Transcript The Hotel Industry - Haas School of Business

The Lodging Industry
The Ritz-Carlton
Naples, Florida
Industry Scope
35,000 Hotels in U.S.
3.7 million Rooms in U.S.
Annual Revenues of $95 Billion
Profit of $19 Billion
Hotel Industry Profits
Net Profit or Loss
$Billion
20
15
10
5
0
-5
-10
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98
Changing Sentiment in the
Capital Markets
General anxiety over trouble abroad and their
impact on the US economy.
Concerns about overbuilding.
General feeling that easy money has been made
in the sector.
Growth and momentum investors have sold
their positions and have not been replaced by
value investors.
Capital market response has led to equilibrium.
1992 - 1998 Lodging Equity Offerings
$7,172
$6,000
$4,520
$4,500
$2,783
$3,000
$1,649
$1,367
$1,500
$871
$122
$0
1992
1993
1994
Source: NationsBanc Montgomery Securities
1995
1996
1997
1998
Key Players
Management Company
e.g. Marriott, Sheraton, Hyatt
Franchisor
e.g. Holiday Inn, Best Western, Sheraton
Owner - numerous possibilities
REIT
Hotel Co.
Private Owner or Ownership Group
Joint Ventures
Average Management &
Franchise Fees
Limited Service
Suite
Resort
Convention
Full-Service
MANAGEMENT FEES
FRANCHISE FEES
% of Total Rev.
Per Room
% of Total Rev.
Per Room
4.8%
$
725
3.3%
$
481
4.4%
$
1,530
3.9%
$
1,264
3.6%
$
2,336
1.9%
$
1,224
3.3%
$
1,753
1.2%
$
575
3.1%
$
1,177
3.0%
$
995
Public C-Corporations
Marriott Int’l
Starwood
Hilton
Promus
Four Seasons
Market Cap
($ Millions)
P/E Ratio
8,500
23.8
5,800
5.1
3,800
12.9
2,900
19.3
1,400
28.2
Public REITs
Host Marriott
Felcor
Patriot American
Meristar
Innkeeper USA
($ Millions)
P/E Ratio
2,600
14.5
1,600
11.9
1,000
NA
971
13.8
351
11.3
REIT Structures
Normal REIT
Paired Share
Stapled or Paper Clip REIT
Private Hotel Companies
Hyatt
Destination Hotels & Resorts
KSL Resorts
Kimpton Group
Joie de Vivre Hospitality
Structure Example #1
Hyatt Regency Kauai
Owner
Mgmt Co. Hyatt Hotels
Hotel
Hyatt Regency
Kauai
Structure Example #2
San Francisco Marriott
Owner
Host Marriott REIT
Mgmt Co. Marriott International
Hotel
San Francisco Marriott
Structure Example #3
Best Western Victorian Inn, Monterey
Owner/Operator
Mom & Pop
Franchisor
Best Western
Hotel
Best Western Victorian Inn
Structure Example #4
Los Angeles Marriott
Owner
Mgmt Co.
Meristar Hospitality Corp (REIT)
MeriStar Hotel & Resorts
Franchisor Marriott Int’l.
Hotel
Los Angeles Marriott
Structure Example #5
Ritz-Carlton, Philadelphia
Owner
Mgmt Co.
Hotel
Starwood Hotels
Ritz-Carlton/Marriott Int’l.
The Ritz-Carlton Philadelphia
Renaissance
Hotels
Ritz-Carlton
LIMITED SERVICE
No Food & Beverage
Midscale
Economy
Budget
FULL SERVICE
Food & Beverage
Deluxe
Luxury
Upscale
Midscale
Suites/Extended Stay
Resorts
Convention
Suites/Extended Stay
Deluxe
Four Seasons
Regent
Ritz-Carlton
The St. Regis
Luxury Collection
Ritz-Carlton
The Regent Beverly Wilshire
Full Service
Luxury
Hilton
Hotel Sofitel
Hyatt
Meridien
Inter-Continental
Nikko
Omni
Marriott Hotels
Westin
Renaissance
Omni Mandalay
Las Colinas, Texas
Full Service
Upscale
Doubletree
Crowne Plaza
Hotel Novotel
Radisson
Embassy Suites
Red Lion
Double Tree
San Diego -Mission Valley
Full Service
Midscale with F&B
Best Western
Courtyard
Sheraton Four
Points
Holiday Inn
Holiday Inn
Select
Howard Johnson
Ramada
Howard Johnson’s, Vermont
Full Service
Resort
Lots of recreational
activities.
Trend towards mixing
business (conferences)
with pleasure.
Ritz-Carlton Kapalua
Full Service
Conference Center
Typically located near
convention centers.
Large meeting and
banquet areas.
High volume.
