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Company
Global Markets Research
North America United States
Consumer Gaming & Lodging
Coverage Change
20 September 2011
Lodging Industry
Initiating Coverage
Carlo Santarelli
Tim Wengerd
Research Analyst
(+1) 212 250-5815
carlo.santarelli@db.com
Research Associate
(+1) 212 250-4486
timothy.wengerd@db.com
We Are Launching Coverage on Seven
Lodging Stocks
Our outlook on industry fundamentals for
2012 and 2013 is below that of our peers
and reflects our macroeconomic-based
findings that we identify and analyze
throughout this report. Despite our sub
Consensus outlook, we believe the ~25%
pullback in shares in the year to date
reflects much of the bad news. As such,
we believe owning lodging stocks with
international growth platforms, unique
positioning within the domestic industry,
or those with company-specific stories
makes the most sense at this time.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 146/04/2011.
20 September 2011
Lodging Industry
Initiating Coverage
Carlo Santarelli
Tim Wengerd
Research Analyst
(+1) 212 250-5815
carlo.santarelli@db.com
Research Associate
(+1) 212 250-4486
timothy.wengerd@db.com
We Are Launching Coverage on Seven Lodging Stocks
Our outlook on industry fundamentals for 2012 and 2013 is below that of our
peers and reflects our macroeconomic-based findings that we identify and analyze
throughout this report. Despite our sub Consensus outlook, we believe the ~25%
pullback in shares in the year to date reflects much of the bad news. As such, we
believe owning lodging stocks with international growth platforms, unique
positioning within the domestic industry, or those with company-specific stories
makes the most sense at this time.
What Have We Done?
In this report we examine a number of unique lodging and macro correlations, and
we believe we have turned over some interesting statistical evidence that paints a
rather dour domestic outlook for lodging. We note that some of our analysis is
non-conventional and goes considerably beyond the typical GDP to RevPAR
correlation work. Our analysis leads us to the conclusion that 2012 may well be a
bumpy year for domestic lodging fundamentals. However, given our view that
current valuations in the sector reflect a less optimistic outlook for 2012 RevPAR
performance than our current forecast, we believe long opportunities exist.
Despite Our Industry Outlook, Lodging Stocks Can Still Work
We are initiating coverage with four Buy-rated stocks and three Hold-rated stocks.
Broadly speaking, we favor companies with desirable brands in emerging markets
and outsized international growth pipelines. This view largely underpins our Buy
ratings on HOT, our top pick, and, to a lesser extent, H. Our Buy rating on WYN
can be defined as a story-specific view that is largely lodging-neutral, and our Buy
rating on OEH relates more to valuation and catalysts than to our out-year
forecasts for luxury and/or international RevPAR performance. Each of our
company initiations can be found in this report.
Coverage Change
Top picks
Starwood Hotels & Resorts W (HOT.N),USD45.46
Buy
Hyatt Hotels (H.N),USD35.56
Buy
Orient-Express Hotels (OEH.N),USD8.04
Buy
Wyndham Worldwide (WYN.N),USD32.15
Buy
Companies featured
Starwood Hotels & Resorts W (HOT.N),USD45.46
Buy
2010A
2011E
2012E
EPS (USD)
1.25
1.72
2.15
P/E (x)
38.6
26.4
21.2
EV/EBITDA (x)
–
–
–
Choice Hotels Intl. (CHH.N),USD30.69
Hold
2010A
2011E
2012E
EPS (USD)
1.82
1.78
1.89
P/E (x)
19.2
17.2
16.2
EV/EBITDA (x)
13.3
11.0
10.1
Gaylord Entertainment Co. (GET.N),USD22.82 Hold
2010A
2011E
2012E
EPS (USD)
-1.37
0.25
0.47
P/E (x)
–
91.1
48.8
EV/EBITDA (x)
60.2
10.1
9.3
Hyatt Hotels (H.N),USD35.56
Buy
2010A
2011E
2012E
EPS (USD)
0.31
0.49
0.80
P/E (x)
123.0
72.2
44.3
EV/EBITDA (x)
22.5
22.2
21.8
Host Hotels & Resorts (HST.N),USD12.12
Hold
2010A
2011E
2012E
EPS (USD)
0.73
0.89
1.06
P/E (x)
19.8
13.6
11.4
EV/EBITDA (x)
1.9
1.6
1.5
Orient-Express Hotels (OEH.N),USD8.04
Buy
2010A
2011E
2012E
EPS (USD)
-0.27
-0.13
0.23
P/E (x)
–
–
35.3
EV/EBITDA (x)
1.5
1.2
1.1
Wyndham Worldwide (WYN.N),USD32.15
Buy
2010A
2011E
2012E
EPS (USD)
1.99
2.39
2.58
P/E (x)
12.7
13.4
12.5
EV/EBITDA (x)
7.2
6.9
6.3
Our RevPAR Forecasts Are Below Consensus
Our current 2011, 2012, and 2013 total U.S. RevPAR forecasts are +7.7%, +4.4%,
and +5.0%, respectively. Our 2011 (+7.7%) and 2012 (+4.4%) RevPAR forecasts
compare to Smith Travel Research forecasts of +7.8% for 2011 and +7.0% for
2012. We believe it is important to note that our forecasts assume that business
travel, which has been resilient so far this year, continues to hold up.
Valuation and Risks
We primarily value lodging stocks on multiples of EV/EBITDA. With lodging stocks
largely trading below historical forward EV/EBITDA multiple averages, we believe
the following sector risks remain pertinent: 1) further erosion of the domestic
macroeconomic environment and flattening of out-year GDP forecasts, 2) an
inability to resolve the current European crisis, 3) the erosion of corporate profits
that curbs corporate travel demand, and 4) acts of terrorism or other exogenous
factors that could curtail travel demand.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
MICA(P) 146/04/2011.
20 September 2011
Gaming & Lodging Lodging Industry
Table of Contents
Executive Summary........................................................................... 3
Overview of Top Picks ...................................................................... 5
Starwood Hotels (HOT) - Buy .................................................................................................... 5
Wyndham Worldwide (WYN) - Buy ........................................................................................... 5
Hyatt Hotels (H) - Buy ............................................................................................................... 6
Orient Express Hotels (OEH) - Buy ........................................................................................... 6
Deutsche Bank Versus Consensus ................................................... 7
Lodging Industry Overview .............................................................. 9
An Historical Perspective .......................................................................................................... 9
Review of Fundamental Drivers for Room Demand and Supply ............................................. 16
The Interplay of Lodging Metrics ............................................................................................ 31
Operating Costs and Margin Trends ....................................................................................... 43
Our Industry Forecasts............................................................................................................ 46
The Business of Hotels: Owning, Managing, and Franchising ................................................ 49
Comparative Analysis & Valuations............................................... 53
Lodging Comparative Valuations............................................................................................. 53
Lodging Stock Trends ............................................................................................................. 57
Starwood Htls. & Resort ................................................................. 60
Wyndham Worldwide ..................................................................... 87
Orient-Express Hotels ................................................................... 121
Hyatt Hotels ................................................................................... 148
Choice Hotels Intl. ......................................................................... 182
Gaylord Entertainment Co. ........................................................... 208
Host Hotels & Resorts ................................................................... 236
Appendix ........................................................................................ 267
Lodging Industry Stock Returns ............................................................................................ 267
Operating Statistics ............................................................................................................... 268
Hotel Segments .................................................................................................................... 283
Hotel Supply.......................................................................................................................... 290
Page 2
20 September 2011
Executive Summary
We are initiating coverage on seven lodging stocks with four Buy and three Hold ratings.
Following two strong years of returns for lodging stocks as investors envisioned a repeat of
the 2003–07 lodging cycle (see Figure 7), the sector has seen a meaningful pullback in 2011
as global economic fears have largely quelled exuberant expectations of rate growth and the
pent-up demand thesis that we believe had been driving 2012 RevPAR expectations.
Accordingly, our lodging coverage universe is down ~25% on a market-cap-weighted basis in
the year to date.
We believe the year-to-date weakness, and more specifically the 3Q-to-date weakness, has
created several favorable risk/reward scenarios. Our views are based on our assumption that
while out-year RevPAR has come into question as generally regarded macro-correlated data
has softened, shares of several operators reflect a more draconian scenario than we currently
believe exists. Accordingly, we assign Buy ratings to Starwood Hotels (HOT), Wyndham
(WYN), Hyatt (H), and Orient Express (OEH). We assign Hold ratings to Gaylord Entertainment
(GET), Host Hotels (HST), and Choice Hotels (CHH). In general, as it relates to the stocks, we
favor companies with desirable brands in emerging markets and outsized international
growth pipelines. This view largely underlies our Buy ratings on HOT and, to a lesser extent,
H. Our Buy rating on WYN can be defined as a story-specific view that is largely lodgingneutral, and our Buy rating on OEH relates more to valuation and catalysts than to our outyear forecasts for luxury and/or international RevPAR performance. Each of our company
initiations can be found in this report.
Our current 2011, 2012, and 2013 total US RevPAR forecasts are +7.7% on 1.6% real GDP
growth, +4.4% on 1.5% real GDP growth, and +5.0% on 1.8% real GDP growth,
respectively. Our 2011 (+7.7%) and 2012 (+4.4%) RevPAR forecasts compare to Smith
Travel Research forecasts of +7.8% for 2011 and +7.0% for 2012. For 2012, we are
forecasting ADR growth of 2.5% and occupancy growth of 1.8% and for 2013 we are
forecasting ADR growth of 3.0% and occupancy growth of 2.0%. We believe it is important
to note that our forecasts assume that business travel, which has been resilient so far this
year, continues to hold up and convention calendars buoy demand in uninspiring economic
times.
In the year to date, demand growth has been much stronger than we would expect based on
statistical relationships. Year to date demand growth is up a solid 5.4%, while real GDP has
averaged a mere 1.9% in the 1H 2011. The historical relationship suggests that demand
growth be up only 1% with 1.9% GDP growth. The story is similar when we look at other
indicators, like non-manufacturing ISM employment and airline seat miles. We believe
business travelers are largely responsible for the statistical aberration that has existed in the
year to date 2011. We have found that non-manufacturing ISM employment, which we
believe has been largely ignored by the Street, is a leading indicator for lodging demand. This
indicator suggests slowing demand growth in the 2H 2011. Beyond the 2H 2011, we are
concerned that reversion to the mean will catch up to lodging demand in 2012 and 2013.
With our demand framework in place, we believe our examination of the supply side of the
equation may well draw the ire of concrete manufacturers and labor unions alike. Clearly, the
bull case for lodging companies and lodging stocks is that supply remains flat or even
negative. We are currently forecasting annual changes in total U.S. supply of +0.4%, +0.2%,
and 0.0% for 2011, 2012, and 2013, respectively.
Page 3
20 September 2011
At present, we see a supply-demand equation that is considerably out of sync. Assume that
supply stays flat at 2010 levels, despite this being somewhat unrealistic, even with supply
approaching zero this year. Also assume that lodging demand in the 2H 2011 is equally as
strong as in the 1H 2011, a stretch in our view given recent macro economic data. Lastly,
assume that for each point in real GDP growth, lodging demand grows 0.608% (47.0%
cumulative lodging demand growth divided by 77.4% cumulative real GDP growth from 1987
to 2010). Under these three assumptions, our analysis (Figure 32) indicates that the relative
supply-demand equilibrium that the industry enjoyed through most of the late 1980's and
1990's should not be seen again until at least 2014. Furthermore, if we were to assume 1.5%
GDP growth, 100 bps below the 1987-2010 CAGR, and more in line with our current forecast,
the balance would not be achieved until 2016. As we see it, it’s time to stop the cranes.
Lastly, we believe it is important to recognize that if our RevPAR forecast for next year
proves aggressive, it could well be more than a slight miss; indeed, we could then see
negative RevPAR in 2012. This view is based on our aforementioned real GDP/demand
analysis and our analysis of the long-term relationship between RevPAR growth and CPI
growth. Since 1988, the RevPAR CAGR is +2.5%, 40bps shy of the 2.9% CPI CAGR over the
same time. The trend has been for RevPAR to grow more quickly than CPI during up-cycles,
with harsh corrections ultimately bringing the RevPAR CAGR back to sub-CPI levels. We note
that the last two corrections, 3Q 2001 and 1Q 2009, have been considerably more punitive
than prior downturns. We believe Figure 47 in this report provides investors with a unique
perspective of the negative skew of RevPAR over the past 33 years.
Page 4
20 September 2011
Overview of Top Picks
Starwood Hotels (HOT) - Buy

We are initiating coverage on Starwood Hotels with a Buy rating and a $58 price target.

Despite our less optimistic forecast, when compared to Consensus, for the industry, we
believe HOT is well positioned from both a fundamental and stock perspective, to
outperform peers over the near and medium terms. While HOT has been a crowded
Consensus idea, for the right reasons in our view, the stock has not worked given the
overall sluggishness in the segment related to macroeconomic issues that have lowered
the bar for 2012 RevPAR performance. We think our Outperform rating on HOT is likely
to draw some raised eyebrows given our more pessimistic, when compared to
Consensus, view of a sector in which HOT is generally thought of as one of the
bellwethers. As such, we believe our view on HOT, despite our view on the domestic
lodging environment, shows our level of conviction around HOT's domestic asset skew,
international growth pipeline, financial flexibility, and brand strength.

We expect shares to benefit from:

1) HOT’s luxury and upper upscale segmentation and exposure to domestic urban
markets,

2) solid near-term and out-year international fee growth stemming from a rich
international development pipeline,

3) an underappreciated owned portfolio that we believe to be considerably
undervalued at present,

4) a sound and flexible balance sheet, and

5) a favorable outlook for corporate profits, a historical driver of HOT RevPAR
Wyndham Worldwide (WYN) - Buy

We are initiating coverage on WYN with a Buy rating and a $41 price target.

Given the ~10% macro-related pullback in shares since early July, we see current levels
as a favorable entry point for what we think will another bull run for WYN shares as the
company continues to maximize free cash flow to enhance shareholder value. We
expect the Fed’s policy with respect to keeping interest rates low for an extended period
of time will drive higher financing margins and cash flow generation as ABS investors
seek yield. Despite WYN being a ’Consensus idea’, we find the improved balance sheet,
attractive cash flow yields, inexpensive valuation, and ability to return value to
shareholders to be too compelling to ignore.

1) an extremely compelling free cash flow profile that provides flexibility to
management and potential value to shareholders,

2) an inexpensive valuation,

3) a favorable rate environment, and

4) an improving but often forgotten lodging business
Page 5
20 September 2011
Hyatt Hotels (H) - Buy

We are initiating coverage on H with a Buy rating and a $44 price target.

We believe macro concerns, recent earnings disappointments caused by hotel
renovations, and an underappreciated recent acquisition have created a favorable riskreward scenario for H shares at present. We expect the cessation of large-scale
renovations to create a tailwind by the 4Q 2011 and throughout much of 2012.
Furthermore, as evidenced by the RevPAR outperformance of its young select service
brands, we believe H has proven it can make smart acquisitions and revitalize brands and
we believe this has been an unheralded part of the Lodgeworks transaction. Lastly, we
expect H’s growing international footprint in China and India to support long-term growth
and serve as a buffer to potential domestic softness.

1) the Lodgeworks acquisition and an already strong select service franchise,

2) better-than-peer operating leverage,

3) meaningful international growth opportunities,

4) an inexpensive valuation, and

5) a fresh portfolio and the shedding of the overhang from renovations
Orient Express Hotels (OEH) - Buy
Page 6

We are initiating coverage on OEH with a Buy rating and an $11 price target.

After seeing shares fall 87% in 2008, OEH realized gains of 32% in 2009 and 28% in
2010. While solid, the growth was considerably below that of its peer set over the
period. While we believe the reasons for the considerable underperformance at the time
were valid, we believe OEH is still being painted with largely the same brush, as it
remains a non-Consensus long idea despite a considerably different outlook at present.
Currently, we see a stock / collection of assets that is meaningfully undervalued despite
considerable reasons for fundamental optimism and several catalysts that we believe
could change investor perceptions. Lastly, we see a significantly favorable risk-reward
scenario with prospective downside of $5 and upside of $18.

1) limited expectations for margin enhancements despite the potential for significant
improvements in flow through,

2) washed-out shares that price in much of the negative macro news that has
seemingly already been discounted for both lodging and luxury peers,

3) limited Consensus support and elevated short interest in the face of several
positive catalysts, and

