure transient play, Expedia has ability to target group/corporate travel (think of ourselves as global player that can bring you the world)
      • Allow you to become targeted and segmented and get the consumer you want
      • Hotels that aren’t speaking with us are not capitalizing on what we have to offer
    • Brad: Beyond revenue optimization there is a huge cost component outside of what is just put in the room.  It’s the distribution cost we want to manage better by bringing in expertise.
      • Room revenue growing at 7+, food and beverage 5+, ancillary 10-12%
      • Untapped revenue potential in the building,  (use all space)
      • How to put concepts into practice at hotel level- data side (visualization ect) to guide practitioner to make right decisions to optimize revenue. One of the biggest challenges in the space today is the complexity and ever changing nature of the revenue optimization problem.
    • Erik: Working to evaluate cost of business more efficiently. Working to develop a model of net revpar index because marketing spend is sometimes hidden in what the cost of business actually is.
      • Ability to break out ancillary revenue will be valuable moving forward
      • Displacement analysis can be beneficial
      • Revenue management needs to be communicated in a simplified actionable way
    • Paul: Need to understand profit point for each additional revenue area.  Want Occupancy that drives other revenue areas (plays huge role in offsetting other cost)
      • Job revenue management: make more money that you ever did.
      • Need to reduce amount of time spent gathering information
    • Amy: Bigger focus needs to be on forward looking demand and understanding what type of demand is coming in
  • Role of OTA down the road
    • Paul: understanding the importance of managing inventory and how to sell it best. learn from OTA’s
    • Brad: OTA: commission needs to come down, good partners/innovative
    • Erik: expect them to be an important part of distribution network down the road and definitely a potential disruptor
    • Amy: we partner with over 500,000 hotels independent, soft, branded and rely on operators to provide us with great content.  Often time’s content is incomplete or inaccurate which causes difficulty down the line.
  • Demographics/customers is that considered in strategy?
    • Brad: “Paradox: need more sophisticated technology to enhance guest satisfaction”
      • We should learn from growth of OTA because they had better marketing, their websites were better and their apps were better” “lesson is better customer service”
    • Amy: On customers:  mix of customers it’s important that operators know booking/length of stay patterns for different customers.
      • Look at what type of demand is coming to NYC and compare that to what customers you are getting
      • Product launched in December (realtime)- 1.5 million consumers have used to provide feedback upon check in
      • Provides operator opportunity to correct wrongs (say if a bathroom is dirty operator can go fix it)
  • Mobile
    • Brad: Pre check in on mobile is one thing millennial love
    • Ed: Always trying to refine customer experience (have specific surveys sent to customer) (wine hour, yoga)
    • Amy: 25% of guest chose filtering search options and its important to communicate what options you have (pet friendly or no example). Companies need to share information so we can post accurately
  • Considerations on branding, soft branding or independent
    • Paul: Competitive landscape matters a great
      • High level management that understands demographic of consumer
    • Ed: Compete because of infrastructure, small nimble/quick company
      • Variety of products to please the customer

B.) Running Through the Supply/Demand Metrics of the Cycle



Industry Performance Estimates


























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.

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