San Antonio Marriott
Rivercenter
Full Service
Casino
Cost: $1.6 Billion
3005 Rooms @ $185
ADR.
$300 Million Art
Collection.
15 Restaurants.
Estimated EBITDA of
$309 million on $950
million in revenue.
Bellagio, Las Vegas
Mirage Resorts
Limited Service
Mid Scale without F&B
Comfort Inn
Hampton Inn
Hilton Garden Inn
Holiday Inn
Express
La Quinta
Comfort Inn, West Virginia
Limited Service
Economy
Days Inn
Fairfield Inn
Budgetel
Red Roof Inn
Travelodge
Red Roof Inn, Ohio
Limited Service
Budget
Motel 6
Budget Host Inn
Budget Inn
Econo Lodge
Great Western
Super 8
Knights Inn
Motel 6 Prototype
Extended Stay
Upper Tier
Hawthorn Suites
Homewood
Suites
Residence Inn
Candlewood
Suites
Comfort Inn, West Virginia
Hotel Census
Full Service
Deluxe
Luxury
Upscale
Midscale with F&B
Subtotal Full-Service
Limited Service
Midscale without F&B
Economy
Budget
Subtotal Limited-Service
Upper Tier Extended-Stay
Lower Tier Extended-Stay
Subtotal Extended-Stay
Total All Branded Hotels
Independents
Total U.S. Hotels
As of 9/98
Properties Rooms
173
48,644
802 351,957
925 229,131
5,305 698,509
7,205 1,328,241
3,656 339,195
3,992 346,323
4,736 346,891
12,384 1,032,409
435
655
1,090
51,060
72,327
123,387
20,679 2,484,037
14,496 1,196,040
35,175 3,680,077
Hotel Lingo
Average Daily Rate (ADR) =
Total Room Revenue / # of Rooms x 365
Occupancy % =
Total Room Nights / # of Rooms x 365
Revenue Per Available Room (RevPAR) =
ADR x Occupancy %
EBITDA =
Earnings before Interest, Taxes, Depreciation
and Amortization
Top Markets
# of Rooms
1998 Rank
1
Las Vegas, NV
2
Orlando, FL
3
Los Angeles-Long Beach, CA
4
Atlanta, GA
5
Chicago, IL
6
Washington, DC-Metro Area
7
New York, NY
8
Dallas, TX
9
Houston, TX
10
San Diego, CA
11
Phoenix, AZ
12
Anaheim-Santa Ana, CA
13
San Francisco-San Mateo, CA
14
Miami-Hialeah, FL
15
Tampa-St. Petersburg, FL
Rooms
112,000
95,100
80,800
77,100
73,400
71,800
68,300
54,900
47,700
46,800
45,700
45,400
43,100
41,500
36,900
Hotels 1997 Rank
265
1
350
2
653
3
561
4
418
5
387
6
248
7
361
8
318
12
393
9
310
14
360
10
307
11
255
13
312
16
Statistics of Top 15 MSA’s
Occupancy
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
New York, NY
San Francisco, CA
Orlando, FL
Boston, MA
San Diego, CA
Washington, D.C.
Chicago, IL
Los Angeles, CA
Miami-Hialeah, FL
Dallas, TX
Atlanta, GA
Phoenix, AZ
Tampa-St. Pete, FL
Houston, TX
Norfolk, VA
ADR
82%
81%
77%
76%
75%
73%
73%
71%
71%
68%
67%
66%
66%
66%
62%
New York, NY
San Francisco, CA
Boston, MA
Chicago, IL
Washington, D.C.
Miami-Hialeah, FL
Phoenix, AZ
San Diego, CA
Los Angeles, CA
Orlando, FL
Dallas, TX
Atlanta, GA
Tampa-St. Pete, FL
Houston, TX
Norfolk, VA
RevPAR
$175
$130
$127
$109
$106
$101
$100
$99
$89
$85
$82
$79
$79
$74
$68
New York, NY
San Francisco, CA
Boston, MA
Chicago, IL
Washington, D.C.