4) continued strength in the Italian portfolio through the seasonally strong 3Q 2011
in Europe and beyond
20 September 2011
Deutsche Bank Versus
Consensus
Figure 1: Deutsche Bank Ratings Versus Consensus
Ratings
DB Rating
Consensus
Buy Ratings
Consensus
Hold Ratings
Consensus
Sell Ratings
HOT
Buy
22
10
0
H
Buy
11
8
1
Gaylord Entertainment
GET
Hold
9
6
0
Orient Express Hotels
OEH
Buy
1
6
1
Wyndham Worldwide
WYN
Buy
10
1
0
Choice Hotels
CHH
Hold
7
12
3
Host Hotels
HST
Hold
10
13
0
Company
Starwood Hotels
Ticker
Hyatt Hotels
Source: Deutsche Bank and Factset.
Figure 2: Calendar 3Q 2011 Deutsche Bank Estimates Versus Consensus
3Q 2011 EPS
3Q 2011 EBITDA
Ticker
DB Estimate
Consensus
Estimate
Delta
DB Estimate
Consensus
Estimate
Delta
HOT
$0.38
$0.39
($0.01)
$229.6
$233.8
($4.2)
H
$0.06
$0.08
($0.02)
$115.3
$121.4
($6.1)
GET
($0.01)
$0.05
($0.06)
$50.3
OEH
$0.08
$0.15
($0.07)
$41.8
$45.3
($3.6)
WYN
$0.88
$0.88
($0.00)
$307.1
$313.4
($6.3)
CHH
$0.61
$0.60
$0.01
$60.5
$60.3
$0.2
HST
$0.15
$0.17
($0.02)
$208.9
$211.8
($2.9)
Note: "EPS" for HST represents FFO.
Note: "EBITDA" for GET represents CCF.
Figure 3: Calendar 2011 Deutsche Bank Estimates Versus Consensus
2011 EPS
2011 EBITDA
Delta
DB Estimate
Consensus
Estimate
Delta
Ticker
DB Estimate
Consensus
Estimate
HOT
$1.72
$1.75
($0.03)
$981.6
$978.6
$3.0
H
$0.49
$0.53
($0.04)
$522.3
$525.7
($3.4)
GET
$0.25
$0.43
($0.18)
$220.8
OEH
($0.13)
($0.00)
($0.13)
$94.6
$103.2
($8.6)
WYN
$2.39
$2.40
($0.00)
$953.1
$969.4
($16.3)
CHH
$1.78
$1.76
$0.02
$178.3
$178.5
($0.2)
HST
$0.89
$0.91
($0.02)
$1,029.3
$1,036.3
($7.0)
Page 7
20 September 2011
2012 EPS
2012 EBITDA
Ticker
DB Estimate
Consensus
Estimate
Delta
DB Estimate
Consensus
Estimate
Delta
HOT
$2.15
$2.31
($0.16)
$1,076.8
$1,131.1
($54.3)
H
$0.80
$0.94
($0.14)
$641.2
$666.1
($24.9)
GET
$0.47
$0.90
($0.43)
$239.3
OEH
$0.23
$0.21
$0.02
$121.3
$118.5
$2.8
WYN
$2.58
$2.75
($0.17)
$1,006.5
$1,050.6
($44.1)
CHH
$1.89
$1.88
$0.01
$187.5
$192.9
($5.5)
HST
$1.06
$1.17
($0.11)
$1,180.9
$1,242.3
($61.5)
2013 EPS
2013 EBITDA
Ticker
DB Estimate
Consensus
Estimate
Delta
DB Estimate
Consensus
Estimate
Delta
HOT
$2.74
$2.91
($0.17)
$1,189.5
$1,278.3
($88.8)
H
$1.16
$1.32
($0.16)
$731.9
$764.4
($32.5)
GET
$0.53
$1.03
($0.50)
$253.1
OEH
$0.40
$0.33
$0.07
$143.8
$136.6
$7.2
WYN
$2.74
$3.08
($0.33)
$1,049.8
$1,100.0
($50.2)
CHH
$2.06
$2.05
$0.01
$201.0
$204.0
($3.0)
HST
$1.21
$1.37
($0.16)
$1,294.7
$1,391.1
($96.4)
Page 8
20 September 2011
Lodging Industry Overview
An Historical Perspective
Following a rapid recovery in lodging demand in 2010 and through 2011 to date, we believe
the lodging industry is poised to experience several years of moderating demand growth.
Fortunately, net supply growth is expected to diminish and is likely remaining below 1%
through 2013, as banks limit exposure to new real estate development. Relative to the 2003
to 2007 lodging upcycle, we expect a weaker recovery in fundamentals due to a less-friendly
credit environment and the global impact of government fiscal crises in Europe and the
United States.
Occupancy is the leading
indicator at the top and
bottom of the cycle. Rates
follow occupancy.
Business mix shifts away
from higher-priced
corporate and business
Reliable lodging data is available for periods after 1988 from Smith Travel Research. Since
then, the industry has experienced three major downturns: 1991, 2001–02, and 2008–09.
Through upswings and downturns, occupancy responds first, followed by accelerations or
decelerations in rate growth. At the inflection point in the cycle, high-paying business
transient guests (individuals traveling for work) tend to be the first guests to decrease travel.
Hotels adjust to the lower occupancy in the downturn by reducing prices to appeal to pricesensitive travelers. When occupancy and price fall, booking windows shorten. Business mix
shifts away from business transient and premium corporate business as hotels often source
more business through online travel agents during a downturn, which tends to yield lowerpriced leisure business.
travel during a downturn.
At the bottom of the cycle, occupancy growth generally recovers first as business travel and
corporate business picks up. Early in the recovery, occupancy growth turns positive while
rate growth remains negative. Transient demand, demand from individuals, recovers first.
Group business has a longer lead time and tends to lag. As the recovery progresses and
occupancy recovers, rate growth comprises a larger portion of RevPAR growth.
The Last Fundamental Upcycle: 2003-2007
Following the 2001–02 downturn, the U.S. lodging industry experienced a year of slow
RevPAR growth (2003) followed by four consecutive years (2004–07) of strong, high-singledigit RevPAR growth (6–9%), according to data from Smith Travel Research. From February
1, 2003, through the cyclical peak in May 2007, lodging stocks gained 251% versus an 82%
gain for the S&P 500.
Upper upscale RevPAR grew
slightly less than the
industry’s RevPAR over the
03–07 cycle.
Industry RevPAR growth
just outpaced nominal GDP
growth.
In the last upcycle, upper upscale’s RevPAR growth was slightly below RevPAR growth for
the whole industry. Typically, high-end segments outperform the industry in a recovery and
underperform in a downturn; however, the luxury and upper upscale brands are losing some
of their “high-beta” nature as the segments become a larger part of the hotel industry. Upper
upscale segment RevPAR grew 31.0% over the five-year upcycle compared to cumulative
industry RevPAR growth of 34.5%. Luxury’s cumulative growth of 46.9% from 2003 to 2007
outpaced the industry’s RevPAR growth by more than 12 percentage points.
Nominal GDP grew 32.6% during the last upcycle, which is just slightly less than the
industry’s RevPAR growth and real growth accounted for about 50% of nominal growth.
Industry and upper upscale RevPAR both experienced growth similar to nominal GDP
growth. Rate growth accounted for 76% of the industry RevPAR growth from 2003 to 2007.
Page 9
20 September 2011
Peak occupancy did not
reach prior-cycle high, due
in part to the high supply
growth in late 90’s.
Occupancy growth accounted for the remaining 24% of the industry RevPAR growth in
2003–07. Industry occupancy grew from 59.0% (trough of 2001–02 downturn) to a peak of
63.1% in 2006 before declining to 62.8% in the last year of the upcycle. Luxury occupancy
also peaked in 2006 (71.8%) while upper upscale actually peaked in 2005 (70.7%). Peak
occupancy for the 2003–07 upcycle did not surpass the 64.8% occupancy peak level from
1995 during the prior lodging upcycle (1993–97).
Additionally, with respect to occupancy, the 1993–97 lodging upcycle was the strongest
since Smith Travel has been tracking occupancy. Robust economic growth during the
technology boom fueled high levels of transient demand. Demand in turn caused developers
to add supply. High levels of supply growth in the late 1990s made re-attaining peak
occupancy more challenging during the 2003–07 upcycle. Industry supply growth averaged
3.5% from 1997 to 2000, compared to the average of 2.1% from 1988 to present. As the
stock performance chart (Figure 7) indicates, occupancy does not necessarily need to
surpass the prior peak in order for the stocks to perform better than in the prior cycle. Other
factors like real estate lending, interest rates, and the corresponding impact on real estate
valuation can drive stock prices higher.
Cycle benefited from low
supply growth in 2004–07
Low supply growth, which actually turned negative in 2005, helped the industry drive the
robust RevPAR growth seen in 2004–06. While the CMBS market expanded rapidly over this
period, the room growth that occurred as a result of the lending boom did not occur until
2008. Supply growth is now dissipating from the lending boom that occurred in the last half
of the 2003–07 upcycle. Lastly, the lack of development financing availability over the past
three years bodes well for the industry’s RevPAR this year and as far out as 2014.
Figure 6: The Last Lodging Upcycle (2003–07)
Year
2003
2004
2005
2006
2007
Cumulative Growth
Total Industry
RevPAR
Supply
0.4%
1.0%
7.9%
0.4%
8.6%
-0.1%
7.7%
0.2%
6.1%
1.2%
34.5%
2.9%
Luxury Chains
RevPAR
Supply
-0.1%
7.1%
10.5%
3.1%
11.6%
0.4%
11.3%
4.9%
7.0%
4.1%
46.9%
21.0%
Upper Upscale Chains
RevPAR
Supply
-2.0%
2.3%
8.0%
1.4%
9.6%
-0.5%
7.0%
-1.2%
5.7%
0.6%
31.0%
2.5%
Macro Economic Indicators
Real GDP
CPI
3.9%
2.3%
2.9%
2.7%
2.8%
3.4%
2.4%
3.2%
2.2%
2.9%
15.0%
15.3%
Source: Deutsche Bank, Smith Travel Research.
2003–07: An Impressive Period for Lodging Stocks
Returns in Upcycle:
2/03-5/07 Lodging +251%
2/03-10/07 S&P500 +84%
Lodging Stocks returned 3x
and 2x the returns of the
S&P 500 in the 93–97 and
03–07 lodging upcycles.
Page 10
Lodging total stock returns were 3x greater than the S&P 500 total returns in the last lodging
upcycle from February 2003 to May 2007. Lodging stocks returned 248% compared to the
S&P 500 total return of 82%. The S&P 500 did not peak until October 2007; the total return
for the S&P 500 from February 2003 to October 2007 was 84% (lodging stocks +238% over
the same period). The gains in the 2003–07 cycle were significantly better than the return in
the prior lodging upcycle from October 1993 to October 1997 when Marriott International,
Host Marriott Corporation, and Hilton Hotels gained 230% relative to the S&P 500 gain of
113% over the same time period.
The impressive return for lodging stocks in from 2003 to 2007 was likely due to a confluence
of factors: 1) lodging is a cyclical industry with higher highs and lower lows, 2) the real estate
lending cycle drove up commercial real estate prices and reduced interest rates (drove up
valuation multiples), 3) large buyouts by private equity companies pushed valuations in the
sector even higher, and 4) supply growth in 2004–06 was well below the long-term industry
average.
20 September 2011
At first glance, it may seem that lodging stocks just move in the same direction as the market
with higher highs and lower lows. This has generally been the case in the past decade (Figure
7). Lodging stocks rallied at 2x the market rate from 1993 to 1997, but from October 1997 to
October 2000, lodging stocks lost 15% while the S&P 500 rallied 60%. During this period,
lodging suffered from the economic impact of the Asian financial crisis. With the exception of
the hiccup from this crisis, RevPAR performance was actually quite strong, especially in
2000. This period coincides with the top of the tech boom. A flurry of economic activity
associated with the tech boom created demand growth from business transient guests,
which tend to be higher-paying guests.
Exception to “higher highs,
lower lows” rule :
Tech Boom
From 10/97-10/00
Lodging -15% return
S&P500 +60% return
We have tracked stock returns for the seven lodging companies on which we are initiating
coverage, plus Hilton Hotels and Four Seasons. The Lodging Index return as shown in Figure
7 is based on the total monthly market-value-weighted returns for the nine companies in the
index. Index weights are set at the beginning of each month. Hilton and Four Seasons were
purchased in 2007 by private equity. Orient-Express Hotels (August 2000), Wyndham
Worldwide (July 2006), and Hyatt Hotels (November 2009) were included for the months in
which these companies were publicly traded.
Figure 7: Lodging Stock Price Performance, February 2000—Present
400
Lodging index
falls 31% in
Sep 2001 due
to terrrorist
attacks. Upper
Upscale
RevPAR down
23% in 4Q01
350
300
250
200
Lodging stocks
begin Cyclical
Upcycle from Feb
2003 to May
2007.
May 2007
Lodging stocks
peak, +251%
from Feb 2003.
Oct 2007
S&P500
peaks, +84%
from Feb 2003
Upper Upscale
RevPAR grows
31% from 03-07
150
100
50
Upper Upscale supply growth of -0.5%, -1.2%, and
0.6% from 2005-07 allow excellent RevPAR growth.
Nov 2001 Recession Ends
S&P 500 Index
Aug-11
Feb-11
Aug-10
Feb-10
Aug-09
Feb-09
Aug-08
Feb-08
Aug-07
Feb-07
Aug-06
Feb-06
Aug-05
Feb-05
Aug-04
Feb-04
Aug-03
Feb-03
Aug-02
Feb-02
Aug-01
Feb-01
Aug-00
Feb-00
0
Lodging Index Feb 2000 - Present
Source: Deutsche Bank, Smith Travel Research, Factset.
Page 11
20 September 2011
A Look at the Financial Crisis and Recovery in Room Night Demand
Lodging stocks plummeted during the 2008 financial crisis. Figure 8 shows the vital statistics
on a month by month basis starting in January 2007. Similar exhibits for each chain scale
segment are available in the Appendix to the industry section of this report. The numbered
notes below correspond to items in Figure 8.
Page 12
1
RevPAR peaked throughout late 2007 and early 2008. Currently, RevPAR is 2.1%
below peak. Specifically, July 2011 RevPAR is 2.1% below July 2008 RevPAR. Since
RevPAR is highly seasonal, comparisons to peak are to the peak month in 2007 or
2008. Peak months are shaded in Figure 8.
2
The S&P declines 4.4% in November 2007. Lodging stocks fall 2.2x the S&P decline.
The recession begins in November 2007. RevPAR decelerates 360 bps from +8.9%
in October to 5.3% in November. December, January, and February are all down
months for both the S&P 500 and lodging stocks. While RevPAR growth slows to
low-single-digit growth, each month is a record high for industry RevPAR.
3
Bear Stearns collapses in March 2008. RevPAR falls 0.6% year over year, ending an
elongated run of year over year growth. The decline in RevPAR is driven by
occupancy, due to cancelations in the midst of the crisis. March 2008 occupancy
falls 350bps (-5.3% year over year), though rate grows 5.0% year over year. At this
point, occupancy is past its peak for the cycle.
4
Lehman files for bankruptcy in October 2008. Lodging stocks fall 23.7%, or 1.4x the
S&P 500 decline and rates decline year over year following an extended run of
monthly year over year growth. November 2008 is the largest single-month decline
of the crisis for lodging stocks (-25.3%). The decline is 3.4x the S&P 500 decline.
5
The market and lodging stocks bottom in March of 2009. One year later, RevPAR
grows for the first time in 20 months. During this span from March of 2009 (stocks
trough) to March of 2010 (RevPAR growth) RevPAR remains approximately 20%
below peak levels.
6
For the first time since April of 2008, demand turns positive in December of 2009,
though RevPAR doesn’t show year over year growth until March of 2010. In the first
year of the recovery, RevPAR recovers about 1/3rd of RevPAR lost from the peak.
20 September 2011
Figure 8: A Month-by-Month Look at the Collapse and the Recovery
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Total U.S.
yoy
vs
Total U.S.
Re vPAR % Chg. Pe ak O ccupancy
$52.48
-3.6%
52.3%
4.8%
$62.46
-2.7%
59.8%
5.5%
$68.90
0.0%
65.5%
6.7%
$65.90
-3.8%
63.6%
4.4%
$66.81
-1.0%
64.5%
6.5%
$73.81
0.0%
71.1%
7.1%
$73.41
-0.3%
70.4%
5.2%
$72.56
0.0%
69.5%
9.0%
$67.15
0.0%
64.3%
5.4%
$71.76
0.0%
66.2%
8.9%
$60.58 2 5.3%
0.0%
57.8%
$49.80
0.0%
48.3%
3.2%
$54.45
0.0%
51.0%
3.8%
$64.16
0.0%
58.7%
2.7%
$68.47
-0.6%
-0.6%
62.0% 3
$68.49
0.0%
62.9%
3.9%
$67.45
0.0%
62.4%
1.0%
$72.71
-1.5%
-1.5%
67.5%
$73.64
68.6%
0.3% 1 0.0%
$72.15
-0.6%
-0.6%
66.8%
$65.04
-3.1%
-3.1%
60.1%
$66.53
-7.3%
-7.3%
61.4%
$52.60
-13.2% -13.2%
51.3%
$44.74
-10.2% -10.2%
44.7%
$45.86
-15.8% -15.8%
45.3%
$53.12
-17.2% -17.2%
52.6%
$54.74
-20.0% -20.6%
54.8%
$55.23
-19.4% -19.4%
55.8%
$53.70
-20.4% -20.4%
55.1%
$59.26
-18.5% -19.7%
60.8%
$62.16
-15.6% -15.6%
63.6%
$58.47
-19.0% -19.4%
60.1%
$54.74
-15.8% -18.5%
56.1%
$57.27
-13.9% -20.2%
57.4%
$46.15
-12.2% -23.8%
48.9%
$41.19
-7.9% -17.3%
43.6%
$42.39
-7.6% -22.2%
45.1%
$51.11
-3.8% -20.3%
53.0%
$56.75
57.9%
3.7% 5 -17.6%
$57.01
-16.8%
58.3%
3.2%
$57.44
-14.8%
58.9%
7.0%
$63.91
-13.4%
64.9%
7.8%
$67.41
-8.5%
67.9%
8.4%
$63.19
-12.9%
63.9%
8.1%
$59.59
-11.3%
59.9%
8.9%
$62.02
-13.6%
61.3%
8.3%
$51.59
53.3%
11.8% -14.8%
$44.22
-11.2%
45.9%
7.4%
$46.11
-15.3%
47.6%
8.8%
$55.08
-14.2%
55.7%
7.8%
$62.45
-9.4%
61.3%
10.1%
$61.49
-10.2%
61.1%
7.9%
$62.43
-7.4%
61.4%
8.7%
$68.94
-6.6%
67.6%
7.9%
$72.07
69.9%
6.9% 1 -2.1%
yoy
% C hg.
-2.1%
-1.8%
0.0%
-1.4%
0.2%
1.0%
-0.9%
1.9%
-0.9%
1.1%
-1.5%
-3.1%
-2.4%
-1.8%
-5.3%
-1.1%
-3.2%
-5.1%
-2.6%
-4.0%
-6.5%
-7.2%
-11.2%
-7.5%
-11.2%
-10.3%
-11.7%
-11.3%
-11.8%
-9.9%
-7.4%
-10.0%
-6.6%
-6.5%
-4.6%
-2.3%
-0.5%
0.7%
5.7%
4.5%
6.8%
6.7%
6.9%
6.4%
6.7%
6.8%
8.9%
5.2%
5.7%
5.1%
5.9%
4.8%
4.4%
4.1%
2.9%
Total U.S.
ADR
$100.35
$104.51
$105.19
$103.62
$103.53
$103.86
$104.22
$104.40
$104.45
$108.45
$104.84
$103.15
$106.68
$109.35
$110.41
$108.90
$108.03
$107.80
$107.31
$108.08
$108.21
$108.38
$102.53
$100.17
$101.22
$100.96
$99.96
$98.95
$97.48
$97.47
$97.81
$97.35
$97.50
$99.76
$94.31
$94.40
$94.02
$96.49
$98.00
$97.79
$97.60
$98.50
$99.23
$98.92
$99.50
$101.16
$96.79
$96.32
$96.80
$98.97
$101.80
$100.62
$101.61
$102.06
$103.09
yoy
% Chg.
7.0%
7.5%
6.7%
5.9%
6.3%
6.0%
6.1%
6.9%
6.4%
7.7%
6.9%
6.5%
6.3%
4.6%
5.0%
5.1%
4.3%
3.8%
3.0%
3.5%
3.6%
-0.1%
-2.2%
-2.9%
-5.1%
-7.7%
-9.5%
-9.1%
-9.8%
-9.6%
-8.9%
-9.9%
-9.9%
-8.0%
-8.0%
-5.8%
-7.1%
-4.4%
-2.0%
-1.2%
0.1%
1.1%
1.5%
1.6%
2.0%
1.4%
2.6%
2.0%
3.0%
2.6%
3.9%
2.9%
4.1%
3.6%
3.9%
% Change In
De mand Supply
-1.3%
0.8%
-0.9%
1.0%
0.9%
1.0%
-0.4%
1.1%
1.3%
1.1%
2.2%
1.2%
0.4%
1.3%
3.3%
1.3%
0.4%
1.3%
2.5%
1.4%
0.1%
1.6%
-1.5%
1.7%
-0.6%
1.9%
0.1%
1.9%
-3.3%
2.1%
1.1%
2.2%
-1.1%
2.2%
-2.9%
2.3%
-0.2%
2.5%
-1.5%
2.6%
-4.0%
2.7%
-4.7%
2.7%
-8.7%
2.9%
-4.6%
3.1%
-8.5%
3.1%
-7.5%
3.1%
-9.0%
3.0%
-8.6%
3.0%
-9.2%
2.9%
-7.3%
2.9%
-4.7%
2.9%
-7.4%
2.9%
-3.9%
2.9%
-3.8%
2.9%
-1.9%
2.8%
0.3% 6 2.7%
2.1%
2.6%
3.2%
2.5%
8.2%
2.4%
6.8%
2.3%
9.1%
2.1%
8.8%
2.0%
8.7%
1.7%
8.0%
1.6%
8.2%
1.4%
8.1%
1.2%
10.1%
1.1%
6.2%
1.0%
6.6%
0.9%
5.9%
0.8%
6.8%
0.8%
5.5%
0.7%
5.1%
0.7%
4.9%
0.7%
3.6%
0.7%
Room
Re ve nue
5.6%
6.5%
7.7%
5.5%
7.7%
8.4%
6.5%
10.4%
6.8%
10.4%
7.0%
5.0%
5.7%
4.7%
1.5%
6.2%
3.2%
0.8%
2.8%
2.0%
-0.6%
-4.7%
-10.7%
-7.4%
-13.2%
-14.6%
-17.6%
-17.0%
-18.1%
-16.1%
-13.1%
-16.6%
-13.4%
-11.4%
-9.8%
-5.5%
-5.2%
-1.4%
6.1%
5.6%
9.2%
10.0%
10.3%
9.8%
10.4%
9.6%
13.0%
8.4%
9.8%
8.7%
10.9%
8.6%
9.5%
8.7%
7.7%
Lodging S&P 500
Inde x
Re turn
2.2%
1.4%
-2.2%
1.8%
0.8%
1.0%
-2.4%
4.3%
3.5%
3.3%
-5.9%
-1.8%
-6.7%
-3.2%
2.6%
1.3%
0.2%
3.6%
-1.6%
1.5%
-9.7%
-4.4%
-11.1%
-0.9%
-0.2%
-6.1%
-1.6%
-3.5%
-0.6%
0.2%
2.8%
4.8%
-2.8%
1.1%
-18.2%
-8.6%
-6.0%
-1.0%
8.3%
1.2%
-12.8%
-9.1%
-23.7% 4 -16.9%
-25.3%
-7.5%
13.1%
0.8%
-17.5%
-8.6%
-21.1% -11.0%
11.6%
8.5%
61.3%
9.4%
6.8%
5.3%
-5.8%
0.0%
4.5%
7.4%
14.1%
3.4%
13.1%
3.6%
-10.4%
-2.0%
6.3%
5.7%
8.7%
1.8%
-4.4%
-3.7%
9.9%
2.9%
18.5%
5.9%
11.4%
1.5%
-10.9%
-8.2%
-10.0%
-5.4%
12.9%
6.9%
-5.6%
-4.7%
10.9%
8.8%
5.7%
3.7%
-0.2%
3.7%
7.1%
6.5%
-1.3%
2.3%
1.0%
3.2%
-5.0%
-0.1%
1.8%
2.8%
-1.4%
1.5%
-6.1%
-1.8%
-4.8%
-2.1%
Page 13
20 September 2011
Figure 9: Lodging Stocks Versus the S&P 500 Through the Financial Crisis
120
Dec 2010 Lodging +290%
from Trough, -10% from Peak
Feb 2009 Cyclical Trough
Lodging Stocks -77%
S&P500 -52%
Stocks bottom in March
before recovering
100
Apr il 2011 S&P500 +86%
from Trough, -11% from Peak
80
60
Aug 2011 Lodging -25% from
Dec 2010, +192% from 2009
Trough
40
Aug 2011 S&P500 -11% from
Apr 2011, +66% from 2009
Trough
Nov 2007 Recession Starts
Mar 2008 Bear Stearns collapse
Oct 2008 Lehman BK
20
June 2009 Recession Ends
S&P 500 Index
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
0
Lodging Index May 2007 - Present
Source: Deutsche Bank, Factset
A Quick Comment on the August 2011 Lodging Sell-Off
The 2010 lodging recovery anticipated RevPAR growth of about 6–8% in 2011 with similar to
slightly stronger growth in 2012 as hotels benefit from waning supply. The re-emergence of
European debt problems, the U.S. political stalemate over the debt ceiling and spending cuts,
the S&P one-notch downgrade to the U.S. credit rating, negative GDP forecast revisions, and
poor economic data combined to drive the S&P 500 down 5.7% in August. Lodging stocks
fell 2.5x the market decline.
Forward Year RevPAR Changes and Employment Expectations Move Lodging Stocks
We found that what investors correctly anticipate about next year’s RevPAR growth and
changes in the services sector employment situation throughout the year have the strongest
relationships with lodging stocks. The lodging index we use for this analysis, which is shown
in Figure 10, includes: Marriott, Starwood, Host Marriott, Wyndham, Gaylord Entertainment,
Orient Express Hotels, Choice Hotels, Hyatt, Hilton Hotels, and Four Seasons.
Page 14
1
One might expect RevPAR growth to be correlated with lodging stock returns. We
checked. There is zero correlation between lodging stock returns and RevPAR
growth for the year (#1 in Figure 10).
2
RevPAR changes next year, or the extent to which investors correctly estimate
RevPAR changes for next year, does a better job of explaining lodging stock returns.
It should go without saying that investors are focused on the year ahead rather than
on the current year. RevPAR next year has a regression R squared of 0.38 when
Lodging Index total returns are the dependent variable.
20 September 2011
3
The year-over-year change in RevPAR next year has a regression R squared of 0.23
when lodging total returns are the dependent variable. When we say “change in
RevPAR next year,” we mean investors’ ability to correctly anticipate changes in
RevPAR next year. As the end of the year approaches, investors begin to have a
clearer picture of what the year ahead might look like, and they purchase or sell
stocks accordingly.
4
Changes in service sector employment as measured by the ISM Non-Manufacturing
Employment Index have a regression R squared of 0.62 when lodging stocks’ total
return is the dependent variable. Unlike RevPAR, index changes during the year—not
next year—are related to Lodging Index total returns. The ISM Non-Manufacturing
Employment Index had the strongest relationship with lodging demand growth that
we found. Airline capacity (ASM) also has a strong relationship with lodging demand
growth, more on this later.
5
The Lodging Index has an S&P 500 Beta (using annual returns—the common
calculation is based on monthly returns) of 1.06.
Figure 10: Expectations for Next Year’s RevPAR Drive Stock Performance
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
CAGR
S&P500 Total Return
β
R^2
Same-year RevPAR Change
β
R^2
Forward-year RevPAR Change
β
R^2
YOY change in RevPAR growth rates (% points)
β
R^2
Non-Manufacturing ISM Employment Index growth
β
R^2
Total U.S.
RevPAR
MAR
3.5%
5.5%
2.1%
-2.5%
2.5%
3.6%
5.8%
5.2%
6.0%
5.0%
3.3%
2.8%
6.2%
-6.7%
-2.4%
0.4%
7.9%
8.6%
7.7%
6.1%
-2.0%
-16.7%
5.5%
8.2%
26.1%
-6.3%
9.5%
34.7%
-3.2%
-18.5%
41.6%
37.2%
7.0%
43.4%
-27.9%
-42.3%
42.4%
53.4%
-29.1%
2.6%
0.03
0.01
1.00
1.00
-0.09
0.04
HOT
HST
94.9%
63.2%
-58.7%
6.0%
53.4%
-13.0%
-17.7%
55.1%
64.7%
10.8%
22.7%
-28.1%
-57.1%
105.4%
67.0%
-25.2%
-68.0%
61.1%
26.8%
140.0%
5.5%
36.4%
36.5%
22.7%
-14.8%
-35.1%
71.2%
-24.8%
-1.7%
39.2%
40.9%
12.2%
34.0%
-27.1%
-53.4%
58.1%
53.5%
-32.0%
6.7%
6.2%
6.9%
0.96
0.38
1.40
0.28
1.05
0.17
0.00
0.00
-0.79
0.01
2.86
0.46
WYN
Total Return
GET
OEH
CHH
H
HLT
HLT
-53.6%
11.9%
10.0%
43.6%
14.1%
-7.9%
72.7%
14.6%
-34.9%
-24.5%
10.8%
4.7%
17.1%
35.6%
33.3%
6.6%
45.6%
33.6%
FS
Market Wt.
Index
S&P 500
SP50
Non-MFG
ISM
FS
-60.3%
29.7%
17.7%
92.6%
11.5%
6.1%
69.2%
27.8%
-21.0%
-1.8%
31.5%
-7.1%
-12.1%
44.6%
45.0%
8.2%
34.9%
-13.7%
-54.0%
65.6%
54.3%
-24.6%
12.4%
27.3%
-6.6%
26.3%
4.5%
7.1%
-1.5%
34.1%
20.3%
31.0%
26.7%
19.5%
-10.1%
-13.0%
-23.4%
26.4%
9.0%
3.0%
13.6%
3.5%
-38.5%
23.5%
12.8%
-3.3%
-16.1%
-25.4%
21.9%
25.7%
53.8%
50.5%
21.8%
-86.6%
32.4%
28.1%
-38.1%
7.6%
-14.5%
25.1%
-20.1%
61.8%
2.5%
55.3%
67.4%
46.2%
2.0%
-19.9%
-6.8%
8.1%
23.5%
-19.0%
53.5%
-22.3%
-2.0%
-8.4%
11.0%
9.2%
8.4%
11.3%
8.3%
6.9%
1.55
0.47
1.81
0.69
0.26
0.03
0.13
0.00
2.63
0.71
1.06
0.26
1.00
1.00
0.55
0.42
0.03
0.00
-1.81
0.09
1.16
0.05
-0.41
0.01
1.59
0.05
3.06
0.10
1
-0.16
0.00
0.30
0.01
-0.61
0.04
4.10
0.29
3.65
0.21
4.69
0.63
4.80
0.80
2.13
0.25
2.45
0.12
3.98
0.18
2
3.97
0.38
2.25
0.50
2.41
0.53
1.56
0.21
2.86
0.22
2.12
0.11
3.83
0.67
1.94
0.20
1.39
0.17
1.24
0.03
1.62
0.04
3
2.51
0.23
1.22
0.22
1.99
0.53
1.33
0.43
2.52
0.58
1.73
0.43
2.27
0.63
1.62
0.45
0.36
0.03
0.81
0.06
2.20
0.14
4
1.81
0.62
0.85
0.43
1.00
1.00
-26.2%
-71.7%
213.9%
51.5%
8.9%
-3.7%
2.1%
-30.3%
17.8%
-16.3%
44.9%
39.1%
5.0%
16.8%
-20.5%
-73.2%
82.2%
82.0%
-36.5%
1.5%
-7.3%
82.3%
19.6%
-26.4%
-39.5%
81.4%
60.1%
-39.1%
65.0%
5
-7.5%
4.1%
-1.1%
-14.9%
5.4%
14.9%
1.3%
2.7%
-6.9%
1.0%
-33.9%
27.8%
17.9%
-0.2%
Page 15
20 September 2011
Review of Fundamental Drivers for Room Demand and Supply
From a Fundamental Perspective, Economic Activity Drives Lodging Demand
Hotel guests may travel for business or pleasure, but either way, the reason for traveling
usually involves spending or making money along the way. Naturally, demand for hotel room
nights is highly correlated with gross domestic product (GDP). Fundamentally, economic
activity and demand for hotel room nights move coincidently.
In 2010, 60% of hotel guests traveled for leisure while 40% traveled for business, according
to the American Hotel and Lodging Association (AHLA). The typical business traveler is male
(68%), age 35–54 (47%), has a managerial role, and earns about $115,000. Business travelers
usually make reservations and travel alone. Most spend three or more nights (42%). Last
year, business travelers paid $124 per room night on average.
The typical room night purchased by leisure guests was for two adults (52%), ages 35–54
(37%) and 55+ (37%), with an average household income of $87,000. Leisure travelers
usually drove to their destination (79%), made reservations (88%), and paid $105 per room
night. The typical leisure stay was one room night (49%).
Figure 11: Why Do People Travel?
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
% of Room nights sold
Family, Personal
& Other
Business Conference/
Vacation*
Reasons
Transient*
Group
60%
40%
60%
40%
57%
43%
53%
44%
56%
44%
52%
48%
50%
50%
48%
52%
24%
22%
29%
25%
24%
20%
30%
27%
25%
22%
28%
25%
*Starting in 2003, AH&LA reported only the Business & Leisure split
Source: Deutsche Bank and the American Hotel and Lodging Association.
Page 16
20 September 2011
Figure 12: The Typical Business Traveler
Figure 13: The Typical Leisure Traveler
Typical Business Traveler
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Avg Room
Rate
$124
$123
$125
$119
$112
$99
$96
$91
$93
$95
$91
Avg
Travel
Income* Alone**
$116,578
61%
$105,764
64%
$105,532
58%
$89,600
55%
$85,900
56%
$82,000
73%
$81,100
73%
$82,800
76%
$81,600
61%
$76,394
62%
$72,240
81%
Typical Leisure Traveler
1 Night
Stay
36%
36%
35%
33%
35%
40%
39%
40%
42%
42%
36%
2
3 or More
Nights
Nights
22%
42%
22%
42%
26%
39%
26%
41%
26%
39%
25%
35%
24%
37%
24%
36%
25%
33%
25%
33%
25%
39%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Avg Room Avg Household Travel
Rate
Income
by Car 2 Adults
$105
$87,327
79%
52%
$105
$90,712
80%
51%
$112
$91,155
78%
51%
$109
$78,800
78%
53%
$103
$77,100
77%
42%
$94
$75,400
74%
54%
$89
$72,600
74%
51%
$87
$74,000
73%
52%
$85
$71,600
74%
52%
$87
$69,174
74%
51%
$84
$64,386
75%
50%
1 Night
Stay
49%
48%
41%
42%
42%
45%
45%
47%
46%
47%
43%
2
3 or More
Nights Nights
25%
26%
25%
27%
31%
28%
30%
28%
30%
28%
28%
27%
28%
27%
26%
27%
27%
27%
27%
26%
28%
29%
*Starting in 2008, AH&LA reported Avg Household income
**2003-2005, AH&LA reported "guests that remain in their rooms"
The Long Standing Relationship Between GDP and Lodging Demand
The relationship between demand for hotel room nights and economic activity is evident in
the high correlation between GDP growth and growth in room nights sold (Figure 14). The
correlation is 0.78 since 1988.
Figure 14: Total US Room Demand Growth vs. Real GDP Growth
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
Demand Growth and GDP Growth have a
correlation of 0.78
-8%
U.S. Total Demand
2Q11
3Q10
4Q09
1Q09
2Q08
3Q07
4Q06
1Q06
2Q05
3Q04
4Q03
1Q03
2Q02
3Q01
4Q00
1Q00
2Q99
3Q98
4Q97
1Q97
2Q96
3Q95
4Q94
1Q94
2Q93
3Q92
4Q91
1Q91
2Q90
3Q89
4Q88
1Q88
-10%
GDP
Page 17
20 September 2011
Since 1988, real GDP growth has averaged 2.6% while lodging demand has grown at a 1.8%
CAGR. Lodging demands’ “beta” to changes in real GDP has been 1.26 since 1988, but
sensitivity to changes in GDP have been different during periods in which GDP is growing
and those in which GDP is declining. During economic downturns, lodging demand has
exhibited greater sensitivity to GDP growth. When the economy slows, lodging demand falls
fast and hard as businesses cut travel expenses. In quarters where GDP has been negative,
lodging demand has fallen by an average of 180% of the decline in real GDP.
Negative shocks to GDP that directly impact travel are even more painful for the lodging
industry. For example, airlines were grounded for three days following the terrorist attacks on
9/11/2001, which occurred while the economy was already in a recession. Lodging demand
declined 7% during the 3Q 2001 while real GDP grew 0.4%.
In years when GDP grows, lodging demand growth is less sensitive to GDP growth. For a
1% increase in real GDP, lodging demand increases 0.8% on average. In our opinion, this
serves as confirmation that that the U.S. lodging industry is mature and subsequently, we
expect the long-term growth of room night demand to be tied to GDP growth.
From 1988 to 2010, the lodging industry generally needed real GDP growth in excess of 2%
to generate positive demand. Over this same span, there were 15 quarters when GDP
growth was 0–2%. Lodging demand averaged -1.1% in these 15 quarters. In two-thirds of
the quarters where GDP growth was 0–2%, lodging demand was negative. In the four years
where GDP growth has been in the 0–2% range (1990–91 and 2001–02), lodging demand has
averaged -0.7%. Slow GDP growth has not been a good environment for lodging demand
growth.
Expectations for the current economic recovery are low. Historically, low-growth
environments (0–2% real GDP growth) have yielded poor lodging demand growth.
Figure 15: Average Room Demand at Various Real GDP Growth Rates, 1988–2010
Annual Changes in GDP (1988-2010)
<0%
0-.99%
1-1.99%
2-2.99%
3-3.99%
Occurrences
>4%
2
2
2
8
3
6
2008
2009
1990
2001
1991
2002
1989
1993
1995
2000
2004
2005
2006
2007
1988
2003
2010
1992
1994
1996
1997
1998
1999
Avg. yoy % chg in Demand in Periods
-4.3%
-0.5%
-0.2%
2.6%
4.5%
2.6%
Avg. yoy % chg in RevPAR in Periods
-9.3%
-2.3%
-2.5%
6.4%
3.1%
4.2%
Years
Page 18
20 September 2011
Figure 16: Average Room Demand at Various Real GDP Growth Rates, 1988–2010
5%
4.5%
4%
3%
2.6%
2.6%
2%
1%
0%
-0.5%
-1%
-0.2%
-2%
-3%
-4%
-5%
-4.3%
<0%
0-.99%
1-1.99%
2-2.99%
3-3.99%
>4%
Corporate Profits Drive High End Demand
Corporate travel is more important to the major lodging companies than to the industry as a
whole. While business travel comprises 40% of industry room nights for the industry as a
whole, large brand owners, like Marriott, Starwood, Hyatt, and Hilton, are more reliant on
business travelers than the rest of the industry with two-thirds or more of revenue coming
from corporate travel. Corporate profitability has recovered. Although a low-growth
environment does not bode well for room night demand growth, demand for business travel
stemming from corporate profitability should benefit companies and brands that target this
segment.
Through the 2Q 2011, corporate profits have remained strong and operating EPS margins for
S&P500 companies passed prior peak levels in the 1Q 2011. As a one-quarter leading
indicator, changes in corporate profit margins do a reasonable job of predicting changes in
lodging demand (Figure 17. Operating EPS margins for S&P 500 companies have a beta of
1.85 and correlation of 0.66.
Page 19
20 September 2011
Figure 17: Corporate Profitability Has Surpassed Prior Peak Levels
15%
12%
10%
10%
5%
8%
0%
6%
-5%
4%
β= 1.85
R2: 0.44
Correl: .66
-10%
2%
0%
One Quarter Lagged High-end Demand Growth (Left)
2Q11
4Q10
2Q10
4Q09
2Q09
4Q08
2Q08
4Q07
2Q07
4Q06
2Q06
4Q05
2Q05
4Q04
2Q04
4Q03
2Q03
4Q02
2Q02
4Q01
2Q01
4Q00
2Q00
4Q99
2Q99
4Q98
2Q98
4Q97
2Q97
-15%
S&P500 Op EPS Margins (Right)
Source: Deutsche Bank and Factset
Page 20
20 September 2011
Service Sector Business Activity Appears Likely to Slow
While most are familiar with the Institute for Supply Management’s (ISM) Purchasing
Managers Index (PMI), ISM began publishing a non-manufacturing survey in 1998. While this
survey’s history may be short by economists’ standards, we think it is a good indicator of
where demand is heading for the lodging industry.
The non-manufacturing survey is compiled based on surveys sent to more than 375
purchasing executives at non-manufacturing companies. The Business Activity Index
published each month measures changes in the level of business activity in the service
sector (Figure 18).
The year-over-year change in the Business Activity Index has a regression R squared of 0.24,
which compares to a regression R squared of 0.05 for the more popular PMI.
Figure 18: Non-Manufacturing ISM Indicates Lodging Demand Growth Will Slow
60%
20%
ISM indicating that lodging
demand growth may
continue slowing
40%
15%
10%
20%
5%
0%
0%
-5%
-20%
-10%
Non-Manufacturing ISM Business Activity (Left)
Feb-11
Aug-11
Feb-10
Aug-10
Feb-09
Aug-09
Feb-08
Aug-08
Feb-07
Aug-07
Feb-06
Aug-06
Feb-05
Aug-05
Feb-04
Aug-04
Feb-03
Aug-03
Feb-02
Aug-02
Feb-01
Aug-01
Feb-00
Aug-00
Feb-99
Aug-99
-15%
Aug-98
-40%
Demand Growth (Right)
Source: Deutsche Bank and Institute for Supply Management
The ISM Non-Manufacturing Survey also includes an employment component that measures
the rate of increase or decrease in employment levels in the service sector of the economy.
The employment component exhibits a very tight relationship with changes in lodging
demand. Recently the change in the employment index has dipped below lodging demand
growth. The swift drop in the index may indicate additional deceleration in lodging demand.
See Figure 19.
Of the monthly economic indicators, the ISM Non-Manufacturing Employment Index has the
best relationship with demand growth that we have found. For a monthly data series, the
Employment Index has a very high correlation with lodging demand. The regression R
squared is 0.48.
Page 21
20 September 2011
Figure 19: ISM Service Sector Employment Index Shows the Tightest Relationship
with Lodging Demand Growth
60%
20.0%
β: 0.23
R^2: 0.48
40%
15.0%
10.0%
20%
5.0%
0%
0.0%
-5.0%
-20%
-10.0%
-40%
Feb-11
Aug-11
Feb-10
Aug-10
Feb-09
Aug-09
Feb-08
Non-Manufacturing ISM Employment Index (Left)
Aug-08
Feb-07
Aug-07
Feb-06
Aug-06
Feb-05
Aug-05
Feb-04
Aug-04
Feb-03
Aug-03
Feb-02
Aug-02
Feb-01
Aug-01
Feb-00
Aug-00
Feb-99
Aug-99
Aug-98
-15.0%
Using the Non-Manufacturing ISM Employment index as a leading indicator for lodging
demand, we find that the index does very well. The year over year change in the index has a
0.84 correlation with the change in lodging demand in the forward quarter. GDP has a 0.78
correlation with lodging demand in the quarter. While the leading Non-Manufacturing ISM
Employment index is reported 3 business days into the quarter and is not revised, GDP is not
reported until a month after the quarter ends. We think the timeliness, very high correlation,
and finality of the Non-Manufacturing ISM Employment index make it a great indicator. As
such, we have incorporated it into our lodging sector forecasts.
Figure 20: Non-Manufacturing ISM Employment Indicates Lodging Demand May Slow
10%
60%
Excellent Leading Indicator
for Lodging Demand
suggest s Demand growth
is about to slow
8%
6%
40%
4%
20%
2%
0%
0%
-2%
-20%
-4%
β = 0.25
R^2 = 0.70
Intercept = 1.1%
-6%
-8%
-40%
-60%
Demand Growth lagged 1Q (Left)
2Q11
4Q10
2Q10
4Q09
2Q09
4Q08
2Q08
4Q07
2Q07
4Q06
2Q06
4Q05
2Q05
4Q04
2Q04
4Q03
2Q03
4Q02
2Q02
4Q01
2Q01
4Q00
2Q00
4Q99
2Q99
4Q98
-10%
ISM Employment, YoY Change (Right)
Source: Deutsche Bank and BTS.gov
Page 22
20 September 2011
Airline Seat Miles Have Proven to be a Viable Forward Indicator of Lodging Demand
Airline seat miles (ASM) measure airline capacity in any given month. Putting aside the fact
that not every seat will carry a passenger, the year-over-year change in ASMs each month
has the strongest relationship with high-end lodging demand of any variable we checked,
with a regression R squared of 0.44 (non-manufacturing ISM employment had an R squared
of 0.43). If we look as more recent data points since January 2009, the regression R squared
increases to 0.67.
Figure 21: Domestic Airline Seat Miles Have a High Correlation with Lodging Demand
Growth
15%
20%
β: 0.50
R^2: 0.47
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
ASM and Lodging Demand growth
are converging to historical
relationship
-10%
-10%
-15%
-15%
Feb-97
Aug-97
Feb-98
Aug-98
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
-20%
Domestic Airline Seat Miles Growth (Left)
Unlike hotels, airlines can change their capacity relatively quickly. Airlines need to schedule
flights months in advance so that passengers can begin booking. Airlines often provide
capacity guidance for the year based on scheduled flights, which can give us some insight
into what lodging demand might look like in the near term. Considering what the airlines have
said with respect to capacity guidance, Deutsche Bank’s airlines equity research team has
published domestic ASM forecasts. Figure 22 shows Deutsche Bank’s ASM forecasts and
the implied changes in lodging demand. The implied lodging demand growth is based on a
regression of the change in quarterly lodging demand on the change in quarterly domestic
ASMs. The regression beta is 0.54; the R squared, 0.52; the intercept, 0.89%. As evidenced
in Figure 22, the Deutsche Bank airlines forecasts supports our 2.0% demand growth
forecast for 2012.
Figure 22: DB Forecast ASM Growth Implies Slowing Lodging Demand Growth
3Q 2011E
4Q 2011E
2011E
2012E
DB Forecast ASM Growth
7.3%
4.8%
4.4%
2.0%
Implied Lodging Demand Growth
4.8%
3.5%
3.3%
2.0%
4.3%
2.0%
Deutsche Bank Lodging Demand Forecast
Source: Deutsche Bank
Page 23
20 September 2011
Lodging Demand Could Follow Declines in Consumer Confidence
Big moves in consumer confidence have tended to lead changes in lodging demand growth
(Figure 23). The University of Michigan Consumer Sentiment Survey shows that consumer
confidence has been trending lower since March was most recently recorded down 19.2%
year over year in August. As is evidenced in Figure 23, declines in consumer confidence tend
to lead declines in lodging demand by several months.
Figure 23: Consumer Confidence Points to Lower Lodging Demand Growth
40%
20%
30%
15%
20%
10%
10%
5%
0%
0%
-5%
-20%
-10%
-30%
-15%
-40%
-20%
Feb-88
Aug-88
Feb-89
Aug-89
Feb-90
Aug-90
Feb-91
Aug-91
Feb-92
Aug-92
Feb-93
Aug-93
Feb-94
Aug-94
Feb-95
Aug-95
Feb-96
Aug-96
Feb-97
Aug-97
Feb-98
Aug-98
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
-10%
U. of Mich. Consumer Sentiment (Left)
Source: Deutsche Bank, Reuters/University of Michigan Surveys of Consumers
The Employment and Demand Growth Relationship Seems to Have Broken Down
Naturally, we would expect employment to be related to lodging demand and as Figure 24
shows, it is. Employment has historically shown a solid relationship with demand growth;
however, in the current recovery, demand has moved back to peak levels while job growth
has not materialized. We believe it would be difficult and counterintuitive to expect the
disconnect between the two variables at present to continue given year-over-year
employment growth has a regression R squared of 0.31 when employment growth is the
independent variable and lodging demand growth is the dependent variable.
Page 24
20 September 2011
Figure 24: Despite Limited Employment Growth, Demand Has Recovered in 2010 &
2011
5%
15%
4%
10%
3%
2%
5%
1%
0%
0%
-1%
-5%
-2%
β: 1.32
R^2: 0.31
-3%
-10%
-4%
Employment Growth (Left)
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Jan-89
-15%
Jan-88
-5%
Source: Deutsche Bank and BLS.GOV
Spikes in Gas Prices Can Slow Leisure Demand and Hamper Economy Segment
Lodging
Gas prices have not historically had as strong an inverse relationship with lodging demand as
some might expect, since nearly 4 of 5 leisure guests drive to their hotel. We would expect
that budget-conscious guests would be the most impacted by higher fuel prices and the data
supports this assertion. Since August of 1990 through July of 2011, demand growth for
economy lodging has slowed more than total lodging demand as gas prices have risen above
$2/gallon and above $3/gallon (Figure 25).
Figure 25: Gas Prices Have Bigger Impact on Economy Lodging Demand
Retail
Gas Price
Above
$2.00
$3.00
No. of
Months
252
73
21
Average
Economy
Demand
yoy chg.
1.4%
0.5%
0.4%
Average
Total U.S.
Demand
yoy chg.
1.5%
1.3%
1.1%
Source: Deutsche Bank, EIA.gov, Smith Travel Research
How lodging demand responds to higher gas prices probably depends on the factors driving
the increase in gas prices. From 2001 to 2006, gas prices increased steadily from around
$1/gallon to ~$2/gallon while economy lodging demand trended higher (Figure 26). During
this period, GDP growth trended around 3% and the housing market flourished due to the
easy availability of financing. In this stretch, economic expansion helped lodging demand
grow even as retail gas prices doubled.
Page 25
20 September 2011
Sharp spikes in gas prices without a proportional increase in economic activity do tend to
reduce lodging demand. In 1999, gas prices went from below $1/gallon to more than $1.50/
gallon. At the same time, economy lodging demand growth slowed from high-single-digit
growth to near-zero.
Figure 26: Economy Lodging Demand Growth and Retail Gas Prices
15%
$4.50
Gas Prices above $3/Gal. tend to decelerate
Economy Demand Growth
$4.00
10%
$3.50
$3.00
5%
$2.50
0%
$2.00
-5%
$1.50
$1.00
-10%
Gas prices increase $1/Gal. w/
little impact during housing
boom.
$0.50
$0.00
Economy Lodging Demand Growth (left)
Aug-11
Jan-11
Jun-10
Apr-09
Nov-09
Sep-08
Feb-08
Jul-07
Dec-06
Oct-05
May-06
Mar-05
Jan-04
Aug-04
Jun-03
Apr-02
Nov-02
Sep-01
Jul-00
Feb-01
Dec-99
Oct-98
May-99
Mar-98
Jan-97
Aug-97
Jun-96
Apr-95
Nov-95
Sep-94
Jul-93
Feb-94
Dec-92
Oct-91
May-92
-15%
Retail Gas Price Growth (right)
Source: Deutsche Bank, Smith Travel Research, EIA.gov
Financing Availability is a Primary Driver of New Room Supply
We believe access to financing is the primary driver of new supply. The Federal Reserve
surveys senior lending officers at banks each quarter. The survey results correlate with new
hotel room openings on a four-year lag basis (Figure 27). More specifically, we found a 0.65
correlation between changes in easing standards and changes in supply, four years later. The
lack of financing availability for commercial real estate in 2008, 2009, and the first half of 2010
indicate there will likely be very little new room supply until at least 2014.
The Fed’s lending officer survey indicates a recent turnaround in banks’ willingness to lend
against commercial real estate. According to both banks and hotel REITs, willingness to
originate commercial real estate loans has improved significantly for stabilized properties that
are cash flow positive. Banks have been willing to refinance profitable assets at 60% loan-tovalue ratios, but lending for new commercial real estate development has not yet started in
any meaningful way.
In the last real estate credit cycle, new hotel room openings increased in 2008, four years
after the banks eased commercial real estate lending standards. The upward turn in room
openings in 2008 coincides with the CMBS-driven lending boom that took place in the middle
of the decade. Absent another lending binge, we believe the next increase in room supply
will come online at a considerably slower pace, perhaps akin to the gradual increase in room
openings that occurred in the late 1990’s.
Page 26
20 September 2011
Figure 27: Room Openings Relative to Federal Reserve Senior Loan Officer Survey
40%
New Rooms Opened in Quarter (000's)
18
16
20%
14
0%
12
10
-20%
8
-40%
6
-60%
4
-80%
2
-100%
3Q90
1Q91
3Q91
1Q92
3Q92
1Q93
3Q93
1Q94
3Q94
1Q95
3Q95
1Q96
3Q96
1Q97
3Q97
1Q98
3Q98
1Q99
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
0
Luxury, Upper Upscale, & Upscale Rooms Opened
Net % of Lenders Easing CRE Loan Standards
Source: Deutsche Bank, Federal Reserve, and Smith Travel Research
At present, no significant source of capital has stepped in to fill the void left after the financial
crisis. Hotel REITs have been able to refinance hotel debt for cash flowing hotels at around
60% loan-to-value; however, banks are not showing any appetite for riskier development
loans. After a long stretch of balance sheet expansion, commercial real estate loan balances
at banks are now declining (Figure 28). The large lodging companies are helping to finance
some room growth, but only for brands and locations they deem strategic. For example,
Choice is providing small loan amounts to developers to help grow the company’s young
Cambria brand. Marriott, Starwood, and Hyatt are all generating significant cash flow. With
the exception of Hyatt’s recent acquisition of Lodgeworks, Starwood and Hyatt have been
selling owned hotels and building cash. If banks, insurance companies, and alternative capital
sources stay out of development lending for the next few years, we may see more
opportunistic development investment from Marriott, Starwood, and Hyatt. Financing may be
in the form of joint venture capital, sliver equity, or development financing tied to a long-term
contracts. As the large, global lodging companies build cash and competition for room
growth heats up, lodging managers may ultimately be the ones to fill the void and finance
room supply growth.
Page 27
20 September 2011
Figure 28: Commercial Real Estate Loans on Bank Balance Sheets
16%
$1,200
14%
$1,000
12%
$ in Billions
$800
Commercial real
estate loans
declining at
banks.
$600
10%
8%
6%
$400
4%
$200
2%
0%
Commercial Real Estate Loans at Banks (Left)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
$0
as a % of Total Bank Loans & Leases (Right)
Source: Deutsche Bank, SNL Financial
Supply Growth Increases Three Years After Occupancy Approaches Peak Levels
Aside from financing availability, supply growth, on a three year lag basis, shows a strong
relationship with occupancy, a 0.76 correlation. As absolute levels of occupancy increase,
driving rate growth and profitability, development plans become viable. Lagged supply
growth’s correlation with changes in occupancy and with the Fed lending survey indicate that
hotel development takes about three to four years from the time that demand and lending
improve sufficiently to support new development.
1.0%
1.2%
1.6%
1.8%
2.4%
2.4%
2.9%
1.6%
Occupancy
2010
2009
2008
2007
2006
2004
2003
2002
2001
2000
1997
1996
1995
1994
1993
1992
1991
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
-0.5%
2005-0.1%
0.0%
54.0%
Source: Deutsche Bank and Smith Travel Research.
0.2%
0.5%
54.5%
56.0%
0.4%
1.0%
0.7%
1.5%
1.3%
1.8%
1.0%
57.6%
2.0%
2.9%
4.0%
3.8%
1999
2.4%
59.8%
2.5%
58.0%
Page 28
1998
3.5%
3.0%
59.2%
60.0%
59.0%
59.7%
62.0%
3.5%
62.8%
63.1%
4.0%
61.3%
63.0%
63.2%
62.8%
64.0%
Figure 30: Annual Y/Y Changes in Supply
4.5%
63.2%
64.8%
64.5%
64.6%
63.3%
62.5%
64.4%
62.0%
64.0%
63.5%
66.0%
63.6%
Figure 29: Annual Occupancy Levels
Supply yoy % chg.
20 September 2011
The spike in new supply growth in 2009 and 2010 in Figure 30 corresponds with the decline
in rooms in construction in Figure 31. As rooms were completed and entered supply during
2009 and 2010, they were not fully replaced with construction starts since hotel profitability
plummeted and financing availability withered during the recession. The lack of rooms in
construction, a mere 1.1% of existing supply, supports our expectation of minimal supply
growth in 2012 and 2013.
Figure 31: Low Levels of Construction Activity Supports Expectations for Low Supply
Growth in 2012 and 2013
250,000
5.0%
4.5%
200,000
4.0%
3.5%
3.0%
150,000
2.5%
2.0%
100,000
1.5%
1.0%
50,000
0.5%
0.0%
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
0
Rooms In Construction (Left)
% of Existing Supply (Right)
Source: Deutsche Bank and Smith Travel Research
Stop the Cranes! Nationally, Supply & Demand Are Severely Out of Sync Right Now
Now that we have explained why we expect supply to remain negligible for the next several
years, we can get into why we believe it is imperative that it does. At present, demand and
supply are considerably out of sync. Assume for a moment that supply stays exactly at 2010
levels, which is likely not realistic even if supply growth is approaching zero this year. Also
assume that the 2H 2011 is just as strong as the 1H 2011 was for lodging demand, a stretch
in our view given recent economic data. Finally assume that for each point in real GDP
growth, lodging demand grows 0.608% (47.0% cumulative lodging demand growth ÷ 77.4%
cumulative real GDP growth from 1987 to 2010). Making these three assumptions, supply
and demand would not recover the relative equilibrium that the industry enjoyed through
most of the late 1980’s and 1990’s until at least 2014. Assuming a slower GDP growth of
1.5% (1% less than the CAGR from 1987–2010), the balance would not be re-achieved until
2016. Said simply, stop the cranes!
Page 29
20 September 2011
Figure 32: Despite Impressive Demand Growth in 2011, Supply and Demand Are Still Out of Balance
180
Assume:
*Zero Supply Growth from 2010
*2011 YTD demand growth trend continues in 2011
*0.6% Demand growth for 1% Real GDP Growth (Actual
value from '87-'10)
170
160
150
140
Lodging reaches Demand/Supply equilibrium in:
2018 with 1% GDP Growth
2016 with 1.5% GDP Growth
2014 with 2.5% GDP Growth ('87-'10 CAGR)
130
120
110
Supply Index
Demand Index
Zero Supply growth
1.0% GDP Growth
1.5% GDP Growth
2.5% GDP Growth
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
100
Page 30
20 September 2011
The Interplay of Lodging Metrics
Having reviewed the fundamental economic drivers for lodging supply and demand, we now
turn to the primary top-line metrics for the hotel industry: occupancy, rates, and revenue per
available room (RevPAR). Figure 33 defines the metrics and shows how they relate to each
other.
Figure 33: Basic Top-Line Lodging Metrics
Demand =
# of Room Nights Sold
Supply =
# of Room Nights Available
Occupancy =
Demand ÷ Supply
Average Daily Rate =
Room Revenue ÷ Demand
RevPAR =
Room Revenue ÷ Supply = Occupancy × Average Daily Rate
Occupancy Growth =
Demand Growth - Supply Growth
RevPAR Growth =
Occupancy Growth + Average Daily Rate Growth
RevPAR Acceleration =
2nd derivative = change in RevPAR Growth
Occupancy Is Simply a Function of Room Supply and Room Demand
It’s simple logic that high supply growth drags down occupancy. Figure 34 shows how the
last upcycle, 2003 to 2007, benefited from relatively low supply growth. By contrast, even
though demand growth ranged from 2% to 3.6% in 1995–2000 during the tech boom,
occupancy was actually negative due to substantial supply additions. More recently, supply
additions in 2008 and 2009 exacerbated falling demand. As supply growth diminishes in 2012
and 2013, occupancy should be able to grow even with minimal demand growth in a slow,
steady recovery. Occupancy growth is fundamental for any healthy hotel industry since
ultimately, occupancy growth enables hotels to raise rates.
Page 31
20 September 2011
Figure 34: Occupancy Growth Is Equivalent to Room Demand Growth Less Room Supply Growth
10%
8%
Supply Growth is
waning and will
remain low in 2012,
2013.
6%
4%
2%
0%
-2%
-4%
Low Supply growth
enables Occupancy
growth during the
2003-2007 upcycle
Despite a strong
economy, occupancy
is negative due to
significant supply
growth
-6%
-8%
Y/Y % chg. in Demand
Y/Y % chg. in Occupancy
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
-10%
Negative Effect of Supply Growth
Industry Occupancy Has Trended Lower Over Time
Low-end occupancy levels are trending lower over time, pulling the industry-wide occupancy
levels down as well (Figure 35). There may be several reasons for this: 1) rising gas prices
have a greater impact on low-end lodging (the economy segment represents ~16% of total
U.S. lodging supply), where guests are much more likely to travel by car, 2) there may be
socio-economic trends related to wealth dispersion in the U.S. that are evidenced by this
trend, 3) economy hotels are aging and becoming less competitive with midscale branded
hotels, and/or 4) some poorly performing hotels are stripped of their upper midscale or
midscale flags and have converted to economy brands—or perhaps there are other reasons.
Luxury and Upper Upscale Occupancy Trend Has Been Flat to Slightly Down
With respect to Starwood, Hyatt, Marriott, and Hilton, luxury, upper upscale, and upscale
trends are more important than overall industry trends. Cyclical peaks have been trending at
flat to down slightly for the luxury and upper upscale segments. The 2005–06 occupancy
peaks for luxury and upper upscale were below the 1997 peaks for luxury and upper upscale
by 220bps and 230bps, respectively (Figure 35). The fall from peak in 1998–99, we would
argue, was at least partly due to supply growth within the industry. In 2008, the interruption
to the cycle came from an exogenous factor: the 2008 financial crisis. Occupancy rates
troughed in 2009 at 110bps and 170bps below the prior trough for upper upscale and luxury
hotels, respectively.
Page 32
20 September 2011
Figure 35: Total U.S. Hotel Occupancy Trending Lower
75%
70%
65%
60%
55%
Low-end segments have dragged down industry
occupancy over time.
50%
Record low occupancy for industry was set in
2009.
Luxury Occupancy
Upper Upscale Occupancy
Industry Occupancy
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
45%
Economy Occupancy
The Demand - Supply Gap Is Highly Indicative of RevPAR Growth
As described above, occupancy growth is simply the net difference between demand growth
and supply growth. Supply growth creates a headwind for hotel profitability by diluting
existing hotels’ pricing power. Figure 36, Figure 37, Figure 38, and Figure 39 show RevPAR
growth at various demand-supply gaps for the U.S. lodging industry, luxury, upper upscale,
and upscale hotels, respectively. The demand-supply gap is demand growth less supply
growth. The demand-supply gap measures occupancy growth. Regardless of segment,
differences between supply and demand growth rates are closely related to RevPAR growth.
Page 33
20 September 2011
Figure 36: Total U.S. RevPAR Growth at Various Demand Less Supply Growth Gaps
10%
8.4%
U.S. Total RevPAR Growth at Given Levels of Demand-Supply Gap
6.1%
4.7%
5%
4.6%
3.5%
0%
In quarters where the
change in demand is slighly
greater than the change in
supply, RevPAR has grown
nearly 5%.
-0.3%
-5%
-10%
With supply essentially flat
in 2012, minimal GDP
growth should still enable
RevPAR growth
β = 1.55
R^2 = 76%
-11.2%
-15%
<= -4%
-4% to -2%
-2% to 0%
0% to 1%
1% to 2%
2% to 3%
> 3%
Total U.S. Demand Growth Minus Total U.S. Supply Growth
Figure 37: Luxury RevPAR Growth at Various Demand Less Supply Growth Gaps
15%
Luxury RevPAR Growth at Given Levels of Demand-Supply Gap
9.9%
9.1%
10%
6.7%
7.5%
4.0%
5%
0.6%
0%
-5%
-10%
-15%
-14.6%
β = 1.52
R^2 = 73%
-20%
<= -4%
-4% to -2%
-2% to 0%
0% to 1%
1% to 2%
2% to 3%
> 3%
Luxury Demand Growth Minus Luxury Supply Growth
Page 34
20 September 2011
Figure 38: Upper Upscale RevPAR Growth at Various Demand Less Supply Growth Gaps
Upper Upscale RevPAR Growth at Given Levels of Demand-Supply Gap
10%
7.1%
6.6%
7.3%
1% to 2%
2% to 3%
> 3%
5.3%
5%
2.1%
0.1%
0%
-5%
-10%
-15%
-15.5%
β = 1.41
R^2 = 67%
-20%
<= -4%
-4% to -2%
-2% to 0%
0% to 1%
Upper Upscale Demand Growth Minus Upper Upscale Supply Growth
Figure 39: Upscale RevPAR Growth at Various Demand Less Supply Growth Gaps
Upscale RevPAR Growth at Given Levels of Demand-Supply Gap
10%
8.1%
6.1%
6.1%
6.5%
2% to 3%
> 3%
5%
2.7%
0%
-1.7%
-5%
-10%
β = 1.34
R^2 = 64%
-15%
-13.6%
<= -4%
-4% to -2%
-2% to 0%
0% to 1%
1% to 2%
Upscale Demand Growth Minus Upscale Supply Growth
Page 35
20 September 2011
Rate Growth Is Closely Tied to the Absolute Level of Occupancy
The absolute level of occupancy in the hotel industry evidences a strong relationship with
rate growth. Rate growth tends to occur from mid- to late cycle after demand and occupancy
have recovered. As occupancy increases, hotels recover pricing power (See Figure 40 and
Figure 41). We note that current trailing-12-month occupancy for the industry is 59.1%.
Since occupancy growth is greatest in the early part of the upcycle, occupancy growth tends
to show a weaker relationship with rate growth. Absolute occupancy has an R squared of
0.71 while occupancy growth’s regression R squared is merely 0.29.
Figure 40: Average Rate Growth at Various Occupancy Levels (1988–2010)
Total U.S. Occupancy (1988-2010)
58%-60%
60%-62%
62%-64%
54%-56%
56%-58%
1
1
4
2
11
4
-8.6%
-0.1%
0.1%
2.2%
4.5%
4.8%
Occurrences
Avg. yoy % chg in Rate in Periods
64%-66%
Figure 41: 62% Occupancy Has Proven to Be the Key Level for Rate Growth
10.0%
Rate Growth at Various Levels of Industry Occupancy
8.0%
6.0%
4.5%
4.8%
4.0%
2.2%
2.0%
0.1%
0.0%
-0.1%
Occupancy level explains more than 70%
of rate growth.
-2.0%
-4.0%
Most occupancy growth occurs early in
the upcycle before hotels have pricing
power. Occupancy growth has a much
weaker relationship with Rate growth
than the occupancy level.
-6.0%
-8.0%
-10.0%
-8.6%
54%-56%
β = 1.16
R^2 = 71%
56%-58%
58%-60%
60%-62%
62%-64%
64%-66%
Occupancy Levels North of 70% Drive Rate Growth for the Luxury, Upper Upscale, and
Upscale Segments
For the top three chain scale segments, positive rate growth on average occurs when
occupancy surpasses 66% (see Figure 42). Rate growth picks up significantly above 70%
occupancy. Rate growth averages +5.2% when occupancy is above 70%. We note that
Page 36
20 September 2011
current trailing-12-month occupancy for the luxury, upper upscale, and upscale segments are
68.6%, 68.5%, and 68.0%, respectively. For each of the top three segments, occupancy has
a regression R squared of about 0.7 when rate growth is the dependent variable in the linear
regression.
Figure 42: Occupancy Levels North of 70% Drive Rate Growth for the Luxury, Upper Upscale, and Upscale Segments
Occurrences
Occurrences
Occurrences
Luxury Occupancy (1988-2010)
66%-68%
68%-70%
62%-64%
64%-66%
70%-72%
72%-74%
2
3
5
3
5
5
-10.1%
-1.9%
3.5%
5.3%
8.0%
7.1%
2%
62%
64%
64%
66%
66%
68%
68%
70%
70%
72%
72%
74%
62%-64%
64%-66%
1
2
7
3
7
3
-10.9%
-1.8%
0.9%
2.4%
5.8%
6.6%
2%
62%
64%
64%
66%
66%
68%
68%
70%
70%
72%
72%
74%
62%-64%
64%-66%
70%-72%
72%-74%
1
5
4
4
5
4
-10.9%
0.1%
1.5%
3.2%
5.3%
5.7%
Upper Upscale Occupancy (1988-2010)
66%-68%
68%-70%
70%-72%
Upscale Occupancy (1988-2010)
66%-68%
68%-70%
72%-74%
Rate Growth Usually Contributes a Large % of RevPAR Growth in the Middle to Late
Stages of an Upcycle.
Once a recovery begins, demand and occupancy tend to recover first. In the last two lodging
cycles, rate growth became the primary contributor to RevPAR growth two years after the
bottom of the cycle (see Figure 43). So far in this cycle, occupancy growth has been the
primary driver of RevPAR growth. Entering 2011, several lodging management teams
expected rates to contribute about 50% of RevPAR growth in 2011 although expectations for
rate growth have been tampered by the 1H 2011 results. In the year to date, rates
contributed 36% and 44% to RevPAR growth in the 1Q 2011 and 2Q 2011, respectively.
Page 37
20 September 2011
Figure 43: Rates Become the Primary Driver of RevPAR Growth in the Mid to Late Part of the Cycle
200%
Rate Growth as a % of RevPAR Growth
180%
160%
140%
At 1.5-2yrs from the cyclical
bottom, rate growth becomes
the dominant contributor to
RevPAR growth
120%
100%
80%
60%
40%
So far, rate growth has contributed little to RevPAR growth in the current cycle
20%
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37
Quarters after RevPAR Growth Reaches Cyclical Low
Rate Growth as a % of RevPAR Growth 1992-2000
Rate Growth as a % of RevPAR Growth 2003-2007
Rate Growth as a % of RevPAR Growth 2010-2Q 2011
Over the Long-Run, Industry RevPAR Growth Should Match Inflation
Revenue per available room (RevPAR) is equal to the average daily rate multiplied by the
occupancy rate. As discussed in our review of lodging demand, real GDP growth is closely
related to demand growth. RevPAR growth is also correlated with real GDP growth (Figure
45). In the long run, we would expect supply growth to match demand growth, eliminating
economic profits for hotel owners. What hotel owners are left with, in the long run and as an
industry, is CPI-like RevPAR growth.
To us, it makes sense that industry-wide hotel rates and RevPAR increase at CPI-like levels in
the long run when supply and demand growths remain balanced. Since the hospitality
industry is a service industry requiring additional hotel staff as room demand grows, there are
minimal economies of scale.
Since 1988, the industry RevPAR growth CAGR has been 2.5%, compared to CPI growth of
2.9%, which means that the real value of industry-wide RevPAR has actually declined slightly
since 1988. Why? Here are a few possible reasons: 1) interest rates have declined
significantly since the late 1980’s, thus reducing financing costs and causing supply growth
to outpace demand growth, 2) there is a difference between the supply/demand balance in
1988 and that in 2011, and 3) efficiencies within the industry and the corresponding reduction
in the average real room rate due to competition have lowered real industry RevPAR.
Page 38
20 September 2011
Figure 44: Real Value RevPAR Has Declined Since 1987 Due to Supply Growth (+62%)
That Has Exceeded Demand Growth (+47%)
10%
10%
8%
5%
6%
4%
0%
2%
-5%
0%
-2%
-10%
-4%
-15%
-6%
-20%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-8%
Supply Growth
Demand Growth
RevPAR Growth (Right)
Looking at the data, supply has grown 62% since 1987 while demand has grown 47%. The
difference between the supply and demand CAGRs (2.1% and 1.7%, respectively) is exactly
the difference between CPI growth of 2.9% and industry-wide RevPAR growth of 2.5%. In
other words, the real value of a good night’s sleep in 1987 is the same as it was in 2010.
Styles and tastes and brands may change, but the real value of a hotel night remains stable.
We think this suggests that the decline in interest rates and corresponding faster supply
growth relative to demand growth has played a role in the decline in real RevPAR since 1988.
If industry RevPAR grows with CPI and the real value of a hotel night is not changing, hotel
brands may be in a long-term battle to “keep up with Joneses” style and amenities. While
new brands and segments may grow and revolutionize the industry, ultimately, in real terms
this “value creation” is merely taking value and share from someone else in the industry.
While we expect CPI-like RevPAR growth in the long run, an individual segment, brand, or
city may outperform CPI. Indeed, luxury brand RevPAR growth has exceeded CPI growth
since 1988 (3.6% versus CPI growth of 2.9%). In cities where supply and demand growth
diverges due to factors such as temporary supply constraints or burgeoning economic
growth, RevPAR growth can considerably outpace CPI growth over the short to medium
term. We believe this represents a key consideration when evaluating lodging stocks.
Page 39
20 September 2011
Figure 45: Quarterly RevPAR Growth, Real GDP Growth, & CPI growth (1988–2Q 2011)
10%
5%
0%
-5%
CPI CAGR , +2.9%
Industry RevPAR CAGR, +2.5%
--> Real value of Industry RevPAR
has declined since 1988
-10%
9/11
4Q01 RevPAR , -15.8%
Sep 01 RevPAR, -23.2%
Oct0 1 RevPAR, -17.7%
-15%
1Q88
4Q88
3Q89
2Q90
1Q91
4Q91
3Q92
2Q93
1Q94
4Q94
3Q95
2Q96
1Q97
4Q97
3Q98
2Q99
1Q00
4Q00
3Q01
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
-20%
S&P500 sell-off
Mar 09 RevPAR , -20.0%
Apr 09 RevPAR, -19.3%
May09 RevPAR, -20.4%
Total U.S. RevPAR growth
Real GDP growth
CPI growth
Each of the Last Two RevPAR Downturns Have Been Worse than the Prior Downturn
Ominously, RevPAR declines during the last two recessions have been more severe than the
prior recession. When looking at the 2001–02 downturn, it is important to keep in mind that
the 4Q 2001 included the period after the terrorist attacks on 9/11/2001. Because the impact
directly related to the travel industry, the slowdown in RevPAR was more severe than the
slowdown in GDP would suggest. This exogenous shock and the severity of the downturn
are not necessarily indicative of a long-term trend in supply or demand.
Figure 46: Luxury, Upper Upscale, and Industry RevPAR Growth (1988–2Q 2011)
15%
10%
5%
0%
-5%
1Q92-4Q00 CAGR
Luxury: 8.1%
Upper Upscale: 6.0%
US Total: 4.5%
-10%
-15%
3Q03-4Q07 CAGR
Luxury: 9.5%
Upper Upscale: 6.8%
US Total: 7.1%
-20%
-25%
1Q88
4Q88
3Q89
2Q90
1Q91
4Q91
3Q92
2Q93
1Q94
4Q94
3Q95
2Q96
1Q97
4Q97
3Q98
2Q99
1Q00
4Q00
3Q01
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
-30%
Total U.S. RevPAR growth
Real GDP growth
Luxury RevPAR growth
Page 40
20 September 2011
RevPAR Distribution Has a Negative Skew
While RevPAR tends to grow more quickly than CPI during upcycles, harsh corrections bring
RevPAR back to CPI-like growth rates. Figure 47 shows the empirical cumulative distribution
function for industry RevPAR growth since 1988. 50% of the time, RevPAR growth has been
in the 1.5–6.1% range. Almost 10% of the time, RevPAR has fallen more than 10%. During
these shocks, RevPAR declined an average of 14%. The biggest RevPAR gain has been
10.2%. As such, RevPAR’s propensity for dramatic declines gives it a negative skew.
Figure 47: Since 1988 Half of the Quarters Have Had RevPAR Growth in the 1.5–6.1% Range and About 1 in 10 are
Negative Shock Quarters Where RevPAR Drops More Than 10%
100%
97% 99% 100%
25-75th Percentile for
Quarterly RevPAR
Growth:
1.5% - 6.1%
90%
80%
85%
87%
71%
70%
59%
60%
50%
40%
~1/10th of
Quarters
impacted by
negative shocks
46%
35%
28%
30%
20%
11% 12%
9% 10%
10%
15%
17%
19%
22%
4%
0%
0%
-20% -15% -10% -5% -4% -3% -2% -1% 0%
1%
2%
3%
4%
5%
6%
7%
8%
9% 10% 11%
% of Quarters with Industry RevPAR Growth BELOW Given Level
Luxury and Upper Upscale RevPAR Is Becoming Less Volatile
Luxury and upper upscale brands appear to be losing some of their volatility relative to
industry RevPAR (Figure 48). In the 1987–1990 and 1992–2000 growth periods, upper
upscale RevPAR growth was 33% and 42% greater than the industry average, respectively.
In the last decade, this relative outperformance has disappeared. Cumulative upper upscale
growth was actually 10% less than industry RevPAR growth during the 2003–07 period. In
the 2008–09 downturn, upper upscale RevPAR fell 4% more than industry RevPAR. Last
year, upper upscale RevPAR was only 8% greater than industry RevPAR. As such, we believe
upper upscale beta appears to be approaching 1.
Luxury’s beta also appears to be declining over time. Since 2003, swings in luxury RevPAR
have been around 50% larger than industry RevPAR swings. During the 1990’s, swings in
luxury RevPAR were more than 100% larger than industry RevPAR swings.
Page 41
20 September 2011
Figure 48: Luxury and Upper Upscale Are Becoming Less Sensitive to Industry RevPAR
Changes Over Time.
3.0
"Beta" of Luxury and Upper Upscale declining over time
2.50
2.5
2.11
2.0
1.5
2.03
1.78
1.67
1.33
1.63
1.49
1.42
1.36
1.13
1.03
1.08
0.90
1.0
0.5
0.0
1987-1990
1991
1992-2000
Luxury/Industry RevPAR Growth
2001-2002
2003-2007
2008-2009
2010
Upper Upscale/Industry RevPAR Growth
Page 42
20 September 2011
Operating Costs and Margin Trends
As evidenced in Figure 49, hotel margins were not able to recover to peak levels during the
2003–07 lodging upcycle. It is interesting to note that the downward trend in margins largely
mirrors the trajectory of occupancy (see Figure 35).
Figure 49: Hotel Profitability for Full Service Hotels Did Not Fully Recover in the 2003–07 Upcycle
$120
35%
31.4% 30.9%
29.6%
$100
27.5%
30%
27.4%
26.1%
25.4%
22.3%
$80
25.8%
24.6%
25%
23.1%
20.2%
20%
$60
15%
$40
10%
$20
5%
$0
0%
1998
1999
2000
2001
2002
Full Service RevPAR
2003
2004
2005
2006
2007
2008
2009
Hotel EBITDA Margin
Source: Deutsche Bank and Smith Travel Research HOST Study.
Flow through, the % of revenue that flows through to hotel EBITDA, has been in the 40–50%
range in recent cycles, the exception being the 2001 to 2003 downturn. The general guideline
of 40–50% EBITDA flow through is consistent with same-store hotel flow through for REITs.
Flow through from rate driven RevPAR growth, given no incremental costs, is more profitable
than flow through from occupancy driven RevPAR growth. Anecdotally, management teams
will suggest flow through of 60–80% when RevPAR growth is in the mid- to high single digits
with 80%+ of the RevPAR growth coming from rates.
Page 43
20 September 2011
Figure 50: Full Service Hotel EBITDA Flow Through Typically Trends at 40–50% Over
the Cycle
Period
1999-2000
2001-2003
2004-2007
2008-2009
RevPAR chg.
$13.25
($11.79)
$53.51
($40.14)
EBITDA per
Available Room
chg.
$5.77
($14.85)
$21.21
($21.28)
Flow through
44%
126%
40%
53%
Source: Deutsche Bank and Smith Travel Research HOST study
Figure 51 shows the breakdown of revenue per room sold at full service hotels. The bulk of a
hotel’s cost structure relates to direct costs associated with a guest’s stay, like housekeeping
and food & beverage costs. These costs are variable. They also explain why RevPAR growth
due to occupancy growth is less profitable than RevPAR growth due to higher rates.
Hotel companies will often speak to investors about gross operating profit margins. Hotel
gross operating profit margins are profits before management fees, franchise royalties,
property taxes, and insurance (the bottom cost component in Figure 51).
Figure 51: Breakdown of Revenue per Occupied Room into Component Expenses and Profit
$300
$250
$72.91
$65.39
$67.66
$47.20
$56.68
$200
$64.12
$54.53
$56.83
$53.10
$45.97
$49.38
$58.87
$150
$99.22
$105.50
$110.07 $109.34
$104.05
$86.45
$90.00
$91.78
$94.56
$52.40
$54.99
$62.82
$60.95
$42.22
$48.95
$50.82
$61.43
$47.78
$58.85
$44.45
$0 $13.96$10.37
$14.27
$15.88
$17.11
$17.14
$17.42
$19.09
$21.02
$22.15
$22.29 $21.52
2000
2001
2002
2003
2004
2005
2006
2007
$100
$75.20
$76.32
$50 $40.56
1998
1999
$84.66
M/F Fees, Property Tax, Insurance
G&A, Marketing, Utilities, Maintenance
Room, F&B, Direct Costs
2008
2009
Hotel EBITDA
Source: Deutsche Bank and Smith Travel Research HOST Study
Page 44
20 September 2011
Payroll costs are about half of full service hotels’ cost structure before management fees,
franchise royalties, property taxes, and insurance. During recessions, the payroll costs have
gone up relative to non-payroll costs, meaning that payroll costs are slightly stickier than nonpayroll costs. Payroll costs appear to be trending lower, but we are cautious with respect to
reading too much into this data given changes in STR’s survey over time.
Figure 52: Payroll Is ~50% of Operating Costs But Has Been Trending Lower
54%
53%
52%
51%
50%
49%
48%
47%
1998
1999
2000
2001
2002
Payroll Costs as a % of Total Operating Costs
2003
2004
2005
2006
2007
2008
2009
Linear (Payroll Costs as a % of Total Operating Costs)
Source: Deutsche Bank and Smith Travel Research HOST Study
Page 45
20 September 2011
Our Industry Forecasts
Figure 53 to Figure 61 show historical hotel operating metrics and present our out-year
forecasts through 2013.
Figure 53: Our Approach to RevPAR Forecasting
Lodging Fundamentals
Drivers
Room Nights Sold (Demand)
Economic activity; Real GDP growth
Rooms Available (Supply)
Rooms currently under construction
Financing availability drives growth on a 3 year lag
Expected economic growth
Occupancy
Demand growth
plus net difference of Demand Growth, less Supply Growth
Rate Growth
Occupancy, CPI
For Luxury, Upper Upscale, and Upscale:
Strong rate growth above 70% occupancy
Negative or flat growth below 66% occupancy
RevPAR Growth
Function of Occupancy and Rate Growth
RevPAR Growth = (1+Occupancy Growth)x(1+Rate Growth)-1
Through the end of July, RevPAR is up 8.2% in the year to date. Thus far, occupancy has
provided nearly 60% of RevPAR growth. Demand growth has been strong year-over-year
(+5.4% versus long-term CAGR of 1.7%), thanks to transient business traveler. Supply
growth is decelerating and is now below the long-term CAGR of 2.1%. Real GDP growth has
been slower than the 2.5% CAGR since 1987.
Note: Smith Travel re-categorized the midscale brands in January, which may be affecting the
year-over-year midscale brand growth.
Figure 54: YTD Year-Over-Year Growth in 2011
Real GDP
1.9%
Luxury
Upper Upscale
Upscale
Upper Midscale
Midscale
Economy
Independent
Total U.S.
CPI
3.6%
Demand
Supply Occupancy
7.5%
4.6%
7.2%
10.2%
-4.2%
4.2%
6.2%
5.4%
2.0%
1.8%
2.7%
4.5%
-7.5%
0.0%
1.2%
0.8%
5.4%
2.7%
4.4%
5.4%
3.5%
4.2%
4.9%
4.6%
Rate
RevPAR
6.4%
3.8%
3.5%
3.1%
-0.8%
1.5%
3.1%
3.5%
12.1%
6.7%
8.0%
8.7%
2.7%
5.8%
8.2%
8.2%
At this point, we believe it is important to highlight that recent demand growth has been
much stronger than indicators like GDP, non-manufacturing ISM employment, or airline seat
miles would predict.
Page 46
20 September 2011
Figure 55: Demand Growth Bucking the Relationship Trend
Indicator
Value
Expected
Demand Growth
vs Actual
Comments
Avg Non-Manufacturing ISM
Employment change in 4Q10 & 1Q11
15.0%
4.8%
-0.6%
BEST relationship
YTD GDP
1.9%
1.0%
-4.4%
Street looks at GDP; Forecasts
readily available
DB 2011 Airline Seat Miles forecast
4.8%
3.5%
-1.9%
Good near-term visibility
Our economic assumptions in Figure 56 reflect slower real GDP growth than we experienced
in the last growth period, and our inflation assumption is higher than average in 2011. Yearover-year, CPI is up 3.6%, but most of the CPI growth in the last year has come in the last
sixth months. Our GDP and CPI assumptions incorporate input from the Deutsche Bank
economics team but deviate somewhat from the DB estimates, on the side of conservatism.
Figure 56: Economic Assumptions
U.S. Economy
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
Real GDP Growth
Inflation (CPI)
1.9%
1.5%
3.9%
2.3%
2.9%
2.7%
2.8%
3.4%
2.4%
3.2%
2.2%
2.9%
-3.3%
3.8%
-0.5%
-0.3%
3.1%
1.6%
1.6%
4.0%
1.5%
1.0%
1.8%
1.0%
Source: Deutsche Bank estimates.
Our demand growth forecasts are based on our GDP assumptions and recent above/below
trend demand in each segment.
Figure 57: Demand Growth Forecasts
Demand Growth
Room Nights Sold Growth
Luxury
Upper Upscale
Total Full Service
Upscale
Upper Midscale
Total Select Service
Midscale
Economy
Independent
Total U.S.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
9.8%
3.5%
4.4%
5.7%
2.0%
3.4%
-0.8%
-2.1%
-1.9%
0.4%
8.5%
2.6%
3.4%
4.6%
1.7%
2.8%
-0.3%
-2.5%
1.5%
1.3%
8.4%
5.5%
5.9%
6.5%
4.2%
5.1%
3.5%
2.3%
3.2%
4.0%
4.3%
2.0%
2.4%
5.8%
2.1%
3.6%
3.1%
3.5%
1.8%
2.8%
6.4%
-1.3%
-0.1%
4.0%
0.6%
2.0%
1.2%
-0.3%
-0.6%
0.4%
4.0%
0.4%
1.0%
4.1%
0.0%
1.7%
-0.3%
1.7%
-0.4%
0.7%
0.2%
-0.6%
-0.4%
2.5%
-2.6%
-0.4%
-3.2%
-3.3%
-4.7%
-2.5%
-0.3%
-2.8%
-2.3%
0.1%
-6.3%
-3.5%
-7.7%
-8.1%
-9.0%
-6.1%
12.0%
8.2%
8.9%
13.7%
8.1%
10.6%
5.5%
5.3%
5.3%
7.5%
6.6%
3.8%
4.3%
5.7%
9.4%
7.7%
-6.4%
3.2%
5.2%
4.3%
3.4%
1.1%
1.5%
4.0%
4.5%
4.2%
-0.4%
0.5%
1.5%
2.0%
3.7%
1.1%
1.6%
4.3%
4.4%
4.3%
0.0%
0.4%
0.8%
1.9%
Source: Deutsche Bank estimates and Smith Travel Research.
Our supply forecasts consider prior year occupancy trends and incorporate our 3-year lagged
occupancy analysis, rooms opened in the year to date, and the current construction pipeline.
Figure 58: Supply Growth Forecasts
Supply Growth
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
Luxury
Upper Upscale
Total Full Service
Upscale
Upper Midscale
Midscale
Economy
Independent
Total U.S.
10.5%
2.2%
3.3%
5.8%
2.8%
3.9%
0.9%
0.8%
-0.1%
1.6%
7.1%
2.3%
3.0%
4.0%
2.3%
2.9%
-1.3%
-1.1%
0.8%
1.0%
3.1%
1.4%
1.7%
1.7%
0.6%
1.1%
-0.8%
-0.2%
0.2%
0.4%
0.4%
-0.5%
-0.4%
3.4%
-1.4%
0.5%
-0.7%
0.3%
-0.3%
-0.1%
4.9%
-1.2%
-0.3%
4.0%
-0.6%
1.2%
0.6%
0.1%
-0.4%
0.2%
4.1%
0.6%
1.1%
5.0%
1.3%
2.8%
1.0%
2.1%
-0.4%
1.2%
6.2%
3.1%
3.6%
6.4%
3.0%
4.4%
1.9%
1.9%
0.8%
2.4%
8.5%
4.6%
5.3%
8.5%
4.0%
5.9%
3.6%
1.2%
0.0%
2.9%
4.7%
1.5%
2.1%
6.2%
3.0%
4.4%
0.8%
0.1%
0.7%
1.8%
1.4%
1.6%
1.5%
2.2%
2.7%
2.5%
-8.1%
0.0%
1.5%
0.4%
0.3%
0.9%
0.8%
1.2%
0.3%
0.7%
-0.4%
-0.7%
0.2%
0.2%
0.0%
0.0%
0.0%
1.2%
0.5%
0.8%
-0.2%
-1.4%
0.0%
0.0%
Our occupancy growth forecasts are calculated from our supply growth and demand growth
forecasts. So far, occupancy growth has been a major driver for RevPAR growth. In 2H 2011,
we expect occupancy growth to slow as the effect of the equity market decline and slower
economic growth impact lodging demand.
Page 47
20 September 2011
Figure 59: Occupancy Growth Forecasts
Occupancy Growth
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
Luxury
Upper Upscale
Total Full Service
Upscale
Upper Midscale
Midscale
Economy
Independent
Total U.S.
-0.6%
1.3%
1.0%
-0.1%
-0.8%
-0.5%
-1.7%
-2.9%
-1.8%
-1.1%
1.3%
0.3%
0.4%
0.6%
-0.6%
-0.1%
1.0%
-1.4%
0.7%
0.3%
5.2%
4.0%
4.2%
4.7%
3.5%
4.0%
4.3%
2.5%
2.9%
3.5%
3.9%
2.5%
2.7%
2.3%
3.5%
3.1%
3.8%
3.3%
2.1%
2.8%
1.5%
-0.1%
0.1%
0.0%
1.3%
0.8%
0.6%
-0.4%
-0.2%
0.2%
-0.1%
-0.2%
-0.1%
-0.9%
-1.3%
-1.1%
-1.3%
-0.4%
0.0%
-0.5%
-5.7%
-3.5%
-3.9%
-3.6%
-5.4%
-4.6%
-5.0%
-5.1%
-5.5%
-4.8%
-8.1%
-7.0%
-7.2%
-7.7%
-9.8%
-8.8%
-10.9%
-9.1%
-9.1%
-8.8%
7.0%
6.6%
6.7%
7.0%
4.9%
6.0%
4.7%
5.2%
4.6%
5.6%
5.1%
2.2%
2.7%
3.4%
6.5%
5.1%
1.8%
3.1%
3.6%
3.8%
3.2%
0.2%
0.8%
2.7%
4.2%
3.5%
0.0%
1.2%
1.3%
1.8%
3.7%
1.1%
1.6%
3.1%
3.8%
3.5%
0.2%
1.9%
0.8%
2.0%
We forecast rate growth based on occupancy levels by segment. For upper upscale brands,
occupancy levels have a regression R squared of 0.85 when rate growth is the dependent
variable. Regression also shows a strong relationship for luxury and upscale brands (R2 of
0.78 and 0.66, respectively); however, the lower chain scale segments show weaker
relationships with occupancy levels.
Figure 60: Rate Growth Forecasts
Rate Growth
Luxury
Upper Upscale
Total Full Service
Upscale
Upper Midscale
Midscale
Economy
Independent
Total U.S.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
-3.8%
-4.4%
-3.8%
-4.5%
-1.1%
-2.5%
-1.2%
-0.6%
-0.5%
-1.3%
-1.4%
-2.3%
-1.6%
-1.9%
0.1%
-0.7%
-0.1%
-0.1%
0.9%
0.2%
5.1%
3.8%
4.4%
3.6%
3.1%
3.5%
2.3%
2.2%
4.9%
4.3%
7.4%
6.9%
7.2%
7.3%
6.9%
7.3%
5.4%
4.5%
3.5%
5.6%
9.7%
7.1%
8.5%
9.1%
7.7%
8.6%
6.3%
5.4%
6.4%
7.4%
7.2%
5.8%
6.6%
6.2%
7.2%
7.0%
5.1%
3.2%
7.8%
6.6%
0.2%
1.5%
1.2%
1.5%
3.9%
3.0%
2.5%
1.1%
3.9%
2.9%
-16.5%
-10.9%
-12.2%
-10.9%
-5.6%
-8.0%
-5.5%
-7.4%
-9.3%
-8.6%
1.9%
-0.6%
0.4%
-1.9%
-0.4%
-1.0%
-1.8%
-3.1%
0.6%
-0.1%
6.7%
3.7%
4.8%
3.7%
2.7%
3.1%
-0.7%
1.8%
3.7%
3.7%
6.1%
5.0%
5.6%
0.6%
1.6%
1.1%
-0.7%
-0.1%
2.1%
2.5%
6.5%
4.1%
5.1%
1.8%
2.5%
2.1%
-1.6%
-0.9%
3.4%
3.0%
Our RevPAR growth forecasts are calculated from our estimates of occupancy growth and
rate growth.
Figure 61: RevPAR Growth Forecasts
RevPAR Growth
Luxury
Upper Upscale
Total Full Service
Upscale
Upper Midscale
Midscale
Economy
Independent
Total U.S.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
-4.4%
-3.1%
-2.8%
-4.6%
-2.0%
-3.0%
-2.9%
-3.5%
-2.3%
-2.4%
-0.1%
-2.0%
-1.3%
-1.4%
-0.6%
-0.8%
0.9%
-1.4%
1.6%
0.4%
10.5%
8.0%
8.7%
8.5%
6.7%
7.6%
6.8%
4.8%
8.0%
7.9%
11.6%
9.6%
10.2%
9.7%
10.7%
10.6%
9.5%
7.9%
5.6%
8.6%
11.3%
7.0%
8.7%
9.1%
9.1%
9.5%
6.9%
5.0%
6.2%
7.7%
7.0%
5.7%
6.4%
5.3%
5.8%
5.9%
3.7%
2.8%
7.7%
6.1%
-5.4%
-2.1%
-2.7%
-2.2%
-1.8%
-1.7%
-2.6%
-4.0%
-1.8%
-2.0%
-23.2%
-17.2%
-18.6%
-17.8%
-14.9%
-16.1%
-15.8%
-15.8%
-17.5%
-16.7%
9.0%
5.9%
7.0%
5.0%
4.5%
5.0%
2.8%
1.9%
5.3%
5.5%
12.1%
6.0%
7.6%
7.3%
9.4%
8.3%
1.2%
5.0%
7.4%
7.7%
9.5%
5.2%
6.4%
3.3%
5.9%
4.6%
-0.7%
1.2%
3.5%
4.4%
10.5%
5.2%
6.8%
4.9%
6.4%
5.7%
-1.5%
1.0%
4.3%
5.0%
Page 48
20 September 2011
The Business of Hotels: Owning, Managing, and Franchising
Large lodging companies primarily earn profits by owning or leasing hotels, managing day-today hotel operations, or franchising hotel brands.
Hotel franchisors earn a % of
total hotel revenues for the
right to use their hotel brand
and for the use of their
rewards and reservations
systems.
Hotel managers run the daily
operations, including setting
rates and expense budgets.
They earn a % of total hotel
revenue, plus a share of
profits if the hotel is
profitable.
Hotel management
contracts vary by hotel.
Large managers may
provide capital to renovate
the hotel in return for a longterm management contract.
Hotel owners supply capital
to keep the hotel fresh and
in line with brand standards.
Owners have the most
leverage to changes in the
economic environment.
REITs are a tax-efficient
structure by which to own
hotels.
Hotel franchisors own the hotel brand name. The franchisor is least exposed to the vagaries
of the business cycle. Revenues depend solely on the hotel’s top line. The franchisor earns
royalties on the total sales volume of the hotel with its brand name regardless of the
profitability of the hotel. Franchisors manage the central reservation system for the brand.
While not a core revenue item, franchisors earn revenues from franchisees by selling room
nights through the franchisor’s rewards program. For a franchisor, the top line at hotels under
its brands and new contracts drive earnings growth. Operating margins for a hotel franchisor
typically are the highest of the three types of hotel businesses. During a business cycle, the
franchisor has the most stability. During periods of low supply growth, franchisors face stiff
competition for each new contract.
Hotel managers run the day-to-day operations at hotels. While the hotel manager employs
the hotel staff, employment costs are passed directly to the hotel owner. These pass-through
expense items are recorded as both revenue and expense items in the income statements of
the large lodging companies. The manager also sets the room price with input from the
owner, manages marketing for the individual hotel, and reports hotel financial results to the
owner. The manager is compensated with a base fee and may earn additional income if the
hotel is profitable. In the U.S., managers typically earn incentive fees above a stated return
rate, called the owner’s priority return. Internationally, managers usually earn an incentive fee
on the first dollar of hotel profit; however, the percentage of profits that the manager keeps
is smaller than in the U.S.
The large lodging companies do not report margins on management fee income. Even if they
did report them, margins would not necessarily be comparable between companies since
management contracts vary significantly. Managers may provide “key money” for
renovations or financing support for a new hotel. Managers may also provide performance
guarantees for a hotel. If the owner intends to sell the hotel in several years, the owner may
want the option to terminate the contract at the time of the sale to give the prospective buyer
a management option, which increases the value of the hotel. Contract lengths vary as well.
The point of explaining all this variation is to show that real world hotel agreements are
complex. For the investor, it is more important to know the different levers that a hotel
manager can pull to sign new management contracts.
The owner or lessee is at the end of the cash flow stream; the owner stands to make or lose
the most money. Owning hotels is the most capital-intensive portion of hotel operations.
Owners put up the capital to buy the building and land. In the case of a leased hotel, the
lessee pays rent for the right to use the property. The owner invests capital to keep the hotel
in working order and meet brand standards required by the brand owner. Depending on how
the management contract is structured, the hotel manager may also contribute capital—
called “key money”—to renovate and refresh a hotel. Owners are responsible for paying the
franchisor for the right to use the brand, hotel staff, hotel manager, marketing costs, property
insurance, property taxes, and utilities. In the case of leased hotels, the lessee must also pay
rent. Hotels often secure a mortgage, which the owner funds with cash flow remaining from
hotel operations. Currently, banks will lend around 60% of a hotel’s value in the case of a
stabilized, cash flowing hotel in a good, urban location. In the business of hotels, the hotel
owners have the most to win and lose throughout the business cycle.
Page 49
20 September 2011
Figure 62: The Various Hotel Models
Hotel Business Operations
Own & Lease Hotels
Description
Earnings Drivers
Approximate Margin
Owns the hotel or pays the rent
Rate and occupancy growth
Highly variable
Highly capital intensive
Rate growth has highest flow Industry average over cycle: Low 20%
Negotiates with brand owner/franchisor
through to earnings.
Select service, urban hotels: >40%
regarding cap-ex requirements
Profits come from cash flows
Luxury resorts: teens
Hires manager. Typically a long-term contract
remaining after operating
Most operating leverage
Often structured as a REIT for tax efficiency
expenses.
Manage Hotels
Run day-to-day operations
Employs hotel staff. Wage and benefit costs
passed directly to owner.
Sets pricing
Hotel manager may also be brand owner
Minimal capital required. Manager may
provide financing or "key money" with
a long-term contract.
Franchise Hotel Brands
Sets brand standards
Runs central reservation system
Procures branded goods for hotels
Least capital intensive
Most economies of scale
Earnings drivers: revenue
under management,
rooms managed, hotel
profitability
Base Fee: 2-6% of
hotel revenue
Incentive Fee: Negotiated
based on profitability
US: % above hurdle rate
Int'l: % from 1st $1 of profit
Total revenue growth at
branded hotels, room
growth
50%-80%
Margin depends on many factors like
contract length, termination options,
key money, incentive fee structure
Some contracts guarantee a minimum
profit to the hotel owner.
Incentive fees provide operating
leverage.
90%
Least operating leverage from greater
hotel revenue
Figure 63 shows the proportion of income that the large hotel companies derive from owning
& leasing hotels, managing hotels, and franchising hotels. REITs own and lease hotels. The
REIT structure is a tax-efficient way to hold real estate; however, tax law prevents REITs from
deriving material proportions of their income from hotel management or franchising.
For the large hotel companies, hotel management and franchising is synergistic. Managing
hotels informs the franchisor what guests want in a hotel brand. Having good brands and a
solid franchise business provides the management business with sales opportunities. While
the business models are distinct, operating results for the two businesses are often reported
together.
Page 50
20 September 2011
Figure 63: Who Does What?
0%
10%
HOT
20%
30%
40%
50%
30%
60%
70%
44%
H
80%
90%
15%
60%
11%
26%
HST
100%
5%
9%
100%
WYN
20%
80%
CHH
100%
GET
95%
OEH
5%
85%
MAR
7%
3%
45%
Hilton
33%
55%
IHG
25%
12%
20%
AC
12%
15%
25%
8%
55%
89%
REITs
6%
5%
100%
Owned & Leased Hotels
Hotel Management
Hotel Franchising
Non-hotel Operations
Source: Deutsche Bank estimates and company reports
Figure 64: Who Does What? Continued
Company
Approximate % of EBITDA before Corporate Overhead
Owned & Leased
Hotel
Hotel
Non-hotel
Hotels
Management
Franchising
Operations
Starwood Hotels
Hyatt
30%
60%
Host Hotels
Wyndham Worldwide
Choice International
Orient-Express Hotels
Marriott
Hilton
InterContinental
Accor
Hotel REITs
100%
95%
85%
7%
55%
25%
89%
100%
44%
26%
Notes
15%
5%
11%
9%
20%
100%
80%
Non-hotel ops: T imeshare, T imeshare exchange, Vacation Rentals
5%
12%
15%
8%
Non-hotel ops: Grand Ole Opry, Country Music Attractions
Non-hotel ops: T imeshare; DB est
Non-hotel ops: T imeshare; incl. Lodgeworks; DB est of M/F Split
HST is a Hotel REIT
3%
45%
12%
20%
6%
33%
25%
55%
5%
Non-hotel ops: Real Estate, T rains & Cruises, 21 Club NYC
DB est based on 2010 Results
Prior to Blackstone acquisition in 2007; DB est of M/F Split
Adjusted for de-merger
Hotel REIT s by Market Cap: HST HPT LHO DRH BEE PEB SHO
HT AHT CHSP FCH INN CLDT
Page 51
20 September 2011
Figure 65 maps the brands owned by the major lodging companies and the Smith Travel
chain scale segment for each brand. Smith Travel’s segments distinguish properties based on
price, service, function, style, offerings, and type of guest served. Starwood and Hyatt own
brands in the top three categories. Hilton and Marriott own brands in the top four categories.
Wyndham and Choice brand hotels are mostly lower in the chain scale segment.
Figure 65: Hotel Brand Map
STR Chain Scale Segment
Luxury
Upper Upscale
Upscale
Starwood
Hyatt
W Hotel
Luxury Collection
St Regis
Grand Hyatt
Park Hyatt
Andaz
Sheraton Hotel
Westin
Le Meridien
Hyatt
Four Points
aloft Hotel
element
Hyatt Place
Hyatt Summerfield Suites
Upper Midscale
Wyndham
Choice
Orient-Express
Marriott
Hilton
InterContinental
Accor
Various unique,
iconic, and
historic properties
under OEH
umbrella
JW Marriott
Ritz-Carlton
Edition
Waldorf=Astoria
Conrad
InterContinental
Sofitel
Pullman
Marriott
Renaissance
Autograph Collection
Hilton
Embassy Suites
Ascend Collection
Cambria Suites
Courtyard
Residence Inn
Springhill Suites
Hilton Garden Inn
Doubletree
Homewood Suites
Crowne Plaza
Staybridge Suites
Hotel Indigo
Novotel
Mercure
Grand Mercure
Comfort Inn
Comfort Suites
Clarion
Fairfield Inn
TownePlace Suites
Hampton Inn
Hampton Inn Suites
Doubletree Club
Home2 Suites
Holiday Inn Express
Holiday Inn
Holiday Inn Select
Sunspree Resorts
Adagio City
Suitehotel
Candlewood Suites
Ibis
All Seasons
Wyndham
Dream Hotel
Ramada Plaza
Wyndham Garden Hotel
Night Hotel
Midscale
Ramada
Baymont
Wingate By Wyndham
Howard Johnson
Hawthorn Suites by Wyndham
Economy
Days Inn
Super 8
Travelodge
Microtel Inn
Knights Inn
Howard Johnson Express
Gaylord
4 one-stop group
hotels in Nashvile
DC, Orlando, and
Dallas
Econo Lodge
Rodeway Inn
Suburban Extended Stay
Motel 6
Studio 6
Etap Hotels
Hotel Formule 1
Page 52
20 September 2011
Comparative Analysis &
Valuations
Lodging Comparative Valuations
Figure 66: Coverage Universe Summary
September 16, 2011
Company
Starwood Hotels
Hyatt Hotels
Deutsche
Bank Price
Target
Potential
Upside /
Downside
EV/EBITDA Multiples
PE Multiples Multiples
Gross FCF Yields
Ticker
Price
Deutsche
Bank
Rating
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
HOT
$45.46
Buy
$58
27.9%
12.9x
11.3x
10.0x
8.9x
36.2x
26.4x
21.2x
16.6x
5.9%
2.5%
3.4%
4.4%
H
$35.56
Buy
$44
23.7%
11.6x
12.6x
10.7x
9.3x
115.2x
72.2x
44.3x
30.7x
4.3%
5.1%
6.2%
7.2%
GET
$22.82
Hold
$26
14.3%
14.8x
10.0x
9.0x
8.5x
-16.6x
91.1x
48.8x
43.1x
3.6%
8.3%
9.1%
9.9%
OEH
$8.04
Buy
$11
36.5%
17.4x
14.7x
11.7x
9.5x
-29.4x
-61.4x
35.3x
20.3x
-4.7%
1.7%
6.0%
7.5%
Wyndham Worldwide
WYN
$32.15
Buy
$41
27.3%
8.6x
7.4x
6.6x
5.8x
16.1x
13.4x
12.5x
11.7x
11.3%
12.3%
8.0%
8.6%
Choice Hotels
CHH
$30.69
Hold
$31
1.5%
C-Corps
Host Hotels
HST
$12.12
Hold
$13
4.6%
Lodging REITS
Note: "PE Multiples" for HST represent Price to FFO
Note: "EV/EBITDA Multiples" for GET represent EV/CCF
11.7x
11.0x
10.1x
9.0x
16.9x
17.2x
16.2x
14.9x
3.1%
3.5%
3.6%
4.3%
12.8x
11.2x
9.7x
8.5x
23.1x
19.0x
26.8x
22.9x
3.9%
5.6%
6.1%
7.0%
15.7x
13.7x
11.8x
10.7x
16.6x
13.6x
11.4x
10.0x
2.9%
2.3%
4.0%
4.0%
15.7x
13.7x
11.8x
10.7x
16.6x
13.6x
11.4x
10.0x
2.9%
2.3%
4.0%
4.0%
Figure 67: Estimate Summary ($ in MM except per share data)
September 16, 2011
Company
Starwood Hotels
Deutsche
Bank
Rating
Deutsche
Bank Price
Target
Potential
Upside /
Downside
to Price
Target
Deutsche
Bank
2010 EPS
Deutsche
Bank
2011E
EPS
Deutsche
Bank
2012E
EPS
Deutsche
Bank
2013E
EPS
Deutsche
Bank
2010
EBITDA
Deutsche
Bank
2011E
EBITDA
Deutsche
Bank
2012E
EBITDA
Deutsche
Bank
2013E
EBITDA
Buy
$58
27.9%
$1.25
$1.72
$2.15
$2.74
$879
$982
$1,077
$1,190
Ticker
Price
Market
Cap
($ in MM)
HOT
$45.46
$8,847
H
$35.56
$5,886
Buy
$44
23.7%
$0.31
$0.49
$0.80
$1.16
$476
$522
$641
$732
GET
$22.82
$1,163
Hold
$26
14.3%
($1.37)
$0.25
$0.47
$0.53
$149
$221
$239
$253
Hyatt Hotels
OEH
$8.04
$824
Buy
$11
36.5%
($0.27)
($0.13)
$0.23
$0.40
$80
$95
$121
$144
Wyndham Worldwide
WYN
$32.15
$5,466
Buy
$41
27.3%
$1.99
$2.39
$2.58
$2.74
$861
$953
$1,007
$1,050
Choice Hotels
CHH
$30.69
$1,839
Hold
$31
1.5%
$1.82
$1.78
$1.89
$2.06
$171
$178
$187
$201
HST
$12.12
$8,328
Hold
$13
4.6%
$0.73
$0.89
$1.06
$1.21
$828
$1,029
$1,181
$1,295
C-Corps
Host Hotels
Lodging REITS
Source: Deutsche Bank, Company reports, and Factset.
Page 53
20 September 2011
Figure 68: PE Multiples
September 16, 2011
Ticker
Price
Deutsche
Bank 2010
EPS
HOT
$45.46
$1.25
$1.72
$2.15
$2.74
36.2x
26.4x
21.2x
16.6x
H
$35.56
$0.31
$0.49
$0.80
$1.16
115.2x
72.2x
44.3x
30.7x
GET
$22.82
($1.37)
$0.25
$0.47
$0.53
-16.6x
91.1x
48.8x
43.1x
OEH
$8.04
($0.27)
($0.13)
$0.23
$0.40
-29.4x
-61.4x
35.3x
20.3x
Wyndham Worldwide
WYN
$32.15
$1.99
$2.39
$2.58
$2.74
16.1x
13.4x
12.5x
11.7x
Choice Hotels
CHH
$30.69
$1.82
$1.78
$1.89
$2.06
16.9x
17.2x
16.2x
14.9x
23.1x
19.0x
26.8x
22.9x
16.6x
13.6x
11.4x
10.0x
16.6x
13.6x
11.4x
10.0x
Company
Starwood Hotels
Hyatt Hotels
Deutsche
Bank 2011E
EPS
Deutsche
Bank 2012E
EPS
Deutsche
Bank 2013E
EPS
2010 P/E
2011E P/E
2012E P/E
2013E P/E
C-Corps
Host Hotels
HST
$12.12
$0.73
$0.89
$1.06
$1.21
Lodging REITS
Note: "EPS" and "P/E" for HST represents FFO and Price to FFO, respectively.
Figure 69: EV/EBITDA Multiple Summary
September 16, 2011
$ in Millions except per share data
Company
Starwood Hotels
Ticker
Price
Shares
Outstanding
Market Cap
Deutsche
Bank
Current
Quarter
EBITDA
Estimate
Deutsche
Bank
2010
EBITDA
Deutsche
Bank
2011E
EBITDA
Deutsche
Bank
2012E
EBITDA
Deutsche
Bank
2013E
EBITDA
Deutsche
Bank 2010
Net Debt
Deutsche
Bank
2011E Net
Debt
Deutsche
Bank
2012E Net
Debt
Deutsche
Bank
2013E Net
Debt
2010
EV/EBITDA
2011E
EV/EBITDA
2012E
EV/EBITDA
2013E
EV/EBITDA
HOT
$45.46
194.6
$8,847
$230
$879
$982
$1,077
$1,190
$2,538
$2,269
$1,931
$1,749
12.9x
11.3x
10.0x
8.9x
H
$35.56
165.5
$5,886
$115
$476
$522
$641
$732
($351)
$688
$1,005
$941
11.6x
12.6x
10.7x
9.3x
GET
$22.82
50.9
$1,163
$50
$149
$221
$239
$253
$1,035
$1,036
$986
$977
14.8x
10.0x
9.0x
8.5x
OEH
$8.04
102.5
$824
$42
$80
$95
$121
$144
$570
$569
$591
$543
17.4x
14.7x
11.7x
9.5x
Wyndham Worldwide
WYN
$32.15
170.0
$5,466
$307
$861
$953
$1,007
$1,050
$1,938
$1,581
$1,142
$672
8.6x
7.4x
6.6x
5.8x
Choice Hotels
CHH
$30.69
59.9
$1,839
$61
$171
$178
$187
$201
$161
$124
$58
($21)
11.7x
11.0x
10.1x
9.0x
12.8x
11.2x
9.7x
8.5x
Hyatt Hotels
C-Corps
Host Hotels
HST
$12.12
687.1
$8,328
$209
$828
$1,029
$1,181
$1,295
$4,667
$5,755
$5,615
$5,530
Lodging REITS
Note: H, HOT, and HST net debt includes JV debt.
Note: GET net debt is adjusted for CIP related to Aurora development.
15.7x
13.7x
11.8x
10.7x
15.7x
13.7x
11.8x
10.7x
Figure 70: Free Cash Flow Summary
September 16, 2011
$ in Millions
Gross Free Cash Flow
Gross Free Cash Flow Yield
Net Free Cash Flow
Ticker
Price
Shares
Outsanding
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
2010
HOT
$45.46
195
$520
$224
$299
$391
5.9%
2.5%
3.4%
4.4%
$769
H
$35.56
166
$256
$301
$367
$426
4.3%
5.1%
6.2%
7.2%
$284
GET
$22.82
51
$42
$97
$106
$115
3.6%
8.3%
9.1%
9.9%
($123)
OEH
$8.04
102
($39)
$14
$50
$62
-4.7%
1.7%
6.0%
7.5%
$162
Wyndham Worldwide
WYN
$32.15
170
$618
$673
$439
$470
11.3%
12.3%
8.0%
8.6%
Choice Hotels
CHH
$30.69
60
$57
$65
$66
$78
3.1%
3.5%
3.6%
4.3%
3.9%
5.6%
6.1%
7.0%
2.9%
2.3%
4.0%
4.0%
2.9%
2.3%
4.0%
4.0%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
HST
$12.12
Lodging REITS
687
$238
$195
$329
$335
2011E
2012E
2013E
$269
$339
$181
($991)
($318)
$65
$26
$0
($141)
$1
($23)
$48
($78)
$357
$439
$470
$49
$37
$66
$78
($169)
($1,048)
$140
$85
Page 54
20 September 2011
Figure 71: C-Corp Balance Sheet Summary
September 16, 2011
$ in millions
Starwood Hotels
Hyatt Hotels
Gross Debt
Net Debt
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
$2,857.0
$2,800.0
$2,192.0
$1,689.0
$2,104.0
$1,835.3
$1,496.5
$1,315.2
$771.0
$1,210.0
$1,210.0
$1,210.0
($863.0)
$128.6
$446.3
$381.7
$1,159.2
$1,070.9
$1,082.9
$1,235.7
$1,034.8
$1,036.4
$1,036.2
$1,177.0
$728.4
$676.8
$678.7
$630.2
$569.7
$568.8
$591.5
$543.0
Wyndham Worldwide
$2,094.0
$2,044.0
$2,012.0
$2,012.0
$1,938.0
$1,581.3
$1,142.0
$672.0
$252.2
$252.5
$252.5
$252.5
$160.9
$124.2
$57.8
($20.6)
Choice Hotels
EBITDA
Interest Expense
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
Starwood Hotels
$879.4
$981.6
$1,076.8
$1,189.5
$236.0
$215.2
$186.2
$138.2
Hyatt Hotels
$476.2
$522.3
$641.2
$731.9
$54.0
$61.8
$68.8
$74.6
$148.9
$220.8
$239.3
$253.1
$68.3
$73.7
$70.0
$74.0
$80.3
$94.6
$121.3
$143.8
$33.8
$40.8
$40.0
$38.0
Wyndham Worldwide
$860.6
$953.1
$1,006.5
$1,049.8
$167.0
$145.2
$121.8
$115.0
Choice Hotels
$170.9
$178.3
$187.5
$201.0
$6.7
$13.0
$12.8
$12.8
Gross Debt to EBITDA
Net Debt to EBITDA
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
Starwood Hotels
3.2x
2.9x
2.0x
1.4x
2.4x
1.9x
1.4x
1.1x
Hyatt Hotels
1.6x
2.3x
1.9x
1.7x
-1.8x
0.2x
0.7x
0.5x
7.8x
4.8x
4.5x
4.9x
6.9x
4.7x
4.3x
4.7x
9.1x
7.2x
5.6x
4.4x
7.1x
6.0x
4.9x
3.8x
Wyndham Worldwide
2.4x
2.1x
2.0x
1.9x
2.3x
1.7x
1.1x
0.6x
Choice Hotels
1.5x
1.4x
1.3x
1.3x
0.9x
0.7x
0.3x
-0.1x
Average
3.7x
3.0x
2.5x
2.2x
2.5x
2.2x
1.8x
1.5x
EBITDA to Interest Expense
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
Starwood Hotels
3.7x
4.6x
5.8x
8.6x
$519.9
$224.2
$298.7
$391.4
Hyatt Hotels
8.8x
8.5x
9.3x
9.8x
$255.6
$301.1
$366.6
$426.2
2.2x
3.0x
3.4x
3.4x
$42.4
$96.7
$106.2
$115.2
2.4x
2.3x
3.0x
3.8x
($38.9)
$13.7
$49.6
$61.8
Wyndham Worldwide
5.2x
6.6x
8.3x
9.1x
$617.8
$672.7
$439.3
$470.0
Choice Hotels
25.6x
13.7x
14.7x
15.7x
$56.9
$64.9
$66.4
$78.4
Average
8.0x
6.4x
7.4x
8.4x
Gross Free Cash Flow per Share
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
Starwood Hotels
$2.67
$1.15
$1.54
$2.01
5.9%
2.5%
3.4%
4.4%
Hyatt Hotels
$1.54
$1.82
$2.21
$2.57
4.3%
5.1%
6.2%
7.2%
$0.83
$1.90
$2.08
$2.26
3.6%
8.3%
9.1%
9.9%
($0.38)
$0.13
$0.48
$0.60
-4.7%
1.7%
6.0%
7.5%
Wyndham Worldwide
$3.63
$3.96
$2.58
$2.76
11.3%
12.3%
8.0%
8.6%
Choice Hotels
$0.95
$1.08
$1.11
$1.31
3.1%
3.5%
3.6%
4.3%
3.9%
5.6%
6.1%
7.0%
Average
Note: HOT and H gross and net debt exclude JV debt.
Note: We use CCF for GET in place of EBITDA. The difference between CCF and EBITDA is attributable to non-cash lease and option expense.
Source: Company reports, Deutsche Bank estimates, and Factset.
Page 55
20 September 2011
Figure 72: Lodging REIT Balance Sheet Summary
September 16, 2011
$ in millions
Gross Debt
Net Debt
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
$5,477.0
$5,863.0
$5,856.0
$5,856.0
$4,364.0
$5,412.4
$5,271.9
$5,186.8
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
$828.0
$1,029.3
$1,180.9
$1,294.7
$383.0
$374.0
$390.0
$389.0
2010
2011E
2012E
2013E
2010
2011E
2012E
Host Hotels
6.6x
5.7x
5.0x
4.5x
5.3x
5.3x
4.5x
4.0x
Average
6.6x
5.7x
5.0x
4.5x
5.3x
5.3x
4.5x
4.0x
Host Hotels
EBITDA
Host Hotels
Interest Expense
Gross Debt to EBITDA
Net Debt to EBITDA
EBITDA to Interest Expense
2013E
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
Host Hotels
2.2x
2.8x
3.0x
3.3x
$237.8
$195.5
$329.5
$335.1
Average
2.2x
2.8x
3.0x
3.3x
Gross Free Cash Flow per Share
Host Hotels
2010
2011E
2012E
2013E
2010
2011E
2012E
$0.35
$0.28
$0.48
$0.49
2.9%
2.3%
4.0%
4.0%
2.9%
2.3%
4.0%
4.0%
Average
Note: HST gross and net debt exclude JV debt.
2013E
Page 56
20 September 2011
Lodging Stock Trends
Figure 73: Recent Share Price Returns
September 16, 2011
Ticker
Price
One Week
Return
One Month
Return
QTD Return
YTD Return
LTM Return
3 Year
Return
5 Year
Return
HOT
$45.46
14.7%
3.0%
-18.9%
-25.2%
-10.8%
22.2%
-23.8%
H
$35.56
13.7%
5.0%
-12.9%
-22.3%
-7.9%
GET
$22.82
5.2%
-13.2%
-23.9%
-36.5%
-22.1%
-30.6%
-49.4%
OEH
$8.04
19.1%
-1.7%
-25.2%
-38.1%
-23.4%
-78.0%
-78.2%
Wyndham Worldwide
WYN
$32.15
10.1%
6.5%
-4.5%
7.3%
21.5%
75.5%
11.1%
Choice Hotels
CHH
$30.69
6.9%
7.1%
-8.0%
-19.8%
-14.0%
-0.5%
-28.1%
11.6%
1.1%
-15.6%
-22.4%
-9.4%
-2.3%
-33.7%
13.4%
-1.7%
-28.5%
-32.2%
-16.6%
-19.3%
-46.7%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
HST
$12.12
Sunstone Hotel Investors
SHO
$5.96
7.0%
-7.0%
-35.7%
-42.3%
-35.9%
-60.9%
-80.3%
HT
$3.86
10.6%
-5.9%
-30.7%
-41.5%
-25.2%
-50.6%
-60.6%
LaSalle Hotel Properties
LHO
$20.05
15.6%
3.1%
-23.9%
-24.1%
-13.6%
-26.9%
-54.9%
FelCor Lodging Trust
FCH
$2.75
4.2%
-6.8%
-48.4%
-60.9%
-38.5%
-64.7%
-87.4%
Strategic Hotels
BEE
$4.90
17.2%
-4.3%
-30.8%
-7.4%
23.1%
-47.0%
-76.9%
Diamondrock Hospitality
DRH
$7.93
12.5%
-3.1%
-26.1%
-33.9%
-18.2%
-15.9%
-54.2%
Summit Hotel Properties
INN
$8.97
10.6%
5.3%
-21.0%
CHSP
$12.28
4.1%
-14.2%
-28.0%
-34.7%
-28.9%
10.6%
-3.8%
-30.3%
-34.6%
-19.2%
-40.8%
-65.8%
Hersha Hospitality
Chesapeake Lodging Trust
Lodging REITS
Figure 74: Historical Share Price Returns
September 16, 2011
Company
Ticker
Price
2005
2006
2007
2008
2009
2010
2011YTD
HOT
$45.46
9.3%
21.1%
-29.6%
-59.3%
104.3%
66.2%
-25.2%
H
$35.56
53.5%
-22.3%
GET
$22.82
5.0%
16.8%
-20.5%
-73.2%
82.2%
82.0%
-36.5%
OEH
$8.04
53.2%
50.1%
21.6%
-86.7%
32.4%
28.1%
-38.1%
Wyndham Worldwide
WYN
$32.15
-26.4%
-72.2%
207.9%
48.5%
7.3%
Choice Hotels
CHH
$30.69
Starwood Hotels
Hyatt Hotels
C-Corps
44.0%
0.8%
-21.1%
-9.5%
5.3%
20.9%
-19.8%
27.9%
22.2%
-15.2%
-60.2%
86.4%
49.9%
-22.4%
Host Hotels
HST
$12.12
9.5%
29.6%
-30.6%
-55.6%
54.2%
53.1%
-32.2%
SHO
$5.96
27.9%
0.6%
-31.6%
-66.2%
43.5%
16.3%
-42.3%
HT
$3.86
-21.3%
25.9%
-16.2%
-68.4%
4.7%
110.2%
-41.5%
LHO
$20.05
15.4%
24.9%
-30.4%
-65.4%
92.1%
24.4%
-24.1%
FCH
$2.75
17.5%
26.9%
-28.6%
-88.2%
95.7%
95.6%
-60.9%
Strategic Hotels
BEE
$4.90
24.7%
5.9%
-23.2%
-90.0%
10.7%
184.4%
-7.4%
DRH
$7.93
50.6%
-16.8%
-66.2%
67.1%
41.7%
-33.9%
INN
$8.97
CHSP
$12.28
Hersha Hospitality
Lodging REITS
-34.7%
12.3%
23.5%
-25.4%
-71.4%
52.5%
75.1%
-34.6%
Page 57
20 September 2011
Figure 75: Coverage Universe Quarterly Seasonality
September 16, 2011
C-Corps
OEH
WYN
(2001-2011) (2007-2011)
HOT
(2000-2011)
H
(2010-2011)
GET
(2000-2011)
CHH
(2000-2011)
Average
SPX
(2000-2011)
Avg. Calendar Q1 Return
5.8%
12.4%
1.5%
1.8%
-1.5%
2.4%
3.7%
-1.9%
8.6%
-5.0%
-1.1%
9.8%
33.1%
-0.9%
7.4%
0.8%
-2.1%
0.8%
18.1%
-3.1%
12.3%
5.3%
5.2%
-0.7%
6.1%
22.4%
1.0%
5.2%
-7.9%
10.7%
6.3%
2.5%
HST
(2000-2011)
SHO
(2005-2011)
HT
(2000-2011)
LHO
(2000-2011)
FCH
(2000-2011)
-0.2%
-4.5%
3.0%
1.9%
-0.3%
11.0%
10.0%
14.9%
0.9%
12.8%
8.0%
3.0%
-0.3%
3.3%
2.6%
4.6%
-7.5%
1.0%
1.7%
Time Period
Time Period
Lodging REITS
BEE
DRH
(2005-2011) (2006-2011)
INN
(2011-2011)
CHSP
(2010-2011)
Average
SPX
(2000-2011)
-0.5%
0.0%
-7.4%
0.3%
-1.9%
7.9%
4.5%
14.2%
-10.4%
7.0%
0.8%
-0.4%
13.0%
6.0%
3.4%
3.8%
-0.7%
1.1%
-7.9%
-2.8%
15.0%
0.6%
2.5%
Figure 76: Short Interest
September 16, 2011
Short Interest
(Current Month)
($ in MM)
Short
Interest as a
% of Float
Short Interest
(Prior Month)
($ in MM)
Change from
Prior Period
Ticker
Price
Float
($ in MM)
HOT
$45.46
185.1
10.4
5.6%
10.1
2.9%
H
$35.56
44.3
1.4
3.1%
1.5
-8.5%
GET
$22.82
36.9
7.1
19.3%
6.9
3.6%
OEH
$8.04
89.5
6.2
6.9%
6.4
-3.8%
Wyndham Worldwide
WYN
$32.15
161.5
6.2
3.8%
4.6
33.7%
Choice Hotels
CHH
$30.69
28.5
2.5
8.7%
2.4
3.4%
545.9
33.7
6.2%
31.9
5.7%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
HST
$12.12
685.8
36.9
5.4%
35.8
2.9%
SHO
$5.96
112.8
5.6
5.0%
6.0
-6.2%
HT
$3.86
151.2
7.3
4.8%
6.6
10.5%
LHO
$20.05
84.4
4.0
4.7%
4.5
-12.4%
FCH
$2.75
115.3
7.6
6.6%
7.0
9.4%
Strategic Hotels
BEE
$4.90
149.0
9.2
6.2%
8.5
8.7%
DRH
$7.93
164.8
10.2
6.2%
10.2
-0.2%
INN
$8.97
26.0
1.1
4.2%
1.3
-18.0%
CHSP
$12.28
31.5
1.4
4.5%
1.3
4.9%
1,520.8
83.4
5.5%
81.4
2.5%
Hersha Hospitality
Lodging REITS
Page 58
20 September 2011
Figure 77: Current Dividends
September 16, 2011
Ticker
Price
Annual
Dividend
Dividend
Yield
HOT
$45.46
$0.30
0.7%
H
$35.56
$0.00
0.0%
GET
$22.82
$0.00
0.0%
OEH
$8.04
$0.00
0.0%
Wyndham Worldwide
WYN
$32.15
$0.60
1.9%
Choice Hotels
CHH
$30.69
$0.74
2.4%
HST
$12.12
$0.12
1.0%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
Lodging REITS
Page 59
20 September 2011
20 September 2011
Starwood Htls. & Resort
Reuters: HOT.N
Buy
Bloomberg: HOT UN
Initiating Coverage with a Buy
Rating
Initiating Coverage on HOT with a Buy Rating and a $58 Price Target
We believe HOT is well positioned from both a fundamental and stock
perspective to outperform peers over the near and medium terms. While HOT
has been a crowded Consensus idea, the stock has not worked given the overall
sluggishness in the lodging space related to macroeconomic issues that have
lowered the bar for 2012. We believe our view on HOT, despite our view on the
domestic lodging environment, shows our level of conviction around HOT's
domestic asset skew, international growth pipeline, financial flexibility, and brand
strength. Buy.
Reasons to Invest
We expect shares to benefit from: 1) HOT’s luxury and upper upscale
segmentation and exposure to domestic urban markets, 2) solid near term and
out year international fee growth stemming from a rich international development
pipeline, 3) an underappreciated owned portfolio that we believe to be
considerably undervalued at present, 4) a sound and flexible balance sheet, and 5)
a favorable outlook for corporate profits, a historical driver of HOT RevPAR.
Price at 16 Sep 2011 (USD)
Price target
52-week range
45.46
58.00
65.09 - 38.06
Price/price relative
75
60
45
30
15
0
9/08
3/09
9/09
3/10
9/10
3/11
Starwood Htls. &Res
S&P 500INDEX (Rebased)
Performance (%)
Absolute
S&P 500 INDEX
1m
3.0
1.9
3m
-13.2
-4.1
12m
-10.8
8.1
Stock & option liquidity data
Market Cap (USD)
Shares outstanding (m)
Free float (%)
Volume (16 Sep 2011)
Option volume (und. shrs., 1M avg.)
8,569.2
188.5
99
1,469,435
789,391
Risks to our Buy Thesis
Downside risks include: 1) the ominous implications of airline seat-mile forecasts,
2) the potential for and the impact of declining industry RevPAR estimates for
2012, 3) the inability to sell hotel assets, and 4) aggressive, in our view, out year
Consensus estimates.
Our $58 Price Target is Based on a Sum-of-the-Parts Analysis
Our $58 price target is based on a sum of the parts analysis in which we apply a
12.0x multiple to HOT’s fee related business and a 6.0x multiple to the vacation
ownership segment. We believe these multiples fairly represent historical trading
multiples during similar portions of the lodging cycle. We then make a value
adjustment of ~$4.2 billion to account for what we believe to be the net asset
value of HOT’s owned hotel portfolio. Our net asset value estimate for the owned
hotel segment is based on our analysis of recent market comparable asset sales.
We note that our NAV value assumes a blended cost per key of ~$215,000. After
extracting net debt and HOT’s share of joint venture debt, we arrive at an equity
value of $11.3 billion, or $58 per share
Forecasts and ratios
Year End Dec 31
2010A
2011E
1Q EPS1
0.13
0.30A
2012E
0.41
2Q EPS
0.35
0.50A
0.59
3Q EPS
0.25
0.38
0.46
4Q EPS
0.52
0.54
0.68
FY EPS (USD)
1.25
1.72
2.15
P/E (x)
38.6
26.4
21.2
Source: Deutsche Bank estimates, company data
1
Includes the impact of FAS123R requiring the expensing of stock options.
Page 60
20 September 2011
Starwood Hotels and Resorts
(HOT) – Buy
Company Description
Starwood Hotels is an integrated owner, operator and franchisor of hotels and resorts.
Starwood Hotels brands include; St. Regis, The Luxury Collection, Sheraton, Westin, Four
Points by Sheraton, W, Le Méridien, Aloft, and Element. In addition, Starwood Hotels owns
Starwood Vacation Ownership, a developer of vacation ownership resorts. In total, Starwood
owns and or manages over 1,000 hotel properties in over 100 countries worldwide.
Executive Summary
The DB Thesis: Buy
We are initiating coverage on HOT with a Buy rating and a $58 price target.
Despite our less optimistic forecast, when compared to Consensus, for the industry, we
believe HOT is well positioned from both a fundamental and stock perspective, to outperform
peers over the near and medium term. While HOT has been a crowded Consensus idea, for
the right reasons in our view, the stock has not worked given the overall sluggishness in the
segment related to macroeconomic issues that have lowered the bar for 2012 RevPAR
performance. We think our Buy rating on HOT is likely to draw some raised eyebrows given
our more pessimistic, when compared to Consensus, view of a sector in which HOT is
generally viewed as one of the bellwethers. As such, we believe our view on HOT, despite
our view on the domestic lodging environment, shows our level of conviction around HOT's
domestic asset skew, international growth pipeline, financial flexibility, and brand strength.
Reasons to Invest
We expect shares to benefit from: 1) HOT’s luxury and upper upscale segmentation and
exposure to domestic urban markets, 2) solid near term and out year international fee growth
stemming from a rich international development pipeline, 3) an underappreciated owned
portfolio that we believe to be considerably undervalued at present, 4) a sound and flexible
balance sheet, and 5) a favorable outlook for corporate profits, a historical driver of HOT
RevPAR.
Investment Risks Summary
Downside risks include: 1) the ominous implications of airline seat-mile forecasts, 2) the
potential for and the impact of declining industry RevPAR estimates for 2012, 3) the inability
to sell hotel assets, 4) aggressive, in our view, out year Consensus estimates, and 5) generic
macroeconomic or event risks which would curtail leisure and or business travel.
DB Estimates
We estimate adjusted EBITDA of $230 million, $982 million, $1,077 million, and $1,190
million for the 3Q 2011, 2011, 2012, and 2013, respectively. Our adjusted EPS estimates for
the 3Q 2011, 2011, 2012, and 2013 are $0.38, $1.72, $2.15, and $2.74, respectively. We note
that our adjusted EBITDA and EPS estimates for the 2H 2011 are largely in line with
Consensus, while our 2012 and 2013 adjusted EBITDA forecasts are 5% and 7% below
Consensus, respectively.
Valuation
At current levels, HOT trades at 11.3x, 10.0x, and 8.9x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Since 2001, HOT has traded at an average multiple of 10.7x
forward year EBITDA. On a PE basis, HOT trades at 21.2x and 16.6x our 2012 and 2013 EPS
estimates, respectively.
Page 61
20 September 2011
DB Price Target Analysis
Page 62
Our $58 price target is based on a sum of the parts analysis in which we apply a 12.0x
multiple to HOT’s fee related business and a 6.0x multiple to the vacation ownership
segment. We believe these multiples fairly represent historical trading multiples during
similar portions of the lodging cycle. We then make a value adjustment of ~$4.2 billion for
what we believe to be the net asset value of HOT’s owned hotel portfolio. Our net asset
value estimate for the owned hotel segment is based on our analysis of recent market
comparable asset sales. We note that our NAV value assumes a blended cost per key of
~$215,000. After extracting net debt and HOT’s share of joint venture debt, we arrive at an
equity value of $11.314 billion, or $58 per share.
20 September 2011
Reasons to Invest
Urban Exposure and Luxury/Upper Upscale Assets Should Allow HOT to Outperform
Peers in the U.S. Over the Near Term
We believe HOT’s exposure to domestic urban markets and its luxury and upper upscale
segment concentration (84%of N.A. system-wide rooms / 77% of N.A. owned rooms) has
the company positioned nicely to outperform its lodging peers in the 2H 2011, 2012, and
2013.
Figure 78: N.A. System-wide Rooms by Chain Scale
Figure 79: N.A. Owned Rooms by Chain Scale Segment
Segment
Other
2%
Upscale
14%
Luxury
9%
Other
17%
Luxury
25%
Upscale
6%
Upper Upscale
75%
Upper Upscale
52%
Source: Company reports and Deutsche Bank.
Given negligible supply across both the luxury and upper upscale segments (+1.5% in 2011,
0.8% in 2012, and 0.0% in 2013), we believe HOT has a stable environment with which to
continue to grow rate even against a difficult macroeconomic backdrop, such as the one we
predicate our RevPAR forecasts upon. We believe this relative outperformance should allow
HOT to outperform in both a better than expected RevPAR environment in 2012 and 2013, or
a slightly weaker than expected environment.
Figure 80: Deutsche Bank RevPAR Forecasts
14.0%
12.1%
12.0%
10.0%
10.5%
9.5%
9.0%
7.7%
8.0%
6.0%
5.9%
6.0%
5.5%
5.2%
4.4%
5.2% 5.0%
4.0%
2.0%
0.0%
2010
2011E
Luxury
Upper Upscale
2012E
2013E
Industry
Page 63
20 September 2011
Figure 81: HOT Luxury RevPAR Performance Versus
Industry
Figure 82: HOT Upper Upscale RevPAR Performance
Versus Industry
30.0%
15.0%
0.97 Correlation since 1Q 2006
10.0%
20.0%
5.0%
10.0%
0.0%
0.0%
-5.0%
-10.0%
-10.0%
-15.0%
-20.0%
-20.0%
-30.0%
-25.0%
HOT Luxury Segment RevPAR
Source: Deutsche Bank, company reports, and Smith Travel Research
HOT Upper Upscale Segment RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
1Q06
STR Luxury Segment RevPAR
2Q06
-30.0%
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
-40.0%
STR Upper Upscale Segment RevPAR
Source: Deutsche Bank, company reports, and Smith Travel Research
Additionally, we believe, and are seeing evidence in the year to date, that rate contribution to
RevPAR growth will continue to outpace the contribution from occupancy through 2013. We
expect this trend to promote increased operating leverage in the owned portfolio. On top of
having what we see as the optimal chain scale segmentation at this stage of the cycle, we
believe HOT is well positioned geographically due to its domestic urban and international,
something we get into more later in the report, skew. Roughly 58% of HOT’s owned hotels
are located in North America (44% in U.S. / 14% in Canada). More importantly, we note that
32% of HOT’s owned assets are located in the Top 25 domestic markets.
Figure 83: ~32% of HOT’s Owned Portfolio is Located in Top 25 Domestic Markets
Hotel
Atlanta Perimeter Hotel & Suites
Westin Peachtree Plaza
Total Atlanta
as a % of Total
Brand
Other
Westin
City
Atlanta
Atlanta
State
Georgia
Georgia
Rooms
275
1,068
1,343
6.9%
Ownership
Owned
Owned
Aloft Lexington
Element Lexington
Total Boston
as a % of Total
Aloft
Element
Lexington
Lexington
Massachusetts
Massachusetts
136
123
259
1.3%
Owned
Owned
Other
W
Chicago
Chicago
Illinois
Illinois
135
520
655
3.3%
Owned
Owned
W Los Angeles Westwood
Total Los Angeles
as a % of Total
W
Los Angeles
California
258
258
1.3%
Owned
W New Orleans
W New Orleans - French Quarter
Total New Orleans
as a % of Total
W
W
New Orleans
New Orleans
Louisiana
Louisiana
410
98
508
2.6%
Owned
Owned
Other
St. Regis / Luxury Collection
W
New York
New York
New York
New York
New York
New York
659
229
509
1,397
7.1%
Owned
Owned
Leased
Aloft
Four Points
Sheraton
Philadelphia
Philadelphia
Philadelphia
Pennsylvania
Pennsylvania
Pennsylvania
136
177
251
564
2.9%
Owned
Owned
Owned
The Phoenician
Total Phoenix/Scottsdale
as a % of Total
Scottsdale
Arizona
643
643
3.3%
Owned
St. Regis Hotel San Francisco
Westin San Francisco Airport
Total San Francisco
as a % of Total
Westin
San Francisco
San Francisco
California
California
260
397
657
3.4%
Owned
Owned
Tremont Hotel
W Chicago Lakeshore
Total Chicago
as a % of Total
The Manhattan at Times Square Hotel
St. Regis New York
W New York - Time Square
Total New York
as a % of Total
Aloft Philadelphia
Four Points by Sheraton Philadelphia Airport
Sheraton Suites Philadelphia Airport
Total Philadelphia
as a % of Total
Total Top 25 Markets
Top 25 Markets as a % of Total Owned Portfolio
6,284
32.1%
Total Owned
19,561
We believe HOT’s domestic owned geographic skew is important given our view that the top
markets, urban markets, will continue to outperform the overall market. We note that
Page 64
20 September 2011
RevPAR in the year to date in HOT’s markets, on a room weighted basis, have outperformed
the overall industry by ~40 bps. We expect this outperformance to continue for HOT given
strong forward transient indicators and solid out year group bookings.
Figure 84: HOT Owned Market RevPAR Performance
Versus Industry (July)
30.0%
19.3%
6.9%
13.8%
15.0%
0.0%
9.7%
10.0%
-10.0%
7.7%
5.2%
6.2%
5.4%
8.9%
9.2%
Phoenix
7.3%
2.9%
Philadelphia
5.9%
21.0%
20.0%
9.7%
New York
8.1%
1.5%
25.0%
22.1%
8.6%
8.2%
5.0%
-20.0%
-17.0%
Total Industry
HOT Room Weighted Avg.
San Francisco
Los Angeles
Boston
Total Industry
HOT Room Weighted Avg.
San Francisco
Phoenix
Philadelphia
New York
New Orleans
Los Angeles
Chicago
Boston
Atlanta
Atlanta
0.0%
-30.0%
Chicago
10.0%
18.9%
New Orleans
20.0%
Figure 85: HOT Owned Market RevPAR Performance
Versus Industry (July YTD)
July YTD Y/Y RevPAR % Chg.
July Y/Y RevPAR % Chg.
Fee Growth to Continue Given Strong Largely International Footprint and Pipeline
Given our less exuberant, when compared to our peers, view of the future of the domestic
lodging industry, we believe the international story is a key differentiator for HOT. Since 1Q
2010, HOT has demonstrated strong and consistent growth in its fee business. In the year to
date, base management fees are up 13.2% year over year and franchise fees are up 21.1%
year over year. Additionally, incentive management fees, 90% of which stem from
international assets of which ~70% are earning incentive fees, are up 6.9% year over year.
Figure 86: Base and Franchise Fess ($ in MM)
30.0%
$90
$80
20.0%
$70
10.0%
$60
$50
0.0%
$40
-10.0%
$30
$20
-20.0%
$10
$0
-30.0%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
Base Management Fees
Franchise Fees
Base Management Fees yoy % chg.
Franchise Fees yoy % chg.
2Q11
Looking ahead, we expect strength in the high margin fee business to continue given:1)
existing leverage to strong international urban RevPAR environments and 2) a strong
international new unit pipeline. At present, international fees account for roughly 60% of
HOT’s fee income. Given an already strong platform of existing assets, that outpaces its
peers, we think HOT has a distinct advantage in that it can buffer domestic softness, should
Page 65
20 September 2011
it occur, with a stable and growing international fee business. More specifically, we believe
HOT’s exposure to major urban areas in China, where RevPAR is up double digits year over
year despite difficult comps related to last year’s World Fair, is a firm positive over the near
term.
55,000
50,000
49,000
Figure 87: International Room Counts by Operator
60,000
9,000
11,000
8,000
7,000
3,000
10,000
21,000
9,000
14,000
5,000
20,000
20,000
16,000
6,000
8,000
30,000
24,000
16,000
18,000
12,000
40,000
6,000
2,000
0
2,000
50,000
0
China
Asia Ex. China
India
Middle
East/Africa
Latin America
Other
International
HOT Luxury and Upper Upscale Rooms
MAR Luxury and Upper Upscale Rooms
HLT Luxury and Upper Upscale Rooms
H Luxury and Upper Upscale Rooms
At present, management believes it can open 70 to 80 new hotels this year, many of which
are in international urban environments. In total, HOT’s pipeline at 2Q 2011 end stood at
~90,000 rooms (75% luxury and upper upscale), ~85% of which were international. Also of
importance, building the international pipeline has not required much in the way of
incremental key money given the lower cost of capital for international owners, thus freeing
HOT of balance sheet exposure/commitments.
As it relates to China specifically, we note that HOT currently has 75 hotels in the market and
100 hotels under construction in the pipeline.
Going forward, we estimate a strong international unit growth CAGR of 5.2% from year end
2010 through 2013 coupled with high single digit RevPAR increases. We believe this
combination can drive meaningful revenue growth in the segment, despite potentially soft
domestic trends.
Valuation Remains Inexpensive Despite Recent Domestic Asset Sales that Provide
Support for Owned Asset Values
Since HOT reported solid 2Q 2011 results on July 28, shares have fallen 18% to date as
macroeconomic pressures have overshadowed the positives in the HOT story. Accordingly,
as HOT continues to make strides towards its asset light model, we believe equity investors
are largely discounting the value of the existing owned hotel portfolio. As such, HOT shares
are currently trading roughly 40 bps point below their historical average, based on historical
Consensus estimates.
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20 September 2011
Figure 88: HOT Average and Forward Year Consensus EV/EBITDA Multiple Trends
16x
14x
12x
10x
8x
6x
4x
2x
Next 12 months Consensus EV/EBITDA Multiple
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
0x
Average Multiple
Source: Deutsche Bank, company reports and Factset
While we are not bullish on the domestic lodging cycle over the near term, as our forecasts
are below Consensus, we do believe HOT’s asset values are meaningfully underappreciated
at present, as evidenced by the contraction in valuation. We note that the owned portfolio
accounts for ~$21 of our $58 price target for HOT. As such, we believe current levels imply
the owned portfolio is trading at a deep discount to what we believe to be fair asset value.
Accordingly, we believe further asset sales that cement the value of the HOT brands, while
adding further cash flow flexibility, would be a more meaningful needle mover for shares.
Figure 89: Sum of the Parts Price Target Analysis
$25
$22
$21
$20
$15
$15
$10
$5
$12
$10
$5
$0
($5)
($2)
($10)
($7)
($15)
($20)
JV Debt
Net Debt
NAV of Owned Portfolio
Other M&F Fees
Franchise Fees
Incentive Fees
Base Fees
Vacation Ownership
Unallocated Expenses
($18)
($25)
Sum of the Parts Equity Value
Source: Company reports and Deutsche Bank estimates.
We believe there is significant support for our view that HOT’s owned portfolio is
undervalued. This is evidenced in our evaluation of recent sales by brand by HOT in Figure 90
and recent industry-wide full service sales in Figure 91.
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20 September 2011
Figure 90: Recent HOT Wholly Owned Asset Sales Versus Our Brand NAV Estimates
Property
Westin Gaslamp
W Chicago City Center
St. Regis Aspen
W Hotels New York
W San Francisco
Date
April-11
May-11
September-10
April-10
July-09
Sale Price
($ in MM)
$110
$129
$70
$78
$90
Price Per
Key
$244,444
$350,000
$391,061
$243,750
$212,766
Rooms
450
368
179
320
423
Deutsche Bank
Brand NAV
Estimate
$225,000
$265,000
$400,000
$265,000
$265,000
Premium / Discount to
Deutsche Bank Brand
NAV Estimate
8.6%
32.1%
-2.2%
-8.0%
-19.7%
$110
$297
$70
$244,444
$267,147
$391,061
450
1,111
179
$225,000
$265,000
$400,000
8.6%
0.8%
-2.2%
Aggregate Westin Sales
Aggregate W Sales
Aggregate St. Regis Sales
Figure 91: Recent Domestic Asset Sales
Dated
Company
Sale/Purchase
Hotel
City
State
Type
Rooms
Price ($ in MM)
$/key
$526,012
2011
07/29/2011
Pebblebrook Hotel Trust
Purchase
6 hotels
Full Service
1,730
$910
06/08/2011
Purchase
W Hotel-Boston
Boston
MA
Full Service
235
$90
$380,851
06/01/2011
DiamondRock Hospitality
Purchase
Radisson Lexington Hotel-New York
New York
NY
Full Service
712
$337
$473,034
05/26/2011
Purchase
Viceroy-Miami
Miami
FL
Sale
2 hotels
05/23/2011 Morgans Hotel Group Company
Full Service
148
$37
$246,622
Full Service
282
$140
$496,454
05/19/2011
Purchase
JW Marriott-Denver at Cherry Creek
Denver
CO
Full Service
196
$74
$378,571
05/13/2011
Purchase
Mondrian Los Angeles
Los Angeles
CA
Full Service
237
$137
$578,059
04/27/2011
Summit Hotel Properties, Inc.
Purchase
Holiday Inn-Atlanta-Gwinnett Place Area
Duluth
GA
Full Service
129
$7
$54,264
Sale
JW Marriott-San Francisco
San Francisco
CA
Full Service
338
$96
$284,024
Purchase
Argonaut Hotel
San Francisco
CA
Full Service
252
$84
$333,333
Purchase
JW Marriott-New Orleans
New Orleans
LA
Full Service
494
$94
$190,891
4,753
$2,005
$421,902
02/24/2011 Ashford Hospitality Trust, Inc.
02/16/2011
02/15/2011 Sunstone Hotel Investors, Inc.
Total
2010
12/03/2010
Purchase
Sofitel
Philadelphia
PA
Full Service
306
$87
$284,268
11/19/2010
Purchase
Sheraton Delfina Santa Monica
Santa Monica
CA
Full Service
310
$103
$331,452
11/03/2010
Purchase
Skamania Lodge
Stevenson
WA
Full Service
254
$56
$219,488
10/06/2010
Purchase
Hotel Roger Williams
New York
NY
Full Service
193
$90
$466,321
Sale
Westin-O'Hare
Rosemont
IL
Full Service
525
$101
$192,381
09/30/2010 Ashford Hospitality Trust, Inc.
09/29/2010
Starwood Hotels & Resorts
Sale
Saint Regis-Aspen
Aspen
CO
Full Service
179
$70
$391,061
09/29/2010
Purchase
The Grand Hotel
Minneapolis
MN
Full Service
140
$33
$235,714
09/09/2010
Purchase
Hotel Monaco
Washington
DC
Full Service
183
$74
$404,372
08/18/2010
FelCor Lodging Trust Inc.
Purchase
Fairmont Copley Plaza
Boston
MA
Full Service
383
$99
$257,180
08/06/2010
Purchase
Renaissance-Charleston
Charleston
SC
Full Service
166
$40
$239,608
07/30/2010
Purchase
Marriott-Boston Newton
Newton
MA
Full Service
430
$77
$179,651
07/01/2010
Purchase
InterContinental-Buckhead
Atlanta
GA
Full Service
422
$105
$248,815
06/22/2010
Purchase
Sir Francis Drake
San Francisco
CA
Full Service
416
$90
$216,337
06/16/2010
Purchase
Hilton-Minneapolis
Minneapolis
MN
Full Service
821
$156
$189,403
06/04/2010
Purchase
Doubletree-Bethesda
Bethesda
MD
Full Service
269
$67
$249,375
05/07/2010
Hersha Hospitality Trust
Purchase
Holiday Inn-Wall Street
New York
NY
Full Service
113
$35
$308,637
03/01/2010
Purchase
Sofitel-Lafayette Square
Washington
DC
Full Service
Total
237
$95
$400,844
5,347
$1,376
$257,428
Source: Deutsche Bank and SNL Financial.
Page 68
20 September 2011
Balance Sheet Provides Significant Flexibility
As of 2Q 2011, we calculate HOT net debt to LTM EBITDA of 1.9x. Assuming no hotel asset
sales, Bal Harbour proceeds of ~$200 million in 2012, increasing maintenance capital
expenditures, and increasing dividends in 2012 and 2013, we estimate HOT is still likely to
shave roughly 50 bps from its net leverage by year end 2012.
Figure 92: Balance Sheet Snapshot ($ in MM)
2009
2010
2011E
2012E
2013E
$87.0
$3,541.0
$2,873.0
$753.0
$3,291.0
$2,104.0
$964.7
$3,234.0
$1,835.3
$695.5
$2,626.0
$1,496.5
$373.8
$2,123.0
$1,315.2
Interest Expense
$249.0
$255.0
$227.5
$196.0
$148.0
EBITDA
$793.3
$879.4
$981.6
$1,076.8
$1,189.5
4.5x
3.6x
3.2x
3.7x
2.4x
3.4x
3.3x
1.9x
4.3x
2.4x
1.4x
5.5x
1.8x
1.1x
8.0x
Cash
Gross Debt (includes JV debt)
Net Debt
Gross Debt/EBITDA
Net Debt/EBITDA
EBITDA/Interest Coverage
At present, management seems inclined to build cash in order to pay down its 2012 (7.875%
Sr. Note) and 2013 (6.25% Sr. Note) maturities and further its effort for an investment grade
rating, something we also believe could be a positive for shares.
Regardless of HOT’s ability to monetize assets in the current environment, we see significant
financial flexibility despite our: 1) below Consensus estimates, 2) elevated maintenance
capital spending, and 3) increasing dividend assumptions. As such, we believe the most
meaningful equity catalyst, other than significant, value reinforcing, asset sales, would be the
announcement of a large scale share repurchase plan. While credit agreements and
managements preference to seek an investment grade rating have largely tabled this option
in the near term in our opinion, we believe it to be a longer term upside lever for shares that
currently gets little credit.
Corporate Profits are a Solid Indicator of HOT RevPAR Performance
Since 2008, changes in HOT’s North American system-wide same-store RevPAR has shown
a 0.66 correlation with year over year changes in corporate profits. Furthermore, corporate
profits have grown in 5 of the last 14 quarters, during those periods, HOT North American
system-wide same-store RevPAR is up 9.9% on average.
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20 September 2011
Figure 93: North American System-wide Same-store RevPAR Growth
15.0%
10.6% 10.0% 9.7% 10.4%
8.7%
10.0%
5.0%
2.9% 3.0%
1.2%
0.0%
-5.0%
-0.5%
-10.0%
-15.0%
-11.7%
-20.0%
-10.7%
-19.0%
-21.0%
-24.2%
-25.0%
-30.0%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Source: Company reports, Deutsche Bank, and Factset.
Note: Shaded bars denote periods during which corporate profits grew year over year.
In the year to date through the 2Q, corporate profits are up ~34% year over year. The outlook
appears favorable with Consensus forecasts for 2011, 2012, and 2013 of +29%, +9%, and
+19%, respectively. While we acknowledge many factors lend to the health and stability of
the lodging industry, we believe skittish investors can find some solace in this relationship
and the outlook for continued strength in corporate profits.
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20 September 2011
Investment Risks
Domestic Airline Correlations Don’t Bode Well for Lodging
Airline seat miles (ASM) measure airline capacity in any given month. Putting aside the fact
that not every seat will carry a passenger, the year-over-year change in ASM each month has
the strongest relationship with high-end lodging demand, such as HOT’s portfolio, lodging
demand of any variable we checked, with a regression R squared of 0.44 (non-manufacturing
ISM employment had an R squared of 0.43). For the industry as a whole, the regression Rsquared is slightly higher at 0.47.
Figure 94: Domestic Airline Seat Miles Have a High Correlation with Lodging Demand
Growth
15%
20%
β: 0.50
R^2: 0.47
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
ASM and Lodging Demand growth
are converging to historical
relationship
-10%
-10%
-15%
Domestic Airline Seat Miles Growth (Left)
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
-15%
Jan-97
-20%
Unlike hotels, airlines can change their capacity relatively quickly. Airlines need to schedule
flights months in advance so that passengers can begin booking flights. Airlines often provide
capacity guidance for the year based on scheduled flights, which can give us some insight
into what lodging demand might look like in the near term. Considering what the airlines have
said with respect to capacity guidance, Deutsche Bank’s airlines equity research team has
published domestic ASM growth forecasts. Figure 95 shows Deutsche Bank’s ASM growth
forecasts and the implied lodging demand growth. The implied lodging demand growth is
based on a regression of quarterly lodging demand growth on quarterly domestic ASM
growth. The regression beta is 0.54; the R squared, 0.52; the intercept, 0.89%. We note that
while implied lodging demand growth of 2.0% for 2012 is in line with our demand forecast,
our RevPAR estimate for 2012 of +4.4% is below Consensus.
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20 September 2011
Figure 95: DB Forecast ASM Growth Implies Slowing Lodging Demand Growth
3Q 2011E
4Q 2011E
2011E
2012E
DB Forecast ASM Growth
7.3%
4.8%
4.4%
2.0%
Implied Lodging Demand Growth
4.8%
3.5%
3.3%
2.0%
4.3%
2.0%
Deutsche Bank Lodging Demand Forecast
How Would Investors React to Declining RevPAR Expectations?
While it can likely be said that buy side consensus views for 2012 RevPAR are already
considerably below where sell side and lodging publication estimates reside, we must
question whether declining RevPAR headlines will further pressure lodging stocks.
Furthermore, should the outlook for GDP and subsequently RevPAR ultimately flatten out or
shape up negative for 2012, we question whether investors, even those seeking value, would
step in to support what we would expect to be an even cheaper valuation than the current.
While we see the HOT story as a good one with numerous upside levers to drive shares, we
don’t necessarily believe HOT is insulated from a domestic lodging industry slowdown.
Accordingly, despite its unique positioning, we believe the broad brush of an industry in
decline would negatively impact HOT, much like the balance of the industry.
Inability to Sell Assets
The asset light strategy for HOT has been a series of fits and starts given the elongated
stretch of equity and credit market turmoil since 2007. At present, given the meaningful
pullback in share prices of REITS, the primary buyer of lodging assets of late, it appears as
though the pool of buyers is again thin. With a notable private equity deal recently falling
apart and another portfolio purchase being downsized, private equity and sovereign wealth
may only show tepid interest in hotel acquisitions in the near term. Furthermore, REITs are
not likely willing to raise equity for asset purchases at current share price levels. We believe it
could be quiet on the asset sales front over the near term. As such, we note that we are not
forecasting proceeds from asset sales in our estimates. While the lack of asset sale activity is
unlikely to have an impact on out-year estimates, we believe it could continue to frustrate
investors.
Catch-up Capital Deployments or Failure to Execute Bal Harbour Monetization Plans
Could Curtail Solid Free Cash Flow Story
We are currently forecasting ~$520 million in net free cash flow over the two year period,
2012 to 2013. Our free cash flow estimate assumes HOT pays dividends that equate to 30%
of our forecasted adjusted EPS in 2012 and 2013. In total our 2012 and 2013 dividend
payments are roughly $285 million.
During the downturn, HOT curtailed maintenance capital spending and we believe
management is presently committed to returning to prior spending levels. Thus, our free cash
flow estimates assume HOT begins a multi-year stretch of elevated maintenance capital
expenditures.
Page 72
20 September 2011
Figure 96: Annual Net Free Cash Flow
Figure 97: Annual Maintenance Capital Expenditures
$400.0
$1,500.0
$1,012
$868
$1,000.0
$363.0
$333.0
$350.0
$799
$746
$769
$290.0
$300.0
$500.0
$269
$339
$83
$289.0
$300.0
$288.0
$280.0
$275.0
2012E
2013E
$250.0
$181
$200.0
$0.0
$151.0
$150.0
-$186
($500.0)
$128.0
$148.0
$100.0
($1,000.0)
$50.0
-$984
$0.0
($1,500.0)
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
2003
2013E
2004
2005
2006
2007
2008
2009
2010
2011E
Maintenance Capex ($ in MM)
Net Free Cash Flow ($ in MM)
Should management determine maintenance capital spending is a firm and largely inflexible
commitment, a stretch in our view, then we believe the ability to adequately monetize the Bal
Harbour assets becomes significant as it relates to keeping the free cash flow story intact.
Furthermore, we do not believe limited traction on Bal Harbour sales would be well received
by the market on a standalone basis. We note that we are currently projecting $250 million in
Bal Harbour proceeds in 4Q11 and 2012.
Our Estimates Are Below Consensus
Given our sub industry RevPAR growth forecast, our 2012 and 2013 estimates for HOT are
below Consensus. As such, we believe the risk of negative Consensus estimate revisions
exists. That said, given the pullback in shares in recent months, we question whether
investors have already come to the conclusion that out year estimates need to come down
and hence, HOT shares already reflect as much.
Figure 98: Consensus Estimates May Be Aggressive
2012E
Adjusted EBITDA
Adjusted Recurring EPS
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
$1,076.8
$1,131.1
($54.3)
$1,189.5
$1,278.3
($88.8)
$2.15
$2.31
($0.16)
$2.74
$2.91
($0.17)
Risk of Further Macroeconomic Deterioration
We believe global economic fears as well as potential events such as natural disasters or
terrorism which curtail travel demand would negatively impact HOT. Furthermore, such
circumstances would likely cause HOT results to fall below our expectations.
Page 73
20 September 2011
Our Estimates and Consensus
Our net revenue estimates for the 3Q 2011, 2011, 2012, and 2013 are $1.38 billion, $5.56
billion, $5.85 billion, and $6.21 billion, respectively. We estimate adjusted EBITDA of $230
million, $982 million, $1,077 million, and $1,190 million for the 3Q 2011, 2011, 2012, and
2013, respectively. Our adjusted EPS estimates for the 3Q 2011, 2011, 2012, and 2013 are
$0.38, $1.72, $2.15, and $2.74, respectively. We note that our adjusted EBITDA and EPS
estimates for the 2H 2011 are largely in line with Consensus, while our 2012 and 2013
adjusted EBITDA forecasts are 5% and 7% below Consensus, respectively.
Figure 99: Estimate Summary
2008
2009
2010
2011E
2012E
2013E
$5,872.0
$4,696.0
-20.0%
$5,071.0
8.0%
$5,558.1
9.6%
$5,852.4
5.3%
$6,214.7
6.2%
$535.0
$269.0
-49.7%
$101.0
-39.2%
$241.0
-16.0%
$115.0
-32.0%
$138.0
-15.3%
$164.0
-23.4%
($234.7)
-37.8%
$793.3
-31.4%
$309.0
14.9%
$133.0
31.7%
$270.0
12.0%
$139.0
20.9%
$161.0
16.7%
$142.0
-13.4%
($274.6)
17.0%
$879.4
10.9%
$330.0
6.8%
$139.6
5.0%
$305.4
13.1%
$151.9
9.3%
$190.1
18.1%
$158.0
11.3%
($293.4)
6.9%
$981.6
11.6%
$359.6
9.0%
$142.6
2.1%
$343.5
12.5%
$168.9
11.2%
$217.5
14.4%
$160.0
1.3%
($315.2)
7.4%
$1,076.8
9.7%
$395.8
10.1%
$148.3
4.0%
$384.5
11.9%
$187.5
11.0%
$243.1
11.8%
$160.0
0.0%
($329.6)
4.6%
$1,189.5
10.5%
$1.78
$2.19
$0.40
$1.01
$2.51
$1.25
$1.74
$1.72
$2.15
$2.15
$2.74
$2.74
Free Cash Flow Post Capex
Free Cash Flow per Share
($339.6)
($1.83)
($126.7)
($0.68)
$284.9
$1.50
$52.2
$0.27
$338.7
$1.74
$181.4
$0.93
Net Free Cash Flow
($186.0)
$746.0
$769.0
$269.2
$338.7
$181.4
185.4
185.0
190.0
194.5
194.6
194.6
$ in MM except per share data
Total Revenue
yoy % chg
Adjusted EBITDA
Owned Hotels
yoy % chg
Vacation Ownership
yoy % chg
yoy % chg
Incentive Management Fees
yoy % chg
Franchise Fees
yoy % chg
Other Management and Franchise Fees
yoy % chg
Other EBITDA Less Expenses and SG&A
yoy % chg
Total Adjusted EBITDA
yoy % chg
GAAP EPS
Diluted Shares Outstanding
$166.0
$287.0
$169.0
$163.0
$214.0
($377.1)
$1,156.9
Figure 100: DB Estimates Versus Consensus
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adjusted EBITDA
$229.6
$233.8
($4.2)
$981.6
$978.6
$3.0
$1,076.8
$1,131.1
($54.3)
$1,189.5
$1,278.3
($88.8)
$0.38
$0.39
($0.01)
$1.72
$1.75
($0.03)
$2.15
$2.31
($0.16)
$2.74
$2.91
($0.17)
Page 74
20 September 2011
Price Target Analysis
Our $58 price target is based on a sum of the parts analysis in which we apply a 12.0x
multiple to HOT’s fee related business and a 6.0x multiple to the vacation ownership
segment. We believe these multiples fairly represent historical trading multiples during
similar portions of the lodging cycle. We then make a value adjustment of ~$4.2 billion for
what we believe to be the net asset value of HOT’s owned hotel portfolio. Our net asset
value estimate for the owned hotel segment is based on our analysis of recent market
comparable asset sales. We note that our NAV value assumes a blended cost per key of
~$215,000. After extracting net debt and HOT’s share of joint venture debt, we arrive at an
equity value of $11.314 billion, or $58 per share.
Figure 101: Price Target Analysis
2013E
EBITDA
Segment
Price Target
Multiple
Enterprise
Value
Vacation Ownership
148
6.0 x
890
384
12.0 x
4,614
Incentive Management Fees
187
12.0 x
2,250
Franchise Fees
243
12.0 x
2,917
Other Management and Franchise Fees
160
12.0 x
1,920
Subtotal
1,123
11.2
12,590
Unallocated Expenses
(330)
11.2 x
(3,694)
Total
794
11.2
8,896
Plus NAV of Owned Portfolio
4,167
Less Net Debt (YE 2013E)
1,315
Less JV Debt (MRQ)
434
Equity Value
11,314
Shares Outstanding (MRQ)
195
Price Target
$58
Figure 102: Price Target Sensitivity
Price Target Sensitivity
% chg. in EBITDA
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
2013E EBITDA Less Owned
NAV of Owned Portfolio
Net Debt (Includes JV Debt)
$635.0
$3,333.7
$1,868.2
$674.6
$3,542.0
$1,838.5
$714.3
$3,750.4
$1,808.7
$754.0
$3,958.7
$1,778.9
$793.7
$4,167.1
$1,749.2
$833.4
$4,375.4
$1,719.4
$873.1
$4,583.8
$1,689.6
$912.8
$4,792.2
$1,659.9
$952.4
$5,000.5
$1,630.1
Price Target Multiples
Shares Outstanding
194.6
194.6
194.6
194.6
194.6
194.6
194.6
194.6
194.6
9.2x
$38
$41
$44
$47
$50
$53
$56
$59
$62
9.7x
$39
$42
$46
$49
$52
$55
$58
$62
$65
10.2x
$41
$44
$47
$51
$54
$57
$61
$64
$67
10.7x
$42
$46
$49
$53
$56
$60
$63
$66
$70
11.2x
$44
$48
$51
$55
$58
$62
$65
$69
$72
11.7x
$46
$49
$53
$57
$60
$64
$67
$71
$75
12.2x
$47
$51
$55
$59
$62
$66
$70
$73
$77
12.7x
$49
$53
$57
$60
$64
$68
$72
$76
$80
13.2x
$51
$55
$58
$62
$66
$70
$74
$78
$82
Page 75
20 September 2011
Figure 103: Owned Hotel Value Driver: Our NAV Assumptions
Brand
Sheraton
Westin
Luxury Collection / St. Regis
Four Points
W
aloft
Element
Other
Total Portfolio
Hotels
Rooms
Assumed per
Key cost
17
11
13
2
7
2
1
7
60
7,767
4,224
2,235
327
2,460
272
123
1,928
19,336
$175,000
$225,000
$400,000
$95,000
$265,000
$100,000
$100,000
$125,000
$215,509
HOT
Equity
Interest
100%
100%
100%
100%
100%
100%
100%
100%
Asset Value
($ in MM)
$1,359
$950
$894
$31
$652
$27
$12
$241
$4,167
Page 76
20 September 2011
Valuation
At current levels, HOT trades at 11.3x, 10.0x, and 8.9x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Since 2001, HOT has traded at an average multiple of 10.7x
forward year EBITDA. On a PE basis, HOT trades at 21.2x and 16.6x our 2012 and 2013 EPS
estimates, respectively.
Figure 104: Valuation Summary
September 16, 2011
Current Multiple Data
Share Price
Market Cap ($ in MM)
$45.46
194.6
$8,847
Share Price
$45.46
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
$2,104
$1,835
$1,497
$1,315
2010 EPS
2011E EPS
2012E EPS
2013E EPS
$1.25
$1.72
$2.15
$2.74
2010 JV Debt
2011E JV Debt
2012E JV Debt
2013E JV Debt
$434
$434
$434
$434
2010 PE
2011E PE
2012E PE
2013E PE
36.2x
26.4x
21.2x
16.6x
2010 EV
2011E EV
2012E EV
2013E EV
$11,385
$11,116
$10,777
$10,596
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$879
$982
$1,077
$1,190
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
12.9x
11.3x
10.0x
8.9x
Source: Company reports, Deutsche Bank estimates and Factset.
Page 77
20 September 2011
Figure 105: Forward Year EV/EBITDA Multiple History (Excludes JV Debt)
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Forward EV/EBITDA Multiple
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Average Forward EV/EBITDA Multiple
Figure 106: Same Year EV/EBITDA Multiple History (Excludes JV Debt)
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Same Year EV/EBITDA Multiple
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Average Same Year EV/EBITDA Multiple
Page 78
20 September 2011
Figure 107: Forward PE Multiple History
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
Jul-11
Jul-11
Sep-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-11
Forward PE Multiple
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Average Forward PE Multiple
Source: Deutsche Bank, company reports
Figure 108: Same-Year PE Multiple History
50.0x
45.0x
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
Same Year PE Multiple
Sep-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Average Same Year PE Multiple
Source: Deutsche Bank, company reports
Page 79
20 September 2011
Model
Figure 109: Earnings Model ($ in MM)
(in US$ millions, except per-share amounts)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
1,584
-29.5%
523
-30.2%
658
-21.0%
1,931
-5.4%
381
0.3%
133
-1.5%
153
6.3%
520
11.1%
437
13.2%
137
8.7%
177
6.6%
538
10.0%
427
10.1%
132
4.8%
173
6.1%
523
9.2%
459
6.7%
136
0.0%
209
13.0%
536
8.3%
1,704
7.6%
538
2.9%
712
8.2%
2,117
9.6%
410
7.6%
153
15.0%
177
15.7%
555
6.7%
478
9.4%
146
6.6%
201
13.6%
601
11.7%
467
9.3%
141
7.0%
197
13.7%
575
10.0%
495
7.9%
141
4.0%
231
10.4%
590
10.0%
1,850
8.6%
582
8.1%
805
13.1%
2,321
9.6%
1,899
2.6%
603
3.7%
890
10.5%
2,460
6.0%
2,004
5.6%
628
4.0%
975
9.6%
2,608
6.0%
4,696
-20.0%
1,187
5.3%
1,289
10.5%
1,255
8.6%
1,340
7.5%
5,071
8.0%
1,295
9.1%
1,426
10.6%
1,380
10.0%
1,457
8.7%
5,558
9.6%
5,852
5.3%
6,215
6.2%
Owned, leased, consolidated JV's
As a % of Owned Revenue
Operating Margin
Vacation ownership
Operating Margin
Other Managed and Franchised Expenses
SG&A
Restructuring, other
Depreciation
Amortization
Total Expenses
1,315
83.0%
17.0%
422
19.3%
1,931
314
379
274
35
4,670
329
86.4%
13.6%
101
24.1%
520
76
0
66
10
1,102
347
79.4%
20.6%
103
24.8%
538
92
(1)
66
7
1,152
352
82.4%
17.6%
98
25.8%
523
90
(1)
64
7
1,133
367
80.0%
20.0%
103
24.3%
536
86
(73)
56
9
1,084
1,395
81.9%
18.1%
405
24.7%
2,117
344
(75)
252
33
4,471
361
88.0%
12.0%
111
27.5%
555
80
0
60
8
1,175
381
79.7%
20.3%
112
23.3%
601
88
0
60
7
1,249
382
81.8%
18.2%
107
24.4%
575
97
0
60
7
1,228
396
80.0%
20.0%
112
20.6%
590
92
0
64
8
1,262
1,520
82.2%
17.8%
442
24.0%
2,321
357
0
244
30
4,914
1,539
81.1%
18.9%
461
23.6%
2,460
372
0
256
32
5,120
1,609
80.3%
19.7%
479
23.6%
2,608
386
0
261
34
5,377
Operating income
yoy % Chg.
26
-95.8%
85
39.3%
137
38.4%
122
41.9%
256
-216.4%
600
2207.7%
120
41.2%
177
29.2%
152
24.7%
195
-24.0%
644
7.3%
733
13.8%
838
14.4%
(4)
(227)
(91)
(296)
3
(62)
1
27
3
(59)
20
101
(1)
(59)
(56)
6
5
(56)
(4)
201
10
(236)
(39)
335
4
(54)
(33)
37
7
(52)
2
134
(1)
(52)
0
99
3
(58)
0
140
13
(215)
(31)
411
9
(186)
0
555
9
(138)
0
709
Income tax (expense)/benefit
Tax rate %
Income from continuing operations
Minority Interest
Discontinued operations/gain (loss) on asset sales
Net Income
yoy % Chg.
293
99%
(3)
2
74
73
-77.7%
1
-4%
28
2
0
30
376.2%
(22)
22%
79
0
35
114
-14.9%
(11)
183%
(5)
0
(1)
(6)
NM
5
-2%
206
0
133
339
NM
(27)
8%
308
2
168
478
NM
(10)
26%
27
2
(1)
28
-6.7%
16
-12%
150
0
(19)
131
15.3%
(25)
25%
74
0
0
74
NM
(35)
25%
105
0
0
105
NM
(54)
13%
357
2
(20)
339
-29.1%
(139)
25%
416
2
0
418
23.4%
(177)
25%
531
2
0
533
27.6%
Net Income from Continuing Operations to HOT
yoy % Chg.
(1)
-100.2%
30
233.3%
79
-43.7%
(5)
NM
206
NM
310
NM
29
-2.0%
150
89.8%
74
-1585.8%
105
-49.0%
359
15.7%
418
16.6%
533
27.6%
GAAP EPS from Continuing Operations
GAAP EPS associated with Discontinued Operations
GAAP EPS
yoy % Chg.
($0.01)
$0.41
$0.40
-77.5%
$0.16
$0.00
$0.16
362.2%
$0.42
$0.19
$0.60
-19.0%
($0.03)
($0.00)
($0.03)
NM
$1.08
$0.70
$1.78
NM
$1.63
$0.88
$2.51
525.3%
$0.15
($0.01)
$0.14
-10.0%
$0.77
($0.10)
$0.68
12.0%
$0.38
$0.00
$0.38
NM
$0.54
$0.00
$0.54
NM
$1.84
($0.10)
$1.74
-30.6%
$2.15
$0.00
$2.15
23.4%
$2.74
$0.00
$2.74
27.6%
EPS Adjustments
Restructuring, other
Gains / losses
Debt extinguishment costs
Other
Total special items pre-tax
Income tax benefit/(expense) for special items
Total special items after tax
Income from continuing operations before special
yoy % Chg.
(1)
(379)
(91)
(17)
(17)
(504)
316
(188)
187
$1.01
-53.8%
30
0
1
0
0
1
5
6
24
$0.13
-13.7%
79
1
20
0
0
21
(9)
12
67
$0.35
60.1%
(5)
1
(56)
0
0
(55)
3
(52)
47
$0.25
87.9%
206
73
(4)
0
0
69
38
107
99
$0.52
1.8%
310
75
(39)
0
0
36
37
73
237
$1.25
23.8%
29
0
(33)
0
0
(33)
4
(29)
58
$0.30
133.8%
150
0
2
0
0
2
51
53
97
$0.50
40.5%
74
0
0
0
0
0
0
0
74
$0.38
49.9%
105
0
0
0
0
0
0
0
105
$0.54
4.5%
359
0
(31)
0
0
(31)
55
24
335
$1.72
37.1%
418
0
0
0
0
0
0
0
418
$2.15
24.9%
533
0
0
0
0
0
0
0
533
$2.74
27.6%
180
185
181
187
182
189
183
183
185
192
183
190
187
194
189
195
189
195
189
195
189
194
189
195
189
195
$0.90
$0.20
$0.00
$0.00
$0.30
$0.50
$0.00
$0.00
$0.00
$0.43
$0.43
$0.64
$0.82
Revenues
Owned, leased, consolidated JV's
yoy % Chg.
Vacation ownership sales and service
yoy % Chg.
Management fees, franchise fees, and other income
yoy % Chg.
Other Managed and Franchised Revenue
yoy % Chg.
Other hotel and leisure
Total Revenue
yoy % Chg.
Equity earnings from unconsolidated ventures
Interest expense, net
Gains / (Losses)
Pre-tax income
Basic Shares Outstanding
Dividend per share
Figure 110: Adjusted EBITDA Model ($ in MM)
EBITDA and Adjusted EBITDA
Net income
Interest expense
Income tax (benefit) expense
Depreciation
Amortization
EBITDA
yoy % Chg.
Margin
2009
73
249
(330)
317
38
347
-66.9%
7.4%
1Q10
30
66
(1)
74
11
180
23.9%
15.2%
2Q10
114
64
(12)
75
8
249
54.7%
19.3%
3Q10
(6)
64
12
73
7
150
0.0%
12.0%
4Q10
339
61
(138)
66
10
338
-410.5%
25.3%
2010
478
255
(139)
288
36
917
164.2%
18.1%
1Q11
28
59
11
68
9
175
-2.8%
13.5%
2Q11
131
54
(15)
67
9
246
-1.0%
17.3%
3Q11E
74
55
25
67
9
230
53.0%
16.6%
4Q11E
105
60
35
71
10
281
-16.9%
19.3%
2011E
339
228
56
273
37
932
1.6%
16.8%
2012E
418
196
139
284
40
1,077
15.5%
18.4%
2013E
533
148
177
289
42
1,190
10.5%
19.1%
Loss on asset dispositions and impairments, net
Discontinued operations
Restructuring
Other
Adjusted EBITDA
yoy % Chg.
Margin
91
(41)
379
17
793
-31.4%
17.0%
(1)
0
0
0
179
7.0%
16.2%
(20)
(2)
(1)
0
226
13.0%
19.6%
56
0
(1)
0
205
14.5%
18.1%
4
0
(73)
0
269
9.1%
24.9%
39
(2)
(75)
0
879
10.9%
19.7%
33
0
0
0
208
16.2%
17.7%
(2)
18
0
0
262
16.1%
21.0%
0
0
0
0
230
12.0%
18.7%
0
0
0
0
282
4.5%
22.3%
31
18
0
0
982
11.6%
20.0%
0
0
0
0
1,077
9.7%
21.0%
0
0
0
0
1,190
10.5%
22.1%
Page 80
20 September 2011
Figure 111: Free Cash Flow & Balance Sheet ($ in MM)
Free Cash Flow (in $ millions)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income
Depreciation & Amortization
Less Dividends
Less Maint. & Other Capex
Free Cash Flow Before Project Capex
Less Project Capex
Less Vacation Ownership Capex
Less Acquisitions
Asset Sales
Share Repurchases
Other
Net Free Cash Flow
71
309
(165)
(128)
87
(107)
(107)
(127)
0
310
0
563
746
28
76
(37)
(16)
51
(13)
(30)
8
0
0
0
(91)
(83)
114
73
0
(25)
162
(49)
(28)
85
(18)
76
0
(76)
67
(6)
71
0
(28)
38
(24)
(30)
(17)
0
68
0
335
386
339
65
(56)
(79)
269
(31)
(30)
208
0
4
0
187
399
476
285
(93)
(148)
520
(117)
(118)
285
(18)
148
0
354
769
26
68
(2)
(40)
52
(33)
(16)
3
0
0
131
67
(1)
(51)
146
(32)
(31)
83
74
67
0
(105)
37
(43)
(25)
(31)
105
72
(84)
(105)
(11)
(43)
50
(4)
3
377
(31)
(4)
416
288
(125)
(280)
299
(160)
200
339
0
0
0
0
339
531
295
(160)
(275)
391
(160)
(50)
181
(77)
(74)
337
274
(87)
(300)
224
(150)
(22)
52
0
291
0
(74)
269
Balance Sheet (in $ millions)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Cash & Cash Equivalents
Long Term Debt BOP
Long Term Debt EOP
Average Long Term Debt
Net Debt
chg. in Net Debt
87
4,008
2,960
3,484
2,873
(746)
91
2,960
3,047
3,004
2,956
83
90
3,047
2,979
3,013
2,889
(67)
357
2,979
2,860
2,920
2,503
(386)
753
2,860
2,857
2,859
2,104
(399)
753
2,960
2,857
2,909
2,104
(769)
675
2,857
2,853
2,855
2,178
74
999
2,853
2,800
2,827
1,801
(377)
968
2,800
2,800
2,800
1,832
31
965
2,800
2,800
2,800
1,835
4
965
2,857
2,800
2,829
1,835
(269)
695
2,800
2,192
2,496
1,497
(339)
374
2,192
1,689
1,941
1,315
(181)
Shareholders' Equity
1,824
1,840
1,935
2,059
2,471
2,471
2,606
2,802
2,876
2,898
2,898
3,188
3,560
Debt/Cap
Book Value per share
TTM EBITDA
TTM Interest Expense
62%
$9.86
793
249
62%
$9.84
805
264
61%
$10.24
831
270
58%
$11.25
857
269
54%
$12.90
879
255
54%
$13.01
879
255
52%
$13.43
908
248
50%
$14.40
945
238
49%
$14.78
969
229
49%
$14.89
982
228
49%
$14.90
982
228
41%
$16.38
1,077
196
32%
$18.29
1,190
148
3.7x
3.6x
3.2x
3.8x
3.7x
3.0x
3.6x
3.5x
3.1x
3.3x
2.9x
3.2x
3.2x
2.4x
3.4x
3.2x
2.4x
3.4x
3.1x
2.4x
3.7x
3.0x
1.9x
4.0x
2.9x
1.9x
4.2x
2.9x
1.9x
4.3x
2.9x
1.9x
4.3x
2.0x
1.4x
5.5x
1.4x
1.1x
8.0x
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
291
181
Page 81
20 September 2011
Appendix: HOT in Charts and Graphs
Figure 112: HOT Owned Portfolio by Region
Hotel
St. Regis Osaka
Total Asia Pacific
as a % of Total
Brand
St. Regis/Luxury Collection
Location
Osaka, Japan
Region
Asia Pacific
Rooms
160
160
0.8%
Ownership
Leased
Sheraton On The Park
Total Australia
as a % of Total
Sheraton
Sydney, Australia
Australia
557
557
2.8%
Owned
Le Centre Sheraton Montreal Hotel
Sheraton Centre Toronto Hotel
Sheraton Gateway Hotel in Toronto Airport
Total Canada
as a % of Total
Sheraton
Sheraton
Sheraton
Montreal, Canada
Toronto, Canada
Toronto, Canada
Canada
Canada
Canada
825
1,377
474
2,676
13.7%
Owned
Owned
Owned
Sheraton Paris Airport Hotel
Sheraton Diana Majestic
Sheraton Santa Maria de el Paular
Grand Hotel
St. Regis Grand Rome
Hotel Goldener Hirsch
Hotel Maria Cristina
Hotel Alfonso XIII
Hotel Gritti Palace
Hotel Bristol
Hotel Imperial
W Barcelona
W London Leicester Square
The Westin Dublin Hotel
The Westin Excelsior, Florence
The Westin Excelsior, Rome
Total Europe
as a % of Total
Sheraton
Sheraton
Sheraton
W
W
Westin
Westin
Westin
Charles de Gaulle Roissy Aerogare, France
Milan, Italy
Rascafria, Spain
Florence, Italy
Rome, Italy
Salzburg, Austria
San Sebastian, Spain
Seville, Spain
Venice, Italy
Vienna, Austria
Vienna, Austria
Barcelona, Spain
London, UK
Dublin, Ireland
Florence, Italy
Rome, Italy
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
252
106
44
107
161
69
136
147
90
140
138
473
192
163
171
316
2,705
13.8%
Leased
Leased
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Sheraton Lima Hotel & Casino
The Westin Resort & Spa, Los Cabos
Sheraton Buenos Aires Hotel & Convention Center
The Park Lane Hotel, London
Sheraton Maria Isabel Hotel & Towers
Sheraton Ambassador Hotel
Sheraton Rio Hotel & Resort
Park Tower
The Westin Resort & Spa, Cancun
The Westin Resort & Spa, Puerta Vallarta
Westin Resort St. John
Total Latin/South America/Caribbean
as a % of Total
Sheraton
Westin
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Westin
Westin
Westin
Lima, Peru
San Jose del Cabo, Mexico
Buenos Aires, Argentina
London, England
Mexico City, Mexico
Monterey, Mexico
Rio de Janeiro, Brazil
Cancun, Mexico
Puerta Vallarta, Mexico
St. John, US Virgin Islands
Latin/South America/Caribbean
431
243
739
305
755
229
559
180
379
280
175
4,275
21.9%
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Sheraton
Westin
Nadi, Fiji
Nadi, Fiji
South Pacific
South Pacific
264
273
537
2.7%
Owned
Owned
Aloft
Aloft
Element
Four Points
Four Points
Other
Other
Other
Other
Other
Other
Other
Sheraton
Sheraton
Sheraton
W
W
W
W
W
Westin
Westin
Westin
Lexington, MA
Philadelphia, PA
Lexington, MA
Philadelphia, PA
Tucson, AZ
Atlanta, GA
Chicago, IL
Lakeville, PA
Marshalls Creek, PA
Millbrae, CA
Mount Pocono, PA
New York, NY
Koloa, HI
Philadelphia, PA
Steamboat Springs, CO
New York, NY
San Francisco, CA
Scottsdale, AZ
Chicago, IL
Los Angeles, CA
New Orleans, LA
New Orleans, LA
New York, NY
Atlanta, GA
Lahaina, HI
San Francisco, CA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
136
136
123
177
150
275
135
276
189
251
143
659
394
251
205
229
260
643
520
258
410
98
509
1,068
759
397
8,651
44.2%
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Sheraton Fiji Resort
The Westin Royal Denarau Island Resort
Total South Pacific
as a % of Total
Aloft Lexington
Aloft Philadelphia
Element Lexington
Four Points by Sheraton Tucson University Plaza
Tremont Hotel
Caesars Cove Haven
Caesars Pocono Palace
Clarion Hotel
Caesars Paradise Stream
Sheraton Kauai Resort
Sheraton Steamboat Springs Resort
St. Regis New York
The Phoenician
W Chicago Lakeshore
W New Orleans
Westin Maui
Total USA
as a % of Total
Total Owned
19,561
Page 82
20 September 2011
Figure 113: HOT Owned Portfolio by Brand
Hotel
Aloft Lexington
Aloft Philadelphia
Brand
Aloft
Aloft
Location
Lexington, MA
Philadelphia, PA
Region
USA
USA
Total Aloft
Element Lexington
Total Element
Four Points by Sheraton Tucson University Plaza
Total Four Points
Tremont Hotel
Caesars Cove Haven
Caesars Pocono Palace
Clarion Hotel
Caesars Paradise Stream
Total Other
Sheraton On The Park
Le Centre Sheraton Montreal Hotel
Sheraton Centre Toronto Hotel
Sheraton Gateway Hotel in Toronto Airport
Sheraton Paris Airport Hotel
Sheraton Diana Majestic
Sheraton Santa Maria de el Paular
Sheraton Lima Hotel & Casino
Sheraton Buenos Aires Hotel & Convention Center
The Park Lane Hotel, London
Sheraton Maria Isabel Hotel & Towers
Sheraton Ambassador Hotel
Sheraton Rio Hotel & Resort
Sheraton Fiji Resort
Sheraton Kauai Resort
Sheraton Steamboat Springs Resort
Total Sheraton
St. Regis Osaka
Grand Hotel
St. Regis Grand Rome
Hotel Goldener Hirsch
Hotel Maria Cristina
Hotel Alfonso XIII
Hotel Gritti Palace
Hotel Bristol
Hotel Imperial
Park Tower
St. Regis New York
The Phoenician
Total St. Regis / Luxury Collection
W Barcelona
W London Leicester Square
W Chicago Lakeshore
W New Orleans
Total W
The Westin Dublin Hotel
The Westin Excelsior, Florence
The Westin Excelsior, Rome
The Westin Resort & Spa, Los Cabos
The Westin Resort & Spa, Cancun
The Westin Resort & Spa, Puerta Vallarta
Westin Resort St. John
The Westin Royal Denarau Island Resort
Westin Maui
Total Westin
Rooms
136
136
Ownership
Owned
Owned
272
Element
Lexington, MA
USA
123
123
Owned
Four Points
Four Points
Philadelphia, PA
Tucson, AZ
USA
USA
177
150
327
Owned
Owned
Other
Other
Other
Other
Other
Other
Other
Atlanta, GA
Chicago, IL
Lakeville, PA
Marshalls Creek, PA
Millbrae, CA
Mount Pocono, PA
New York, NY
USA
USA
USA
USA
USA
USA
USA
275
135
276
189
251
143
659
1,928
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sheraton
Sydney, Australia
Montreal, Canada
Toronto, Canada
Toronto, Canada
Charles de Gaulle Roissy Aerogare, France
Milan, Italy
Rascafria, Spain
Lima, Peru
London, England
Mexico City, Mexico
Monterey, Mexico
Nadi, Fiji
Koloa, HI
Philadelphia, PA
Steamboat Springs, CO
Australia
Canada
Canada
Canada
Europe
Europe
Europe
South Pacific
USA
USA
USA
557
825
1,377
474
252
106
44
431
739
305
755
229
559
264
394
251
205
7,767
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Osaka, Japan
Florence, Italy
Rome, Italy
Salzburg, Austria
San Sebastian, Spain
Seville, Spain
Venice, Italy
Vienna, Austria
Vienna, Austria
New York, NY
San Francisco, CA
Scottsdale, AZ
Asia Pacific
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
USA
USA
USA
160
107
161
69
136
147
90
140
138
180
229
260
643
2,460
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Owned
Owned
W
W
W
W
W
W
W
Barcelona, Spain
London, UK
Chicago, IL
Los Angeles, CA
New Orleans, LA
New Orleans, LA
New York, NY
Europe
Europe
USA
USA
USA
USA
USA
473
192
520
258
410
98
509
2,460
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Westin
Westin
Westin
Westin
Westin
Westin
Westin
Westin
Westin
Westin
Westin
Dublin, Ireland
Florence, Italy
Rome, Italy
San Jose del Cabo, Mexico
Cancun, Mexico
Puerta Vallarta, Mexico
St. John, US Virgin Islands
Nadi, Fiji
Atlanta, GA
Lahaina, HI
San Francisco, CA
Europe
Europe
Europe
South Pacific
USA
USA
USA
163
171
316
243
379
280
175
273
1,068
759
397
4,224
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Page 83
20 September 2011
Figure 114: 2011E Revenue by Segment
Figure 115: 2012E Revenue by Segment
Management
fees, franchise
fees, and other
income
26%
Management
fees, franchise
fees, and other
income
25%
Vacation
ownership
sales and
service
18%
Owned, leased,
consolidated
JV's
57%
Owned, leased,
consolidated
JV's
56%
Vacation
ownership
sales and
service
18%
Figure 116: 2009 Top 5 Cities as a % of Total Owned
Revenue
Figure 117: 2010 Top 5 Cities as a % of Total Owned
Revenue
16.0%
14.0%
14.2%
14.0%
12.7%
12.0%
12.0%
10.0%
10.0%
8.0%
8.0%
6.2%
6.3%
5.1%
6.0%
6.0%
4.4%
4.0%
3.9%
5.0%
4.4%
4.3%
Boston
Chicago
4.0%
2.0%
2.0%
0.0%
0.0%
New York
Hawaii
Phoenix
Boston
Chicago
New York
Hawaii
Phoenix
Figure 118: 2009 Top 5 International Countries as a % of
Figure 119: 2010 Top 5 International Countries as a % of
Total Owned Revenue
Total Owned Revenue
10.0%
12.0%
9.3%
10.8%
9.0%
10.0%
7.5%
8.0%
7.0%
8.0%
6.0%
7.0%
5.3%
4.7%
5.0%
5.5%
6.0%
4.0%
2.8%
3.0%
4.1%
4.1%
Mexico
Australia
4.0%
2.0%
2.0%
1.0%
0.0%
0.0%
Canada
Italy
Page 84
Spain
Mexico
Australia
Canada
Italy
Spain
20 September 2011
Figure 120: 2010 Management Fees by Region
35.0%
Figure 121: 2010 Franchise Fees by Region
33.1%
30.0%
70.0%
63.9%
60.0%
26.2%
50.0%
25.0%
17.4%
20.0%
40.0%
15.6%
30.0%
15.0%
7.7%
10.0%
20.0%
5.0%
10.0%
0.0%
0.0%
United States
Asia Pacific
Middle East
and Africa
Europe
Americas
(Latam,
Caribbean &
Canada)
9.6%
12.2%
13.4%
Europe
Americas
(Latam,
Caribbean &
Canada)
0.9%
United States
Asia Pacific
Middle East
and Africa
Figure 122: 2Q 2011 System-wide Rooms by Chain Scale
Segment
Figure 123: 2Q 2011 System-wide Rooms by Brand
aLoft
2%
Other
1%
Upscale
12%
Luxury
10%
Element
1%
Other
1%
Four
Points
9%
W
4%
Le
Meridien
8%
Sheraton
46%
St Regis and
Luxury Collection
6%
Upper Upscale
77%
Westin
23%
Figure 124: 2Q 2011 North American System-wide
Rooms by Chain Scale Segment
Figure 125: 2Q 2011 North American System-wide
Rooms by Brand
Other
2%
Upscale
14%
aLoft
4%
Luxury
9%
Upper Upscale
75%
Le Meridien
1%
W
5%
St Regis and
Luxury Collection
4%
Element
1%
Other
1%
Four
Points
10%
Sheraton
45%
Westin
29%
Page 85
20 September 2011
Figure 126: HOT’S U.S. Pipeline as of August 2011
Pipeline Hotels
Brand
Luxury Collection
St Regis
W Hotel
Total
Le Meridien
Sheraton Hotel
Westin
Total
aloft Hotel
element
Four Points
Total
Total
Segment
Brand Existing
Supply
% of Existing Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Luxury
Luxury
Luxury
Luxury
13
9
26
48
3.43%
2.37%
6.86%
12.66%
1
2
1
4
4.55%
9.09%
4.55%
18.18%
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
7
183
96
286
0.47%
12.16%
6.38%
19.00%
0
4
5
9
0.00%
5.13%
6.41%
11.54%
Upscale
Upscale
Upscale
Upscale
42
9
85
136
1.13%
0.24%
2.28%
3.65%
11
5
6
22
1.73%
0.79%
0.94%
3.46%
All Segments
470
0.90%
35
1.19%
Pipeline Rooms
Brand
Luxury Collection
St Regis
W Hotel
Total
Le Meridien
Sheraton Hotel
Westin
Total
aloft Hotel
element
Four Points
Total
Total
Segment
Brand Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Luxury
Luxury
Luxury
Luxury
3,920
2,061
8,384
14,365
3.15%
1.66%
6.74%
11.54%
0
339
100
439
0.00%
7.53%
2.22%
9.75%
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
1,961
67,957
42,743
112,661
0.36%
12.35%
7.77%
20.48%
0
1,015
1,179
2,194
0.00%
4.32%
5.02%
9.34%
Upscale
Upscale
Upscale
Upscale
6,096
1,432
13,261
20,789
1.00%
0.23%
2.17%
3.41%
1,869
719
882
3,470
2.30%
0.88%
1.08%
4.26%
All Segments
147,815
3.03%
6,103
1.93%
Page 86
20 September 2011
Consumer Leisure
20 September 2011
Wyndham Worldwide
Reuters: WYN.N
Buy
Bloomberg: WYN US
Rating
Price target
52-week range
32.15
41.00
35.40 - 25.38
40
30
20
Initiating Coverage on WYN with a Buy Rating and a $41 Price Target
We see the current level as a favorable entry point for what we think will be
another bull run for WYN shares as the company continues to maximize free cash
flow. We expect the Fed’s policy with respect to keeping interest rates low will
drive higher financing margins and cash flow generation as ABS investors seek
yield. Despite WYN being a 'Consensus idea', we find the improved balance
sheet, attractive cash flow yields, inexpensive valuation, and ability to return value
to shareholders to be too compelling to ignore.
Performance (%)
Absolute
S&P 500 INDEX
Reasons to Invest
We expect shares to benefit from: 1) an extremely compelling free cash flow
profile that provides flexibility to management and potential value to shareholders,
2) an inexpensive valuation, 3) a favorable rate environment, and 4) an improving
but often forgotten lodging business.
Market Cap (USDm)
Free float (%)
10
0
9/08
3/09
9/09
3/10
9/10
3/11
Wyndham Worldwide
S&P 500 INDEX (Rebased)
1m
6.5
1.9
3m
4.5
-4.1
12m
21.5
8.1
5,153.6
160.3
98
1,144,946
184,383
Risks to our Buy Rating / Thesis
Risks to WYN include: 1) overcoming investor sentiment towards the vacation
ownership business and its complexities, 2) overly positive sell-side sentiment
which could prove harmful should the economy impair operations and sell-side
downgrades further hamper shares, 3) changing interest rate policies and/or a
deterioration of consumer credit, 4) its leverage to the asset-backed securities
market, and 5) the impact of further destabilization in Europe on the vacation
rentals segment.
Our $41 Price Target Is Based on a Sum-of-the-Parts Analysis
Our $41 price target is based on a blended multiple of 9.4x our 2013 adjusted
EBITDA estimate for fee-based businesses, plus a value adjustment for the book
value of WYN’s timeshare business. Our target multiples for each of the feebased businesses are derived from historical trading multiples, adjusted for our
view of the current cycle. We value completed VOI inventory and VOI receivables
at book value. WYN recognized $1.4 billion of write-downs related to its
timeshare business in 2008, and we believe that book value for completed
inventory is a conservative valuation at present. Our valuation does not include
any value for land or construction-in-progress held on WYN’s balance sheet. We
note that this is worth ~$2 per share in incremental equity value.
Year End Dec 31
2010A
2011E
1Q EPS1
0.34
0.44A
2012E
0.52
2Q EPS
0.51
0.64
0.69
3Q EPS
0.68
0.88
0.91
4Q EPS
0.46
0.44
0.46
FY EPS (USD)
1.99
2.39
2.58
P/E (x)
12.7
13.4
12.5
1
Page 87
20 September 2011
Wyndham Worldwide (WYN) Buy
Company Description
Wyndham is a large-scale global hospitality and leisure company. Nearly half of Wyndham’s
earnings are derived from the sales, management, and financing of vacation ownership
interests (VOI), or timeshares. Wyndham sells VOI from inventory that the company has
already developed, and recently the company has begun selling VOI as a fee-for-service
business for owners with excess condominium inventory. VOI management fees provide a
stable, growing source of income. Wyndham’s hotel group franchises hotels under 15
brands. Most of Wyndham’s more than 610,000 rooms are economy and midscale rooms.
Wyndham operates the largest full-service vacation rental business in the world, as well as a
VOI exchange business with more than twice as many members as its next-largest
competitor. The vacation rental and exchange businesses account for about a third of
Wyndham’s earnings. The vacation rental business generates the bulk of its earnings from
Europe.
Executive Summary
The DB Thesis: Buy
We are initiating coverage on WYN with a Buy rating and a $41 price target. Given the macro
related pullback in shares since early July, we see the current level as a favorable entry point
for what we think will another bull run for WYN shares as the company continues to
maximize free cash flow to enhance shareholder value. We expect the Fed’s policy with
respect to keeping interest rates low for an extended period of time will drive higher
financing margins and cash flow generation as ABS investors seek yield. Despite WYN being
a ‘Consensus idea’, we find the improved balance sheet, attractive cash flow yields,
inexpensive valuation, and ability to return value to shareholders to be too compelling to
ignore.
Reasons to Invest
We expect shares to benefit from: 1) an extremely compelling free cash flow profile that
provides flexibility to management and potential value to shareholders, 2) an inexpensive
valuation, 3) a favorable rate environment, and 4) an improving but often forgotten lodging
business.
Risks to WYN include: 1) overcoming investor sentiment towards the vacation ownership
business and its complexities, 2) overly positive sell-side sentiment which could prove
harmful should the economy impair operations and sell-side downgrades further hamper
shares, 3) changing interest rate policies and or a deterioration of consumer credit, 4) its
leverage to the asset-backed securities market, and 5) the impact of further destabilization in
Europe on the vacation rentals segment.
DB Estimates
We estimate adjusted EBITDA of $307 million, $953 million, $1.007 billion, and $1.050 billion
in 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2011 and 2012 adjusted
EBITDA estimates are $16.3 million and $44.1 million below consensus, respectively. While
we agree that WYN’s cash flow potential is reason to be buying shares at current levels, we
think current Consensus estimates may be somewhat underestimating the impact that
slower global growth may have on WYN. We believe our estimates account for a modestly
less optimistic view than current Consensus reflects. We project adjusted EPS for 3Q 2011,
2011, 2012, and 2013 of $0.88, $2.39, $2.58, and $2.74, respectively.
Page 88
20 September 2011
Valuation
At current levels, WYN trades at 7.4x, 6.6x, and 5.8x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Given the importance of cash flow in the WYN story, we
also point out that WYN trades at cash flow yields of 14.2%, 10.3%, and 11.2% based on our
estimates for 2011, 2012, and 2013, respectively. Even after adjusting for the replacement of
timeshare inventory, WYN trades at adjusted cash flow yields of 12.0%, 8.8%, and 9.9%
based on our 2011, 2012, and 2013 estimates, respectively.
Our $41 price target is based on a blended multiple of 9.4x our 2013 adjusted EBITDA
estimate for fee-based businesses, plus a value adjustment for the book value of WYN’s
timeshare business, less year-end 2013 estimated net debt. Our target multiples for each of
the fee-based businesses are derived from historical trading multiples, adjusted for our view
of the current cycle. We value completed VOI inventory and VOI receivables at book value of
$2.005 billion. WYN recognized $1.4 billion of write-downs related to its timeshare business
in 2008, and we believe that book value for completed inventory is a conservative valuation at
present. Our valuation does not include any value for the $326 million of land and
construction-in-progress held on WYN’s balance sheet. We note that this is worth ~$2 per
share in incremental equity value.
Page 89
20 September 2011
Reasons to Invest
Free Cash Flow Profile Too Attractive to Ignore; We Expect Prudent FCF Uses to Drive
Growth
Barring credit market disruption or another recession, we believe WYN is well positioned to
generate more than $1.25 billion in net free cash flow during the 2011 to 2013 period.
$439
$439
$470
$470
$347
$283
$162
$200
$193
$400
$402
$600
$357
$618
$800
$673
Figure 127: Annual Aggregate Free Cash Flow ($ in Millions)
2012E
2013E
($400)
($600)
2005
2006
2007
($253)
($532)
($243)
2008
2009
($78)
($148)
($200)
($12)
$0
2010
2011E
Net Free Cash Flow
At current levels, WYN trades at a cash flow yield of 10.3%, based on our 2012 estimated
cash flow of $439 million, which includes assumed dividends of $0.72 per share. Barring
another recession, we expect WYN to continue generating significant cash flow beyond 2012
as the company sells VOI inventory developed. We note that WYN spent roughly $1.7-1.8
billion on inventory development from 2006-2008. Since, timeshare development spending
dropped to an estimated $125 million and $100 million in 2009 and 2010, respectively.
In 2011, WYN expects to spend $80-90 million on development. The significant drop off in
development spending is a big reason that WYN has swung from cash flow negative to cash
flow positive. Major cuts to VOI marketing and the return of the ABS securitization market are
two other big reasons for WYN’s cash flow turn-around in 2010 and 2011.
After adjusting for the replacement value of timeshare units that are sold, WYN’s cash flow
yield is still attractive. We estimate a net benefit to cash flow of $116 million in 2011 with
COGS of 21% of gross timeshare sales. Following adjustments for inventory replacement,
our cash flow yield estimate is 12.0% in 2011, 8.8% in 2012, and 9.9% in 2013.
Our cash flow estimates show WYN’s cash flow yield going down from 2011 to 2012. The
primary reason for this decline is that WYN’s cash flow has benefited from impressive
securitization executions in 2010 and 2011. The improvements in the ABS markets and the
credit quality of WYN’s VOI receivables benefit WYN’s cash flow by improving advance rates
from securitizations, or the amount of securitized bonds WYN sells for each dollar of
receivable balance. For 2012 and 2013, we have assumed that securitization activity is neutral
to cash flow.
Page 90
20 September 2011
Figure 128: Free Cash Flow and Adjusted Free Cash Flow Yields
2010
2011E
2012E
2013E
Dividends per share
Current Share Price
Current Dividend Yield
$0.48
$32.15
1.5%
$0.60
$0.72
$0.84
1.9%
2.2%
2.6%
CF after Divs & Cap-Ex ($ in MM)
Retained Cash Flow Yield
$618
$5,466
11.3%
$673
$439
$470
12.3%
8.0%
8.6%
Cash Flow Yield
12.8%
14.2%
10.3%
11.2%
($54)
$564
($116)
$556
($81)
$358
($74)
$396
11.8%
12.0%
8.8%
9.9%
Adj. for Inventory Replacement ($ in MM)
Adjusted Cash Flow ($ in MM)
Adjusted Cash Flow Yield
At present, we expect WYN’s growth to come from fee-for-service businesses, which should
improve the quality of WYN’s balance sheet. As an example, WYN is in the process of
growing a vacation ownership business that requires less self-funded investment capital. The
company refers to this business as WAAM, short for WYN Asset Affiliation Model. As one of
the largest VOI operators, WYN has a recognizable brand name and a large sales force.
Additionally, some parts of the country have excess condo development from the 2006 to
2008 lending boom. This excess inventory is sitting on bank and developer balance sheets
generating minimal, if any, cash flow. WYN’s WAAM business model sells this excess condo
inventory as timeshare. WYN earns a fee for the sale and does not need to use its own
balance sheet to hold VOI inventory. WYN started the WAAM business in 1Q10 and WAAM
sales more than doubled in the 1H 2011 when compared to 1H 2010. We believe this
business has the potential to be 15-20% of WYN’s timeshare sales, leading to a more
efficient use of WYN’s sales force and balance sheet.
With gross debt to EBITDA of 2.1x, we believe the balance sheet is sound and view 1)
dividend increases, 2) small acquisitions, and 3) share repurchases as the most likely uses of
cash in the near to medium term.
Figure 129: Balance Sheet Metrics ($ in Millions)
2009
2010
2011E
2012E
2013E
$155.0
$2,015.0
$1,860.0
$156.0
$2,094.0
$1,938.0
$462.7
$2,044.0
$1,581.3
$870.0
$2,012.0
$1,142.0
$1,340.0
$2,012.0
$672.0
Interest Expense
$114.0
$167.0
$145.2
$121.8
$115.0
EBITDA
$830.0
$860.6
$953.1
$1,006.5
$1,049.8
2.4x
2.2x
7.3x
2.4x
2.3x
5.2x
2.1x
1.7x
6.6x
2.0x
1.1x
8.3x
1.9x
0.6x
9.1x
Cash
Gross Debt
Net Debt
Gross Debt/EBITDA
Net Debt/EBITDA
That being said, we note that we have not built in acquisitions into our model. To the extent
that WYN makes acquisitions, we would expect, assuming rational deal size, the acquisitions
would be accretive to our estimates given its cash position. Recall, management noted the
company would like to grow EPS 17-21% with about a third of that growth (5-7%) coming
from acquisitions and share repurchases. Certainly, pricing for potential targets will influence
Wyndham’s ability to meet this target. That said we believe WYN’s ability to buy small
companies at multiples below that of WYN’s multiple is a favorable part of the WYN story.
Page 91
20 September 2011
Figure 130: Acquisition History (2001 – Present)
Transaction Price
Net of Cash
Acquired ($ in MM)
Date
Business
Dec-10
James Villa Holdings
2,300 villas and rental properties in over 50 locations primarily along the Mediterranean
$77
Sep-10
ResortQuest
6,000 vacation rental properties in the U.S.; Mostly South Coast and Mountain West
$56
Jun-10
Tryp hotel brand
Mid-priced brand. 90 Hotels. Mostly in S. America and Europe.
$43
Feb-10
Hoseasons
15,000 lodges, cottages, villas, caravans, and boats in seven European countries
$59
Jun-08
Microtel & Hawthorne Suites
Purchased from Hyatt. Added 383 hotels and 29,000 rooms to Wyndhams lodging group
$131
Apr-06
Baymont Inns & Suites
Purchased from Blackstone. 115 franchised properties added.
$60
Oct-05
Wyndham Hotels & Resorts
Purchased from Blackstone.
$111
Dec-04
Ramada International
$38
Oct-04
Canvas
$51
May-04
Landal Green Parks
$81
Apr-04
Ramada US
$200
Apr-02
Trendwest Resorts, Inc
$849
Apr-01
Fairfield Resorts, Inc
$760
Total
$2,516
Source: Company reports and Deutsche Bank
In the event WYN is unable to find suitable acquisitions, we believe WYN is likely to
undertake a significant share repurchase program. While we are not modeling any repurchase
activity post the 3Q 2011, we do believe large-scale repurchases are a meaningful driver of
the WYN investment story/thesis. In our share repurchase sensitivity analysis, we estimate
that $300 million of share repurchases, at current levels, is ~$0.14 accretive to our 2013 EPS
estimate of $2.74. We note that WYN has ~$755 million remaining under its repurchase
authorization.
Page 92
20 September 2011
Figure 131: Share Repurchase History ($ in MM)
$600
$516
$526
$700
$500
$235
$400
$300
$200
2006
$0
$0
2005
$15
$0
$100
2008
2009
$0
2007
2010
YTD 2011
Share Repurchases
Figure 132: Share Repurchase Sensitivity
Scenarios
Assumes $300 mm in Share Repurchases at Various Share Price Levels
2013E Base Case
Assumed Share Price
$23.15
$26.15
$29.15
$32.15
$35.15
$38.15
13.0
11.5
10.3
9.3
8.5
7.9
7.3
Less Interest Income
Rate on Cash
$6.0
2.0%
$6.0
2.0%
$6.0
2.0%
$6.0
2.0%
$6.0
2.0%
$6.0
2.0%
$6.0
2.0%
Tax Rate
Impact to Net Income
39.0%
$3.7
39.0%
$3.7
39.0%
$3.7
39.0%
$3.7
39.0%
$3.7
39.0%
$3.7
39.0%
$3.7
$450.1
Shares Repurchased
Net Income
0.0
$41.15
$453.7
$450.1
$450.1
$450.1
$450.1
$450.1
$450.1
Diluted Share Count
165.3
152.3
153.8
155.0
156.0
156.8
157.4
158.0
EPS
$2.74
$2.95
$2.93
$2.90
$2.89
$2.87
$2.86
$2.85
$0.21
7.6%
$0.18
6.6%
$0.16
5.8%
$0.14
5.1%
$0.13
4.6%
$0.11
4.1%
$0.10
3.8%
$ Accretion (Dilution)
% Accretion(Dilution)
Price Target Implied PE Multiple
14.9x
14.9x
14.9x
14.9x
14.9x
14.9x
14.9x
Equity Value per Share
$3.12
$2.70
$2.36
$2.10
$1.88
$1.70
$1.54
Lastly, we note that our model contemplates a 20% dividend increase in 2012 and a 17%
dividend increase in 2013. At current levels, WYN pays a $0.60 annual dividend, which
implies a 1.9% dividend yield. We note that WYN’s dividend yield is amongst the best in our
coverage universe. We think the ability to increase the dividend both serves as a potential
positive catalyst for shares and limits downside.
Page 93
20 September 2011
Figure 133: Comparative Dividend Yields
September 16, 2011
Ticker
Price
Annual
Dividend
Dividend
Yield
HOT
$45.46
$0.30
0.7%
H
$35.56
$0.00
0.0%
GET
$22.82
$0.00
0.0%
OEH
$8.04
$0.00
0.0%
Wyndham Worldwide
WYN
$32.15
$0.60
1.9%
Choice Hotels
CHH
$30.69
$0.74
2.4%
HST
$12.12
$0.12
1.0%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
Lodging REITS
History Indicates Current Valuation Represents a Favorable Entry Point
At present, we believe WYN has undertaken and is executing a disciplined growth strategy,
has improved transparency by eliminating messy accounting techniques, and is returning
significant cash to shareholders. As such, we believe the improvements to the business and
the resulting cash flow stability merit multiple appreciation and we expect, barring a
meltdown in consumer credit or derailment of the ABS market, this to occur in the near term.
We believe the monetization of VOI inventory and building fee-for-service businesses, will
serve as two catalysts for multiple expansion.
At current levels, WYN trades at 6.6x our 2012 EBITDA estimate, roughly 40 bps below its
long-term average multiple of 7.0x. We note that every 0.5 multiple points are worth ~$3 in
present equity value. As such, a return to historical multiple levels would imply ~9% upside
in shares from current levels (see Figure 135).
Figure 134: Historical Forward EV/EBITDA Valuation
9.0x
8.0x
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Page 94
20 September 2011
Figure 135: Valuation Multiple Sensitivity
2012E EBITDA
$1,007
Multiple
$1,007
$1,007
$1,007
$1,007
$1,007
$1,007
5.1x
5.6x
6.1x
6.6x
7.1x
7.6x
8.1x
Enterprise Value
$5,098
$5,601
$6,104
$6,607
$7,111
$7,614
$8,117
YE 2012E Net Debt
$1,142
$1,142
$1,142
$1,142
$1,142
$1,142
$1,142
Equity Value
$3,956
$4,459
$4,962
$5,466
$5,969
$6,472
$6,975
170
170
170
170
170
170
170
$32.15
Share Count (MRQ)
Implied Share Price
$23.27
$26.23
$29.19
$35.11
$38.07
$41.03
% chg. From Current Price
-27.6%
-18.4%
-9.2%
9.2%
18.4%
27.6%
Incremental Value of 0.5x
Change in Multiple
($8.88)
($5.92)
($2.96)
$2.96
$5.92
$8.88
In addition to being inexpensive versus historical levels, WYN is also inexpensive on a relative
basis versus its lodging peers in our coverage universe. As evidenced in Figure 136, WYN
trades at a 310 and 270 bps discounts to its peer set on 2012 and 2013 estimated EBITDA,
respectively.
Figure 136: Comparative EV/EBITDA Valuations
September 16, 2011
$ in Millions except per share data
Company
Starwood Hotels
Ticker
Price
Shares
Outstanding
Market Cap
Deutsche
Bank
Current
Quarter
EBITDA
Estimate
Deutsche
Bank
2010
EBITDA
Deutsche
Bank
2011E
EBITDA
Deutsche
Bank
2012E
EBITDA
Deutsche
Bank
2013E
EBITDA
Deutsche
Bank 2010
Net Debt
Deutsche
Bank
2011E Net
Debt
Deutsche
Bank
2012E Net
Debt
Deutsche
Bank
2013E Net
Debt
2010
EV/EBITDA
2011E
EV/EBITDA
2012E
EV/EBITDA
2013E
EV/EBITDA
HOT
$45.46
194.6
$8,847
$230
$879
$982
$1,077
$1,190
$2,538
$2,269
$1,931
$1,749
12.9x
11.3x
10.0x
8.9x
H
$35.56
165.5
$5,886
$115
$476
$522
$641
$732
($351)
$688
$1,005
$941
11.6x
12.6x
10.7x
9.3x
GET
$22.82
50.9
$1,163
$50
$149
$221
$239
$253
$1,035
$1,036
$986
$977
14.8x
10.0x
9.0x
8.5x
OEH
$8.04
102.5
$824
$42
$80
$95
$121
$144
$570
$569
$591
$543
17.4x
14.7x
11.7x
9.5x
Wyndham Worldwide
WYN
$32.15
170.0
$5,466
$307
$861
$953
$1,007
$1,050
$1,938
$1,581
$1,142
$672
8.6x
7.4x
6.6x
5.8x
Choice Hotels
CHH
$30.69
59.9
$1,839
$61
$171
$178
$187
$201
$161
$124
$58
($21)
11.7x
11.0x
10.1x
9.0x
12.8x
11.2x
9.7x
8.5x
Hyatt Hotels
C-Corps
Host Hotels
HST
$12.12
687.1
$8,328
Lodging REITS
Note: H, HOT, and HST net debt includes JV debt.
Note: GET Net debt is adjusted for CIP related to Aurora development.
$209
$828
$1,029
$1,181
$1,295
$4,667
$5,755
$5,615
$5,530
15.7x
13.7x
11.8x
10.7x
15.7x
13.7x
11.8x
10.7x
Source: Company reports, Deutsche Bank estimates, and Facset.
Improving Consumer Credit and Low Interest Rates to Continue to Benefit WYN
The Federal Reserve has indicated to the markets that it will keep short-term interest rates
low for an extended period of time. The benefit of this policy to WYN is significant as low
interest rates reduce WYN’s borrowing cost by lowering the cost of funds for securitizations
that WYN uses to finance its receivables portfolio.
Page 95
20 September 2011
Figure 137: Wyndham’s Financing Spread
2008
2009
2010
Weighted Average Coupon to Owners
12.26%
12.44%
12.67%
WYN Weighted Average Cost of Capital
Conduit Average
ABS Average
Company Financed
Total Weighted Average Cost of Capital
5.06%
6.96%
5.53%
6.45%
9.80%
8.05%
6.30%
7.80%
5.97%
6.83%
8.09%
7.37%
Net Financing Spreads
5.81%
4.64%
5.30%
Source: Company and Deutsche Bank.
The terms that WYN received on its $400 million March 2011 securitization were the best in
Company history. ABS proceeds amounted to $0.98 of every $1 of receivable. The coupon on
the borrowings was a mere 3.7%. In August 2011, Wyndham completed a $300 million
securitization. While concerns about GDP growth and slowing economic growth have
weighed on equity markets, WYN still received a 92% advance rate with an average coupon
of 4.01%. As such, in addition to FED policy, we believe ABS investor appetite for yield will
continue to serve as a benefit for WYN.
Over the past three years, coupons to WYN have been 12-13% with an average receivable
life of 4-5 years. Given the high interest costs, owners have tended to repay the outstanding
expeditiously. With fear in the market of another economic downturn, we feel it is important
to note that WYN’s VOI receivables performed very well during the prior economic downturn,
relative to other asset classes. While home equity loan delinquencies rose to more than 19%
in early 2010, WYN’s timeshare receivables delinquency rate remained below 4%. If WYN’s
borrowers begin to default at higher rates, prices for WYN’s receivables may fall, which
would increase WYN’s borrowing costs. However, as long as credit performance remains
strong and confidence in the ABS market remains sound, we think WYN’s borrowing costs
will remain low and financing spreads will continue to widen.
We believe it is important to remember that one benefits of timeshare receivables is that the
underlying asset is re-saleable. While the value of a car may drop as soon as it is driven off
the lot, timeshare points are interchangeable. If a borrower defaults, WYN reclaims the
timeshare points and resells them. There is no difference between the value of “new” and
“used” points.
Page 96
20 September 2011
Figure 138: Historical Securitization Coupons and Advance Rates
98%
100%
88%
89% 88% 90%
85% 85% 87%
88%
10%
83%
77% 75%
80%
92%
8%
72%
70%
64%
6%
7.6%
4.0%
3.7%
3.7%
4.5%
4%
4.1%
9.0%
9.8%
5.7%
7.9%
5.5%
5.3%
5.8%
4.8%
3.7%
3.8%
4.9%
40%
20%
55%
54%
4.5%
60%
0%
2%
Coupon
Sec. 2011-2
Sec. 2011-1
Sec. 2010-3
Sec. 2010-2
Sec. 2010-1
Sec. 2009-4
Sec. 2009-3
Sec. 2009-2
Sec. 2009-1
Sec. 2008-2
Sec. 2008-1
Sec. 2007-2
Sec. 2007-1
Sec. 2006-1
Sec. 2005-1
Sec. 2004-1
Sec. 2003-2
Sec. 2003-1
0%
Advance Rate
Source: Company Reports and Deutsche Bank.
Recent Lodging Segment RevPAR Trends Encouraging
After several quarters of meaningful underperformance versus its chain scale segments, the
WYN lodging portfolio is starting to come around as RevPAR deficits have shrunk and/or
turned into premiums. While the trend has been short lived to date, we believe there to be
reason for optimism with respect to WYN’s positioning in this part of the lodging cycle.
6.6%
7.9%
8.7%
Figure 140: WYN Upscale RevPAR Delta Versus Industry
1,000
502
500
790
5.0%
9.0%
10.0%
3.2%
5.5%
15.0%
6.4%
8.2%
Figure 139: WYN Versus Industry Upscale RevPAR
(133)
(1,042)
(574)
(177)
(553)
(771)
(704)
(286)
-3.1%
-1.7%
(500)
-10.1%
-7.8%
-12.8%
0
(1,000)
WYN Upscale RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q11
1Q11
4Q10
STR Upscale RevPAR
Source: Deutsche Bank, Company reports, and Smith Travel Research.
3Q10
2Q10
1Q10
(1,500)
4Q09
3Q09 -26.0%
-18.3%
1Q09
-30.0%
-23.3%
-20.4%
-25.0%
2Q09
-20.0%
-18.7%
-15.0%
-10.8%
-10.0%
0.0%
0.0%
-5.0%
WYN Upscale Out / Underperformance (in bps)
Page 97
7.7%
500
2.6%
5%
Figure 142: WYN Midscale RevPAR Delta Versus
Industry
600
5.2%
4.9%
3.1%
2.2%
10%
6.4%
7.1%
15%
8.8%
7.8%
Figure 141: WYN Versus Industry Midscale RevPAR
300
33
101
89
(64)
(129)
(367)
(200)
(300)
WYN Midscale RevPAR
STR Midscale RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
(500)
1Q09
2Q11
1Q11
4Q10
3Q10
2Q10
(400)
1Q10
4Q09
-17.9%
-16.6%
3Q09
-20.4%
-16.7%
2Q09
1Q09
-16.2%
-14.8%
-15%
(143)
-5.6%
-6.6%
0
(100)
-13.2%
-14.7%
-10%
96
152
100
-5%
-25%
400
200
0%
-20%
501
20 September 2011
WYN Midscale Out / Underperformance (in bps)
Figure 143: WYN Versus Industry Economy RevPAR
Figure 144: WYN Economy RevPAR Delta Versus
483
207
(215)
(143)
1Q11
(541)
4Q10
(44)
-4.6%
-7.7%
-7.3%
WYN Economy RevPAR
STR Economy RevPAR
2Q11
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q11
1Q11
4Q10
3Q10
(600)
2Q10
-11.7%
-15.0%
4Q09
(200)
(400)
1Q10
-15.6%
-16.4%
3Q09
-12.3%
-17.1%
2Q09
-20%
-13.5%
-14.3%
-15%
1Q09
-10%
(125)
0
3Q10
-5%
330
200
82
0%
86
7.9%
5.8%
600
400
0.8%
5%
4.8%
6.2%
4.7%
5.9%
10%
5.3%
7.4%
Industry
WYN Economy Out / Underperformance (in bps)
Growth of Global Leisure Business a Longer-Term Driver
Wyndham’s core customer might be described as a middle-class family with young children.
As the middle class grows and family travel grows along with it, we believe WYN is in an
excellent position to grow as one of the world’s largest hospitality and leisure companies.
At present, WYN has operations across six continents with its largest footprint in the US and
Europe. In total, the hotel group has more the 610,000 rooms worldwide. WYN is currently
targeting hotel construction and conversion opportunities in China, the Middle East, the U.K.,
and India for its Wyndham, Ramada, Days Inn, and Super 8 brands. Recall WYN’s 2010
acquisition of Tryp expanded the hotel group’s footprint with an established brand in Latin
America.
The Wyndham Rewards program is offered in the U.S. Canada, Mexico, throughout Europe
and in China. There were 23.4 million members enrolled, including 8.1 million that had earned
or redeemed rewards in the last 1.5 years.
Page 98
20 September 2011
Wyndham’s vacation rental business and VOI exchange are the largest in the world.
Wyndham’s businesses have over 150 offices worldwide and the ability to source and rent
inventory in approximately 100 countries. WYN has approximately 94,000 rental properties
and WYN’s vacation exchange business, RCI, has 3.8 million vacation exchange members
and a resort portfolio of over 4,000 affiliated resorts.
Wyndham VOI has nearly 815,000 owners and over 160 resorts. Wyndham is the largest
vacation ownership interest company in the industry when measured by revenue, by number
of owners, by resorts, and by units.
Page 99
20 September 2011
Investment Risks
Investor Struggles to Understand the Business Model and the Perception of Vacation
Ownership in an Economic Downturn
While WYN and the timeshare industry have come a long way with respect to accounting
transparency, many investors still struggle with a business model that finances the majority
of its sales. We believe the difficulty for investors when it comes to understanding the
accounting methods used in the segment are partially responsible for the multiple discount
we believe WYN accepts for its vacation ownership business.
Additionally, we note that investor perception of what happens to vacation ownership in a
recessionary period is another risk for WYN shares. We believe this was evident in 2008 and
early 2009, a period where WYN shares fell significantly more than its lodging peers. With
vacation ownership inventory and receivables on the company’s balance sheet, investors
perceived it to be more at risk than some other companies. Wyndham took $1.3 billion of
restructuring and impairment charges in the 4Q 2008 that were mostly related to the
company’s vacation ownership business. Of course, this inventory has not been marked
higher and WYN has not been spending large amounts of capital on inventory development;
however, should liquidity for timeshare ABS dry up or the financial situation of WYN’s target
customer deteriorate, there may be significant downside risk.
Figure 145: WYN Share Performance in Downturn Versus Lodging Peers
Total U.S.
Total Re turn
Marke t Wt.
Month
Re vPAR
MAR
HO T
HST
WYN
GET
O EH
CHH
Inde x
Aug-08
-0.6%
8.9%
5.7%
9.1%
7.7%
15.3%
7.8%
8.6%
8.3%
S&P 500
1.2%
Sep-08
-3.1%
-7.2%
-22.4%
-5.7%
-18.5%
-15.2%
-32.8%
0.4%
-12.8%
-9.1%
Oct-08
-7.3%
-20.0%
-19.9%
-22.2%
-47.9%
-27.1%
-48.9%
1.6%
-23.7%
-16.9%
Nov-08
-13.2%
-19.1%
-25.2%
-27.3%
-41.0%
-57.1%
-44.3%
-8.2%
-25.3%
-7.5%
Dec-08
-10.2%
15.8%
12.1%
1.4%
37.0%
18.0%
11.8%
20.5%
13.1%
0.8%
Jan-09
-15.8%
-16.1%
-15.5%
-28.9%
-6.4%
-2.2%
-17.5%
-12.4%
-17.5%
-8.6%
Feb-09
-17.2%
-13.2%
-23.3%
-31.2%
-39.1%
-38.1%
-37.3%
-5.9%
-21.1%
-11.0%
Mar-09
-20.0%
16.2%
9.6%
5.9%
13.8%
27.0%
3.5%
4.3%
11.6%
8.5%
Apr-09
-19.4%
44.0%
64.3%
96.2%
178.1%
67.3%
57.8%
16.7%
61.3%
9.4%
May-09
-20.4%
-0.8%
17.3%
22.0%
1.3%
1.9%
10.0%
-8.8%
6.8%
5.3%
Jun-09
-18.5%
-5.2%
-9.3%
-10.6%
2.8%
-10.5%
19.2%
-1.8%
-5.8%
0.0%
Jul-09
-15.6%
-2.4%
6.4%
8.2%
15.1%
12.3%
4.2%
4.7%
4.5%
7.4%
Aug-09
-19.0%
11.4%
26.1%
9.8%
8.9%
42.4%
12.5%
5.9%
14.1%
3.4%
Sep-09
-15.8%
15.4%
10.9%
18.1%
7.7%
-1.1%
15.6%
5.9%
13.1%
3.6%
-2.0%
Oct-09
-13.9%
-9.2%
-12.0%
-14.1%
4.5%
-25.2%
-25.3%
-4.0%
-10.4%
Nov-09
-12.2%
3.0%
10.2%
6.7%
9.1%
17.1%
-2.8%
5.1%
6.3%
5.7%
Dec-09
-7.9%
5.9%
14.8%
10.9%
8.6%
12.2%
21.3%
1.6%
8.7%
1.8%
Source: Deutsche Bank, Smith Travel Research, and Factset.
WYN is a Consensus Idea and Share Performance Reflects It
By now, the WYN cash flow story should be well understood by investors as the stock has
been the best-performing large lodging and timeshare stock by a wide margin this year.
Page 100
20 September 2011
Figure 146: Comparative Recent Share Price Performance
September 16, 2011
Ticker
Price
One Week
Return
One Month
Return
QTD Return
YTD Return
LTM Return
3 Year
Return
5 Year
Return
HOT
$45.46
14.7%
3.0%
-18.9%
-25.2%
-10.8%
22.2%
-23.8%
H
$35.56
13.7%
5.0%
-12.9%
-22.3%
-7.9%
GET
$22.82
5.2%
-13.2%
-23.9%
-36.5%
-22.1%
-30.6%
-49.4%
OEH
$8.04
19.1%
-1.7%
-25.2%
-38.1%
-23.4%
-78.0%
-78.2%
Wyndham Worldwide
WYN
$32.15
10.1%
6.5%
-4.5%
7.3%
21.5%
75.5%
11.1%
Choice Hotels
CHH
$30.69
6.9%
7.1%
-8.0%
-19.8%
-14.0%
-0.5%
-28.1%
11.6%
1.1%
-15.6%
-22.4%
-9.4%
-2.3%
-33.7%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
We believe part of the reason for the strong relative performance is that investors are coming
to understand the true potential of WYN’s cash flow as eliminating gain on sale accounting,
deferred revenue, and percentage-of-completion accounting has improved transparency. As
evidenced in Figure 147, the sell side largely favors WYN, with 10 Buy equivalent ratings and
2 Hold equivalent rating. With 83% of the Street having a Buy-equivalent rating, we believe
expectations are high and note that sell side support is unlikely to get any stronger. As such,
impairments in operations could be coupled with sell side sentiment shifts, thus furthering
downside risk in shares.
Figure 147: WYN Sell Side Ratings Grid
Rating
Buy
Hold
Sell
Total
# of Ratings
% of Total
10
2
0
12
83%
17%
0%
Upward Shifts in Interest Rates or Consumer Credit Deterioration Would Hamper the
Profitability of Vacation Ownership
While all is well in consumer credit and the outlook for interest rates at present, changes in
either could be detrimental to WYN. WYN finances nearly 60% of the company’s sales
volume, including addenda cash, which we note represents borrowings that are re-paid
within two months of origination. Recorded cash flow sales are estimated loan losses. If
consumer credit metrics, which have been improving since 4Q 2010 begin to deteriorate,
WYN’s earnings would also be impacted.
As a percentage of gross timeshare sales, loan loss provisions were 37.1% in 2009
compared to 24.6% in 2010. On our gross sales estimate of $1.5 billion in 2011, a 1%
change in the provision rate is $15 million, or $0.055 per share assuming 39% tax rate.
Page 101
20 September 2011
Figure 148: WYN Loan Loss Provisions and Loan Loss Provisions as a % of Gross Sales
40%
$500
$450
35%
37.1%
$400
30%
$350
25%
$300
24.6%
24.6%
$250
21.6%
21.3%
21.0%
$200
$150
20%
15%
16.7%
10%
$322
$321
$315
$340
$449
$450
$50
$306
$100
5%
0%
$0
2007
2008
2009
2010
Loan Loss Provisions
2011E
2012E
2013E
% of Gross Sales
For the time being, few seem concerned about higher interest rates. Should consumer credit
deteriorate, WYN would need to raise the interest rate it charges vacation ownership
borrowers to preserve the company’s net interest spread. The advance rate, or the amount of
bonds that WYN sells for each dollar loaned, would likely decline as ABS investors seek
greater credit protection. While the Fed may keep interest rates low for several years,
deteriorating consumer credit in another recession would make vacation ownership sales
more difficult or less profitable.
We note that WYN has taken significant steps towards improving the credit profile of its
borrowers by eliminating tours that produced lower-quality borrowers and increasing lending
standards. The proof is in the credit metrics of WYN’s portfolio, in our view. Aggregate
portfolio equity, the equity value that is junior to the timeshare receivable, increased to
46.6% at the end of 2010 from 36.2% in 2005. The average FICO scores increased to 697
from 656 over the same time period and average equity per receivable increased to 33.6%
from 19.7%. As we see it, WYN is not pushing for double-digit top-line growth, but rather
sustainable, responsible revenue growth.
WYN Relies on the Health of the ABS Market
Deterioration in consumer credit can also have a pronounced effect on cash flows if it limits
WYN’s access to the securitization market. WYN recently renewed its receivables warehouse
facility of $600 million. The new facility matures in July of 2016. Once WYN accumulates
several hundred million dollars of timeshare loans on the facility, it will securitize the loans
and issue bonds that are secured by timeshare notes. WYN has been receiving in excess of
$0.90 per $1 of principal from its recent timeshare securitizations.
If the liquidity in the ABS market dries up, like it did in late 2008 and early 2009, it severely
diminishes WYN’s ability to earn on timeshare sales by dramatically increasing the amount of
capital WYN needs to make a timeshare loan. The risk to the business model is then that
WYN is left carrying warehouse loans until the market re-opens, and timeshare sales slow to
preserve capital.
Page 102
20 September 2011
Figure 149: Annual Gross and Net Timeshare Sales
1,764
1,644
1,182
1,212
1,551
1,072
2011E
2012E
2013E
867
1,500
1,142
1,464
1,316
1,538
1,687
2,000
1,988
1,993
2,500
1,000
500
0
2007
2008
2009
2010
Gross Timeshare Sales
Net Timeshare Sales
Vacation Rentals Segment Is Leveraged to Europe
The economic situation in the UK and Europe has implications for Wyndham’s vacation rental
business. WYN is one of the largest vacation rental companies in Europe. WYN owns
vacation rental companies in Scandinavia (Novasol), United Kingdom (The Hoseasons Group),
Germany (Landal GreenParks), Austria, Holland, France, Spain, Portugal, Italy, and other
countries around the Mediterranean. WYN’s rental companies make nearly 1.2 million
vacation rental bookings per year. Vacation rental revenue is about 50% of Wyndham’s
vacation and exchange reporting unit, which comprises about 32% of Wyndham’s annual
adjusted EBITDA before corporate overhead.
Figure 150: 2011E Adjusted EBITDA by Segment
Lodging
20%
Vacation
Ownership
48%
Vacation Exchange
& Rentals
32%
Page 103
20 September 2011
The austerity measures in Great Britain and now fiscal crises in Southern Europe may have a
negative impact on WYN’s vacation rental business in the near term. While Wyndham does
have luxury vacation rental options, vacation rentals in Europe are generally considered a
more cost-effective vacation when compared to other options, like staying at a resort. As
such, it would not surprise us to see some substitution from higher-cost vacation options into
the cost-efficient vacation rental segment, thus mitigating some of the softness. That said, in
our view, inter-European travel and vacation spending would almost certainly decline if, as
some have speculated, the Euro collapses.
Page 104
20 September 2011
Our net revenue estimates are $1.193 billion, $ 4.212 billion, $ 4.393 billion, and $ 4.612
billion for the 3Q 2011, 2011, 2012, and 2013, respectively.
We estimate adjusted EBITDA of $307 million, $953 million, $1.007 billion, and $1.050 billion
in 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2011 and 2012 adjusted
EBITDA estimates are $16.3 million and $44.1 million below consensus, respectively. While
we agree that WYN’s cash flow potential is reason to be buying shares at current levels, we
think current Consensus estimates may be somewhat underestimating the impact that
slower global growth may have on WYN. We believe our estimates account for a modestly
less optimistic view than current Consensus reflects.
We project adjusted EPS for 3Q 2011, 2011, 2012, and 2013 of $0.88, $2.39, $2.58, and
$2.74, respectively.
Figure 151: Estimates Summary
Revenue
Lodging
yoy % chg
Exchange & Rental
yoy % chg
VOI
yoy % chg
Other
yoy % chg
Total
yoy % chg
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
$533.0
$661.0
24.0%
$1,119.0
4.9%
$2,068.0
10.4%
($6.0)
100.0%
$3,842.0
10.7%
$725.0
9.7%
$1,218.0
8.8%
$2,425.0
17.3%
($8.0)
33.3%
$4,360.0
13.5%
$753.0
3.9%
$1,259.0
3.4%
$2,278.0
-6.1%
($9.0)
12.5%
$4,281.0
-1.8%
$660.0
-12.4%
$1,152.0
-8.5%
$1,945.0
-14.6%
($7.0)
-22.2%
$3,750.0
-12.4%
$688.0
4.2%
$1,193.0
3.6%
$1,979.0
1.7%
($9.0)
28.6%
$3,851.0
2.7%
$713.1
3.7%
$1,445.9
21.2%
$2,063.7
4.3%
($11.0)
22.2%
$4,211.7
9.4%
$749.8
5.1%
$1,506.3
4.2%
$2,148.6
4.1%
($12.0)
9.1%
$4,392.6
4.3%
$786.7
4.9%
$1,591.5
5.7%
$2,246.3
4.5%
($12.0)
0.0%
$4,612.4
5.0%
$209.0
6.1%
$288.0
1.4%
$343.0
21.2%
($78.0)
20.0%
$762.0
9.0%
$223.0
6.7%
$293.0
1.7%
$387.0
12.8%
($50.0)
-35.9%
$853.0
11.9%
$234.0
4.9%
$308.0
5.1%
$300.0
-22.5%
$35.0
-170.0%
$877.0
2.8%
$178.0
-23.9%
$293.0
-4.9%
$423.0
41.0%
($64.0)
-282.9%
$830.0
-5.4%
$190.0
6.7%
$308.0
5.1%
$440.0
4.0%
($77.4)
20.9%
$860.6
3.7%
$206.0
8.4%
$342.3
11.1%
$504.8
14.7%
($100.0)
29.2%
$953.1
10.7%
$220.9
7.2%
$352.8
3.1%
$528.8
4.8%
($96.0)
-4.0%
$1,006.5
5.6%
$236.6
7.1%
$372.8
5.7%
$539.3
2.0%
($99.0)
3.1%
$1,049.8
4.3%
$1.70
-7.5%
$2.12
24.9%
$2.18
2.7%
$1.80
-17.5%
$1.99
10.8%
$2.39
20.1%
$2.58
7.6%
$2.74
6.6%
$1,067.0
$1,874.0
($3.0)
$3,471.0
Adj EBITDA
Lodging
yoy % chg
Exchange & Rental
yoy % chg
VOI
yoy % chg
Other
yoy % chg
Total
yoy % chg
$197.0
$284.0
$283.0
($65.0)
$699.0
Adj EPS
yoy % chg
$1.84
Shares Outsanding
200.4
199.3
183.0
178.0
182.0
185.0
165.3
165.3
165.3
yoy % chg
Gross Free Cash Flow/Share
$347.0
$402.0
15.9%
$2.02
$162.5
-59.6%
$0.89
($253.3)
-255.9%
-$1.42
$283.1
-211.8%
$1.56
$617.8
118.2%
$3.34
$672.7
8.9%
$4.07
$439.3
-34.7%
$2.66
$470.0
7.0%
$2.84
Net Free Cash Flow
yoy % chg
$193.0
($243.0)
-225.9%
-$1.22
($148.0)
-39.1%
-$0.81
($532.0)
259.5%
-$2.99
($12.0)
-97.7%
-$0.07
($78.0)
550.0%
-$0.42
$356.7
-557.4%
$2.16
$439.3
23.1%
$2.66
$470.0
7.0%
$2.84
$1.73
$0.96
Figure 152: DB Estimates Versus Consensus Estimates ($ in MM except per share data)
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adjusted EBITDA
$307.1
$313.4
($6.3)
$953.1
$969.4
($16.3)
$1,006.5
$1,050.6
($44.1)
$1,049.8
$1,100.0
($50.2)
Adjusted EPS
$0.88
$0.88
($0.00)
$2.39
$2.40
($0.00)
$2.58
$2.75
($0.17)
$2.74
$3.08
($0.33)
Source: Deutsche Bank estimates and Factset.
Page 105
20 September 2011
Our $41 price target is based on a blended multiple of 9.4x our 2013 adjusted EBITDA
estimate for fee-based businesses, plus a value adjustment for the book value of WYN’s
timeshare business, less year-end 2013 estimated net debt. Our target multiples for each of
the fee-based businesses are derived from historical trading multiples, adjusted for our view
of the current cycle. We value completed VOI inventory and VOI receivables at book value of
$2.005 billion. WYN recognized $1.4 billion of write-downs related to its timeshare business
in 2008, and we believe that book value for completed inventory is a conservative valuation at
present. Our valuation does not include any value for the $326 million of land and
construction-in-progress held on WYN’s balance sheet. We note that this is worth ~$2 per
share in incremental equity value.
Figure 153: Price Target Analysis ($ in MM except per share data)
2013E
Price Target
Segment
EBITDA
Multiple
Firm Value
Lodging
$237
10.0 x
$2,366
Vacation Exchange & Rentals
$373
9.0 x
$3,355
Timeshare Fees
$64
10.0 x
$644
Subtotal
$674
9.4 x
$6,365
Corporate & Other
($99)
9.4 x
($935)
Total
$575
9.4 x
$5,430
Timeshare Net Book Value
$2,005
$672
Equity Value
$6,763
Shares Outstanding (YE 2013E)
165
Price Target
$41
Figure 154: What’s Timeshare Worth?
Vacation Ownership Contract Receivables:
Gross
Less: Allowance for loan losses
Allowance, % of gross receivables
Net
$ in MM
$3,260
($362)
11.1%
$2,898
Per share
$19
($2)
Less Debt:
Total Securitized Vacation Ownership Debt
Book Value of Finance Portfolio
$1,688
$1,210
$10
$7
Vacation Ownership Inventory:
Total Inventory
$1,121
$7
Book Value of Timeshare
Less: Land held for Development
Less: Construction in progress
DB Estimate of Net Value of Timeshare
$2,331
$132
$194
$2,005
$14
$1
$1
$12
$17
Page 106
20 September 2011
% chg. in EBITDA
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
2013E EBITDA
Plus Timeshare Net Book Value
Net Debt
$460
$2,005
$742
$489
$2,005
$725
$517
$2,005
$707
$546
$2,005
$690
$575
$2,005
$672
$604
$2,005
$654
$632
$2,005
$637
$661
$2,005
$619
$690
$2,005
$602
Shares Outstanding
165
165
165
165
165
165
165
165
165
5.4x
$23
$24
$25
$26
$27
$28
$29
$30
$31
6.4x
$26
$27
$28
$29
$30
$32
$33
$34
$35
7.4x
$28
$30
$31
$33
$34
$35
$37
$38
$40
8.4x
$31
$33
$34
$36
$37
$39
$41
$42
$44
9.4x
$34
$36
$37
$39
$41
$43
$44
$46
$48
10.4x
$37
$39
$41
$42
$44
$46
$48
$50
$52
11.4x
$39
$42
$44
$46
$48
$50
$52
$54
$56
12.4x
$42
$45
$47
$49
$51
$54
$56
$58
$60
13.4x
$45
$47
$50
$52
$55
$57
$60
$62
$65
Page 107
20 September 2011
Valuation
At current levels, WYN trades at 7.4x, 6.6x, and 5.8x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Given the importance of cash flow in the WYN story, we
also point out that WYN trades at cash flow yields of 14.2%, 10.3%, and 11.2% based on our
estimates for 2011, 2012, and 2013, respectively. Even after adjusting for the replacement of
timeshare inventory, WYN trades at adjusted cash flow yields of 12.0%, 8.8%, and 9.9%
based on our 2011, 2012, and 2013 estimates, respectively.
Figure 156: Valuation Summary ($ in MM except per share data)
September 16, 2011
2010
2011E
2012E
2013E
$0.72
$0.84
Share Price
$32.15
170.0
$5,466
Share Price
$32.15
Dividends per share
Current Share Price
Current Dividend Yield
$0.48
$32.15
1.5%
$0.60
1.9%
2.2%
2.6%
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
$1,938
$1,581
$1,142
$672
2010 EPS
2011E EPS
2012E EPS
2013E EPS
$1.99
$2.39
$2.58
$2.74
CF after Divs & Cap-Ex ($ in MM)
Retained Cash Flow Yield
$618
$5,466
11.3%
$673
$439
$470
12.3%
8.0%
8.6%
2010 EV
2011E EV
2012E EV
2013E EV
$7,404
$7,047
$6,607
$6,138
2010 PE
2011E PE
2012E PE
2013E PE
16.1x
13.4x
12.5x
11.7x
Cash Flow Yield
12.8%
14.2%
10.3%
11.2%
($54)
$564
($116)
$556
($81)
$358
($74)
$396
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$861
$953
$1,007
$1,050
11.8%
12.0%
8.8%
9.9%
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
Adj. for Inventory Replacement ($ in MM)
Adjusted Cash Flow ($ in MM)
Adjusted Cash Flow Yield
8.6x
7.4x
6.6x
5.8x
Figure 157: Forward Year EV/EBITDA Multiple History
9.0x
8.0x
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Page 108
20 September 2011
Figure 158: Same Year EV/EBITDA Multiple History
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
10.0x
9.0x
8.0x
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
0.0x
Figure 159: Forward Year P/E Multiple History
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Forward PE Multiple
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Page 109
20 September 2011
Figure 160: Same Year P/E Multiple History
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Page 110
20 September 2011
Model
Figure 161: Earnings Model ($ in MM, except per share data)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Revenues:
Lodging
Y/Y % chg.
Y/Y % chg.
Vacation Ownership
Y/Y % chg.
Corporate & Other
Total Revenue
Y/Y % chg.
660
-12.4%
1,152
-8.5%
1,945
-14.6%
(7)
3,750
-12.4%
144
-6.5%
300
4.5%
444
-3.9%
(2)
886
-1.7%
178
2.3%
281
0.4%
505
8.1%
(1)
963
4.7%
203
10.9%
330
0.9%
533
4.9%
(1)
1,065
4.8%
163
9.4%
282
9.3%
497
-2.2%
(5)
937
2.6%
688
4.2%
1,193
3.6%
1,979
1.7%
(9)
3,851
2.7%
149
3.5%
356
18.7%
450
1.4%
(3)
952
7.4%
190
6.7%
361
28.5%
541
7.1%
(2)
1,090
13.2%
208
2.6%
428
29.8%
559
4.9%
(3)
1,193
12.0%
166
1.7%
300
6.6%
514
3.3%
(3)
977
4.2%
713
3.7%
1,446
21.2%
2,064
4.3%
(11)
4,212
9.4%
750
5.1%
1,506
4.2%
2,149
4.1%
(12)
4,393
4.3%
787
4.9%
1,591
5.7%
2,246
4.5%
(12)
4,612
5.0%
Direct Expenses:
Lodging
Vacation Ownership
Corporate & Other
Total Expenses
Y/Y Adjusted Expense % chg
485
865
1,558
64
2,972
-14.2%
111
220
362
18
711
-2.1%
129
203
401
13
746
3.3%
136
227
410
(31)
742
4.3%
123
250
366
15
754
3.9%
499
900
1,539
15
2,953
2.4%
122
263
353
11
749
6.1%
124
255
411
24
814
12.1%
146
300
419
21
886
11.7%
128
262
375
25
790
5.7%
520
1,080
1,558
81
3,239
9.0%
529
1,153
1,620
84
3,386
3.9%
550
1,219
1,707
87
3,563
5.2%
EBITDA:
Lodging
Vacation Ownership
Corporate & Other
Total EBITDA
175
287
387
(71)
778
33
80
82
(20)
175
49
78
104
(14)
217
67
103
123
30
323
40
32
131
(20)
183
189
293
440
(24)
898
27
93
97
(14)
203
66
106
130
(26)
276
63
129
140
(24)
307
37
39
139
(28)
187
193
366
506
(92)
973
221
353
529
(96)
1,007
237
373
539
(99)
1,050
Non Recurring Expenses (Gains)
Lodging
Vacation Ownership
Corporate & Other
Total Adjustments
3
6
36
7
52
0
4
0
2
6
1
0
0
0
1
0
1
0
(52)
(51)
0
10
0
(3)
7
1
15
0
(54)
(37)
13
0
(1)
(11)
1
0
0
0
178
-23.9%
27.0%
293
-4.9%
25.4%
423
41.0%
21.7%
(64)
-283%
830
-5.4%
22.1%
33
-13.2%
22.9%
84
5.0%
28.0%
82
3.8%
18.5%
(18)
13%
181
0.0%
20.4%
50
0.0%
28.1%
78
34.5%
27.8%
104
-3.7%
20.6%
(14)
-18%
218
9.5%
22.6%
67
15.5%
33.0%
104
-2.8%
31.5%
123
18.3%
23.1%
(22)
69%
272
6.3%
25.5%
40
25.0%
24.5%
42
-12.5%
14.9%
131
-0.8%
26.4%
(23)
30%
190
-2.3%
20.2%
190
6.7%
27.6%
308
5.1%
25.8%
440
4.0%
22.2%
(77)
21%
861
3.7%
22.3%
107
33
34
34
31
778
(178)
(114)
7
493
(200)
293
175
(44)
(50)
1
82
(32)
50
217
(42)
(36)
2
141
(46)
95
323
(43)
(47)
2
235
(79)
156
183
(44)
(34)
0
105
(27)
78
Adjusted EBITDA
Lodging
Y/Y % chg.
Margin
Vacation Exchange & rentals
Y/Y % chg.
Margin
Vacation Ownership
Y/Y % chg.
Margin
Corporate & Other
Y/Y % chg.
Adjusted EBITDA
Y/Y % chg.
Margin
Adjusted Net Interest Expense
EBITDA to Net Income Reconciliation
EBITDA
Depreciation and amortization
Interest expense
Interest income
Income Before Tax
Provision for Income Tax
Income before effect of accounting change
Minority Interest
Net Income
3
(21)
0
0
13
(24)
(1)
(8)
(20)
40
21.2%
26.8%
93
10.7%
26.1%
96
17.1%
21.3%
(25)
39%
204
12.7%
21.4%
66
32.0%
34.7%
82
5.1%
22.7%
130
25.0%
24.0%
(23)
64%
255
17.0%
23.4%
63
-6.5%
30.1%
129
23.6%
30.0%
140
13.8%
25.0%
(24)
9%
307
12.9%
25.7%
37
-6.6%
22.5%
39
-7.8%
12.9%
139
6.0%
27.0%
(28)
20%
187
-1.4%
19.1%
206
8.4%
28.9%
342
11.1%
23.7%
505
14.7%
24.5%
(100)
29%
953
10.7%
22.6%
221
7.2%
29.5%
353
3.1%
23.4%
529
4.8%
24.6%
(96)
-4%
1,007
5.6%
22.9%
237
7.1%
30.1%
373
5.7%
23.4%
539
2.0%
24.0%
(99)
3%
1,050
4.3%
22.8%
132
30
31
32
32
125
122
115
898
(173)
(167)
5
563
(184)
379
203
(45)
(44)
2
116
(44)
72
276
(45)
(37)
2
196
(82)
114
307
(48)
(32)
187