San Diego, CA
Miami-Hialeah, FL
Phoenix, AZ
Orlando, FL
Los Angeles, CA
Dallas, TX
Atlanta, GA
Tampa-St. Pete, FL
Houston, TX
Norfolk, VA
$143
$105
$96
$80
$78
$75
$72
$66
$66
$63
$56
$53
$52
$49
$42
Hotel Organization Chart
General
Manager
General Manager
Rooms Division Director
Front Office Manager
Reservations Manager
Housekeeping
Switchboard Supervisor
Food & Beverage Director
Restaurant Managers
Room Service Manager
Executive Chef
Director of Marketing
Sales Manager
Convention Services Manager
Banquet Manager
The Income Statement
Undistributed Operating Expenses
Revenue
Rooms
Food
Beverage
Telecommunications
Other Departments
Rentals & Other Income
Total Revenues
67.4%
19.6%
5.0%
2.7%
3.3%
1.9%
Total Costs & Expenses
8.3%
1.6%
5.4%
5.0%
4.1%
0.2%
Total Undistributed Expenses
24.6%
Income Before Fixed Charges
35.0%
100%
Costs & Expenses
Rooms
Food
Beverage
Telecommunications
Other Departments
A&G
Franchise Fees
Marketing
Property Operation and Maintenance
Utility Costs
Other Unallocated Operated Departments
17.2%
17.1%
2.3%
1.3%
2.5%
40.4%
Occupancy %
ADR
Average Size (Rooms)
Mgmt. Fees, Property Taxes & Insurance
Management Fees
Property Taxes
Insurance
2.8%
3.2%
1.0%
Total Mgmt. Fees, Property Taxes & Insurance
7.0%
EBITDA
28.0%
71.1%
$ 91.60
199
Hotel Revenues
Beverage
5%
Other Operated
Departments
3%
Telecomm
3%
Rentals & Other
Income
2%
Food
20%
Rooms
67%
Trends in Revenue
% of Total Revenue
80%
70%
60%
57.0%
60.5%
61.6%
63.1%
63.7%
63.5%
67.2%
67.4%
50%
Rooms
Food
Beverage
40%
30%
20%
10%
26.1%
9.8%
23.5%
8.9%
23.4%
7.7%
21.6%
21.0%
19.7%
19.7%
19.6%
5.9%
5.6%
5.5%
5.2%
5.0%
0%
1977 1982 1987 1992 1993 1994 1995 1996
Hotel Expenses
Utility Costs
6%
Management Fees,
Property Taxes, &
Insurance
10%
Cost of Sales
12%
Operating Expenses
28%
Salaries & Benefits
44%
Payroll Costs
Rooms
Food & Beverage
Telephone
Other
A&G
Marketing
Property Operations
Other Departments
Total Payroll
35.0%
32.5%
1.4%
2.8%
13.1%
7.2%
7.8%
0.3%
100%
Payroll Taxes & Employee Benefits
Employee Meals
33.8%
1.1%
Source: PKF Hotel Industry Trends 1998
Profitability
Limited Service
Suite
Convention
Full-Service
Resort
Income Before Fixed Charges
50.6%
44.4%
36.4%
31.5%
29.4%
EBITDA
42.8%
35.5%
29.3%
24.7%
23.5%
Fixed Charges: Management Fees, Property Taxes & Insurance
Hotel Occupancy Rate
66%
65%
64%
63%
62%
61%
60%
87
88
89
90
91
92
93
94
95
96
97
98
Occupancy % by Segment
Upper Tier Extended-Stay
Luxury
Deluxe
Upscale
Midscale w/out F&B
Lower Tier Extended-Stay
Midscale with F&B
Budget
Economy
Total U.S. Hotels
Source: Bear, Stearns & Co. 1999
1998
79.80%
74.20%
73.90%
69.90%
68.70%
68.50%
64.40%
63.20%
60.20%
66.80%
1997
81.80%
75.30%
74.80%
71.40%
69.60%
70.70%
65.30%
63.00%
60.40%
67.50%
ADR & RevPAR by Segment
Average Daily Rate
Deluxe
Luxury
Upscale
Upper Tier Extended-Stay
Midscale with F&B
Midscale without F&B
Economy
Lower Tier Extended-Stay
Budget
Total U.S. Hotels
Source: Bear, Stearns & Co. 1999
RevPAR
1998
$201
$138
$99
$98
$70
$64
$51
$43
$43
1997
$183
$129
$94
$95
$66
$60
$49
$38
$41
1998
$149
$102
$79
$69
$45
$44
$31
$29
$27
1997
$137
$97
$78
$67
$43
$42
$30
$27
$26
$80.03
$76.35
$53.45
$51.52
Cap Rates
12.00%
11.00%
Hotel
10.00%
Office
Industrial
9.00%
Retail
8.00%
7.00%
1988
Source: PKF Consulting
1990
1992
1994
1996
1997
Spread between 10 Year
Treasury & Cap Rates
6.0%
5.5%
5.0%
4.5%
4.0%
Resort
3.5%
Full Service
3.0%
2.5%
Limited Service
2.0%
1.5%
1.0%
1986 1988 1990 1992 1994 1996 1997
Source: PKF Consulting
Hotel Construction
Contracts Awarded - F.W. Dodge
Million SF
100
80
60
40
20
0
80
82
84
86
88
90
92
94
96
98
Real Estate Cycle
Hotel
Extended Stay Hotel - 12:00
12
Overshooting
Phase
Decline
Phase
3
9
Growth
Phase
Absorption
Phase
6
Full Service Hotel - 6:30
Rosen Consulting Group