(45)
(32)
110
(37)
72
1,007
(187)
(122)
0
698
(272)
426
1,050
(191)
(115)
227
(82)
145
973
(183)
(145)
4
649
(245)
404
(24)
744
(290)
454
293
50
95
156
78
379
72
114
145
72
404
426
454
Tax Rate
40.6%
39.0%
32.6%
33.6%
25.7%
32.7%
37.9%
41.8%
36.0%
34.0%
37.8%
39.0%
39.0%
Dividends per common share
$0.24
$0.12
$0.12
$0.12
$0.12
$0.48
$0.15
$0.15
$0.15
$0.15
$0.60
$0.72
$0.84
GAAP EPS
$1.60
$0.27
$0.51
$0.85
$0.43
$2.05
$0.40
$0.67
$0.88
$0.44
$2.39
$2.58
$2.74
Basic
Diluted
179
182
179
186
180
187
177
184
174
182
178
185
173
179
167
170
160
165
160
165
160
165
160
165
160
165
Reconciliation of Income to Adj Net Income
Net Income
Acquisitions costs
Restructuring & impairment costs
Separation & stand-alone costs
Legacy contingent asset/liability adjustments
Interest Expense
Other adjustments
Tax effect of adjustments
293
0
(46)
0
(6)
0
0
17
50
(4)
95
(1)
156
(1)
78
(1)
(9)
72
114
145
72
454
(12)
0
11
(12)
(7)
3
(3)
8
1
(9)
4
404
0
(19)
0
8
(16)
31
(5)
426
52
(11)
379
(7)
(9)
0
53
(30)
0
4
Total Adjustments
(35)
(14)
0
31
(6)
11
Adjusted Net Income
328
64
95
125
84
Adjusted Diluted EPS
Y/Y % chg.
$1.80
-17.5%
$0.34
-16.6%
$0.51
23.6%
$0.68
17.3%
$0.46
16.3%
(2)
(16)
0
0
0
0
0
6
(3)
(4)
31
(11)
0
0
(7)
6
0
0
(1)
0
368
79
108
145
72
405
426
454
$1.99
10.8%
$0.44
28.3%
$0.64
25.1%
$0.88
29.4%
$0.44
-5.0%
$2.39
20.1%
$2.58
7.6%
$2.74
6.6%
Page 111
20 September 2011
Figure 162: Free Cash Flow and Balance Sheet Model ($ in MM, except per share data)
Free Cash Flow
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income
Depreciation, Amortization & Non-cash impairments
Provision for Loan Losses
Estimated Cash used for VOI receivables
Estimated Cash from VOI securitized borrowings
Net increase (decrease) in deferred taxes
Less Dividends
Less Capital Expenditures
Less Eq. Investments & development advances
Net decrease (increase) in VOI Inventory
Less Acquisitions
Dispositions
Share Repurchases
Other
Net Free Cash Flow
50
46
86
(36)
(9)
11
(21)
(36)
91
(3)
(1)
87
(59)
3
(16)
(74)
(59)
(74)
1Q10
95
42
87
(42)
48
30
(22)
(27)
211
(5)
24
230
(46)
13
(53)
222
366
222
2Q10
156
(9)
85
(111)
69
22
(21)
(37)
154
(1)
33
186
(54)
4
(119)
(295)
(278)
(295)
3Q10
78
50
82
(52)
35
13
(21)
(67)
118
(1)
(2)
115
(77)
0
(47)
(98)
(107)
(98)
4Q10
379
129
340
(241)
143
76
(85)
(167)
574
(10)
54
618
(236)
20
(235)
(245)
(78)
(245)
2010
72
46
79
0
164
19
(26)
(41)
313
(3)
13
323
0
18
(175)
(24)
142
(24)
1Q11
114
55
80
(75)
(126)
33
(25)
(55)
1
(5)
46
42
145
48
78
(76)
109
29
(24)
(65)
244
72
45
78
(52)
(72)
19
(24)
(60)
7
426
187
321
(253)
(33)
101
(115)
(275)
358
454
191
322
(278)
38
103
(135)
(300)
396
32
276
25
32
404
194
315
(202)
74
100
(99)
(221)
564
(8)
116
673
81
439
74
470
Balance Sheet
293
230
449
(276)
(303)
90
(43)
(135)
305
(13)
(9)
283
0
5
0
(300)
(12)
(300)
2009
(200)
206
48
206
2Q11
135
0
3Q11E
32
(0)
4Q11E
18
(516)
182
357
182
2011E
439
0
2012E
470
0
2013E
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. In Net Debt
155
1,984
2,015
1,957
1,860
12
163
2,015
2,082
2,049
1,919
59
239
2,082
1,792
1,937
1,553
(366)
170
1,792
2,001
1,897
1,831
278
156
2,001
2,094
2,048
1,938
107
156
2,015
2,094
1,982
1,938
78
175
2,094
1,971
2,033
1,796
(142)
296
1,971
2,044
2,008
1,748
(48)
431
2,044
2,044
2,044
1,613
(135)
463
2,044
2,044
2,044
1,581
(32)
463
2,094
2,044
2,032
1,581
(357)
870
2,044
2,012
2,040
1,142
(439)
1,340
2,012
2,012
2,012
672
(470)
2,688
2,701
2,710
2,911
2,917
2,917
2,707
2,614
2,594
2,643
2,643
2,953
3,272
Debt/Cap
TTM EBITDA
43%
$14.77
830
107
44%
$14.51
830
123
40%
$14.49
849
133
41%
$15.82
865
134
42%
$16.03
861
132
42%
$15.77
861
132
42%
$15.12
884
129
44%
$15.38
921
126
44%
$15.69
956
124
44%
$15.99
953
125
44%
$15.99
953
125
41%
$17.87
1,007
122
38%
$19.80
1,050
115
2.4x
2.2x
7.8x
2.5x
2.3x
6.7x
2.1x
1.8x
6.4x
2.3x
2.1x
6.5x
2.4x
2.3x
6.5x
2.4x
2.3x
6.5x
2.2x
2.0x
6.8x
2.2x
1.9x
7.3x
2.1x
1.7x
7.7x
2.1x
1.7x
7.6x
2.1x
1.7x
7.6x
2.0x
1.1x
8.3x
1.9x
0.6x
9.1x
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
(141)
Figure 163: Lodging Segment Model ($ in MM)
2009
Lodging Revenue
1Q10
2Q10
660
144
178
203
163
688
149
190
208
166
713
750
787
Avg # of rooms
yoy % chg.
sequential chg.
RevPAR
yoy % chg.
Royalties and Franchise Fees
yoy % chg.
Marketing, Reservations, Wyndham rewards
yoy % chg.
Hotel Management Reimbursables
yoy % chg.
Ancillary Revenues
yoy % chg.
591,825
3.8%
606,800
2.8%
2.3%
$32.25
-0.4%
69
1.5%
65
-1.5%
20
-13.0%
24
41.2%
605,700
2.5%
-0.2%
$37.14
6.7%
82
13.9%
76
4.1%
18
-14.3%
27
58.8%
612,700
2.5%
1.2%
$29.18
10.2%
62
8.8%
60
13.2%
18
-5.3%
23
15.0%
604,625
2.2%
612,900
1.0%
0.5%
$35.38
9.7%
75
8.7%
75
15.4%
19
-5.0%
21
-12.5%
615,419
1.6%
0.4%
$38.63
4.0%
617,938
0.9%
0.4%
$30.35
4.0%
622,975
1.5%
631,697
1.4%
$31.14
2.4%
265
4.3%
251
2.0%
77
-9.4%
95
26.7%
609,600
2.7%
-0.5%
$27.71
7.4%
58
11.5%
58
16.0%
19
-9.5%
18
-14.3%
613,964
1.5%
$30.34
-14.9%
254
-14.2%
246
-12.1%
85
-14.1%
75
-3.8%
593,300
0.8%
-0.7%
$25.81
-6.8%
52
-8.8%
50
-7.4%
21
-4.5%
21
0.0%
$32.84
6.2%
133
$34.34
4.0%
$35.71
4.0%
133
0
17
-5.0%
24
-10.0%
17
-5.0%
21
-10.0%
72
-6.2%
84
-11.6%
72
0.0%
86
2.0%
75
4.0%
87
2.0%
Fees tied to Franchise Hotel Revenues
yoy % chg.
yoy % chg. modeled
500
-13.2%
-11.7%
102
-8.1%
-6.0%
134
0.0%
2.4%
158
9.0%
9.4%
122
10.9%
13.0%
516
3.2%
4.7%
116
13.7%
10.3%
150
11.9%
10.8%
167
128
4.9%
592
5.5%
5.5%
624
5.7%
561
8.7%
7.9%
5.5%
Expenses, before Reimbursables & One-Time Charges
yoy % chg.
Margin on Fees tied to Hotel Revenues
Operating expenses
Onetime charges
Lodging expenses
Lodging Adjusted EBITDA
Adj EBITDA margin
EBITDA flow through
Adjusted Margin chg. (in bps)
397
-5.5%
20.6%
482
3
485
178
27.0%
60.2%
(411)
90
-4.3%
11.8%
111
0
111
33
22.9%
50.0%
(176)
108
6.9%
19.4%
128
1
129
50
28.1%
0.0%
(65)
118
13.5%
25.3%
136
0
136
67
33.0%
45.0%
131
105
7.1%
13.9%
123
0
123
40
24.5%
57.1%
306
421
6.0%
18.4%
498
1
499
190
27.6%
42.9%
65
90
0.0%
22.4%
109
13
122
40
26.8%
140.0%
393
105
-2.8%
30.0%
124
0
124
66
34.7%
133.3%
665
129
9.0%
23.0%
146
0
146
63
30.1%
-81.5%
(294)
111
6.0%
13.0%
128
0
128
37
22.5%
435
3.3%
22.5%
507
13
520
206
28.9%
63.7%
127
457
5.0%
22.8%
529
0
529
221
29.5%
40.6%
57
475
4.0%
23.9%
550
0
550
237
30.1%
42.7%
103
(200)
Page 112
20 September 2011
Figure 164: Vacation Exchange & Rental Model ($ in MM)
Vacation Exchange & Rental Revenue
Average Number of Members (in 000s)
yoy % chg.
sequential chg.
Exchange revenue Per Member
yoy % chg.
Exchange Revenue
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
1,152
3,783
3.1%
281
3,741
-1.4%
-0.1%
$172.20
-1.2%
161
330
3,766
-0.4%
0.7%
$173.44
-0.3%
163
282
3,759
-0.2%
-0.2%
$162.59
-0.8%
153
1,193
3,753
-0.8%
361
3,755
0.4%
-0.3%
$178.46
3.6%
168
428
3,757
-0.2%
0.1%
$178.21
2.8%
167
300
3,759
0.0%
0.1%
$165.00
1.5%
155
1,506
3,768
0.2%
1,591
3,806
1.0%
$177.54
0.5%
666
356
3,766
0.5%
0.2%
$205.64
1.8%
194
1,446
3,759
0.2%
$176.71
-11.0%
668
300
3,746
-1.1%
-1.0%
$201.93
3.6%
189
$181.83
2.4%
684
$185.55
2.0%
699
$187.41
1.0%
713
368
14.3%
268
6.0%
1,362
17.1%
1,403
3.0%
1,446
3.0%
$690.43
38.0%
254
57.7%
7
$516.49
15.0%
138
21.8%
7
$533.29
25.7%
723
46.1%
39
$552.23
3.5%
771
6.7%
36
$579.84
5.0%
838
8.7%
40
300
30.0%
(150)
0
300
129
262
12.9%
(200)
0
262
39
1,104
23.7%
(214)
(24)
1,080
342
1,153
23.4%
(25)
0
1,153
353
1,219
23.4%
0
0
1,219
373
Vacation Rental Transactions (in 000s)
yoy % chg.
Same-store, excluding CCY yoy % chg
Average Net Price Per vacation
yoy % chg.
Vacation Rental Revenue
yoy % chg.
Difference/Ancillary Revenue
964
3.1%
291
6.6%
297
28.6%
322
22.0%
253
29.1%
1,163
20.6%
398
36.8%
$479.72
-8.8%
460
-6.9%
24
$361.17
2.3%
105
9.0%
6
$387.01
-18.0%
115
5.5%
5
$500.31
-15.8%
161
2.7%
6
$449.12
-10.1%
114
16.0%
15
$424.40
-11.5%
495
7.5%
32
$377.17
4.4%
150
42.8%
12
328
10.4%
3%
$549.09
41.9%
180
56.7%
13
Operating expenses
Adj EBITDA margin
Adjusted EBITDA Margin chg (in bps)
Onetime charges
Vacation Exchange & rentals expenses
Vacation Exchange & Rental Adjusted EBITDA
859
25.4%
97
6
865
293
216
28.0%
13
4
220
84
203
27.8%
704
0
203
78
226
31.5%
(121)
1
227
104
240
14.9%
(371)
10
250
42
885
25.8%
38
15
900
308
263
26.1%
(188)
0
263
93
279
22.7%
(350)
(24)
255
82
Page 113
20 September 2011
Figure 165: Vacation Ownership Interest Model ($ in MM)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Vacation Ownership Revenue
yoy % chg.
Gross Sales
Tours (in 000s)
yoy % chg.
Volume Per Guest
yoy % chg.
Gross VOI sales, before WAAM
Sales under WAAM
Telesales upgrades
Other
Gross VOI Sales
yoy % chg.
Net Sales
Loan loss provisions
% of Gross VOI Sales
VOI Sales, (ex % of completion acct)
Effect of % of completion accounting
Reported NET VOI sales, ex WAAM
Finance Income:
Finance Income
VOI Receivables, net
yoy % chg.
Finance Income as % of VOI Receivables
Interest on Securitized Timeshare debt
Cost of Funds
Securitized Debt
% of VOI Receivables, net
Est. Net interest income
Fees/Other Revenues:
Property mgmt fees
yoy % chg.
WAAM commissions revs
WAAM margin
Ancillary Revenue
% of Total Revenue
Non-Finance Expenses:
Non-Finance Revenues
Est. non-Finance Expenses
non-finance EBITDA margin
Non-Finance Margin Chg
Est. non-finance EBITDA
1,945
-14.6%
444
-3.9%
505
8.1%
533
4.9%
497
-2.2%
1,979
1.7%
450
1.4%
541
7.1%
559
4.9%
514
3.3%
2,064
4.3%
2,149
4.1%
2,246
4.5%
616
-46.1%
1,969
22.4%
1,210
123
-10.2%
2,334
25.1%
287
5
15
1
308
10.1%
163
-0.6%
2,156
16.3%
351
13
7
(0)
371
13.5%
187
8.1%
2,081
7.0%
389
20
3
1
413
12.9%
160
12.7%
2,214
0.2%
354
14
3
1
372
8.5%
633
2.8%
2,196
11.6%
1,382
52
28
2
1,464
11.3%
137
11.4%
2,192
-6.1%
300
18
0
1
319
3.7%
177
8.6%
2,227
3.3%
394
19
187
0.0%
2,132
2.5%
399
35
160
0.0%
2,275
2.8%
364
22
434
5.0%
386
3.7%
675
2.0%
2,230
1.0%
1,503
141
0
0
1,644
6.0%
695
3.0%
2,207
-1.0%
1,534
230
(1)
412
11.1%
661
4.4%
2,206
0.5%
1,457
94
0
0
1,551
5.9%
(449)
37.1%
867
187
1,053
(86)
30.0%
217
(87)
24.8%
271
(85)
21.8%
308
(82)
23.1%
276
(340)
24.6%
1,072
(79)
26.3%
222
(80)
20.3%
313
(78)
19.5%
321
(78)
21.5%
286
(315)
21.6%
1,142
(321)
21.3%
1,182
(322)
21.0%
1,212
217
271
308
276
1,072
222
313
321
286
1,142
1,182
1,212
435
3,118
-1.8%
14.0%
139
8.6%
1,619
51.9%
296
105
3,031
-3.8%
13.9%
24
6.4%
1,498
49.4%
81
106
2,985
-4.4%
14.2%
29
7.6%
1,546
51.8%
77
107
3,012
-3.4%
14.2%
27
6.8%
1,615
53.6%
80
107
2,982
-3.2%
14.4%
25
6.1%
1,650
55.3%
82
425
3,002
-3.7%
14.2%
105
6.7%
1,577
52.5%
320
102
2,903
-4.2%
14.1%
23
5.3%
1,814
62.5%
79
103
2,897
-2.9%
14.2%
23
5.3%
1,688
58.3%
80
101
2,898
-3.8%
13.9%
23
5.3%
1,797
62.0%
78
99
2,874
-3.6%
13.8%
22
5.1%
1,724
60.0%
77
405
2,893
-3.6%
14.0%
92
5.2%
1,756
382
2,821
-2.5%
13.5%
86
5.0%
1,721
313
296
363
2,790
-1.0%
13.0%
91
5.3%
1,730
62.0%
271
376
8.4%
0
81
6.7%
100
9.9%
3
60.0%
19
6.6%
100
6.4%
8
61.5%
20
5.7%
104
8.3%
12
60.0%
2
0.5%
101
6.3%
8
57.1%
5
1.4%
405
7.7%
31
59.6%
46
3.3%
110
10.0%
10
55.6%
6
2.0%
108
8.0%
11
57.9%
6
1.5%
112
8.0%
19
55.0%
6
1.5%
111
10.0%
12
55.0%
5
1.5%
441
9.0%
52
55.7%
23
1.6%
477
8.0%
78
55.0%
30
2.0%
515
8.0%
127
55.0%
31
2.0%
1,510
934
38.1%
1,358
576
339
252
25.7%
(521)
87
399
285
28.6%
(1,500)
114
426
298
30.0%
(695)
128
390
259
33.6%
(726)
131
1,554
1,094
29.6%
(854)
460
348
252
27.6%
192
96
438
308
29.7%
111
130
458
318
30.5%
50
140
414
274
33.9%
30
140
1,659
1,152
30.5%
93
506
1,766
1,213
31.3%
80
553
1,884
1,293
31.3%
0
590
Operating expenses, incl finance
One time charges
Vacation Ownership expenses
VOI Adjusted EBITDA
Adj EBITDA Margin
Margin chg. in bps
1,522
36
1,558
423
21.7%
858
362
0
362
82
18.5%
137
401
0
401
104
20.6%
(253)
410
0
410
123
23.1%
260
366
0
366
131
26.4%
37
1,539
0
1,539
440
22.2%
49
354
(1)
353
96
21.3%
286
411
0
411
130
24.0%
344
419
0
419
140
25.0%
195
375
0
375
139
27.0%
68
1,559
(1)
1,558
505
24.5%
222
1,620
1,620
529
24.6%
16
1,707
0
1,707
539
24.0%
(60)
324
(35)
289
3,127
(335)
2,792
3,451
-5.1%
(370)
3,081
(383)
462
(370)
13.4%
10.7%
324
(34)
290
3,067
(326)
2,741
3,391
-3.7%
(360)
3,031
(370)
96
(360)
11.1%
10.6%
322
(35)
287
3,021
(323)
2,698
3,343
-4.3%
(358)
2,985
(360)
90
(358)
10.6%
10.7%
319
(34)
285
3,057
(330)
2,727
3,376
-3.3%
(364)
3,012
(358)
78
(364)
9.3%
10.8%
331
(36)
295
3,013
(326)
2,687
3,344
-3.1%
(362)
2,982
(364)
84
(362)
10.0%
10.8%
331
(36)
295
3,013
(326)
2,687
3,344
-3.1%
(362)
334
(37)
297
2,926
(325)
2,601
3,260
-2.5%
(362)
2,898
(356)
74
(362)
9.1%
11.1%
3,263
-3.3%
(366)
2,898
(362)
74
(366)
9.1%
11.2%
3,244
-3.0%
(370)
2,874
(366)
74
(370)
9.1%
11.4%
3,244
-3.0%
(370)
3,189
-1.7%
(370)
(370)
348
(362)
10.4%
10.8%
336
(36)
300
2,923
(320)
2,603
3,259
-3.9%
(356)
2,903
(362)
85
(356)
10.2%
10.9%
(362)
307
(370)
9.5%
11.4%
(370)
320
(370)
10.0%
11.6%
(389)
2,790
(370)
303
(389)
9.5%
12.2%
Cash used for Contract Receivables
(276)
(36)
(42)
(111)
(52)
(241)
0
(75)
(76)
(52)
(202)
(253)
(278)
From Balance Sheet:
Timeshare Inventory
Current Timeshare Inventory
Non-current Timeshare Inventory
COGs
Reclaimed points
Est Development spend
Net Cash flow used in Inventory
1,307
354
953
302
165
125
12
1,293
330
963
72
34
23
14
1,269
343
926
88
32
32
24
1,238
336
902
97
28
38
31
1,181
348
833
89
30
2
57
1,181
348
833
345
124
95
126
1,166
345
821
63
30
18
15
1,121
344
777
83
26
11
45
1,089
1,064
1,064
983
909
84
26
25
32
76
26
25
25
306
110
79
117
316
114
120
81
322
108
140
74
Cash from VOI Securitized Borrowings
(303)
(9)
48
69
35
143
164
(126)
109
(72)
74
(33)
38
VOI GAAP taxable income
Less new loan originations
Add loan repayments
Less write-offs
Add loan loss reserves
Cash taxable income
Tax rate
Chg in Deferred Tax liability
423
(823)
849
(462)
449
436
82
(195)
207
(96)
86
84
40.0%
(1)
104
(239)
203
(90)
87
65
40.0%
15
123
(265)
201
(78)
85
66
40.0%
23
131
(241)
203
(84)
82
91
40.0%
16
440
(940)
814
(348)
340
306
96
(204)
201
(85)
79
86
40.0%
4
130
(268)
196
(74)
80
63
40.0%
27
140
(271)
196
(74)
78
68
40.0%
29
139
(248)
196
(74)
78
91
40.0%
19
505
(991)
788
(307)
315
309
529
(1,022)
769
(320)
321
276
78
101
539
(1,043)
765
(303)
322
281
40.0%
103
104
2
1,316
-33.8%
1,764
7.3%
VOI Balance sheet Items. Update from the 10Q:
From Timeshare Receivables Note:
Current vacation ownership contract receivables
Net vacation ownership contract receivables
Long term vacation ownership contract receivables
Net vacation ownership contract receivables
EOP contract receivables, gross
EOP VOI Receivables, net
Opening Allowance
Less Written Off
Closing Balance
Written off as a % of Gross Receivables (ann.)
Provision as a % of Gross Receivables
Page 114
(5)
54
3,179
20 September 2011
Appendix: WYN in Charts and Graphs
Figure 166: 2011E Net Revenue by Segment
Vacation
Ownership
49%
Vacation Exchange
& Rentals
34%
Vacation
Ownership
49%
Vacation Exchange
& Rentals
34%
Corporate & Other
0%
Lodging
17%
Corporate & Other
0%
Lodging
17%
Figure 168: 2011E Net EBITDA by Segment
Figure 169: 2012E Net EBITDA by Segment
Lodging
20%
Vacation
Ownership
48%
Lodging
20%
Vacation
Ownership
48%
Vacation Exchange
& Rentals
32%
Vacation Exchange
& Rentals
32%
Page 115
20 September 2011
Figure 170: Annual Hotel Adjusted EBITDA and Adjusted EBITDA Margins
$300
32%
31.1%
31%
$250
30.1%
30%
29.5%
28.9%
$200
29%
27.6%
$150
28%
27.0%
27%
$100
26%
$234
$178
$190
$206
$221
$237
$50
2008
2009
2010
2011E
2012E
2013E
$0
25%
24%
Lodging Adjusted EBITDA
Lodging Adjusted EBITDA Margin
Figure 171: Annual Exchange & Rental Adjusted EBITDA and Adjusted EBITDA Margins
27%
$400
25.8%
$350
26%
25.4%
26%
$300
$250
25%
24.5%
25%
$200
24%
23.7%
23.4%
$150
23.4%
24%
$100
$308
$293
$308
$342
$353
$373
$50
23%
2008
2009
2010
2011E
2012E
2013E
$0
23%
22%
Exchange & Rental Adjusted EBITDA
Exchange & Rental Adjusted EBITDA Margin
Page 116
20 September 2011
Figure 172: Annual Vacation Ownership Adjusted EBITDA and Adjusted EBITDA
Margins
$600
30%
24.5%
$500
21.7%
24.6%
24.0%
22.2%
$400
25%
20%
13.2%
$300
15%
$505
$529
$539
5%
$440
$100
$423
10%
$300
$200
2008
2009
2010
2011E
2012E
2013E
0%
$0
Vacation Ownership Adjusted EBITDA
Vacation Ownership Adjusted EBITDA Margin
Figure 173: 2Q 2011 Hotel Rooms by Brand
3%
4%
2% 1%
0%
0%
Days Inn
Super 8
3%
24%
4%
Travelodge
5%
Europe/Middle
East/Africa
8%
Canada
6%
Latin/South
America
2%
Ramada
Howard Johnson
4%
Figure 174: 2010 Hotel Rooms by Location
Asia/Pacific
9%
Wyndham Hotels and Resorts
Microtel Inns & Suites
8%
23%
19%
Baymont
U.S.
75%
Knights Inn
Wingate
Tryp
Page 117
20 September 2011
Figure 175: WYN U.S. New Hotel Construction Pipeline by Brand as of August 2011
Pipeline Hotels
Segment
Brand Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Dream Hotel
Wyndham
Total
Upper Upscale
Upper Upscale
Upper Upscale
3
50
53
0.20%
3.32%
3.52%
0
3
3
0.00%
3.85%
3.85%
Night Hotel
Ramada Plaza
Tryp by Wyndham
Total
Upper Midscale
Upper Midscale
Upper Midscale
Upper Midscale
Upper Midscale
1
32
0
18
51
0.01%
0.39%
0.00%
0.22%
0.62%
0
0
1
2
3
0.00%
0.00%
0.10%
0.21%
0.31%
Baymont
Howard Johnson
Ramada
Wingate By Wyndham
Total
Midscale
Midscale
Midscale
Midscale
Midscale
Midscale
256
72
88
476
162
1,054
4.38%
1.23%
1.50%
8.14%
2.77%
18.02%
2
1
1
2
4
10
0.64%
0.32%
0.32%
0.64%
1.28%
3.21%
Days Inn
Knights Inn
Microtel Inn
Super 8
Travelodge
Total
Economy
Economy
Economy
Economy
Economy
Economy
Economy
1,659
222
332
302
1,843
340
4,698
16.08%
2.15%
3.22%
2.93%
17.86%
3.30%
45.54%
3
0
0
13
3
0
19
4.92%
0.00%
0.00%
21.31%
4.92%
0.00%
31.15%
5,856
11.17%
35
1.19%
Brand
Total
Page 118
20 September 2011
Figure 176: WYN U.S. New Room Construction Pipeline by Brand as of August 2011
Pipeline Rooms
Segment
Brand Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Dream Hotel
Wyndham
Total
Upper Upscale
Upper Upscale
Upper Upscale
644
13,982
14,626
0.12%
2.54%
2.66%
0
519
519
0.00%
2.21%
2.21%
Night Hotel
Ramada Plaza
Tryp by Wyndham
Total
Upper Midscale
Upper Midscale
Upper Midscale
Upper Midscale
Upper Midscale
72
7,181
0
3,542
10,795
0.01%
0.88%
0.00%
0.43%
1.32%
0
0
173
186
359
0.00%
0.00%
0.19%
0.20%
0.39%
Baymont
Howard Johnson
Ramada
Wingate By Wyndham
Total
Midscale
Midscale
Midscale
Midscale
Midscale
Midscale
21,490
6,811
9,578
52,386
14,771
105,036
4.18%
1.33%
1.86%
10.19%
2.87%
20.44%
141
23
43
133
180
520
0.60%
0.10%
0.18%
0.57%
0.77%
2.21%
Days Inn
Knights Inn
Microtel Inn
Super 8
Travelodge
Total
Economy
Economy
Economy
Economy
Economy
Economy
Economy
128,363
16,900
20,790
21,402
110,863
23,796
322,114
16.37%
2.15%
2.65%
2.73%
14.14%
3.03%
41.07%
152
0
0
862
118
0
1,132
4.18%
0.00%
0.00%
23.70%
3.24%
0.00%
31.12%
452,571
9.27%
2,530
0.80%
Brand
Total
Page 119
20 September 2011
Figure 177: WYN U.S. Conversions by Brand
Hotels
Brand
Days Inn
Super 8
Ramada
Ramada Plaza
Howard Johnson
Travelodge
Wyndham Hotels
Microtel Inn
Knights Inn
Wingate By Wyndham
Hawthorn Suites by Wyndh
Dream Hotels
Night Hotels
Jul-10
Existing
Supply
130,452
112,646
44,782
7,216
9,076
19,098
23,990
12,761
3,082
21,419
20,495
19,339
14,557
7,345
0
0
Hotels
Brand
Days Inn
Super 8
Ramada
Ramada Plaza
Howard Johnson
Travelodge
Wyndham Hotels
Microtel Inn
Knights Inn
Wingate By Wyndham
Hawthorn Suites by Wyndh
Dream Hotels
Night Hotels
Jul-06
Existing
Supply
137,350
114,755
46,671
7,466
7,481
25,389
27,112
16,659
2,396
18,306
11,457
15,956
13,509
7,283
0
0
New
Build
229
243
64
0
42
0
78
15
0
595
70
122
266
0
316
0
Wyndham's U.S. hotel room conversions in the last year
Add
Removed
Converted
Room
Converted
Rooms
In
Additions
Closed
Out
Removed
5,205
538
(519)
(6,112)
(467)
1,829
265
(296)
(2,568)
(281)
15,063
132
(1,290)
(5,560)
(137)
667
33
0
(376)
(93)
1,926
43
0
(1,284)
(67)
0
7
0
(1,907)
(67)
2,240
205
(400)
(1,871)
(341)
2,101
73
0
(967)
(1)
667
9
(211)
0
(5)
306
11
0
(755)
(30)
2,776
60
(471)
(1,221)
(74)
2,846
204
(290)
(982)
(317)
307
2
0
(359)
(2)
404
108
0
(822)
(2)
315
13
0
0
0
70
2
0
0
0
Net
Gain /
Loss
(1,126)
(808)
8,272
231
660
(1,967)
(89)
1,221
460
127
1,140
1,583
214
(312)
644
72
Jul-11
Existing
Supply
129,326
111,838
53,054
7,447
9,736
17,131
23,901
13,982
3,542
21,546
21,635
20,922
14,771
7,033
644
72
New
Build
2,264
2,437
638
178
466
341
502
566
435
6,172
1,312
538
3,805
565
316
0
Wyndham's U.S. hotel room conversions in the last five years
Add
Removed
Converted
Room
Converted
Rooms
In
Additions
Closed
Out
Removed
26,740
2,225
(4,408)
(31,530)
(3,315)
12,870
953
(1,182)
(16,633)
(1,362)
34,634
728
(4,282)
(24,209)
(1,126)
4,029
102
(473)
(3,672)
(183)
7,727
230
(621)
(5,048)
(499)
3,636
270
(1,719)
(9,935)
(851)
10,930
750
(1,307)
(12,978)
(1,108)
7,345
440
(810)
(9,852)
(366)
3,361
52
(211)
(2,471)
(20)
485
249
0
(3,595)
(71)
14,622
188
(471)
(5,364)
(109)
16,325
694
(2,303)
(7,775)
(2,513)
307
3
(66)
(2,779)
(8)
2,439
162
(82)
(3,286)
(48)
315
13
0
0
0
70
2
0
0
0
Net
Gain /
Loss
(8,024)
(2,917)
6,383
(19)
2,255
(8,258)
(3,211)
(2,677)
1,146
3,240
10,178
4,966
1,262
(250)
644
72
Jul-11
Existing
Supply
129,326
111,838
53,054
7,447
9,736
17,131
23,901
13,982
3,542
21,546
21,635
20,922
14,771
7,033
644
72
Page 120
20 September 2011
20 September 2011
Orient-Express Hotels
Reuters: OEH.N
Buy
Bloomberg: OEH UN
Rating
Initiating Coverage on OEH with a Buy Rating and an $11 Price Target
After a big sell-off in 2008 when shares fell 87%, OEH shares experienced gains
of 32% in 2009 and 28% in 2010. Despite solid returns, the growth was
considerably below that of its peer set. OEH is a non-Consensus long idea and we
believe shares are meaningfully undervalued despite considerable reasons for
fundamental optimism and several catalysts. Accordingly, we see a significantly
favorable risk-reward scenario with downside of $5 and upside to $18. Buy.
Reasons to Invest
We expect shares to benefit from: 1) limited expectations for margin
enhancements despite the potential for significant improvements in flow through,
2) the pricing in of much of the negative macro news that has seemingly already
been discounted for both lodging and luxury peers, 3) limited Consensus support
and elevated short interest in the face of several potential positive catalysts, and
4) continued strength in the Italian portfolio through the seasonally strong 3Q
2011 in Europe and beyond.
Price target
52-week range
8.04
11.00
14.06 - 6.70
40
30
20
10
0
9/08
3/09
9/09
3/10
9/10
3/11
Orient-Express Hotel
Performance (%)
Absolute
S&P 500 INDEX
1m
-1.7
1.9
3m
-20.5
-4.1
12m
-23.4
8.1
Market Cap (USD)
Free float (%)
823.8
102.5
87
617,384
5,822
Downside risks include: 1) a sub peer quality balance sheet, 2) the potential for
additional equity raises, 3) new competition, 4) potentially lofty near term
Consensus expectations, and 5) the overhang of the current CEO search.
Our $11 price target is based on a blended multiple of 11.6x our 2013 EBITDA
estimate. Our blended multiple is derived by applying a 13.5x multiple to OEH’s
Hotel Management and Ownership Interest segment, a 6.0x multiple to the 21
Club, and a 6.5x multiple to the Trains & Cruises segment. Our multiples for these
segments are based on our interpretation of historical segment multiples adjusted
for the current climate. For the owned hotels segment, we generate a blended
price per key for the entire portfolio by applying prudent asset values to each
property. Our aggregate blended price per key estimate of ~$662K implies a
multiple of 12.6x our 2013 estimated segment EBITDA. After extracting corporate
costs, real estate loses, and 2013 net debt, we arrive at an equity value of $1.124
billion.
Year End Dec 31
2010A
2011E
2012E
1Q EPS1
-0.22
-0.14A
-0.13
2Q EPS
0.04
0.07A
0.18
3Q EPS
0.07
0.08
0.19
4Q EPS
-0.17
-0.15
-0.02
FY EPS (USD)
-0.27
-0.13
0.23
–
–
35.3
P/E (x)
1
Page 121
20 September 2011
Orient Express Hotels (OEH) –
Buy
Company Description
Orient-Express is a global lodging company that owns, has ownership interests in, or
manages iconic luxury assets. Included in the OEH portfolio are 35 hotel assets, six
trains/cruise experiences, the 21 Club in New York City, and a unique collection of African
safari adventure assets.
Executive Summary
The DB Thesis: Buy
We are initiating coverage on OEH with a Buy rating and an $11 price target. After a big selloff in 2008 when shares fell 87%, OEH shares experienced gains of 32% in 2009 and 28% in
2010. While solid, the growth was considerably below that of its peer set over the period.
Undoubtedly, the reasons for the considerable underperformance at the time were certainly
valid, however we believe OEH is still being painted with largely the same brush as OEH
remains a non-Consensus long idea despite a considerably different look at present, in our
view. Currently, we see a stock / collection of assets that is meaningfully undervalued despite
considerable reasons for fundamental optimism and several catalysts that we believe could
change investor perceptions. Lastly, we see a significantly favorable risk-reward scenario
with downside of $5 and upside to $18.
Reasons to Invest
We expect shares to benefit from: 1) limited expectations for margin enhancements despite
the potential for significant improvements in flow through, 2) the pricing in of much of the
negative macro news that has seemingly already been discounted for both lodging and luxury
peers, 3) limited Consensus support and elevated short interest despite several potential
positive catalysts, and 4) continued strength in the Italian portfolio through the seasonally
strong 3Q 2011 in Europe and beyond.
Risks to OEH include: 1) a sub peer quality balance sheet that would be tested should the
European crisis deteriorate further, 2) the potential for additional equity raises, 3) new
competition, 4) potentially lofty near term Consensus expectations, and 5) the overhang of
the current CEO search.
DB Estimates
We estimate adjusted EBITDA of $41.8 million, $94.6 million, $121.3 million, and $143.8
million for the 3Q 2011, 2011, 2012, and 2013, respectively. Our adjusted EPS estimates for
the 3Q 2011, 2011, 2012, and 2013 are $0.08, ($0.13), $0.23, and $0.40, respectively. We
note that our adjusted EBITDA and EPS estimates for the 2H 2011 are modestly below
Consensus and do not include potential impairment charges for the residential segment,
which we anticipate in the 3Q 2011.
Valuation
At current levels, OEH trades at 14.7x, 11.7x, and 9.5x our 2011, 2012, and 2013 EBITDA
estimates, respectively. Since 2005, OEH has traded at an average multiple of 18.1x forward
year EBITDA, however, since 2009, the average forward multiple has declined to 15.7x. On a
PE basis, OEH trades at 35.3x and 20.3x our 2012 and 2013 EPS estimates, respectively. We
note that current levels imply a price per key for the wholly owned room portfolio of ~$553K.
Our $11 price target is based on a blended multiple of 11.6x our 2013 EBITDA estimate. Our
blended multiple is derived by applying a 13.5x multiple to OEH’s Hotel Management and
Ownership Interest segment, a 6.0x multiple to the 21 Club, and a 6.5x multiple to the Trains
& Cruises segment. Our multiples for these segments are based on our interpretation of
Page 122
20 September 2011
historical segment multiples adjusted for the current climate. For the owned hotels segment,
we generate a blended price per key for the entire portfolio by applying prudent asset values
to each property. Our aggregate blended price per key estimate of ~$662K implies a multiple
of 12.6x our 2013 estimated segment EBITDA. After extracting corporate costs, real estate
loses, and 2013 net debt, we arrive at an equity value of $1.124 billion, or $11 per share.
Page 123
20 September 2011
Reasons to Invest
We Expect Improving Flow Through to Drive Meaningful EBITDA Acceleration
While we believe the mix of the OEH portfolio has changed to the detriment of margins since
the prior peaks for worldwide RevPAR (2007) or worldwide revenue per room night sold
(2008), we believe there to be considerable margin growth potential that, if recognized,
would drive upside to our forecasts.
Figure 178: Annual Worldwide RevPAR and Y/Y % Chg.
Figure 179: Annual Worldwide Revenue per Room Night
Sold and Y/Y % Chg.
$569
$600
$481
$500
$462
$433
$422
$456
20.0%
$1,000
15.0%
$900
$528
10.0%
$385
$400
$300
$200
$0
2006
2007
2008
2009
2010
Total Worldwide RevPAR
2011E
2012E
$700
$774
$764
$858
12.0%
$898
10.0%
$756
8.0%
$684
5.0%
$600
6.0%
0.0%
$500
4.0%
-5.0%
$400
2.0%
-10.0%
$100
$751
$800
$812
$300
0.0%
$200
-15.0%
$100
-20.0%
$0
-2.0%
-4.0%
2006
2013E
yoy % chg. in RevPAR
2007
2008
Revenue per Room Night Sold
2009
2010
2011E
2012E
2013E
yoy % chg. in Revenue per Room Night Sold
In 2011, we estimate OEH will generate peak worldwide RevPAR ($481, +14.0%), peak
worldwide revenue per room night sold ($812, +7.5%), and peak owned hotel segment
revenue ($494 million, +14.4%). That said we believe the biggest needle mover for OEH is
actually on the cost side. In recent years during which RevPAR (2006, 2007, and 2010) and
revenue per room night sold (2006, 2007, and 2008) grew, operating expenses per room
generally outpaced the growth. As such, we believe investors have been prudently cautious
with respect to getting too caught up in the robust RevPAR and revenue per room night sold
growth.
9.7%
3.1%
8.3%
6.8%
7.1%
10.0%
4.9%
15.0%
10.1%
Figure 180: Y/Y % chg. in RevPAR Versus Y/Y % chg. in
Daily Operating Expenses per Room Night Available
5.0%
Figure 181: Y/Y % chg. in Revenue per Room Night Sold
Versus Y/Y % chg. in Daily Operating Expenses per
Room Night Sold
14.0%
11.5%
12.0%
9.9%
10.0%
7.7%
8.0%
0.0%
6.0%
-1.3%
-5.0%
4.0%
-10.0%
-15.6%
-15.0%
-20.0%
2006
2007
2008
-12.4%
2.0%
2009
yoy % chg. in RevPAR
yoy % chg. in Daily Operating Expenses per Room Night Available
Page 124
3.1%
2.6%
2.4%
0.5%
0.0%
-2.0%
2010
2006
2007
-1.3%
2009
2008
-1.1%-0.7%
2010
yoy % chg. in Revenue per Room Night Sold
yoy % chg. in Daily Operating Expenses per Room Night Sold
20 September 2011
After four consecutive years of EBITDA margin declines in the owned hotel segment, OEH
appears poised to show margin growth in 2011 for the first time since 2006. In the 1H 2011,
margins are up ~230 bps year over year. More importantly, OEH is seeing considerable flow
through, when compared to historical periods of top line growth, as flow through in the year
to date through the first half stands at 33%.
Figure 182: Annual Owned Hotel EBITDA Margins
30.0%
26.0%
27.5%
Figure 183: Annual Owned Hotel EBITDA Flow Through
50%
26.5%
25.0%
24.5%
23.1%
22.8%
20.2%
20.0%
19.9%
43.2%
45%
21.1%
40.2%
39.0%
40%
35%
29.3%
30%
25%
15.0%
20.2%
20%
10.0%
16.9%
15%
10%
5.0%
5%
0%
0.0%
2005
2006
2007
2008
2009
2010
2011E
2012E
2005
2013E
2006
2007
2008
2009
2010
2011E
2012E
2013E
Owned EBITDA Flow Through
Owned EBITDA Margins
At present, management believes OEH can achieve 40% flow through in the near term and
we believe there is historical occupancy related data to suggest this is both possible and
potentially conservative as we look into 2012 and 2013.
In reviewing the last 26 quarters since 2005, worldwide occupancy has been below 60% 14
times, while occupancy eclipsed 60% 12 times. At present, we believe OEH can garner
occupancy levels north of 60% in four of the next six quarters, as well as in 2013. In the
quarters where OEH had occupancy north of 60%, the average EBITDA margin for the
owned portfolio in those periods was 27.9%. At present, we are forecasting owned segment
EBITDA margins of 21.1%, 22.8%, and 24.5% in 2011, 2012, and 2013, respectively.
12
25.0%
70.0%
12
60.0%
10
18.8%
20.0%
14
18.2%
16.0%
8
15.0%
6
6
10.0%
6
4
5.0%
2
2
0
0.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11E
4Q11E
1Q12E
2Q12E
3Q12E
4Q12E
27.9%
Occupancy Range Occurances
Average Owned EBITDA Margin
30.0%
Figure 185: Historical and Estimates Occupancy
58.1%
62.3%
62.5%
59.4%
61.6%
64.5%
65.6%
61.2%
58.4%
63.8%
65.1%
58.6%
60.8%
60.6%
60.0%
54.3%
50.4%
49.2%
52.0%
49.9%
53.7%
54.8%
59.6%
54.7%
56.9%
60.1%
61.8%
57.7%
58.5%
62.2%
64.5%
60.1%
Figure 184: Owned EBITDA Margin Skew Based on
Worldwide Occupancy Levels
Worldwide
Worldwide
Worldwide
Worldwide
Occupancy < 50% Occupancy 50-55% Occupancy 55-60% Occupancy > 60%
Worldwide Occupancy
Page 125
20 September 2011
Should occupancy levels north of 60% begin to drive margin as it historically has, we believe
there is upside to our estimates for the 2H 2011 and the out years given continued top line
growth in the segment and our tempered flow through assumptions. We note that every 5
percentage point improvement in flow through from our current forecast generates an
incremental ~$2.5 million in owned hotel EBITDA, or ~$0.30 (+4% from current levels) in
incremental equity value.
Figure 186: Flow Through Scenario Analysis
Current
Forecast
Flow Through Deceleration
2011E Net Revenue
2012E Net Revenue
$493.7
$543.2
$493.7
$543.2
$493.7
$543.2
$493.7
$543.2
Flow Through Acceleration
$493.7
$543.2
$493.7
$543.2
$493.7
$543.2
Flow Through
25%
30%
35%
40%
45%
50%
55%
2011E Owned Hotel EBITDA
Implied 2012E Owned Hotel EBITDA
$104.2
$116.6
$104.2
$119.1
$104.2
$121.6
$104.2
$124.0
$104.2
$126.5
$104.2
$129.0
$104.2
$131.5
2012E Net Revenue
2013E Net Revenue
$543.2
$592.7
$543.2
$592.7
$543.2
$592.7
$543.2
$592.7
$543.2
$592.7
$543.2
$592.7
$543.2
$592.7
Flow Through
28%
33%
38%
43%
48%
53%
58%
2012E Owned Hotel EBITDA
Implied 2013E Owned Hotel EBITDA
$124.0
$138.0
$124.0
$140.5
$124.0
$143.0
$124.0
$145.4
$124.0
$147.9
$124.0
$150.4
$124.0
$152.8
Incremental
($7.4)
($4.9)
($2.5)
$2.5
$4.9
$7.4
Owned Hotel Target Multiple
Incremental Equity Value
Shares Outstanding
12.6x
12.6x
12.6x
12.6x
12.6x
12.6x
12.6x
($93.2)
($62.2)
($31.1)
$0.0
$31.1
$62.2
$93.2
102
102
102
102
102
102
102
Incremental Equity Value per Share
($0.91)
($0.61)
($0.30)
$0.30
$0.61
$0.91
Upside / Downside to Current Price
-11.3%
-7.5%
-3.8%
3.8%
7.5%
11.3%
OEH’s Share Performance Has Not Been Indicative of Underlying Fundamental
Strength and 4Q Has Been a Seasonally Strong Q for OEH Shares
Despite strong performance from the Italian assets, healthy RevPAR growth across the
portfolio, and improving flow through, OEH shares have had a less than inspiring run in 2011
to date. More discouraging in our view is the relative underperformance versus both its
lodging peer group, and more so, its luxury good peer group. At present, the lodging peer
group, which includes HOT, H, GET, WYN, and CHH is down ~21% on a market cap
weighted basis in the year to date while OEH shares have fallen ~38% in the year to date.
When compared to a sample of European luxury retailers (RMS-FR, MC-FR, LUX-IT, PP-FR,
TOD-IT, and YOOX-IT), the underperformance is even more considerable given European
luxury retailer shares on a market cap weighted basis are up ~20% in the year to date. Given
the 0.65 correlation between OEH European RevPAR growth and European luxury retail sales
growth, we find this meaningful disconnect to be unusual and believe it represents a window
of opportunity for OEH shares at current levels.
Page 126
20 September 2011
Figure 187: YTD Indexed Share Performance Versus
Lodging Peers
Figure 188: YTD Indexed Share Performance Versus
Luxury Retail Peers
120
140
100
120
100
80
80
60
60
40
40
0
Lodging Peer Group Indexed (MC Weighted)
12/31/2010
1/7/2011
1/14/2011
1/21/2011
1/28/2011
2/4/2011
2/11/2011
2/18/2011
2/25/2011
3/4/2011
3/11/2011
3/18/2011
3/25/2011
4/1/2011
4/8/2011
4/15/2011
4/22/2011
4/29/2011
5/6/2011
5/13/2011
5/20/2011
5/27/2011
6/3/2011
6/10/2011
6/17/2011
6/24/2011
7/1/2011
7/8/2011
7/15/2011
7/22/2011
7/29/2011
8/5/2011
8/12/2011
8/19/2011
8/26/2011
9/2/2011
9/9/2011
9/16/2011
20
0
12/31/2010
1/7/2011
1/14/2011
1/21/2011
1/28/2011
2/4/2011
2/11/2011
2/18/2011
2/25/2011
3/4/2011
3/11/2011
3/18/2011
3/25/2011
4/1/2011
4/8/2011
4/15/2011
4/22/2011
4/29/2011
5/6/2011
5/13/2011
5/20/2011
5/27/2011
6/3/2011
6/10/2011
6/17/2011
6/24/2011
7/1/2011
7/8/2011
7/15/2011
7/22/2011
7/29/2011
8/5/2011
8/12/2011
8/19/2011
8/26/2011
9/2/2011
9/9/2011
9/16/2011
20
OEH Indexed
Luxury Peer Group Indexed (MC Weighted)
Source: Deutsche Bank and Factset. Note: Lodging peer group include; HOT, H, GET, WYN, and CHH.
OEH Indexed
Source: Deutsche Bank and Factset. Note: Luxury retail peer group includes; RMS-FR, MC-FR, LUX-IT, PP-FR,
TOD-IT, and YOOX-IT.
Figure 189: OEH European RevPAR Growth Versus European Luxury Retail Sales
Growth
60.0%
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
OEH European Segment RevPAR
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
-80.0%
European Luxury Retail Sales Growth
Source: Company reports and Deutsche Bank
Given the seasonality of the OEH owned hotel business, the 3Q is more often than not the
peak period of the year. As such, OEH generally reports its strongest earnings of the year in
the calendar 4Q. Whether coincidence or not, the calendar 4Q has generally been a strong
quarter for OEH as share prices have risen in seven of the last ten years, with double digit
increases occurring in six of the seven positive move periods.
Page 127
20 September 2011
Figure 190: Historical OEH 4th Quarter Share Price Performance
40.0%
20.0%
29.2%
26.6%
25.9%
12.0%
5.3%
16.5%
12.2%
10.9%
0.0%
-1.2%
-11.9%
-20.0%
-40.0%
-60.0%
4Q 2010
4Q 2008
4Q 2007
4Q 2006
4Q 2005
4Q 2004
4Q 2003
4Q 2002
4Q 2001
4Q 2000
4Q 2009
-68.3%
-80.0%
Share Price Return in Period
OEH is a Non-Consensus Idea with Elevated Short Interest and Several Potential
Catalysts
Currently, the prevailing Consensus view on OEH is decidedly negative with 84% of the
covering firms applying Hold and/or Sell ratings to shares. Additionally, we note that short
interest remains somewhat elevated at 6.9% of the float.
Figure 191: OEH Sell Side Ratings Grid
Rating
Figure 192: Short Interest
# of Ratings
% of Total
1
4
1
6
17%
67%
17%
Ticker
Price
Float
($ in MM)
Short Interest
(Current Month)
($ in MM)
Short
Interest as a
% of Float
Short Interest
(Prior Month)
($ in MM)
HOT
$45.46
185.1
10.4
5.6%
10.1
2.9%
H
$35.56
44.3
1.4
3.1%
1.5
-8.5%
GET
$22.82
36.9
7.1
19.3%
6.9
3.6%
OEH
$8.04
89.5
6.2
6.9%
6.4
-3.8%
Wyndham Worldwide
WYN
$32.15
161.5
6.2
3.8%
4.6
33.7%
Choice Hotels
CHH
$30.69
28.5
2.5
8.7%
2.4
3.4%
545.9
33.7
6.2%
31.9
5.7%
Company
Starwood Hotels
Buy
Hold
Sell
Total
Hyatt Hotels
C-Corps
Change from
Prior Period
Given the negative sentiment, we believe positive catalysts could be rewarded with outsized
moves in shares. At present, we see the following as potentially needle moving positive
catalysts for OEH: 1) an asset sale that would remind investors of the value of the assets and
create a valuation reconciling event, 2) an upside earnings surprise driven by better than
expected flow through, or 3) a bulk sale of residential inventory to alleviate cash flow
concerns. Of the three, we believe a potential asset sale is the most likely over the near to
medium term and that it would be the most needle moving for shares as well. While specific
assets are difficult to identify, we believe OEH is and will continue to entertain offers for
multiple assets. We believe an asset sale would reinforce the validity of the thought to be
phantom Asian and or Latin American buyers.
Page 128
20 September 2011
Italian Assets to Continue to Drive European Segment Results
As evidenced by the RevPAR growth (+28% y/y in local currency) in Europe, the Italian asset
collection is exhibiting significant strength. We believe the outperformance of these assets is
unheralded at present and provides a significant value driver for shares on a go forward basis
should the strength continue. Given strong forward booking trends in Europe, where samestore booking are up 18%year over year from August 1, 2011 through July 1 2012, and
meaningful revenue upside at the recently refurbished Sicilian assets (+247% year to date),
we see little reason why business trends will slow in the near term and we believe
accumulating shares during the seasonally strong 3Q 2011 period in Europe is prudent.
Figure 193: 2Q 2011 Y/Y % Change in RevPAR
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
39%
Figure 194: 2Q 2011 RevPAR Change from Acquisition
Level
120%
38%
33%
107%
100%
80%
15%
60%
40%
24%
20%
Hotel Cipriani and Hotel Splendido
Palazzo Vendramin and Splendido
Mare
Villa San Michele
0%
Grand Hotel Timeo
2Q 2011 RevPAR y/y % chg.
Hotel Caruso
Belvedere
Sant'Andrea
2Q 2011 RevPAR % chg. from Level at Acquisition
OEH RevPAR Growth Has Shown a High Correlation with Equity Market Performance
With average daily rates north of $400, it is obvious that the traditional customer at an OEH
property is either affluent or has an affinity for spending above their means. Assuming the
former and taking it a step further, we believe most OEH guests either generate their wealth
from the finance industry or are directly invested in equity markets. Accordingly, we have
attempted to correlate the year over year performance of equity markets with year over year
changes in OEH Worldwide RevPAR, which we have lagged by one quarter. We note that the
correlation, as expected, is quite high across all three benchmarks; FTSE 100 (0.81), Hang
Seng (0.82), and S&P 500 (0.85).
While 3Q 2011 to date market performance has been sluggish, we believe RevPAR strength
can continue through the 4Q 2011 given anecdotal checks of continued strength in key OEH
markets. Furthermore, we note that at key hotels in Italy where summer occupancy is very
high, bookings for the summer season were likely made in the 1Q and 2Q while equity
markets were more optimistic.
Page 129
20 September 2011
Figure 195: OEH WW RevPAR Versus Hang Seng Index
(0.82 Correlation)
80.0%
Figure 196: OEH WW RevPAR Versus S&P 500 Index
(0.85 Correlation)
60.0%
50.0%
60.0%
40.0%
30.0%
40.0%
20.0%
20.0%
10.0%
0.0%
0.0%
-10.0%
-20.0%
-20.0%
-30.0%
-40.0%
-40.0%
OEH Worldwide RevPAR
Hang Seng Index yoy % chg.
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
-50.0%
4Q06
-60.0%
S&P 500 Index yoy % chg.
Figure 197: OEH WW RevPAR Versus FTSE 100 Index
(0.81 Correlation)
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
-40.0%
FTSE 100 yoy % chg.
Page 130
20 September 2011
Investment Risks
A Less than Fool Proof Balance Sheet and the Potential Impact of a European Economic
Crisis
As the market awaits resolution to the European crisis, OEH shares have slid ~28% since the
end of the 2Q 2011. The move in shares harkens back to the January 2008 through February
2009 period where OEH shares dropped ~92% as the equity market absorbed the impact of
the U.S. recession, housing market collapse, and financial crisis. We believe current investor
fears of a double dip in the U.S. and the crisis in Europe, when coupled with OEH share
performance during the prior crisis, have and could continue to serve as a significant
overhang on the stock despite what we believe to be a much improved operating
environment for the Company.
At present, however, a topical look at the balance sheet paints a picture that is not entirely
different from that of the 2008/2009 crisis period. In fact, it can be argued that despite having
far less near term maturities, the OEH balance sheet is actually riskier than it was at any time
during the 2008/2009 period as both gross and net leverage are higher. While we expect
OEH to focus on improving the balance sheet, we do not foresee meaningful debt reduction
until 2013 given project capital commitments through 2012 that we expect to erode gross
free cash flow. We believe the risky balance sheet, limited cash flow, and fears of history
repeating itself are the biggest risks at present for OEH. We however, are of the opinion that
current shares, which imply a significant discount to what we believe the net asset value of
the owned portfolio to be, incorporate much of these fears and as such, we see a favorable
risk reward scenario.
Figure 198: Balance Sheet Snapshots
Macro Slide
Begins: 1Q
2008
Shares
Trough: 1Q
2009
Most Recent
Quarter: 2Q
2011
$2,347.5
$102.3
$848.3
$745.9
$731.5
$54.8
$847.1
$792.3
$565.6
$128.1
$703.4
$575.3
$156.8
$46.2
$125.4
$47.5
$90.5
$40.4
Gross Debt/EBITDA
Net Debt/EBITDA
5.4x
4.8x
3.4x
6.8x
6.3x
2.6x
7.8x
6.4x
2.2x
Current Portion of LT Debt
as a % of Total
$171.5
20.2%
$237.4
28.0%
$74.7
10.6%
Average Market Cap in Quarter
Cash
Gross Debt
Net Debt
TTM EBITDA
Past Equity Raises are a Concern for Investors
Since the end of 2008, OEH has raised roughly $460 million through equity issuances, and in
the process, more than doubled its outstanding share count. While the bulk of the equity
raises were required for debt service in the dark days of the recession, we believe OEH’s
willingness to tap the equity markets could leave investors leery of potential dilution when
considering an investment. Ultimately, we believe OEH needs to improve its balance sheet to
the point where equity raises in a given quarter are something less than a coin flip, at which
point, we would expect investors to ascribe a meaningfully higher valuation multiple to the
Page 131
20 September 2011
Company. While the potential for new equity remains a risk, we believe management is
leading the Company along a path of balance sheet restoration at present and we believe the
current maturity schedule provides financial flexibility.
Figure 199: Recent History of Equity Raises
Figure 200: Debt Maturity Profile
Shares
Issued
Issuance
Price per
Share
Gross
Proceeds
Assumed
Net
Proceeds
11/15/2010
1/19/2010
5/4/2009
11/14/2008
11.5
13.8
25.9
8.5
$10.75
$10.00
$5.46
$6.50
$123.6
$138.0
$141.3
$55.2
$117.3
$131.0
$134.1
$52.4
Totals
59.7
$7.68
$458.1
$434.9
Closing Date
$472
$500
$450
$400
$350
$300
$250
$200
$165
$150
$100
$65
$28
$50
$0
2H 2011
2012
2013
Post 2013
Maturities ($ in MM)
The Uncertain Impact of New Competition in Key Markets
With a stable of iconic and largely unmistakable properties, OEH rarely feels the impact of
new supply entering its markets. At present however, OEH is facing new competition in St.
Petersburg (Grand Hotel Europe) from the recently opened W Hotel. Additionally, in Brazil,
the Copacabana will face a new competitor in late 2013 as the historic Gloria Palace hotel
reopens after a massive renovation project that closed the hotel in 2008 is completed. While
it is difficult to assess how the new competition is and will impact the Grand Hotel and the
Copacabana Palace, we believe it would be naïve to assume there will be no impact at all.
Should new competition prove to be more impactful than we currently anticipate, our out
year estimates would likely prove to be aggressive.
Our Near Term Forecast is Modestly Below Consensus
While our out year forecasts are essentially in line with Consensus despite our tepid
approach to margin improvements on incremental revenue, our near term adjusted EBITDA
estimates for the 3Q 2011 and 4Q 2011 are 8% and 22% below Consensus, respectively. As
such, given the current market climate where misses have been punitive to shares, we view
potential earnings misses as an investment risk at present.
Figure 201: Near Term Consensus Estimates Could be Aggressive ($ in MM, except per
share data)
3Q 2011E
DB
Estimate
Consensus
Estimate
Adjusted EBITDA
$41.8
Adjusted EPS
$0.08
4Q 2011E
Delta
DB
Estimate
Consensus
Estimate
Delta
$45.3
($3.6)
$13.0
$16.7
($3.7)
$0.15
($0.07)
($0.15)
($0.09)
($0.06)
Page 132
20 September 2011
CEO Search Likely Serves as an Overhang at Present
While we expect the search and naming of a new CEO to be completed in the coming
months, we do believe shares are currently reflecting the uncertainty of the situation. Recall,
when it was announced that then CEO Paul White resigned on July 8, shares dipped 5% and
have yet to recover to levels prior to the announcement. We believe the naming of a new
CEO could be a positive catalyst, but find the near term ambiguity to be an overhang for
shares.
terrorism which curtail travel demand would be significantly punitive for OEH. Furthermore,
such circumstances would likely cause OEH results to fall below our expectations.
Page 133
20 September 2011
Our net revenue estimates for the 3Q 2011, 2011, 2012, and 2013 are $180.2 million, $602.1
million, $660.2 million, and $713.0 million, respectively. We estimate adjusted EBITDA of
$41.8 million, $94.6 million, $121.3 million, and $143.8 million for the 3Q 2011, 2011, 2012,
and 2013, respectively. Our adjusted EPS estimates for the 3Q 2011, 2011, 2012, and 2013
are $0.08, ($0.13), $0.23, and $0.40, respectively. We note that our adjusted EBITDA and EPS
estimates for the 2H 2011 are modestly below Consensus and do not include potential
impairment charges for the residential segment, which we anticipate in the 3Q 2011.
Total Revenue
yoy % chg
2005
2006
2007
2008
2009
2010
2011E
2012E
2013E
$447.7
$510.5
14.0%
$608.3
19.2%
$574.4
-5.6%
$480.8
-16.3%
$581.7
21.0%
$602.1
3.5%
$660.2
9.7%
$713.0
8.0%
$46.6
$52.7
13.2%
$20.4
8.8%
$33.0
41.3%
$106.1
19.7%
$71.0
34.8%
$13.2
-35.1%
$35.1
6.3%
$119.4
12.5%
$62.6
-11.8%
$10.2
-23.1%
$32.8
-6.5%
$105.7
-11.5%
$37.5
-40.1%
$15.8
55.1%
$26.1
-20.6%
$79.4
-24.8%
$37.8
0.7%
$15.0
-5.2%
$33.2
27.2%
$86.0
8.3%
$58.7
55.4%
$16.2
8.0%
$29.3
-11.8%
$104.2
21.2%
$68.9
17.2%
$19.9
23.3%
$35.3
20.4%
$124.0
19.1%
$79.4
15.3%
$25.9
30.2%
$40.1
13.7%
$145.4
17.2%
$23.8
19.6%
$4.6
-30.1%
$25.5
39.1%
$26.1
17.4%
$4.1
49.4%
$23.3
-2.3%
$2.9
-36.9%
$24.3
-4.7%
$31.1
19.4%
($6.4)
NM
$3.0
-87.1%
$1.4
-49.7%
$20.6
-15.3%
$25.9
-16.9%
($3.5)
NM
$2.2
-25.6%
$2.5
71.0%
$17.4
-15.3%
$26.5
2.4%
($5.3)
NM
$4.1
81.9%
$1.2
-50.2%
$17.5
0.7%
$31.4
18.4%
($3.5)
NM
$4.9
21.8%
$1.9
55.4%
$21.9
24.8%
$30.0
-4.4%
($1.5)
NM
$5.4
10.0%
$2.6
33.6%
$26.9
23.0%
$35.0
16.7%
($1.5)
NM
Adjusted EBITDA
Europe
yoy % chg
North America
yoy % chg
Rest of World
yoy % chg
Owned Hotels
yoy % chg
$18.8
$23.4
$88.7
Hotel Management & Ownership Interests
yoy % chg
Restaurants
yoy % chg
Trains & Cruises
yoy % chg
Corporate Expense
yoy % chg
Real Estate
yoy % chg
$17.5
$0.0
$19.9
14.0%
$6.5
16.1%
$18.3
19.0%
$22.2
17.2%
$2.8
Other Items Impacting EBITDA
Nonrecurring Items
$0.0
$0.0
$6.6
($5.8)
$2.3
$1.0
($32.7)
$46.3
($15.5)
$17.6
($44.5)
$48.5
$0.5
$2.0
$0.0
$0.0
$0.0
$0.0
Adjusted EBITDA
yoy % chg
$108.3
$132.3
22.2%
$154.7
16.9%
$132.2
-14.5%
$77.2
-41.6%
$80.3
4.0%
$94.6
17.9%
$121.3
28.2%
$143.8
18.6%
GAAP EPS
Adjusted EPS
$1.03
$1.03
$0.95
$1.06
$0.79
$1.24
($0.53)
$0.88
($1.04)
($0.17)
($0.68)
($0.27)
($0.16)
($0.13)
$0.23
$0.23
$0.40
$0.40
yoy % chg
($52.3)
($44.9)
NM
($1.10)
($19.5)
NM
($0.46)
($83.6)
NM
($1.92)
($40.0)
NM
($0.59)
($81.6)
NM
($0.89)
($30.6)
NM
($0.30)
($22.7)
NM
($0.22)
$48.5
-313.7%
$0.47
Net Free Cash Flow
yoy % chg
($43.4)
($60.6)
39.5%
($101.7)
67.9%
($93.9)
-7.6%
$54.4
-157.9%
$161.9
197.9%
$0.9
-99.4%
($22.7)
-2623.4%
$48.5
-313.7%
38.2
40.7
42.4
43.4
68.0
91.5
102.5
102.5
102.5
$5.6
$15.4
$19.0
Figure 203: DB Estimates Versus Consensus ($ in MM, except per share data)
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adjusted EBITDA
$41.8
$45.3
($3.6)
$94.6
$103.2
($8.6)
$121.3
$118.5
$2.8
$143.8
$136.6
$7.2
Adjusted EPS
$0.08
$0.15
($0.07)
($0.13)
($0.00)
($0.13)
$0.23
$0.21
$0.02
$0.40
$0.33
$0.07
Page 134
20 September 2011
Our $11 price target is based on a blended multiple of 11.6x our 2013 EBITDA estimate. Our
blended multiple is derived by applying a 13.5x multiple to OEH’s Hotel Management and
Ownership Interest segment, a 6.0x multiple to the 21 Club, and a 6.5x multiple to the Trains
& Cruises segment. Our multiples for these segments are based on our interpretation of
historical segment multiples adjusted for the current climate. For the owned hotels segment,
we generate a blended price per key for the entire portfolio by applying prudent asset values
to each property. Our aggregate blended price per key estimate of ~$662K implies a multiple
of 12.6x our 2013 estimated segment EBITDA. After extracting corporate costs, real estate
loses, and 2013 net debt, we arrive at an equity value of $1.124 billion, or $11 per share.
2013E
EBITDA
Price Target
Multiple
Enterprise
Value
$145
12.6 x
1,827
EV of Owned Hotels ($ in MM)
1,827
$5
13.5 x
73
Owned Rooms
2,757
Restaurants
$3
6.0 x
15
Price per Key
$662,460
Trains & Cruises
$27
6.5 x
175
Market Implied per Key Value of Owned Porfolio
Subtotal
$180
11.6x
2,090
Corporate Expense & Real Estate Losses
($37)
11.6 x
(423)
Total
$144
11.6x
1,667
Segment
Owned Hotels
Target Implied per Key Value of Owned Porfolio
Value of Other Segments ($ in MM)
543
Equity Value
1,124
102
Price Target
$11
(159)
Net Debt ($ in MM)
(543)
Current Market Value ($ in MM)
$824
Implied Value of Owned Hotels ($ in MM)
1,526
Owned Rooms
2,757
Market Implied Price per Key
$553,523
% chg. in EBITDA
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
2013E EBITDA
Net Debt
$115.1
$563.1
$122.3
$558.1
$129.5
$553.1
$136.6
$548.0
$143.8
$543.0
$151.0
$538.0
$158.2
$532.9
$165.4
$527.9
$172.6
$522.9
102.5
Shares Outstanding
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
9.6x
$5
$6
$7
$7
$8
$9
$10
$10
$11
10.1x
$6
$7
$7
$8
$9
$10
$10
$11
$12
10.6x
$6
$7
$8
$9
$10
$10
$11
$12
$13
11.1x
$7
$8
$9
$9
$10
$11
$12
$13
$14
11.6x
$8
$8
$9
$10
$11
$12
$13
$14
$14
12.1x
$8
$9
$10
$11
$12
$13
$13
$14
$15
12.6x
$9
$10
$11
$11
$12
$13
$14
$15
$16
13.1x
$9
$10
$11
$12
$13
$14
$15
$16
$17
13.6x
$10
$11
$12
$13
$14
$15
$16
$17
$18
Page 135
20 September 2011
Figure 206: Owned Hotel Value Driver: Our NAV Assumptions
Property
Total Rooms
Owned Rooms
Assumed per Key Value
Implied Asset Value
European Assets
Hotel Cipriani and Palazzo Vendramin
Hotel Splendido and Splendido Mare
Villa San Michele
Hotel Caruso Belvedere
Grand Hotel Timeo
Sant'Andrea
Reid's Palace
Grand Hotel Europe
La Residencia
Le Manoir aux Quat'Saisons
Hotel de la Cite
95
80
46
48
70
60
163
301
67
32
61
95
80
46
48
70
60
163
281
67
32
$2,500,000
$2,500,000
$2,500,000
$2,500,000
$900,000
$900,000
$500,000
$528,683
$300,000
$500,000
$237,500,000
$200,000,000
$115,000,000
$120,000,000
$63,000,000
$54,000,000
$81,500,000
$148,790,000
$20,100,000
$16,000,000
North American Assets
Charleston Place
Keswick Hall
Inn at Perry Cabin
El Encanto
La Samanna
Maroma
Casa de Sierra Nevada
435
48
80
77
83
66
37
87
48
80
77
83
66
37
$400,000
$250,000
$450,000
$337,662
$600,000
$327,273
$200,000
$34,626,000
$12,000,000
$36,000,000
$26,000,000
$49,800,000
$21,600,000
$7,400,000
Rest of World Assets
Copacabana Palace
Hotel de Cataratas
Miraflores Park Hotel
Mount Nelson Hotel
Westcliff Hotel
African Safari Lodges
Observatory Hotel
Napasai
Jimbaran Puri Bali
Ubud Hanging Gardens
La Residence d'Angkor
The Governor's Residence
La Residence Phou Vao
Bora Bora Lagoon Resort
Hotel Monasterio
Machu Picchu Sanctuary Lodge
Las Casitas del Colca
Hotel Rio Sagrado
243
193
82
201
117
39
96
55
64
38
62
48
34
76
126
31
20
23
243
193
82
201
117
39
96
55
64
38
62
48
23
76
$1,500,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$200,000
$364,500,000
$38,600,000
$16,400,000
$40,200,000
$23,400,000
$7,800,000
$19,200,000
$11,000,000
$12,800,000
$7,600,000
$12,400,000
$9,600,000
$4,692,000
$15,200,000
Total Owned Rooms
Average Price per Key
Total Asset Value
2,757
$662,460
$1,826,708,000
Page 136
20 September 2011
Valuation
At current levels, OEH trades at 14.7x, 11.7x, and 9.5x our 2011, 2012, and 2013 EBITDA
estimates, respectively. Since 2005, OEH has traded at an average multiple of 18.1x forward
year EBITDA, however, since 2009, the average forward multiple has declined to 15.7x. On a
PE basis, OEH trades at 35.3x and 20.3x our 2012 and 2013 EPS estimates, respectively. We
note that current levels imply a price per key for the wholly owned room portfolio of ~$553K.
September 16, 2011
Share Price
$8.04
102.5
$824
Share Price
$8.04
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
$570
$569
$591
$543
2010 EPS
2011E EPS
2012E EPS
2013E EPS
-$0.27
-$0.13
$0.23
$0.40
2010 EV
2011E EV
2012E EV
2013E EV
$1,394
$1,393
$1,415
$1,367
2010 PE
2011E PE
2012E PE
2013E PE
-29.4x
-61.4x
35.3x
20.3x
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$80
$95
$121
$144
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
17.4x
14.7x
11.7x
9.5x
Figure 208: Forward year EV/EBITDA Multiple History
45.0x
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
0.0x
Page 137
20 September 2011
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
0.0x
Page 138
20 September 2011
Model
Figure 210: Earnings Model ($ in MM)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Days in Period
365
90
91
92
92
365
90
91
92
92
365
366
365
Europe
yoy % Chg.
North America
yoy % Chg.
Rest of World
yoy % Chg.
Owned Hotels
yoy % Chg.
162.5
-29.2%
107.2
21.6%
122.9
-11.6%
392.6
-14.0%
13.5
-7.4%
27.3
-23.7%
38.4
28.5%
79.2
-1.3%
56.5
8.2%
29.2
8.9%
32.4
23.2%
118.1
12.1%
75.1
11.2%
23.3
16.9%
33.6
15.4%
132.0
13.3%
29.7
5.2%
28.1
14.2%
44.4
18.0%
102.2
12.9%
174.8
7.5%
107.9
0.7%
148.8
21.1%
431.5
9.9%
14.7
9.1%
29.2
7.0%
44.9
17.0%
88.9
12.2%
76.7
35.7%
31.2
6.8%
37.3
15.3%
145.2
22.9%
88.4
17.6%
24.0
3.0%
36.0
7.1%
148.3
12.3%
34.0
14.4%
30.1
7.1%
47.3
6.6%
111.4
9.0%
213.7
22.3%
114.5
6.1%
165.5
11.3%
493.7
14.4%
239.0
11.9%
124.7
8.9%
179.4
8.4%
543.2
10.0%
263.5
10.2%
138.8
11.3%
190.4
6.1%
592.7
9.1%
yoy % Chg.
Restaurants
yoy % Chg.
Trains & Cruises
yoy % Chg.
3.0
-87.1%
15.1
-25.7%
68.4
-22.5%
(1.3)
NM
3.1
-15.2%
5.0
-21.8%
2.2
78.4%
3.8
6.5%
21.9
0.2%
1.0
NM
2.4
12.1%
23.6
-1.3%
0.4
-71.1%
6.5
13.5%
17.6
8.8%
2.2
-25.6%
15.8
4.7%
68.2
-0.3%
(0.1)
NM
3.3
7.3%
7.5
50.3%
2.9
30.8%
4.1
8.0%
25.3
15.2%
1.3
30.0%
2.6
8.0%
25.5
8.0%
0.4
25.0%
6.8
5.0%
18.5
5.0%
4.5
102.9%
16.9
6.6%
76.8
12.6%
4.9
9.2%
18.0
7.1%
84.1
9.5%
5.4
10.0%
19.1
6.0%
90.8
8.0%
Revenue before Real Estate
yoy % Chg.
479.1
-18.6%
86.0
-5.5%
146.0
10.6%
159.0
11.6%
126.6
11.5%
517.7
8.1%
99.6
15.9%
177.4
21.5%
177.7
11.7%
137.1
8.3%
591.9
14.3%
650.2
9.9%
708.0
8.9%
1.7
NM
3.7
NM
27.4
NM
25.0
NM
7.9
NM
64.0
NM
3.5
-4.4%
1.7
-93.9%
2.5
-90.0%
2.5
-68.3%
10.2
-84.1%
10.0
-1.9%
5.0
-50.0%
480.8
-16.3%
89.7
-1.4%
173.4
31.4%
184.1
27.7%
134.5
18.4%
581.7
21.0%
103.1
15.0%
179.1
3.3%
180.2
-2.1%
139.6
3.8%
602.1
3.5%
660.2
9.7%
713.0
8.0%
Europe
yoy % Chg.
Margin
North America
yoy % Chg.
Margin
Rest of World
yoy % Chg.
Margin
Owned Hotels
yoy % Chg.
Margin
yoy % Chg.
Margin
Restaurants
yoy % Chg.
Margin
Trains & Cruises
yoy % Chg.
Margin
Corporate Expense
yoy % Chg.
37.5
-40.1%
23.1%
15.8
55.1%
14.7%
26.1
-20.6%
21.2%
79.4
-24.8%
20.2%
3.0
-87.1%
100.0%
1.4
-49.7%
10.6%
20.6
-15.3%
43.0%
(25.9)
-16.9%
(8.1)
31.0%
-60.5%
5.4
-39.1%
19.9%
10.9
23.2%
28.4%
8.2
-29.0%
10.4%
(1.3)
NM
100.0%
0.1
127.0%
4.8%
(1.7)
NM
-25.6%
(7.6)
48.6%
17.3
0.9%
30.7%
5.4
24.8%
18.4%
6.3
70.0%
19.4%
29.0
15.1%
24.5%
2.2
NM
100.0%
0.5
222.2%
14.9%
6.8
-0.3%
45.2%
(5.7)
-17.1%
28.9
12.9%
38.4%
0.8
NM
3.5%
6.2
31.3%
18.4%
35.9
18.6%
27.2%
1.0
NM
100.0%
(0.4)
NM
-13.5%
6.9
-10.7%
40.9%
(7.6)
2.8%
(0.3)
-127.2%
-0.9%
3.3
27.7%
11.9%
9.8
11.2%
22.1%
12.9
3.8%
12.6%
0.4
NM
100.0%
2.2
28.4%
51.9%
5.4
18.4%
44.6%
(5.6)
-13.6%
37.8
0.7%
21.6%
15.0
-5.2%
13.9%
33.2
27.2%
22.3%
86.0
8.3%
19.9%
2.2
-25.6%
100.0%
2.5
71.0%
18.6%
17.4
-15.3%
34.3%
(26.5)
2.4%
(6.9)
NM
-46.7%
5.2
-5.2%
17.6%
11.6
5.9%
25.7%
9.9
20.0%
11.1%
(0.2)
NM
289.5%
0.1
3.5%
4.6%
(0.8)
NM
-9.1%
(7.7)
1.8%
28.8
66.3%
37.6%
5.8
8.7%
18.7%
4.9
-21.8%
13.2%
39.6
36.6%
27.2%
2.5
15.9%
88.7%
(0.4)
-183.0%
-9.1%
6.1
-10.4%
32.0%
(8.7)
52.9%
35.2
21.8%
39.8%
1.1
30.9%
4.4%
5.3
-14.9%
14.6%
41.5
15.7%
28.0%
1.3
30.0%
100.0%
(0.4)
8.0%
-13.5%
7.1
3.1%
38.3%
(7.5)
-1.6%
1.6
NM
4.8%
4.1
22.8%
13.7%
7.6
-23.0%
16.0%
13.3
2.9%
11.9%
0.4
25.0%
100.0%
1.9
-14.3%
38.7%
5.1
-6.2%
38.0%
(7.5)
33.2%
58.7
55.4%
27.5%
16.2
8.0%
14.1%
29.3
-11.8%
17.7%
104.2
21.2%
21.1%
4.1
81.9%
89.7%
1.2
-50.2%
7.9%
17.5
0.7%
29.6%
(31.4)
18.4%
68.9
17.2%
28.8%
19.9
23.3%
16.0%
35.3
20.4%
19.7%
124.0
19.1%
22.8%
4.9
21.8%
100.0%
1.9
55.4%
11.9%
21.9
24.8%
35.2%
(30.0)
-4.4%
79.4
15.3%
30.1%
25.9
30.2%
18.7%
40.1
13.7%
21.1%
145.4
17.2%
24.5%
5.4
10.0%
100.0%
2.6
33.6%
15.5%
26.9
23.0%
42.1%
(35.0)
16.7%
Reported EBITDA before Real Estate
yoy % Chg.
Margin
78.6
-37.2%
16.4%
(2.2)
-125.9%
-2.6%
32.8
23.5%
22.5%
35.7
19.6%
22.5%
15.3
13.6%
12.1%
81.6
3.9%
15.8%
1.3
-158.6%
1.3%
39.1
19.3%
22.1%
42.0
17.4%
23.6%
13.2
-13.5%
9.6%
95.6
17.2%
16.2%
122.8
28.4%
18.9%
145.3
18.4%
20.5%
Real Estate
yoy % Chg.
Margin
(3.5)
NM
-203.8%
(1.3)
NM
-36.3%
(1.4)
NM
-5.2%
(1.9)
NM
-7.5%
(0.7)
NM
-8.4%
(5.3)
NM
-8.3%
(1.1)
NM
-31.7%
(2.0)
NM
-119.9%
(0.2)
NM
-8.0%
(0.2)
NM
-8.0%
(3.5)
NM
-34.4%
(1.5)
NM
-14.8%
(1.5)
NM
-30.0%
(36.5)
(8.0)
(44.5)
0.6
(0.1)
0.5
0.0
(3.6)
NM
-4.0%
31.4
20.3%
18.1%
(2.7)
NM
-1.4%
6.6
-48.6%
4.9%
31.8
-46.7%
5.5%
0.8
NM
0.8%
37.1
18.1%
20.7%
41.8
NM
23.2%
13.0
96.4%
9.3%
92.6
191.7%
15.4%
121.3
30.9%
18.4%
Revenues
Real Estate
yoy % Chg.
Total Revenue
yoy % Chg.
EBITDA
Other Items Impacting EBITDA
Reported EBITDA
yoy % Chg.
Margin
(15.5)
59.6
-30.6%
12.4%
143.8
18.6%
20.2%
Nonrecurring Items
17.6
2.2
(0.4)
37.8
8.9
48.5
(0.1)
2.1
2.0
0.0
Adjusted EBITDA
yoy % Chg.
Margin
77.2
-41.6%
16.1%
(1.4)
NM
-1.5%
31.0
18.2%
17.9%
35.2
17.6%
19.1%
15.5
34.6%
11.5%
80.3
4.0%
13.8%
0.7
NM
0.7%
39.1
26.3%
21.8%
41.8
18.7%
23.2%
13.0
-16.0%
9.3%
94.6
17.9%
15.7%
121.3
28.2%
18.4%
143.8
18.6%
20.2%
Adjusted EBITDA ex. Real Estate
yoy % Chg.
Margin
80.7
-41.8%
16.8%
(0.0)
NM
-0.1%
32.4
21.5%
22.2%
37.1
20.9%
23.3%
16.2
20.1%
12.8%
85.6
6.1%
16.5%
1.9
NM
1.9%
41.1
26.8%
23.2%
42.0
13.2%
23.6%
13.2
-18.2%
9.6%
98.2
14.7%
16.6%
122.8
25.1%
18.9%
145.3
18.4%
20.5%
Depreciation and Amortization
Interest Expense
Foreign Exchange
(42.2)
(32.0)
(0.9)
(11.3)
(6.8)
3.8
(11.6)
(7.4)
(4.0)
(11.8)
(8.0)
3.2
(11.4)
(11.7)
2.7
(46.1)
(33.8)
5.7
(11.3)
(9.3)
1.0
(11.7)
(11.3)
1.2
(11.5)
(10.1)
(11.5)
(10.1)
(46.0)
(40.8)
2.1
(48.0)
(40.0)
(48.0)
(38.0)
Earnings before Taxes
(15.4)
(17.8)
8.4
(19.3)
(13.8)
(42.5)
(18.9)
15.2
20.1
(8.6)
7.9
33.3
57.8
12.6
-81.8%
0.3
-1.9%
7.4
88.3%
7.6
-39.4%
9.9
-72.0%
25.3
-59.5%
(5.0)
26.4%
10.0
65.9%
11.5
57.1%
6.5
-75.7%
23.1
291.0%
10.0
30.0%
17.4
30.0%
Net Income from Continuing Operations
(28.0)
(18.2)
1.0
(26.9)
(23.7)
(67.8)
(13.9)
5.2
8.6
(15.1)
(15.1)
23.3
40.5
Discontinued Operations
(40.8)
5.2
(1.8)
4.5
(2.8)
5.0
(0.8)
0.0
Net Income to OEH
(68.8)
(13.0)
(0.8)
(22.5)
(26.5)
(62.8)
(14.7)
5.2
23.3
40.5
0.0
0.0
0.0
(0.2)
(0.1)
23.3
40.5
Income Tax
Tax Rate
Non-controlling Interest
0.0
Reported Net Income
(68.8)
(13.0)
(0.8)
(22.5)
(26.5)
(62.8)
(14.9)
5.2
Adjustments
15.8
(1.0)
2.4
33.6
7.7
42.7
(0.6)
2.3
Adjusted Net Income
GAAP EPS
EPS from Continuing Operations
Adjusted EPS
yoy % Chg.
(0.8)
8.6
(15.1)
(15.9)
(0.3)
8.6
(15.1)
(16.2)
1.7
(12.2)
(19.2)
3.4
6.7
(16.0)
(25.1)
(14.4)
7.5
8.6
(15.1)
(13.4)
23.3
40.5
($1.04)
($0.46)
($0.17)
NM
($0.15)
($0.21)
($0.22)
NM
($0.01)
$0.01
$0.04
NM
($0.25)
($0.30)
$0.07
NM
($0.27)
($0.25)
($0.17)
NM
($0.68)
($0.74)
($0.27)
NM
($0.14)
($0.14)
($0.14)
NM
$0.05
$0.05
$0.07
NM
$0.08
$0.08
$0.08
NM
($0.15)
($0.15)
($0.15)
NM
($0.16)
($0.15)
($0.13)
NM
$0.23
$0.23
$0.23
NM
$0.40
$0.40
$0.40
73.7%
68.0
68.0
87.8
87.8
90.8
90.8
90.8
90.8
96.6
96.6
91.5
91.5
102.4
102.4
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
102.5
Page 139
20 September 2011
Figure 211: Free Cash Flow & Balance Sheet
Free Cash Flow (in US$ millions)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
(28.0)
42.2
0.0
(15.7)
(1.6)
(38.4)
(40.0)
(0.1)
73.3
141.3
(120.2)
54.4
(18.2)
11.3
1.0
11.6
(26.9)
11.8
(23.7)
11.4
(13.9)
11.3
5.2
11.7
8.6
11.5
(15.1)
11.5
(4.7)
7.8
(17.8)
(9.9)
0.0
4.5
(5.3)
(20.4)
(3.9)
(24.2)
0.0
0.0
(3.6)
(6.1)
(11.1)
(17.2)
(2.3)
(5.8)
11.1
(9.1)
2.0
(4.4)
15.7
(8.6)
7.1
(3.3)
(6.9)
(15.7)
(22.6)
59.0
53.6
(2.2)
(26.4)
(4.1)
(16.4)
(12.4)
(28.7)
0.0
(20.4)
117.3
21.2
89.3
23.3
48.0
0.0
(21.7)
49.6
(72.3)
(22.7)
0.0
0.0
0.0
0.0
(22.7)
40.5
48.0
(3.2)
(10.0)
(8.6)
(18.7)
(46.3)
18.0
131.0
(38.6)
45.5
(67.8)
46.1
0.0
(17.3)
(38.9)
(42.6)
(81.6)
(46.3)
2.1
248.3
39.4
161.9
2009
1Q10
2Q10
3Q10
4Q10
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. in Net Debt
92.0
864.9
823.6
844.2
731.5
(54.4)
168.5
823.6
854.6
839.1
686.1
(45.5)
129.1
854.6
761.6
808.1
632.5
(53.6)
145.6
761.6
804.5
783.1
658.9
26.4
878.7
982.3
965.5
Debt/Cap
TTM EBITDA
48%
$12.93
77.2
32.0
47%
$11.18
66.2
28.9
44%
$10.63
71.0
28.6
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
10.7x
9.5x
2.4x
12.9x
10.4x
2.3x
Debt
2009
824
3.88%
Less Dividends
Less Project Capex
Less Acquisitions
Asset/Real Estate Sales
Share Repurchases / Issuances
Other
Net Free Cash Flow
Balance Sheet (in US$ millions, except per-share amounts)
Total Long Term Debt
Average Interest Rate
25.5
12.9
(21.0)
(40.5)
7.4
34.9
6.5
26.5
2.5
(20.1)
(15.1)
46.0
0.0
(17.2)
13.7
(44.4)
(30.6)
(2.3)
38.4
0.0
(4.6)
0.9
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
158.8
804.5
728.4
766.5
569.7
(89.3)
158.8
823.6
728.4
776.0
569.7
(161.9)
131.5
728.4
741.7
735.1
610.2
40.5
128.1
741.7
703.4
722.5
575.3
(34.9)
128.1
703.4
676.8
690.1
548.7
(26.5)
108.0
676.8
676.8
676.8
568.8
20.1
108.0
728.4
676.8
702.6
568.8
(0.9)
87.2
676.8
678.7
677.8
591.5
22.7
87.2
678.7
630.2
654.5
543.0
(48.5)
975.6
1,065.0
1,065.0
1,079.1
1,086.7
1,095.3
1,080.3
1,080.3
1,103.6
1,144.1
45%
$10.74
76.3
28.9
41%
$11.02
80.3
33.8
41%
$11.64
80.3
33.8
41%
$10.54
82.4
36.4
39%
$10.61
90.5
40.4
38%
$10.69
97.1
42.4
39%
$10.54
94.6
40.8
39%
$10.54
94.6
40.8
38%
$10.77
121.3
40.0
36%
$11.16
143.8
38.0
10.7x
8.9x
2.5x
10.5x
8.6x
2.6x
9.1x
7.1x
2.4x
9.1x
7.1x
2.4x
9.0x
7.4x
2.3x
7.8x
6.4x
2.2x
7.0x
5.7x
2.3x
7.2x
6.0x
2.3x
7.2x
6.0x
2.3x
5.6x
4.9x
3.0x
4.4x
3.8x
3.8x
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
855
3.16%
762
3.86%
804
3.99%
728
6.43%
728
4.65%
742
5.02%
703
6.43%
677
5.99%
677
5.99%
677
6.03%
679
5.89%
630
5.99%
(26.7)
61.8
(13.3)
48.5
48.5
Figure 212: Europe Driver Model ($ in MM)
Europe
End of Period Hotels
2009
9
1Q10
9
2Q10
11
3Q10
11
4Q10
11
2010
11
1Q11
10
2Q11
10
3Q11E
10
4Q11E
10
2011E
10
2012E
10
2013E
10
End of Period Rooms
911
911
1,072
1,023
1,023
1,023
962
962
962
962
962
967
967
Average Rooms
as a % of End of Period Rooms
787
86.4%
561
61.6%
924
86.2%
1,019
99.6%
695
68.0%
801
78.3%
529
55.0%
936
97.3%
958
99.6%
654
68.0%
770
80.1%
773
79.9%
773
79.9%
Rooms Available
Rooms Sold
yoy % chg
287,373
129,000
-24.6%
50,481
14,000
-17.6%
84,121
44,000
12.8%
93,759
62,000
29.2%
63,970
26,000
4.0%
292,332
146,000
13.2%
47,645
14,000
0.0%
85,205
54,000
22.7%
88,169
65,100
5.0%
60,156
27,040
4.0%
281,174
160,140
9.7%
282,918
168,217
5.0%
282,145
174,946
4.0%
Occupancy
yoy chg in bps
yoy % chg
44.9%
(818)
-15.4%
27.7%
(4)
-0.2%
52.3%
343
7.0%
66.1%
716
12.1%
40.6%
217
5.6%
49.9%
505
11.3%
29.4%
165
6.0%
63.4%
1,107
21.2%
73.8%
771
11.7%
44.9%
431
10.6%
57.0%
701
14.0%
59.5%
250
4.4%
62.0%
255
4.3%
ADR
yoy % chg
$676
-10.5%
$375
4.2%
$694
-7.8%
$679
-14.8%
$497
-7.6%
$622
-8.0%
$422
12.5%
$798
15.0%
$760
12.0%
$547
10.0%
$708
13.8%
$753
6.5%
$799
6.0%
RevPAR
yoy % chg
Comparable yoy % chg
Comparable Local Currency yoy % chg
$303
-24.3%
$104
4.0%
-7.0%
-14.0%
$363
-1.4%
1.0%
1.0%
$449
-4.5%
1.0%
7.0%
$202
-2.4%
-7.0%
0.0%
$311
2.4%
$124
19.2%
8.0%
7.0%
$506
39.4%
36.0%
28.0%
$562
25.1%
$246
21.7%
$403
29.7%
$448
11.2%
$495
10.5%
Europe Room Revenue ($ in MM)
yoy % chg
$87.2
-32.5%
$5.3
-14.2%
$30.5
4.0%
$42.1
10.0%
$12.9
-3.9%
$90.8
4.1%
$5.9
12.5%
$43.1
41.2%
$49.5
17.6%
$14.8
14.4%
$113.3
24.8%
$126.7
11.9%
$139.7
10.2%
Other Revenue
as a % of room revenue
yoy % chg
$75.3
86.4%
-25.0%
$8.2
156.3%
-2.5%
$26.0
85.0%
13.6%
$33.0
78.5%
12.8%
$16.8
129.8%
13.5%
$84.0
92.5%
11.5%
$8.8
148.5%
6.9%
$33.6
77.9%
29.3%
$38.8
78.5%
17.6%
$19.2
129.8%
14.4%
$100.4
88.6%
19.5%
$112.3
88.6%
11.9%
$123.8
88.6%
10.2%
Europe Revenue ($ in MM)
yoy % chg
$162.5
-29.2%
$13.5
-7.4%
$56.5
8.2%
$75.1
11.2%
$29.7
5.2%
$174.8
7.5%
$14.7
9.1%
$76.7
35.7%
$88.4
17.6%
$34.0
14.4%
$213.7
22.3%
$239.0
11.9%
$263.5
10.2%
Page 140
20 September 2011
Figure 213: North America Driver Model ($ in MM)
North America
2009
6
1Q10
6
2Q10
6
3Q10
6
4Q10
6
2010
6
1Q11
6
2Q11
6
3Q11E
6
4Q11E
6
2011E
6
2012E
6
2013E
6
End of Period Rooms
828
873
873
873
749
749
749
749
749
749
749
749
788
Average Rooms
715
86.4%
755
86.4%
743
85.2%
710
81.3%
714
95.3%
730
97.5%
751
100.3%
742
99.1%
742
99.1%
742
99.1%
745
99.4%
745
99.4%
783
99.4%
Rooms Available
Rooms Sold
yoy % chg
260,991
148,000
6.5%
67,912
41,000
17.1%
67,647
46,000
15.0%
65,280
42,000
16.7%
65,687
42,000
13.5%
266,526
171,000
15.5%
67,624
43,000
4.9%
67,563
48,000
4.3%
68,305
42,000
0.0%
68,305
43,680
4.0%
271,798
176,680
3.3%
272,549
183,257
3.7%
285,776
194,253
6.0%
Occupancy
yoy chg in bps
yoy % chg
56.7%
(527)
-8.5%
60.4%
(120)
-2.0%
68.0%
1,060
18.5%
64.3%
1,049
19.5%
63.9%
921
16.8%
64.2%
745
13.1%
63.6%
321
5.3%
71.0%
304
4.5%
61.5%
(285)
-4.4%
63.9%
1
0.0%
65.0%
85
1.3%
67.2%
223
3.4%
68.0%
74
1.1%
ADR
yoy % chg
$345
-11.4%
$376
-13.0%
$325
-1.8%
$272
-0.4%
$330
-5.4%
$325
-5.7%
$368
-2.1%
$335
3.1%
$280
3.0%
$340
3.0%
$331
1.8%
$348
5.0%
$365
5.0%
RevPAR
yoy % chg
$196
-19.0%
$227
-14.7%
-1.0%
-2.0%
$221
16.3%
16.0%
16.0%
$175
19.0%
18.0%
18.0%
$211
10.5%
11.0%
11.0%
$209
6.6%
$234
3.1%
3.0%
3.0%
$238
7.7%
8.0%
7.0%
$172
-1.6%
$217
3.0%
$215
3.1%
$234
8.6%
$248
6.1%
North America Room Revenue ($ in MM)
yoy % chg
$51.1
-5.7%
$15.4
2.0%
$15.0
12.9%
$11.4
16.2%
$13.9
7.3%
$55.7
8.9%
$15.8
2.6%
$16.1
7.6%
$11.8
3.0%
$14.8
7.1%
$58.5
5.2%
$63.7
8.9%
$70.9
11.3%
Other Revenue
yoy % chg
$56.1
109.7%
65.2%
$11.9
77.3%
-42.4%
$14.3
95.4%
5.0%
$11.8
103.6%
17.5%
$14.2
102.7%
21.7%
$52.3
93.9%
-6.8%
$13.4
84.8%
12.6%
$15.1
94.0%
6.0%
$12.2
103.6%
3.0%
$15.3
102.7%
7.1%
$56.0
95.7%
7.1%
$60.9
95.6%
8.9%
$67.8
95.6%
11.3%
North America Revenue ($ in MM)
yoy % chg
$107.2
21.6%
$27.3
-23.7%
$29.2
8.9%
$23.3
16.9%
$28.1
14.2%
$107.9
0.7%
$29.2
7.0%
$31.2
6.8%
$24.0
3.0%
$30.1
7.1%
$114.5
6.1%
$124.7
8.9%
$138.8
11.3%
Figure 214: Rest of World Driver Model ($ in MM)
Rest of World
2009
13
1Q10
12
2Q10
12
3Q10
12
4Q10
12
2010
12
1Q11
12
2Q11
12
3Q11E
12
4Q11E
12
2011E
12
2012E
12
2013E
12
End of Period Rooms
1,297
1,282
1,282
1,282
1,272
1,272
1,272
1,272
1,272
1,272
1,272
1,272
1,272
Average Rooms
1,292
99.6%
1,283
100.1%
1,251
97.6%
1,244
97.1%
1,299
102.1%
1,269
99.8%
1,314
103.3%
1,284
100.9%
1,285
101.0%
1,299
102.1%
1,295
101.8%
1,295
101.8%
1,295
101.8%
Rooms Available
Rooms Sold
yoy % chg
471,541
237,000
-15.4%
115,507
71,000
7.6%
113,829
55,000
3.8%
114,488
59,000
7.3%
119,530
69,000
9.5%
463,355
254,000
7.2%
118,260
76,000
7.0%
116,824
60,000
9.1%
118,194
62,540
6.0%
119,530
72,450
5.0%
472,808
270,990
6.7%
474,122
281,230
3.8%
472,827
291,073
3.5%
Occupancy
yoy chg in bps
yoy % chg
50.3%
(1,137)
-18.4%
61.5%
433
7.6%
48.3%
358
8.0%
51.5%
543
11.8%
57.7%
445
8.4%
54.8%
456
9.1%
64.3%
280
4.6%
51.4%
304
6.3%
52.9%
138
2.7%
60.6%
289
5.0%
57.3%
250
4.6%
59.3%
200
3.5%
61.6%
224
3.8%
$288
3.2%
$327
16.8%
$327
22.9%
$326
15.6%
$343
6.9%
$331
14.9%
$347
6.1%
$331
1.2%
$329
1.0%
$348
1.5%
$340
2.6%
$355
4.4%
$364
2.5%
RevPAR
yoy % chg
$145
-15.8%
$201
25.6%
30.0%
16.0%
$158
32.8%
38.0%
34.0%
$168
29.2%
34.0%
32.0%
$198
15.8%
16.0%
12.0%
$182
25.3%
$223
10.9%
11.0%
8.0%
$170
7.6%
3.0%
1.0%
$174
3.7%
$211
6.6%
$195
7.3%
$210
8.1%
$224
6.4%
Rest of World Room Revenue ($ in MM)
yoy % chg
$68.3
-12.6%
$23.2
25.6%
$18.0
27.6%
$19.2
24.0%
$23.7
17.0%
$84.1
23.1%
$26.4
13.6%
$19.9
10.4%
$20.6
7.1%
$25.2
6.6%
$92.0
9.4%
$99.8
8.4%
$105.8
6.1%
Other Revenue
yoy % chg
$54.6
79.9%
-10.2%
$15.2
65.4%
33.2%
$14.4
80.1%
18.2%
$14.4
74.7%
5.7%
$20.7
87.5%
19.0%
$64.7
76.9%
18.5%
$18.6
70.4%
22.2%
$17.5
87.9%
21.3%
$15.4
74.7%
7.1%
$22.1
87.5%
6.6%
$73.5
79.8%
13.6%
$79.7
79.9%
8.4%
$84.5
79.9%
6.1%
Rest of World Revenue ($ in MM)
yoy % chg
$122.9
-11.6%
$38.4
28.5%
$32.4
23.2%
$33.6
15.4%
$44.4
18.0%
$148.8
21.1%
$44.9
17.0%
$37.3
15.3%
$36.0
7.1%
$47.3
6.6%
$165.5
11.3%
$179.4
8.4%
$190.4
6.1%
ADR
yoy % chg
Page 141
20 September 2011
Figure 215: Worldwide Driver Model ($ in MM)
Worldwide
2009
28
1Q10
27
2Q10
29
3Q10
29
4Q10
29
2010
29
1Q11
28
2Q11
28
3Q11E
28
4Q11E
28
2011E
28
2012E
28
2013E
28
End of Period Rooms
3,036
3,066
3,227
3,178
3,044
3,044
2,983
2,983
2,983
2,983
2,983
2,988
3,027
Average Rooms
2,794
92.0%
2,599
84.8%
2,919
90.4%
2,973
93.6%
2,709
89.0%
2,801
92.0%
2,595
87.0%
2,963
99.3%
2,986
100.1%
2,696
90.4%
2,810
94.2%
2,813
94.1%
2,851
94.2%
Rooms Available
Rooms Sold
yoy % chg
1,019,905
514,000
-12.9%
233,900
126,000
6.8%
265,597
145,000
9.8%
273,528
163,000
17.3%
249,188
137,000
9.6%
1,022,213
571,000
11.1%
233,529
133,000
5.6%
269,591
162,000
11.7%
274,668
169,640
4.1%
247,992
143,170
4.5%
1,025,781
607,810
6.4%
1,029,589
632,704
4.1%
1,040,747
660,271
4.4%
Occupancy
yoy chg in bps
yoy % chg
50.4%
(855)
-14.5%
53.7%
329
6.5%
54.8%
561
11.4%
59.6%
768
14.8%
54.7%
488
9.8%
55.9%
546
10.8%
56.9%
317
5.9%
60.1%
530
9.7%
61.8%
212
3.6%
57.7%
299
5.5%
59.3%
339
6.1%
61.5%
220
3.7%
63.4%
199
3.2%
ADR
yoy % chg
$402
-9.3%
$348
3.3%
$438
2.1%
$446
-2.6%
$369
-1.1%
$404
0.5%
$362
4.0%
$488
11.4%
$483
8.2%
$383
3.8%
$434
7.5%
$459
5.7%
$479
4.5%
RevPAR
yoy % chg
$203
-22.5%
$187
10.0%
12.0%
5.0%
$240
13.7%
13.0%
12.0%
$266
11.8%
11.0%
14.0%
$202
8.6%
10.0%
9.0%
$226
11.3%
$206
10.2%
8.0%
6.0%
$293
22.2%
20.0%
14.0%
$298
12.1%
$221
9.5%
$257
14.1%
$282
9.6%
$304
7.9%
Worldwide Room Revenue ($ in MM)
yoy % chg
$206.6
-21.0%
$43.9
10.5%
$63.5
11.9%
$72.8
14.4%
$50.4
8.3%
$230.6
11.6%
$48.1
9.6%
$79.1
24.6%
$81.9
12.5%
$54.9
8.7%
$263.9
14.5%
$290.2
10.0%
$316.5
9.0%
Other Revenue
yoy % chg
$186.0
90.0%
-4.7%
$35.3
80.5%
-12.8%
$54.6
86.1%
12.4%
$59.2
81.4%
11.9%
$51.7
102.5%
17.9%
$200.9
87.1%
8.0%
$40.8
84.7%
15.4%
$66.2
83.7%
21.1%
$66.4
81.1%
12.1%
$56.5
103.0%
9.3%
$229.9
87.1%
14.4%
$252.9
87.1%
10.0%
$276.2
87.3%
9.2%
Worlwide Revenue ($ in MM)
yoy % chg
$392.6
-14.0%
$79.2
-1.3%
$118.1
12.1%
$132.0
13.3%
$102.2
12.9%
$431.5
9.9%
$88.9
12.2%
$145.2
22.9%
$148.3
12.3%
$111.4
9.0%
$493.7
14.4%
$543.2
10.0%
$592.7
9.1%
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
6
8
9
5
0
3
2
5
2
5
13
18
8
20
10
10
$500,000
Figure 216: Real Estate Driver Model ($ in MM, except average sale prices)
2009
1Q10
2Q10
3Q10
4Q10
2010
Real Estate Revenue Model
Units Sold in Period
Units Transferred in Period
Average Sale Price
$981,250
$320,000
$553,333
$500,000
$500,000
$458,889
$500,000
Revenue from Transferred Units ($ in MM)
$7.9
$1.6
$1.7
$2.5
$2.5
$8.3
$10.0
$5.0
Other Residential Revenue ($ in MM)
$0.0
$1.9
$0.0
$0.0
$0.0
$1.9
$0.0
$0.0
$3.5
$1.7
$2.5
$2.5
$10.2
$10.0
$5.0
112
60.5%
185
73
100
85
114
61.6%
185
71
104
81
116
62.7%
185
69
109
76
118
63.7%
185
67
114
71
118
63.7%
185
67
114
71
126
68.1%
185
59
134
51
136
73.5%
185
49
144
41
Total Residential Revenue ($ in MM)
$1.7
Units Sold to Date
as a % of total inventory
Total Inventory
Remaining Inventory
Recognized Units to Date
Remaining Recognizable Inventory
$3.7
$27.4
$25.0
87
$7.9
103
55.7%
185
82
95
90
$64.0
Page 142
20 September 2011
Appendix: OEH in Charts and Graphs
Figure 217: The Orient-Express Hotels Portfolio
Property
Region
Country
Rooms
Comments
Hotel Cipriani and Palazzo Vendramin
Hotel Splendido and Splendido Mare
Villa San Michele
Hotel Caruso Belvedere
Grand Hotel Timeo
Sant'Andrea
Reid's Palace
Grand Hotel Europe
La Residencia
Le Manoir aux Quat'Saisons
Hotel de la Cite
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Europe
Venice, Italy
Portofino, Italy
Florence, Italy
Revello, Italy
Taormina, Sicily
Taormina, Sicily
Madeira, Portugal
St. Petersburg, Russia
Mallorca, Spain
Oxfordshire, England
Carcassonne, France
95
80
46
48
70
60
163
301
67
32
61
Refurbished 39 guest rooms since 2008
Total Reportable Europe
Total Europe incl. Hotel de la Cite
Charleston Place
Keswick Hall
Inn at Perry Cabin
El Encanto
La Samanna
Maroma
Casa de Sierra Nevada
Total Reportable Rest of World
Total Rest of World incl. Bora Bora and JV's
OEH owns 93.5% of property
Property is for sale (discontinued operations)
962
1,023
North America
North America
North America
North America
North America
North America
North America
Charleston, South Carolina
Charlottesville, Virginia
St. Michaels, Maryland
Santa Barbara, California
St. Martin, French West Indies
Riviera Maya, Mexico
Guanajuato, Mexico
Total Reportable North America
Total North America incl. El Encanto
Copacabana Palace
Hotel de Cataratas
Miraflores Park Hotel
Mount Nelson Hotel
Westcliff Hotel
African Safari Lodges
Observatory Hotel
Napasai
Jimbaran Puri Bali
Ubud Hanging Gardens
La Residence d'Angkor
The Governor's Residence
La Residence Phou Vao
Bora Bora Lagoon Resort
Hotel Monasterio
Machu Picchu Sanctuary Lodge
Las Casitas del Colca
Hotel Rio Sagrado
Refurbished 7 suites in 2010
Rebuilt and reopened in 2005
Acquired 1/2010; refurbishing work continues through winter 2012
Acquired 1/2010; refurbishing work continues through winter 2012
435
48
80
77
83
66
37
OEH has a 19.9% ownership interest and management contract
Selling land parcels for residential development
Expansion and renovation of property complete
Closed since 2006 for renovations (reopening 2012)
Selling residential developments at property
749
826
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Rest of World
Iguassu Falls, Brazil
Lima, Peru
Cape Town, South Africa
Johannesburg, South Africa
Republic of Botswana
Sydney, Australia
Koh Samui, Thailand
Bali, Indonesia
Bali, Indonesia
Siem Reap, Cambodia
Rangoon, Burma
Luang Prabang, Laos
Bora Bora, French Polynesia
Cuzco, Peru
Machu Pichu, Peru
Colca Canyon, Peru
Urubamba, Peru
243
193
82
201
117
39
96
55
64
38
62
48
34
76
126
31
20
23
Completed room expansion in 2009
Leased from Gov't, Completed two year renovation work in 2010
Revenue share agreement with villa residence owners
8 suites added in 2009
Acquired remaining minority interest in 2009
OEH owns 69% interest
Closed Since February 2010 due to cyclone
Management contract of 50/50 JV, Partner adding 56 keys in 2012
Management contract of 50/50 JV
1,272
1,548
Page 143
20 September 2011
Figure 218: 2010 Room Count by Region
North America
24%
Figure 219: 2Q 2011 Room Count by Region
North America
25%
Rest of World
42%
Rest of World
43%
Europe
32%
Europe
34%
Figure 220: 2011E Segment Revenue Mix
Figure 221: 2012E Segment Revenue Mix
Trains and Cruises
13%
Real Estate
1%
Restaurant
3%
Owned revenue
82%
Managed Hotels
1%
Trains and Cruises
13%
Real Estate
1%
Restaurant
3%
Owned revenue
82%
Managed Hotels
1%
Figure 222: 2011E Owned Segment Revenue Mix
Figure 223: 2012E Owned Segment Revenue Mix
North America
23%
Rest of World
34%
Page 144
Europe
43%
North America
23%
Europe
44%
Rest of World
33%
20 September 2011
Figure 224: 2011E Owned Segment EBITDA Mix
Figure 225: 2012E Owned Segment EBITDA Mix
North America
16%
Rest of World
28%
North America
16%
Rest of World
28%
Europe
56%
Europe
56%
Figure 226: European Segment Quarterly ADR
Figure 227: European Segment Quarterly Occupancy
70.0%
30.0%
60.0%
10.0%
0.0%
-10.0%
40.0%
30.0%
-20.0%
20.0%
-30.0%
10.0%
-40.0%
0.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
ADR
50.0%
34.4%
20.0%
67.2%
68.3%
80.0%
40.0%
49.4%
39.4%
50.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
49.0%
43.3%
61.3%
64.2%
37.8%
27.8%
48.9%
59.0%
38.5%
27.7%
52.3%
66.1%
40.6%
29.4%
63.4%
65.9%
71.3%
Occupancy
yoy % chg.
Figure 228: European Segment Quarterly RevPAR
$700
60.0%
$600
40.0%
$500
20.0%
$400
0.0%
$300
-20.0%
$200
-40.0%
$0
-60.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
$100
RevPAR
yoy % chg.
Page 145
Figure 229: North American Segment Quarterly ADR
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
Figure 230: North American Segment Quarterly
Occupancy
ADR
76.7%
71.3%
68.0%
64.1%
63.9%
66.0%
62.6%
61.8%
66.8%
68.8%
53.5%
58.5%
61.6%
57.4%
53.8%
54.7%
60.4%
68.0%
64.3%
63.9%
63.6%
71.0%
20 September 2011
Occupancy
yoy % chg.
Figure 231: North American Segment Quarterly RevPAR
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
-25.0%
-30.0%
$350
$300
$250
$200
$150
$100
$50
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
$0
RevPAR
yoy % chg.
Figure 232: Rest of World Quarterly ADR
$400
25.0%
80.0%
$350
20.0%
70.0%
$300
15.0%
60.0%
10.0%
$250
5.0%
$200
0.0%
$150
-5.0%
50.0%
40.0%
30.0%
20.0%
$50
-15.0%
10.0%
$0
-20.0%
0.0%
ADR
Page 146
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
-10.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
$100
67.7%
58.9%
59.2%
67.5%
66.5%
60.0%
63.4%
64.1%
66.9%
56.1%
59.9%
63.0%
57.1%
44.7%
46.1%
53.3%
61.5%
48.3%
51.5%
57.7%
64.3%
51.4%
Figure 233: Rest of World Quarterly Occupancy
Occupancy
yoy % chg.
20 September 2011
Figure 234: Rest of World Quarterly RevPAR
$250
40.0%
30.0%
$200
20.0%
$150
10.0%
$100
0.0%
-10.0%
$50
-20.0%
-30.0%
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
$0
RevPAR
yoy % chg.
Page 147
20 September 2011
20 September 2011
Hyatt Hotels
Reuters: H.N
Buy
Bloomberg: H US
Rating
Initiating Coverage on H with a Buy Rating and a $44 Price Target
We believe macro concerns, recent earnings disappointments caused by hotel
renovations, and an underappreciated recent acquisition have created a favorable
risk-reward scenario for H shares at present. We expect the cessation of largescale renovations to create a tailwind by 4Q 2011 and throughout much of 2012.
Furthermore, as evidenced by the RevPAR outperformance of its young select
service brands, we believe H has proven it can make smart acquisitions and we
believe this has been an unheralded part of the Lodgeworks transaction. Buy.
Reasons to Invest
We expect shares to benefit from: 1) the Lodgeworks acquisition and an already
strong select service franchise, 2) better than peer operating leverage, 3)
meaningful international growth opportunities, 4) an inexpensive valuation, and 5)
a fresh portfolio and the shedding of the overhang from renovations.
Price target
52-week range
35.56
44.00
49.57 - 30.25
52
48
44
40
36
32
28
24
11/09
5/10
11/10
5/11
Hyatt Hotels
Performance (%)
Absolute
S&P 500 INDEX
1m
5.0
1.9
3m
-8.6
-4.1
12m
-7.9
8.1
Market Cap (USD)
Free float (%)
5,878.5
165.3
99
282,333
5,552
Downside risks include: 1) opaque joint venture income, which investors will likely
discount, will likely continue to grow as H invests its capital alongside other
owners, 2) a slower recovery in group business which would cause aggressive
Consensus estimates to be revised down, 3) the overhang stemming from
concerns about the voting structure and large share banks being held by the
Pritzker family, and 4) greater than expected macroeconomic deterioration that
extends beyond what is contemplated in our current forecast.
Our $44 price target is based on a blended multiple of 11.2x our 2013 adjusted
EBITDA. Our blended multiple stems from our sum of the parts approach in which
we apply; an 11.5 multiple to owned and leased hotel EBITDA, a 10.0 multiple to
H’s share of unconsolidated hospitality ventures, a 12.0x multiple to H’s North
American management and franchise fees, a 13.0x multiple to H’s international
management and franchise fees, and 5.0x multiples to H’s timeshare business
and other EBITDA. We note that our assumed multiples are based on historical
averages by segment, adjusted for our view of the current environment. Our
overall blended multiple of 11.2x is a 20 bps premium to H’s historical forwardyear trading multiple. Our analysis generates an enterprise value of $8.2 billion,
from which we extract our 2013 net debt estimate of $382 million and H’s share
of estimated JV debt, $559 million.
Year End Dec 31
2010A
2011E
–
0.07A
0.05
2Q EPS
0.18
0.27A
0.33
3Q EPS
0.06
0.06
0.17
4Q EPS
0.07
0.10
0.26
FY EPS (USD)
0.31
0.49
0.80
123.0
72.2
44.3
1Q EPS1
P/E (x)
2012E
1
Page 148
20 September 2011
Hyatt Hotels (H) - Buy
Company Description
Hyatt primarily manages franchises, owns, and develops Hyatt-branded hotels around the
globe. Founded in 1957 when Jay Pritzker purchased the Hyatt House motel in Los Angeles.,
Hyatt has grown into a quality, well-recognized brand, with 476 properties. Hyatt is present in
45 countries and on six continents. Hyatt’s growth has been driven by its strong presence in
the upper upscale segment and the company’s growing world-wide footprint. In addition to
the company’s hotel business, Hyatt operates a small vacation ownership business, Hyatt
Vacation Club.
Executive Summary
The DB Thesis: Buy
We are initiating coverage on H with a Buy rating and a $44 price target. We believe macro
concerns, recent earnings disappointments caused by hotel renovations, and an
underappreciated recent acquisition have created a favorable risk-reward scenario for H
shares at present. We expect the cessation of large-scale renovations to create a tailwind by
the 4Q 2011 and throughout much of 2012. Furthermore, as evidenced by the RevPAR
outperformance of its young select service brands, we believe H has proven it can make
smart acquisitions and revitalize brands and we believe this has been an unheralded part of
the Lodgeworks transaction. Lastly, we expect H’s growing international footprint in China
and India to support long-term growth and serve as a buffer to potential domestic softness.
Reasons to Invest
We expect shares to benefit from: 1) the Lodgeworks acquisition and an already strong
select service franchise, 2) better than peer operating leverage, 3) meaningful international
growth opportunities, 4) an inexpensive valuation, and 5) a fresh portfolio and the shedding of
the overhang from renovations.
Summary of Investment
Risks to H include: 1) opaque joint venture income, which investors will likely discount, will
likely continue to grow as H invests its capital alongside other owners, 2) a slower recovery in
group business which would cause aggressive Consensus estimates to be revised down, 3)
the overhang stemming from concerns about the voting structure and large share banks
being held by the Pritzker family, and 4) greater than anticipated macroeconomic
deterioration that extends beyond what is contemplated in our current forecast.
Risks
DB Estimates
We estimate adjusted EBITDA of $115 million, $522 million, $641 million, and $732 million in
the 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2012 and 2013 adjusted
EBITDA estimates are $25 million and $33 million below consensus, respectively. While we
believe H’s upside from recent investments and global growth is promising and significant,
we think current Consensus estimates may be somewhat underestimating the impact that
slower macroeconomic growth may have on group business and subsequently, H. We
believe our estimates account for a modestly less optimistic view than current Consensus
reflects. We project adjusted EPS for 3Q 2011, 2011, 2012, and 2013 of $0.06, $0.49, $0.80,
and $1.16, respectively.
Valuation
At current levels, Hyatt trades at 12.6x, 10.7x, and 9.3x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Given the growth profile of H stemming from renovation
capital that should begin to bear fruit and the recent acquisition of Lodgeworks, we find
current valuation to be attractive.
Our $44 price target is based on a blended multiple of 11.2x our 2013 adjusted EBITDA. Our
blended multiple stems from our sum of the parts approach in which we apply; an 11.5
Page 149
20 September 2011
multiple to owned and leased hotel EBITDA, a 10.0 multiple to H’s share of unconsolidated
hospitality ventures, a 12.0x multiple to H’s North American management and franchise fees,
a 13.0x multiple to H’s international management and franchise fees, and 5.0x multiples to
H’s timeshare business and other EBITDA. We note that our assumed multiples are based on
historical averages by segment, adjusted for our view of the current environment. Our overall
blended multiple of 11.2x is a 20 bps premium to H’s historical forward-year trading multiple.
Our analysis generates an enterprise value of $8.2 billion, from which we extract our 2013
net debt estimate of $382 million and H’s share of estimated JV debt, $559 million. We note
that our net debt estimate includes treasuries and short-term investments that Hyatt holds
since these investments are highly liquid and have short tenures.
Page 150
20 September 2011
Reasons to Invest
Lodgeworks Acquisition and Select Service Strength to Provide Growth in Murky
Future for the Industry
Hyatt recently purchased a portfolio of twenty hotels from Lodgeworks, a private hotel
development, ownership and management company. Twelve of the new properties will be
converting to Hyatt’s Summerfield Suites brand, increasing the number of hotels in that
portfolio to 50 from 38. Five of the hotels will be converting to the full-service Hyatt branded
properties and the remaining three hotels will keep their existing Hyatt brands (2 Summerfield
Suites and 1 Hyatt Place). A summary of the assets can be found in Figure 235.
Figure 235: The Lodgeworks Portfolio, a Fresh Collection of Assets
Name
Current Chain
Converting to
Bridgewater Branchburg
Hotel Sierra
Summerfield Suites
Boston Burlington
Unchanged
Charlotte Center City
Hotel Sierra
Summerfield Suites
Philadelphia Plymouth Meeting Hyatt Summerfield Suites
Unchanged
Fishkill
Hotel Sierra
Summerfield Suites
Green Bay
Hotel Sierra
Hyatt
Avia Long Beach
Independent
Hyatt
Madison Downtown
Hyatt Place
Unchanged
Morrisville
Hotel Sierra
Summerfield Suites
Avia Napa
Independent
Hyatt
Parsippany
Hotel Sierra
Summerfield Suites
Rancho Cordova
Hotel Sierra
Summerfield Suites
Richmond West
Hotel Sierra
Summerfield Suites
San Jose Silicon Valley
Hotel Sierra
Summerfield Suites
San Ramon
Hotel Sierra
Summerfield Suites
Santa Clara
Hotel Sierra
Summerfield Suites
Avia Savannah
Independent
Hyatt
Shelton
Hotel Sierra
Summerfield Suites
Avia The Woodlands
Independent
Hyatt
Washington Dulles
Hotel Sierra
Summerfield Suites
Total Rooms Acquired
Rooms < 3 years old
Price/Key
City
State
Branchburg
NJ
Burlington
MA
Charlotte
NC
East Norriton
PA
Fishkill
NY
Green Bay
WI
Long Beach
CA
Madison
WI
Morrisville
NC
Napa
CA
Parsippany
NJ
Rancho Cordova CA
Richmond
VA
San Jose
CA
San Ramon
CA
Santa Clara
CA
Savannah
GA
Shelton
CT
Spring
TX
Sterling
VA
Rooms
139
150
163
131
135
241
138
151
140
141
140
159
134
164
142
150
151
127
70
162
Year opened
Jul-04
Jan-98
Feb-11
Feb-00
Mar-06
Aug-85
Aug-09
Apr-10
Nov-09
Jul-09
May-04
Oct-89
May-09
Mar-11
Sep-02
Mar-04
Jan-09
May-10
Dec-09
Oct-07
2,928
1,379
$225,751
Source: Company reports, Deutsche Bank, and Smith Travel Research.
From a big picture perspective, we see three distinct positives in our evaluation of this
transaction; 1) the Lodgeworks portfolio requires little capital attention at present, 2)
expectations are low given the multiple paid (~16.5x 2012E EBITDA) and the negative impact
on shares since the deal was announced, and 3) the ability for H to further enhance its Select
Service segment, which has been a relative outperformer.
The twenty Lodgeworks properties require little renovation to convert to Hyatt brands as
~47% of the rooms in the portfolio are less than three years old. We believe this will allow H
to quickly integrate the product with few capital and time intensive renovations.
Page 151
20 September 2011
On July 13, H shares closed at $41.25. The following day, H announced its intention to
purchase a portfolio of 24 assets from Lodgeworks for $802 million. While the deal has since
been downsized to include 20 hotels at a price of $661 million, shares have fallen ~14%
since prior to the announcement. While we acknowledge many factors played a role in the
share price declines, we believe investor sentiment towards the transaction has turned
negative and we believe the 14% decline in shares more than accounts for the lofty multiple
and macro concerns.
At 16.5x estimated 2012 EBITDA for the portfolio, it is hard to argue that H is paying anything
less than full price. That said, given our view that shares reflect the price paid for these
assets, we believe there to be an opportunity for investors at current levels. It is important to
remember that new hotels, as many of these are, may take two or three years to develop;
however, EBITDA growth rates are higher than mature hotels. We would expect the EBITDA
growth rate of the Lodgeworks hotels in years 2013 and 2014 to be accretive to the owned
hotel EBITDA growth. We provide a sensitivity analysis in Figure 236 to demonstrate the
potential incremental equity value we believe there to be present at cuprrent levels from the
Lodgeworks transaction.
Figure 236: Lodgeworks Sensitivity Analysis
Est. 2012 EBITDA from Lodgeworks Acquisition
Implied Stabilized EBITDA
Total Price ($ in MM)
Implied Multiple
$661
16.5x
$40
Stabilized Multiple Sensitivity
Incremental Stabilized EBITDA
$43
$46
$49
$53
$57
$63
$69
16.5x
$0
15.5x
$3
14.5x
$6
13.5x
$9
12.5x
$13
11.5x
$17
10.5x
$23
9.5x
$29
Current 2013E Owned & Leased EBITDA Estimate
2013E Lodgeworks, % of Total O&L EBITDA
Upside potential, % of Total O&L EBITDA
$572
7.0%
0.0%
$575
7.4%
0.5%
$578
7.9%
1.0%
$581
8.4%
1.6%
$585
9.0%
2.2%
$590
9.7%
3.0%
$595
10.6%
4.0%
$602
11.5%
5.1%
Current 2013E Company EBITDA Estimate
2013E Lodgeworks, % of Company EBITDA
Upside potential, % of Company EBITDA
$732
5.5%
0.0%
$734
5.8%
0.4%
$737
6.2%
0.8%
$741
6.6%
1.2%
$745
7.1%
1.7%
$749
7.7%
2.4%
$755
8.3%
3.1%
$761
9.1%
4.0%
Owned & Leased Hotel EBITDA Target Multiple
11.5x
11.5x
11.5x
11.5x
11.5x
11.5x
11.5x
11.5x
Incremental Equity Value
$0.0
$29.6
$63.3
$102.0
$146.9
$199.6
$262.2
$338.1
Shares Outstanding
Incremental Equity Value per Share
166
166
166
166
166
166
166
166
$0.00
$0.18
$0.38
$0.62
$0.89
$1.21
$1.58
$2.04
Hyatt entered the upscale segment in 2006 when it purchased the 143-hotel AmeriSuites
chain from Blackstone for $600 million with plans to spend $150 million more on cap-ex and
marketing. Since, Hyatt has invested substantial capital into converting and revitalizing the
hotels. The growth of these, mostly younger generation, hotels has helped Hyatt outperform
the overall upscale chain scale segment as reported by Smith Travel Research. We believe
the assets acquired in the Lodgeworks transaction can also fit this mold.
We note that the upscale/select service segment is not lacking in competition as it includes
Marriott’s Courtyard brand, Hilton’s Hilton Garden Inn brand, and Starwood’s aloft brand.
Despite the stiff competition, since the 1Q 2009, Hyatt’s select service RevPAR has
outperformed industry RevPAR by an average of 345 bps. While the magnitude of
outperformance has slowed to ~150 bps over the last four quarters, we continue to believe
the fresh portfolio of assets provides H with a distinct advantage.
Page 152
20 September 2011
Figure 237: H’s Youthful Select Service Product Commanding Premium RevPAR
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Hyatt Comparable Select Service NA RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
-25%
STR Upscale RevPAR
Lastly, we believe it is important to note that aside from the Lodgeworks asset acquisition,
Hyatt is making smaller capital investments that we believe could further contribute to select
service growth.
In May, H purchased three hotels in California (Woodfin acquisition) for $77 million and is in
the process of investing $15 million into these properties to convert them to Hyatt
Summerfield Suites. Again, these hotels may not add much EBITDA to 2012, but years 2013
and 2014 will have much more EBITDA growth even in a low RevPAR growth environment
for the industry. In July, Hyatt sold eight hotels (6 Hyatt Place and 2 Summerfield Suites) to a
JV with Noble Investment Group. Hyatt will own 40% of the JV. More importantly for Hyatt’s
select service brands, Noble has committed to invest up to $48 million in new Hyatt Place
and Summerfield Suites brand hotels. We think third party capital deals such as this for the
betterment of the select service portfolio are meaningful positives.
H Operating Leverage Outpaces Peers
Owned hotels have significant operating leverage given expenses such as property taxes,
insurance, utilities, and employee wages and benefits are relatively inflexible and do not
necessarily increase or decrease in tandem with changes in revenue.
Relative to Marriott and Starwood, other large hotel operators, H garners more EBITDA from
its owned portfolio and owned real estate has a greater proportion of fixed cost than
management and franchise businesses. Assuming the completion of the Lodgeworks
acquisition, we estimate that ~71% of H’s 2012 (60% of 2011E) estimated EBITDA will come
from its owned & leased hotels or unconsolidated joint ventures that own hotels. We expect
the higher operating leverage to benefit Hyatt as long as the recent economic malaise does
not result in real RevPAR declines.
Page 153
20 September 2011
Figure 238: Estimated 2011 EBITDA before Overhead by Segment
0%
10%
Starwood
Marriott*
20%
30%
40%
30%
7%
Hyatt
Owned & Leased Hotels
50%
60%
70%
44%
45%
60%
Hotel Management
80%
90%
100%
11%
15%
33%
15%
26%
Hotel Franchising
5%
9%
Non-hotel Operations
Source: Company reports and Deutsche Bank estimates. Note: *Marriott is estimated based on 2010 results. Starwood and Hyatt are based on our 2011 estimates.
Exposure to International Growth
The U.S. hotel industry has reached maturity. At this point, excess supply growth erodes
occupancy. Large lodging companies including Hyatt are focusing their attention on
international markets, like China, India, and Brazil, for long-term growth.
Of Hyatt’s 35,000 room pipeline (150 signed hotel contracts), 70% are located outside of
North America. Much of this growth is coming from China and India. For H, we estimate that
~4% of EBITDA originates from China, which is slightly less than the ~5% we estimate for
Starwood. As of last November, Hyatt had 11 hotels in China with 22 in development,
including the Andaz Shanghai set to open this year. Roughly 1/4th of Hyatt’s global pipeline as
of last year was in India as Hyatt planned to open hotels in 15 new markets across India,
including Bangalore, Chennai, Hyderabad, and Pune.
In December, Hyatt purchased ocean-front property in the upscale Barra da Tijuca district of
Rio de Janeiro. Hyatt is developing a 408 room Grand Hyatt hotel on this site. Together with
another Latin American land parcel, Hyatt paid $85 million for land on which the company
plans to develop hotels. In our view, this is an example of a hidden asset on Hyatt’s balance
sheet that does not get reflected in Hyatt’s share price.
At present, we believe the international pipeline and non-EBITDA generating international
land parcels are unheralded parts of the H story that we believe will provide H with outsized
growth when compared to peers in the coming years.
Page 154
20 September 2011
Figure 239: 2011E Management & Franchise Fees by Region
International
management and
franchising
43%
North America
management and
franchising
57%
Recent Share Price Declines Have Created an Inexpensive Valuation
Recently, the U.S. debt downgrade, downward revisions to U.S. GDP, and poor economic
data points have caused a sector-wide decline in valuations. At current levels, H trades at
9.4x Consensus next twelve month EV / estimated EBITDA. We believe the recent pressure
on H shares has created a favorable risk-reward scenario that largely prices in near term risks,
such as lofty Consensus estimates and sluggish macro trends. We note that the average
forward multiple for H since IPO has been 11.9x forward twelve month EBITDA. Please see
Figure 240.
Figure 240: H EV/EBITDA Multiple History Based on Next Twelve Month Consensus
16x
14x
12x
10x
8x
6x
4x
2x
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Oct-10
Nov-10
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
Jan-10
Feb-10
Dec-09
Nov-09
0x
Average Multiple
Page 155
20 September 2011
Given that Hyatt has a limited history as a public company, we think looking at the valuation
ranges for peers like Starwood (10.2x next 12-twelve-months Consensus EBITDA) and
Marriott (10.4x next 12-twelve-months Consensus EBITDA), which are also now trading
below their historical valuations, is prudent. MAR has traded in a historical range of 8.0x to
15.0x EV / next-twelve-month Consensus EBITDA while HOT has traded within a range of
5.0x to 15.0x. At 9.4x, H is trading at the low end of these ranges despite a considerably
more favorable growth outlook than either during their respective troughs.
Figure 241: HOT EV/EBITDA Multiple History Based on Next Twelve Month Consensus
16x
14x
12x
10x
8x
6x
4x
2x
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
0x
Average Multiple
Figure 242: MAR EV/EBITDA Multiple History Based on Next Twelve Month Consensus
16x
14x
12x
10x
8x
6x
4x
2x
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
0x
Average Multiple
Page 156
20 September 2011
Renovations Have Been a Source of Investor Consternation, but We See Future Upside
At present, H is in the process of major renovation work at five of its 9 largest properties.
Hyatt invested more than $310 million in capital expenditures in 2010, of which we think
about $75 million was maintenance. Much of the remaining $235 million of project capital
expenditures went into the Grand Hyatt at Grand Central Terminal in New York (1,311 rooms),
the Grand Hyatt San Francisco (685 rooms), and the Hyatt Regency in Atlanta (1,260 rooms).
The Hyatt Regency San Antonio and Park Hyatt Chicago (38th largest) also underwent
renovations; however, the renovations were not as extensive as the renovations at the three
larger hotels.
Figure 243: Renovation Work at Four of H’s Nine Biggest Properties
Brand
Grand Hyatt
Hyatt Regency
Hyatt Regency
Hyatt Regency
Hyatt Regency
Hyatt Regency
Grand Hyatt
Hyatt Regency
Hyatt Regency
Segment
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Owned and Leased Properties
Property
Grand Hyatt New York
Hyatt Regency Atlanta
Hyatt Regency O'Hare
Hyatt Regency Grand Cypress
Hyatt Regency San Francisco
Hyatt Regency Crown Center
Grand Hyatt San Francisco
Hyatt Regency Vancouver
Hyatt Regency San Antonio
Region
United States, Canada and the Caribbean
City
New York
Atlanta
Rosemont
Orlando
San Francisco
Kanasa City
San Francisco
Vancouver
San Antonio
State
NY
GA
IL
FL
CA
MO
CA
TX
Country
United States
United States
United States
United States
United States
United States
United States
Canada
United States
Rooms
1,311
1,260
1,096
815
802
733
685
644
632
Share
100%
100%
100%
0%
0%
0%
100%
100%
100%
Interest
Owned
Owned
Owned
Capital Lease
Capital Lease
Capital Lease
Owned
Owned
Owned
To date in 2011, the Grand Hyatt New York, Hyatt Regency Atlanta, and Grand Hyatt San
Francisco, three large scale group hotels, have been a roughly $20 million drag on EBITDA
(Figure 244). While renovations were a drag on owned EBITDA last year and in the year to
date, year-over-year comparisons turn favorable starting in the 3Q 2011. We believe our
estimates contemplate a modest return from renovation capital and as such, we estimate
there to be room for upside. That said, we note that our estimates are below Consensus.
Figure 244: LTM Estimated EBITDA Impact from Hotels Under Renovation
3Q10
Hotel EBITDA
Owned & Leased RevPAR impact
Owned & Leased margin impact in bps
Reported EBITDA Drag from Operations
4Q10
1Q11
2Q11
$4
$10
$10
$10
1.75%
4.50%
4.00%
5.00%
150
190
100
3Q11E
$5
While renovation work is not over, we do believe the bulk of the disruption is behind H. recall,
in the 3Q 2010, management discussed plans to sell eleven properties that needed some
capital expenditures to bring them up to quality levels that Hyatt expects from its hotels.
These hotels were not in large, gateway markets. Ultimately, Hyatt sold the following six
assets; 1) the Hyatt Regency Greenville, 2) the Hyatt Lisle, 3) the Hyatt Deerfield, 4) the Hyatt
Rosemont, 5) the Grand Hyatt Tampa Bay, and 6) the Hyatt Regency Minneapolis (sold to a
joint venture). The remaining five properties that were not sold will likely be getting
renovations in the 2H 2011; however, we do not believe the renovations are likely to have a
significant impact on results given they are; 1) not as extensive and 2) not meaningful
contributors to EBITDA.
Page 157
20 September 2011
Investment Risks
Unconsolidated JV Holdings and Loan Portfolio Growth Would Increase Earnings
Opaqueness
In recent month, H has made a slew of joint venture investments. As such, we expect Hyatt’s
EBITDA from joint ventures to grow and given historical trends, we would expect investors to
apply a lower multiple to the segment given the difficulty in forecasting and valuing joint
venture earnings. From our perspective, we believe it is difficult to find comfort and
confidence in a valuation when we know little about the RevPAR, debt, capital expenditures,
and general operations of the hotels in the unconsolidated joint venture. Accordingly, our
price target multiple is 150 bps lower than the multiple we apply to the owned and leased
segment.
Recent JV investments:

July 2011 joint venture with Noble Investment Group: Hyatt sold eight of the companyowned Hyatt Place and Summerfield Suites hotels to a JV. The hotels were valued at
$110 million for the transaction. Hyatt’s share of the equity in the JV is $20 million. As
part of the agreement, the JV has plans to invest $80 million in the development of new
select service hotels. Hyatt will contribute 40% of the development cost over time.

May 2011 joint venture with White Lodging: Hyatt created a JV with White Lodging to
develop a 296-room Hyatt Place hotel in Austin, TX. Hyatt will contribute 50% of the
development cost. Construction starts in the 3Q 2011 and the hotel is scheduled to open
in 2013.

April 2011 joint venture with Haberhill and Starwood Capital Group: Hyatt sold the Hyatt
Regency Minneapolis to a JV for $50 million. The JV will make a $25 million investment
into the hotel. The renovation is expected to be finished by 2012.
Hyatt may also grow its portfolio of hotel loans. Hyatt has $325 million of senior secured
hotel loans and $89 million of unsecured financing to hotel owners. Interest income from
these loans flows through the Other Income line on the income statement. Similar to JV
EBITDA, investors may not give H full credit for this income as it is not part of Hyatt’s core
hotel business.
Hyatt’s largest loan is the $278 million mortgage to the Hyatt in Waikiki, Hawaii. This loan
matures in 2012 and has a one year extension option that will likely be exercised. The other
secured loans are to certain franchisees for renovations and conversions of certain franchised
hotels. They accrue interest at rates of 5.5%-7.5%.
In general, we believe the lack of credit ascribed by investors to the capital used for loans, as
well as the increased risk profile they create, is risk for H shares.
Our View of Group Business is Less Optimistic in the Near Term, Rendering Consensus
Estimates Aggressive in Our View
Hyatt’s core hotel brand, Hyatt and Hyatt Regency, is an upper upscale brand that serves
individual business travelers, large and small meetings, and conventions. Group business,
about 45% of revenues (slightly lower for owned & leased hotels, is a key component within
this segment. For Hyatt, about 70% of group business is from corporate customers, who are
usually quite sensitive to changes in the economy. The recovery in group business lags
individual travel since most group business is booked well in advance. We think expectations
for group business in 2012 are high since business transient demand has been so strong in
the 2H 2010 and 1H 2011. Convention calendars in urban markets like Philadelphia, Chicago,
and Boston indicate that group room nights will pick up materially in 2012. There may be risk
to the downside from group business if only because expectations are high and attrition
could commence should the macro climate further erode.
Page 158
20 September 2011
Hyatt’s comparable full service properties in North America (all brands except for Hyatt Place
and Summerfield Suites) have not kept pace with Smith Travel Research’s full service
RevPAR growth. We believe this is largely due to the skew towards group business at
Hyatt’s large properties. If group business does not recover as conventional wisdom
suggests, Hyatt’s large, group properties may not experience the EBITDA growth that
investors expect.
Figure 245: Full Service Properties Have Not Kept Up with STR Full Service RevPAR
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Hyatt Comparable Full Service NA RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
-30.0%
STR Full Service RevPAR
We also note that airline ticket prices have recovered in many large markets. In an
environment where economic expectations appear to be ratcheting downward and airline
prices are growing quickly, the number of people traveling to conventions and group events
may not materialize, even if convention calendars are strong.
Figure 246: New York Area Flight Fares
Figure 247: Chicago Area Flight Fares
$440
20%
$420
15%
$370
20%
15%
$350
10%
$400
5%
$380
0%
$360
-5%
$340
10%
$330
5%
$310
0%
-5%
$290
-10%
$300
-20%
Avg Fare
Source: Deutsche Bank and BTS.gov.
-10%
$270
-15%
-20%
$250
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
-15%
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
$320
yoy % chg.
Avg Fare
yoy % chg.
Page 159
20 September 2011
Figure 248: San Francisco Area Flight Fares
Figure 249: US Domestic Airline Fares
$370
25%
20%
$350
15%
$330
10%
-5%
-15%
-10%
-15%
$250
-20%
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
$270
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
-20%
Avg Fare
5%
$290
-10%
$250
10%
0%
-5%
$270
$350
$310
0%
$290
15%
$330
5%
$310
$370
yoy % chg.
Avg Fare
yoy % chg.
We believe much of the aforementioned sentiment towards group business is reflected in
our below Consensus forecasts. As such, we find our estimates to incorporate some of our
concerns regarding the segment. That said, we believe aggressive Consensus estimates,
likely stemming from more bullish views on group demand than our own, pose a risk to H.
Figure 250: Consensus Estimates May be Aggressive in Our View
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adj. EBITDA
$115.3
$121.4
($6.1)
$522.3
$525.7
($3.4)
$641.2
$666.1
($24.9)
$731.9
$764.4
($32.5)
EPS
$0.06
$0.08
($0.02)
$0.49
$0.53
($0.04)
$0.80
$0.94
($0.14)
$1.16
$1.32
($0.16)
Dual-Class Voting Structure Limits Voting Rights of Common Equity Holders
Hyatt has a dual-class share structure that essentially provides greater voting control to the
Pritzker family shares. The extra voting power may allow the Pritzker family interests to exert
significant influence on director elections, mergers, large asset sales, or other significant
transactions while owning less than 50% of shares. Shares available in the secondary market
are Class A shares. These shares receive one vote per share. Through 2015, assuming the
Pritzkers own less than 75% of the company, they have agreed that their shares will vote
with the recommendations of H’s board of directors assuming agreement of three
independent directors. Besides the Pritzker family, Goldman Sachs and Madrone Capital are
the two other primary Class B share holders.
Page 160
20 September 2011
Figure 251: Classes of Shares
Figure 252: Breakdown of Voting Rights
Class A
3.6%
Class A, 44.7MM
shares, 27.0%
Class B,
120.5MM
shares, 73.0%
Class B
96.4%
The Risk of Large Share Banks Controlled by a Few Groups or Individuals
After being founded by Jay Pritzker in 1957, the company went public in 1962. The Pritzkers
later took the company private in two pieces in 1979 and 1982. Hyatt completed another IPO
on November 10, 2009. The completion of the IPO enabled the different heirs of Jay Pritzker,
Hyatt’s founder, to price and sell their interests over time if they so desire. Prior to the IPO
the Pritzker family owned 85% of Hyatt. Following the IPO, the Pritzkers owned 60.4%.
During the 2Q 2011, Hyatt repurchased 8.99 million Class B shares from Pritzker family trusts
at $44.03 per share in a privately-negotiated transaction. After adjusting for the recent sale,
the Pritzkers own 58% of Hyatt’s outstanding shares.
Figure 253: Distribution of Share Ownership
Owned by
Pritzker family,
95.4MM shares,
57.8%
Other, 69.8MM
shares, 42.2%
Figure 254: Pritzker Family Voting Share
Pritzker Voting
Control
76.3%
Other
23.7%
Figure 255 shows the maximum number of Class B shares that can be converted to Class A
and resold. The Pritzkers sold 9 million shares in May. Hyatt purchased and retired the shares
sold by the Pritzkers. Hyatt has registered another 10.5 million Class A shares to convert
Class B shares if necessary.
Page 161
20 September 2011
The share groups in Figure 255 are mutually exclusive. If the 27.6 million shares that could be
sold from November 2010 to November 2011 are not sold in the specified period, they
cannot be sold in the following periods.
The next big lock-up date is November 4, 2011 when 26.7 million shares could be sold. We
believe potential sales by the Pritzker family can serve as an overhang for H.
Figure 255: Maximum Allowable Share Sales by Class B Shareholders
Maximum allowable share sales according to lock-up agreements
% of Shares
Shares (in MM)
Time period
Outstanding
7.2
Any time
4.4%
27.6
11/4/2010 to 11/4/2011
16.7%
2.9
12/23/10 to 11/4/2011
1.7%
6.3
after 5/13/2011
3.8%
26.7
11/4/2011 to 11/4/2012
16.2%
22.2
11/4/2012 to 3/4/2013
13.4%
9.7
3/4/2013 to 11/4/2013
5.8%
8.1
11/4/2013 to 3/4/2014
4.9%
7.9
3/4/2014 to 11/4/2014
4.8%
6.4
11/4/2014 to 3/4/2015
3.9%
5.0
after 11/4/2015
3.0%
Shares Outstanding
165.5
8.988 million shares were sold by the Pritzker family on 5/13/2011
19.442 million Class A shares have been registered for conversion of class B shares
GDP revisions and recent manufacturing data suggest that economic growth may be
slowing. The recent drop in equity markets shows concern over weakening global output,
European banks and fiscal situations, and lower growth expectations. Weekly RevPAR has
not shown a material deterioration in results at hotels; however, business transient demand
will likely be the first to show signs of any macroeconomic slow down. Hotels in general are
highly cyclical. Hyatt would not be immune to an economic slowdown, causing results to be
below our expectations.
Page 162
20 September 2011
Our net revenue estimates are $895 million, $3.668 billion, $3.975 billion, and $4.323 billion
for the 3Q 2011, 2011, 2012, and 2013, respectively.
We estimate adjusted EBITDA of $115 million, $522 million, $641 million, and $732 million in
the 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2012 and 2013 adjusted
EBITDA estimates are $25 million and $33 million below consensus, respectively. While we
believe H’s upside from recent investments and global growth is promising and significant,
we think current Consensus estimates may be somewhat underestimating the impact that
slower macroeconomic growth may have on group business and subsequently, H. We
believe our estimates account for a modestly less optimistic view than current Consensus
reflects.
We project adjusted EPS for 3Q 2011, 2011, 2012, and 2013 of $0.06, $0.49, $0.80, and
Page 163
20 September 2011
Figure 256: Summary of Our Estimates
2008
Revenue
Owned Hotels
yoy % chg
Management & Franchise Fees
yoy % chg
Other Revenue (VOI & Residential)
yoy % chg
Total before pass-through revenues*
yoy % chg
Total
yoy % chg
Adj EBITDA
Owned Hotels
yoy % chg
Share of Unconsolidated JVs
yoy % chg
Management & Franchise Fees
yoy % chg
VOI & Residential net profit
yoy % chg
Unallocated SG&A
yoy % chg
Other
yoy % chg
$2,139
$290
$83
$2,512
$3,837
$432
$90
$264
$57
($140)
($16)
2009
2010
2011E
2012E
2013E
$1,782
-16.7%
$223
-23.1%
$49
-41.0%
$2,054
-18.2%
$3,332
-13.2%
$1,859
4.3%
$255
14.3%
$45
-8.2%
$2,159
5.1%
$3,527
5.9%
$1,853
-0.3%
$290
13.8%
$61
34.9%
$2,203
2.1%
$3,668
4.0%
$2,017
8.9%
$311
7.3%
$64
5.0%
$2,392
8.6%
$3,975
8.4%
$2,213
9.7%
$334
7.2%
$67
5.0%
$2,614
9.3%
$4,323
8.7%
$243
-43.8%
$59
-34.4%
$183
-30.7%
$36
-36.8%
($142)
1.4%
$29
-281.3%
$288
18.5%
$68
15.3%
$221
20.8%
$42
16.7%
($164)
15.5%
$21
-26.9%
$291
1.0%
$84
23.2%
$251
13.8%
$42
0.6%
($171)
4.2%
$25
16.9%
$362
24.5%
$92
10.3%
$273
8.7%
$46
8.7%
($161)
-6.0%
$28
12.9%
$441
21.7%
$97
5.0%
$298
8.9%
$48
5.0%
($157)
-2.3%
$5
-81.4%
Total
yoy % chg
$687
$408
-40.6%
$476
16.7%
$522
9.7%
$641
22.8%
$732
14.1%
Adj EPS
yoy % chg
N/A
$0.13
$0.31
129.8%
$0.49
59.5%
$0.80
63.0%
$1.16
44.5%
Shares Outsanding
N/A
171.7
174.2
165.5
165.5
165.5
yoy % chg
$277
$156
-43.9%
$0.91
$256
64.2%
$1.47
$301
17.8%
$1.82
$367
21.8%
$2.21
$426
16.2%
$2.57
Net Free Cash Flow
yoy % chg
$99
$1,398
1312.5%
$8.14
$284
-79.7%
$1.63
($991)
-449.1%
-$5.99
($318)
-67.9%
-$1.92
$65
-120.4%
$0.39
N/A
*Excludes pass-through revenues that have an equal and offsetting expense
Figure 257: Our Estimates Versus Consensus
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adj. EBITDA
$115.3
$121.4
($6.1)
$522.3
$525.7
($3.4)
$641.2
$666.1
($24.9)
$731.9
$764.4
($32.5)
EPS
$0.06
$0.08
($0.02)
$0.49
$0.53
($0.04)
$0.80
$0.94
($0.14)
$1.16
$1.32
($0.16)
Page 164
20 September 2011
Our $44 price target is based on a blended multiple of 11.2x our 2013 adjusted EBITDA. Our
blended multiple stems from our sum of the parts approach in which we apply; an 11.5
multiple to owned and leased hotel EBITDA, a 10.0 multiple to H’s share of unconsolidated
hospitality ventures, a 12.0x multiple to H’s North American management and franchise fees,
a 13.0x multiple to H’s international management and franchise fees, and 5.0x multiples to
H’s timeshare business and other EBITDA. We note that our assumed multiples are based on
historical averages by segment, adjusted for our view of the current environment. Our overall
blended multiple of 11.2x is a 20 bps premium to H’s historical forward-year trading multiple.
Our analysis generates an enterprise value of $8.2 billion, from which we extract our 2013
net debt estimate of $382 million and H’s share of estimated JV debt, $559 million. We note
that our net debt estimate includes treasuries and short-term investments that Hyatt holds
since these investments are highly liquid and have short tenures.
2013E
EBITDA
Segment
Price Target
Multiple
Firm Value
Owned and Leased Hotel EBITDA
$441
11.5 x
$5,068
Share of Unconsolidated Hospitality Ventures
$97
10.0 x
$971
North American Management and Franchise Fees
$192
12.0 x
$2,303
International Management and Franchise Fees
$106
13.0 x
$1,375
Timeshare Profits
$48
5.0 x
$241
Other
$5
5.0 x
$26
Subtotal
$889
11.2
$9,984
Expense Allocation
($157)
11.2 x
($1,763)
Total
$732
11.2
$8,221
$382
Less Estimated JV Debt
$559
Equity Value
$7,280
166
Price Target
$44
% chg. in EBITDA
2013E EBITDA
Net Debt
Shares Outstanding
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
$586
$622
$659
$695
$732
$768
$805
$842
$878
$1,050
$1,023
$996
$968
$941
$913
$886
$858
$831
165.5
165.5
165.5
165.5
165.5
165.5
165.5
165.5
165.5
7.7x
$21
$23
$25
$27
$29
$30
$32
$34
$36
8.7x
$25
$27
$29
$31
$33
$35
$37
$39
$41
9.7x
$28
$30
$33
$35
$37
$40
$42
$44
$47
10.7x
$32
$34
$37
$39
$42
$44
$47
$49
$52
11.2x
$33
$36
$39
$41
$44
$47
$49
$52
$55
11.7x
$35
$38
$41
$43
$46
$49
$52
$54
$57
12.2x
$37
$40
$43
$46
$48
$51
$54
$57
$60
12.7x
$39
$42
$45
$48
$51
$54
$57
$60
$63
13.7x
$42
$45
$49
$52
$55
$58
$61
$65
$68
Page 165
20 September 2011
EV/EBITDA Valuation
At current levels, Hyatt trades at 12.6x, 10.7x, and 9.3x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Given the growth profile of H stemming from renovation
capital that should begin to bear fruit and the recent acquisition of Lodgeworks, we find
current valuation to be attractive.
September 16, 2011
Share Price
$35.56
165.5
$5,886
Share Price
$35.56
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
($863)
$129
$446
$382
2010 EPS
2011E EPS
2012E EPS
2013E EPS
$0.31
$0.49
$0.80
$1.16
2010 JV Debt
2011E JV Debt
2012E JV Debt
2013E JV Debt
$512
$559
$559
$559
2010 PE
2011E PE
2012E PE
2013E PE
115.2x
72.2x
44.3x
30.7x
2010 EV
2011E EV
2012E EV
2013E EV
$5,535
$6,573
$6,891
$6,826
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$476
$522
$641
$732
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
11.6x
12.6x
10.7x
9.3x
Page 166
20 September 2011
Figure 261: Forward EV-to-EBITDA Multiple History
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
0.0x
Figure 262: Same-Year EV-to-EBITDA Multiple History
20.0x
16.0x
12.0x
8.0x
4.0x
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
0.0x
Page 167
20 September 2011
Model
Figure 263: EPS Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Owned & Leased
yoy % Chg.
Management and Franchise Fees
yoy % Chg.
Other Revenue
yoy % Chg.
Other Managed Revenue
yoy % Chg.
Total Revenue
yoy % Chg.
1,782
-16.7%
223
-23.1%
49
-41.0%
1,278
-3.5%
3,332
-13.2%
451
8.4%
57
5.6%
11
-31.3%
322
6.3%
841
6.6%
483
5.0%
64
16.4%
12
-7.7%
330
3.1%
889
4.8%
455
3.9%
61
24.5%
11
10.0%
352
13.9%
879
9.1%
470
0.4%
73
12.3%
11
10.0%
364
5.2%
918
3.3%
1,859
4.3%
255
14.3%
45
-8.2%
1,368
7.0%
3,527
5.9%
432
-4.2%
70
22.8%
14
27.3%
359
11.5%
875
4.0%
484
0.2%
75
17.2%
17
41.7%
360
9.1%
936
5.3%
449
-1.3%
66
7.5%
15
35.0%
365
3.7%
895
1.8%
487
3.7%
80
9.0%
15
35.0%
380
4.5%
962
4.8%
1,853
-0.3%
290
13.8%
61
34.9%
1,465
7.1%
3,668
4.0%
2,017
8.9%
311
7.3%
64
5.0%
1,583
8.1%
3,975
8.4%
2,213
9.7%
334
7.2%
67
5.0%
1,709
7.9%
4,323
8.7%
Owned & Leased
Opex per Day
Operating Margin
Flow through
D&A
Other Direct Costs
As a % of Other Revenue
SG&A
As a % of Total Rev. excl. Other Managed Rev.
Other Managed and Franchised Expenses
Other
Total Expenses
1,460
81.9%
4.00
18.1%
66%
269
13
26.5%
261
12.7%
1,278
0
3,281
364
80.7%
4.04
19.3%
37%
70
(5)
-45.5%
69
13.3%
322
374
77.4%
4.11
22.6%
65%
66
2
16.7%
58
10.4%
330
376
82.6%
4.09
17.4%
47%
68
3
27.3%
68
12.9%
352
379
80.6%
4.12
19.4%
400%
75
3
27.3%
81
14.6%
364
354
81.9%
3.93
18.1%
47%
71
4
28.6%
70
13.6%
359
372
76.9%
4.09
23.1%
72
6
35.3%
71
12.3%
360
374
83.4%
4.07
16.6%
73%
72
4
29.0%
67
12.7%
365
382
78.3%
4.15
21.7%
84%
79
4
28.0%
81
13.8%
380
830
867
902
858
881
883
926
1,482
80.0%
4.06
20.0%
-66.5%
294
18
30.4%
289
13.1%
1,465
0
3,548
1,546
76.7%
4.23
23.3%
60.9%
314
18
28.0%
307
12.8%
1,583
0
3,769
1,640
74.1%
4.30
25.9%
28.0%
323
19
28.0%
325
12.4%
1,709
820
1,493
80.3%
4.09
19.7%
57%
279
3
6.7%
276
12.8%
1,368
0
3,419
Operating income
yoy % Chg.
51
-86.0%
21
0.0%
59
136.0%
12
-340.0%
16
60.0%
108
111.8%
17
-19.0%
55
-6.8%
11
-5.1%
37
129.5%
120
11.2%
206
71.8%
307
48.7%
29
(13)
(56)
(12)
0
(49)
(50)
7
(8)
(12)
(8)
(11)
(12)
(3)
13
(4)
(16)
(11)
2
2
(14)
(1)
3
10
(16)
3
(6)
(18)
52
46
3
16
(9)
35
6
14
6
21
13
9
(62)
(1)
0
6
86
10
12
(69)
0
0
18
177
3
18
(75)
(6)
19
21
(40)
(54)
(44)
20
77
88
6
3
(13)
16
24
9
(17)
(14)
(30)
20
15
(1)
(8)
16%
(42)
(3)
(45)
-126.5%
17
71%
7
(2)
5
-58.3%
0
0%
19
5
24
-149.0%
17
37%
29
1
30
403.3%
3
-300%
(4)
37
42%
51
4
55
-222.7%
6
38%
10
(1)
-3%
36
3
25%
10
5
25%
16
10
100.0%
36
50.0%
10
-66.3%
16
NM
14
16%
72
0
72
30.3%
44
25%
133
0
133
84.7%
10
11
1
0
(42)
NM
5
-64.3%
25
NM
30
504.0%
6
NM
66
NM
10
100.0%
37
48.0%
10
-66.3%
16
162.2%
73
10.1%
133
82.2%
192
44.5%
($0.27)
($0.02)
$0.02
($0.27)
$0.04
($0.01)
$0.00
$0.03
-73.7%
$0.11
$0.03
$0.01
$0.14
NM
$0.17
$0.01
$0.00
$0.17
483.2%
($0.02)
$0.00
$0.06
$0.03
NM
$0.29
$0.02
$0.06
$0.38
NM
$0.06
$0.00
$0.00
$0.06
99.4%
$0.21
$0.00
$0.01
$0.22
51.7%
$0.06
$0.00
$0.00
$0.06
-64.5%
$0.10
$0.00
$0.00
$0.10
176.0%
$0.43
$0.00
$0.01
$0.43
13.5%
$0.80
$0.00
$0.00
$0.80
86.0%
$1.16
$0.00
$0.00
$1.16
44.5%
(42)
10
11
9
(8)
34
5
25
2
6
66
34
28
1
(23)
(48)
37
1
10
16
1
6
2
73
1
0
0
7
2
133
0
0
0
0
0
192
6
6
21
16
(1)
(7)
(23)
10
(11)
4
2
(5)
0
$0.00
-100.0%
(5)
7
32
$0.18
84.9%
30
11
6
2
(10)
(29)
(1)
(21)
10
$0.06
NM
6
12
$0.07
NM
(12)
54
$0.31
129.8%
1
11
$0.07
NM
9
46
$0.27
46.8%
0
10
$0.06
10.5%
0
16
$0.10
38.0%
10
83
$0.49
59.5%
0
133
$0.80
63.0%
0
192
$1.16
44.5%
174
174
174
174
174
174
174
174
174
174
174
175
170
170
165
166
165
166
165
166
165
166
165
166
Revenues
Net Gains (losses) from Marketable Securities
Equity from Unconsolidated JVs
Interest Expense
Asset Impairments
Gain on Real Estate Sales
Other incl Interest Income
Pre-tax income
Income Tax
Tax rate %
Net Income
yoy % Chg.
Income (Loss) Attributable to Non-controlling interests
Net Income to H
yoy % Chg.
GAAP EPS from Continuing Operations
GAAP EPS associated with Discontinued Operations
GAAP EPS associated with Non-Controlling Interests
GAAP EPS to H
yoy % Chg.
Adjustments
Net Income to H
Asset Impairments
Hospitality Venture Impairment
Provisions on Hotel Loans
Marketable Securities
Other / Tax Provisions
Discontinued Operations Net of Tax
Net Income to H Excluding Special Items
yoy % Chg.
3
61
19
$0.13
172
172
1
(4)
-71.4%
1
4,016
3
256
64
25%
192
192
44.5%
Page 168
20 September 2011
Figure 264: Adjusted EBITDA Model ($ in MM)
EBITDA and Adjusted EBITDA
Net income
Interest expense
Income tax (benefit) expense
EBITDA
yoy % Chg.
Margin
2009
(42)
56
(8)
269
275
-52.7%
8.3%
1Q10
5
12
17
70
104
-2.8%
12.4%
2Q10
25
12
0
66
103
5050.0%
11.6%
3Q10
30
16
17
68
131
45.8%
14.9%
4Q10
6
14
3
75
98
28.9%
10.7%
2010
66
54
37
279
436
58.6%
12.4%
1Q11
10
13
6
71
100
-3.8%
11.4%
2Q11
37
14
(1)
72
122
18.4%
13.0%
3Q11E
10
16
3
72
102
-22.3%
11.4%
4Q11E
16
18
5
79
118
20.4%
12.3%
2011E
73
62
14
294
442
1.3%
12.0%
2012E
133
69
44
314
560
26.8%
14.1%
2013E
192
75
64
323
653
16.6%
15.1%
After Tax Discontinued Operations
Other income
Net Loss Attributable to Non-Controlling Interest
Equity Earnings from Uncons. Hosp. Ventures
Adjusted EBITDA
yoy % Chg.
Margin
59
3
61
(3)
13
408
-40.6%
12.4%
14
2
(16)
0
8
112
23.1%
13.7%
18
(5)
9
(1)
11
135
11.6%
16.3%
18
(1)
(41)
0
4
111
20.9%
12.8%
18
15
0
(3)
0
(3)
109
-2.7%
12.7%
22
23
23
10
(1)
(2)
151
11.9%
17.1%
0
(10)
115
3.7%
13.1%
0
6
147
24.6%
15.9%
84
0
7
(1)
(9)
522
9.7%
14.7%
92
0
0
0
(12)
641
22.8%
17.0%
97
(5)
(10)
17
118
13.5%
13.1%
68
(4)
(53)
(11)
40
476
16.7%
13.9%
0
(18)
732
14.1%
18.2%
Segment EBITDA
Gross Owned & Leased pre SG&A
yoy % Chg.
Margin
SG&A Attributable to Owned & Leased Hotels
as a % of Gross Owned and Leased Profit
Owned and Leased Hotel EBITDA
yoy % Chg.
Flow-through
Margin
2009
322
-42.1%
18.1%
(79)
24.5%
243
-43.8%
1Q10
87
17.6%
19.3%
(19)
21.8%
68
25.9%
2Q10
109
16.0%
22.6%
(24)
22.0%
85
14.9%
3Q10
79
11.3%
17.4%
(13)
16.5%
66
15.8%
4Q10
91
9.6%
19.4%
(22)
24.2%
69
19.0%
2010
366
13.7%
19.7%
(78)
21.3%
288
18.5%
1Q11
78
-10.3%
18.1%
(18)
23.1%
60
-11.8%
2Q11
112
2.8%
23.1%
(20)
17.9%
92
8.2%
3Q11E
75
-5.4%
16.6%
(17)
23.0%
58
-12.8%
4Q11E
106
16.0%
21.7%
(24)
23.0%
81
17.8%
2011E
370
1.2%
20.0%
(79)
21.5%
291
1.0%
13.6%
15.1%
17.6%
14.5%
14.7%
15.5%
13.9%
19.0%
12.8%
16.7%
15.7%
2012E
470
27.0%
23.3%
(108)
23.0%
362
24.5%
43.4%
18.0%
2013E
572
21.7%
25.9%
(132)
23.0%
441
21.7%
40.1%
19.9%
yoy % Chg.
Total Owned & Leased Segment EBITDA
yoy % Chg.
59
-34.4%
302
-42.1%
14
40.0%
82
28.1%
18
0.0%
103
12.0%
18
20.0%
84
16.7%
18
12.5%
87
17.6%
68
15.3%
356
17.9%
15
7.1%
75
-8.5%
22
22.2%
114
10.7%
23
30.0%
81
-3.6%
23
30.0%
105
20.3%
84
23.2%
375
5.2%
92
10.3%
455
21.3%
97
5.0%
538
18.3%
Managed and Franchised Fees
yoy % Chg.
SG&A Attributable to M&F Hotels
as a % of Gross M&F Fees
North American Management and Franchise Fees
yoy % Chg.
NA Managed and Franchised Margin
International Management and Franchise Fees
yoy % Chg.
International Managed and Franchised Margin
Total Managed & Franchised Segment EBITDA
yoy % Chg.
223
-23.1%
(40)
17.9%
118
-27.2%
65.2%
65
-36.3%
53.3%
183
-30.7%
57
5.6%
(12)
21.1%
31
10.7%
68.9%
14
0.0%
43.8%
45
7.1%
64
16.4%
(5)
7.8%
41
17.1%
78.8%
18
50.0%
52.9%
59
25.5%
61
24.5%
(7)
11.5%
37
32.1%
77.1%
17
30.8%
54.8%
54
31.7%
73
12.3%
(10)
13.7%
36
33.3%
75.0%
27
3.8%
60.0%
63
18.9%
255
14.3%
(34)
13.3%
145
22.9%
75.1%
76
16.9%
53.5%
221
20.8%
70
22.8%
(10)
14.3%
40
29.0%
78.4%
20
42.9%
54.1%
60
33.3%
75
17.2%
(9)
12.0%
44
7.3%
78.6%
22
22.2%
56.4%
66
11.9%
66
7.5%
(8)
12.3%
39
6.8%
78.0%
18
5.8%
55.0%
57
6.5%
80
9.0%
(12)
14.6%
39
9.3%
76.0%
29
6.1%
59.0%
68
7.9%
290
13.8%
(39)
13.3%
163
12.3%
77.8%
89
16.6%
56.4%
251
13.8%
311
7.3%
(38)
12.2%
176
8.4%
78.3%
97
9.3%
57.2%
273
8.7%
334
7.2%
(36)
10.9%
192
8.8%
79.0%
106
9.2%
58.0%
298
8.9%
36
142
29
408
16
38
7
112
10
29
(8)
135
8
48
13
111
8
49
9
118
42
164
21
476
10
42
6
109
11
42
2
151
11
42
9
115
11
45
8
147
42
171
25
522
46
161
28
641
48
157
5
732
Timeshare Profits
Unallocated SG&A
Other
Adjusted EBITDA
Page 169
20 September 2011
Figure 265: Free Cash Flow and Balance Sheet ($ in MM)
Free Cash Flow
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Less Dividends
Less Project Capex
Less Acquisitions
Asset/Real Estate Sales
Other
Net Free Cash Flow
(42)
269
0
(71)
156
(145)
11
(109)
0
127
1,369
1,398
7
70
19
66
29
68
(4)
75
10
71
36
72
10
72
16
79
(19)
66
(34)
32
0
0
(18)
79
(42)
37
0
15
(19)
52
(141)
(89)
0
105
(9)
72
(37)
35
0
33
(18)
64
(117)
(53)
(661)
(19)
75
(117)
(42)
(262)
(109)
268
300
(20)
32
45
61
(36)
32
(18)
90
(54)
36
(77)
97
(396)
73
(267)
(714)
(42)
72
294
0
(64)
301
(326)
(24)
(738)
130
(396)
37
(991)
133
314
0
(81)
367
(344)
22
(340)
0
0
0
(318)
192
323
(18)
59
(19)
40
0
113
51
279
0
(74)
256
(236)
20
0
233
0
31
284
Balance Sheet
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Short-term investments
Equity method investments
Cost method investments
Hotel Loans, net of allowance
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. in Net Debt
Minimum Operating Lease Payments (off B.S.)
1,327
104
1,308
1,179
444
1,006
604
385
1,247
852
1,050
(579)
(1,398)
222
378
852
838
845
(470)
109
208
375
838
853
846
(770)
(300)
260
372
853
808
831
(802)
(32)
1,110
524
175
70
375
808
771
790
(863)
(61)
1,110
524
175
70
375
852
771
812
(863)
(284)
502
1,136
527
178
70
366
771
768
770
(895)
(32)
494
876
521
205
73
355
768
769
769
(628)
267
487
656
521
205
73
355
769
1,263
1,016
86
714
479
560
521
205
73
355
1,263
1,210
1,237
129
42
471
560
521
205
73
355
771
1,210
991
129
992
471
243
521
205
73
355
1,210
1,210
1,210
446
318
441
307
521
205
73
355
1,210
1,210
1,210
382
(65)
410
5,016
5,026
5,039
5,105
5,118
5,118
5,156
4,822
4,832
4,848
4,848
4,981
5,173
Debt/Cap
TTM EBITDA
15%
$29.21
408
56
14%
$28.89
429
52
14%
$28.91
443
53
14%
$29.31
462
54
13%
$29.38
476
54
13%
$29.38
476
54
13%
$29.55
473
55
14%
$28.35
489
57
21%
$29.20
493
57
20%
$29.29
522
62
20%
$29.29
522
62
20%
$30.09
641
69
19%
$31.25
732
75
2.1x
-1.4x
7.3x
2.0x
-1.1x
8.3x
1.9x
-1.7x
8.4x
1.7x
-1.7x
8.6x
1.6x
-1.8x
8.8x
1.6x
-1.8x
8.8x
1.6x
-1.9x
8.6x
1.6x
-1.3x
8.6x
2.6x
0.2x
8.6x
2.3x
0.2x
8.5x
2.3x
0.2x
8.5x
1.9x
0.7x
9.3x
1.7x
0.5x
9.8x
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
(89)
426
(361)
65
65
Page 170
20 September 2011
Figure 266: Owned and Leased Revenue Model ($ in MM)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
365
90
91
92
92
365
90
91
92
92
365
366
365
47
1
21,447
481
7,833,792
47
0
21,146
(301)
1,903,140
(69,984)
(29,160)
1,234,567
(40,071)
102,239
47
0
21,211
65
1,930,201
27,061
(23,387)
1,410,301
175,734
107,258
46
(1)
20,715
(496)
1,905,780
(24,421)
(69,000)
1,394,650
(15,652)
16,253
42
(4)
19,447
(1,268)
1,789,124
(116,656)
(184,000)
1,161,320
(233,329)
(113,318)
42
(5)
19,447
(2,000)
7,528,245
41
(1)
18,914
(533)
1,702,260
(86,864)
(200,880)
1,098,468
(62,852)
(136,099)
41
(1)
18,884
(563)
1,718,444
16,184
(211,757)
1,261,166
162,698
(149,135)
41
0
18,884
0
1,737,328
18,884
(168,452)
1,275,720
14,554
(118,930)
41
0
18,884
0
1,737,328
0
(51,796)
1,132,043
(143,677)
(29,277)
41
(1)
18,884
(563)
6,895,360
41
0
18,884
0
6,911,544
41
0
18,884
0
6,892,660
(632,885)
4,767,397
16,184
4,846,956
(18,884)
4,868,177
Owned and Leased Revenue Model
Days in Period
Full Service Hotels
Hotels
Sequential Change
Hotel Rooms
Sequential Change
Full Service Room Nights
Sequential Change
yoy change
Full Service Occupied Room Nights
Sequential Change
yoy change
160,236
5,088,406
(433,441)
79,559
21,220
Occupancy
yoy chg in bps
yoy % chg
comparable yoy in bps
65.0%
(466)
-6.7%
64.9%
627
10.7%
680
73.1%
637
9.5%
660
73.2%
338
4.8%
330
64.9%
31
0.5%
0
69.1%
413
6.4%
64.5%
(34)
-0.5%
(80)
73.4%
32
0.4%
20
73.4%
25
0.3%
65.2%
25
0.4%
69.1%
5
0.1%
70.1%
99
1.4%
70.6%
50
0.7%
ADR
yoy % chg
comparable yoy % chg
$175.95
-12.7%
$182.66
-0.5%
-0.4%
$174.75
-0.1%
-0.2%
$170.78
2.4%
1.8%
$190.86
6.9%
2.9%
$179.76
2.2%
$194.34
6.4%
1.6%
$194.18
11.1%
4.9%
$187.38
9.7%
3.5%
$209.41
9.7%
3.5%
$196.34
9.2%
$204.19
4.0%
$214.40
5.0%
Full Service RevPAR
yoy % chg
Constant Dollar yoy % chg
$114.05
-18.8%
-18.8%
$118.49
10.2%
11.1%
9.0%
$127.68
9.4%
9.8%
9.5%
$124.98
7.3%
6.6%
7.1%
$123.89
7.4%
2.9%
3.2%
$123.78
8.5%
7.8%
7.4%
$125.41
5.8%
0.5%
-0.3%
$142.51
11.6%
5.2%
2.3%
$137.59
10.1%
$136.45
10.1%
$135.53
9.5%
$142.96
5.5%
$151.43
5.9%
Full Service Room Revenue ($ in MM)
$890.9
$229.7
$244.7
$239.7
$228.9
$943.0
$218.9
$243.7
$237.7
$237.1
$937.5
$988.0
$1,045.2
55
0
7,169
0
2,616,685
55
0
7,169
0
645,210
(14,338)
0
445,453
(863)
64,779
55
0
7,169
0
652,379
7,169
0
513,488
68,035
60,997
54
(1)
7,041
(128)
647,772
(4,607)
(11,776)
515,918
2,430
39,856
54
0
7,041
0
647,772
0
(11,776)
477,861
(38,057)
31,545
54
(1)
7,041
(128)
2,593,133
54
0
7,041
0
633,690
(14,082)
(11,520)
453,152
(24,710)
7,699
49
(5)
6,525
(516)
593,775
(39,915)
(58,604)
483,333
30,181
(30,155)
49
0
6,525
0
600,300
6,525
(47,472)
484,112
779
(31,806)
69
20
9,453
2,928
869,676
269,376
221,904
654,605
170,493
176,744
69
15
9,453
2,412
2,697,441
69
0
9,453
0
3,459,798
69
0
9,453
0
3,450,345
104,308
2,075,202
762,357
2,658,466
(9,453)
2,685,706
Select Service Hotels
Hotels
Sequential Change
Hotel Rooms
Sequential Change
Select Service Room Nights
Sequential Change
yoy change
Select Service Occupied Room Nights
Sequential Change
yoy change
(253,668)
(305,547)
5,200,838
(7,169)
1,755,542
(23,552)
1,952,720
122,482
583,265
27,240
Occupancy
yoy chg in bps
yoy % chg
67.1%
(256)
-3.7%
69.0%
1,004
17.0%
1,000
78.7%
935
13.5%
930
79.6%
747
10.3%
750
73.8%
610
9.0%
610
75.3%
821
12.2%
71.5%
247
3.6%
250
81.4%
269
3.4%
310
80.6%
100
1.3%
75.3%
150
2.0%
76.9%
163
2.2%
76.8%
(9)
-0.1%
77.8%
100
1.3%
ADR
yoy % chg
$93.47
-13.0%
$89.84
-12.1%
-12.0%
$89.66
-4.3%
-4.3%
$88.89
-1.8%
-1.8%
$88.91
1.3%
1.3%
$89.32
-4.4%
$95.52
6.3%
6.3%
$92.27
2.9%
5.3%
$92.10
3.6%
6.0%
$92.12
3.6%
6.0%
$92.99
4.1%
$96.72
4.0%
$100.10
3.5%
Select Service RevPAR
yoy % chg
$62.49
-16.5%
-16.5%
-16.5%
$62.03
2.9%
2.9%
2.9%
$70.57
8.6%
8.6%
8.6%
$70.80
8.4%
8.4%
8.4%
$65.59
10.5%
10.5%
10.5%
$67.27
7.6%
7.6%
7.6%
$68.31
10.1%
10.1%
10.1%
$75.11
6.4%
9.5%
9.5%
$74.27
4.9%
$69.34
5.7%
$71.77
6.7%
$74.26
3.5%
$77.92
4.9%
Select Service Room Revenue ($ in MM)
$163.5
$40.5
$45.8
$46.0
$42.5
$174.8
$43.8
$46.1
$44.3
$51.0
$185.2
$256.9
$269.2
102
1
28,616
481
10,443,243
102
0
28,380
65
2,563,413
(26,751)
(31,458)
1,909,359
201,922
160,285
100
(2)
27,756
(624)
2,569,031
5,618
(56,498)
1,922,278
12,919
74,430
96
(4)
26,488
(1,268)
2,509,694
(59,338)
(127,469)
1,688,522
(233,756)
(36,314)
96
(6)
26,488
(2,128)
10,232,303
90
(5)
25,409
(546)
2,300,832
(91,338)
(262,581)
1,733,677
144,319
(175,681)
90
0
25,409
0
2,337,628
36,796
(231,403)
1,759,832
26,155
(162,446)
110
20
28,337
2,928
2,607,004
269,376
97,310
1,786,648
26,816
98,126
110
14
28,337
1,849
9,637,634
110
0
28,337
0
10,371,342
110
0
28,337
0
10,343,005
(594,669)
6,869,515
733,708
7,505,423
(28,337)
7,553,883
Total Owned & Leased Hotels
Hotels
Sequential Change
Hotel Rooms
Sequential Change
Total O&L Room Nights
Sequential Change
yoy change
Total O&L Occupied Room Nights
Sequential Change
yoy change
(71,948)
112,433
197,178
(429,341)
102
0
28,315
(301)
2,590,164
(46,998)
4,485
1,707,436
(17,400)
190,289
388,690
95
(1)
25,955
(533)
2,392,170
(117,524)
(197,994)
1,589,358
(99,164)
(118,078)
(358,080)
635,908
48,460
Occupancy
yoy chg in bps
yoy % chg
65.5%
(426)
-6.1%
(410)
65.9%
725
12.3%
760
74.5%
708
10.5%
730
74.8%
445
6.3%
440
67.3%
187
2.9%
160
70.6%
515
7.9%
520
66.4%
52
0.8%
10
75.4%
86
1.2%
100
75.3%
46
0.6%
68.5%
125
1.9%
71.3%
64
0.9%
72.4%
109
1.5%
73.0%
67
0.0092141
ADR
yoy % chg
$154.52
-11.6%
-13.3%
$158.20
-2.8%
-2.8%
$152.15
-1.0%
-1.2%
$148.64
1.1%
0.7%
$160.71
3.8%
1.8%
$154.91
0.3%
0.0%
$165.28
4.5%
1.8%
$167.18
9.9%
4.6%
$161.17
8.4%
$166.44
3.6%
$165.01
6.5%
$166.04
0.6%
$173.76
4.7%
Total O&L RevPAR
yoy % chg
$100.97
-17.3%
-18.4%
$104.29
9.2%
9.8%
8.1%
$113.33
9.3%
9.6%
9.4%
$111.22
7.5%
6.9%
7.3%
$108.13
6.8%
4.1%
4.4%
$109.26
8.2%
7.8%
7.5%
$109.81
5.3%
2.0%
1.4%
$125.97
11.2%
5.9%
3.3%
$121.33
9.1%
$114.06
5.5%
$117.82
7.8%
$120.04
1.9%
$126.91
5.7%
Total O&L Room Revenue ($ in MM)
$1,054.4
$270.1
$290.5
$285.7
$271.4
$1,117.7
$262.7
$289.8
$282.1
$288.0
$1,122.6
$1,244.9
$1,314.4
$727.6
69.0%
$180.9
67.0%
$192.5
66.3%
$169.3
59.2%
$198.6
73.2%
$741.3
66.3%
$169.3
64.5%
$194.2
67.0%
$167.1
59.2%
$199.3
69.2%
$729.9
65.0%
$771.8
62.0%
$814.9
62.0%
$1,782.0
$451.0
$483.0
$455.0
$470.0
$1,859.0
$432.0
$484.0
$449.2
$487.3
$1,852.5
$2,016.6
$2,129.3
Non Room Revenues ($ in MM)
as a % of Room Revenue
Total Owned and Leased Segment Revenue ($ in MM)
22,220
6,838,904
(210,940)
7,227,594
Page 171
20 September 2011
Figure 267: Managed and Franchised Revenue Model ($ in MM)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
365
90
91
92
92
365
90
91
92
92
365
366
365
104
0
57,867
328
21,121,455
114
10
60,082
2,215
5,407,380
83,616
199,350
11
0
3,404
(8)
306,360
(7,544)
17,280
63,486
5,713,740
116
2
60,828
746
5,535,348
127,968
269,451
12
1
3,619
215
329,329
22,969
37,037
64,447
5,864,677
116
0
60,685
(143)
5,583,020
47,672
259,256
13
1
3,947
328
363,124
33,795
49,220
64,632
5,946,144
114
(2)
60,016
(669)
5,521,472
(61,548)
197,708
16
3
4,767
820
438,564
75,440
124,660
64,783
5,960,036
114
10
60,016
2,149
22,047,220
114
0
59,995
(26)
5,459,545
57,655
(75,803)
17
0
5,222
6
475,202
5,762
145,873
65,217
5,934,747
114
0
59,995
0
5,519,540
59,995
(63,480)
17
0
5,222
0
480,424
5,222
117,300
65,217
5,999,964
115
1
60,521
1,193
5,567,957
48,417
46,485
19
2
5,513
291
507,196
26,772
68,632
66,034
6,075,153
115
1
60,521
505
21,948,932
(98,288)
(98,288)
19
3
5,513
746
1,932,262
494,885
494,885
66,034
23,881,194
115
0
60,521
0
22,150,786
201,854
201,854
19
0
5,513
0
2,017,758
85,496
85,496
66,034
24,168,544
115
0
60,521
0
22,090,264
228,197
64,783
23,484,597
114
0
60,021
5
5,401,890
(119,582)
(5,490)
17
1
5,216
449
469,440
30,876
163,080
65,237
5,871,330
3,676,506
37,391
279,292
4,309,365
632,859
458,651
4,376,659
67,295
393,647
3,856,143
(520,516)
217,029
1,348,619
3,906,196
50,053
229,690
4,462,633
556,437
153,268
4,506,273
43,640
129,614
3,991,376
(514,897)
135,232
16,866,477
647,804
647,804
17,191,385
324,908
324,908
17,204,671
(1,154,695)
Occupancy
yoy chg in bps
yoy % chg
66.6%
(548)
-7.6%
64.3%
255
4.1%
73.5%
420
6.1%
73.6%
296
4.2%
64.7%
15
0.2%
69.1%
247
3.7%
66.5%
219
3.4%
75.2%
172
2.3%
75.1%
150
2.0%
65.7%
100
1.5%
70.6%
157
2.3%
71.1%
50
0.7%
71.4%
25
0.4%
ADR
yoy % chg
$156.61
-11.5%
$156.97
-6.5%
$158.26
-0.4%
$152.34
3.1%
$158.12
3.9%
$156.41
-0.1%
$163.35
4.1%
$163.14
3.1%
$156.91
3.0%
$164.44
4.0%
$161.95
3.5%
$166.81
3.0%
$173.49
4.0%
NA Full Service RevPAR
yoy % chg
$104.10
-18.5%
-17.5%
$101.00
-2.6%
-2.2%
-2.6%
$116.29
5.7%
6.8%
6.4%
$112.13
7.4%
7.5%
7.3%
$102.30
4.2%
3.9%
3.8%
$107.95
3.7%
4.1%
3.8%
$108.68
7.6%
8.1%
7.9%
$122.67
5.5%
5.0%
4.7%
$117.85
5.1%
$108.04
5.6%
$114.32
5.9%
$118.57
3.7%
$123.84
4.4%
80
(14)
10,285
(1,779)
3,754,025
81
1
10,436
151
939,240
(6,980)
13,590
101
10
12,832
1,326
1,154,880
96,328
119,340
23,268
2,094,120
81
0
10,436
0
949,676
10,436
13,741
110
9
13,956
1,124
1,269,996
115,116
222,950
24,392
2,219,672
80
(1)
10,308
(128)
948,336
(1,340)
2,116
112
2
14,221
265
1,308,332
38,336
249,780
24,529
2,256,668
81
1
10,522
214
968,024
19,688
21,804
114
2
14,494
273
1,333,448
25,116
274,896
25,016
2,301,472
81
1
10,522
237
3,805,276
81
0
10,522
0
946,980
(21,044)
7,740
115
1
14,589
95
1,313,010
(20,438)
158,130
25,111
2,259,990
76
(5)
10,006
(516)
910,546
(36,434)
(39,130)
123
8
15,675
1,086
1,426,425
113,415
156,429
25,681
2,336,971
76
0
10,006
0
920,552
10,006
(27,784)
123
0
15,675
0
1,442,100
15,675
133,768
25,681
2,362,652
76
0
10,006
0
920,552
0
(47,472)
123
0
15,675
0
1,442,100
0
108,652
25,681
2,362,652
76
(5)
10,006
(516)
3,698,630
(106,646)
(106,646)
123
9
15,675
1,181
5,623,635
76
0
10,006
0
3,662,196
(36,434)
(36,434)
135
12
17,642
1,967
6,183,654
76
0
10,006
0
3,652,190
556,979
25,681
9,322,265
560,019
27,648
9,845,850
1,060,271
29,852
10,896,114
1,673,633
278,949
311,719
1,708,298
34,665
269,473
1,608,729
(99,569)
301,618
1,828,914
246,921
155,281
1,859,407
30,494
151,109
1,686,934
(172,474)
78,205
6,957,247
7,347,920
8,240,690
Managed and Franchised Revenue Model
Days in Period
North American Full Service Hotels
Managed Hotels
Sequential Change
Managed Hotel Rooms
Sequential Change
Managed Room Nights
Sequential Change
yoy change
Franchised Hotels
Sequential Change
Franchised Hotel Rooms
Sequential Change
Franchised Room Nights
Sequential Change
yoy change
Systemwide North American Full Service Hotel Rooms
Systemwide North American Full Service Room Nights
Occupied Room Nights
Sequential Change
yoy change
North American Select Service Hotels
Managed Hotels
Sequential Change
Managed Hotel Rooms
Sequential Change
Managed Room Nights
Sequential Change
yoy change
Franchised Hotels
Sequential Change
Sequential Change
Sequential Change
yoy change
Systemwide North American Select Service Hotel Rooms
Systemwide North American Select Service Room Nights
Sequential Change
yoy change
62,181
11
1
3,412
200
1,209,180
33,588
61,279
22,330,635
14,870,054
(661,399)
91
32
11,506
4,243
4,199,690
1,541,432
21,791
7,953,715
16,218,673
51,251
114
23
14,494
2,988
5,066,656
866,966
25,016
8,871,932
(5,513)
66,034
24,102,509
13,285
(10,006)
149
14
19,846
2,204
7,243,924
553,439
1,100,515
1,581,993
(26,736)
187,309
571,904
390,673
892,770
Occupancy
yoy chg in bps
yoy % chg
66.4%
(44)
-0.7%
66.6%
659
11.0%
75.4%
672
9.8%
75.7%
393
5.5%
69.9%
470
7.2%
72.0%
553
8.3%
70.0%
340
5.1%
78.3%
286
3.8%
78.7%
300
4.0%
71.4%
150
2.1%
74.6%
266
3.7%
74.6%
(0)
0.0%
75.6%
100
1.3%
ADR
yoy % chg
$95.81
-11.7%
$93.31
-10.9%
$92.76
-4.2%
$92.40
1.6%
$91.03
0.2%
$92.37
-3.6%
$97.88
4.9%
$96.05
3.5%
$95.17
3.0%
$92.85
2.0%
$95.47
3.4%
$98.34
3.0%
$101.29
3.0%
NA Select Service RevPAR
yoy % chg
$63.47
-12.4%
-12.5%
$62.14
-1.1%
2.6%
2.6%
$69.94
5.1%
7.8%
7.8%
$69.95
7.1%
9.1%
9.1%
$63.63
7.4%
9.5%
9.5%
$66.43
4.7%
7.3%
7.3%
$68.52
10.3%
11.6%
11.6%
$75.17
7.5%
9.6%
9.6%
$74.90
7.1%
$66.30
4.2%
$71.22
7.2%
$73.35
3.0%
$76.61
4.4%
102
0
33,544
(956)
12,243,560
100
(2)
34,011
467
3,060,990
(25,058)
42,030
2
0
988
0
88,920
(1,976)
0
34,999
3,149,910
100
0
34,006
(5)
3,094,546
33,556
42,042
2
0
988
0
89,908
988
0
34,994
3,184,454
100
0
33,994
(12)
3,127,448
32,902
41,400
2
0
988
0
90,896
988
0
34,982
3,218,344
102
2
34,519
525
3,175,748
48,300
89,700
2
0
988
0
90,896
0
0
35,507
3,266,644
102
0
34,519
975
12,458,732
101
2
33,395
279
3,038,945
58,505
(55,601)
2
0
988
0
89,908
988
0
34,383
3,128,853
103
2
34,056
693
3,133,178
94,233
5,730
2
0
988
0
90,896
988
0
35,044
3,224,074
104
1
34,387
331
3,163,598
30,419
(12,150)
2
0
988
0
90,896
0
0
35,375
3,254,494
104
2
34,387
(132)
12,316,161
108
4
35,710
1,323
12,888,817
112
4
37,032
1,323
13,516,709
(142,571)
2
0
988
0
360,620
572,656
2
0
988
0
361,608
627,892
2
0
988
0
360,620
0
35,507
12,819,352
99
(3)
33,116
(1,403)
2,980,440
(195,308)
(80,550)
2
0
988
0
88,920
(1,976)
0
34,104
3,069,360
0
35,375
12,676,781
988
36,698
13,250,425
(988)
38,020
13,877,329
1,987,593
(109,190)
258,805
2,073,080
85,486
278,571
2,088,705
15,626
203,380
2,257,251
168,546
160,468
2,024,055
56,595
(49,025)
2,092,424
68,369
3,719
2,248,855
156,431
(8,396)
8,708,445
9,120,459
901,224
1,967,460
(289,791)
(20,133)
8,332,794
(977,657)
(73,835)
375,651
412,014
Occupancy
yoy chg in bps
yoy % chg
59.5%
(576)
-8.8%
63.1%
747
13.4%
65.1%
799
14.0%
64.9%
556
9.4%
69.1%
310
4.7%
65.6%
603
10.1%
64.1%
100
1.6%
64.7%
(41)
-0.6%
64.9%
0
0.0%
69.1%
0
0.0%
65.7%
16
0.2%
65.7%
(1)
0.0%
65.7%
0
0.0%
ADR
yoy % chg
$207.15
-12.3%
$212.74
1.8%
$213.84
5.6%
$210.31
6.3%
$234.16
6.9%
$217.80
5.1%
$229.54
7.9%
$235.68
10.2%
$214.52
2.0%
$238.84
2.0%
$229.63
5.4%
$234.22
2.0%
$238.91
2.0%
$123.56
-20.0%
-22.1%
$134.24
15.4%
18.7%
9.6%
$139.21
20.4%
21.4%
17.5%
$136.49
16.2%
17.3%
15.5%
$161.80
11.9%
11.7%
9.2%
$142.99
15.7%
16.9%
12.6%
$147.14
9.6%
11.0%
6.9%
$152.46
9.5%
9.9%
2.5%
$139.22
2.0%
$165.04
2.0%
$150.98
5.6%
$153.99
2.0%
$157.01
2.0%
Sequential Change
yoy change
International Full Service RevPAR
yoy % chg
Page 172
(383,440)
2
0
988
(4)
360,620
(2,452)
34,532
12,604,180
7,505,405
6,385,343
(60,521)
19
0
5,513
0
2,012,245
1,394,684
87,573
217,706
International
Managed Hotels
Sequential Change
Managed Hotel Rooms
Sequential Change
Managed Room Nights
Sequential Change
yoy change
Franchised Hotels
Sequential Change
Sequential Change
Sequential Change
yoy change
International Hotel Rooms
International Room Nights
5,284,828
925,765
16
5
4,767
1,355
1,437,377
215,172
2
0
988
0
360,620
8,406,629
20 September 2011
Appendix: H in Charts and Graphs
Figure 268: 2011E Fee Mix by Region
Figure 269: 2012E Fee Mix by Region
International
management and
franchising
43%
International
management and
franchising
43%
North America
management and
franchising
57%
North America
management and
franchising
57%
Figure 270: 2011E Fee Mix by Type of Fee
Figure 271: 2012E Fee Mix by Type of Fee
Franchise and
other fees
14%
Franchise and
other fees
14%
Base
management fees
Incentive
49%
management fees
37%
Base
management fees
Incentive
49%
management fees
37%
Figure 272: Room Mix by Brand (2Q 2011)
Figure 273: Room Mix by Region (2Q 2011)
Andaz
1%
Vacation
Ownership and
Residential
2%
Hyatt Summerfield
Suites
4%
Other Americas
1%
Southwest Asia
4%
Hyatt & Hyatt
Regency
57%
North America
73%
Europe, Africa,
Middle East
6%
Asia Pacific
16%
Park Hyatt
4%
Hyatt Place
16%
Grand Hyatt
16%
Page 173
20 September 2011
Figure 274: Room Mix by Chain Scale (2Q 2011)
Upscale
20%
Figure 275: Room Mix by Service Type (2Q 2011)
Luxury
22%
Select Service
26%
Full Service
74%
Upper Upscale
58%
Page 174
20 September 2011
Figure 276: Room Counts by Brand
Brand
Room Counts
3Q10
4Q10
4Q09
1Q10
2Q10
Park Hyatt
yoy % chg
yoy chg
sequential chg.
4,901
4,729
5,054
5,049
(172)
325
(5)
Andaz
yoy % chg
yoy chg
sequential chg.
505
912
912
1,096
407
0
184
Grand Hyatt
yoy % chg
yoy chg
sequential chg.
21,561
21,567
21,567
21,568
6
0
1
Hyatt and Hyatt Regency
yoy % chg
yoy chg
sequential chg.
70,561
71,277
71,908
71,901
716
631
(7)
Hyatt Place
yoy % chg
yoy chg
sequential chg.
18,433
19,055
19,810
19,947
622
755
137
yoy % chg
yoy chg
sequential chg.
4,070
4,213
4,582
4,582
143
369
0
Vacation Ownership and Residential
yoy % chg
yoy chg
sequential chg.
2,286
2,299
2,214
2,214
13
(85)
0
124,052
126,047
126,357
1,735
1,995
310
Total
yoy % chg
yoy chg
sequential chg.
122,317
1Q11
2Q11
5,049
3%
148
0
5,024
6%
295
(25)
5,313
5%
259
289
1,096
117%
591
0
1,101
21%
189
5
1,101
21%
189
0
21,568
0%
7
0
20,825
-3%
(742)
(743)
20,798
-4%
(769)
(27)
72,577
3%
2,016
676
72,391
2%
1,114
(186)
72,388
1%
480
(3)
20,434
11%
2,001
487
20,432
7%
1,377
(2)
20,432
3%
622
0
4,582
13%
512
0
4,679
11%
466
97
5,249
15%
667
570
2,201
-4%
(85)
(13)
2,193
-5%
(106)
(8)
2,193
-1%
(21)
0
127,507
4%
5,190
1,150
126,645
2%
2,593
-862
127,474
1%
1,427
829
Page 175
20 September 2011
Figure 277: Property Counts by Brand (Systemwide Worldwide)
Brand
Property Counts
3Q10
4Q10
4Q09
1Q10
2Q10
Park Hyatt
yoy % chg
yoy chg
sequential chg.
25
24
25
25
(1)
1
0
Andaz
yoy % chg
yoy chg
sequential chg.
2
4
4
5
2
0
1
Grand Hyatt
yoy % chg
yoy chg
sequential chg.
37
37
37
37
0
0
0
Hyatt and Hyatt Regency
yoy % chg
yoy chg
sequential chg.
159
162
164
164
3
2
0
Hyatt Place
yoy % chg
yoy chg
sequential chg.
146
151
157
158
5
6
1
yoy % chg
yoy chg
sequential chg.
30
31
34
34
1
3
0
Vacation Ownership and Residential
yoy % chg
yoy chg
sequential chg.
25
25
24
24
0
(1)
0
Total
yoy % chg
yoy chg
sequential chg.
424
434
445
447
10
11
2
1Q11
2Q11
25
0%
0
0
25
4%
1
0
27
8%
2
2
5
150%
3
0
5
25%
1
0
5
25%
1
0
37
0%
0
0
36
-3%
(1)
(1)
36
-3%
(1)
0
167
5%
8
3
166
2%
4
(1)
166
1%
2
0
161
10%
15
3
161
7%
10
0
161
3%
4
0
34
13%
4
0
35
13%
4
1
38
12%
4
3
24
-4%
(1)
0
23
-8%
(2)
(1)
23
-4%
(1)
0
453
7%
29
6
451
4%
17
-2
456
2%
11
5
Page 176
20 September 2011
Figure 278: O&L Hotels by Segment (2Q 2011)
Upscale,
6,525,
26%
Luxury, 6,
7%
Upscale,
49, 54%
Figure 279: O&L Hotel Rooms by Segment (2Q 2011)
Luxury,
1,223, 5%
Upper
Upscale,
35, 39%
Upper
Upscale,
17,691,
69%
Figure 280: O&L Hotels by Country (2Q 2011)
Figure 281: O&L Hotel Rooms by Country (2Q 2011)
Canada, 2, 2%
Canada, 990, 4%
South Korea, 1,
1%
South Korea,
601, 2%
Aruba, 1, 1%
Aruba, 357, 1%
Germany, 3, 4%
Germany, 916,
4%
England, 267,
1%
Azerbaijan, 341,
1%
Kyrgyz Republic,
178, 1%
England, 1, 1%
United States,
77, 86%
Azerbaijan, 2,
2%
United States,
21,485, 84%
Kyrgyz Republic,
1, 1%
France, 1, 1%
France, 162, 1%
Switzerland, 1,
1%
Switzerland,
142, 1%
Figure 282: O&L Hotels by Interest Type (2Q 2011)
Figure 283: O&L Hotel Rooms by Interest Type (2Q 2011)
Capital Lease,
2,988, 12%
Capital Lease, 5,
6%
Owned, 79, 88%
Operating Lease,
3, 3%
Owned, 20,767,
82%
Consolidated JV,
3, 3%
Operating Lease,
916, 3%
Consolidated JV,
768, 3%
Page 177
20 September 2011
Figure 284: O&L Hotels by Brand (2Q 2011)
Grand Hyatt, 4,
4%
Figure 285: O&L Hotel Rooms by Brand (2Q 2011)
Hyatt, 4, 4%
Hyatt Place,
5,553, 22%
Park Hyatt, 6,
7%
Hyatt Place, 43,
48%
Hyatt
Summerfield
Suites, 6, 7%
Andaz, 3, 3%
Grand Hyatt,
2,939, 11%
Hyatt, 1,028, 4%
Hyatt Regency,
13,035, 51%
Park Hyatt,
1,223, 5%
Hyatt Regency,
24, 27%
Hyatt
Summerfield
Suites, 972, 4%
Andaz, 689, 3%
Page 178
20 September 2011
Figure 286: Owned and Leased Hotels (does not include the 20 Lodgeworks Hotels)
Owned and Leased Properties
Brand
Segment
Region
Property
Grand Hyatt
Upper Upscale United States, Canada and the Caribbean
Grand Hyatt New York
Hyatt Regency
Hyatt Regency Atlanta
Hyatt Regency
Hyatt Regency O'Hare
Hyatt Regency
Hyatt Regency Grand Cypress
Hyatt Regency
Hyatt Regency San Francisco
Hyatt Regency
Hyatt Regency Crown Center
Grand Hyatt
Grand Hyatt San Francisco
Hyatt Regency
Hyatt Regency Vancouver
Hyatt Regency
Hyatt Regency San Antonio
Hyatt Regency
Hyatt Regency Miami
Grand Hyatt
Upper Upscale
Asia Pacific
Grand Hyatt Seoul
Hyatt Regency
Upper Upscale United States, Canada and the Caribbean t Regency Monterey Hotel & Spa on Del Monte Golf Co
Hyatt Regency
Hyatt Regency Long Beach
Hyatt Regency
Hyatt Regency Santa Clara
Hyatt Regency
Hyatt Regency Indianapolis
Hyatt Regency
Upper Upscale United States, Canada and the Caribbean yatt Regency Scottsdale Resort and Spa at Grainey Ranc
Hyatt Regency
Hyatt Regency Baltimore
Hyatt Regency
Hyatt Regency Coconut Point Resort and Spa
Hyatt Regency
Hyatt Regency Denver Tech Center
Hyatt Regency
Upper Upscale United States, Canada and the Caribbean Hyatt Regency Lake Tahoe Resort, Spa and Casino
Hyatt
Hyatt on Capitol Square
Hyatt Regency
Hyatt Regency Louisville
Hyatt Regency
Hyatt Regency Greenwich
Hyatt Regency
Hyatt Regency Aruba Resort and Casino
Park Hyatt
Luxury
Park Hyatt Toronto
Grand Hyatt
Upper Upscale
Europe, Africa, and the Middle East
Grand Hyatt Berlin
Hyatt
Hyatt at Fisherman's Wharf
Hyatt Regency
Upper Upscale
Hyatt Regency Cologne
Hyatt Regency
Upper Upscale
Hyatt Regency Mainz
Andaz
Upper Upscale
Andaz Liverpool Street
Andaz
Andaz West Hollywood
Hyatt Summerfield
Upscale
Woodfin
Park Hyatt
Luxury
Park Hyatt Washington
Park Hyatt
Luxury
Park Hyatt Chicago
Hyatt
Hotel Mar Monte, Managed by Hyatt
Hyatt Summerfield
Upscale
Woodfin
Andaz
Andaz 5th Avenue
Hyatt Regency
Upper Upscale
Hyatt Regency Baku
Hyatt Regency
Upper Upscale
Hyatt Regency Bishkek
Hyatt Place
Upscale
Hyatt Place Atlanta/Buckhead
Park Hyatt
Luxury
Park Hyatt Paris
Hyatt Place
Upscale
Hyatt Place Secaucus/Meadowlands
Park Hyatt
Luxury
Park Hyatt Baku
Hyatt Place
Upscale
Hyatt Place Orlando/Universal
Hyatt Place
Upscale
Hyatt Place Fremont/Silicon Valley
Hyatt Place
Upscale
Hyatt Place Chicago/Lombard/Oak Brook
Hyatt Place
Upscale
Hyatt Place Orlando/Convention Center
Hyatt Summerfield
Upscale
Woodfin
Park Hyatt
Luxury
Park Hyatt Zurich
Hyatt Summerfield
Upscale
Hyatt Summerfield Suites Denver Tech Center
Hyatt Summerfield
Upscale
Hyatt Summerfield Suites Parsippany/Whippany
Hyatt Summerfield
Upscale
Hyatt Summerfield Suites Morristown
Hyatt Place
Upscale
Hyatt Place Dallas/Arlington
Hyatt Place
Upscale
Hyatt Place Dallas/Plano
Hyatt Place
Upscale
Hyatt Place Sacramento/Rancho Cordova
Hyatt Place
Upscale
Hyatt Place Denver-South/Park Meadows
Hyatt Place
Upscale
United States, Canada and the Caribbean Hyatt Place Atlanta/Alpharetta/Windward Parkway
Hyatt Place
Upscale
Hyatt Place Cincinnati Airport/Florence
Hyatt Place
Upscale
Hyatt Place Detroit/Auburn Hills
Hyatt Place
Upscale
Hyatt Place Detroit/Livonia
Hyatt Place
Upscale
Hyatt Place Charlotte Airport/Tyvola Road
Hyatt Place
Upscale
Hyatt Place Raleigh-North
Hyatt Place
Upscale
Hyatt Place Cincinnati-Northeast
Hyatt Place
Upscale
Hyatt Place Cleveland/Independence
Hyatt Place
Upscale
Hyatt Place Pittsburgh/Cranberry
Hyatt Place
Upscale
Hyatt Place Pittsburgh Airport
Hyatt Place
Upscale
Hyatt Place Columbia/Harbison
Hyatt Place
Upscale
Hyatt Place Richmond/Arboretum
Hyatt Place
Upscale
Hyatt Place Lakeland Center
Hyatt Place
Upscale
Hyatt Place Phoenix-North
Hyatt Place
Upscale
Hyatt Place Scottsdale/Old Town
Hyatt Place
Upscale
Hyatt Place Boise/Towne Square
Hyatt Place
Upscale
Hyatt Place Albuquerque Airport
Hyatt Place
Upscale
United States, Canada and the Caribbean Hyatt Place San Antonio-Northwest/Medical Center
Hyatt Place
Upscale
Hyatt Place Birmingham/Inverness
Hyatt Place
Upscale
Hyatt Place Denver Airport
Hyatt Place
Upscale
Hyatt Place Denver Tech Center
Hyatt Place
Upscale
Hyatt Place Tampa/Busch Gardens
Hyatt Place
Upscale
Hyatt Place Atlanta/Norcross/Peachtree
Hyatt Place
Upscale
Hyatt Place Oaklahoma City Airport
Hyatt Place
Upscale
Hyatt Place Memphis Primacy Parkway
Hyatt Place
Upscale
Hyatt Place Chicago/Hoffman Estates
Hyatt Place
Upscale
Hyatt Place Chicago/Itasca
Hyatt Place
Upscale
Hyatt Place Greensboro
Hyatt Place
Upscale
Hyatt Place Nashville/Brentwood
Hyatt Place
Upscale
Hyatt Place Baltimore/Owings Mills
Hyatt Place
Upscale
Hyatt Place Nashville/Opryland
Hyatt Place
Upscale
Hyatt Place Louisville-East
Hyatt
Hyatt Key West Resort and Spa
Hyatt Place
Upscale
Hyatt Place Mystic
Highlights Denote property has been renovated in the 2010-2011 period.
City
New York
Atlanta
Rosemont
Orlando
San Francisco
Kanasa City
San Francisco
Vancouver
San Antonio
Miami
Seoul
Monterey
Long Beach
Santa Clara
Indianapolis
Scottsdale
Baltimore
Bonita Springs
Denver
Incline Village
Columbus
Louisville
Old Greenwich
Palm Beach
Toronto
Berlin
San Francisco
Cologne
Mainz
London
West Hollywood
Emeryville
Washington
Chicago
Santa Barbara
Sorrento Mesa
New York
Baku
Bishkek
Atlanta
Paris
Seacaucus
Baku
Orlando
Fremont
Lombard
Orlando
Cypress
Zurich
Englewood
Whippany
Morristown
Arlington
Plano
Rancho Cordova
Lone Tree
Alpharetta
Florence
Auburn Hills
Livonia
Charlotte
Raleigh
Mason
Independence
Cranberry Township
Pittsburgh
Irmo
Richmond
Lakeland
Phoenix
Scottsdale
Boise
Albuquerque
San Antonio
Birmingham
Aurora
Englewood
Tampa
Norcross
Oklahoma City
Memphis
Hoffman Estates
Itasca
Greensboro
Brentwood
Owings Mills
Nashville
Louisville
Key West
Mystic
State
NY
GA
IL
FL
CA
MO
CA
TX
FL
CA
CA
CA
IN
AZ
MD
FL
CO
NV
OH
KY
CT
CA
CA
CA
DC
IL
CA
CA
NY
GA
NJ
FL
CA
IL
FL
CA
CO
NJ
NJ
TX
TX
CA
CO
GA
KY
MI
MI
NC
NV
OH
OH
PA
PA
SC
VA
FL
AZ
AZ
IH
NM
TX
AL
CO
CO
FL
GA
OK
TN
IL
IL
NC
TN
MD
TN
KY
FL
CT
Country
United States
United States
United States
United States
United States
United States
United States
Canada
United States
United States
South Korea
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Aruba
Canada
Germany
United States
Germany
Germany
England
United States
United States
United States
United States
United States
United States
United States
Azerbaijan
Kyrgyz Republic
United States
France
United States
Azerbaijan
United States
United States
United States
United States
United States
Switzerland
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Rooms
1,311
1,260
1,096
815
802
733
685
644
632
612
601
550
528
501
497
493
488
454
451
422
400
393
373
357
346
342
313
306
268
267
238
234
216
198
197
194
184
182
178
171
162
159
159
151
151
151
149
142
142
135
135
132
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
127
126
126
126
126
126
126
126
126
126
126
124
124
123
123
121
118
79
Share
100%
100%
100%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
96%
100%
100%
100%
0%
100%
0%
0%
100%
0%
100%
100%
100%
99%
100%
100%
100%
89%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Interest
Owned
Owned
Owned
Capital Lease
Capital Lease
Capital Lease
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Capital Lease
Consolidated JV
Owned
Owned
Owned
Operating Lease
Owned
Operating Lease
Operating Lease
Owned
Capital Lease
Owned
Owned
Owned
Consolidated JV
Owned
Owned
Owned
Consolidated JV
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Page 179
20 September 2011
Figure 287: Hotels Owned or Leased by Unconsolidated Joint Ventures
Brand
Hyatt Regency
Grand Hyatt
Hyatt Regency
Hyatt Regency
Grand Hyatt
Hyatt Regency
Grand Hyatt
Hyatt Regency
Hyatt Regency
Hyatt Regency
Grand Hyatt
Grand Hyatt
Hyatt
Hyatt Regency
Hyatt
Hyatt Regency
Park Hyatt
Hyatt Place
Hyatt Regency
Park Hyatt
Hyatt
Hyatt Summerfield
Hyatt Place
Hyatt Place
Park Hyatt
Hyatt Summerfield
Hyatt Place
Hyatt Place
Hyatt Place
Hyatt Place
Hyatt Place
Hyatt Place
Park Hyatt
Segment
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Upper Upscale
Luxury
Upscale
Upper Upscale
Luxury
Upper Upscale
Upscale
Upscale
Upscale
Luxury
Upscale
Upscale
Upscale
Upscale
Upscale
Upscale
Upscale
Luxury
Region
Asia Pacific
Asia Pacific
Latin America
Asia Pacific
Asia Pacific
Latin America
Unconsolidated Joint Venture Properties
Property
City
Hyatt Regency Waikiki Beach Resort and Spa
Honolulu
Grand Hyatt San Antonio
San Antonio
Hyatt Regency DFW
Dallas Fort Worth Airport
Hyatt Regency Crystal City at Reagan National
Arlington
Grand Hyatt Bali
Bali
Hyatt Regency Columbus
Columbus
Grand Hyatt Mumbai
Mumbai
Hyatt Regency Minneapolis
Minneapolis
Hyatt Regency Huntington Beach Resort and Spa
Huntington Beach
Hyatt Regency Lost Pines Resort and Spa
Lost Pines
Grand Hyatt Sao Paulo
Sao Paulo
Grand Hyatt Seattle
Seattle, WA
Bali Hyatt
Bali
Hyatt Regency Jersey City on the Hudson
Jersey City
Hyatt at Olive 8
Seattle
Hyatt Regency Cleveland at The Arcade
Cleveland
Park Hyatt Hamburg
Hamburg
Hyatt Place Houston/Sugar Land
Sugar Land
Hyatt Regency Kyoto
Kyoto
Park Hyatt Mendoza
Mendoza
Hyatt at The Bellevue
Philadelphia
Hyatt Summerfield Suites Miami Airport
Miami
Hyatt Place Atlanta/Perimeter Center
Atlanta
Hyatt Place Fair Lawn/Paramus
Fair Lawn
Park Hyatt Jeddah
Jeddah
Hyatt Summerfield Suites Boston/Waltham
Waltham
Hyatt Place Phoenix/Gilbert
Gilbert
Hyatt Place Fort Worth/Cityview
Fort Worth
Hyatt Place Fort Worth/Hurst
Hurst
Hyatt Place Minneapolis/Eden Prairie
Eden Prairie
Hyatt Place Princeton
Princeton
Hyatt Place Coconut Point
Estero
Park Hyatt Milan
Milan
State
HI
TX
TX
VA
OH
MN
CA
TX
WA
NJ
WA
OH
TX
PA
FL
GA
NJ
MA
AZ
TX
TX
MN
NJ
FL
Country
United States
United States
United States
United States
Indonesia
United States
India
United States
United States
United States
Brazil
United States
Indonesia
United States
United States
United States
Germany
United States
Japan
Argentina
United States
United States
United States
United States
Saudi Arabia
United States
United States
United States
United States
United States
United States
United States
Italy
Rooms
1,229
1,003
811
686
648
633
547
533
517
491
466
425
386
351
346
293
252
214
189
186
172
156
150
143
142
135
127
127
127
126
122
108
108
Share
100%
30%
50%
50%
10%
24%
50%
40%
8%
50%
50%
10%
50%
50%
50%
4%
50%
20%
50%
50%
40%
40%
40%
8%
40%
50%
40%
40%
40%
40%
50%
30%
Interest
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Unconsolidated JV
Page 180
20 September 2011
Figure 288: Hyatt’s U.S. Pipeline
Pipeline Hotels
Brand
Andaz
Grand Hyatt
Park Hyatt
Total
Hyatt
Total
Hyatt Place
Total
Total
Segment
Brand Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Luxury
Luxury
Luxury
Luxury
4
11
4
19
1.06%
2.90%
1.06%
5.01%
1
0
1
2
4.55%
0.00%
4.55%
9.09%
Upper Upscale
Upper Upscale
106
106
7.04%
7.04%
5
5
6.41%
6.41%
Upscale
Upscale
Upscale
162
38
200
4.35%
1.02%
5.37%
29
12
41
4.57%
1.89%
6.46%
All Segments
325
0.62%
48
1.63%
Pipeline Rooms
Brand
Andaz
Grand Hyatt
Park Hyatt
Total
Hyatt
Total
Hyatt Place
Total
Total
Segment
Brand Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Luxury
Luxury
Luxury
Luxury
834
8,211
933
9,978
0.67%
6.60%
0.75%
8.02%
290
0
210
500
6.44%
0.00%
4.66%
11.10%
Upper Upscale
Upper Upscale
51,782
51,782
9.41%
9.41%
1,531
1,531
6.52%
6.52%
Upscale
Upscale
Upscale
20,532
5,249
25,781
3.36%
0.86%
4.22%
4,332
1,580
5,912
5.32%
1.94%
7.26%
All Segments
87,541
1.79%
7,943
2.52%
Page 181
20 September 2011
20 September 2011
Choice Hotels Intl.
Reuters: CHH.N
Hold
Bloomberg: CHH UN
Initiating Coverage with a Hold
Rating
Initiating Coverage on CHH with a Hold Rating and a $31 Price Target
We like CHH’s stable and easy-to-understand franchise model, but we believe
CHH’s decision to fund new unit growth with its own balance sheet may lower
the quality of earnings, complicate the balance sheet, and reduce returns on
invested capital. Additionally, we believe the lack of new supply will make unit
growth challenging for CHH domestically. While CHH’s valuation appears
inexpensive when compared to prior periods, we find it to be largely fair and
reflective of the limited near-term growth prospects and evolving business model.
Key Positives / Upside Risks to Our Thesis
We believe CHH shares could benefit from: 1) continued RevPAR strength in the
limited service segment and a model that buffers downside risk, 2) what we see
as an undemanding valuation, 3) stable free cash flow generation, 4) financial
flexibility stemming from a healthy balance sheet, and 5) an easy-to-understand
business model that we believe provides comfort for investors in a considerably
uncertain environment.
Price target
52-week range
30.69
31.00
41.25 - 26.54
44
40
36
32
28
24
20
16
9/08
3/09
9/09
3/10
9/10
3/11
Choice Hotels Intl.
Performance (%)
Absolute
S&P 500 INDEX
1m
7.1
1.9
3m
-4.8
-4.1
12m
-14.0
8.1
Market Cap (USD)
Free float (%)
1,835.6
59.8
48
98,041
2,761
Key Negatives / Downside Risks to Our Thesis
Risks to CHH include: 1) a development pipeline that offers little in terms of new
unit add opportunities, 2) a tough environment through which to build the
Cambria Suites brand, 3) an alteration of the business model with efforts to selffund unit growth, 4) a thin float in an uncertain macro environment and volatile
equity market, and 5) the risk of further macro economic pressures that could
cause our estimates to be aggressive.
Our $31 Price Target Is Based on a Sum-of-the-Parts Valuation
Our $31 price target is based on a sum-of-the-parts approach, in which we apply
EV/EBITDA multiples to CHH’s fee-based revenues, less 2013E year-end net debt.
We value CHH’s royalty fees at 9.5x, initial franchising and licensing fees at 9.0x,
and other revenues at 6.0x. We believe each of these multiples is appropriately
based on historical multiples at this stage of the lodging cycle. Our sum-of-theparts approach derives a blended multiple of 9.2x our 2013 EBITDA estimate. Our
sum-of-the-parts derived price target implies a P/E multiple of 15.5x our 2013
adjusted EPS estimate, fair in our opinion given our view of the growth trajectory
of the business at this point in the lodging cycle.
Year End Dec 31
2010A
2011E
1Q EPS1
0.27
0.28A
2012E
0.28
2Q EPS
0.45
0.46A
0.50
3Q EPS
0.68
0.61
0.66
4Q EPS
0.42
0.42
0.46
FY EPS (USD)
1.82
1.78
1.89
P/E (x)
19.2
17.2
16.2
1
Page 182
20 September 2011
Choice Hotels International,
Inc. (CHH) – Hold
Company Description
Choice is the second-largest franchisor of hotel rooms in the U.S., behind only Wyndham
Worldwide, and its eleven brands control ~396,000 (8.1% of the total domestic room
supply). Choice is represented in every U.S. state and its more than 5,000 hotels have
significant geographic diversity. The company’s economy segment properties (Econo Lodge
and Rodeway) tend to be located close to major interstates, while the Clarion and Comfort
Suites brands are often found closer to airports or suburban office parks. The Comfort, Sleep,
and Quality brands are well represented in almost all areas.
Executive Summary
The DB Thesis: Hold
We are initiating coverage on CHH with a Hold rating and a $31 price target. We like, and
believe investors appreciate, CHH’s stable and easy-to-understand franchise model and
tenured brands, but we believe CHH’s decision to fund new unit growth with its own balance
sheet may lower the quality of earnings, complicate the balance sheet, and reduce returns on
invested capital. Additionally, we believe the lack of new supply in the U.S. over the next
three to four years will make unit growth challenging for CHH domestically. We note that
CHH has established an international footprint; however, at this time we do not see
international growth as being a tangible needle-mover for earnings. While CHH’s valuation
appears inexpensive when compared to prior periods, we find it to be largely fair and
reflective of the limited near-term growth and evolving business model.
Key Investment Positives /
We believe CHH shares could benefit from: 1) continued RevPAR strength in the limited
service segment and a model that buffers downside risk, 2) what we see as an undemanding
valuation, 3) stable free cash flow generation, 4) financial flexibility stemming from a healthy
balance sheet, and 5) an easy-to-understand business model that we believe provides
comfort for investors in a considerably uncertain environment.
Upside Risks
Key Investment Risks /
Downside Risks
DB Estimates
Risks to CHH include: 1) a development pipeline that offers little in terms of new unit add
opportunities, 2) a tough environment through which to build the Cambria Suites brand, 3) an
alteration of the business model with efforts to self-fund unit growth, 4) a thin float in an
uncertain macro environment and volatile equity market, and 5) the risk of further macro
economic pressures that could cause our estimates to be aggressive.
Our estimates assume RevPAR growth of 6.3%, 5.5%, 3.0%, and 3.3% in the 3Q 2011,
2011, 2012, and 2013, respectively. Our unit growth estimates are (0.1%), (0.4%), 1.0%, and
2.0% in the 3Q 2011, 2011, 2012, and 2013, respectively. Our royalty rate assumptions range
from 4.33% to 4.39% over the 2H 2011 through 2013.
We estimate adjusted EBITDA of $60.5 million, $178.3 million, $187.5 million, and $201.0
million in the 3Q 2011, 2011, 2012, and 2013, respectively. We project adjusted EPS for the
3Q 2011, 2011, 2012, and 2013 of $0.61, $1.78, $1.89, and $2.06, respectively.
Valuation
At current levels, CHH trades at 17.2, 16.2, and 14.9x our 2011, 2012, and 2013 EPS
estimates respectively. Since 2005, CHH has traded at an average multiple of forward year
EPS (2012) of 20.2x and an average multiple of same year (2011) EPS of 21.5x. On an
EV/EBITDA basis, CHH trades at 11.0x, 10.1x, and 9.0x our 2011, 2012, and 2013 EBITDA
Page 183
20 September 2011
estimates, respectively. Since 2005, CHH has traded at an average multiple of forward year
EBITDA (2012) of 13.2x and an average multiple of same year (2011) EBITDA of 13.7x.
Page 184
Our $31 price target is based on a sum-of-the-parts approach, in which we apply EV/EBITDA
multiples to CHH’s fee-based revenues, less 2013E year-end net debt. We value CHH’s
royalty fees at 9.5x, initial franchising and licensing fees at 9.0x, and other revenues at 6.0x.
We believe each of these multiples is appropriately based on historical multiples at this stage
of the lodging cycle. Our sum-of-the-parts approach derives a blended multiple of 9.2x our
2013 EBITDA estimate. Our sum-of-the-parts derived price target implies a P/E multiple of
15.1x our 2013 adjusted EPS estimate, fair in our opinion given our view of the growth
trajectory of the business at this point in the lodging cycle.
20 September 2011
Investment Positives / Upside Risks
Strength in Limited Service RevPAR Provides Growth While Chain Scale Segmentation
Buffers Risk in a Cyclical Downturn
CHH’s primary earnings driver is royalty fee income, which accounts for ~87% of our annual
revenue forecasts, excluding marketing and reservation fees. CHH earns a royalty fee on the
total room revenues of hotels that carry Choice brand flags. Most of Choice brand hotel
rooms are in the upper midscale, midscale, and economy segments (Figure 289). CHH’s
upper midscale brands include Comfort Inn, Comfort Suites, and Clarion. CHH’s midscale
brands are Quality Inn & Suites, Sleep, and Mainstay and CHH’s economy brands are Econo
Lodge, Rodeway, and Suburban Lodge.
Figure 289: 2Q 2011 Choice Brand Rooms by Chain Scale Segment
Upscale
1%
Economy
20%
Upper Midscale
48%
Midscale
31%
Source: Company reports.
Given the chain scale skew it is obvious that growth in limited service RevPAR directly
increases revenue to CHH. CHH’s revenue is primarily driven by top-line growth at Choice
branded hotels. To the extent that limited service hotels are able to raise rates or occupancy,
CHH should be able to grow royalty revenue even if unit and conversion growth remains low
over the next few years.
During a cyclical downturn, RevPAR for CHH’s brands has historically declined less than
RevPAR for the rest of the industry. Most believe this is due to a trade down chain scale
effect. Conversely, during the periods of RevPAR growth, CHH’s primary segments usually
have below-industry RevPAR growth as high-end hotels recover RevPAR lost in the cyclical
downturn. Given our belief that there is limited conviction with respect to the broader overall
macro picture as we come to the end of 2011 and investors focus squarely on 2012, CHH
could be seen as appealing for those who like the lodging space but have taken a negative
view on the macro and its resulting impact on industry trends for 2012.
Page 185
20 September 2011
Figure 290: LTM Chain Scale Segment RevPAR Performance
10%
5%
0%
-5%
-10%
-15%
Total US
Upper Midscale
Midscale
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
-20%
Economy
Valuation Can Look Appealing
We believe investors could be apt to perceive CHH as a relative value at current levels.
Recently, the U.S. debt downgrade, downward revisions to U.S. GDP, and poor economic
data points have caused a sector-wide decline in valuations. As such, CHH is currently trading
at 10.7x Consensus EBITDA from 3Q 2011E to 2Q 2012E. We note that CHH has not traded
at this multiple since the summer and fall of 2008. Prior to 2008, CHH last traded below 10.0x
forward twelve-month Consensus EBITDA in 2003.
Note: CHH split its stock 2-for-1 in October 2005. The stock ran up after the stock split in
2005 before plummeting in 2006. Impressive EPS growth guidance, strong unit growth of 68%, and a boost in share repurchase activity, all combined with a thin float, helped drive
valuation in 2006.
Page 186
20 September 2011
Figure 291: CHH EV/EBITDA Multiple History Based on Next Twelve Month Consensus
22x
20x
18x
16x
14x
12x
10x
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
8x
Average Multiple
Stable Free Cash Flow
Unlike hotel ownership models, the CHH franchise model requires minimal capital
expenditures. Accordingly, CHH reliably generates stable free cash flow. Historically, CHH
has used its free cash flow to repurchase shares and pay dividends. Looking ahead, we
anticipate continued stability in free cash flow generation and believe CHH’s solid balance
sheet allows for financial flexibility. At current levels, CHH shares reflect gross free cash flow
yields of 3.5%, 3.6%, and 4.3% in 2011E, 2012E, and 2013E, respectively.
Figure 292: Free Cash Flow Statistics
$ in MM
2009
2010
2011E
2012E
2013E
Dividend/Share
Current Price
Dividend Yield
$0.74
$30.69
2.4%
$0.74
$0.74
$0.74
$0.74
2.4%
2.4%
2.4%
2.4%
yoy % chg.
Current Market Cap
Gross FCF Yield
$64.9
$56.9
-12.4%
$64.9
14.0%
$66.4
2.3%
$78.4
18.2%
$1,838.9
3.5%
3.1%
3.5%
3.6%
4.3%
Net Share Repurchases
Other
Net Free Cash Flow
Net FCF Yield
($59.1)
$16.1
$21.9
1.2%
($11.2)
$3.2
$48.9
2.7%
($2.5)
($25.6)
$36.7
2.0%
$0.0
$0.0
$66.4
3.6%
$0.0
$0.0
$78.4
4.3%
Figure 293: Leverage and Coverage Metrics
2009
2010
2011E
2012E
2013E
1.7x
1.3x
37.0x
1.5x
0.9x
25.6x
1.4x
0.7x
13.7x
1.3x
0.3x
14.7x
1.3x
-0.1x
15.7x
Gross Debt/EBITDA
Net Debt/EBITDA
Page 187
20 September 2011
Figure 294: Comparable Free Cash Flow Summary
September 16, 2011
$ in Millions
Net Free Cash Flow
Ticker
Price
Shares
Outsanding
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
2010
HOT
$45.46
195
$520
$224
$299
$391
5.9%
2.5%
3.4%
4.4%
$769
H
$35.56
166
$256
$301
$367
$426
4.3%
5.1%
6.2%
7.2%
$284
GET
$22.82
51
$42
$97
$106
$115
3.6%
8.3%
9.1%
9.9%
($123)
OEH
$8.04
102
($39)
$14
$50
$62
-4.7%
1.7%
6.0%
7.5%
$162
Wyndham Worldwide
WYN
$32.15
170
$618
$673
$439
$470
11.3%
12.3%
8.0%
8.6%
Choice Hotels
CHH
$30.69
60
$57
$65
$66
$78
3.1%
3.5%
3.6%
4.3%
3.9%
5.6%
6.1%
7.0%
HST
$12.12
687
$238
$195
$329
$335
2.9%
2.3%
4.0%
4.0%
2.9%
2.3%
4.0%
4.0%
Company
Starwood Hotels
Hyatt Hotels
C-Corps
Host Hotels
Lodging REITS
2011E
2012E
2013E
$269
$339
$181
($991)
($318)
$65
$26
$0
($141)
$1
($23)
$48
($78)
$357
$439
$470
$49
$37
$66
$78
($169)
($1,048)
$140
$85
Financial Flexibility Permits Share Repurchases
While CHH has not been active with respect to share repurchases of late, management has
shown the willingness to do so, historically. Since 1998, CHH has spent more than $1 billion
on share repurchases. When shares declined from 2006 peak levels, CHH began
repurchasing large amounts of stock in 2007. Even as CHH’s stock price declined throughout
2008, management continued to support the stock price with repurchases. However, since
2010, share repurchase activity has been modest. Of late, shares of CHH have been
approaching the 2009 levels where management repurchased $55.3 million worth of stock at
an average price of $26.90 per share from January to September of 2009.
$109
Figure 295: CHH Share Repurchase History
$120
$60
$100
$50
$62
$40
$60
$19
$17
$21
$29
$2
$0
$2
$0
$20
$2
$9
$0
$0
$1
$0
$0
$0
$19
$25
$1
$0
$14
$20
$28
$30
$40
$5
$5
$ in Millions
$80
$0
$10
$0
Net Share Repurchases
1Q11
2Q11
3Q10
4Q10
4Q09
1Q10
2Q10
1Q09
2Q09
3Q09
3Q08
4Q08
4Q07
1Q08
2Q08
2Q07
3Q07
3Q06
4Q06
1Q07
4Q05
1Q06
2Q06
2Q05
3Q05
1Q05
-$20
Average Share Price in Quarter
Should management choose to repurchase stock, we would expect it to serve as a positive
catalyst for shares. At present, we are not contemplating share repurchases in our model.
We note that lodging stocks bottomed during the 1Q 2009; however, CHH shares bottomed
in the 4Q 2008. We believe CHH’s active repurchase program through the downturn,
especially the 4Q 2008 repurchases that became public in the 1Q 2009, may have helped
drive relative outperformance during the downturn.
CHH has 3.6 million shares remaining under its current repurchase authorization. Figure 296
shows the impact on earnings of $50 million in repurchases at a range of share prices.
Page 188
20 September 2011
Figure 296:Impact of $50 Million in Share Repurchases at Given Share Price Levels
Scenarios
Assumes $50 mm in Share Repurchases at Various Share Price Levels
2013E Base Case
Assumed Share Price
Shares Repurchased
$24.69
$28.69
$30.69
$32.69
$34.69
$36.69
2.0
1.9
1.7
1.6
1.5
1.4
1.4
Less Interest Income
Rate on Cash
$1.0
2.0%
$1.0
2.0%
$1.0
2.0%
$1.0
2.0%
$1.0
2.0%
$1.0
2.0%
$1.0
2.0%
Tax Rate
Impact to Net Income
33.5%
$0.7
33.5%
$0.7
33.5%
$0.7
33.5%
$0.7
33.5%
$0.7
33.5%
$0.7
33.5%
$0.7
$123.3
$122.6
$122.6
$122.6
$122.6
$122.6
$122.6
$122.6
59.9
57.9
58.0
58.2
58.3
58.4
58.5
58.6
$2.06
$2.12
$2.11
$2.11
$2.10
$2.10
$2.10
$2.09
$ Accretion (Dilution)
% Accretion(Dilution)
$0.06
2.9%
$0.05
2.7%
$0.05
2.4%
$0.05
2.2%
$0.04
2.1%
$0.04
1.9%
$0.04
1.8%
Implied Price Target Multiple
15.1x
15.1x
15.1x
15.1x
15.1x
15.1x
15.1x
Equity Value per Share
$0.92
$0.83
$0.76
$0.70
$0.64
$0.60
$0.55
Net Income
Diluted Share Count
EPS
0.0
$26.69
Easy-to-Understand Business Model Provides Some Comfort
We are of the opinion that simple business models tend to garner premium multiples. As
such, we believe investors looking for lodging exposure could see the CHH model as
attractive as both the business model and balance sheet are easily comprehendible.
Additionally, in an environment with considerable macro uncertainty such as the present, we
think the CHH model, where problems and or opportunities are easily discernable, provide
some comfort for investors.
The company primarily has three sources of revenue: royalty fees (87%), initial franchising
and relicensing fees (3%), and procurement services and other (10%).
The most significant source of revenue, royalty fees, are a function of both the number of
hotel rooms in CHH’s system and the RevPAR that those hotels generate. The company
typically charges franchisees an effective royalty rate of 4-5% of gross room revenues at
each individual property. The franchisee also pays a marketing and reservation fee to CHH,
which is typically around 6% of gross room revenues. Although CHH collects this fee, it is
contractually obligated to spend the entire amount on marketing and reservation services for
the franchisees. CHH records this amount as revenue on its income statement, but the
income is entirely offset by marketing and reservation expenses. These fees are sometimes
referred to as “pass through” fees because CHH does not profit directly from them.
CHH royalty revenue growth corresponds to RevPAR growth at same-store Choice-brand
hotels, plus royalty fees at new hotels. The primary revenue model is simple and easy to
understand. CHH’s effective royalty rate moves a few basis points from year to year. In 2008,
2009, and 2010, CHH’s effective royalty rates were 4.20%, 4.26%, and 4.31%, respectively.
Some of CHH’s franchise contracts have step-features where royalty rates start low, and step
up in the first few years of the contract. Allowances for doubtful accounts may also impact
the effective royalty rate marginally.
Page 189
20 September 2011
Initial franchising and relicensing fees contribute ~7% of CHH’s non-pass through revenue.
Each time a franchisee signs a contract to build a new Choice-branded hotel or convert an
existing property to a Choice brand, an initial franchise fee of anywhere between $25,000 and
$60,000 must be paid to Choice. The exact amount typically depends on the number of
rooms, among other factors. There are minimum levels of initial fees even for very small
hotels. In some cases, Choice may elect to discount this fee, especially if a franchisee is
seeking to build or convert multiple hotels at once. In 2008, initial franchisee fees
represented ~70% of combined initial and relicensing fees.
Relicensing fees are incurred when a franchisee’s initial (or renewal) contract expires. Initial
contracts generally expire after 20 years, but the suburban extended stay contracts have a
10-year initial term. In 2008, Choice converted Comfort Inn contracts to 10 years from 20
years. Before a contract is renewed, Choice typically requires the owner (franchisee) to
complete a product improvement plan (“PIP”) to address maintenance issues or brand
standards. A PIP program must also typically be completed before an existing hotel is
converted to a Choice brand. In a limited number of cases, the franchisee may elect not to
renew the contract, for a variety of reasons. The PIP may be too extensive or costly for the
franchisee, or the franchisee may believe the hotel would deliver better performance with a
different brand.
Less significant revenue generation stems from procurement services. Due to the sheer size
of its hotel platform, CHH is able to provide franchisees access to discounted room supplies
through arrangements with national vendors through online ordering. Choice essentially pools
individual franchisees’ purchasing power to obtain bulk pricing discounts on essential hotel
products. CHH charges a nominal fee when hotels utilize the program’s services.
More recently, CHH has been offering financing, investment, and guarantee support to some
franchisees to support growth. Interest income from development loans flows through the
income statement in the “Other Income” line. Choice plans to continue deploying capital to
promote growth of its emerging brands, like Cambria Suites.
Page 190
20 September 2011
Investment Risks / Downside Risks
Competition for New Franchisees in a Low Supply Growth Environment Erodes
Profitability
New hotel construction starts stopped when financing was choked off in late 2008 and early
2009. Financing for developments is only just now starting to return in small quantities and in
certain urban situations. With financing relatively unavailable, the construction pipeline has
fallen to a mere 1% of existing supply (Figure 297).
Historically, Choice has relied on new hotels for about 1/3rd of its unit growth. With this
growth avenue mostly shut-down, Choice and other hotel brands are left looking to hotel
conversions for growth. Despite limited visibility into the number of brand contracts renewing
in 2011 and 2012, the lack of new-build opportunities places additional importance on
renewing existing contracts and competing for conversion opportunities. While we do not
have hard evidence that brands are eliminating initiation fees or discounting fees to gain
share, we think the environment may be ripe for competition to erode profitability, especially
if another recession is to occur and material hotel growth is pushed out until later in the
decade.
Figure 297: New Construction to Offer Little Growth for Hotel Brands in 2011 and 2012
250,000
5.0%
4.5%
4.0%
200,000
3.5%
3.0%
150,000
2.5%
2.0%
100,000
1.5%
1.0%
50,000
0.5%
0.0%
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
0
Considering the pipeline of hotels that are in construction and the CHH business model, we
believe the main opportunity for CHH to achieve unit growth is an outsized share of the
pipeline. As evidenced in Figure 298, CHH’s share of the existing supply pipeline is ~226 bps
below its 8.1% share of current supply.
Page 191
20 September 2011
Figure 298: CHH Share of Pipeline
Pipeline Rooms
Brand
Segment
Brand Existing
Supply
% of Existing
Supply
Brand Active
Pipeline
Percent of Active
Pipeline
Ascend Collection
Cambria Suites
Total
Upscale
Upscale
Upscale
3,851
2,215
6,066
0.63%
0.36%
0.99%
122
3,230
3,352
0.15%
3.97%
4.12%
Upper Midscale
Upper Midscale
Upper Midscale
Upper Midscale
29,043
111,340
47,694
188,077
3.54%
13.57%
5.81%
22.92%
65
3,199
5,976
9,240
0.07%
3.52%
6.57%
10.16%
Mainstay Suites
Quality Inn
Quality Suites
Sleep Inn
Total
Midscale
Midscale
Midscale
Midscale
Midscale
3,007
87,951
3,328
28,787
123,073
0.59%
17.11%
0.65%
5.60%
23.95%
1,381
259
0
3,192
4,832
5.88%
1.10%
0.00%
13.58%
20.56%
Econo Lodge
Rodeway Inn
Total
Economy
Economy
Economy
Economy
49,881
21,537
7,391
78,809
6.36%
2.75%
0.94%
10.05%
33
94
929
1,056
0.91%
2.58%
25.54%
29.03%
All Segments
396,025
8.11%
18,480
5.85%
Clarion
Comfort Inn
Comfort Suites
Total
Total
Cambria Is a Key Initiative and Another Recession Would be Meaningfully Detrimental
to the Effort
CHH is working to establish a foothold in the upscale segment with its Cambria Suites brand.
Cambria Suites launched in October of 2005 and the segment, which caters to transient
business travelers, is crowded and a difficult one for new-comers to penetrate. Competitors
in the segment include Marriott’s Courtyard and Residence Inn, Hilton’s Garden Inn and
Doubletree, InterCon’s Crowne Plaza, Carlson’s Radisson, Starwood’s aloft, and Hyatt’s Hyatt
Place.
CHH reached the 50-contract milestone with Cambria in May of 2007, but the onset of the
financial crisis prevented brand growth from materializing. The Cambria brand is designed for
new-build hotels. In an environment where financing for development is difficult, the
economics become more difficult for a young brand. As of the end of July, there were 28
Cambria hotel’s (3,230 rooms) in CHH’s pipeline, down sequentially from 31 at the end of
June.
Page 192
20 September 2011
Figure 299: Cambria Brand Hotel Growth to Date
25
15
12
10
7
4
5
1
13
18
18
4Q09
20
3Q09
20
21
22
23
20
19
14
8
5
2
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
0
Cambria Suites hotels
Hotel Loan Investments May Complicate the Business and Lock Up Capital
As shown earlier in Figure 295, CHH has repurchased a substantial amount of its own stock
in the past. More recently, management has stated that the company will spend about $250
million on various programs to support brand growth. Specifically, CHH has been providing
small-balance development financing for hotels.
Management noted that it is not limiting investments to debt as CHH would consider sliver
equity, mezzanine loans, and debt guarantees. Management stated on a recent earnings call
that two or three Cambria hotels are open because of the support that CHH was able to
provide. While development capital is tight, management is willing to support other brands as
well. For instance, CHH recently provided a Comfort Suites in Atlanta with capital. The hotel
may not have opened without the investment. CHH is also purchasing land (~$15-20 million
as of the 2Q 2011 conference call) that the company intends sell to developers to build
Cambria hotels.
As we noted earlier in this report, we believe one of the positive attributes of CHH’s business
is the simplicity of the business model. CHH has generated significant cash flow over the
years without a significant capital investment burden. While we understand the need to build
brands that ultimately generate value in the long run, the addition of sliver equity and hotel
development loans into the mix adds complexity that investors may not reward with the high
multiples at which CHH has traded in the past.
CHH may use proceeds from its line of credit or debt offerings to invest in hotel
development. The use of debt to fund hotel investments should not prohibit CHH from
returning capital to shareholders, but we believe the potential for large-scale share
repurchases, an earlier-mentioned positive, diminishes as lending activity elevates.
Page 193
20 September 2011
The Detriment of a Thin Float in a Volatile Market
In general, and we believe this holds true for CHH, we believe volatility in markets and macro
uncertainty, such as the current, leaves investors less likely to invest in less liquid stocks for
fear of getting trapped in a largely illiquid position. Currently, nearly half of CHH’s shares are
controlled by the Bainum family. As such, CHH’s public float of 28.9 million shares is ~47.6%
of the total outstanding share count. Accordingly, the average trading volume per day over
the past three months is ~210K shares, less than 1% of the public float.
Figure 300: Bainum Family Ownership
Insider
Stewart Bainum
Bruce Bainum
Robert A Bainum
Stewart Bainum, Jr.
Commonweal Foundation
Barbara Bainum
Mid Pines Associates
Total:
Holder Type
Individual
Shares
12,497,426
% of O/S Shares
20.9%
Individual
Individual
Individual
Foundation/Endowment
Individual
Private Company
4,284,611
3,427,212
3,363,028
3,200,000
2,566,424
978,482
7.2%
5.7%
5.6%
5.4%
4.3%
1.6%
30,317,183
50.7%
Notes
Director from 1977 to 1996 and since 1997.
Chairman of the Board of Choice Hotels from
March 1987 to November 1996 and since October
1997; Chairman of the Board of Realty Investment
Company, Inc. since December 2005; Chairman of
the Board of Sunburst Hospitality Corporation
since November 1996.
Stewart Bainum Jr, Barabara Bainum, and Bruce
Bainum have beneficial ownership as co-trustees
and co-beneficiaries
The Risk of Further Deterioration in Macroeconomic Conditions
GDP revisions and recent manufacturing data suggest that economic growth may be
slowing. The recent drop in equity markets shows concern over weakening global output,
European banks and fiscal situations, and lower growth expectations. Weekly RevPAR has
not shown a material deterioration in results at hotels; however, business transient demand
will likely be the first to show signs of any macroeconomic slow down. Hotels in general are
highly cyclical. CHH would likely not be immune to an economic slowdown, which could
cause results to fall below our expectations.
Page 194
20 September 2011
Our Estimates, Consensus, and Guidance
Our net revenue estimates are $195.5 million, $636.4 million, $659.5 million, and $690.3
million for the 3Q 2011, 2011, 2012, and 2013, respectively. We estimate adjusted EBITDA of
$60.5 million, $178.3 million, $187.5 million, and $201.0 million in the 3Q 2011, 2011, 2012,
and 2013, respectively.
We project adjusted EPS for the 3Q 2011, 2011, 2012, and 2013 of $0.61, $1.78, $1.89, and
We note that our estimates incorporate the following underlying assumptions:

RevPAR growth of 5.5%, 3.0%, and 3.3% in 2011, 2012, and 2013, respectively.

Unit growth of (0.4%), 1.0%, and 2.0% for 2011, 2012, and 2013, respectively.

Effective royalty rate changes of +2 bps, +2 bps, and +3 bps in 2011, 2012, and 2013,
respectively.

Sales, General, and Administrative expense growth of 7.8% in 2011, 1.2% in 2012, and
0.7% in 2013, respectively.

A tax rate of 33.5% for the full years 2011, 2012, and 2013.
Figure 301: Estimates Summary
$ in MM
3Q11E
4Q11E
2011E
2012E
2013E
Total Revenue
yoy % chg.
Operating Income
yoy % chg.
Net Income
yoy % chg.
Adjusted Net Income
yoy % chg.
GAAP EPS
yoy % chg.
Adjusted EPS
yoy % chg.
Adjusted EBITDA
Adjusted EBITDA Margin
$195.5
$160.3
$636.4
$58.7
$41.0
$170.5
$36.6
$25.3
$105.3
$36.6
$25.3
$106.6
$0.61
$0.42
$1.76
$0.61
$0.42
$1.78
$60.5
31.0%
$42.7
26.6%
$178.3
28.0%
$659.5
3.6%
$180.0
5.6%
$113.3
7.6%
$113.3
6.2%
$1.89
7.6%
$1.89
6.2%
$187.5
28.4%
$690.3
4.7%
$193.5
7.5%
$123.3
8.9%
$123.3
8.9%
$2.06
8.9%
$2.06
8.9%
$201.0
29.1%
Source: Company report and Deutsche Bank estimates.
Figure 302: DB Estimates Versus Consensus
3Q 2011E
2011E
2012E
2013E
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
DB
Estimate
Consensus
Estimate
Delta
Adjusted EBITDA
$60.5
$60.3
$0.2
$178.3
$178.5
($0.2)
$187.5
$192.9
($5.5)
$201.0
$204.0
($3.0)
EPS
$0.61
$0.60
$0.01
$1.78
$1.76
$0.02
$1.89
$1.88
$0.01
$2.06
$2.05
$0.01
Source: Company reports, Deutsche Bank estimates, and Factset
Page 195
20 September 2011
Figure 303: Balance Sheet Summary
Cash
Gross Debt
Net Debt
2009
2010
2011E
2012E
2013E
$67.9
$277.7
$209.8
$91.3
$252.2
$160.9
$128.3
$252.5
$124.2
$194.7
$252.5
$57.8
$273.1
$252.5
($20.6)
$4.4
$6.7
$13.0
$12.8
$12.8
$163.3
$170.9
$178.3
$187.5
$201.0
1.7x
1.3x
37.0x
1.5x
0.9x
25.6x
1.4x
0.7x
13.7x
1.3x
0.3x
14.7x
1.3x
-0.1x
15.7x
Interest Expense
EBITDA
Gross Debt/EBITDA
Net Debt/EBITDA
Page 196
20 September 2011
Our $31 price target is based on a sum-of-the-parts approach, in which we apply EV/EBITDA
multiples to CHH’s fee-based revenues, less 2013 year end net debt. We value CHH’s royalty
fees at 9.5x, initial franchising and licensing fees at 9.0x, and other revenues at 6.0x. We
believe each of these multiples are appropriately based on historical multiples at this stage of
the lodging cycle. Our sum-of-the-parts approach derives a blended multiple of 9.2x our 2013
EBITDA estimate. Our sum-of-the-parts derived price target implies a P/E multiple of 15.5x
our 2013 adjusted EPS estimate, fair in our opinion given our view of the growth trajectory of
the business at this point in the lodging cycle.
2013E
EBITDA
Price Target
Multiple
Enterprise
Value
267.9
9.5 x
2,545
Initial Franchising and Licensing Fees
11.0
9.0 x
99
Procurement Services
18.8
6.0 x
113
Segment
Royalty Fees
Other
7.2
6.0 x
43
Subtotal
305
9.2 x
2,800
SG&A
(104)
9.2 x
(954)
Total
201
9.2 x
1,846
(20.6)
Equity Value
1,866
59.9
Price Target
$31
% chg. in EBITDA
2013E EBITDA
Net Debt
Shares Outstanding
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
$161
$171
$181
$191
$201
$211
$221
$231
$241
$6
($1)
($7)
($14)
($21)
($27)
($34)
($41)
($47)
59.9
59.9
59.9
59.9
59.9
59.9
59.9
59.9
59.9
5.5x
$15
$16
$17
$18
$19
$20
$21
$22
$23
6.5x
$17
$18
$20
$21
$22
$23
$24
$26
$27
7.5x
$20
$21
$23
$24
$25
$27
$28
$30
$31
8.5x
$23
$24
$26
$27
$29
$30
$32
$33
$35
9.2x
$25
$26
$28
$29
$31
$33
$34
$36
$38
9.5x
$25
$27
$29
$30
$32
$34
$36
$37
$39
10.5x
$28
$30
$32
$34
$36
$37
$39
$41
$43
11.5x
$31
$33
$35
$37
$39
$41
$43
$45
$47
12.5x
$33
$36
$38
$40
$42
$44
$47
$49
$51
Page 197
20 September 2011
Valuation
At current levels, CHH trades at 17.2, 16.2, and 14.9x our 2011, 2012, and 2013 EPS
estimates respectively. Since 2005, CHH has traded at an average multiple of forward year
EPS (2012) of 20.2x and an average multiple of same year (2011) EPS of 21.5x. On an
EV/EBITDA basis, CHH trades at 11.0x, 10.1x, and 9.0x our 2011, 2012, and 2013 EBITDA
estimates, respectively. Since 2005, CHH has traded at an average multiple of forward year
EBITDA (2012) of 13.2x and an average multiple of same year (2011) EBITDA of 13.7x.
September 16, 2011
Share Price
$30.69
59.9
$1,839
Share Price
$30.69
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
$161
$124
$58
($21)
2010 EPS
2011E EPS
2012E EPS
2013E EPS
$1.82
$1.78
$1.89
$2.06
2010 EV
2011E EV
2012E EV
2013E EV
$2,000
$1,963
$1,897
$1,818
2010 PE
2011E PE
2012E PE
2013E PE
16.9x
17.2x
16.2x
14.9x
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$171
$178
$187
$201
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
11.7x
11.0x
10.1x
9.0x
Page 198
20 September 2011
Figure 307: Forward EV-to-EBITDA Multiple History
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
0.0x
Figure 308: Same-Year EV-to-EBITDA Multiple History
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
Page 199
20 September 2011
Figure 309: Forward PE Multiple History
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
Apr-11
Sep-11
Sep-11
Nov-10
Jun-10
Jan-10
Aug-09
Mar-09
Oct-08
Apr-11
Forward PE Multiple
May-08
Dec-07
Jul-07
Feb-07
Sep-06
Apr-06
Nov-05
Jun-05
Jan-05
0.0x
Figure 310: Same-Year PE Multiple History
Nov-10
Jun-10
Jan-10
Aug-09
Mar-09
Oct-08
May-08
Dec-07
Jul-07
Feb-07
Sep-06
Apr-06
Nov-05
Jun-05
Jan-05
45.0x
40.0x
35.0x
30.0x
25.0x
20.0x
15.0x
10.0x
5.0x
0.0x
Page 200
20 September 2011
Model
(in US$ millions)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Days in Period
365
90
91
92
92
365
90
91
92
92
365
366
365
3%
Revenues
Royalty Fees
yoy % Chg.
yoy % Chg.
yoy % Chg.
Marketing and Reservations
yoy % Chg.
Hotel Operations
yoy % Chg.
Other
yoy % Chg.
218.0
-11.9%
12.9
-53.8%
17.6
2.6%
305.4
-9.2%
4.1
-16.1%
6.2
-20.5%
41.0
-5.6%
1.9
-27.8%
3.2
-4.3%
58.8
-5.2%
0.9
-22.5%
1.5
1.2%
57.4
4.6%
2.7
-33.5%
6.6
-2.4%
80.4
6.8%
1.1
-5.9%
1.6
39.8%
72.6
9.3%
2.0
-33.4%
3.8
-4.2%
102.9
13.7%
1.1
14.3%
1.6
21.4%
59.1
11.0%
2.8
-16.9%
3.6
2.3%
87.2
12.3%
1.0
8.6%
1.4
-33.3%
230.1
5.6%
9.3
-28.0%
17.2
-2.2%
329.2
7.8%
4.0
-2.6%
6.2
0.6%
44.2
7.8%
2.6
36.7%
3.2
-2.5%
63.0
7.0%
0.9
-0.3%
1.4
-6.8%
62.3
8.5%
2.6
-2.6%
6.6
-0.8%
90.8
13.0%
1.1
-3.2%
2.0
19.0%
77.5
6.7%
2.1
6.2%
4.0
6.2%
109.2
6.2%
1.1
3.0%
1.7
5.0%
61.3
3.8%
2.8
3.2%
3.7
3.2%
89.9
3.2%
1.0
3.0%
1.5
5.0%
245.3
6.6%
10.1
9.1%
17.4
1.2%
353.0
7.2%
4.1
0.6%
6.6
5.8%
254.9
3.9%
10.5
3.5%
18.0
3.5%
365.4
3.5%
4.1
1.0%
6.6
0.0%
267.9
5.1%
11.0
4.5%
18.8
4.5%
381.9
4.5%
4.2
2.0%
6.6
0.0%
Total Revenue
yoy % Chg.
564.2
-12.1%
107.4
-5.9%
149.8
4.5%
183.8
10.7%
155.0
10.2%
596.1
5.7%
115.3
7.3%
165.3
10.3%
195.5
6.4%
160.3
3.4%
636.4
6.8%
659.5
3.6%
690.3
4.7%
Franchising Revenue
yoy % Chg.
254.7
-15.2%
47.7
-6.4%
68.4
2.2%
79.9
7.1%
66.9
7.5%
262.8
3.2%
51.5
7.8%
73.4
7.4%
85.2
6.7%
69.4
3.8%
279.4
6.3%
290.0
3.8%
304.3
4.9%
99.2
-16.6%
39.9%
55.1%
8.3
1.9%
305.4
-9.2%
3.2
-8.2%
76.2%
21.8
1.7%
47.2%
110.8%
2.2
2.7%
58.8
-5.2%
0.8
-3.7%
87.2%
22.8
-15.7%
34.2%
518.9%
2.2
9.3%
80.4
6.8%
0.8
-2.5%
72.9%
23.2
-5.6%
29.6%
127.2%
2.1
-1.3%
102.9
13.7%
0.8
7.7%
77.1%
26.7
2.1%
40.9%
89.6%
1.9
-10.2%
87.2
12.3%
0.8
3.1%
81.0%
94.5
-4.7%
36.8%
158.0%
8.3
0.1%
329.2
7.8%
3.2
1.0%
79.0%
23.8
9.3%
47.7%
47.1%
2.0
-10.0%
63.0
7.0%
0.8
10.2%
96.4%
26.5
16.3%
37.1%
21.5%
1.9
-12.3%
90.8
13.0%
0.9
6.4%
80.1%
24.8
7.0%
29.7%
69.1%
1.9
-10.0%
109.2
6.2%
1.0
20.3%
90.0%
26.8
0.2%
39.5%
98.3%
1.7
-10.0%
89.9
3.2%
0.9
14.5%
90.0%
101.9
7.8%
37.4%
54.5%
7.5
-10.6%
353.0
7.2%
3.6
12.9%
88.8%
103.2
1.2%
36.4%
88.5%
7.5
0.0%
365.4
3.5%
3.5
-3.3%
85.0%
103.9
0.7%
34.9%
67.6%
7.5
0.0%
381.9
4.5%
3.5
2.0%
85.0%
Total Operating Expenses
yoy % Chg.
416.1
-10.9%
83.6
-3.3%
106.2
1.0%
128.9
9.4%
116.6
9.3%
435.3
4.6%
89.6
7.2%
120.2
13.1%
136.9
6.2%
119.3
2.4%
466.0
7.0%
479.5
2.9%
496.8
3.6%
Operating Income
yoy % Chg.
Margin
Non-recurring Adjustments
148.1
-15.2%
26.2%
6.0
23.8
-14.1%
22.2%
0.2
43.6
14.4%
29.1%
(0.4)
54.9
14.0%
29.9%
0.0
38.4
12.8%
24.8%
1.0
160.8
8.6%
27.0%
0.9
25.7
7.7%
22.3%
0.0
45.1
3.5%
27.3%
0.1
58.7
6.9%
30.0%
41.0
6.7%
25.6%
170.5
6.0%
26.8%
0.2
180.0
5.6%
27.3%
0.0
193.5
7.5%
28.0%
Adjusted Franchising Income
Adjusted Franchising Margin
154.0
60.5%
24.1
50.5%
43.2
63.2%
54.9
68.7%
39.5
59.0%
161.6
61.5%
25.7
50.0%
45.3
61.7%
58.7
68.9%
41.0
59.1%
170.6
61.1%
180.0
62.1%
193.5
63.6%
Interest Expense
Interest Income
Other
Equity in Net Income of Affiliates
4.4
5.9
0.0
(1.1)
0.6
0.1
(1.0)
(0.4)
0.7
0.1
1.2
(0.2)
1.9
1.7
3.5
1.3
3.2
0.5
3.2
0.6
13.0
1.5
1.0
(0.3)
12.8
3.1
0.0
0.0
12.8
4.7
(0.3)
3.2
0.2
1.0
(0.3)
3.3
0.2
(0.0)
(0.3)
6.7
3.1
0.2
(1.2)
Income before Taxes
150.6
24.6
42.0
55.0
36.5
158.2
21.9
42.1
55.9
38.4
158.3
170.3
185.4
Income Tax
Tax Rate
52.4
34.8%
8.9
35.9%
15.0
35.7%
14.5
26.4%
12.4
33.9%
50.8
32.1%
6.2
28.2%
14.5
34.5%
19.3
34.5%
13.0
34.0%
53.1
33.5%
57.1
33.5%
62.1
33.5%
Net Income
98.3
15.8
27.0
40.5
24.1
107.4
15.7
27.6
36.6
25.3
105.3
113.3
123.3
4.3
0.2
(0.1)
0.2
0.8
1.1
1.2
0.2
Operating Expenses
SG&A
yoy % Chg.
as a % of Royalty/F&L/Procurement Revenue
Flow through
D&A
yoy % Chg.
yoy % Chg.
Hotel Operations
yoy % Chg.
as a % of Hotel Operations Revenue
Non-recurring Items net of Tax
1.4
Adjusted Net Income
102.6
16.0
26.9
40.7
24.9
108.5
16.9
27.8
36.6
25.3
106.6
113.3
123.3
GAAP EPS
EPS Impact from Non-recurring Items
Adjusted EPS
yoy % Chg.
$1.63
$0.07
$1.71
-3.7%
$0.26
$0.00
$0.27
0.3%
$0.45
($0.00)
$0.45
2.5%
$0.68
$0.00
$0.68
20.8%
$0.40
$0.01
$0.42
-3.7%
$1.80
$0.02
$1.82
6.6%
$0.26
$0.02
$0.28
5.0%
$0.46
$0.00
$0.46
2.8%
$0.61
$0.00
$0.61
-10.3%
$0.42
$0.00
$0.42
1.3%
$1.76
$0.02
$1.78
-2.1%
$1.89
$0.00
$1.89
6.2%
$2.06
$0.00
$2.06
8.9%
60.1
60.2
59.5
59.6
59.6
59.7
59.6
59.7
59.6
59.7
59.6
59.7
59.7
59.8
59.8
59.9
59.8
59.9
59.8
59.9
59.8
59.9
59.8
59.9
59.8
59.9
Adjusted EBITDA
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Operating Income
D&A
148.1
8.3
23.8
2.2
43.6
2.2
54.9
2.1
38.4
1.9
160.8
8.3
25.7
2.0
45.1
1.9
58.7
1.9
41.0
1.7
170.5
7.5
180.0
7.5
193.5
7.5
156.4
-14.4%
27.7%
26.0
-12.9%
24.2%
45.8
14.2%
30.6%
57.0
13.4%
31.0%
40.3
11.5%
26.0%
169.1
8.1%
28.4%
27.6
6.2%
24.0%
47.1
2.7%
28.5%
60.5
6.3%
31.0%
42.7
5.9%
26.6%
177.9
5.2%
28.0%
187.5
5.3%
28.4%
201.0
7.2%
29.1%
0.4
0.0
60.5
5.7%
31.0%
42.7
2.9%
26.6%
178.3
4.4%
28.0%
187.5
5.1%
28.4%
EBITDA
yoy % Chg.
Margin
Non-recurring Items
Adjusted EBITDA
yoy % Chg.
Margin
6.9
0.4
(0.1)
0.3
1.2
1.8
0.1
0.3
163.3
-18.2%
28.9%
26.4
-11.6%
24.6%
45.7
8.8%
30.5%
57.3
10.7%
31.2%
41.5
4.7%
26.8%
170.9
4.7%
28.7%
27.8
5.2%
24.1%
47.3
3.5%
28.6%
201.0
7.2%
29.1%
Page 201
20 September 2011
Figure 312: Balance Sheet and Free Cash Flow
Free Cash Flow
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Non-cash Stock Comp
Less Dividends
Dividends per share
Less Acquisitions
Asset Dispositions
Other
Net Free Cash Flow
98.3
8.3
13.8
(44.3)
$0.74
(11.1)
64.9
0.0
0.0
(59.1)
16.1
21.9
15.8
2.2
2.7
(10.9)
$0.185
(4.6)
5.1
27.0
2.2
2.6
(11.0)
$0.185
(7.7)
13.2
40.5
2.1
1.7
(11.0)
$0.185
(5.4)
27.9
24.1
1.9
2.3
(10.9)
$0.185
(6.7)
10.7
15.7
2.0
4.5
(11.0)
$0.185
(1.8)
9.4
27.6
1.9
2.9
(11.1)
$0.185
(3.3)
18.1
36.6
1.9
2.0
(11.1)
$0.185
(5.0)
24.4
25.3
1.7
2.0
(11.1)
$0.185
(5.0)
12.9
(0.3)
(4.8)
8.1
(1.9)
15.3
41.2
(0.0)
7.3
18.0
(2.2)
(30.4)
(23.2)
(0.3)
4.8
22.6
24.4
12.9
105.3
7.5
11.4
(44.2)
$0.74
(15.1)
64.9
0.0
0.0
(2.5)
(25.6)
36.7
113.3
7.5
10.0
(44.3)
$0.74
(20.0)
66.4
0.0
0.0
0.0
0.0
66.4
123.3
7.5
12.0
(44.3)
$0.74
(20.0)
78.4
(8.9)
(14.7)
(18.5)
107.4
8.3
9.3
(43.8)
$0.74
(24.4)
56.9
0.0
0.0
(11.2)
3.2
48.9
Balance Sheet
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. in Net Debt
67.9
284.4
277.7
281.1
209.8
(21.9)
65.6
277.7
293.9
285.8
228.3
18.5
70.9
293.9
291.1
292.5
220.2
(8.1)
79.5
291.1
258.5
274.8
179.0
(41.2)
91.3
258.5
252.2
255.3
160.9
(18.0)
91.3
277.7
252.2
264.9
160.9
(48.9)
76.4
252.2
260.5
256.3
184.1
23.2
91.0
260.5
252.5
256.5
161.5
(22.6)
115.4
252.5
252.5
252.5
137.1
(24.4)
128.3
252.5
252.5
252.5
124.2
(12.9)
128.3
252.2
252.5
252.3
124.2
(36.7)
194.7
252.5
252.5
252.5
57.8
(66.4)
273.1
252.5
252.5
252.5
(20.6)
(78.4)
Shareholders' Equity (Defecit)
(114.2)
(115.0)
(97.0)
(75.5)
(58.1)
(58.1)
(49.0)
(27.9)
(2.4)
11.9
11.9
80.8
159.7
TTM EBITDA
163.3
4.4
159.8
3.5
163.5
2.9
169.1
3.8
170.9
6.7
170.9
6.7
172.3
9.3
173.9
11.9
177.2
13.3
178.3
13.0
178.3
13.0
187.5
12.8
201.0
12.8
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
1.7x
1.3x
37.0x
1.8x
1.4x
45.7x
1.8x
1.3x
56.3x
1.5x
1.1x
44.0x
1.5x
0.9x
25.6x
1.5x
0.9x
25.6x
1.5x
1.1x
18.6x
1.5x
0.9x
14.6x
1.4x
0.8x
13.4x
1.4x
0.7x
13.7x
1.4x
0.7x
13.7x
1.3x
0.3x
14.7x
1.3x
-0.1x
15.7x
78.4
Figure 313: Royalty Fee Driver Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Revenue Model
Days in Period
Royalty Fee Model
Begining of Period Hotels
365
90
91
92
92
365
90
91
92
92
365
366
365
4,716
4,906
4,905
4,936
4,951
4,906
4,993
4,970
4,961
4,973
4,993
4,993
5,042
Sequential chg.
190
(1)
31
15
42
87
(23)
(9)
12
20
0
49
100
4,906
4,905
4,936
4,951
4,993
4,993
4,970
4,961
4,973
4,993
4,993
5,042
5,142
395,636
Beginning of Period Rooms
373,884
388,594
387,246
389,625
390,515
388,594
393,535
390,407
389,280
390,222
393,535
391,791
14,710
(1,348)
2,379
890
3,020
4,941
(3,128)
(1,127)
942
1,569
(1,744)
3,845
7,847
End of Period Rooms
yoy % chg
Average Rooms per Hotel
Average Rooms in Period
388,594
3.9%
79
381,239
387,246
2.4%
79
387,920
389,625
2.2%
79
388,436
390,515
0.7%
79
390,070
393,535
1.3%
79
392,025
393,535
1.3%
79
391,065
390,407
0.8%
79
391,971
389,280
-0.1%
78
389,844
390,222
-0.1%
78
389,751
391,791
-0.4%
78
391,006
391,791
-0.4%
78
392,663
395,636
1.0%
78
393,713
403,483
2.0%
78
399,559
Occupancy
yoy chg in bps
yoy % chg
49.3%
(598)
-10.8%
40.1%
(235)
-5.5%
51.6%
117
2.3%
61.1%
422
7.4%
51.6%
433
9.2%
51.2%
185
3.8%
42.0%
193
4.8%
54.1%
248
4.8%
63.4%
225
3.7%
52.6%
100
1.9%
53.0%
188
3.7%
53.3%
25
0.5%
53.8%
50
0.9%
$71.21
-4.0%
$65.01
-4.9%
$69.01
-2.2%
$74.79
0.0%
$70.09
1.0%
$70.00
-1.7%
$65.69
1.1%
$70.72
2.5%
$76.66
2.5%
$71.14
1.5%
$71.26
1.8%
$73.03
2.5%
$74.71
2.3%
$35.11
-14.3%
$26.03
-10.2%
-10.3%
$35.59
0.1%
0.3%
$45.71
7.4%
7.4%
$36.19
10.3%
9.7%
$35.82
2.0%
$27.58
5.9%
5.5%
$38.22
7.4%
6.6%
$48.58
6.3%
5.5%
$37.44
3.5%
2.7%
$37.80
5.5%
5.1%
$38.92
3.0%
$40.19
3.3%
139,475,415
4.6%
68,779,922
-6.7%
34,912,800
3.2%
13,982,576
-2.6%
35,347,631
2.3%
18,228,773
4.7%
35,886,440
1.5%
21,933,792
9.0%
36,066,300
1.0%
18,621,031
10.3%
142,213,171
2.0%
72,766,172
5.8%
35,277,390
1.0%
14,809,448
5.9%
35,475,759
0.4%
19,174,647
5.2%
35,857,074
-0.1%
22,722,628
3.6%
35,972,579
-0.3%
18,932,369
1.7%
142,582,802
0.3%
75,639,092
3.9%
144,047,175
1.0%
76,772,114
1.5%
145,839,150
1.2%
78,456,369
2.2%
Implied Systemwide Room Revenue
yoy % chg
as a % of Full Year Systemwide Room Revenue
$4,886
-10.5%
100.0%
$909
-7.4%
17.8%
$1,258
2.4%
24.6%
$1,640
9.0%
32.1%
$1,305
11.4%
25.5%
$5,112
4.6%
100.0%
$973
7.0%
18.0%
$1,356
7.8%
25.0%
$1,742
6.2%
32.2%
$1,347
3.2%
24.9%
$5,418
6.0%
100.0%
$5,609
3.5%
100.0%
$5,861
4.5%
100.0%
Effective Royalty Rates
yoy chg in bps
4.26%
6
4.34%
8
4.32%
6
4.30%
7
4.31%
1
4.31%
5
4.35%
1
4.33%
1
4.33%
3
4.34%
3
4.34%
2
4.36%
2
4.39%
3
Implied Royalty Fee Revenue
yoy % chg
$208.2
-9.3%
$39.4
-5.6%
$54.3
3.9%
$70.5
10.8%
$56.3
11.6%
$220.6
6.0%
$42.3
7.3%
$58.7
8.0%
$75.4
6.9%
$58.5
3.9%
$234.9
6.5%
$244.3
4.0%
$257.1
5.2%
Implied International / Timing Difference
yoy % chg
$9.8
-45.6%
$1.6
-3.6%
$3.1
19.2%
$2.0
-26.4%
$2.8
-0.4%
$9.5
-3.0%
$1.9
22.2%
$3.6
15.7%
$2.0
0.5%
$2.9
1.4%
$10.4
9.3%
$10.6
2.0%
$10.8
2.0%
Reported Royalty Fee Revenue
yoy % chg
$218.0
-11.9%
$41.0
-5.6%
$57.4
4.6%
$72.6
9.3%
$59.1
11.0%
$230.1
5.6%
$44.2
7.8%
$62.3
8.5%
$77.5
6.7%
$61.3
3.8%
$245.3
6.6%
$254.9
3.9%
$267.9
5.1%
Worldwide Properties
yoy % chg
Worldwide Rooms
yoy % chg
6,021
3.3%
487,410
3.1%
6,032
2.8%
487,264
2.3%
6,074
2.7%
490,483
2.2%
6,091
1.4%
492,152
1.0%
6,142
2.0%
495,145
1.6%
6,142
2.0%
495,145
1.6%
6,128
1.6%
492,733
1.1%
6,117
0.7%
491,366
0.2%
6,130
0.6%
492,405
0.1%
6,159
0.3%
494,781
-0.1%
6,159
0.3%
494,781
-0.1%
6,232
1.2%
500,686
1.2%
6,355
2.0%
510,633
2.0%
International Properties
yoy % chg
International Rooms
yoy % chg
1,115
0.4%
98,816
0.2%
1,127
2.5%
100,018
2.1%
1,138
3.3%
100,858
2.3%
1,140
2.2%
101,637
2.1%
1,149
3.0%
101,610
2.8%
1,149
3.0%
101,610
2.8%
1,158
2.8%
102,326
2.3%
1,156
1.6%
102,086
1.2%
1,157
1.5%
102,183
0.5%
1,166
1.5%
102,990
1.4%
1,166
1.5%
102,990
1.4%
1,190
2.0%
105,050
2.0%
1,213
2.0%
107,151
2.0%
Sequential chg.
ADR
yoy % chg
RevPAR
yoy % chg
Company (Comparable) Reported RevPAR
Rooms Available
yoy % chg
Rooms Sold
yoy % chg
Page 202
20 September 2011
Figure 314: Other Segment Revenue Model
Other Segment Revenue Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
$4,886
-10.5%
$909
-7.4%
$1,258
2.4%
$1,640
9.0%
$1,305
11.4%
$5,112
4.6%
$973
7.0%
$1,356
7.8%
$1,742
6.2%
$1,347
3.2%
$5,418
6.0%
$5,609
3.5%
$5,861
4.5%
as a % of Systemwide Revenue
$12.9
0.3%
$1.9
0.2%
$2.7
0.2%
$2.0
0.1%
$2.8
0.2%
$9.3
0.2%
$2.6
0.3%
$2.6
0.2%
$2.1
0.1%
$2.8
0.2%
$10.1
0.2%
$10.5
0.2%
$11.0
0.2%
$17.6
0.4%
$3.2
0.4%
$6.6
0.5%
$3.8
0.2%
$3.6
0.3%
$17.2
0.3%
$3.2
0.3%
$6.6
0.5%
$4.0
0.2%
$3.7
0.3%
$17.4
0.3%
$18.0
0.3%
$18.8
0.3%
$305.4
6.2%
$58.8
6.5%
$80.4
6.4%
$102.9
6.3%
$87.2
6.7%
$329.2
6.4%
$63.0
6.5%
$90.8
6.7%
$109.2
6.3%
$89.9
6.7%
$353.0
6.5%
$365.4
6.5%
$381.9
6.5%
Implied Systemwide Room Revenue
yoy % chg
Page 203
20 September 2011
Appendix: CHH in Charts and Graphs
Royalty Fees
87%
Initial
Franchising and
Licensing Fees
4%
Initial
Franchising and
Licensing Fees
4%
Procurement
Services
6%
Hotel
Operations
Other
1%
2%
Procurement
Services
6%
Hotel
Operations
1%
Other
2%
Royalty Fees
87%
Figure 317: 2Q 2011 Rooms by Brand
Figure 318: CHH Upper Midscale RevPAR Versus U.S.
Upper Midscale RevPAR
15.0%
Upscale
1%
0.97 Correl ation since 1Q 2006
10.0%
Economy
20%
5.0%
0.0%
Upper Midscale
48%
-5.0%
Midscale
31%
-10.0%
-15.0%
CHH Upper Midscale Segment RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
-20.0%
STR Upper Midscale Segment RevPAR
Figure 319: CHH Midscale RevPAR Versus U.S. Midscale
RevPAR
Figure 320: CHH Economy RevPAR Versus U.S. Economy
RevPAR
15.0%
15.0%
CHH Midscale Segment RevPAR
CHH Economy Segment RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
1Q06
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
STR Midscale Segment RevPAR
Page 204
3Q09
2Q09
1Q09
-20.0%
4Q08
-20.0%
3Q08
-15.0%
2Q08
-15.0%
1Q08
-10.0%
4Q07
-10.0%
3Q07
-5.0%
2Q07
-5.0%
1Q07
0.0%
4Q06
0.0%
3Q06
5.0%
2Q06
5.0%
1Q06
10.0%
3Q06
10.0%
2Q06
STR Economy Segment RevPAR
20 September 2011
Figure 321: CHH Domestic Room Counts
400,000
393,535
389,280
388,594
380,000
373,884
360,000
354,139
339,441
340,000
329,353
320,000
300,000
280,000
2005
2006
2007
2008
2009
2010
Current
Total North America
Figure 322: Comfort Inn Domestic Room Counts
114,573
115,000
60,000
113,633
114,000
113,000
112,000
Figure 323: Comfort Suites Domestic Room Counts
110,877
111,000
40,000
112,169
112,042
111,598
50,000
110,736
47,301
48,246
47,441
2009
2010
Current
42,152
32,251
33,976
2005
2006
37,358
30,000
20,000
110,000
10,000
109,000
0
108,000
2005
2006
2007
2008
2009
2010
Current
2007
Comfort Inn
2008
Comfort Suites
Page 205
20 September 2011
Figure 324: Quality Inn & Suites Domestic Room Counts
100,000
90,000
79,276
80,000
70,000
66,316
85,055
89,336
89,185
89,571
Figure 325: Clarion Domestic Room Counts
35,000
30,000
72,054
25,000
60,000
23,554
23,945
2005
2006
23,319
28,711
28,335
2010
Current
24,636
21,497
20,000
50,000
40,000
15,000
30,000
10,000
20,000
5,000
10,000
0
0
2005
2006
2007
2008
2009
2010
Current
2007
2008
Quality Inn & Suites
2009
Clarion
Figure 326: Sleep Domestic Room Counts
Figure 327: Mainstay Domestic Room Counts
30,000
28,599
29,000
28,000
3,500
28,625
26,867
27,000
24,205
3,000
2,500
25,728
26,000
25,000
28,957
2,694
2,047
2,183
2,258
2006
2007
2,866
2,868
2009
2010
2,000
24,575
1,500
24,000
1,000
23,000
500
22,000
21,000
0
2005
2006
2007
2008
2009
2010
2005
Current
Sleep
2008
Figure 328: Suburban Lodge Domestic Room Counts
Figure 329: Econo Lodge Domestic Room Counts
8,568
8,000
51,500
7,984
6,773
7,000
7,256
7,416
7,685
7,255
50,812
51,000
50,403
50,500
50,000
6,000
49,763
49,679
49,500
5,000
48,996
49,000
4,000
48,728
48,197
48,500
3,000
48,000
2,000
47,500
1,000
47,000
46,500
0
2005
2006
2007
2008
2009
2010
Current
2005
2006
2007
Suburban Lodge
Page 206
Current
Mainstay
9,000
3,007
2008
2009
2010
Current
Econo Lodge
20 September 2011
Figure 330: Rodeway Domestic Room Counts
Figure 331: Cambria Suites Domestic Room Counts
25,000
3,000
20,302
21,392
21,261
20,506
20,000
2,215
2,073
16,523
2,000
14,168
15,000
2,700
2,500
11,051
1,323
1,500
10,000
1,000
5,000
459
500
0
0
2005
2006
0
0
2005
2006
2007
2008
2009
2010
Current
2007
Rodeway
2008
2009
2010
Current
Cambria Suites
Figure 332: Ascend Collection Domestic Room Counts
4,000
3,392
3,500
3,025
3,000
2,346
2,500
2,000
1,353
1,500
1,000
500
0
0
0
2005
2006
2007
0
2008
2009
2010
Current
Ascend Collection
Page 207
20 September 2011
20 September 2011
Gaylord Entertainment Co.
Reuters: GET.N
Hold
Bloomberg: GET UN
Rating
Initiating Coverage on GET with a Hold Rating and $26 Price Target
While much of the bad news appears to be priced in, we see elevated Consensus
estimates which we believe reflect: 1) a stronger group recovery than what we
anticipate and 2) limited implications from new supply in GET's markets.
Conversely, if demand trends exceed our expectations, group business would
serve as a meaningful driver for earnings and shares. We find the current
risk/reward to be balanced. Hold.
We believe GET shares can benefit from: 1) a meaningful recovery in group
business trends, 2) favorable recent forward booking trends and management
prudence toward rates, 3) potential catalysts related to the Aurora development
and the D.C. market, and 4) the coiled spring effect of high short interest,
inexpensive valuation, and potential catalysts.
Price target
52-week range
22.82
26.00
37.89 - 21.70
40
30
20
10
0
9/08
3/09
9/09
3/10
9/10
3/11
Gaylord Entertainmen
Performance (%)
1m
Absolute
-13.2
S&P 500 INDEX
1.9
3m
-19.9
-4.1
12m
-22.1
8.1
Market Cap (USD)
Free float (%)
1,103.8
48.4
76
235,716
4,487
Downside risks include: 1) new competition in its existing markets and the reemergence of Las Vegas as a convention destination, 2) the potential for group
profitability to fall below investor expectations, 3) elevated airfares into GET’s
core markets that could curb on-property spend, 4) limited geographic diversity,
and 5) generic macroeconomic or event risks which would curtail leisure and or
business travel.
Our $26 price target is based on a blended sum of the parts approach in which
we apply a 9.0x multiple to our 2013 Hospitality CCF estimate and a 7.0x multiple
to our 2013 Opry & Attractions CCF estimate. To arrive at our equity value, we
extract net debt at year end 2013, adjusted for construction in progress related to
the Aurora project. Our Hospitality segment multiple (~95% of GET’s earnings) is
near the low end of GET’s historical trading range of 8.0x-17.0x forward-year
EV/CCF. We believe a multiple near the low end of the historical trading range is
prudent given the downside risks to lodging demand and supply head-winds in
GET’s four markets. Our Opry & Attractions CCF multiple is based on recent
transaction activity amongst small leisure businesses.
Year End Dec 31
2010A
2011E
2012E
1Q EPS1
-0.06
-0.04A
-0.00
2Q EPS
-0.02
0.17A
0.22
3Q EPS
-0.66
-0.01
0.06
4Q EPS
-0.63
0.13
0.19
FY EPS (USD)
-1.37
0.25
0.47
–
91.1
48.8
P/E (x)
1
Page 208
20 September 2011
Gaylord Entertainment (GET)
– Hold
Company Description
Gaylord Entertainment Company (GET) is primarily a hotel company that focuses on large
groups and conventions. The company’s four major properties are the Gaylord Opryland, the
Gaylord Texan, the Gaylord Palms, and the Gaylord National. These four large properties
serve as an “All-in-one-place” solution for large-group meeting planners. Each property has
multiple food and beverage options as well as retail, fitness, and spa facilities. GET also owns
the Radisson Hotel next to Opryland and several attractions in Nashville, including the Grand
Ole Opry. GET’s Hospitality segment generates about 95% of GET’s revenues while the
Attractions segment generates the remaining 5%.
Executive Summary
The DB Thesis
We are initiating coverage on GET with a Hold rating and a $26 price target. While much of
the bad news appears to be priced in, we see elevated out year Consensus estimates which
we believe reflect: 1) a stronger group recovery than what we currently anticipate and 2)
limited implications from new supply in GET’s markets on its existing assets. Conversely, we
note that if demand trends exceed our expectations, GET’s group, typically a later stage
recovery segment, reliance would serve as a meaningful driver for earnings and presumably
shares as room rates matriculate higher. While recent pullbacks have skewed valuation
towards the low end of the historical range, we see the risk/reward as being balanced at
present.
We believe GET shares can benefit from: 1) a meaningful recovery in group business trends,
2) favorable recent forward booking trends and management prudence towards rates, 3)
potential catalysts related to the Aurora development and the D.C. market, and 4) the coiled
spring effect of high short interest, inexpensive valuation, and potential catalysts.
Upside Risks
Downside Risks
Downside risks include: 1) new competition in its existing markets and the re-emergence of
Las Vegas as a convention destination, 2) the potential for group profitability to fall below
investor expectations, 3) elevated airfares into GET’s core markets that could curb onproperty spend, 4) limited geographic diversity, and 5) generic macroeconomic or event risks
which would curtail leisure and or business travel.
DB Estimates
We estimate CCF of $50.3 million, $220.8 million, $239.3 million, and $253.1 million in the 3Q
2011, 2011, 2012, and 2013, respectively. Our adjusted EBITDA estimates for the 3Q 2011,
2011, 2012, and 2013 are $47.6 million, $211.0 million, $230.3 million, and $244.2 million.
We note that our 2011, 2012, and 2013 adjusted EBITDA estimates are $3.3 million, $10.6
million, and $26.6 million below Consensus, respectively. We project adjusted EPS for 3Q
2011, 2011, 2012, and 2013 of ($0.01), $0.25, $0.47, and $0.53, respectively.
Valuation
At current levels, GET trades at 10.0x, 9.0x, and 8.5x our 2011, 2012, and 2013 CCF
estimates, respectively. We note that our EV in 2012 and 2013 is adjusted for non-cash flow
producing debt related to construction in progress at the Aurora development.
Our $26 price target is based on a sum of the parts approach in which we apply a 9.0x
multiple to our 2013 Hospitality CCF estimate and a 7.0x multiple to our 2013 Opry &
Attractions CCF estimate. To arrive at our equity value, we extract net debt at year end 2013,
adjusted for construction in progress related to the Aurora project. Our Hospitality segment
Page 209
20 September 2011
multiple (~95% of GET’s earnings) is near the low end of GET’s historical trading range of
8.0x-17.0x forward-year EV/CCF. We believe a multiple near the low end of the historical
trading range is prudent given the downside risks to lodging demand and supply head-winds
in GET’s four markets. Our Opry & Attractions CCF multiple is based on recent transaction
activity amongst small leisure businesses.
Page 210
20 September 2011
A Group Business Recovery Would be a Meaningful Driver for GET
All four of GET’s properties are large self-contained assets that cater to group meetings,
events, and conferences. While our view on group business is tempered given increasingly
negative macroeconomic forward indicators and rising airfare costs, which we believe will
pressure group sizes, GET could be a meaningful beneficiary of group demand
improvements. Group business, as a share of GET’s total revenue, was 81.1% in 2008 before
slipping ~270 bps to 78.4% of total revenue in 2010.
Figure 333: 2008 Revenue by Customer Segment
Transient,
18.9%
Transient,
21.6%
Group,
78.4%
Group,
81.1%
Source: Deutsche Bank and Company Reports
It is well-known that group revenue lags transient revenue in a recovery given groups tend to
book with greater lead time. As business that was booked in 2009 and 2010 rolls off GET’s
books, group rates should matriculate higher. In our opinion, this lag in group business is well
understood by investors; however, the recent sell-off in GET’s shares indicates to us that
buy-side earnings growth expectations are coming down. It is our belief that group size may
ultimately shrink, thereby mitigating the historical trend of group strength lagging a transient
recovery. If we are proven wrong, our estimates could prove to be overly conservative.
Figure 335 attempts to quantify just how much a return in group revenue might be worth to
GET shares. In the analysis, we hold transient revenue constant with 2010 levels. We
increase group revenues to 81% of GET’s total revenue. In this analysis, the amount by
which we are increasing group revenue to return the group revenue split to 81% is the
upside potential to group revenue. We assume that GET is able to flow 35% of the
incremental group revenue to EBITDA. Based on GET’s historical flow through, we believe
35% is a reasonable and achievable base case estimate in a healthy recovery when supply is
low.
Applying our price target multiple for GET’s hospitality business to the incremental EBITDA,
we arrive at incremental value per share of $7.60.
Page 211
20 September 2011
Figure 335: Implications of Group Mix Returning to Peak Levels
2008
2009
2010
Return to Peak Group Mix
Group
81.1%
77.8%
78.4%
81.1%
2008
2009
2010*
Return to Peak Group Mix
Group
Revenue
$688
$633
$675
$798
Transient
18.9%
22.2%
21.6%
18.9%
Transient
Revenue
$160
$181
$186
$186
Hospitality
Revenue
$848
$814
$861
$983
Revenue Upside Assuming:
1) Transient revenue and contract revenue don't change from 2010 levels.
2) Group grows to 81% of Revenue (2008 share)
Revenue Upside:
Assumed Flow Through
Incremental EBITDA
Assumed Multiple
Incremental Enterprise Value:
Shares (MRQ):
Equity Value:
$123
35.0%
$43
9.0 x
$387
50.9
$7.60
* 2010 results have been adjusted to account for Opryland flood. Our analysis assumes
Opryland revenue growth in 2010 that is in line with the balance of the portfolio.
Source: Deutsche Bank estimates and Company Reports
In Figure 336, we sensitize our assumptions for flow through and our target multiple to show
the array of equity values that could stem from a return of group business to peak mix.
Figure 336: Group Mix Equity Value Sensitivity Analysis
EV / Share at Various Flow Through and Multiples
EBITDA Multiples
EBITDA Flow Through
25%
30%
35%
40%
45%
7.0x
$4.22
$5.07
$5.91
$6.76
$7.60
8.0x
$4.83
$5.79
$6.76
$7.72
$8.69
9.0x
$5.43
$6.52
$7.60
$8.69
$9.77
10.0x
$6.03
$7.24
$8.45
$9.65
$10.86
11.0x
$6.64
$7.96
$9.29
$10.62
$11.95
12.0x
$7.24
$8.69
$10.14
$11.58
$13.03
Source: Deutsche Bank estimates
Advance Booking Trends Are Encouraging
In the 1H 2011, GET, prudently in our opinion, slowed forward bookings to avoid clogging the
system with a heavy mix of sub optimal rated business. Because GET did not contract poorly
rated business in the 1H 2011, we believe the potential for stronger than expected rate
growth exists. More encouraging, in our view, is that despite the decision to slow forward
bookings, GET is still ahead of last year’s booking pace. At 2Q 2011, GET had 42.3
percentage points of occupancy on the books for 2012 vs. 41.9 percentage points on the
books at the same time last year for 2011. At present, we are forecasting overall hospitality
segment ADR growth of 3.7% in 2012. We believe this could prove to be conservative if
macro factors allow GET’s strategy to play out.
Page 212
20 September 2011
JV Partner Agreement for Aurora Project Would Alleviate Investor Concern
In June, GET announced plans to develop a new resort and convention hotel in Aurora,
Colorado. We believe a deal that would provide equity support for the new development
project could serve as a positive catalyst for shares. At present, we believe GET shares are
hampered by the overhang of a potential equity raise in an effort to fund the projects. Netnet, we view the project itself as a longer term value driver for GET, though note that the
ambiguity surrounding the project makes appropriate valuation difficult. At present, we
assume GET spends $250 million in total in 2012 and 2013, however, our price target analysis
adds back the construction in progress value.
The below bullets serve as a summary of the Aurora development as it currently stands:

The development would be located on an 85 acre site 25 minutes from downtown
Denver

The plans call for 1,500 rooms and 400,000 sq. ft. of exhibition and meeting space

Total spend is expected to be $800 million ($533,000 per room)

It is expected to be funded by GET, potential JV partners, and tax incentives provided in
an agreement between GET and the city of Aurora

Aurora City Council has approved an agreement under which the city pledges to reinvest
virtually all of the expected new taxes collected from the development into the project

Aurora can terminate the agreement for the project if land has not been purchased by
year-end 2011

The project is expected to open in mid-to-late 2015

Ground breaking is targeted for mid-to-late 2012 and Colorado-based Hensel Phelps
Construction Co. has been selected as the general contractor

GET is working with the city, county, and state to obtain the necessary approvals to
begin construction
D.C Expectations Low Enough
Since Marriott called out D.C. as a soft spot and a reason for modestly lowered 2011
expectations, both buy and sell side analysts have fixated on the performance in the market.
At this stage, we believe the poor operating environment in the D.C. area is well understood.
As such, we think any evidence of improving metrics in D.C. would be a positive catalyst for
shares.
In the year to date, RevPAR is up 1.2% in D.C., 850 bps below the average of the top 25
markets. One often sited reason for the market weakness is the uncertainty surrounding how
budget cuts will impact government administrators’ travel budgets. Given that 2012 is an
election year, a year which has historically not been great for D.C. hotels, the market story
appears even weaker.
Given the softness in the market, performance at The National has meaningfully
underperformed both upper upscale and overall group RevPAR performance. Year to date
property revenue is down 9.7% and consolidated cash flow has fallen 20.3%. Despite the
softness to date, management continues to stress solid 4Q 2011 booking trends at the
property, much of which we believe has been discounted by investors. As such, we believe
GET’s ability to meet even the low end of its consolidated cash flow guidance will be a
meaningful needle mover for shares and will likely require improvements in D.C. along the
way to make it happen.
Page 213
20 September 2011
Figure 337: Washington D.C. Monthly RevPAR
Figure 338: The National RevPAR vs. U.S. Upper Upscale
10%
25.0%
8%
20.0%
6%
15.0%
4%
10.0%
2%
5.0%
The National opened in 2008
0%
0.0%
-2%
-5.0%
-4%
-10.0%
-6%
-15.0%
-8%
-20.0%
-10%
Washington D.C.
U.S. Upper Upscale
The National Total RevPAR
2Q11
1Q11
4Q10
Jul-11
3Q10
Jun-11
2Q10
May-11
1Q10
Apr-11
4Q09
Mar-11
3Q09
Feb-11
2Q09
-25.0%
Jan-11
High Short Interest and Appealing Valuation Make GET a Coiled Spring
Short interest in GET has continued to trend higher in 2011 and presently, GET has the
highest short interest, by a factor of nearly two, of any name in our lodging coverage
universe. In addition to its elevated and seemingly still climbing short interest, GET is also
trading at a significant discount to its long term valuation range. As such, should a positive
catalyst for GET (D.C. improvements/Aurora partner/other) or a change in lodging sentiment
occur, we believe GET shares could be poised for swift and significant upside.
We note that GET does have outstanding convertible debt. As such, we believe a portion of
the short interest is likely related to hedging convertible debt holdings.
Figure 339: GET Short Interest History
Figure 340: Short Interest as % of Float
25.0%
25%
20%
20.0%
19.3%
15%
15.0%
10%
8.7%
10.0%
5%
5.4%
Short Interest/Float
Page 214
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
0%
5.6%
5.0%
3.1%
3.8%
H
WYN
0.0%
GET
CHH
HST
HOT
20 September 2011
Figure 341: GET: Consensus Forward-Year EV/EBITDA Multiple History
18x
16x
14x
12x
10x
8x
6x
4x
2x
Average Multiple
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
0x
Page 215
20 September 2011
New Competitors Emerging in GET’s Markets
Generally speaking, the U.S. hotel industry can expect low supply growth over the next
several years. For GET, however, the supply picture isn’t as promising. At present, there are
major hotels under construction in all four of GET’s major markets (Figure 342).
In Nashville, the 800-room Omni Hotel is under construction and appears poised to open in
late 2013. The hotel will have more than 80,000 square feet of meeting space and will serve
as a hotel for the Music City Center, which is also scheduled to open in 2013. The property is
also going to connect to the Country Music Hall of Fame and Museum. While GET has
worked hard to create a unique environment at all of its properties, the addition of 800 upper
upscale rooms in Nashville, a 10.8% increase to upper upscale supply, will undoubtedly
impact GET’s ability to drive rate in our opinion.
In Dallas, Omni is building the 1,000 room Omni Dallas Convention Center Hotel. The
property is likely to open in November of this year or in early 2012. While the Omni will likely
compete for lower rate business relative to GET, new supply will have an effect on GET’s
ability to price its rooms, we believe.
With two new Omni Hotels going up in GET markets, it should be noted that Omni’s parent,
TRT Holdings, is GET’s largest shareholder. TRT Holdings approached GET’s management
with an informal offer to buy the company in November of 2008 and the offer was turned
down by GET since GET felt that TRT’s ownership of Omni created a conflict of interest.
Robert Rowling, who controls TRT Holdings, currently owns 22% of GET, which is the
maximum holding that GET allows before GET’s poison pill can be used.
GET will also face a new competitor in Washington D.C., where a new $520 million, 1,175room Marriott Marquis Hotel is under construction near the Walter E. Washington
Convention Center. Marriott and Washington, D.C. only recently broke ground on this
property. It is not scheduled to open until the spring of 2014. Lastly, in Orlando, a 300-room
Embassy Suites scheduled to open in September of 2012 and WYN is nearly finished building
the 400 room Bonnet Creek Resort. These hotels are not directly competing with GET for
group business; however, we would not be surprised to see a modest impact on GET’s
transient segment.
Page 216
20 September 2011
Figure 342: Upper Upscale Rooms In Construction
August 2011
Market
Nashville, TN
Minn-St Paul, MN-WI
Dallas, TX
Washington, DC-MD-VA
Orlando, FL
New York, NY
Philadelphia, PA-NJ
St Louis, MO-IL
Chicago, IL
Phoenix, AZ
Las Vegas, NV
San Diego, CA
LA-Long Beach, CA
Atlanta, GA
San Fran-San Mateo, CA
Boston, MA
Houston, TX
Anaheim-Santa Ana, CA
Oahu Island, HI
Denver, CO
Seattle, WA
New Orleans, LA
Tampa-St Pete, FL
Detroit, MI
Miami-Hialeah, FL
Norfolk-VA Beach, VA
Total
Total (ex-LV)
Existing
Supply
7,417
6,842
16,305
29,598
17,983
19,215
8,466
8,144
30,403
10,450
9,906
11,652
20,591
18,473
18,133
14,538
12,663
12,273
10,065
8,586
7,673
7,645
7,382
7,042
6,528
3,754
331,727
321,821
In
Construction
800
500
1,030
1,175
700
662
270
212
759
250
212
215
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,785
6,573
% of
Existing
Supply
10.8%
7.3%
6.3%
4.0%
3.9%
3.4%
3.2%
2.6%
2.5%
2.4%
2.1%
1.8%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
2.0%
2.0%
The Profitability of Group Business May Fall Short of Expectations
The most profitable part of group business, corporate group, has already come back to some
extent. Corporate groups tend to respond more quickly to changes in the economic
environment while associations tend to book with the greatest lead time. Given that
corporate groups are already accounting for more than 50% of the mix, we believe the longer
lead team association business is largely yet to come and as such, the group business that
GET has lost from the peak, may be less profitable when it returns.
Figure 344 and Figure 345 show GET’s group revenue components in 2009 and 2010.
Corporate groups comprised 43.6% of group revenue in 2009 and 51.8% of group revenues
in 2010. It is important to note that the Gaylord Opryland was out of service due to flooding
in Nashville in 2010. As such, it is unclear how much of the shift in group revenue mix is due
to Opryland repairs and how much is due to a real mix shift.
Page 217
20 September 2011
Figure 343: GET Group Revenue Components
Corporate
Groups
Associations
Other
Groups
2008
46.5%
36.5%
17.0%
2009
43.6%
38.5%
17.9%
2010
51.8%
33.4%
14.8%
Figure 344: 2009 Group Revenue Split
Figure 345: 2010 Group Revenue Split
Other
Groups,
14.8%
Other
Groups,
17.9%
Corporate
Groups,
43.6%
Associations,
38.5%
Associations,
33.4%
Corporate
Groups,
51.8%
In addition to changes in the group mix, we have analyzed RevPAR trends at each of GET’s
four properties. We note that GET’s total RevPAR has moved more coincidently with Upper
Upscale RevPAR than some may expect given GET’s heavy reliance on group business
(Figure 346 to Figure 349). We believe that the recovery in GET’s RevPAR thus far has been
helped by the return of profitable corporate business and its higher food and beverage
spending. As such, going forward, given that much of the profitable corporate segment
business has already returned, we think further group revenue growth may be less profitable
than expected.
Page 218
20 September 2011
Figure 346: Upper Upscale RevPAR vs. Opryland Total
RevPAR
40.0%
Figure 347: Upper Upscale RevPAR vs. Palms Total
RevPAR
25.0%
20.0%
30.0%
15.0%
20.0%
10.0%
10.0%
5.0%
0.0%
0.0%
-10.0%
-5.0%
-10.0%
-20.0%
Opryland Total RevPAR
Palms Total RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
1Q06
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
-25.0%
1Q06
-20.0%
-40.0%
2Q06
-15.0%
-30.0%
Figure 348: Upper Upscale RevPAR vs. Texan Total
Figure 349: Upper Upscale RevPAR vs. Gaylord National
RevPAR
Total RevPAR
20.0%
25.0%
15.0%
20.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
0.0%
-5.0%
-5.0%
-10.0%
Texan Total RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
2Q09
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
-25.0%
2Q06
-20.0%
-25.0%
1Q06
-15.0%
-20.0%
3Q09
-10.0%
-15.0%
Higher Airfare Costs May Reduce the Lodging Wallet Share of Corporate Travel
Budgets
We think higher airfare costs may hamper efforts for GET as airfare into GET’s major markets
is already near or beyond 2008 levels. While airfare has recovered, hotels are still trying to
recover rate lost during the recession.
In Nashville in the 1Q 2011, average airfares into the market crossed the $350 mark and were
up 7.6% year over year, the highest average airfare into the market over the period we
analyzed, since 2005. In Dallas, 1Q 2011 airfare climbed 7.4% to $395 representing the
second highest average fare over the period analyzed.
Airfares into Washington D.C. nearly reached 3Q 2008 peak levels, growing 7.5% year over
year in the 1Q 2011. Lastly, airfares into Orlando have eclipsed 2007-2008 levels after 9.1%
1Q 2011 year over year growth.
While these data points are less than encouraging, it is important to note that when groups
book with GET, they sign a contract guaranteeing a minimum level of room nights and
profitability.
Page 219
20 September 2011
Figure 350: Average Nashville Airfare
$360
$340
$320
Figure 351: Average Dallas/Ft Worth Airfare
40%
$410
25%
30%
$390
20%
$370
15%
20%
$300
10%
10%
$350
5%
$330
$280
0%
$260
-10%
$240
0%
$310
-5%
$290
-10%
$270
-15%
$200
-30%
$250
-20%
Avg Nashville Fare
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
-20%
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
$220
yoy % chg.
Avg Dallas Fare
yoy % chg.
Source: Deutsche Bank and Bureau of Transportation Statistics
Figure 352: Average Washington, D.C. Airfare
Figure 353: Average Orlando Airfare
25%
$370
20%
15%
$350
10%
$330
5%
$310
0%
-5%
$290
-10%
-15%
$250
-20%
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
$270
Avg DC Fare
yoy % chg.
$320
25%
20%
$300
15%
$280
10%
5%
$260
0%
-5%
$240
-10%
$220
-15%
-20%
$200
-25%
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
$390
Avg Orlando Fare
yoy % chg.
Competition from Las Vegas
As the years pass, the Las Vegas “convention boondoggle” stigma fades away, if it hasn’t
already. Since January 2008, Las Vegas has increased its room supply by 11.8% and
convention / group bookings in Las Vegas continue to improve. We believe the added
capacity, room rates that are still 25% below 2007 peak levels, and a willingness of groups to
return to Vegas without political scrutiny, again makes Las Vegas a legitimate competitor in
the convention segment. Accordingly, we believe the potential exists for added competition
for group business nationally over the next several years.
Page 220
20 September 2011
Figure 354: Largest U.S. Hotel Exhibit Halls
Facility
Las Vegas Sands MEGACENTER
Mandalay Bay Resort & Casino
MGM Grand Hotel & Casino *
Gaylord Opryland Resort & Convention Center
Gaylord National Resort & Convention Center *
Orlando World Center Marriott *
Rosen Shingle Creek *
Gaylord Texan Resort & Convention Center *
Gaylord Palms Resort & Convention Center *
Hilton Anatole Hotel *
Walt Disney World Swan and Dolphin Resort *
Caesars Palace *
Grand Sierra Resort & Casino
The Westin Diplomat Resort & Spa
Sheraton Dallas *
Disney’s Coronado Springs Resort *
Total Exhibit
Space (sq. ft.)
1,125,600
934,731
320,000
263,772
180,000
450,000
445,000
400,000
400,000
231,103
329,000
300,000
190,000
209,000
230,000
220,000
Location
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Nashville, TN
National Harbor, MD
Orlando, FL
Orlando, FL
Grapevine, TX
Kissimmee, FL
Dallas, TX
Lake Buena Vista, FL
Las Vegas, NV
Reno, NV
Hollywood, FL
Dallas, TX
Lake Buena Vista, FL
Meeting
Rooms
293
121
75
111
82
73
99
70
76
77
84
110
40
39
67
45
Total Meeting
Space (sq. ft.)
400,378
360,924
600,000
325,000
470,000
450,000
445,000
400,000
200,000
344,638
248,655
300,000
110,000
60,000
99,000
220,000
Tota Exhibit
and Meeting
Space (sq. ft.)
1,525,978
1,295,655
600,000
588,772
470,000
450,000
445,000
400,000
400,000
344,638
329,000
300,000
300,000
269,000
230,000
220,000
* Exhibit Space square footage is also included in the calculation of Meeting Space square footage.
Figure 355: Las Vegas Room Supply and Average Daily Rate
$160
155,000
$140
150,000
$120
145,000
$100
140,000
$80
135,000
$60
ADR (left side)
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
120,000
May-07
$0
Jan-07
125,000
Sep-06
$20
May-06
130,000
Jan-06
$40
Room Inventory
Source: Deutsche Bank and Las Vegas Convention and Visitors Authority.
Limited Geographic Diversification
Gaylord’s hospitality business relies on four major properties in Nashville, Dallas, Washington
D.C., and Orlando. Relying on four properties limits diversification. When catastrophes strike
a property or when a particular market is suffering, the earnings impact can be substantial. In
2010, an historic flood occurred in Nashville and GET’s Opryland was significantly damaged.
GET received $50 million of flood insurance proceeds and expects to receive $36.5 million in
tax refunds. After these benefits, however, the net cash impact of the flood was ~$150
million, or ~$3 per share.
Aside from freak occurrences such as floods or other unpredictable events, limited diversity
also puts GET at risk of; 1) market specific slowdowns, such as the aforementioned D.C.
issues, 2) union labor strikes (16% of GET’s employees are unionized), or 3) the negative
impact of new supply in a specific market.
Page 221
20 September 2011
The Risk of Further Deterioration in Macroeconomic Conditions
terrorism which curtails travel demand would negatively impact GET. Furthermore, such
circumstances would likely cause GET results to fall below our expectations.
Page 222
20 September 2011
Our revenue estimates are $225 million, $963.5 million, $1.017 billion, and $1.062 billion for
the 3Q 2011, 2011, 2012, and 2013, respectively. We estimate CCF of $50.3 million, $220.8
million, $239.3 million, and $253.1 million in the 3Q 2011, 2011, 2012, and 2013, respectively.
Our adjusted EBITDA estimates for the 3Q 2011, 2011, 2012, and 2013 are $47.6 million,
$211.0 million, $230.3 million, and $244.2 million. We note that our 2011, 2012, and 2013
estimates are $3.3 million, $10.6 million, and $26.6 million below Consensus, respectively.
We project adjusted EPS for 3Q 2011, 2011, 2012, and 2013 of ($0.01), $0.25, $0.47, and
Total Revenue
yoy % chg
2008
2009
2010
2011E
2012E
2013E
$930.9
$879.1
-5.6%
$772.2
-12.2%
$963.5
24.8%
$1,016.6
5.5%
$1,061.9
4.5%
$52.6
$44.7
-15.0%
$51.3
-9.1%
$60.3
81.8%
$2.3
-27.0%
$158.5
9.1%
$62.5
-26.2%
$221.0
-3.9%
$12.5
15.4%
($44.0)
2.9%
$189.5
-4.3%
$40.4
-9.7%
$63.0
23.0%
$62.3
3.5%
$2.6
15.6%
$168.4
6.2%
$21.4
-65.8%
$189.7
-14.1%
$6.0
-52.3%
($49.6)
12.8%
$148.9
-21.4%
$40.2
-0.5%
$69.2
9.8%
$58.8
-5.7%
$1.9
-25.3%
$170.1
1.0%
$84.9
297.0%
$255.0
34.4%
$13.0
117.3%
($46.6)
-6.0%
$220.8
48.3%
$44.7
11.2%
$74.2
7.2%
$62.2
5.8%
$2.7
40.6%
$183.8
8.1%
$91.6
7.9%
$275.4
8.0%
$13.1
1.0%
($49.2)
5.5%
$239.3
8.4%
$48.2
7.9%
$76.5
3.2%
$68.5
10.2%
$2.9
5.8%
$196.2
6.8%
$96.8
5.6%
$293.0
6.4%
$13.2
1.0%
($53.2)
8.0%
$253.1
5.8%
Consolidated Cash Flow
Gaylord Palms
yoy % chg
Gaylord Texan
yoy % chg
Gaylord National
yoy % chg
Radisson and Other Hospitality
yoy % chg
Adjusted Hospitality (ex Opryland)
yoy % chg
Gaylord Opryland
yoy % chg
Total Hospitality
yoy % chg
Opry and Attractions
yoy % chg
Corporate
yoy % chg
Total Consolidated Cash Flow
yoy % chg
$56.4
$33.1
$3.1
$145.2
$84.7
$229.9
$10.8
($42.8)
$198.0
Adjusted EBITDA
yoy % chg
$147.2
$172.3
17.0%
$39.5
-77.1%
$211.0
434.5%
$230.3
9.1%
$244.2
6.0%
GAAP EPS
$0.11
$0.08
($0.02)
($0.17)
($1.88)
($1.37)
$0.25
$0.25
$0.47
$0.47
$0.53
$0.53
($250.3)
($6.09)
$77.4
$1.65
($123.1)
($2.58)
$26.1
$0.51
$0.2
$0.00
($140.8)
($2.76)
Net Free Cash Flow
($304.4)
$262.2
($33.1)
($0.9)
$0.2
($140.8)
41.1
47.0
47.7
50.9
50.9
50.9
Page 223
20 September 2011
Figure 357: DB Estimates Versus Consensus ($ in MM except per share data)
3Q 2011E
DB
Estimate
Consensus
Estimate
2011E
Delta
DB
Estimate
Consensus
Estimate
2012E
Delta
$220.8
DB
Estimate
2013E
Consensus
Estimate
Delta
$239.3
DB
Estimate
Consensus
Estimate
Delta
CCF
$50.3
$253.1
Adjusted EBITDA
$47.6
$49.2
($1.6)
$211.0
$214.3
($3.3)
$230.3
$240.8
($10.6)
$244.2
$270.7
($26.6)
Adjusted EPS
($0.01)
$0.05
($0.06)
$0.25
$0.43
($0.18)
$0.47
$0.90
($0.43)
$0.53
$1.03
($0.50)
Figure 358: Balance Sheet Summary ($ in MM except per share data)
2006
2007
2008
2009
2010
2011E
2012E
2013E
Cash
Gross Debt
Net Debt
$40.6
$755.6
$715.0
$23.6
$981.1
$957.5
$1.0
$1,262.9
$1,261.9
$180.0
$1,178.7
$998.7
$124.4
$1,159.2
$1,034.8
$34.6
$1,070.9
$1,036.4
$46.8
$1,082.9
$1,036.2
$58.8
$1,235.7
$1,177.0
Interest Expense
$65.4
$70.6
$38.7
$46.4
$55.2
$66.0
$66.9
$72.8
CCF
$164.8
$151.5
$198.0
$189.5
$148.9
$220.8
$239.3
$253.1
4.6x
4.3x
2.5x
6.5x
6.3x
2.1x
6.4x
6.4x
5.1x
6.2x
5.3x
4.1x
7.8x
6.9x
2.7x
4.8x
4.7x
3.3x
4.5x
4.3x
3.6x
4.9x
4.7x
3.5x
Gross Debt/CCF
Net Debt/CCF
CCF/Interest Coverage
Page 224
20 September 2011
Our $26 price target is based on a sum of the parts approach in which we apply a 9.0x
multiple to our 2013 Hospitality CCF estimate and a 7.0x multiple to our 2013 Opry &
Attractions CCF estimate. To arrive at our equity value, we extract net debt at year end 2013,
adjusted for construction in progress related to the Aurora project.
Our Hospitality segment multiple (~95% of GET’s earnings) is near the low end of GET’s
historical trading range of 8.0x-17.0x forward-year EV/CCF. We believe a multiple near the
low end of the historical trading range is prudent given the downside risks to lodging demand
and supply head-winds in GET’s four markets. Our Opry & Attractions CCF multiple is based
on recent transaction activity amongst small leisure businesses.
2013E
Price Target
Multiple
Firm Value
Hospitality Consolidated Cash Flow (CCF)
$293
9.0 x
$2,637
Opry & Attractions CCF
$13
7.0 x
$93
Subtotal
$306
8.9x
$2,730
Corporate Expense & Other CCF
($53)
8.9 x
($474)
Segment
Total CCF
$253
8.9x
$2,256
Total EBITDA
$244
9.2x
$2,256
Aurora Colorado Project (YE 2013E)
$250
$1,177
Equity Value
$1,329
51
Price Target
$26
Source: Deutsche Bank estimates. And Company Reports
% chg. in EBITDA
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
2013E EBITDA
Aurora Adjustment
Net Debt
$195.3
$250.0
$1,208.2
$207.5
$250.0
$1,200.4
$219.7
$250.0
$1,192.6
$231.9
$250.0
$1,184.8
$244.2
$250.0
$1,177.0
$256.4
$250.0
$1,169.2
$268.6
$250.0
$1,161.3
$280.8
$250.0
$1,153.5
$293.0
$250.0
$1,145.7
Shares Outstanding
50.9
50.9
50.9
50.9
50.9
50.9
50.9
50.9
50.9
7.2x
$9
$11
$13
$15
$16
$18
$20
$22
$24
7.7x
$11
$13
$15
$17
$19
$21
$23
$25
$27
8.2x
$13
$15
$17
$19
$21
$23
$26
$28
$30
8.7x
$15
$17
$19
$21
$24
$26
$28
$30
$33
9.2x
$17
$19
$21
$24
$26
$28
$31
$33
$36
9.7x
$19
$21
$24
$26
$28
$31
$33
$36
$38
10.2x
$20
$23
$26
$28
$31
$33
$36
$39
$41
10.7x
$22
$25
$28
$31
$33
$36
$39
$41
$44
11.2x
$24
$27
$30
$33
$36
$39
$41
$44
$47
Source: Deutsche Bank estimates and Company Reports.
Page 225
20 September 2011
Figure 361: Our NAV Valuation ($ in MM, except per share data)
Segment
Target
Multiple
2013E
Owned & Leased Hotel Revenues
$994
Owned & Leased Hotel Operating Expenses
($701)
Maintenance Capital Expenditures
($40)
Net Operating Income
$253
Implied Cap Rate
Implied Value per key
Price Target
Current Price
9.6%
10.2%
$325,765
$305,230
Owned Rooms
8,095
8,095
Owned Hotel Value
$2,637
$2,471
Corporate Expense
8.9x
($53)
($474)
($474)
Opryland Attractions & Other
7.0x
$13
$93
$93
Aurora Colorado Project (YE 2013E)
$250
250
Less: Net Debt (YE 2013E)
($1,177)
($1,177)
Equity Value
$1,329
$1,163
50.9
50.9
NAV per share
$26
$22.82
Page 226
20 September 2011
Valuation
At current levels, GET trades at 10.0x, 9.0x, and 8.5x our 2011, 2012, and 2013 CCF
estimates, respectively. Since 2003, GET has traded at an average multiple of 13.2x forward
year CCF. On an EV/EBITDA basis, GET trades at 10.4x, 9.3x, and 8.8x our 2011, 2012, and
2013 adjusted EBITDA estimates, respectively. We note that our EV in 2012 and 2013 is
adjusted for non-cash flow producing debt related to construction in progress at the Aurora
development.
Figure 362: Valuation Summary ($ in MM)
September 16, 2011
Share Price
$22.82
50.9
$1,163
2010 Net Debt
$1,035
2010 Net Debt
$1,035
2011E Net Debt
$1,036
2011E Net Debt
$1,036
2012E Net Debt
$1,036
2012E Net Debt
$1,036
2013E Net Debt
$1,177
2013E Net Debt
$1,177
2012 CIP
$0
2012 CIP
$0
2011E CIP
$0
2011E CIP
$0
2012E CIP
$50
2012E CIP
$50
2013E CIP
$200
2013E CIP
$200
2010 EV
$2,197
2010 EV
$2,197
2011E EV
$2,199
2011E EV
$2,199
2012E EV
$2,149
2012E EV
$2,149
2013E EV
$2,140
2013E EV
$2,140
2010 EBITDA
$39
2010 CCF
$149
2011E EBITDA
$211
2011E CCF
$221
2012E EBITDA
$230
2012E CCF
$239
2013E EBITDA
$244
2013E CCF
$253
2010 EV/EBITDA
55.7x
2010 EV/CCF
14.8x
2011E EV/EBITDA
10.4x
2011E EV/CCF
10.0x
2012E EV/EBITDA
9.3x
2012E EV/CCF
9.0x
2013E EV/EBITDA
8.8x
2013E EV/CCF
8.5x
Page 227
20 September 2011
Figure 363: Forward-Year EV/CCF Multiple History
Forward EV/CCF Multiple
Jul-11
Feb-11
Sep-10
Apr-10
Nov-09
Jun-09
Jan-09
Aug-08
Mar-08
Oct-07
May-07
Dec-06
Jul-06
Feb-06
Sep-05
Apr-05
Nov-04
Jun-04
Jan-04
20.0x
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
Average Forward EV/CCF Multiple
Figure 364: Same-Year EV/CCF Multiple History
25.0x
20.0x
15.0x
10.0x
5.0x
Same Year EV/CCF Multiple
Jul-11
Feb-11
Sep-10
Apr-10
Nov-09
Jun-09
Jan-09
Aug-08
Mar-08
Oct-07
May-07
Dec-06
Jul-06
Feb-06
Sep-05
Apr-05
Nov-04
Jun-04
Jan-04
0.0x
Average Same Year EV/CCF Multiple
Page 228
20 September 2011
Model
Figure 365: Earnings Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
171.7
Revenues
Palms
yoy % Chg.
Texan
yoy % Chg.
National
yoy % Chg.
Nashville Radisson and Other Hospitality
yoy % Chg.
Adjusted Hotel Revenue (ex Opryland)
yoy % Chg.
Opryland
yoy % Chg.
Hospitality
yoy % Chg.
Opry & Attractions
yoy % Chg.
157.2
43.3
37.8
34.3
41.0
156.4
45.5
37.7
28.6
38.1
149.9
165.0
-13.0%
-5.6%
-3.5%
12.9%
-1.8%
-0.5%
5.0%
-0.2%
-16.6%
-7.0%
-4.1%
10.0%
4.0%
171.4
46.9
45.4
44.1
55.8
192.2
50.4
45.7
45.4
58.9
200.3
211.7
219.4
-11.1%
10.6%
16.5%
12.2%
4.2%
5.7%
3.6%
231.3
57.5
66.8
67.1
62.7
254.1
52.4
59.9
67.5
70.7
250.4
259.2
277.1
36.7%
2.6%
6.9%
9.3%
19.7%
10.5%
9.8%
-9.0%
-10.3%
0.6%
12.7%
-1.4%
3.5%
6.9%
1.9
11.6%
1.8
2.0
7.4%
0.6%
2.9%
5.6%
7.2
1.3
6.7
0.8
1.8
2.0
6.3
8.3
-19.7%
-24.2%
-1.2%
8.6%
2.5%
-6.8%
-37.2%
-8.7%
11.8%
-7.5%
-5.4%
30.6%
5.8%
567.1
149.0
152.0
147.2
161.4
609.6
149.0
145.1
143.4
169.5
607.0
644.2
676.9
2.8%
2.0%
4.7%
15.4%
8.9%
247.1
54.7
21.0
0.0
37.7
-16.7%
0.3%
814.2
203.7
172.9
147.2
-4.0%
1.5%
-13.8%
-19.1%
64.9
13.0
10.9
11.0
-21.0%
11.4%
-38.3%
-35.5%
7.5%
1.8
0.0%
-4.5%
-2.6%
5.0%
113.3
60.3
73.1
67.3
89.2
-54.1%
10.3%
199.1
722.9
209.3
218.2
210.7
-13.8%
-11.2%
2.8%
26.2%
43.1%
14.2
49.1
11.4
18.6
14.3
-22.9%
-24.3%
-12.4%
69.9%
29.7%
8.8
-0.4%
6.1%
5.1%
289.9
305.3
317.2
155.9%
5.3%
3.9%
897.0
949.5
994.2
24.1%
5.9%
4.7%
258.7
30.0%
22.2
66.4
67.1
67.8
56.3%
35.2%
1.0%
1.0%
ResortQuest
Corporate & Other
0.1
0.0
0.1
0.0
0.1
0.0
Total Revenue
879.1
216.7
183.9
158.3
213.3
772.2
220.7
236.8
225.0
281.0
963.5
1,016.6
1,061.9
yoy % Chg.
-5.6%
2.1%
-15.7%
0.0
-20.5%
0.0
-14.5%
0.0
-12.2%
1.9%
28.8%
0.0
42.2%
31.7%
24.8%
5.5%
4.5%
Consolidated Cash Flows (CCF)
Palms
14.6
10.4
6.6
8.7
10.3
5.8
40.2
44.7
yoy % Chg.
-15.0%
-8.5%
-12.6%
17.3%
-22.0%
-9.7%
4.1%
-1.3%
-12.3%
1.8%
-0.5%
11.2%
7.9%
Margin
28.4%
33.7%
27.6%
19.4%
21.2%
25.8%
33.4%
27.3%
20.4%
23.2%
26.8%
27.1%
28.1%
Texan
44.7
51.3
16.0
14.9
14.3
17.9
40.4
63.0
15.2
18.0
14.6
16.0
8.8
20.6
69.2
74.2
48.2
76.5
yoy % Chg.
-9.1%
29.1%
14.6%
30.9%
19.4%
23.0%
12.5%
-2.5%
12.4%
15.5%
9.8%
7.2%
3.2%
Margin
29.9%
34.1%
32.9%
32.3%
32.0%
32.8%
35.7%
31.9%
35.3%
35.0%
34.5%
35.0%
34.9%
National
60.3
11.7
9.7
17.2
62.2
68.5
yoy % Chg.
81.8%
-20.4%
6.8%
20.2%
6.3%
3.5%
-17.7%
-21.8%
3.2%
26.5%
-5.7%
5.8%
10.2%
Margin
31.3%
12.3%
35.7%
27.2%
74.4%
26.2%
-30.1%
18.1%
27.2%
74.4%
30.7%
33.0%
33.0%
Nashville Radisson and Other Hospitality
22.0
2.3
0.2
-27.0%
-32.8%
21.3%
33.3%
17.6%
15.6%
31.3%
12.3%
35.7%
27.2%
74.4%
26.2%
38.1
168.4
42.6
0.3
0.5
58.8
1.3
1.9
2.7
-53.7%
11.8%
5.0%
-25.3%
40.6%
5.8%
18.1%
27.2%
74.4%
30.7%
33.0%
33.0%
170.1
183.8
196.2
42.4
41.3
43.8
62.5
12.8
6.1
0.0
2.5
21.4
13.9
26.3
18.8
25.9
37.6%
-55.0%
-100.0%
-90.1%
-65.8%
8.6%
331.3%
Margin
25.3%
23.4%
29.1%
0.0%
0.0%
18.9%
23.0%
36.0%
28.0%
221.0
55.3
54.2
39.7
40.6
189.7
56.5
68.7
12.5
0.6
2.1
1.1
2.2
6.0
0.7
5.2
10.4
(4.8)
(2.7)
2.9
0.0
(0.5)
Corporate & Other
(44.0)
(11.7)
(11.3)
(14.1)
(12.5)
(49.6)
(11.2)
Total Consolidated Cash Flow
189.5
44.1
55.4
21.9
27.6
148.9
46.0
Opry & Attractions
39.7
(0.2)
-30.1%
13.0
-26.2%
Hospitality CCF
48.1
2.6
18.9
yoy % Chg.
Opryland
42.5
1.3
62.3
Margin
158.5
0.5
10.3
yoy % Chg.
Adjusted Hotel CCF (ex Opryland)
0.7
18.3
2.9
84.9
91.6
297.0%
7.9%
5.6%
29.0%
29.3%
30.0%
30.5%
96.8
60.1
69.7
255.0
275.4
293.0
3.0
4.0
13.0
13.1
13.2
(10.7)
(12.8)
(11.9)
(46.6)
(49.2)
(53.2)
62.8
50.3
61.8
220.8
239.3
253.1
ResortQuest
Casualty Loss (Nashville Flood May 2010)
0.0
yoy % Chg.
-4.3%
12.7%
-0.7%
NM
NM
NM
4.4%
13.3%
129.8%
124.1%
48.3%
8.4%
5.8%
CCF Margin
21.6%
20.4%
30.1%
13.8%
12.9%
19.3%
20.9%
26.5%
22.3%
22.0%
22.9%
23.5%
23.8%
CCF Flow Through
16.4%
114.0%
1.2%
46.0%
73.0%
37.9%
47.5%
13.9%
42.5%
50.6%
37.6%
34.7%
30.4%
6.2
25.5
23.6
55.1
0
0
Non-cash lease expense (Palms)
6.0
1.5
1.5
1.5
1.5
5.9
1.5
1.5
1.5
1.5
5.9
5.6
5.5
Stock option expense
Pre-opening costs
7.6
0.0
0.7
0.8
0.7
0.6
0.8
0.8
0.8
0
0.9
0.9
3.3
3.4
3.4
Impairments & non-recurring charges
6.6
0.0
41.8
1.3
3.0
47.7
0.2
0.2
0.0
Other gains (losses), net
4.0
(0.0)
(0.1)
0.4
(0.8)
(0.2)
(0.2)
0.0
0.3
0.3
0.4
0.0
172.3
41.9
39.5
43.8
60.5
47.6
59.1
211.0
230.3
Adjusted EBITDA
5.3
(7.4)
(0.3)
244.2
Depreciation & amortization
116.6
27.1
26.0
25.3
27.3
105.6
29.1
29.3
29.5
29.7
117.6
123.0
128.0
Total Expenses
133.8
29.2
76.1
54.5
55.2
215.0
31.3
31.6
32.2
32.4
127.5
132.1
136.9
Operating income (EBIT)
yoy % Chg.
Interest expense, net
55.8
14.9
(20.7)
(32.6)
(27.6)
(66.1)
14.7
31.2
18.1
29.4
93.4
107.2
116.2
48.8%
85.3%
-201.6%
NM
NM
NM
-0.9%
-250.8%
-155.4%
-206.3%
-241.3%
14.8%
8.3%
(61.5)
(16.9)
(17.2)
(17.0)
(17.2)
(68.3)
(17.6)
(18.1)
(19.0)
(19.0)
(73.7)
(70.0)
(74.0)
0.0
0.0
0.0
0.0
Gain (loss) on Viacom & CBS stock
Gain (loss) on derivatives
Income from unconsolidated companies
(0.0)
(0.1)
0.2
0.5
0.6
0.2
0.2
0.2
0.0
Other gains and (losses), net
21.5
1.2
(0.0)
0.4
(0.8)
0.8
(0.2)
0.1
(0.2)
0.0
(0.9)
(37.7)
(49.2)
(45.1)
(133.0)
Pre-tax income
19.9
37.2
42.2
Income tax (expense)/benefit
(9.2)
(1.0)
11.7
17.4
12.6
40.8
1.0
(4.8)
0.3
(3.7)
(7.2)
(13.4)
(15.2)
Tax rate %
58%
-106%
31%
35%
28%
31%
33%
36%
36%
36%
36%
36%
36%
15.8
6.0
(1.9)
(26.0)
(31.8)
(32.5)
(92.3)
(2.9)
(2.0)
13.4
8.6
(0.9)
(0.6)
10.4
6.6
12.7
23.8
27.0
0.0
(0.0)
3.3
0.0
(0.3)
3.1
(0.0)
0.0
0.0
0.0
0.0
0.0
0.0
Net Income
(1.1)
(1.9)
(22.7)
(31.8)
(32.8)
(89.2)
(2.0)
8.6
(0.6)
6.6
12.7
23.8
27.0
-124.7%
-156.7%
-334.9%
NM
NM
NM
1.2%
-138.0%
-98.1%
-120.2%
-114.2%
87.4%
13.3%
yoy % Chg.
GAAP Diluted EPS from Continuing Operations
$0.15
($0.04)
($0.55)
($0.67)
($0.68)
($1.95)
($0.04)
$0.17
($0.01)
$0.13
$0.25
$0.47
$0.53
GAAP Diluted EPS associated with Disc. Ops
($0.17)
($0.00)
$0.07
$0.00
($0.01)
$0.07
($0.00)
$0.00
$0.00
$0.00
($0.00)
$0.00
$0.00
GAAP Diluted EPS
($0.02)
($0.04)
($0.48)
($0.67)
($0.69)
($1.88)
($0.04)
$0.17
($0.01)
$0.13
$0.25
$0.47
$0.53
47.0
47.0
47.1
47.2
47.7
47.7
48.2
48.4
48.4
48.4
48.4
48.4
48.4
47.0
47.0
47.1
47.2
47.7
47.7
48.2
50.9
50.9
50.9
50.9
50.9
50.9
$0.25
$0.47
$0.53
Adjustments, per share
Restructuring / impairments
$0.02
$0.00
$0.89
$0.03
$0.06
$0.98
$0.00
$0.00
$0.00
Gains / losses
($0.46)
($0.03)
$0.00
($0.01)
$0.02
($0.02)
$0.00
($0.00)
$0.00
Total special items pre-tax
($0.53)
($0.02)
$0.89
$0.02
$0.08
$0.96
$0.01
($0.00)
$0.01
Income tax benefit/(expense) for special items
$0.21
$0.01
($0.36)
($0.01)
($0.03)
($0.38)
($0.00)
$0.00
($0.00)
($0.32)
($0.01)
$0.53
$0.01
$0.05
$0.58
$0.00
($0.00)
$0.00
Assumed tax rate
40%
40%
40%
40%
40%
40%
40%
40%
36%
36%
Adjusted Diluted EPS
($0.17)
($0.06)
($0.02)
($0.66)
($0.63)
($1.37)
($0.04)
$0.17
($0.01)
$0.13
-303.2%
-63.9%
-128.1%
309.8%
-929.6%
NM
NM
NM
NM
NM
NM
86.7%
13.3%
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
yoy % Chg.
Dividend per share
36%
Page 229
20 September 2011
Figure 366: Free Cash Flow Model and Balance Sheet
Free Cash Flow (in $ in MM)
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income
Non-Cash Expenses, Gains, Impairments
Less Project Capex
Aurora/Denver Project
Less Acquisitions
Asset Sales
Equity Offerings/Repurchases
Other
Net Free Cash Flow
(1)
117
11
(36)
91
(13)
(2)
27
2
(5)
22
0
(23)
26
44
(9)
38
(2)
(32)
25
3
(6)
(10)
(87)
(33)
27
6
(9)
(8)
(76)
(89)
106
55
(29)
42
(165)
(2)
29
3
(9)
21
(29)
9
29
2
(9)
31
(14)
(1)
30
7
30
(11)
25
(18)
77
22
36
(97)
(84)
(123)
(8)
16
10
8
26
24
123
0
(41)
106
(56)
(50)
0
27
128
(9)
20
(10)
13
118
5
(39)
97
(71)
(40)
115
(56)
(200)
(141)
Balance Sheet ($ in MM)
131
54
262
55
2009
1
23
1
1Q10
(32)
4
(32)
2Q10
47
(50)
47
3Q10
74
(10)
71
4Q10
90
(33)
87
2010
(32)
(40)
(32)
1Q11
5
21
5
2Q11
10
(0)
3Q11E
8
0
4Q11E
(27)
(1)
(28)
2011E
0
0
(0)
2012E
(141)
0
2013E
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. in Net Debt
180
1,263
1,179
1,221
999
(263)
179
1,179
1,155
1,167
975
(24)
183
1,155
1,154
1,154
971
(4)
136
1,154
1,157
1,156
1,021
50
124
1,157
1,159
1,158
1,035
14
124
1,179
1,159
1,169
1,035
36
87
1,159
1,162
1,160
1,075
40
111
1,162
1,165
1,164
1,054
(21)
24
1,165
1,068
1,117
1,044
(10)
35
1,068
1,071
1,069
1,036
(8)
35
1,159
1,071
1,115
1,036
2
47
1,071
1,083
1,077
1,036
(0)
59
1,083
1,236
1,159
1,177
141
1,079
1,079
1,063
1,037
1,030
1,030
1,037
1,052
1,051
1,058
1,058
1,081
1,108
Debt/Cap
TTM CCF
52%
$22.96
190
62
52%
$22.95
195
64
52%
$22.56
194
67
53%
$21.98
175
68
53%
$21.57
149
68
53%
$21.57
149
68
53%
$21.50
151
69
53%
$20.64
158
70
50%
$20.63
187
72
50%
$20.76
221
74
50%
$20.76
221
74
50%
$21.23
239
70
53%
$21.76
253
74
6.2x
5.3x
3.1x
5.9x
5.0x
3.1x
5.9x
5.0x
2.9x
6.6x
5.8x
2.6x
7.8x
6.9x
2.2x
7.8x
6.9x
2.2x
7.7x
7.1x
2.2x
7.4x
6.7x
2.3x
5.7x
5.6x
2.6x
4.8x
4.7x
3.0x
4.8x
4.7x
3.0x
4.5x
4.3x
3.4x
4.9x
4.7x
3.4x
Gross Debt/CCF
Net Debt/CCF
Interest Coverage
Debt Profile
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Libor
0.53%
0.35%
0.35%
0.35%
0.35%
0.35%
0.35%
0.50%
0.50%
0.50%
0.46%
0.56%
1.00%
Revolver ($925MM limit), Aug15
Interest Rate L+2.5%
700
4.53%
700
4.35%
700
4.35%
700
4.35%
700
4.35%
700
4.35%
700
4.35%
700
4.50%
600
4.50%
600
4.50%
600
4.46%
600
4.56%
741
3.50%
3.75% Convertible Sr Notes, Oct14
Interest Rate
295
8.00%
298
8.00%
301
8.00%
304
8.00%
307
8.00%
307
8.00%
310
8.00%
313
8.00%
316
8.00%
319
8.00%
319
8.00%
331
8.00%
343
8.00%
6.75% Sr Notes due Nov 14
Interest Rate
181
7.00%
154
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
152
7.00%
3
3
2
2
0
0
0
0
1,179
5.8%
1,155
6.97%
1,154
7.10%
1,157
7.03%
1,159
7.07%
1,159
6.97%
1,162
5.66%
1,165
5.75%
1,068
6.09%
1,071
5.89%
1,071
5.85%
1,083
5.94%
1,236
5.29%
77
15
0
(62)
20
3
20
3
20
3
20
3
(17)
(17)
(17)
(17)
81
13
0
(68)
16
3
(5)
(18)
17
3
(5)
(18)
64
3
(9)
(70)
(17)
(17)
(17)
(17)
(68)
(18)
(18)
16
1
(4)
(19)
(19)
(19)
65
8
(17)
(75)
(62)
16
0
(3)
(19)
(19)
(19)
(74)
(70)
61
1
(14)
(74)
(74)
(74)
Other (historical debt)
Interest Rate
Gross Interest Expense
Interest Income
Other Interest Expenses
Calc'd Net Interest
Net Interest Hardcode
Net Interest Expense in Model
Page 230
20 September 2011
Appendix: GET in Charts and Graphs
Figure 367: 2010 CCF by Segment
Figure 368: 2011E CCF by Segment
National,
$62.3, 32%
Radisson &
Other, $2.6,
1%
National,
$58.8, 22%
Radisson &
Other, $1.9,
1%
Texan, $69.2,
26%
Texan, $63.0,
32%
Opryland,
$21.4, 11%
Opry &
Attractions,
$6.0, 3%
Palms, $40.2,
15%
Opryland,
$84.9, 31%
Opry &
Attractions,
$13.0, 5%
Palms, $40.4,
21%
Texan, $74.2,
26%
National,
$62.2, 22%
Palms, $44.7,
15%
Opryland,
$91.6, 32%
Radisson &
Other, $2.7,
1%
Texan, $76.5,
25%
Opry &
Attractions,
$13.1, 4%
National,
$68.5, 22%
Palms, $48.2,
16%
Opryland,
$96.8, 32%
Radisson &
Other, $2.9,
1%
Opry &
Attractions,
$13.2, 4%
Page 231
20 September 2011
Figure 371: Company Revenue Growth and CCF Margins
Figure 372: Company Revenue Growth and CCF Flow
Through
30%
30%
30%
60%
20%
25%
20%
50%
10%
20%
10%
40%
0%
15%
0%
30%
-10%
10%
-10%
20%
-20%
5%
-20%
10%
0%
-30%
-30%
2005
2006
2007
2008
2009
Total Revenue Growth
2010
2011
2012
2013
0%
2005
Total CCF Margin (right side)
2006
2007
2008
2009
Total Revenue Growth
2010
2011
2012
2013
Total CCF Flow Through (right side)
Figure 373: Total Hospitality Revenue Growth and CCF
Margins
Figure 374: Total Hospitality Revenue Growth and CCF
Flow Through
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
12%
10%
8%
6%
4%
2%
0%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
70%
60%
50%
40%
30%
20%
10%
0%
-10%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total Hospitality Revenue Growth
Total Hospitality Revenue Growth
Total Hospitality CCF Margin (right side)
Total Hospitality CCF Flow Through (right side)
Figure 375: Opryland Revenue Growth and CCF Margins
Figure 376: Opryland Revenue Growth and CCF Flow
Through
25%
Nashville Flood
Distorts 2010 &
2011 Figures
20%
15%
10%
140%
25%
35%
120%
20%
30%
100%
15%
5%
80%
5%
0%
60%
0%
-5%
40%
-10%
-15%
-20%
Opryland Revenue Growth
Page 232
15%
Nashville Flood
Distorts 2010 &
2011 Figures
-10%
-15%
0%
-20%
Opryland CCF Flow Through (right side)
20%
-5%
20%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
25%
10%
10%
5%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Opryland Revenue Growth
Opryland CCF Margin (right side)
20 September 2011
Figure 377: Palms Revenue Growth and CCF Margins
Figure 378: Palms Revenue Growth and CCF Flow
Through
15%
30%
15%
10%
29%
10%
5%
28%
5%
0%
27%
0%
30%
-5%
26%
-5%
20%
-10%
25%
-10%
10%
24%
-15%
-15%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Palms Revenue Growth
60%
2010 Flow
Through not
Relevant due to
Low Revenue
growth
50%
40%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Palms CCF Margin (right side)
Palms Revenue Growth
Palms CCF Flow Through (right side)
Figure 379: Texan Revenue Growth and CCF Margins
Figure 380: Texan Revenue Growth and CCF Flow
Through
15%
40%
35%
10%
15%
80%
70%
10%
30%
5%
25%
0%
20%
Distorted
Revenue growth
in 2005. Texan
opened in 2004.
-5%
-10%
15%
60%
5%
0%
5%
0%
40%
2010 Flow
Through not
Relevant due to
Low Revenue
growth
-5%
10%
-15%
-10%
30%
20%
10%
-15%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Texan Revenue Growth
50%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Texan CCF Margin (right side)
Texan Revenue Growth
Texan CCF Flow Through (right side)
Figure 381: National Revenue Growth and CCF Margins
Figure 382: National Revenue Growth and CCF Flow
Through
40%
30%
35%
25%
30%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
-5%
0%
2008
2009
2010
National Revenue Growth
2011
2012
2013
National CCF Margin (right side)
40%
120%
35%
100%
30%
25%
20%
15%
Distorted
Revenue growth
in 2009. National
opened in 2008.
80%
60%
10%
40%
5%
20%
0%
-5%
0%
2008
2009
2010
National Revenue Growth
2011
2012
2013
National CCF Flow Through (right side)
Page 233
20 September 2011
Figure 383: Recent RevPAR Performance in GET’s Markets
1/31/2009
2/28/2009
3/31/2009
4/30/2009
5/31/2009
6/30/2009
7/31/2009
8/31/2009
9/30/2009
10/31/2009
11/30/2009
12/31/2009
1/31/2010
2/28/2010
3/31/2010
4/30/2010
5/31/2010
6/30/2010
7/31/2010
8/31/2010
9/30/2010
10/31/2010
11/30/2010
12/31/2010
1/31/2011
2/28/2011
3/31/2011
4/30/2011
5/31/2011
6/30/2011
7/31/2011
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
U.S. Upper Upscale
RevPAR yoy % chg
$81.39
-18.5%
$91.93
-19.9%
$95.47
-19.8%
$96.77
-22.6%
$91.30
-22.3%
$97.12
-19.7%
$94.46
-16.5%
$88.22
-19.1%
$91.99
-18.2%
$105.71
-11.7%
$84.13
-10.6%
$70.04
-5.7%
$76.11
-6.5%
$90.34
-1.7%
$101.06
5.9%
$102.19
5.6%
$100.26
9.8%
$106.65
9.8%
$102.34
8.3%
$96.24
9.1%
$100.24
9.0%
$111.55
5.5%
$92.51
10.0%
$73.53
5.0%
$81.75
7.4%
$96.57
6.9%
$109.08
7.9%
$106.03
3.8%
$108.62
8.3%
$113.71
6.6%
$108.10
5.6%
$89.60
$95.06
$91.56
$86.63
$89.17
$103.03
$99.61
$92.53
$95.80
$109.45
-19.4%
-21.5%
-17.9%
-9.8%
-0.5%
8.4%
8.8%
6.8%
7.4%
6.2%
Nashville
RevPAR yoy % chg
$40.92
-14.0%
$48.52
-17.3%
$50.70
-17.1%
$52.65
-20.8%
$49.40
-13.9%
$59.17
-12.8%
$51.56
-17.6%
$44.66
-19.2%
$47.84
-12.0%
$55.32
-11.9%
$48.07
-12.6%
$41.48
-5.8%
$36.37
-11.1%
$45.89
-5.4%
$55.40
9.3%
$53.57
1.8%
$56.16
13.7%
$61.21
3.5%
$56.82
10.2%
$46.06
3.1%
$51.04
6.7%
$54.55
-1.4%
$45.51
-5.3%
$43.94
5.9%
$40.35
10.9%
$49.05
6.9%
$57.78
4.3%
$62.25
16.2%
$59.17
5.4%
$72.89
19.1%
$64.32
13.2%
$46.71
$53.74
$48.02
$48.29
$45.89
$56.98
$51.31
$48.00
$49.06
$64.77
-16.3%
-15.9%
-16.3%
-10.5%
-1.8%
6.0%
6.8%
-0.6%
6.9%
13.7%
RevPAR
Dallas
RevPAR yoy % chg
$45.64
-19.2%
$49.17
-16.9%
$48.26
-18.6%
$48.95
-22.3%
$40.69
-24.2%
$48.53
-19.9%
$43.65
-17.1%
$41.08
-19.3%
$42.44
-30.4%
$48.64
-20.0%
$39.52
-17.4%
$32.29
-13.3%
$42.99
-5.8%
$49.42
0.5%
$45.63
-5.5%
$46.43
-5.1%
$46.90
15.3%
$47.08
-3.0%
$42.94
-1.6%
$42.51
3.5%
$47.24
11.3%
$55.60
14.3%
$43.02
8.9%
$34.46
6.7%
$45.98
7.0%
$67.09
35.8%
$52.98
16.1%
$49.72
7.1%
$50.84
8.4%
$54.94
16.7%
$46.53
8.4%
$47.69
$46.06
$42.39
$40.15
$46.01
$46.80
$44.23
$44.36
$55.35
$51.83
-18.2%
-22.0%
-22.7%
-17.5%
-3.5%
1.6%
4.3%
10.5%
20.3%
10.7%
Orlando
RevPAR yoy % chg
$64.39
-16.4%
$69.29
-26.8%
$70.46
-28.8%
$69.01
-18.0%
$56.83
-18.0%
$56.59
-20.6%
$55.92
-18.4%
$43.15
-24.0%
$33.70
-17.1%
$51.86
-21.4%
$46.68
-9.4%
$51.10
-14.5%
$58.90
-8.5%
$63.04
-9.0%
$71.98
2.1%
$66.86
-3.1%
$50.54
-11.1%
$59.82
5.7%
$62.72
12.2%
$47.90
11.0%
$39.45
17.1%
$58.44
12.7%
$53.52
14.7%
$63.00
23.3%
$59.04
0.2%
$76.31
21.0%
$83.54
16.1%
$78.08
16.8%
$58.87
16.5%
$63.69
6.5%
$67.78
8.1%
$68.05
$60.81
$44.26
$49.88
$64.64
$59.07
$50.03
$58.32
$72.96
$66.88
-24.6%
-18.8%
-20.0%
-15.6%
-5.0%
-2.9%
13.0%
16.9%
12.9%
13.2%
Washington D.C.
RevPAR
yoy % chg
$94.74
28.4%
$85.10
-6.0%
$105.75
-7.4%
$113.34
-15.5%
$104.29
-16.2%
$113.70
-5.0%
$90.16
-14.9%
$79.46
-5.3%
$94.56
-13.2%
$109.36
-13.5%
$78.82
-9.9%
$57.62
-8.9%
$63.96
-32.5%
$76.51
-10.1%
$108.86
2.9%
$122.32
7.9%
$113.28
8.6%
$116.42
2.4%
$100.09
11.0%
$87.24
9.8%
$104.91
10.9%
$119.65
9.4%
$81.42
3.3%
$58.04
0.7%
$64.80
1.3%
$81.00
5.9%
$112.18
3.1%
$111.55
-8.8%
$120.79
6.6%
$120.20
3.2%
$98.73
-1.4%
$95.20
$110.44
$88.06
$81.93
$83.11
$117.34
$97.41
$86.37
$85.99
$117.52
2.5%
-12.4%
-11.6%
-11.3%
-12.7%
6.2%
10.6%
5.4%
3.5%
0.1%
Source: Smith Travel Research
Page 234
20 September 2011
Figure 384: Nashville RevPAR Growth vs. Opryland
RevPAR growth
Figure 385: Orlando RevPAR Growth vs. Palms RevPAR
growth
30.0%
20.0%
15.0%
20.0%
10.0%
5.0%
10.0%
0.0%
0.0%
-5.0%
-10.0%
-10.0%
-15.0%
-20.0%
-20.0%
-25.0%
Opryland Total RevPAR
STR Nashville RevPAR
Palms Total RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
-30.0%
1Q08
-30.0%
STR Orlando RevPAR
Source: Smith Travel Research, Deutsche Bank, and Company Reports
Figure 386: Dallas RevPAR Growth vs. Texan RevPAR
growth
Figure 387: Washington DC RevPAR Growth vs. Gaylord
National RevPAR growth
25.0%
25.0%
20.0%
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
0.0%
5.0%
-5.0%
0.0%
-10.0%
-5.0%
-15.0%
Texan Total RevPAR
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
1Q08
2Q11
1Q11
4Q10
3Q10
STR Dallas RevPAR
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
-20.0%
2Q08
-15.0%
-30.0%
1Q08
-25.0%
3Q08
-20.0%
2Q08
-10.0%
STR Washington DC RevPAR
Page 235
20 September 2011
20 September 2011
Host Hotels & Resorts
Reuters: HST.N
Hold
Bloomberg: HST UN
Rating
Initiating Coverage on HST with a Hold Rating and a $13 Price Target
We are initiating coverage on HST with a Hold rating and a $13 price target.
Recent pullbacks in shares have rationalized valuation, in our view, bringing HST’s
forward EV/EBITDA back in line with historical multiple ranges and establishing
what we view to be a balanced risk/reward profile. Given our below-Consensus
forecasts for domestic lodging performance in 2012 and HST’s U.S.
concentration, we believe downside risk to consensus estimates for HST
remains.
We believe HST shares could benefit from 1) an increase in group business that
shifts HST’s group mix back to 2008 levels, 2) better-than-expected results from
recent acquisitions, 3) occupancy tailwinds stemming from low supply growth
over the next three years, and 4) a solid balance sheet and evidence that HST can
grow its dividend in a lower RevPAR growth environment.
Price target
52-week range
12.12
13.00
19.77 - 10.60
20
16
12
8
4
0
9/08
3/09
9/09
3/10
9/10
3/11
Host Hotels & Resort
Performance (%)
Absolute
S&P 500 INDEX
1m
-1.7
1.9
3m
-23.5
-4.1
12m
-16.6
8.1
Market Cap (USD)
Free float (%)
8,073.1
666.1
97
5,943,749
362,339
Risks to HST include: 1) aggressive Consensus EBITDA estimates for 2012 and
2013, 2) difficult economic conditions that could stunt demand growth, 3) dilution
to common equity from debentures, 4) the risk of equity issuances for
acquisitions at inopportune times, and 5) generic macroeconomic or event risks
that could curtail leisure and or business travel.
Our $13 Price Target is Based on a Sum-of-the-Parts Valuation
Our $13 price target is based on a sum-of-the-parts analysis in which we apply an
11.0x multiple to our 2013E hotel EBITDA and an 11.0x multiple to HST’s share of
2013E JV EBITDA. Our 11.0x target multiple represents a 0.8x discount to HST’s
average EV to forward EBITDA multiple since 2003. We believe our modest
discount to HST’s historical average is warranted given the downside risk to
RevPAR forecasts that we perceive for 2012 and 2013. After extracting net debt
and HST’s share of JV net debt, we arrive at an equity value of $8.7 billion, or $13
per share.
Year End Dec 31
2010A
2011E
1Q EPS1
0.09
0.12A
2012E
0.13
2Q EPS
0.23
0.31A
0.38
3Q EPS
0.13
0.15
0.16
4Q EPS
0.28
0.32
0.39
FY EPS (USD)
0.73
0.89
1.06
P/E (x)
19.8
13.6
11.4
1
2
EPS table shows FFO per share
Page 236
20 September 2011
Host Hotels & Resorts (HST) –
Hold
Company Description
Host Hotels & Resorts is the largest publicly traded lodging REIT, as measured by market
capitalization. HST currently owns 122 hotels, 106 of which are in the United States. Large
urban hotels and resort/conference hotels in the Luxury and Upper Upscale segment
comprise the bulk of HST’s portfolio. 47 of HST’s properties have more than 500 rooms.
Most of HST’s revenues are derived from Marriot hotels (58% of 2010 Revenue). Host Inc. is
structured as an umbrella partnership REIT, where substantially all of its assets are held by
Host L.P. Host Inc. holds approximately 98.4% of the outstanding OP units. HST is the
product of several spin-offs from Marriott Corporation starting in October 1993. The company
converted to a REIT in 1998 and is headquartered in Bethesda, Maryland.
Executive Summary
The DB Thesis: Hold
We are initiating coverage on HST with a Hold rating and a $13 price target. Recent pullbacks
in shares have rationalized valuation, in our view, bringing HST’s forward EV/EBITDA back in
line with historical multiple ranges. That said, we think the recent multiple contraction has
established a balanced risk/reward at current levels. Given our below-Consensus forecasts
for domestic lodging performance in 2012 and HST’s U.S. concentration, we believe
downside risks to Consensus forecasts remain. Conversely, we note that if demand trends
exceed our expectations, HST’s group reliance could serve as a meaningful driver for
estimates and presumably shares.
We believe HST shares could benefit from: 1) an increase in group business that shifts HST’s
group mix back to 2008 levels, 2) better-than-expected results from recent acquisitions, 3)
occupancy tailwinds stemming from low supply growth over the next three years, and 4) a
solid balance sheet and evidence that HST can grow its dividend in a lower RevPAR growth
environment.
Upside Risks
Downside Risks
Risks to HST include: 1) aggressive Consensus EBITDA estimates for 2012 and 2013, 2)
difficult economic conditions that could stunt demand growth, 3) dilution to common equity
from debentures, 4) the risk of equity issuances for acquisitions at inopportune times, and 5)
generic macroeconomic or event risks that could curtail leisure and or business travel.
DB Estimates
We estimate adjusted EBITDA of $209 million, $1.029 billion, $1.181 billion, and $1.295
billion in the 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2011, 2012, and
2013 estimates are $7 million, $62 million, and $96 million below Consensus, respectively.
We project adjusted FFO for 3Q 2011, 2011, 2012, and 2013 of $0.15, $0.89, $1.06, and
Valuation
At current levels, HST trades at 13.7x, 11.8x, and 10.7x our 2011, 2012, and 2013 adjusted
EBITDA estimates, respectively. Since 2003, HST has traded at an average multiple of 11.8x
forward year EBITDA. On a price to FFO basis, HST trades at 11.4x and 10.0x our 2012 and
2013 EPS estimates, respectively. Historically, HST has traded at an average price to forward
year FFO of 12.7x.
Our $13 price target is based on a sum-of-the-parts analysis in which we apply an 11.0x
multiple to our 2013E hotel EBITDA and an 11.0x multiple to HST’s share of 2013E JV
EBITDA. Our 11.0x target multiple represents a 0.8x discount to HST’s average EV to forward
Page 237
20 September 2011
EBITDA multiple since 2003. We believe our modest discount to HST’s historical average is
warranted given the downside risk to RevPAR forecasts that we perceive for 2012 and 2013.
After extracting net debt and HST’s share of JV net debt, we arrive at an equity value of $8.7
billion, or $13 per share.
Page 238
20 September 2011
Group Business Recovery Could be a Meaningful Driver for HST
HST owns a significant portion of large group hotels as 46 of its assets have 500 or more
rooms. Upon inclusion of the Grand Hyatt in Washington DC, HST will own 47 500+ room
properties. While our view on group business is tempered given increasingly negative
macroeconomic forward indicators and rising airfare costs, which we believe will pressure
group sizes, HST could be a meaningful beneficiary of group demand improvements. Group
business, as a share of HST’s total revenue, peaked in 2008 at 41%. In 2010, group revenue
fell to 37% of total revenue.
Group
Business
41%
Contract
Business
5%
Group
Business
37%
Transient
Business
56%
Transient
Business
54%
Contract
Business
7%
It is well-known that group revenue lags transient revenue in a recovery given that groups
tend to book with greater lead time. As business that was booked in 2009 and 2010 rolls off
HST’s books, group rates should matriculate higher. In our opinion, this lag in group business
is well understood by investors; however, the recent sell-off in HST’s shares indicates to us
that buy-side earnings growth expectations are coming down. While convention calendars
generally look strong for 2012, it is our belief that group size may ultimately shrink, thereby
mitigating the historical trend of group strength lagging a transient recovery. If we are proven
wrong, our estimates could prove to be overly conservative.
Figure 390 attempts to quantify just how much a return in group revenue might be worth to
HST shares. In the analysis, we hold transient and contract revenue constant with 2010
levels. We increase group revenues to 41% of HST’s total revenue. In this analysis, the
amount by which we are increasing group revenue to return the group revenue split to 41%
is the upside potential to group revenue. We assume that HST is able to flow 40% of the
incremental group revenue to EBITDA. As shown in Figure 401 later in this report, we believe
a 40% flow through is a reasonable and achievable base case estimate in a healthy recovery
when supply is low.
Applying our price target multiple to the incremental EBITDA, we arrive at incremental value
per share of $1.84 ($1.74 per share on a diluted basis).
Page 239
20 September 2011
Figure 390: Implications of Group Mix Returning to Peak Levels
2007
2008
2009
2010
Transient
Business
56%
54%
56%
56%
Group
Business
40%
41%
37%
37%
Contract
Business
4%
5%
7%
7%
2010 Revenues
Mix Split
Transient
Business
$2,373
56%
Group
Business
$1,568
37%
Contract
Business
$297
7%
Revenue Upside Assuming:
1) Transient revenue and contract revenue don't change from 2010 levels.
2) Group grows to 41% of Revenues--the 2008 share
Revenue Upside:
Assumed Flow Through
Incremental EBITDA
Assumed Multiple
Incremental Enterprise Value:
Shares (MRQ):
Equity Value:
Diluted Equity Value:
$287
40.0%
$115
11.0 x
$1,264
687.1
$1.84
$1.74
In Figure 391, we sensitize our assumptions for flow through and our target multiple to show
the array of equity values that could stem from a return of group business to peak mix.
Figure 391: Group Mix Equity Value Sensitivity Analysis
EV / Share at Various Flow Through and Multiples
EBITDA Multiples
EBITDA Flow Through
30%
35%
40%
45%
50%
9.0x
$1.13
$1.32
$1.51
$1.69
$1.88
10.0x
$1.25
$1.46
$1.67
$1.88
$2.09
11.0x
$1.38
$1.61
$1.84
$2.07
$2.30
12.0x
$1.51
$1.76
$2.01
$2.26
$2.51
13.0x
$1.63
$1.90
$2.17
$2.45
$2.72
14.0x
$1.76
$2.05
$2.34
$2.63
$2.93
Note: Does not include dilution from debentures
If Recent Acquisitions Outperform Our Expectations, Valuation Would Look
Considerably More Attractive
Over the past 13 months, HST has made nearly $2 billion of acquisitions (Figure 392). We
note that the most recently announced acquisition, the $442 million purchase of the 888room Grand Hyatt in Washington D.C., has yet to close.
Page 240
20 September 2011
Figure 392: HST Recent Acquisitions and Sales
Property Name
Grand Hyatt-Washington
Hilton-Melbourne South Wharf
New York Helmsley
Grand Hyatt-San Diego Manchester
Ibis-Auckland Ellerslie
Ibis-Christchurch
Ibis-Wellington
Novotel-Auckland Ellerslie
Novotel-Christchurch Cathedral Square
Novotel-Queenstown Lakeside
Novotel-Wellington
JW Marriott-Rio de Janeiro
W-New York Union Square
Westin-Chicago River North
Country
HST's
Ownership
Acqusition
Date
Price
($ Millions)
U.S
Australia
U.S.
U.S.
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Brazil
U.S.
U.S.
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
Pending
4/29/2011
3/23/2011
3/17/2011
2/18/2011
2/18/2011
2/18/2011
2/18/2011
2/18/2011
2/18/2011
2/18/2011
9/30/2010
9/2/2010
8/11/2010
$442.0
$114.0
$313.5
$572.0
Portfolio
Price
$145.0
$145.0
$145.0
$145.0
$145.0
$145.0
$145.0
$47.0
$169.0
$165.0
Rooms
$ / Key
888
364
775
1,625
100
155
200
147
193
273
139
245
270
424
$497,748
$313,187
$404,516
$352,000
$53,114
$53,114
$53,114
$53,114
$53,114
$53,114
$53,114
$191,837
$625,926
$389,151
Source: Deutsche Bank and SNL Financial.
To fund these purchases, HST used a combination of cash on hand, debt, and equity. HST
raised ~$700 million of equity from its “At-the-market” program to fund the purchases at an
average price of $16.12. HST’s recent stock price is nearly 25% below the equity HST issued
to help fund acquisitions.
Figure 393: Share Performance Post Equity Issuances for Acquisitions
Equity Issuances
Average Issuance Price per Share
Current Price
Change from Issuance Price
2011 YTD
$289.6
$17.45
$12.12
-30.5%
2010
$409.9
$15.29
$12.12
-20.8%
Total
$699.5
$16.12
$12.12
-24.8%
While we are not privy to HST’s underwriting expectations, our model assumes that the
purchase price for these properties equates to a 12.4x multiple of 2012 EBITDA (see Figure
394). While acquisitions in major urban markets in 2010 have been relatively expensive, the
purchases of midscale and upscale properties in New Zealand likely occurred at considerably
lower valuations. We acknowledge that the valuation for HST’s acquisitions has become
more attractive as HST’s shares are down ~31% from the average equity issuance prices in
2011 and ~21% from the average equity issuance prices in 2010. While the decline in HST
shares reflects, in part, lower expectations for 2012 operating performance, we believe there
is upside risk to our price target and valuation if the recently purchased assets outperform
our expectations.
Figure 394: Implied Multiples of Recent Acquisitions
Acquisitions in Our 2012 Forecast
Hotel
Grand Hyatt DC
New York Helmsley
Manchester Grand Hyatt
Other Hotels
Total
Acquisition
Price
$442
$313
$572
$640
$1,967
Assumed
2012
EBITDA
$34
$22
$44
$58
$159
Implied
Multiple
13.0x
14.0x
13.0x
11.0x
12.4x
Page 241
20 September 2011
Industry Supply Forecast Lends Credence to Prolonged Period of Rate Growth Thesis
Bullish investors have pointed to very low supply growth in 2012 and 2013 as a primary
reason to be optimistic about the lodging industry. Indeed, rooms in construction have
gradually declined to just over 1% of existing supply.
Figure 395: U.S. Rooms Under Construction Equates to ~1% of Existing Supply
5.0%
250,000
4.5%
4.0%
200,000
3.5%
3.0%
150,000
2.5%
2.0%
100,000
1.5%
1.0%
50,000
0.5%
0.0%
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
0
We agree that supply should remain low in 2012 and 2013. With fewer new hotel openings,
existing owners, such as HST, have an occupancy “tailwind” that could help to drive
substantial rate growth even if economic growth is low. In addition to the current
construction pipeline forecasts, we believe the commercial real estate standards lending
survey and lagged occupancy, two proven historical correlative tools, also speak to an
extended period of limited supply.
Figure 396: Supply Growth and the Commercial Real
Figure 397: Supply Growth and Lagged Historical
Estate Lending Standards Survey
Occupancy
Lender survey
indicates very
low supply at
least through
2014
16
14
12
40%
4.5%
20%
4.0%
66%
64%
0%
3.5%
3.0%
62%
-20%
10
2.5%
8
-40%
2.0%
6
60%
-60%
1.5%
Net % of Lenders Easing CRE Loan Standards
Source: Deutsche Bank, Federal Reserve, and Smith Travel Research.
Page 242
56%
Net Supply Growth (Left)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-0.5%
1999
0.0%
1998
Luxury, Upper Upscale, & Upscale Rooms Opened , Lagged 4 Yrs
0.5%
1997
3Q94
2Q95
1Q96
4Q96
3Q97
2Q98
1Q99
4Q99
3Q00
2Q01
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
4Q11
3Q12
2Q13
1Q14
4Q14
-100%
Correlation: 0.76
1996
0
58%
1.0%
1995
Correlation: 0.65
1994
-80%
2
1993
4
1992
New Rooms Opened in Quarter (000's)
18
54%
Occupancy - 3 Year Lag (Right)
20 September 2011
Solid Balance Sheet Leaves Room for Dividend Increases Even if RevPAR Growth Falls
Modestly Below Expectations
HST has a solid balance sheet that we believe will enable it to weather a period of flat or even
modestly negative RevPAR growth. Additionally, we believe the company is in a good
position to begin paying increased dividends as long as RevPAR is within a reasonable band
of current expectations, low- to mid-single digits.
Figure 398: Balance Sheet Summary ($ in MM)
2009
2010
2011E
2012E
2013E
Cash
Gross Debt
Net Debt
$1,642
$5,837
$4,195
$1,113
$5,477
$4,364
$451
$5,863
$5,412
$451
$5,863
$5,412
$669
$5,856
$5,187
Interest Expense
$412.5
$428.1
$373.9
$373.9
$388.6
EBITDA
$839.0
$828.0
$1,029.3
$1,180.9
$1,294.7
7.0x
5.0x
2.0x
6.6x
5.3x
1.9x
5.7x
5.3x
2.8x
5.0x
4.6x
3.2x
4.5x
4.0x
3.3x
Gross Debt/EBITDA
Net Debt/EBITDA
At current levels, based on our estimates, we calculate a 2012 dividend yield of 2.0% and a
2013 dividend yield of 3.0%. The 2.0% yield on our 2012 estimated dividend is higher than in
six of the past ten years (including our 2011 yield forecast). Given the current low yield of the
10-year treasury and a relatively high yield compared to HST’s history, we believe that HST’s
solid balance sheet and ability to grow its dividend in a low RevPAR growth scenario could be
seen as appealing in the current environment.
Figure 399: Dividends and Dividend Yields
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
Dividends Declared
2013E
2012E
2011E
2010
2009
2008
2007
2006
2005
2004
2003
2002
$0.00
Dividend Yield
Source: Company report and Deutsche Bank estimates.
Page 243
20 September 2011
We See Risk in 2012 Consensus Estimates
We believe 2012 Consensus estimates could be making optimistic assumptions about rate
growth and the EBITDA flow through that rate growth can generate. Currently, Consensus is
forecasting that 61% of revenue growth in 2012 flows through to EBITDA.
Figure 400: Consensus Estimates Appear Aggressive
2012E
DB
Estimate
Consensus
Estimate
2013E
Delta
DB
Estimate
Consensus
Estimate
Delta
Revenue
yoy % Chg
$5,496.8
9.9%
$5,358.7
6.7%
$138.1
$5,553.4
1.0%
$5,463.4
2.0%
$90.0
Adjusted EBITDA
yoy % Chg
EBITDA Flow through
$1,180.9
14.7%
30.5%
$1,242.3
19.9%
61.2%
($61.5)
$1,294.7
9.6%
$1,391.1
12.0%
($96.4)
FFO/share
yoy % Chg
$1.06
19.1%
$1.17
28.6%
($0.11)
$1.21
14.1%
$1.37
17.1%
($0.16)
EPS
$0.14
$0.28
($0.14)
$0.30
$0.44
($0.14)
Dividend/share
Payout, % of FFO
$0.24
22.6%
$0.24
20.5%
$0.36
30.0%
$0.51
37.2%
We note that during periods when RevPAR is trending higher, HST has never had comparable
hotel EBITDA flow through higher than 55.4% (2006). Add to this our expectation for higher
levels of renovation activity and our view that Consensus RevPAR forecasts for 2012 are
more likely to come down than go up, both of which would diminish flow through, and we
believe there is considerable downside risk to estimates.
Page 244
20 September 2011
Figure 401: HST’s Comparable Hotel Historical Flow Through
15.0%
90%
10.0%
80%
5.0%
70%
0.0%
60%
-5.0%
50%
-10.0%
40%
-15.0%
HST Comparable RevPAR Growth (Left)
2010
2009
2008
2007
20%
2006
-25.0%
2005
30%
2004
-20.0%
HST Hotel EBITDA Flow Through (Right)
Poor Economic Conditions May Lead to Deterioration in Room Night Demand
Unlike HOT ($45.46, $58 Price Target), OEH ($8.04, $11 Price Target), and H ($35.56, $44
Price Target), all of which we rate Buy, HST has considerably more exposure to the U.S. as
the majority of the company’s consolidated rooms are in domestic markets. As such, we
believe lower growth in the U.S. is considerably more punitive to HST than other domestic
lodging names in our coverage universe.
Figure 402: 2010 Revenue by Country
Brazil
0.2%
Canada
2.5%
United States
95.9%
Chile
0.7%
Mexico
0.5%
United Kingdom
0.4%
Should GDP and business investment falter, HST’s operating metrics would likely deteriorate.
Corporate product launches, training programs, contract negotiations, and presentations, all
reasons that corporate customers need hotel rooms, are less likely to occur when economic
Page 245
20 September 2011
activity is weak and hiring is slow. Accordingly, the Non-Manufacturing ISM Employment
Index, a service sector metric that we watch as a leading indicator for room night demand,
indicates to us that lodging demand growth will likely slow (Figure 403).
Figure 403: ISM Employment Index Suggests Slowing Room Night Demand Growth
60%
10%
Excellent Leading Indicator
for Lodging Demand
suggest s Demand growth
is about to slow
8%
6%
40%
4%
20%
2%
0%
0%
-2%
-20%
-4%
β = 0.25
R^2 = 0.70
Intercept = 1.1%
-6%
-8%
-40%
-60%
Demand Growth lagged 1Q (Left)
2Q11
4Q10
2Q10
4Q09
2Q09
4Q08
2Q08
4Q07
2Q07
4Q06
2Q06
4Q05
2Q05
4Q04
2Q04
4Q03
2Q03
4Q02
2Q02
4Q01
2Q01
4Q00
2Q00
4Q99
2Q99
4Q98
-10%
ISM Employment, YoY Change (Right)
Common Equity Dilution
As HST’s shares rise, equity holders become diluted by three series of exchangeable senior
debentures. Figure 404 shows the dilution amount if debenture holders exchange their
debentures for HST stock.
During the 3Q 2011, HST exercised its option to redeem $150 million of 2004 Debentures.
The company used 8.8 million shares and $16 million of cash for the redemption.
We also note that the debentures also have a put option. If interest rates were to rise, the
owners of the debentures could require HST to repay debt at an inopportune time.
Figure 404: Dilution from Debentures
2009 Debentures
2007 Debentures
2004 Debentures
Maturity
Date
Next Put
Option Date
Redemption
Date
Outstanding
Principal
($ in MM)
10/15/29
4/15/27
4/15/24
10/15/15
4/15/12
4/15/14
10/20/15
4/20/12
4/19/09
$400
$526
$175
Coupon
Shares Exchanged
for $1,000 of
Principal
Equivalent
Exchange
Price
Total
Exchangeable
Share Equivalents
2.50%
2.625%
3.25%
71.0101
32.0239
65.3258
$14.08
$31.23
$15.31
28.4
16.8
11.4
687.1
% Dilution above $14.08
4.1%
% Dilution above $15.31
Data as of 12/31/2010, adjusted for 3Q11 redemption of $150 million of 2004 Debentures
5.8%
Page 246
20 September 2011
In-opportunistic Equity Raises Could Hamper Shares
Unlike C-Corps, REITs must pay out at least 90% of taxable income in the form of dividends
or face tax consequences. As a result, REITs rely heavily on debt and equity capital markets
to grow. When equity valuations exceed a REIT’s net asset value, REITs tend to tap equity
markets to fund new real estate purchases. Poor acquisitions or poor timing can erode equity
value. Leverage increases the risk of dilutive equity offerings. High levels of leverage may
force a REIT to issue equity while the equity valuation is poor, severely diluting equity
holders.
HST has a continuous offering program that the company has been using. HST re-filled its
continuous equity offering program on May 2, 2011, with $400 million of available equity.
Figure 405: Historical Common Equity Issuances
Offering Type
Share Price
Offering Size
(in MM)
Offering Size
($ in MM)
6/17/2011
5/19/2011
3/25/2011
2011 Total
ATM
ATM
ATM
$17.29
$17.29
$17.76
$17.45
6.7
4.3
5.6
16.6
$115.8
$74.3
$99.5
$289.6
12/31/2010
11/30/2010
9/10/2010
8/20/2010
3/26/2010
2010 Total
ATM
ATM
ATM
ATM
ATM
$17.24
$16.13
$13.89
$14.34
$12.88
$15.29
5.8
9.3
3.6
3.8
4.3
26.8
$100.0
$150.0
$50.0
$54.5
$55.4
$409.9
12/31/2009
9/11/2009
4/24/2009
2009 Total
ATM
ATM
Follow-On
$10.60
$10.10
$6.60
$7.62
15.0
13.0
75.8
103.8
$159.0
$131.3
$500.0
$790.3
6/9/2004
2004 Total
Follow-On
$12.12
$12.12
25.0
25.0
$303.0
$303.0
10/21/2003
8/11/2003
2003 Total
Follow-On
Follow-On
$10.75
$9.25
$9.94
23.5
27.5
51.0
$252.6
$254.4
$507.0
$13.10
$12.48
$12.45
$12.75
18.2
10.0
12.5
40.7
$238.4
$124.8
$155.6
$518.8
Date Priced*
5/2/2001
Follow-On
5/2/2001
Follow-On
2/1/2001
Follow-On
2001 Total
Remaining ATM at 2Q11: $209.8 million
*Date disclosed for ATM offerings
Valuation and/or Consensus May Continue to Fall in the Near Term
Until 2009, HST had a historical forward EV to EBITDA range of 8.0x to 13.0x. From the spring
of 2009 through the summer of 2011, HST traded at an EV north of 13.9x consensus forward
EBITDA. Since the recent sell-off, valuation returned to the longer-term historical 8.0 to 13.0x
range. We believe the high valuation in 2010 was likely due to investors’ assessing the
likelihood of another lodging bull-run similar to the 2003 to 2007 cycle. As investors seem to
Page 247
20 September 2011
have lowered their growth expectations, HST shares may continue to be range bound.
Furthermore, given recent domestic employment and manufacturing data, the potential for
further estimate reductions exists, in our view.
Figure 406: Consensus Forward EV to EBITDA
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Sep-11
Mar-11
Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
0.0x
Average Multiple
Additionally, we note that HST is trading at a premium to its long term historical average EV
to forward-year Consensus EBITDA multiple (11.3x), while its peers are all trading at
discounts, some of which are significant. Given what we view as better international growth
prospects in some of the other names, we think there may be further downside risk to
valuation for HST.
Figure 407: Comparable Valuation Based on Consensus Forward EBITDA
MAR
HOT
HST
H*
CHH
GET*
Current Valuation
to Consensus
Forward EBITDA
10.4x
10.2x
11.6x
9.4x
10.7x
9.4x
10yr Average
12.0x
10.4x
11.3x
11.9x
12.5x
11.8x
Multiple
Discount
1.6x
0.2x
-0.3x
2.5x
1.8x
Note: GET Avg. (Jan, 96 to Present)
Note: H Avg. (Dec, 09 to Present)
We believe global economic fears, as well as potential events such as natural disasters or
terrorism, that curtail travel demand could negatively impact HST. Furthermore, such
circumstances would likely cause HST results to fall below our expectations.
Page 248
20 September 2011
Our revenue estimates are $1.103 billion, $5.000 billion, $5.497 billion, and $5.553 billion for
the 3Q 2011, 2011, 2012, and 2013, respectively.
We estimate adjusted EBITDA of $209 million, $1.029 billion, $1.181 billion, and $1.295
billion in the 3Q 2011, 2011, 2012, and 2013, respectively. We note that our 2011, 2012, and
2013 estimates are $7 million, $62 million, and $96 million below Consensus, respectively.
We project adjusted FFO for 3Q 2011, 2011, 2012, and 2013 of $0.15, $0.89, $1.06, and
Figure 408: Estimate Summary ($ in MM, except per share data)
Owned Hotel Revenue
yoy % chg.
Total Revenue
yoy % chg.
Property EBITDA
yoy % chg.
Corporate Expense
yoy % chg.
Adjusted EBITDA
yoy % chg.
yoy % chg.
Net Interest Expense
yoy % chg.
Net Income to Common Equity
yoy % chg.
GAAP EPS
yoy % chg.
Adjusted Diluted FFO
yoy % chg.
Adjuted Diluted FFO/share
yoy % chg.
Dividends/share
2009
2010
2011E
2012E
2013E
$4,082
$4,238
3.8%
$4,437
5.9%
$930
6.3%
$106
-7.8%
$828
-1.3%
$592
-15.3%
$374
0.3%
($137)
-47.5%
($0.21)
-53.1%
$511
4.5%
$0.73
-10.6%
$0.04
666.1
$4,764
12.4%
$5,000
12.7%
$1,099
18.2%
$107
0.9%
$1,029
24.3%
$644
8.9%
$356
-4.8%
($17)
-87.9%
($0.03)
-88.1%
$645
26.2%
$0.89
21.6%
$0.14
717.9
$5,274
10.7%
$5,497
9.9%
$1,260
14.6%
$116
8.4%
$1,181
14.7%
$662
2.7%
$374
5.1%
$104
-725.6%
$0.14
-675.8%
$762
18.1%
$1.06
19.1%
$0.24
717.9
$5,553
5.3%
$5,553
1.0%
$1,368
8.6%
$115
-0.9%
$1,295
9.6%
$662
0.0%
$369
-1.3%
$212
103.9%
$0.30
103.9%
$869
14.1%
$1.21
14.1%
$0.36
717.9
$4,189
$875
$115
$839
$699
$373
($261)
($0.45)
$489
$0.82
$0.30
626.5
Figure 409: DB Estimates Versus Consensus ($ in MM, except per share data)
3Q 2011E
Delta
Delta
$1,112.1
($8.9)
$5,000.2
$5,022.1
($21.9)
$5,496.8
9.9%
$5,358.7
6.7%
$208.9
$211.8
($2.9)
$1,029.3
$1,036.3
($7.0)
$1,180.9
14.7%
30.5%
$0.15
$0.17
($0.02)
$0.89
$0.91
($0.02)
EPS
($0.06)
($0.04)
($0.02)
($0.03)
$0.03
($0.05)
Dividend/share
Payout, % of FFO
$0.04
27.3%
$0.04
23.5%
$0.14
15.7%
$0.14
15.4%
FFO/share
yoy % Chg
$1,103.3
2012E
Consensus
Estimate
Adjusted EBITDA
yoy % Chg
EBITDA Flow through
Consensus
Estimate
2011E
DB
Estimate
Revenue
yoy % Chg
DB
Estimate
DB
Estimate
Consensus
Estimate
2013E
DB
Estimate
Consensus
Estimate
$138.1
$5,553.4
1.0%
$5,463.4
2.0%
$90.0
$1,242.3
19.9%
61.2%
($61.5)
$1,294.7
9.6%
$1,391.1
12.0%
($96.4)
$1.06
19.1%
$1.17
28.6%
($0.11)
$1.21
14.1%
$1.37
17.1%
($0.16)
$0.14
$0.28
($0.14)
$0.30
$0.44
($0.14)
$0.24
22.6%
$0.24
20.5%
$0.36
30.0%
$0.51
37.2%
Delta
Delta
Source: Deutsche Bank estimates and Factset.
Page 249
20 September 2011
Our $13 price target is based on a sum-of-the-parts analysis in which we apply an 11.0x
multiple to our 2013E hotel EBITDA and HST’s share of 2013E JV EBITDA. Our target
multiples represent a 0.8x discount to HST’s average EV to forward EBITDA multiple in the
decade. We believe our slight discount to HST’s historical average is warranted given the
downside risk to RevPAR forecasts that we perceive there to be in 2012 and 2013. After
extracting net debt and HST’s share of JV net debt, we arrive at an equity value of $8.7
billion, or $13 per share.
Figure 410: Price Target Analysis ($ in MM, except per share data)
Segment
Hotel EBITDA (Adjusted for OP Units)
Share of JV EBITDA
Subtotal
Corporate Expense & Other
Total
2013E
EBITDA
Price Target
Multiple
Firm Value
$1,347
11.0x
$14,817
$43
11.0x
$470
$1,390
11.0x
$15,287
($95)
11.0x
($1,045)
$1,295
11.0x
$14,242
$5,187
Less share of JV Debt (MRQ)
$343
Equity Value
$8,712
687
Price Target
$13
Figure 411: Our NAV Valuation ($ in MM, except per share data)
Price Target
Current Price
Rooms at Purchase
Price + Capitalized
Cost
7.0%
7.2%
6.9%
$223,442
$217,632
$225,017
Owned Rooms (includes Grand Hyatt DC)
66,192
66,192
66,192
Owned Hotel Value
$14,790
$14,405
$14,894
($1,045)
($1,045)
($1,045)
$154
$154
$154
Less: Net Debt (YE 2013E)
($5,187)
($5,187)
($5,187)
Equity Value
$8,712
$8,328
$8,816
687.1
687.1
687.1
$13
$12.12
$12.83
Segment
Target
Multiple
2013E
Owned & Leased Hotel Revenues
$5,553
Owned & Leased Hotel Operating Expenses
($4,245)
Maintenance Capital Expenditures
($278)
Net Operating Income
$1,031
Implied Cap Rate
Implied Value per key
Corporate Expense & Other
BV of 32% interest in European JV (MRQ)
NAV per share
11.0x
($95)
Page 250
20 September 2011
Figure 412: Price Target Sensitivity ($ in MM, except per share data)
% chg. in EBITDA
-20.0%
-15.0%
-10.0%
-5.0%
5.0%
10.0%
15.0%
20.0%
2013E EBITDA
$1,036
$1,101
$1,165
$1,230
$1,295
$1,359
$1,424
$1,489
$1,554
Net Debt (includes JV Debt)
$5,776
$5,714
$5,653
$5,591
$5,530
$5,468
$5,407
$5,345
$5,284
Shares Outstanding
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
8.1x
$4
$5
$6
$6
$7
$8
$9
$10
$11
$13
9.1x
$5
$6
$7
$8
$9
$10
$11
$12
10.1x
$7
$8
$9
$10
$11
$12
$13
$14
$15
10.6x
$8
$9
$10
$11
$12
$13
$14
$15
$16
11.0x
$8
$9
$10
$12
$13
$14
$15
$16
$17
12.1x
$10
$11
$12
$14
$15
$16
$17
$18
$20
13.1x
$11
$13
$14
$15
$17
$18
$19
$21
$22
14.1x
$13
$14
$16
$17
$19
$20
$21
$23
$24
15.1x
$14
$16
$17
$19
$20
$22
$23
$25
$26
Figure 413: HST’s NAV Sensitivity at Various Prices per Key
NAV Sensitivity to Changes in Price / Key
Current
Price /
Key
in $ Millions except for $ / Key and per
share values
$100,000
$165,000
$190,000
$200,000
$222,267
$225,000
$235,000
$260,000
$300,000
Rooms (MRQ)
65,304
65,304
65,304
65,304
65,304
65,304
65,304
65,304
65,304
Hotel Portfolio Value
$6,530
$10,775
$12,408
$13,061
$14,515
$14,693
$15,346
$16,979
$19,591
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
Enterprise Value
$5,597
$9,842
$11,474
$12,128
$13,582
$13,760
$14,413
$16,046
$18,658
Less: Net Debt (MRQ)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
Equity Value
$343
$4,588
$6,220
$6,874
$8,328
$8,506
$9,159
$10,792
$13,404
Shares (MRQ)
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
NAV / Share
$0.50
$6.68
$9.05
$10.00
$12.12
$12.38
$13.33
$15.71
$19.51
Upside/Downside to Current Price
-95.9%
-44.9%
-25.3%
-17.5%
2.1%
10.0%
29.6%
61.0%
Price / Key
Corporate Overhead (FY2012)
EV/EBITDA for DB Price Target
Less: Corporate Overhead Value
Plus: Book Value of Euro JV
116
11.0x
Page 251
20 September 2011
Figure 414: HST’s NAV Sensitivity at Various Cap Rates Based on Our 2012 Estimates
NAV Sensitivity to Changes in Cap Rates
Current
2012E
Cap Rate
in $ Millions except for $ / Key and per
share values
9.00%
8.00%
7.50%
7.00%
6.86%
6.50%
6.00%
5.00%
4.00%
$996
$996
$996
$996
$996
$996
$996
$996
$996
$11,069
$12,453
$13,283
$14,232
$14,515
$15,326
$16,604
$19,924
$24,905
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
($1,276)
$343
Enterprise Value
$10,136
$11,519
$12,350
$13,298
$13,582
$14,393
$15,670
$18,991
$23,972
Less: Net Debt (MRQ)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
($5,254)
Equity Value
$4,882
$6,265
$7,096
$8,044
$8,328
$9,139
$10,416
$13,737
$18,718
Shares (MRQ)
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
687.1
NAV / Share
$7.10
$9.12
$10.33
$11.71
$12.12
$13.30
$15.16
$19.99
$27.24
Upside/Downside to Current Price
-41.4%
-24.8%
-14.8%
-3.4%
9.7%
25.1%
65.0%
124.8%
2012E Cap Rate
Comparable RevPAR growth
Maintenance, % of Revenues
Maintenance Cap-ex (2012E)
Net Operating Income (2012E)
5.3%
5.0%
($264)
Hotel Portfolio Value
Corporate Overhead (FY2012)
EV/EBITDA for DB Price Target
Less: Corporate Overhead Value
Plus: Book Value of Euro JV
116
11.0x
Page 252
20 September 2011
Valuation
At current levels, on our estimates, HST trades at 13.7x, 11.8x, and 10.7x our 2011, 2012,
and 2013 adjusted EBITDA estimates, respectively. Since 2003, HST has traded at an average
multiple of 11.8x forward-year EBITDA. On a price to FFO basis, HST trades at 11.4x and
10.0x our 2012 and 2013 EPS estimates, respectively. Historically, HST has traded at an
average price to forward year FFO of 12.7x.
September 16, 2011
Share Price
$12.12
687.1
$8,328
Share Price
$12.12
2010 Net Debt
2011E Net Debt
2012E Net Debt
2013E Net Debt
$4,364
$5,412
$5,272
$5,187
2010 FFO
2011E FFO
2012E FFO
2013E FFO
$0.73
$0.89
$1.06
$1.21
2010 JV Debt
2011E JV Debt
2012E JV Debt
2013E JV Debt
$303
$343
$343
$343
2010 P/FFO
2011E P/FFO
2012E P/FFO
2013E P/FFO
16.6x
13.6x
11.4x
10.0x
2010 EV
2011E EV
2012E EV
2013E EV
$12,995
$14,083
$13,942
$13,857
2010 EBITDA
2011E EBITDA
2012E EBITDA
2013E EBITDA
$828
$1,029
$1,181
$1,295
2010 EV/EBITDA
2011E EV/EBITDA
2012E EV/EBITDA
2013E EV/EBITDA
15.7x
13.7x
11.8x
10.7x
Page 253
20 September 2011
Figure 416: Forward Year EV/EBITDA Multiple History
20.0x
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
0.0x
20.0x
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
0.0x
Page 254
20 September 2011
Figure 418: Forward Year Price/FFO Multiple History
25.0x
20.0x
15.0x
10.0x
5.0x
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
0.0x
Forward FFO Multiple
Average Forward FFO Multiple
Figure 419: Same Year Price/FFO Multiple History
25.0x
20.0x
15.0x
10.0x
5.0x
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
0.0x
Same Year FFO Multiple
Average Same Year FFO Multiple
Page 255
20 September 2011
Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Room Revenue
yoy % Chg.
Food & Beverage Revenue
yoy % Chg.
as a % of Hotel Revenue
Other Revenue
yoy % Chg.
as a % of Total Revenue
Total Owned Hotel Revenue
yoy % Chg.
2,515
-21.8%
1,253
-21.7%
30.7%
314
-10.8%
7.7%
4,082
-21.0%
484
-5.3%
252
-7.4%
31.8%
57
-18.6%
7.2%
793
-7.0%
672
6.8%
343
6.2%
31.6%
72
-17.2%
6.6%
1,087
4.6%
629
8.6%
254
5.0%
26.8%
63
-8.7%
6.7%
946
6.3%
883
10.9%
444
6.7%
31.4%
85
-3.4%
6.0%
1,412
8.6%
2,668
6.1%
1,293
3.2%
30.5%
277
-11.8%
6.5%
4,238
3.8%
523
8.1%
270
7.1%
31.9%
54
-5.3%
6.4%
847
6.8%
780
16.1%
380
10.8%
30.8%
75
4.2%
6.1%
1,235
13.6%
697
10.8%
281
10.8%
26.8%
70
10.8%
6.7%
1,048
10.8%
1,022
15.7%
514
15.7%
31.4%
98
15.7%
6.0%
1,634
15.7%
3,022
13.3%
1,445
11.8%
47.8%
297
7.3%
9.8%
4,764
12.4%
3,343
10.6%
1,602
10.9%
47.9%
329
10.6%
9.8%
5,274
10.7%
3,449
3.2%
1,770
10.5%
31.9%
334
1.7%
6.0%
5,553
5.3%
HPT Property Group Gross Revenue and Other
yoy % Chg.
as a % of Owned Hotel Revenue
Total Revenue
yoy % Chg.
107
-9.3%
2.6%
4,189
-20.8%
30
3.4%
3.8%
823
-6.7%
27
8.0%
2.5%
1,114
4.7%
60
172.7%
6.3%
1,006
10.3%
82
164.5%
5.8%
1,494
12.2%
199
86.0%
4.7%
4,437
5.9%
56
86.7%
6.6%
903
9.7%
61
125.9%
4.9%
1,296
16.3%
55
-8.3%
64
-22.0%
1,698
13.6%
223
-5.5%
4.2%
5,497
9.9%
0
-100.0%
1,103
9.7%
236
18.6%
5.0%
5,000
12.7%
692
-12.6%
27.5%
72.5%
948
-19.0%
37.7%
62.3%
1,122
-13.9%
27.5%
161
-35.1%
3.9%
390
-1.0%
9.6%
3,313
-15.2%
140
1.4%
28.9%
71.1%
187
-7.0%
38.6%
61.4%
222
-6.7%
28.0%
29
-12.1%
3.7%
86
4.9%
10.8%
664
-4.0%
178
7.2%
26.5%
73.5%
241
3.9%
35.9%
64.1%
279
3.0%
25.7%
47
14.6%
4.3%
96
0.0%
8.8%
841
4.3%
178
5.3%
28.3%
71.7%
213
3.9%
33.9%
66.1%
277
5.3%
29.3%
37
12.1%
3.9%
124
30.5%
13.1%
829
8.4%
239
9.1%
27.1%
72.9%
326
5.2%
36.9%
63.1%
376
7.4%
26.6%
60
11.1%
4.2%
182
55.6%
12.9%
1,183
12.7%
735
6.2%
27.5%
72.5%
967
2.0%
36.2%
63.8%
1,154
2.9%
27.2%
173
7.5%
4.1%
488
25.1%
11.5%
3,517
6.2%
151
7.9%
28.9%
71.1%
201
7.5%
38.4%
61.6%
239
7.7%
28.2%
32
10.3%
3.8%
117
36.0%
13.8%
740
11.4%
206
15.7%
26.4%
73.6%
268
11.2%
34.4%
65.6%
309
10.8%
25.0%
53
12.8%
4.3%
137
42.7%
11.1%
973
15.7%
891
7.5%
1,307
10.4%
3,911
11.2%
4,236
8.3%
4,185
-1.2%
Revenues
5,553
1.0%
Expenses
Room Expenses
yoy % Chg.
As a % of Room Revenue
Gross Margin
Food & Beverage Expenses
yoy % Chg.
As a % of Room Revenue
Gross Margin
Departmental Expenses
yoy % Chg.
Management Fees
yoy % Chg.
Other Property Level Expenses
yoy % Chg.
Total Property Expenses
yoy % Chg.
Corporate Expense
115
25
24
20
37
106
25
22
22
38
107
116
115
EBITDA
yoy % Chg.
EBITDA Margin
761
-42.8%
18.2%
134
-23.4%
16.3%
249
3.3%
22.4%
157
22.7%
15.6%
274
26.3%
18.3%
814
7.0%
18.3%
138
3.0%
15.3%
301
20.9%
23.2%
190
21.0%
17.2%
353
29.0%
20.8%
982
20.7%
19.6%
1,145
16.6%
20.8%
1,253
9.5%
22.6%
699
136
139
134
183
592
141
149
149
205
644
662
662
62
-91.7%
1.5%
(1,267)
(2)
-33.3%
-0.2%
10
110
144.4%
9.9%
565
23
-330.0%
2.3%
338
91
203.3%
6.1%
384
222
258.1%
5.0%
352
(3)
50.0%
-0.3%
(9)
152
38.2%
11.7%
185
41
77.9%
3.7%
142
148
62.6%
8.7%
262
338
52.2%
6.8%
175
483
43.1%
8.8%
204
592
22.5%
10.7%
773
Interest Income
Interest Expense
Property Transactions and Other
FX and Currency Derivatives
Equity Losses in Affiliates
Pre-tax income
6
379
14
6
(32)
(323)
1
96
1
82
2
89
5
116
1
26
5
(14)
(2)
(42)
(2)
33
18
374
4
2
(1)
(13)
16
390
0
0
0
109
20
389
(1)
(1)
(66)
5
89
2
1
4
75
4
117
(3)
4
82
2
1
(2)
(80)
5
86
(2)
(5)
(104)
9
383
1
(6)
(1)
(158)
0
223
Income Tax
Tax rate %
(39)
12%
(284)
(22)
21%
(82)
6
23%
20
(5)
8%
(61)
(10)
71%
(4)
(31)
20%
(127)
(20)
25%
(60)
8
11%
67
2
-5%
(44)
8
25%
25
(2)
12%
(12)
5
5%
104
11
5%
212
(2)
(4)
0
(3)
(3)
0
20
-129.0%
(61)
5.2%
(6)
-91.7%
(131)
-49.4%
(60)
-28.6%
64
220.0%
(44)
-28.4%
25
-517.8%
(15)
-88.8%
104
-811.2%
(2)
0
(60)
-30.2%
62
226.3%
(44)
-24.7%
25
-517.8%
(17)
-87.3%
104
-725.6%
Operating Income
yoy % Chg.
GAAP Operating Margin
chg. in bps
Discontinued operations and Other
Net Income
yoy % Chg.
Less Non-controlling Interests
Net Income to HST
yoy % Chg.
Less Dividends on Preferred
25
(2)
(259)
-160.7%
(84)
40.0%
6
(2)
(1)
3
(253)
-159.3%
(86)
45.8%
19
-127.9%
(58)
5.5%
(6)
-91.5%
(131)
-48.2%
(6)
212
103.9%
0
0
(261)
-161.8%
(86)
41.0%
13
-118.6%
(58)
1.8%
(6)
-91.8%
(137)
-47.5%
(60)
-30.2%
62
376.9%
(44)
-24.7%
25
-517.8%
(17)
-87.9%
104
-725.6%
212
103.9%
Reported EPS
yoy % Chg.
($0.45)
-159.4%
($0.13)
14.4%
$0.02
-116.3%
($0.09)
-5.8%
($0.01)
-92.3%
($0.21)
-53.1%
($0.09)
-33.2%
$0.09
354.0%
($0.06)
-30.4%
$0.03
-487.6%
($0.03)
-88.1%
$0.14
-675.8%
$0.30
103.9%
626.5
626.5
648.1
648.1
652.5
654.1
654.5
654.5
666.1
666.1
666.1
666.1
677.3
677.3
685.7
687.1
706.5
707.9
716.5
717.9
716.5
717.9
716.5
717.9
716.5
717.9
0.30
36.6%
0.01
10.8%
0.01
4.3%
0.01
7.8%
0.01
3.6%
0.04
5.5%
0.02
16.6%
0.03
9.7%
0.04
27.3%
0.05
15.9%
0.14
15.7%
0.24
22.6%
0.36
30.0%
Common Dividend
% of Adjusted FFO per share
(6)
(2)
Net Income to Common
yoy % Chg.
(8)
0
212
103.9%
Page 256
20 September 2011
Figure 421: Funds From Operations Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income to Common
Gains / Losses on Dispositions
Amortization of Deferred Gains & Other Property Transactions
Partnership Adjustments
FFO of non-controlling interests of Host LP
(261)
(31)
(4)
604
3
(7)
(86)
13
1
(58)
(6)
1
(60)
62
(44)
25
138
2
(3)
133
1
(1)
182
3
(3)
(1)
141
(2)
(1)
(2)
149
4
(3)
(1)
149
3
(3)
(1)
205
3
(3)
(17)
0
(4)
644
8
(9)
104
0
0
662
8
(12)
212
137
(1)
(1)
(137)
2
0
590
5
(8)
Funds from Operations
304
49
151
75
177
452
77
210
105
231
623
762
869
3
5
2
3
7
8
12
3
5
0
0
0
0
3
5
0
0
0
0
159
114.9%
77
16.7%
187
65.5%
472
53.2%
218
37.1%
105
36.8%
231
23.3%
631
33.7%
762
20.7%
869
14.1%
2004 Debenture Adjustments
2009 Debenture Adjustments
Diluted Funds from Operations
yoy % Chg.
FFO Adjustments
0
4
308
-67.9%
49
-10.9%
77
57.1%
662
10
(14)
181
11
4
10
14
39
5
9
14
0
Adjusted Diluted Funds from Operations
yoy % Chg.
489
-47.9%
60
-42.3%
163
2.5%
87
17.6%
201
32.2%
511
4.5%
82
36.7%
227
39.3%
105
21.1%
231
14.7%
645
26.2%
762
18.1%
869
14.1%
Shares Granted Under CSP
2004 Debenture Adjustment
2009 Debenture Adjustment
Stock Price
Diluted Weighted Average Share for FFO
583.4
648.1
0.6
654.1
654.5
2.1
21.2
666.1
3.0
21.2
28.4
655.7
1.9
21.2
28.4
677.3
1.7
687.1
717.9
13.0
0.0
0.0
$10.69
730.9
717.9
13.0
0.0
0.0
$10.69
716.7
717.9
717.9
0.0
0.0
$13.00
717.9
0.0
0.0
$13.00
717.9
595.9
648.7
703.7
677.8
718.7
687.2
679.0
736.8
707.9
12.0
0.0
0.0
$10.69
719.9
FFO per Diluted Share
yoy % Chg.
0.51
-70.5%
0.08
-24.4%
0.23
82.1%
0.11
4.6%
0.26
44.8%
0.68
31.8%
0.11
50.1%
0.30
30.9%
0.15
28.8%
0.32
21.2%
0.87
29.0%
1.06
21.8%
1.21
14.1%
Adjusted FFO per Diluted Share
yoy % Chg.
0.82
-51.8%
0.09
-51.0%
0.23
-13.1%
0.13
5.4%
0.28
15.7%
0.73
-10.6%
0.12
30.6%
0.31
33.0%
0.15
14.0%
0.32
12.8%
0.89
21.6%
1.06
19.1%
1.21
14.1%
21.3
28.4
Figure 422: Adjusted EBITDA Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income
Interest Expense
Income Taxes
Adjustments for Disc. Ops
(259)
379
602
(39)
3
(84)
96
136
(22)
20
82
139
6
(61)
89
134
(5)
(6)
116
183
(10)
(131)
383
592
(31)
0
(60)
82
141
(20)
64
89
149
8
(44)
86
149
2
25
117
205
8
(15)
374
644
(2)
0
104
390
662
5
0
212
389
662
11
EBITDA
686
126
247
157
283
813
143
310
193
356
1,002
1,161
1,273
Acquisition Costs / Other
Losses on Dispositions
Non-cash Impairments
Amortization of Deferred Gains
Equity in Earnings of Affiliates
Pro Rata EBITDA of Equity Investments
yoy % Chg.
EBITDA Attributable to Non-controlling Partners
Non-controlling partnership share of business
41
(36)
131
(4)
(2)
34
3
(1)
1
8
0
0
2
10
66.7%
(4)
1.9%
(2)
2
12
9.1%
(4)
1.1%
12
(1)
3
(4)
1
33
(17)
1.6%
0
0
0
0
0
40
19.8%
(20)
1.6%
43
8.0%
(21)
1.6%
209
25.8%
18.9%
363
27.1%
21.4%
1,029
24.3%
20.6%
1,181
14.7%
21.5%
1,295
9.6%
23.3%
Adjusted EBITDA
yoy % Chg.
Adjusted EBITDA Margin
3
6
1
6
(5)
11
3
2
0
0
1
23
1
1
(11)
1.3%
(5)
3.8%
(4)
1.6%
(1)
0.6%
(4)
1.4%
(14)
1.7%
(5)
3.4%
3
(2)
(4)
9
50.0%
(4)
1.3%
839
-38.5%
20.0%
126
-27.6%
15.3%
250
-2.3%
22.4%
166
19.4%
16.5%
286
5.9%
19.1%
828
-1.3%
18.7%
144
14.3%
15.9%
313
25.2%
24.2%
5
2
2
Page 257
20 September 2011
Figure 423: Free Cash Flow and Balance Sheet Model ($ in MM)
Free Cash Flow
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
2011E
2012E
2013E
Net Income
Less Dividends
Less Preferred Dividends
% of Hotel Revenues
Less Project Capex
Less Acquisitions
Asset Sales
Share Issuance (Repurchase)
Other
Net Free Cash Flow
(284)
699
(183)
(8)
(164)
4.0%
60
(164)
(104)
0
199
767
311
1,173
(82)
136
(6)
0
(27)
3.4%
21
(27)
(6)
20
139
(7)
(6)
(40)
3.7%
106
(40)
66
(61)
134
(7)
0
(32)
3.4%
34
(32)
2
(345)
(4)
183
(7)
0
(96)
6.8%
76
(96)
(20)
(50)
(60)
141
(14)
0
(48)
5.7%
19
(46)
(27)
(989)
67
149
(21)
0
(71)
5.7%
124
(75)
49
(46)
(44)
149
(28)
0
(100)
9.5%
(23)
(60)
(83)
25
205
(36)
0
(120)
7.3%
75
(50)
25
(276)
3
(101)
(54)
(86)
204
(223)
(362)
248
44
222
99
(103)
(1,020)
189
(62)
130
104
662
(172)
0
(264)
5.0%
329
(240)
89
0
0
0
51
140
212
662
(261)
0
(278)
5.0%
335
(250)
85
9
55
(1)
57
(127)
592
(26)
(6)
(195)
4.6%
238
(195)
43
(395)
12
406
(235)
(169)
Balance Sheet
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
1,642
5,876
5,837
5,857
4,195
(1,173)
1,245
5,837
5,383
5,610
4,138
(57)
1,171
5,383
5,395
5,389
4,224
86
838
5,395
5,424
5,410
4,586
362
1,113
5,424
5,477
5,451
4,364
(222)
1,113
5,837
5,477
5,657
4,364
169
154
5,477
5,538
5,508
5,384
1,020
6,189
6,135
6,029
6,096
6,303
6,303
Debt/Cap
TTM EBITDA
49%
$9.88
839
379
47%
$9.47
791
388
47%
$9.22
785
388
47%
$9.31
812
382
46%
$9.46
828
383
46%
$9.46
828
383
7.0x
5.0x
2.2x
6.8x
5.2x
2.0x
6.9x
5.4x
2.0x
6.7x
5.6x
2.1x
6.6x
5.3x
2.2x
6.6x
5.3x
2.2x
Long Term Debt BOP
Long Term Debt EOP
Net Debt
chg. in Net Debt
Gross Debt/EBITDA
Net Debt/EBITDA
Interest Coverage
93
(251)
(12)
644
(98)
0
(339)
7.1%
195
(231)
(36)
(1,311)
42
422
(165)
(1,048)
3Q11E
4Q11E
2011E
2012E
2013E
634
5,538
5,888
5,713
5,254
(130)
536
5,888
5,697
5,793
5,161
(93)
451
5,697
5,863
5,780
5,412
251
451
5,477
5,863
5,670
5,412
1,048
584
5,863
5,856
5,860
5,272
(140)
669
5,856
5,856
5,856
5,187
(85)
6,353
6,614
6,542
6,531
6,531
6,463
6,414
47%
$9.38
846
369
47%
$9.63
909
376
47%
$9.24
952
373
47%
$9.10
1,029
374
47%
$9.10
1,029
374
48%
$9.00
1,181
390
48%
$8.93
1,295
389
6.5x
6.4x
2.3x
6.5x
5.8x
2.4x
6.0x
5.4x
2.6x
5.7x
5.3x
2.8x
5.7x
5.3x
2.8x
5.0x
4.5x
3.0x
4.5x
4.0x
3.3x
42
134
85
Page 258
20 September 2011
Figure 424: Debt Profile ($ in MM)
Debt Profile
2009
Quarter End
Days in Quarter
1Q10
2Q10
3Q10
4Q10
3/26/10
85
6/18/10
84
9/10/10
84
12/31/10
112
2010
1Q11
2Q11
3Q11E
4Q11E
3/25/11
84
6/17/11
84
9/9/11
84
12/31/11
113
Grand Hyatt Mortgage Note
Average Outstanding
Interest Rate
Interest Expense
166
166
8.00%
3
2011E
2012E
2013E
166
83
8.00%
3
166
166
8.00%
13
166
166
8.00%
13
365
Series K Notes due 11/2013
Average Outstanding
Interest Rate
Interest Expense
725
725
7.13%
52
725
725
7.13%
13
725
725
7.13%
13
500
613
7.13%
11
250
375
7.13%
7
250
488
7.13%
43
250
250
7.13%
4
Series O Notes due 3/2015
Average Outstanding
Interest Rate
Interest Expense
650
650
6.38%
41
650
650
6.38%
10
650
650
6.38%
10
650
650
6.38%
10
650
650
6.38%
10
650
650
6.38%
41
650
650
6.38%
10
650
650
6.38%
10
650
650
6.38%
10
650
650
6.38%
13
650
650
6.38%
41
650
650
6.38%
41
650
650
6.38%
41
Series Q Notes due 6/2016
Average Outstanding
Interest Rate
Interest Expense
800
800
6.75%
54
800
800
6.75%
14
800
800
6.75%
14
800
800
6.75%
14
800
800
6.75%
14
800
800
6.75%
54
800
800
6.75%
12
800
800
6.75%
12
800
800
6.75%
12
800
800
6.75%
17
800
800
6.75%
54
800
800
6.75%
54
800
800
6.75%
54
Series S Notes due 11/2014
Average Outstanding
Interest Rate
Interest Expense
498
498
6.88%
34
498
498
6.88%
9
498
498
6.88%
9
498
498
6.88%
9
498
498
6.88%
9
498
498
6.88%
34
498
498
6.88%
8
498
498
6.88%
8
498
498
6.88%
8
498
498
6.88%
11
498
498
6.88%
34
498
498
6.88%
34
498
498
6.88%
34
Series T Notes due 5/2017
Average Outstanding
Interest Rate
Interest Expense
387
194
9.00%
22
387
387
9.00%
9
388
388
9.00%
9
388
388
9.00%
9
388
388
9.00%
9
388
388
9.00%
35
389
389
9.00%
8
389
389
9.00%
8
389
389
9.00%
8
389
389
9.00%
11
389
389
9.00%
35
389
389
9.00%
35
389
389
9.00%
35
500
250
6.00%
4
500
250
6.00%
4
500
500
6.00%
7
500
500
6.00%
7
500
500
6.00%
7
500
500
6.00%
9
500
500
6.00%
30
500
500
6.00%
30
500
500
6.00%
30
496
248
6.00%
3
496
496
6.00%
7
496
496
6.00%
9
496
248
6.00%
19
496
496
6.00%
30
496
496
6.00%
30
Series V Notes due 11/2020
Average Outstanding
Interest Rate
Interest Expense
Series W Notes due 6/2019
Average Outstanding
Interest Rate
Interest Expense
7.13%
4
Series M Notes due 8/2012
Average Outstanding
Interest Rate
Interest Expense
344
346
7.00%
24
3.25% Exchangeable Senior Debentures due 4/2024
Average Outstanding
Interest Rate
Interest Expense
323
353
6.80%
22
325
324
6.80%
6
325
325
6.80%
6
325
325
6.80%
6
325
325
6.80%
6
325
324
6.80%
22
325
325
6.80%
5
325
325
6.80%
5
175
250
6.80%
4
175
175
6.80%
4
175
250
6.80%
18
175
175
6.80%
12
175
175
6.80%
12
Average Outstanding
Interest Rate
Interest Expense
484
509
6.50%
34
488
486
6.50%
8
492
490
6.50%
8
496
494
6.50%
8
502
499
6.50%
8
502
493
6.50%
32
506
504
6.50%
8
511
509
6.50%
8
511
511
6.50%
8
511
511
6.50%
10
511
507
6.50%
33
511
511
6.50%
33
511
511
6.50%
33
Average Outstanding
Interest Rate
Interest Expense
316
158
6.90%
3
319
318
6.90%
5
322
321
6.90%
6
325
324
6.90%
6
329
327
6.90%
6
329
323
6.90%
22
332
331
6.90%
5
334
333
6.90%
5
334
334
6.90%
5
334
334
6.90%
7
334
332
6.90%
23
334
334
6.90%
23
334
334
6.90%
23
7
7
10.00%
1
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
1
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
0
7
7
10.00%
1
0
4
10.00%
0
0
57
29
1.50%
0
58
58
1.50%
0
58
29
1.50%
0
162
110
1.90%
0
162
162
1.90%
1
121
142
1.90%
1
121
121
1.90%
1
121
90
1.90%
3
121
121
1.90%
2
121
121
1.90%
2
Senior Notes due 5/12
Average Outstanding
Interest Rate
Interest Expense
Credit Facility due 9/11
Average Outstanding
Interest Rate
Interest Expense
Non Recourse Mortgage Debt
Average Outstanding
Interest Rate
Interest Expense
1,217
1,327
5.63%
79
1,098
1,158
6.10%
18
1,102
1,100
6.85%
19
1,270
1,186
5.85%
17
1,025
1,148
5.20%
15
1,025
1,121
6.00%
69
973
999
5.20%
12
1,068
1,021
6.50%
15
1,068
1,068
6.50%
16
1,068
1,068
6.50%
21
1,068
1,047
6.18%
65
1,068
1,068
6.50%
69
1,068
1,068
6.50%
69
Other
Average Outstanding
Interest Rate
Interest Expense
86
292
7.40%
22
86
86
7.40%
2
86
86
7.40%
2
108
97
7.40%
2
145
127
7.40%
2
145
116
7.40%
7
146
146
7.40%
2
148
147
7.40%
3
148
148
7.40%
3
148
148
7.40%
3
148
147
7.40%
11
148
148
7.40%
11
148
148
7.40%
11
Total Notes
Total Mortgage and Other
4,534
1,303
5,837
6.49%
4,199
1,184
5,383
7.13%
4,207
1,188
5,395
6.08%
4,046
1,378
5,424
6.56%
4,307
1,170
5,477
8.47%
4,307
1,170
5,477
6.99%
4,419
1,119
5,538
5.92%
4,672
1,216
5,888
6.05%
4,481
1,216
5,697
6.04%
4,647
1,216
5,863
7.98%
4,647
1,216
5,863
6.38%
4,640
1,216
5,856
6.66%
4,640
1,216
5,856
6.64%
Page 259
20 September 2011
Figure 425: Comparable Hotel Driver Model
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11
3Q11E
4Q11E
111
109
(1)
60,484
(308)
87.0
108
(1)
59,124
(1,360)
87.1
108
0
59,125
1
116.0
108
59,125
107
0
58,561
3
87.1
107
0
58,561
107
0
58,561
2011E
2012E
2013E
Comparable Hotels
Number of Comparable Hotels
sequential chg.
Number of Comparable Rooms
sequential chg.
Days in Period
61,168
364.3
110
(1)
60,792
(376)
74.4
364.4
107
(1)
58,558
(567)
74.5
87.1
116.0
364.6
365.0
368.7
Comparable ADR
yoy % chg.
$171.61
-13.5%
$166.66
-8.7%
$175.47
-0.7%
$161.80
4.5%
$179.56
2.8%
$171.43
0.1%
$174.34
4.8%
$184.31
5.0%
$166.65
3.0%
$186.74
4.0%
4.2%
4.5%
5.5%
Comparable Occupancy
yoy % chg.
chg. in bps
66.2%
-7.5%
(540)
65.5%
7.0%
430
73.8%
8.8%
600
73.3%
4.1%
290
67.8%
3.2%
210
70.2%
5.7%
380
66.4%
0.6%
40
75.2%
1.5%
110
75.5%
3.0%
220
69.2%
2.0%
136
1.8%
0.8%
0.7%
Comparable RevPAR
yoy % chg.
$113.68
-19.9%
$109.18
-2.3%
$129.44
8.1%
$118.66
8.8%
$121.78
6.2%
$120.26
5.8%
$115.79
5.4%
$138.66
6.7%
$123.89
6.1%
$127.18
6.1%
$126.81
6.1%
$133.53
5.3%
$141.86
6.2%
6.0%
12.1%
5.2%
9.5%
5.2%
10.5%
2,708
6.1%
2,553
1,324
30.8%
2,854
5.4%
3,063
7.3%
1,337
29.9%
1,364
29.0%
Actual/DB Forecast Upper Upscale RevPAR
Actual/DB Forecast Luxury RevPAR
-17.2%
-23.2%
5.9%
9.0%
Comparable Hotel Room Revenues
yoy % chg.
Prior Year Comparable Room Revenue
Comparable F&B Revenues
% of Hotel Revenue
F&B Margin
Comparable Other Revenues
% of Hotel Revenue
Comparable F&B and Other Revenues
yoy % chg.
Prior Year Comparable F&B and Other Revenue
2,533
-20.0%
3,166
1,266
30.7%
24.4%
321
7.8%
1,587
-18.7%
1,953
494
-2.2%
505
260
32.0%
681
8.1%
630
351
31.7%
611
8.7%
562
252
27.2%
835
6.2%
786
433
32.0%
59
7.3%
319
-6.5%
341
74
6.7%
425
3.4%
411
62
6.7%
314
3.6%
303
Comparable Hotel Revenue
yoy % chg.
Prior Year Comparable Revenue
4,120
-19.5%
5,119
813
-3.9%
846
1,106
6.2%
1,041
Comparable Hotel Room Expenses
yoy % chg.
Prior Year Comparable Room Expenses
Comparable F&B Expenses
Comparable Other Expenses
Comparable F&B and Other Expenses
yoy % chg.
Prior Year Comparable F&B and Other Expenses
694
-10.9%
779
957
160
1,117
-17.4%
1,353
142
5.2%
135
192
31
223
-2.6%
229
Mgmt Fees, Ground Rent, and Other Expenses
yoy % chg.
Prior Year Comparable Mgmt Fees, Rent, and Other
1,438
-12.3%
1,639
Comparable Hotel Expenses
yoy % chg.
Prior Year Comparable Expenses
505
5.4%
479
268
32.4%
707
6.6%
663
359
31.6%
85
6.3%
518
3.8%
499
2,591
5.8%
2,448
1,285
31.0%
25.5%
273
6.6%
1,558
1.6%
1,534
53
6.4%
321
3.5%
310
925
6.9%
865
1,353
5.3%
1,285
4,149
4.2%
3,982
180
9.1%
165
245
41
286
5.1%
272
175
6.1%
165
211
37
248
3.8%
239
228
5.6%
216
318
49
367
3.1%
356
291
-1.4%
295
367
5.8%
347
341
5.6%
323
3,249
-13.8%
3,771
656
-0.5%
659
833
6.3%
784
Comparable Hotel Margin
chg. in bps
Flow through
Prior Year Comparable Margin
21.1%
(519)
47.7%
26.3%
19.3%
(279)
90.9%
22.1%
Comparable Operating Profit
yoy % chg.
Seasonality
Prior Year Operating Profit
871
-35.4%
101%
1,348
157
-16.0%
18%
187
58,561
632
864
260
27.2%
437
31.5%
71
6.2%
430
3.9%
414
64
6.7%
323
3.0%
86
6.2%
523
1.0%
274
6.4%
1,598
276
6.2%
1,614
1.0%
282
6.0%
1,646
2.0%
826
4.7%
789
1,137
5.6%
1,077
955
1,387
4,305
4,468
3.8%
4,709
5.4%
717
6.4%
674
957
156
1,113
2.7%
1,084
144
5.9%
136
198
30
228
5.6%
216
187
6.3%
176
252
40
292
4.7%
279
456
3.6%
440
1,437
3.7%
1,386
294
3.9%
283
365
2.2%
357
764
5.1%
727
1,051
3.9%
1,012
3,267
3.9%
3,144
666
4.9%
635
844
3.9%
812
773
1,057
3,339
3,411
2.2%
3,560
4.4%
24.7%
(0)
24.6%
24.7%
17.4%
145
38.3%
16.0%
22.3%
108
42.6%
21.2%
21.3%
21
26.3%
21.0%
19.4%
(15)
16.2%
19.5%
25.8%
116
46.7%
24.6%
19.1%
170
N/A
23.8%
150
N/A
22.4%
118
41.8%
23.6%
55.6%
24.4%
75
38.3%
273
6.2%
31%
257
161
16.7%
18%
138
302
10.6%
34%
273
882
5.3%
101%
838
160
3.9%
17%
154
293
10.6%
30%
265
183
330
966
1,056
1,149
19%
34%
100%
100%
15
16
16
16
115
44
121
105
260
530
861
905
34
22
44
45
58
204
100%
23.6%
658
24.3%
685
Non-Comparable Hotels
Non-Comparable Hotels
Non-Comparable Rooms
Non-Comparable Hotel Revenues
Grand Hyatt DC
New York Helmsley
Manchester Grand Hyatt
San Diego Marriott Marina
Other hotels
Non-Comparable Hotels Operating Profit
Seasonality
Non-Comparable Hotel Margin
Non-Comparable Hotel Expenses
0
0
0
0
4
5
0
0
34
81
0
0
0
16
23
39
9
30
29
65
133
0
47.1%
18
28.4%
58
33.9%
76
20.5%
35
24.8%
91
28.0%
76
25.0%
195
25.2%
397
220
Page 260
20 September 2011
Appendix: HST in Charts and Graphs
Figure 426: Hotels by Chain Scale Segment
Figure 427: Rooms by Chain Scale Segment
Upscale
2%
Upscale
5%
Midscale
3%
Upper Upscale
73%
Midscale
1%
Upper Upscale
83%
Independent
1%
Luxury
14%
Luxury
18%
Figure 428: Hotels by Brand Parent
Figure 429: Rooms by Brand Parent
Other
2%
Starwood
20%
Starwood
22%
Accor
6%
Fairmont
1%
Other
1%
Fairmont
2%
Four Seasons
2%
Hilton
2%
Marriott
61%
Independent
0%
Hyatt
8%
Marriott
63%
Accor
2%
Four Seasons
1%
Hilton
1%
Hyatt
6%
Figure 430: Hotels by Room Count
Figure 431: Rooms by Number of Rooms at Each Hotel
45
18,000
42
14,991
14,000
35
28
30
12,000
25
10,015
10,000
25
20
8,000
15
6,000
10
16,542
16,000
40
8
6
8
5
2,000
0
0
200 - 299 300 - 499 500 - 749 750 - 999
1000 1499
1500 2500
8,993
6,510
4,000
5
0 - 199
7,380
873
0 - 199
200 - 299 300 - 499 500 - 749 750 - 999
1000 1499
1500 2500
Page 261
20 September 2011
Figure 432: Hotels by Brand
Hyatt
1%
Westin
11%
Sheraton
6%
JW
Marriott
5%
Hyatt Regency
4%
W Hotel
2%
Swissotel
1%
Embassy Suites
1%
Ritz-Carlton
7%
Fairmont
1%
Grand
Other Hyatt
1%
Four 2%
Seasons
Courtyard
2%
2%
Residence Inn
1%
Marriott
48%
Novotel
3%
Hilton
2%
Ibis
2%
St. Regis
1%
Figure 433: Rooms by Brand
Hyatt
2%
JW Marriott
5%
Westin
11%
Hyatt
Regency
5%
Ritz-Carlton
5%
W Hotel
2%
Swissotel
1%
Embassy Suites
1%
Fairmont
1%
Sheraton
9%
Grand
Hyatt
1%
Other
1%
Four Seasons
Courtyard
1%
1%
Residence Inn
0%
Novotel
1%
Marriott
53%
St. Regis
0%
Hilton
1%
Ibis
1%
Page 262
20 September 2011
Figure 434: Host Hotels Portfolio
Initial Costs
12/31/2010
Hotel
Orlando World Center Marriott
Resort & Convention Center
New York Marriott Marquis Times
Square
Sheraton New York Hotel & Towers
Atlanta Marriott Marquis
Manchester Hyatt
San Francisco Marriott Marquis
Philadelphia Marriott Downtown
San Diego Marriott Hotel & Marina
New Orleans Marriott
Sheraton Boston Hotel
Boston Marriott Copley Place
Sheraton San Diego Hotel & Marina
San Antonio Marriott Rivercenter
The Westin South Coast Plaza
JW Marriott Desert Springs Resort &
Spa
Hyatt Regency Washington on Capitol
Hill
Hyatt Regency Maui Resort & Spa on
Kaanapali Beach
Hyatt Regency San Francisco,
Burlingame
Helmsley Hotel New York City
JW Marriott Washington, DC
Santa Clara Marriott
The Westin Mission Hills Resort & Spa
The Westin Los Angeles Airport
Tampa Marriott Waterside Hotel &
Marina
San Francisco Airport Marriott
W New York
Chicago Marriott O’Hare
Swissôtel Chicago
Harbor Beach Marriott Resort & Spa
Denver Marriott Tech Center Hotel
Memphis Marriott Downtown
Miami Marriott Biscayne Bay
Newark Liberty International Airport
Marriott
Minneapolis Marriott City Center
Key Bridge Marriott
The Westin Kierland Resort & Spa
Houston Airport Marriott
Sheraton Indianapolis Hotel & Suites
Dallas/Addison Marriott Quorum by
the Galleria
Newport Beach Marriott Hotel & Spa
Hyatt Regency Reston
The Ritz-Carlton, Marina del Rey
JW Marriott Hotel Houston
San Antonio Marriott Riverwalk
The Westin Seattle
Portland Marriott Downtown
Waterfront
New York Marriott Downtown
Hyatt Regency Cambridge
Toronto Marriott Downtown Eaton
Centre
Marriott at Metro Centre
Seattle Airport Marriott
The Westin Cincinnati
Embassy Suites Chicago Downtown/Lakefront
The Fairmont Kea Lani Maui
The Ritz-Carlton, Naples Golf Resort
The Ritz-Carlton, Buckhead
Grand Hyatt Atlanta in Buckhead
The Westin Georgetown, Washington,
D.C.
The Westin Chicago River North
Toronto Marriott Airport
12/31/2010 12/31/2010
Year
12/31/2010 12/31/2010 12/31/2010
Debt
Land
Land
Buildings &
Improvements
Rooms
Location
246
18
157
319
29
465
494
247,000
147
1997
2,000
Florida
346
13
552
409
184
132
36
159
346
16
684
445
340
90
66
227
106
32
49
23
72
8
368
202
429
202
294
252
351
158
55
350,949
450,456
214,071
333,538
245,497
151,278
315,441
164,033
275,410
220,087
333,333
157,842
61,728
410
60
92
278
144
202
96
262
203
328
86
47
684
791
356
542
368
213
429
218
336
252
351
158
55
173
78
136
85
37
64
43
56
15
1986
2006
1998
2011
1989
1995
1996
1996
2006
2002
2006
1996
2006
1,949
1,756
1,663
1,625
1,499
1,408
1,360
1,329
1,220
1,145
1,053
1,001
891
New York
New York
Georgia
California
California
Pennsylvania
California
Louisiana
Massachusetts
Massachusetts
California
Texas
Washington
13
143
110
14
252
266
300,905
89
1997
884
California
40
230
17
40
247
287
344,125
35
2006
834
Washington, D.C.
3
16
42
117
16
42
Construction
Completed Acquired
92
212
26
92
238
330
409,429
47
2003
806
Hawaii
119
49
20
164
98
39
41
53
26
139
92
233,207
404,516
213,731
121,212
53
26
184
313.5
165
92
46
63
1998
2011
2003
1989
789
775
772
759
California
New York
Washington, D.C.
California
38
49
102
12
14
38
61
116
99
116
133,784
158,470
9
15
2006
2006
740
732
California
Arizona
11
138
4
29
48
102
26
132
62
26
16
27
106
37
34
38
73
99
26
34
27
11
12
138
4
30
95
84
136
64
204
161
52
50
54
106
96
274
68
234
161
58
50
54
147,427
140,146
400,000
99,853
354,009
247,692
92,357
83,333
90,000
27
37
21
48
52
63
22
21
21
1994
2006
1998
1998
1997
1994
1998
1998
719
685
685
681
661
650
628
600
600
Florida
California
New York
Ilinois
Ilinois
Florida
Colorado
Tennessee
Florida
30
27
38
280
10
51
4
39
31
6
37
1
34
66
69
286
47
52
34
66
69
386
47
55
57,530
113,208
118,557
673,647
83,186
98,214
20
39
53
32
37
6
1984
1986
1997
2006
1984
2006
591
583
582
573
565
560
New Jersey
Minnesota
Virginia
Indiana
Texas
Indiana
18
112
17
23
22
17
2
14
11
12
39
27
13
78
52
26
45
175
39
45
125
94
75
46
62
177
59
136
106
75
52
62
216
107,861
255,639
204,633
145,068
100,971
121,094
421,875
21
60
31
32
24
25
21
1994
1975
1998
1997
1994
1995
2006
547
532
518
517
515
512
512
Texas
California
Virginia
Georgia
Texas
Texas
California
6
19
18
40
79
84
20
39
4
6
19
19
60
118
87
66
137
106
131,213
275,654
225,532
26
47
34
1994
1997
1998
503
497
470
Oregon
New York
Massachusetts
20
3
27
24
42
54
16
18
15
9
20
3
43
42
57
63
43
62
60
63
93,275
135,076
130,719
138,158
18
19
29
9
1995
1994
1998
2006
461
459
459
456
Canada
Washington, D.C.
Washington
Ohio
86
294
55
6
15
8
92
310
66
138
109
92
365
72
153
117
202,198
811,111
160,000
344,595
266,515
16
53
15
53
35
2004
2003
81
88
6
16
66
58
21
1996
1998
455
450
450
444
439
Ilinois
Hawaii
Florida
Florida
Georgia
80
116
24
10
0
15
16
33
5
90
116
39
106
149
44
246,512
351,415
103,774
13
1
17
2006
2010
1996
430
424
424
Colorado
Ilinois
Canada
6
100
3
14
11
11
4
37
55
6
14
8
24
11
Total
Total Cost Accumulated
per Key Depreciation
16
134
104
Capitalized
Costs
12/31/2010
Buildings &
Improvements
16
33
5
6
100
3
6
2000
2002
Page 263
20 September 2011
Figure 435: Host Hotel Portfolio Continued
Initial Costs
12/31/2010
Hotel
W Seattle
Philadelphia Airport Marriott
Atlanta Marriott Perimeter Center
Dayton Marriott
The Ritz-Carlton, Tysons Corner
The Westin Tabor Center
Houston Marriott at the Texas Medical
Center
Manhattan Beach Marriott
Calgary Marriott
Kansas City Airport Marriott
Sheraton Santiago Hotel & Convention
Center
Delta Meadowvale Resort &
Conference Center
JW Marriott Hotel Buckhead Atlanta
Marina del Rey Marriott
Sheraton Parsippany Hotel
San Ramon Marriott
Washington Dulles Airport Marriott
The Westin Buckhead Atlanta
Four Seasons Hotel Philadelphia
San Diego Marriott Mission Valley
The Westin Waltham-Boston
Chicago Downtown Courtyard River
North
The Ritz-Carlton, San Francisco
Westfields Marriott Washington Dulles
JW Marriott Mexico City
Denver Marriott West
The Ritz-Carlton, Naples
Coronado Island Marriott Resort
Debt
Capitalized
Costs
1
8
33
8
14
7
7
5
19
29
18
8
17
14
14
22
19
11
(1
33
4
16
5
26
4
9
20
21
13
30
22
3
84
60
23
59
18
17
23
6
17
34
21
20
10
7
7
31
27
123
7
11
36
50
32
30
36
50
37
30
93,264
129,870
96,354
78,125
17
22
16
25
21
8
29
76,517
4
16
6
27
4
9
38
38
36
36
39
37
104
79
33
66
42
54
36
44
39
37
110
106
37
75
11
20
7
31
38
143
32
35
12
126
53
15
7
10
94
24
7
10
29
6
6
19
8
9
115
20
8
10
17
53
10
6
20
17
7
10
22
63
8
7
19
6
25
Land
11
8
48
11
5
48
145
100
36
26
3
2
6
3
5
3
13
5
3
6
14
14
18
17
27
14
29
48
20
33
5
8
6
5
3
6
1
18
7
11
3
10
11
7
6
8
Total Cost Accumulated
per Key Depreciation
323,113
15
119,332
19
100,000
19
100,251
12
258,794
37
246,154
12
Year
Construction
Completed Acquired
2006
1995
1976
1998
1998
2006
Rooms
424
419
400
399
398
390
Location
Washington
Pennsylvania
Georgia
Ohio
Virginia
California
1998
1997
1996
1993
386
385
384
384
Texas
California
Canada
Missouri
2
2006
379
Chile
112,299
145,553
97,297
118,919
105,978
100,543
301,370
291,209
105,714
216,763
19
22
15
5
15
29
34
28
14
9
1996
1990
1995
2006
1996
1970
1998
1998
1998
2006
374
371
370
370
368
368
365
364
350
346
Canada
Georgia
California
New Jersey
California
Virginia
Georgia
Pennsylvania
California
Massachusetts
45
174
133,531
517,857
17
49
1992
1998
337
336
Ilinois
California
47
43
22
218
77
54
53
22
239
77
160,714
169,872
72,131
786,184
256,667
20
28
13
97
28
1994
1996
1983
1996
1997
336
312
305
304
300
Virginia
Mexico
Colorado
California
California
35
41
137,124
14
1996
299
Virginia
27
18
26
168
30
27
18
26
193
30
90,301
60,403
87,838
654,237
103,806
13
9
20
53
11
1983
1981
2000
1998
1987
299
298
296
295
289
North Carolina
Indiana
Florida
Florida
New Jersey
6
37
43
150,877
18
1994
285
California
7
10
30
70
37
80
12
24
114
130,282
284,698
0
417,582
1993
1998
2011
2011
284
281
273
273
Maryland
Arizona
New Zealand
Australia
15
2
5
8
21
25
86
Hilton Singer Island Oceanfront Resort
ibis Wellington
12/31/2010 12/31/2010 12/31/2010
Total
137
50
40
40
103
96
8
208
12/31/2010
Buildings &
Improvements
126
50
25
38
103
96
37
Arlington Pentagon City Residence Inn
Greensboro-Highpoint Marriott Airport
South Bend Marriott
Tampa Airport Marriott
The Ritz-Carlton, Amelia Island
Park Ridge Marriott
San Francisco Marriott Fisherman’s
Wharf
Gaithersburg Marriott Washingtonian
Center
The Ritz-Carlton, Phoenix
Novotel Queenstown Lakeside
Hilton Melbourne South Warf
Scottsdale Marriott at McDowell
Mountains
W New York – Union Square
The Westin Indianapolis
Chicago Marriott Suites O’Hare
Atlanta Marriott Suites Midtown
Chicago Marriott Suites Downers
Grove
Newport Beach Marriott Bayview
Costa Mesa Marriott
Hartford Marriott Rocky Hill
Sheraton Needham Hotel
Courtyard Nashua
JW Marriott Rio de Janeiro
Four Seasons Hotel Atlanta
Scottsdale Marriott Suites Old Town
St. Regis Hotel, Houston
Buildings &
Improvements
125
42
7
30
89
89
Land
11
2
35
12/31/2010 12/31/2010
8
48
12
5
51
145
106
42
34
59
193
118
47
34
218,519
714,815
441,948
183,594
133,858
8
1
14
14
13
2004
2010
2006
1997
1996
270
270
267
256
254
Arizona
New York
Washington, D.C.
Ilinois
Georgia
2
6
3
5
3
13
6
3
6
19
22
24
22
30
20
30
65
27
44
21
28
27
22
35
23
43
71
30
50
82,677
110,236
106,719
87,649
141,700
93,878
175,510
290,984
123,457
215,517
8
9
10
11
4
12
0
22
10
7
1989
1975
1996
1991
1986
1989
2010
1998
1988
2006
254
254
253
251
247
245
245
244
243
232
Ilinois
California
California
Connecticut
Massachusetts
New Hampshire
Brazil
Georgia
Arizona
Texas
2
22
24
107,623
12
1986
2011
223
200
Florida
New Zealand
2011
2011
2011
2006
2011
2011
193
155
147
139
139
100
65,304
New Zealand
New Zealand
New Zealand
Chile
New Zealand
New Zealand
Novotel Christchurch Cathedral Square
ibis Christchurch
Novotel Auckland Ellerslie*
145
San Cristobal Tower, Santiago
7
15
3
8
17
25
Novotel Wellington
ibis Ellerslie
Total
1,061
1,609
8,479
3,493
1,669
11,911
14,695
*New Zealand hotels were purchased as a portfolio in 1Q2011. Portfolio cost and per key value are show with Novotel Auckland
120,133
179,856
2
225,017
3,820
Page 264
20 September 2011
Figure 436: HST Comparable RevPAR Growth Versus
STR Upper Upscale Segment
Figure 437: HST Comparable RevPAR Growth and
Relative Performance Versus STR Upper Upscale
200
15.0%
0.997 Correl ation Since 2004
15.0%
150
10.0%
10.0%
100
5.0%
5.0%
50
0.0%
0.0%
0
-5.0%
(50)
-5.0%
-10.0%
(100)
-10.0%
(150)
-15.0%
-15.0%
(200)
-20.0%
-20.0%
(250)
-25.0%
-25.0%
HST Comparable RevPAR Growth
HST Outperformance in bps (Left)
2010
2009
2008
2007
2006
2005
2004
2010
2009
2008
2007
2006
2005
2004
(300)
HST Comparable RevPAR Growth (Right)
Figure 438: Comparable RevPAR Growth and
Figure 439: Share of RevPAR Growth from ADR growth
Comparable Hotel Operating Margins
and HST Hotel EBITDA Flow Through
15.0%
28%
15.0%
90%
10.0%
27%
10.0%
80%
5.0%
26%
5.0%
0.0%
25%
-5.0%
24%
-10.0%
23%
-15.0%
22%
-20.0%
21%
-25.0%
20%
70%
0.0%
60%
-5.0%
50%
-10.0%
40%
HST Comparable Hotel Operating Margins (Right)
2010
2009
2008
20%
2007
-25.0%
2006
30%
2005
-20.0%
2004
2010
2009
2008
2007
2006
2005
2004
-15.0%
HST Hotel EBITDA Flow Through (Right)
Figure 440: Comparable Revenue and Expense Growth
Figure 441: Comparable Room Revenue and Room
Expense Growth
10.0%
15.0%
5.0%
10.0%
5.0%
0.0%
0.0%
-5.0%
-5.0%
-10.0%
-10.0%
-15.0%
Comparable Revenue Growth
Comparable Expense Growth
Comparable Room Revenue Growth
2010
2009
2008
2007
2006
2004
2010
2009
2008
2007
2006
2005
-25.0%
2004
-20.0%
-25.0%
2005
-15.0%
-20.0%
Comparable Room Expense Growth
Page 265
20 September 2011
Figure 442: Comparable F&B Margins
Figure 443: Comparable Revenue and Expenses for F&B
and Ancillary Segments
29.0%
10.0%
28.0%
5.0%
27.0%
0.0%
26.0%
-5.0%
25.0%
-10.0%
24.0%
-15.0%
23.0%
Page 266
2010
2009
2008
2007
2006
2005
2010
2009
2008
2007
2006
2005
2004
Comparable F&B Margin
2004
-20.0%
22.0%
Comparable F&B and Ancillary Revenue Growth
Comparable F&B and Ancillary Expense Growth
20 September 2011
Appendix
Lodging Industry Stock Returns
Figure 444: Monthly Share Price Returns
Month
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
β to S&P500
R^2
Total U.S.
Re vPAR
5.5%
6.7%
4.4%
6.5%
7.1%
5.2%
9.0%
5.4%
8.9%
5.3%
3.2%
3.8%
2.7%
-0.6%
3.9%
1.0%
-1.5%
0.3%
-0.6%
-3.1%
-7.3%
-13.2%
-10.2%
-15.8%
-17.2%
-20.0%
-19.4%
-20.4%
-18.5%
-15.6%
-19.0%
-15.8%
-13.9%
-12.2%
-7.9%
-7.6%
-3.8%
3.7%
3.2%
7.0%
7.8%
8.4%
8.1%
8.9%
8.3%
11.8%
7.4%
8.8%
7.8%
10.1%
7.9%
8.7%
7.9%
6.9%
-0.01
0.00
MAR
-0.5%
2.3%
-7.7%
1.9%
-5.9%
-3.9%
6.9%
-2.0%
-5.4%
-8.8%
-8.7%
5.2%
-5.2%
0.8%
0.0%
-4.1%
-20.0%
-1.3%
8.9%
-7.2%
-20.0%
-19.1%
15.8%
-16.1%
-13.2%
16.2%
44.0%
-0.8%
-5.2%
-2.4%
11.4%
15.4%
-9.2%
3.0%
5.9%
-3.7%
3.5%
16.3%
16.6%
-8.9%
-10.5%
13.3%
-5.6%
12.0%
3.4%
6.1%
5.9%
-4.9%
-0.5%
-9.3%
-0.8%
7.4%
-6.1%
-8.4%
-9.6%
1.46
0.50
HO T
5.1%
-1.4%
3.3%
7.5%
-6.9%
-6.1%
-2.9%
-0.6%
-6.4%
-5.6%
-16.3%
2.7%
4.6%
9.3%
0.9%
-7.3%
-17.2%
-14.4%
5.7%
-22.4%
-19.9%
-25.2%
12.1%
-15.5%
-23.3%
9.6%
64.3%
17.3%
-9.3%
6.4%
26.1%
10.9%
-12.0%
10.2%
14.8%
-8.9%
16.1%
20.5%
16.9%
-15.2%
-10.4%
16.9%
-3.6%
12.5%
3.0%
5.0%
7.5%
-3.0%
3.6%
-4.9%
2.5%
2.4%
-8.1%
-1.9%
-18.9%
2.01
0.54
HST
-0.7%
0.9%
-2.5%
-0.5%
-8.6%
-8.7%
5.5%
1.6%
-1.2%
-13.4%
-9.1%
-1.8%
-3.2%
-0.5%
8.0%
-0.1%
-19.4%
-4.0%
9.1%
-5.7%
-22.2%
-27.3%
1.4%
-28.9%
-31.2%
5.9%
96.2%
22.0%
-10.6%
8.2%
9.8%
18.1%
-14.1%
6.7%
10.9%
-9.2%
10.5%
25.2%
11.0%
-12.3%
-5.4%
6.4%
-8.2%
10.1%
9.7%
3.7%
8.5%
3.6%
-0.6%
-4.2%
1.0%
-1.2%
-3.4%
-6.5%
-25.4%
2.28
0.49
Total Return
WYN
GET
-2.7%
12.8%
-3.0%
-1.7%
1.3%
3.7%
7.5%
2.8%
-2.5%
-4.8%
-7.2%
-6.8%
-5.1%
2.7%
2.7%
3.6%
0.2%
2.4%
-11.0% -22.8%
-19.2% -3.8%
0.0%
-27.8%
-5.9%
2.9%
-6.6%
0.7%
-2.2%
3.9%
-4.1%
2.1%
-18.1% -15.7%
0.2%
25.4%
7.7%
15.3%
-18.5% -15.2%
-47.9% -27.1%
-41.0% -57.1%
37.0%
18.0%
-6.4%
-2.2%
-39.1% -38.1%
13.8%
27.0%
178.1% 67.3%
1.3%
1.9%
-10.5%
2.8%
15.1%
12.3%
8.9%
42.4%
-1.1%
7.7%
-25.2%
4.5%
9.1%
17.1%
8.6%
12.2%
-2.6%
4.1%
9.5%
17.0%
12.5%
30.1%
4.2%
15.2%
-11.5% -21.2%
-14.7% -16.9%
26.8%
31.2%
-8.7%
-9.8%
18.5%
16.6%
4.7%
9.3%
0.4%
3.0%
4.2%
4.7%
-6.1%
-7.2%
11.2%
8.1%
-3.7%
2.2%
8.8%
3.4%
-10.1%
1.0%
-3.3%
-7.0%
-2.2%
2.8%
-5.6% -14.3%
3.13
2.74
0.36
0.56
O EH
8.4%
15.9%
-11.9%
1.7%
-0.3%
-13.0%
7.8%
2.4%
26.4%
-4.5%
-7.1%
-9.8%
4.5%
-20.3%
7.9%
1.1%
-7.7%
-23.3%
7.8%
-32.8%
-48.9%
-44.3%
11.8%
-17.5%
-37.3%
3.5%
57.8%
10.0%
19.2%
4.2%
12.5%
15.6%
-25.3%
-2.8%
21.3%
-3.7%
17.1%
24.1%
-3.7%
-26.1%
-26.7%
23.1%
-5.2%
29.1%
13.5%
-8.6%
12.3%
-6.4%
3.8%
-2.0%
-0.8%
-4.7%
-8.0%
-8.0%
-20.7%
2.75
0.60
CHH
-11.4%
-5.5%
6.7%
7.1%
-2.0%
-8.1%
3.6%
0.5%
3.3%
-10.6%
-4.2%
0.8%
-2.5%
5.1%
1.6%
0.5%
-23.5%
-5.6%
8.6%
0.4%
1.6%
-8.2%
20.5%
-12.4%
-5.9%
4.3%
16.7%
-8.8%
-1.8%
4.7%
5.9%
5.9%
-4.0%
5.1%
1.6%
0.3%
4.1%
5.9%
4.3%
-8.3%
-8.8%
9.3%
-0.4%
11.5%
4.3%
-2.1%
3.2%
-0.9%
1.8%
1.1%
-3.8%
-4.7%
-5.9%
-8.6%
1.9%
0.82
0.35
Marke t Wt.
Index S&P 500
-2.2%
1.8%
0.8%
1.0%
-2.4%
4.3%
3.5%
3.3%
-5.9%
-1.8%
-6.7%
-3.2%
2.6%
1.3%
0.2%
3.6%
-1.6%
1.5%
-9.7%
-4.4%
-11.1%
-0.9%
-0.2%
-6.1%
-1.6%
-3.5%
-0.6%
0.2%
2.8%
4.8%
-2.8%
1.1%
-18.2%
-8.6%
-6.0%
-1.0%
8.3%
1.2%
-12.8%
-9.1%
-23.7% -16.9%
-25.3%
-7.5%
13.1%
0.8%
-17.5%
-8.6%
-21.1% -11.0%
11.6%
8.5%
61.3%
9.4%
6.8%
5.3%
-5.8%
0.0%
4.5%
7.4%
14.1%
3.4%
13.1%
3.6%
-10.4%
-2.0%
6.3%
5.7%
3.7%
8.7%
1.8%
-0.6%
-4.4%
-3.7%
12.9%
9.9%
2.9%
16.5% 18.5%
5.9%
5.7%
11.4%
1.5%
-1.7% -10.9%
-8.2%
-8.3% -10.0%
-5.4%
5.4%
12.9%
6.9%
-3.7%
-5.6%
-4.7%
-0.7% 10.9%
8.8%
7.8%
5.7%
3.7%
-0.2%
3.9%
3.7%
9.3%
7.1%
6.5%
-1.3%
6.2%
2.3%
-5.8%
1.0%
3.2%
-5.9%
-5.0%
-0.1%
3.0%
1.8%
2.8%
-1.4%
0.6%
1.5%
-8.4%
-6.1%
-1.8%
-5.0%
-4.8%
-2.1%
-8.5% -14.5%
-5.7%
0.92
1.87
1.00
0.35
0.60
1.00
H
Source: Deutsche Bank, Factset, Smith Travel Research
Page 267
20 September 2011
Operating Statistics
Figure 445: Total U.S. Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
2010-2011 YTD
Total U.S.
RevPAR
$33.20
$34.37
$36.26
$37.02
$36.09
$36.98
$38.33
$40.53
$42.63
$45.19
$47.44
$49.01
$50.39
$53.50
$49.91
$48.71
$48.92
$52.80
$57.35
$61.74
$65.52
$64.21
$53.51
$56.45
% Chg.
3.5%
5.5%
2.1%
-2.5%
2.5%
3.6%
5.8%
5.2%
6.0%
5.0%
3.3%
2.8%
6.2%
-6.7%
-2.4%
0.4%
7.9%
8.6%
7.7%
6.1%
-2.0%
-16.7%
5.5%
8.2%
Total U.S.
Occupancy % Chg.
63.5%
63.5%
64.4%
63.6%
62.0%
62.5%
63.3%
64.6%
64.8%
64.5%
64.0%
63.2%
62.8%
63.2%
59.7%
59.0%
59.2%
61.3%
63.0%
63.1%
62.8%
59.8%
54.5%
57.6%
0.0%
1.4%
-1.2%
-2.6%
0.9%
1.3%
1.9%
0.4%
-0.4%
-0.8%
-1.1%
-0.8%
0.7%
-5.5%
-1.1%
0.3%
3.5%
2.8%
0.2%
-0.5%
-4.8%
-8.8%
5.6%
4.6%
Total U.S.
ADR
$52.33
$54.16
$56.34
$58.20
$58.23
$59.14
$60.53
$62.79
$65.80
$70.06
$74.17
$77.50
$80.29
$84.67
$83.62
$82.54
$82.67
$86.19
$91.03
$97.81
$104.31
$107.38
$98.10
$98.05
% Chg.
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
S&P500
Return
3.5%
4.0%
3.3%
0.1%
1.6%
2.3%
3.7%
4.8%
6.5%
5.9%
4.5%
3.6%
5.5%
-1.2%
-1.3%
0.2%
4.3%
5.6%
7.4%
6.6%
2.9%
-8.6%
-0.1%
3.5%
4.7%
5.2%
2.3%
-0.8%
1.9%
2.0%
3.2%
2.0%
2.0%
2.6%
2.8%
3.1%
3.6%
-3.2%
0.4%
1.3%
4.0%
2.8%
0.4%
0.7%
-2.5%
-6.1%
7.5%
5.4%
4.6%
3.7%
3.5%
1.8%
1.0%
0.7%
1.3%
1.6%
2.4%
3.5%
4.0%
3.8%
2.9%
2.4%
1.6%
1.0%
0.4%
-0.1%
0.2%
1.2%
2.4%
2.9%
1.8%
0.8%
8.3%
9.4%
5.7%
-0.8%
3.5%
4.4%
7.1%
6.9%
8.6%
8.6%
7.4%
6.8%
9.2%
-4.4%
-0.9%
1.5%
8.4%
8.6%
7.9%
7.4%
0.4%
-14.2%
7.4%
9.1%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
12.4%
27.3%
-6.6%
26.3%
4.5%
7.1%
-1.5%
34.1%
20.3%
31.0%
26.7%
19.5%
-10.1%
-13.0%
-23.4%
26.4%
9.0%
3.0%
13.6%
3.5%
-38.5%
23.5%
12.8%
-3.3%
2.3%
-0.4%
2.8%
1.7%
2.1%
4.5%
2.5%
2.9%
7.3%
11.5%
-2.5%
48.2%
-8.9%
34.5%
-18.3%
14.2%
0.2%
-2.6%
1.9%
-6.6%
6.4%
-13.2%
10.4%
11.2%
0.1%
45.4%
-2.5%
26.4%
-5.9%
3.4%
12.6%
-0.8%
25.6%
-2.8%
9.5%
-8.5%
13.3%
12.4%
1.8%
23.2%
4.0%
2.9%
5.4%
2.6%
25.3%
-0.8%
82.6%
-5.3%
38.4%
-13.9%
17.1%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
33.6%
26.3%
216.5%
-33.4%
66.9%
-24.1%
9.0%
Page 268
20 September 2011
Figure 446: Luxury Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Luxury
RevPAR
$74.76
$80.44
$86.81
$90.08
$84.44
$90.13
$96.61
$107.78
$118.56
$128.09
$140.16
$149.34
$155.83
$170.30
$145.72
$139.30
$139.18
$153.84
$171.71
$191.20
$204.68
$193.53
$148.66
$162.00
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
% Chg.
7.6%
7.9%
3.8%
-6.3%
6.7%
7.2%
11.6%
10.0%
8.0%
9.4%
6.5%
4.3%
9.3%
-14.4%
-4.4%
-0.1%
10.5%
11.6%
11.3%
7.0%
-5.4%
-23.2%
9.0%
12.1%
Luxury
Occupancy
66.7%
67.7%
68.7%
67.1%
64.1%
66.4%
68.1%
70.8%
71.9%
72.9%
74.0%
73.2%
72.4%
73.2%
64.3%
63.9%
64.7%
68.0%
70.7%
71.8%
71.7%
67.6%
62.2%
66.5%
% Chg.
1.6%
1.4%
-2.3%
-4.5%
3.5%
2.6%
4.1%
1.5%
1.4%
1.6%
-1.1%
-1.1%
1.0%
-12.2%
-0.6%
1.3%
5.2%
3.9%
1.5%
-0.1%
-5.7%
-8.1%
7.0%
5.4%
Luxury
ADR
$112.12
$118.74
$126.37
$134.16
$131.72
$135.84
$141.90
$152.13
$164.93
$175.69
$189.31
$203.98
$215.13
$232.67
$226.67
$218.08
$215.13
$226.12
$242.86
$266.45
$285.60
$286.28
$239.19
$243.68
% Chg.
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
5.9%
6.4%
6.2%
-1.8%
3.1%
4.5%
7.2%
8.4%
6.5%
7.8%
7.8%
5.5%
8.2%
-2.6%
-3.8%
-1.4%
5.1%
7.4%
9.7%
7.2%
0.2%
-16.5%
1.9%
6.4%
11.2%
5.3%
3.7%
1.0%
6.0%
4.6%
4.0%
-1.7%
1.6%
3.7%
1.6%
6.0%
8.7%
-4.0%
9.8%
8.5%
8.4%
4.3%
6.4%
4.0%
0.2%
-0.3%
12.0%
7.5%
9.4%
3.9%
6.0%
5.8%
2.4%
2.0%
0.0%
-3.1%
0.2%
2.1%
2.8%
7.1%
7.6%
9.3%
10.5%
7.1%
3.1%
0.4%
4.9%
4.1%
6.2%
8.5%
4.7%
2.0%
17.8%
12.1%
10.0%
-0.8%
9.3%
9.3%
11.5%
6.6%
8.3%
11.8%
9.5%
11.8%
17.6%
-6.5%
5.6%
7.0%
13.9%
12.1%
16.8%
11.5%
0.4%
-16.7%
14.1%
14.4%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
3.4%
0.0%
3.4%
4.5%
4.5%
8.1%
2.5%
2.9%
20.5%
-6.3%
101.7%
-18.2%
46.9%
-27.4%
0.7%
-4.5%
14.2%
-12.7%
12.2%
-13.3%
19.7%
-1.8%
76.6%
-6.3%
31.0%
-16.3%
21.4%
1.0%
39.9%
5.4%
35.8%
-0.1%
20.6%
5.8%
22.5%
20.7%
21.0%
15.2%
45.3%
-0.8%
147.1%
-1.2%
77.8%
-16.3%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 269
20 September 2011
Figure 447: Upper Upscale Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
Upper Upscale
RevPAR
% Chg.
$53.22
$56.12
$60.05
$61.37
$59.63
$61.61
$64.68
$69.95
$74.77
$81.75
$87.86
$91.35
$94.09
$100.44
$88.14
$85.39
$83.65
$90.32
$99.01
$105.90
$111.89
$109.52
$90.70
$96.09
5.4%
7.0%
2.2%
-2.8%
3.3%
5.0%
8.2%
6.9%
9.3%
7.5%
4.0%
3.0%
6.7%
-12.2%
-3.1%
-2.0%
8.0%
9.6%
7.0%
5.7%
-2.1%
-17.2%
5.9%
6.7%
Upper Upscale
Occupancy % Chg.
65.6%
66.2%
67.8%
67.2%
65.7%
66.8%
68.7%
71.1%
71.7%
72.9%
73.1%
71.7%
71.1%
72.2%
65.3%
66.1%
66.3%
69.0%
70.7%
70.6%
70.5%
68.0%
63.2%
67.4%
0.9%
2.5%
-1.0%
-2.2%
1.7%
2.9%
3.5%
0.9%
1.5%
0.4%
-2.0%
-0.8%
1.5%
-9.5%
1.3%
0.3%
4.0%
2.5%
-0.1%
-0.2%
-3.5%
-7.0%
6.6%
2.7%
Upper Upscale
ADR
% Chg.
$81.18
$84.83
$88.51
$91.39
$90.80
$92.21
$94.10
$98.35
$104.22
$112.21
$120.13
$127.46
$132.38
$139.19
$135.01
$129.11
$126.14
$130.96
$140.02
$149.96
$158.69
$161.03
$143.44
$142.54
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
4.5%
4.3%
3.3%
-0.6%
1.6%
2.0%
4.5%
6.0%
7.7%
7.1%
6.1%
3.9%
5.1%
-3.0%
-4.4%
-2.3%
3.8%
6.9%
7.1%
5.8%
1.5%
-10.9%
-0.6%
3.8%
5.7%
6.2%
2.0%
-0.2%
3.0%
1.9%
1.9%
1.8%
3.4%
1.6%
2.1%
3.1%
5.1%
-5.7%
3.5%
2.6%
5.5%
2.0%
-1.3%
0.4%
-0.6%
-2.8%
8.2%
4.6%
4.7%
3.6%
3.0%
2.0%
1.3%
-0.9%
-1.6%
1.0%
1.8%
1.2%
4.2%
3.9%
3.5%
4.2%
2.2%
2.3%
1.4%
-0.5%
-1.2%
0.6%
3.1%
4.6%
1.5%
1.8%
10.4%
10.9%
5.3%
-0.8%
4.6%
4.0%
6.5%
7.9%
11.3%
8.8%
8.3%
7.0%
10.5%
-8.6%
-1.0%
0.2%
9.5%
9.0%
5.7%
6.2%
0.9%
-13.4%
7.5%
8.6%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
2.6%
0.1%
2.5%
2.1%
2.0%
4.6%
2.5%
2.9%
15.3%
-2.8%
68.4%
-15.0%
31.0%
-18.9%
2.4%
-2.2%
9.9%
-8.3%
6.6%
-10.3%
12.6%
-0.6%
53.3%
-7.2%
22.9%
-9.6%
14.5%
-0.2%
26.6%
-2.4%
9.3%
-3.3%
11.8%
2.0%
15.2%
6.5%
2.5%
7.8%
28.9%
-0.8%
94.0%
-9.5%
34.3%
-12.6%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 270
20 September 2011
Figure 448: Upscale Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Upscale
RevPAR
$39.72
$41.92
$45.31
$46.67
$47.11
$49.81
$51.88
$55.42
$58.44
$63.04
$66.64
$67.84
$67.80
$71.48
$65.74
$62.71
$61.85
$67.10
$73.62
$80.29
$84.53
$82.69
$68.01
$71.40
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
% Chg.
5.5%
8.1%
3.0%
1.0%
5.7%
4.1%
6.8%
5.4%
7.9%
5.7%
1.8%
0.0%
5.4%
-8.0%
-4.6%
-1.4%
8.5%
9.7%
9.1%
5.3%
-2.2%
-17.8%
5.0%
8.0%
Upscale
Occupancy
63.8%
64.5%
66.1%
65.9%
66.0%
69.1%
70.6%
72.6%
72.5%
73.1%
72.7%
71.4%
69.9%
70.6%
65.4%
65.3%
65.7%
68.7%
70.3%
70.3%
69.7%
67.1%
62.0%
66.3%
% Chg.
1.2%
2.4%
-0.3%
0.3%
4.6%
2.2%
2.8%
-0.1%
0.9%
-0.7%
-1.8%
-2.1%
1.0%
-7.4%
-0.1%
0.6%
4.7%
2.3%
0.0%
-0.9%
-3.6%
-7.7%
7.0%
4.4%
Upscale
ADR
$62.29
$64.95
$68.57
$70.85
$71.34
$72.10
$73.47
$76.35
$80.62
$86.19
$91.72
$95.07
$97.02
$101.25
$100.59
$96.05
$94.19
$97.61
$104.72
$114.25
$121.31
$123.15
$109.77
$107.67
% Chg.
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
4.3%
5.6%
3.3%
0.7%
1.1%
1.9%
3.9%
5.6%
6.9%
6.4%
3.7%
2.0%
4.4%
-0.7%
-4.5%
-1.9%
3.6%
7.3%
9.1%
6.2%
1.5%
-10.9%
-1.9%
3.5%
18.7%
16.5%
11.8%
4.9%
9.6%
6.5%
6.3%
6.5%
6.3%
11.9%
11.5%
8.3%
9.3%
-0.3%
5.7%
4.6%
6.5%
5.8%
4.0%
4.1%
2.5%
0.1%
13.7%
7.2%
17.3%
13.8%
12.2%
4.7%
4.7%
4.2%
3.4%
6.7%
5.4%
12.7%
13.5%
10.6%
8.2%
7.7%
5.8%
4.0%
1.7%
3.4%
4.0%
5.0%
6.4%
8.5%
6.2%
2.7%
23.8%
23.0%
15.5%
5.7%
10.7%
8.6%
10.5%
12.5%
13.6%
19.1%
15.5%
10.5%
14.0%
-1.0%
0.9%
2.6%
10.4%
13.5%
13.4%
10.5%
4.0%
-10.8%
11.5%
10.9%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
2.6%
0.2%
2.4%
7.5%
7.3%
10.1%
2.5%
2.9%
17.5%
1.0%
51.7%
-12.3%
34.8%
-19.5%
3.3%
0.3%
6.9%
-7.5%
6.7%
-11.1%
13.7%
0.7%
41.9%
-5.1%
26.3%
-9.5%
54.6%
4.9%
107.4%
5.4%
27.6%
2.6%
49.7%
4.7%
94.0%
13.9%
19.6%
15.4%
75.9%
5.7%
194.4%
0.0%
61.2%
-7.2%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 271
20 September 2011
Figure 449: Upper Midscale Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
Upper Midscale
Upper Midscale
RevPAR
% Chg.
Occupancy % Chg.
$30.76
$31.96
$33.42
$33.95
$33.32
$34.07
$35.16
$37.33
$39.24
$41.32
$43.29
$44.96
$46.01
$47.89
$46.02
$45.11
$44.85
$47.85
$52.95
$57.77
$61.15
$60.05
$51.12
$53.40
3.9%
4.5%
1.6%
-1.8%
2.2%
3.2%
6.2%
5.1%
5.3%
4.8%
3.9%
2.3%
4.1%
-3.9%
-2.0%
-0.6%
6.7%
10.7%
9.1%
5.8%
-1.8%
-14.9%
4.5%
8.7%
61.9%
63.1%
64.2%
63.8%
63.0%
64.4%
65.3%
67.0%
67.2%
66.7%
66.3%
65.7%
64.9%
65.0%
61.9%
61.4%
61.0%
63.1%
65.3%
66.2%
65.3%
61.8%
55.7%
58.4%
1.8%
1.9%
-0.7%
-1.2%
2.2%
1.5%
2.6%
0.3%
-0.8%
-0.6%
-0.9%
-1.3%
0.2%
-4.8%
-0.8%
-0.6%
3.5%
3.5%
1.3%
-1.3%
-5.4%
-9.8%
4.9%
5.4%
Upper Midscale
ADR
% Chg.
$49.66
$50.68
$52.01
$53.24
$52.90
$52.91
$53.82
$55.68
$58.35
$61.93
$65.30
$68.44
$70.93
$73.69
$74.36
$73.50
$73.54
$75.81
$81.06
$87.33
$93.64
$97.25
$91.80
$91.40
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
2.1%
2.6%
2.4%
-0.6%
0.0%
1.7%
3.5%
4.8%
6.1%
5.4%
4.8%
3.6%
3.9%
0.9%
-1.1%
0.1%
3.1%
6.9%
7.7%
7.2%
3.9%
-5.6%
-0.4%
3.1%
8.2%
7.7%
4.6%
3.2%
5.2%
4.5%
7.5%
5.4%
6.0%
6.0%
3.7%
2.7%
4.7%
-1.7%
2.0%
1.7%
4.2%
2.1%
0.6%
0.0%
-2.6%
-6.3%
8.1%
10.2%
6.2%
5.8%
5.4%
4.5%
2.9%
3.0%
4.8%
5.0%
6.9%
6.6%
4.7%
4.0%
4.5%
3.2%
2.8%
2.3%
0.6%
-1.4%
-0.6%
1.3%
3.0%
4.0%
3.0%
4.5%
10.4%
10.6%
7.1%
2.6%
5.2%
6.3%
11.3%
10.4%
12.5%
11.7%
8.7%
6.5%
8.7%
-0.8%
0.8%
1.7%
7.4%
9.1%
8.4%
7.2%
1.2%
-11.5%
7.6%
13.6%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
2.4%
-0.3%
2.7%
3.3%
3.6%
6.1%
2.5%
2.9%
10.4%
-1.8%
43.7%
-5.8%
35.6%
-16.4%
3.0%
-1.2%
3.2%
-5.6%
6.4%
-14.7%
7.2%
-0.6%
39.3%
-0.3%
27.4%
-2.0%
21.9%
3.2%
56.0%
0.3%
8.8%
-8.7%
18.4%
4.5%
51.2%
6.2%
2.2%
7.1%
30.7%
2.6%
117.3%
0.0%
38.6%
-10.5%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 272
20 September 2011
Figure 450: Midscale Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Midscale
RevPAR
$26.63
$27.26
$29.06
$29.48
$28.99
$29.51
$30.49
$31.83
$33.20
$34.34
$34.73
$35.21
$35.69
$37.09
$35.59
$34.56
$34.88
$37.25
$40.77
$43.61
$45.23
$44.05
$37.09
$38.13
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
% Chg.
2.4%
6.6%
1.4%
-1.7%
1.8%
3.3%
4.4%
4.3%
3.4%
1.1%
1.4%
1.4%
3.9%
-4.0%
-2.9%
0.9%
6.8%
9.5%
6.9%
3.7%
-2.6%
-15.8%
2.8%
2.7%
Midscale
Occupancy
60.4%
60.2%
61.3%
60.4%
58.8%
59.5%
60.4%
61.4%
61.7%
60.9%
59.6%
58.4%
57.4%
57.4%
54.7%
53.8%
54.3%
56.7%
58.9%
59.2%
58.4%
55.5%
49.4%
51.8%
% Chg.
-0.4%
1.8%
-1.4%
-2.7%
1.1%
1.5%
1.7%
0.5%
-1.4%
-2.2%
-2.1%
-1.6%
-0.1%
-4.7%
-1.7%
1.0%
4.3%
3.8%
0.6%
-1.3%
-5.0%
-10.9%
4.7%
3.5%
Midscale
ADR
$44.06
$45.27
$47.42
$48.78
$49.28
$49.59
$50.49
$51.83
$53.77
$56.38
$58.27
$60.33
$62.15
$64.62
$65.05
$64.25
$64.19
$65.69
$69.26
$73.63
$77.41
$79.37
$75.03
$73.69
% Chg.
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
2.7%
4.8%
2.9%
1.0%
0.6%
1.8%
2.6%
3.7%
4.9%
3.3%
3.5%
3.0%
4.0%
0.7%
-1.2%
-0.1%
2.3%
5.4%
6.3%
5.1%
2.5%
-5.5%
-1.8%
-0.8%
3.1%
3.4%
0.4%
-0.2%
3.1%
3.4%
3.7%
1.5%
1.0%
0.8%
2.6%
2.8%
2.1%
-4.2%
-0.8%
-0.3%
3.5%
3.1%
1.2%
-0.3%
-3.2%
-7.7%
5.5%
-4.2%
3.5%
1.6%
1.8%
2.5%
2.0%
1.9%
2.0%
1.0%
2.4%
3.1%
4.7%
4.5%
2.2%
0.5%
0.9%
-1.3%
-0.8%
-0.7%
0.6%
1.0%
1.9%
3.6%
0.8%
-7.5%
6.0%
8.3%
3.3%
0.8%
3.8%
5.3%
6.5%
5.3%
6.0%
4.2%
6.2%
5.9%
6.2%
-3.6%
-2.0%
-0.4%
5.9%
8.8%
7.6%
4.8%
-0.8%
-12.8%
3.6%
-5.0%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
1.6%
-0.7%
2.3%
1.0%
1.7%
3.3%
2.5%
2.9%
10.7%
-1.7%
27.9%
-6.8%
30.9%
-18.0%
0.0%
-2.7%
-2.5%
-6.3%
8.6%
-15.4%
10.7%
1.0%
31.1%
-0.6%
20.5%
-3.1%
7.1%
-0.2%
23.1%
-5.0%
7.3%
-10.7%
7.1%
2.5%
26.2%
1.4%
-1.2%
5.5%
18.6%
0.8%
61.5%
-5.5%
29.3%
-13.5%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 273
20 September 2011
Figure 451: Economy Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
Economy
RevPAR
$22.31
$22.77
$23.53
$23.48
$22.50
$22.08
$22.72
$23.70
$24.71
$25.00
$25.24
$25.94
$26.80
$27.61
$26.68
$25.75
$25.38
$26.59
$28.70
$30.14
$31.00
$29.75
$25.04
$25.51
% Chg.
2.1%
3.3%
-0.2%
-4.2%
-1.9%
2.9%
4.3%
4.3%
1.2%
1.0%
2.8%
3.3%
3.0%
-3.4%
-3.5%
-1.4%
4.8%
7.9%
5.0%
2.8%
-4.0%
-15.8%
1.9%
5.8%
Economy
Occupancy
66.0%
65.2%
65.7%
64.1%
61.5%
60.2%
60.8%
61.4%
61.6%
59.8%
58.4%
58.1%
58.5%
58.6%
56.6%
55.0%
54.3%
55.6%
57.4%
57.2%
57.0%
54.1%
49.1%
51.7%
% Chg.
-1.3%
0.7%
-2.4%
-4.0%
-2.1%
0.9%
1.0%
0.4%
-2.9%
-2.4%
-0.5%
0.6%
0.3%
-3.4%
-2.9%
-1.4%
2.5%
3.3%
-0.4%
-0.4%
-5.1%
-9.1%
5.2%
4.2%
Economy
ADR
$33.78
$34.92
$35.83
$36.65
$36.59
$36.66
$37.40
$38.61
$40.11
$41.78
$43.20
$44.64
$45.84
$47.11
$47.11
$46.81
$46.78
$47.82
$49.99
$52.71
$54.40
$55.01
$50.96
$49.37
% Chg.
% Change In Room
Demand
Supply
Revenue
Real GDP
% Chg.
CPI
% Chg.
3.4%
2.6%
2.3%
-0.1%
0.2%
2.0%
3.2%
3.9%
4.2%
3.4%
3.3%
2.7%
2.8%
0.0%
-0.6%
-0.1%
2.2%
4.5%
5.4%
3.2%
1.1%
-7.4%
-3.1%
1.5%
10.0%
8.5%
4.4%
0.7%
0.0%
1.1%
3.0%
2.7%
0.5%
4.3%
7.2%
7.6%
3.7%
-1.2%
-2.1%
-2.5%
2.3%
3.5%
-0.3%
1.7%
-3.3%
-8.1%
5.3%
4.2%
11.5%
7.7%
7.0%
5.0%
2.1%
0.2%
2.0%
2.4%
3.5%
6.8%
7.8%
6.9%
3.5%
2.2%
0.8%
-1.1%
-0.2%
0.3%
0.1%
2.1%
1.9%
1.2%
0.1%
0.0%
13.7%
11.3%
6.7%
0.6%
0.2%
3.1%
6.4%
6.7%
4.7%
7.8%
10.8%
10.5%
6.6%
-1.2%
-2.7%
-2.5%
4.6%
8.2%
5.1%
5.0%
-2.2%
-14.9%
2.0%
5.8%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
0.6%
-1.1%
1.7%
2.1%
3.1%
3.8%
2.5%
2.9%
5.3%
-4.2%
22.7%
-6.8%
20.4%
-19.2%
-3.0%
-4.0%
-4.7%
-6.2%
3.6%
-13.8%
8.5%
-0.1%
28.8%
-0.6%
16.2%
-6.3%
24.6%
0.7%
34.1%
-3.3%
4.8%
-11.1%
28.5%
5.0%
40.7%
3.1%
1.1%
3.1%
35.2%
0.6%
72.7%
-3.9%
21.7%
-16.7%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 274
20 September 2011
Figure 452: Independent Annual Operating Data
Year
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Independent
RevPAR
% Chg.
$31.76
$32.59
$34.12
$34.98
$34.09
$34.83
$35.86
$37.67
$39.32
$41.68
$43.98
$45.43
$47.05
$50.26
$47.22
$46.16
$46.89
$50.61
$53.47
$56.77
$61.16
$60.03
$49.50
$52.12
CAGR
Cumulative Growth
1987-1990
1991
1992-2000
2001-2002
2003-2007
2008-2009
2.6%
4.7%
2.5%
-2.5%
2.2%
2.9%
5.0%
4.4%
6.0%
5.5%
3.3%
3.6%
6.8%
-6.0%
-2.3%
1.6%
8.0%
5.6%
6.2%
7.7%
-1.8%
-17.5%
5.3%
8.2%
Independent
Occupancy % Chg.
63.3%
63.0%
63.6%
62.9%
61.2%
61.5%
61.8%
62.7%
62.7%
62.6%
62.2%
61.7%
61.3%
61.7%
58.5%
57.5%
57.9%
59.6%
60.8%
60.7%
60.7%
57.4%
52.2%
54.6%
-0.5%
0.9%
-1.0%
-2.8%
0.5%
0.5%
1.4%
0.1%
-0.2%
-0.6%
-0.9%
-0.6%
0.7%
-5.1%
-1.8%
0.7%
2.9%
2.1%
-0.2%
0.0%
-5.5%
-9.1%
4.6%
4.9%
Independent
ADR
% Chg.
$50.18
$51.73
$53.68
$55.58
$55.74
$56.66
$58.03
$60.12
$62.72
$66.59
$70.66
$73.65
$76.76
$81.47
$80.68
$80.27
$80.96
$84.91
$87.87
$93.49
$100.75
$104.63
$94.88
$95.49
% Change In Room
Demand Supply Revenue
Real GDP
% Chg.
CPI
% Chg.
3.1%
3.8%
3.5%
0.3%
1.6%
2.4%
3.6%
4.3%
6.2%
6.1%
4.2%
4.2%
6.1%
-1.0%
-0.5%
0.9%
4.9%
3.5%
6.4%
7.8%
3.9%
-9.3%
0.6%
3.1%
0.9%
2.4%
0.5%
-3.7%
-0.3%
0.2%
1.6%
0.1%
0.1%
-0.3%
-1.0%
-0.2%
1.1%
-4.5%
-1.9%
1.5%
3.2%
1.8%
-0.6%
-0.4%
-4.7%
-9.0%
5.3%
6.2%
1.4%
1.5%
1.5%
-0.9%
-0.8%
-0.3%
0.2%
0.0%
0.2%
0.3%
-0.1%
0.5%
0.5%
0.6%
-0.1%
0.8%
0.2%
-0.3%
-0.4%
-0.4%
0.8%
0.0%
0.7%
1.2%
4.0%
6.3%
4.0%
-3.5%
1.4%
2.6%
5.2%
4.4%
6.2%
5.8%
3.2%
4.0%
7.3%
-5.5%
-2.4%
2.4%
8.2%
5.3%
5.7%
7.3%
-1.1%
-17.5%
6.0%
9.6%
3.7%
2.7%
0.6%
1.0%
4.3%
2.7%
4.2%
2.0%
4.4%
4.3%
5.0%
4.8%
2.9%
0.4%
1.9%
3.9%
2.9%
2.8%
2.4%
2.2%
-3.3%
-0.5%
3.1%
4.1%
4.8%
5.4%
4.2%
3.0%
3.1%
2.6%
2.8%
2.9%
2.4%
1.6%
2.2%
3.4%
2.8%
1.5%
2.3%
2.7%
3.4%
3.2%
2.9%
3.8%
-0.3%
1.6%
2.2%
-0.6%
2.8%
-0.4%
0.3%
2.4%
2.5%
2.9%
10.2%
-2.5%
47.4%
-8.2%
32.5%
-19.1%
-0.5%
-2.8%
0.9%
-6.8%
5.6%
-14.1%
10.8%
0.3%
46.1%
-1.5%
25.5%
-5.8%
3.9%
-3.7%
1.3%
-6.3%
5.5%
-13.4%
4.4%
-0.9%
0.4%
0.5%
0.0%
0.8%
15.0%
-3.5%
48.0%
-7.7%
32.5%
-18.4%
7.1%
1.0%
40.5%
2.3%
15.0%
-3.8%
14.9%
4.2%
26.5%
4.4%
15.3%
3.5%
Page 275
20 September 2011
Figure 453: Luxury Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Luxury
RevPAR
$175.41
$211.82
$226.85
$215.18
$205.48
$207.87
$195.14
$195.92
$200.47
$230.78
$208.08
$184.09
$179.86
$209.95
$221.20
$217.68
$204.07
$200.52
$189.42
$192.87
$191.26
$200.79
$165.72
$153.26
$139.30
$152.01
$157.25
$157.06
$143.65
$143.90
$145.00
$141.95
$149.44
$169.66
$141.54
$143.51
$132.06
$153.65
$170.15
$170.64
$162.91
$163.92
$164.22
$156.17
$166.09
$185.37
$161.45
$156.39
$148.28
$172.99
$195.30
$187.78
$182.03
$184.57
$182.52
yoy
% Chg.
8.3%
10.0%
8.3%
5.2%
6.1%
6.7%
7.3%
10.0%
3.8%
10.0%
6.3%
2.9%
2.5%
-0.9%
-2.5%
1.2%
-0.7%
-3.5%
-2.9%
-1.6%
-4.6%
-13.0%
-20.4%
-16.7%
-22.6%
-27.6%
-28.9%
-27.8%
-29.6%
-28.2%
-23.5%
-26.4%
-21.9%
-15.5%
-14.6%
-6.4%
-5.2%
1.1%
8.2%
8.7%
13.4%
13.9%
13.3%
10.0%
11.1%
9.3%
14.1%
9.0%
12.3%
12.6%
14.8%
10.0%
11.7%
12.6%
11.1%
vs
Peak
-2.5%
0.0%
0.0%
-1.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.9%
-2.5%
0.0%
-0.7%
-3.5%
-2.9%
-1.6%
-4.6%
-13.0%
-20.4%
-16.7%
-22.6%
-28.2%
-30.7%
-27.8%
-30.1%
-30.8%
-25.7%
-27.5%
-25.5%
-26.5%
-32.0%
-22.0%
-26.6%
-27.5%
-25.0%
-21.6%
-20.7%
-21.1%
-15.8%
-20.3%
-17.2%
-19.7%
-22.4%
-15.0%
-17.6%
-18.3%
-13.9%
-13.7%
-11.4%
-11.2%
-6.5%
Luxury
O ccupancy
64.9%
72.3%
76.5%
74.2%
72.7%
76.2%
73.4%
74.1%
70.8%
76.5%
69.9%
58.9%
63.3%
69.9%
71.7%
73.9%
71.1%
72.1%
71.4%
72.1%
66.1%
68.9%
59.3%
52.6%
52.8%
58.9%
61.5%
64.0%
62.1%
65.0%
67.9%
66.3%
63.3%
68.9%
59.9%
54.7%
56.5%
63.1%
69.1%
69.8%
68.1%
70.3%
71.7%
68.5%
67.1%
72.4%
64.7%
56.5%
59.9%
67.0%
74.3%
72.6%
71.5%
74.3%
74.2%
yoy
% Chg.
0.0%
0.7%
1.1%
-0.7%
-1.2%
0.2%
-0.2%
2.5%
-2.3%
0.8%
-1.4%
-1.3%
-2.6%
-3.3%
-6.4%
-0.4%
-2.2%
-5.4%
-2.7%
-2.7%
-6.7%
-9.9%
-15.2%
-10.7%
-16.5%
-15.7%
-14.2%
-13.4%
-12.6%
-9.8%
-4.8%
-8.1%
-4.3%
0.0%
1.1%
4.1%
7.1%
7.0%
12.4%
9.0%
9.6%
8.1%
5.6%
3.4%
6.0%
5.0%
8.0%
3.2%
6.0%
6.2%
7.5%
4.1%
5.0%
5.7%
3.5%
Luxury
ADR
$270.08
$293.16
$296.46
$289.96
$282.83
$272.76
$265.95
$264.53
$283.00
$301.84
$297.75
$312.65
$284.36
$300.34
$308.72
$294.36
$287.18
$278.08
$265.45
$267.57
$289.39
$291.34
$279.66
$291.50
$263.88
$257.90
$255.78
$245.36
$231.18
$221.32
$213.48
$214.19
$236.18
$246.18
$236.34
$262.24
$233.55
$243.61
$246.24
$244.64
$239.23
$233.11
$229.01
$227.93
$247.67
$256.21
$249.72
$276.88
$247.48
$258.37
$262.91
$258.57
$254.52
$248.40
$245.89
yoy
% Chg.
8.3%
9.3%
7.2%
6.0%
7.3%
6.5%
7.5%
7.3%
6.3%
9.1%
7.8%
4.2%
5.3%
2.4%
4.1%
1.5%
1.5%
2.0%
-0.2%
1.1%
2.3%
-3.5%
-6.1%
-6.8%
-7.2%
-14.1%
-17.1%
-16.6%
-19.5%
-20.4%
-19.6%
-19.9%
-18.4%
-15.5%
-15.5%
-10.0%
-11.5%
-5.5%
-3.7%
-0.3%
3.5%
5.3%
7.3%
6.4%
4.9%
4.1%
5.7%
5.6%
6.0%
6.1%
6.8%
5.7%
6.4%
6.6%
7.4%
% Change In Room
Demand
Supply Reve nue
5.8%
5.8%
14.5%
2.5%
1.7%
11.9%
4.2%
3.1%
11.7%
3.2%
3.9%
9.4%
2.9%
4.1%
10.4%
3.6%
3.4%
10.3%
3.2%
3.4%
10.9%
7.1%
4.5%
14.9%
2.9%
5.3%
9.4%
6.4%
5.5%
16.0%
3.5%
5.0%
11.5%
2.3%
3.6%
6.6%
1.0%
3.7%
6.4%
1.1%
4.5%
3.6%
0.0%
6.7%
4.1%
5.6%
6.0%
7.2%
3.8%
6.1%
5.4%
0.3%
6.0%
2.3%
3.3%
6.2%
3.1%
3.2%
6.1%
4.4%
-0.6%
6.5%
1.6%
-3.9%
-7.2%
6.7%
-8.7%
-14.2%
7.7%
-3.4%
-9.9%
8.2%
-8.1%
-14.8%
10.1%
-7.4%
-20.5%
9.8%
-7.6%
-23.5%
7.6%
-6.3%
-21.9%
8.2%
-5.0%
-23.6%
8.6%
-2.1%
-22.1%
8.6%
-16.6%
3.7%
8.9%
-19.9%
0.0%
8.8%
-15.7%
3.3%
7.9%
-8.7%
8.0%
8.0%
-8.1%
8.8%
7.6%
12.0%
7.6%
0.8%
14.4%
6.8%
1.3%
14.5%
7.0%
8.1%
19.6%
6.4%
15.2%
15.3%
5.8%
14.9%
13.8%
3.9%
17.8%
12.1%
3.7%
18.1%
9.6%
3.8%
17.6%
7.2%
3.7%
14.1%
10.9%
4.6%
16.3%
9.5%
4.3%
14.0%
11.9%
3.6%
18.2%
6.7%
3.4%
12.7%
8.3%
2.2%
14.8%
8.2%
1.9%
14.7%
9.0%
1.4%
16.4%
5.3%
1.1%
11.3%
7.9%
2.7%
14.8%
8.5%
2.7%
15.7%
5.7%
2.1%
13.5%
Re al GDP
% Chg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
CPI
% Chg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 276
20 September 2011
Figure 454: Upper Upscale Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Uppe r Upscale
Re vPAR
$94.81
$111.01
$120.98
$116.42
$117.18
$122.66
$112.65
$111.00
$114.20
$130.45
$108.35
$83.38
$98.67
$113.45
$117.76
$124.29
$117.13
$121.34
$113.69
$109.38
$112.42
$119.59
$93.76
$74.05
$81.14
$91.78
$95.52
$96.89
$91.57
$98.29
$95.08
$88.28
$91.78
$105.66
$83.74
$69.20
$76.01
$90.37
$101.15
$102.24
$100.27
$106.65
$102.34
$96.79
$100.54
$111.78
$92.13
$73.05
$81.72
$96.57
$109.20
$106.09
$108.69
$113.90
$108.10
yoy
% C hg.
3.1%
5.1%
5.2%
4.5%
6.0%
7.3%
5.9%
8.0%
5.1%
9.2%
4.1%
3.2%
4.1%
2.2%
-2.7%
6.8%
0.0%
-1.1%
0.9%
-1.5%
-1.6%
-8.3%
-13.5%
-11.2%
-17.8%
-19.1%
-18.9%
-22.0%
-21.8%
-19.0%
-16.4%
-19.3%
-18.4%
-11.6%
-10.7%
-6.5%
-6.3%
-1.5%
5.9%
5.5%
9.5%
8.5%
7.6%
9.6%
9.5%
5.8%
10.0%
5.6%
7.5%
6.9%
8.0%
3.8%
8.4%
6.8%
5.6%
vs
Pe ak
-3.9%
-2.2%
0.0%
-6.3%
0.0%
0.0%
-0.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-2.7%
0.0%
0.0%
-1.1%
0.0%
-1.5%
-1.6%
-8.3%
-13.5%
-11.2%
-17.8%
-19.1%
-21.0%
-22.0%
-21.8%
-19.9%
-16.4%
-20.5%
-19.6%
-19.0%
-22.7%
-17.0%
-23.0%
-20.3%
-16.4%
-17.7%
-14.4%
-13.0%
-10.0%
-12.8%
-12.0%
-14.3%
-15.0%
-12.4%
-17.2%
-14.9%
-9.7%
-14.6%
-7.2%
-7.1%
-4.9%
Uppe r Upscale
O ccupancy
61.7%
69.4%
75.2%
72.9%
72.8%
77.4%
74.1%
73.5%
71.1%
76.6%
67.1%
54.4%
61.4%
68.5%
71.1%
74.5%
71.2%
74.6%
73.7%
71.9%
67.6%
71.6%
60.0%
50.4%
52.9%
60.6%
63.6%
65.9%
63.4%
69.1%
70.2%
66.7%
64.6%
70.2%
59.8%
51.7%
55.9%
64.0%
70.1%
71.0%
69.7%
74.1%
74.3%
70.8%
68.6%
73.3%
63.9%
53.4%
57.8%
65.9%
72.5%
72.0%
71.9%
76.4%
75.8%
yoy
% C hg.
-2.2%
-1.3%
0.0%
-1.0%
-0.4%
1.1%
-0.1%
2.1%
-0.8%
2.6%
-1.1%
-1.6%
-0.5%
-1.2%
-5.5%
2.2%
-2.1%
-3.6%
-0.6%
-2.2%
-4.9%
-6.5%
-10.5%
-7.4%
-13.8%
-11.5%
-10.5%
-11.6%
-10.9%
-7.3%
-4.8%
-7.2%
-4.5%
-2.0%
-0.3%
2.7%
5.7%
5.6%
10.1%
7.8%
9.9%
7.3%
5.8%
6.1%
6.1%
4.5%
6.8%
3.3%
3.5%
2.9%
3.4%
1.4%
3.2%
3.0%
2.0%
Uppe r Upscale
ADR
$153.73
$159.95
$160.87
$159.68
$161.01
$158.50
$151.92
$151.04
$160.52
$170.28
$161.45
$153.24
$160.80
$165.51
$165.65
$166.86
$164.48
$162.65
$154.22
$152.16
$166.24
$166.98
$156.18
$147.04
$153.49
$151.36
$150.11
$147.11
$144.38
$142.20
$135.42
$132.38
$142.04
$150.62
$139.96
$133.81
$136.08
$141.12
$144.36
$143.98
$143.88
$143.87
$137.70
$136.75
$146.65
$152.55
$144.22
$136.76
$141.41
$146.53
$150.73
$147.38
$151.17
$149.13
$142.55
yoy
% Chg.
5.5%
6.5%
5.2%
5.5%
6.4%
6.1%
6.0%
5.8%
5.9%
6.3%
5.2%
4.9%
4.6%
3.5%
3.0%
4.5%
2.2%
2.6%
1.5%
0.7%
3.6%
-1.9%
-3.3%
-4.0%
-4.5%
-8.6%
-9.4%
-11.8%
-12.2%
-12.6%
-12.2%
-13.0%
-14.6%
-9.8%
-10.4%
-9.0%
-11.3%
-6.8%
-3.8%
-2.1%
-0.3%
1.2%
1.7%
3.3%
3.2%
1.3%
3.0%
2.2%
3.9%
3.8%
4.4%
2.4%
5.1%
3.7%
3.5%
% Change In Room
De mand
Supply Re ve nue
-3.0%
-0.8%
2.3%
-1.7%
-0.4%
4.7%
-0.2%
-0.2%
5.0%
-0.9%
0.1%
4.6%
0.0%
0.4%
6.4%
1.7%
0.5%
7.8%
0.2%
0.2%
6.1%
2.3%
0.2%
8.2%
0.0%
0.7%
5.9%
4.1%
1.5%
10.7%
0.8%
2.0%
6.1%
0.7%
2.4%
5.7%
1.8%
2.3%
6.4%
1.0%
2.3%
4.5%
-3.1%
-0.3%
2.5%
5.8%
3.5%
10.5%
0.9%
3.1%
3.1%
-0.7%
3.0%
1.9%
2.7%
3.3%
4.2%
1.1%
3.3%
1.8%
-1.6%
3.5%
1.9%
-3.3%
-5.2%
3.4%
-7.7%
-10.7%
3.2%
-4.1%
-7.9%
3.6%
-8.9%
-13.0%
5.8%
-6.6%
-14.6%
5.6%
-5.8%
-14.6%
5.3%
-7.8%
-18.7%
4.2%
-7.1%
-18.5%
4.3%
-3.4%
-15.5%
4.3%
-0.9%
-13.0%
4.1%
-3.2%
-15.8%
4.3%
-0.2%
-14.8%
4.4%
-7.7%
2.4%
4.5%
-6.8%
4.0%
4.4%
-2.8%
6.8%
4.0%
-4.6%
7.6%
1.8%
7.5%
1.8%
0.2%
12.0%
1.7%
7.7%
9.6%
1.7%
7.3%
11.7%
1.6%
11.3%
9.1%
1.7%
10.3%
7.6%
1.7%
9.4%
7.6%
1.4%
11.2%
7.1%
0.9%
10.6%
5.0%
0.5%
6.3%
8.2%
1.3%
11.5%
5.0%
1.7%
7.3%
5.4%
1.9%
9.5%
4.9%
1.9%
8.9%
5.4%
1.9%
10.0%
3.0%
1.6%
5.4%
5.0%
1.8%
10.3%
4.9%
1.8%
8.7%
3.7%
1.6%
7.3%
Re al GDP
% C hg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
C PI
% Chg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 277
20 September 2011
Figure 455: Upscale Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Upscale
Re vPAR
$72.61
$83.53
$90.67
$87.76
$87.48
$92.90
$88.84
$88.81
$84.24
$94.17
$79.97
$63.90
$75.69
$86.04
$89.72
$92.54
$86.92
$91.02
$89.00
$86.63
$82.83
$86.97
$69.15
$57.67
$61.63
$70.86
$72.06
$72.82
$68.23
$74.16
$73.60
$69.94
$67.64
$72.98
$60.83
$52.44
$56.71
$66.97
$74.44
$74.05
$73.74
$79.18
$78.94
$76.07
$73.50
$78.73
$67.85
$56.40
$61.33
$72.31
$81.73
$79.54
$79.87
$85.53
$84.15
yoy
% Chg.
5.7%
4.6%
5.6%
4.0%
4.9%
5.9%
5.5%
6.5%
5.1%
8.3%
3.8%
2.6%
4.2%
3.0%
-1.1%
5.4%
-0.6%
-2.0%
0.2%
-2.5%
-1.7%
-7.6%
-13.5%
-9.8%
-18.6%
-17.6%
-19.7%
-21.3%
-21.5%
-18.5%
-17.3%
-19.3%
-18.3%
-16.1%
-12.0%
-9.1%
-8.0%
-5.5%
3.3%
1.7%
8.1%
6.8%
7.3%
8.8%
8.7%
7.9%
11.5%
7.5%
8.1%
8.0%
9.8%
7.4%
8.3%
8.0%
6.6%
vs
Pe ak
-4.1%
-2.9%
0.0%
-5.2%
0.0%
0.0%
-0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-1.1%
0.0%
-0.6%
-2.0%
0.0%
-2.5%
-1.7%
-7.6%
-13.5%
-9.8%
-18.6%
-17.6%
-20.5%
-21.3%
-22.0%
-20.2%
-17.3%
-21.2%
-19.7%
-22.5%
-23.9%
-17.9%
-25.1%
-22.2%
-17.9%
-20.0%
-15.7%
-14.8%
-11.3%
-14.3%
-12.7%
-16.4%
-15.2%
-11.7%
-19.0%
-16.0%
-9.9%
-14.0%
-8.7%
-7.9%
-5.4%
Upscale
O ccupancy
61.0%
68.2%
73.8%
71.8%
72.1%
77.1%
74.4%
74.3%
69.5%
74.5%
65.6%
54.2%
60.1%
67.5%
70.1%
73.4%
70.0%
73.8%
73.4%
71.8%
66.4%
69.9%
59.0%
51.1%
52.5%
60.9%
62.9%
64.4%
62.2%
67.9%
69.1%
66.0%
62.5%
66.3%
57.9%
50.9%
54.5%
63.0%
68.7%
68.5%
68.3%
72.9%
73.9%
70.7%
67.0%
70.8%
63.5%
53.9%
57.5%
66.2%
72.5%
71.2%
71.1%
76.1%
76.0%
yoy
% C hg.
-1.3%
-2.5%
-0.8%
-1.9%
-1.2%
0.5%
-0.1%
0.5%
-0.8%
1.4%
-1.9%
-2.9%
-1.4%
-0.9%
-5.0%
2.2%
-3.0%
-4.2%
-1.3%
-3.2%
-4.5%
-6.2%
-10.0%
-5.7%
-12.7%
-9.8%
-10.3%
-12.2%
-11.0%
-8.0%
-6.0%
-8.2%
-6.0%
-5.2%
-1.8%
-0.4%
3.8%
3.4%
9.1%
6.4%
9.7%
7.4%
7.0%
7.1%
7.2%
6.9%
9.5%
5.7%
5.4%
5.2%
5.5%
3.9%
4.1%
4.3%
2.9%
Upscale
ADR
$119.04
$122.51
$122.88
$122.18
$121.27
$120.55
$119.42
$119.61
$121.12
$126.41
$121.95
$117.80
$125.86
$127.38
$127.94
$126.11
$124.26
$123.35
$121.20
$120.58
$124.67
$124.44
$117.23
$112.76
$117.38
$116.36
$114.50
$113.07
$109.63
$109.21
$106.57
$106.01
$108.26
$110.15
$104.98
$102.93
$104.05
$106.31
$108.40
$108.07
$108.04
$108.57
$106.80
$107.63
$109.70
$111.13
$106.93
$104.71
$106.73
$109.15
$112.80
$111.72
$112.41
$112.39
$110.65
yoy
% Chg.
7.1%
7.2%
6.5%
6.0%
6.1%
5.3%
5.6%
6.0%
6.0%
6.9%
5.8%
5.7%
5.7%
4.0%
4.1%
3.2%
2.5%
2.3%
1.5%
0.8%
2.9%
-1.6%
-3.9%
-4.3%
-6.7%
-8.6%
-10.5%
-10.3%
-11.8%
-11.5%
-12.1%
-12.1%
-13.2%
-11.5%
-10.4%
-8.7%
-11.4%
-8.6%
-5.3%
-4.4%
-1.5%
-0.6%
0.2%
1.5%
1.3%
0.9%
1.9%
1.7%
2.6%
2.7%
4.1%
3.4%
4.0%
3.5%
3.6%
% Change In Room
De mand
Supply Re ve nue
2.3%
3.7%
9.6%
1.4%
4.0%
8.8%
2.9%
3.7%
9.6%
1.6%
3.6%
7.7%
2.7%
4.0%
9.0%
5.6%
5.0%
11.1%
5.0%
5.2%
11.0%
6.4%
5.8%
12.7%
5.1%
6.0%
11.4%
7.6%
6.1%
15.0%
4.4%
6.4%
10.4%
3.4%
6.5%
9.3%
4.7%
6.2%
10.7%
5.4%
6.4%
9.6%
1.6%
6.9%
5.8%
9.1%
6.8%
12.6%
3.6%
6.8%
6.1%
1.6%
6.1%
3.9%
4.9%
6.3%
6.5%
2.6%
6.0%
3.4%
1.2%
5.9%
4.2%
-0.7%
-2.2%
5.9%
-4.5%
-8.2%
6.2%
-3.5%
0.8%
7.0%
-6.4%
-12.7%
7.2%
-3.1%
-11.5%
7.5%
-3.5%
-13.6%
7.5%
-4.9%
-14.7%
8.4%
-3.6%
-15.0%
8.3%
-0.2%
-11.6%
8.5%
-10.1%
2.3%
8.8%
0.0%
-12.1%
8.9%
-10.7%
2.8%
9.4%
-8.2%
3.8%
9.5%
-3.9%
7.3%
9.3%
-1.3%
8.1%
8.5%
12.9%
8.8%
0.1%
12.0%
8.3%
2.3%
17.9%
8.0%
11.6%
14.4%
7.6%
9.4%
17.5%
7.2%
15.8%
14.7%
6.8%
14.0%
13.4%
5.9%
13.6%
12.8%
5.3%
14.5%
12.2%
4.6%
13.7%
11.3%
4.1%
12.3%
14.2%
4.3%
16.3%
10.0%
4.0%
11.9%
9.3%
3.6%
12.1%
8.6%
3.3%
11.5%
8.6%
2.9%
13.0%
6.6%
2.6%
10.2%
6.7%
2.5%
11.0%
6.6%
2.2%
10.4%
5.0%
2.1%
8.8%
Re al GDP
CPI
% Chg.
% Chg.
2.5%
2.0%
2.5%
2.4%
2.5%
2.8%
1.7%
2.6%
1.7%
2.7%
1.7%
2.7%
2.5%
2.3%
2.5%
1.9%
2.5%
2.8%
1.8%
3.6%
1.8%
4.4%
1.8%
4.1%
2.1%
4.3%
2.1%
4.1%
2.1%
4.0%
1.0%
3.9%
1.0%
4.1%
1.0%
4.9%
-0.6%
5.5%
-0.6%
5.3%
-0.6%
5.0%
-0.6%
3.7%
-0.6%
1.0%
-0.6%
0.0%
-3.3%
-0.1%
-3.3%
0.1%
-3.3%
-0.4%
-5.0%
-0.6%
-5.0%
-1.0%
-5.0%
-1.2%
-3.7%
-2.0%
-3.7%
-1.5%
-3.7%
-1.3%
-3.7%
-0.2%
-3.7%
1.9%
-3.7%
2.8%
-0.5%
2.6%
-0.5%
2.2%
-0.5%
2.4%
3.3%
2.3%
3.3%
2.0%
3.3%
1.1%
3.5%
1.3%
3.5%
1.2%
3.5%
1.1%
3.5%
1.2%
3.5%
1.1%
3.5%
1.4%
3.1%
1.7%
3.1%
2.2%
3.1%
2.7%
1.6%
3.1%
1.6%
3.4%
1.6%
3.4%
0.0%
3.6%
Page 278
20 September 2011
Figure 456: Upper Midscale Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Uppe r Midscale
Re vPAR
$46.78
$55.57
$63.23
$61.28
$63.35
$71.88
$70.87
$70.51
$63.55
$67.06
$55.40
$43.92
$48.42
$57.49
$62.41
$64.28
$63.32
$70.32
$71.53
$69.08
$61.70
$62.86
$48.75
$40.43
$41.93
$49.71
$52.32
$53.01
$52.39
$59.66
$61.42
$57.21
$52.86
$53.70
$42.77
$36.39
$37.81
$46.65
$53.24
$53.70
$55.04
$63.12
$66.07
$61.78
$57.26
$58.59
$47.97
$38.89
$41.03
$50.20
$58.09
$58.07
$60.27
$68.31
$70.92
yoy
% Chg.
5.1%
4.4%
6.3%
5.0%
6.0%
7.0%
4.9%
8.5%
5.5%
8.7%
4.6%
2.0%
3.5%
3.5%
-1.3%
4.9%
0.0%
-2.2%
0.9%
-2.0%
-2.9%
-6.3%
-12.0%
-7.9%
-13.4%
-13.5%
-16.2%
-17.5%
-17.3%
-15.2%
-14.1%
-17.2%
-14.3%
-14.6%
-12.3%
-10.0%
-9.8%
-6.2%
1.8%
1.3%
5.1%
5.8%
7.6%
8.0%
8.3%
9.1%
12.1%
6.9%
8.5%
7.6%
9.1%
8.1%
9.5%
8.2%
7.3%
vs
Peak
-3.4%
-3.3%
0.0%
-4.7%
0.0%
0.0%
-0.9%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-1.3%
0.0%
0.0%
-2.2%
0.0%
-2.0%
-2.9%
-6.3%
-12.0%
-7.9%
-13.4%
-13.5%
-17.2%
-17.5%
-17.3%
-17.0%
-14.1%
-18.9%
-16.8%
-19.9%
-22.8%
-17.1%
-21.9%
-18.9%
-15.8%
-16.5%
-13.1%
-12.2%
-7.6%
-12.4%
-9.9%
-12.6%
-13.4%
-11.5%
-15.2%
-12.7%
-8.1%
-9.7%
-4.9%
-5.0%
-0.9%
Uppe r Midscale
O ccupancy
53.7%
61.5%
68.4%
66.5%
67.6%
75.1%
72.9%
72.4%
67.0%
69.7%
59.7%
48.7%
52.2%
60.2%
64.2%
66.2%
64.6%
70.8%
71.0%
68.2%
62.3%
64.0%
52.3%
45.0%
45.9%
54.0%
56.8%
57.6%
56.6%
63.8%
65.0%
60.9%
57.4%
58.4%
49.0%
42.8%
44.0%
52.8%
59.1%
59.4%
60.0%
67.5%
69.5%
65.0%
61.4%
62.9%
53.8%
45.0%
46.9%
55.7%
62.7%
62.5%
63.6%
70.7%
71.7%
yoy
% C hg.
-1.7%
-2.4%
-1.1%
-1.8%
-1.3%
-0.1%
-1.6%
1.0%
-1.4%
0.7%
-2.6%
-4.7%
-2.8%
-2.2%
-6.1%
-0.5%
-4.4%
-5.8%
-2.5%
-5.8%
-7.0%
-8.2%
-12.4%
-7.8%
-12.2%
-10.3%
-11.6%
-12.9%
-12.4%
-9.9%
-8.5%
-10.7%
-8.0%
-8.7%
-6.3%
-4.8%
-4.1%
-2.1%
4.2%
3.0%
6.1%
5.9%
6.9%
6.7%
7.0%
7.6%
10.0%
5.2%
6.5%
5.4%
6.0%
5.2%
6.0%
4.7%
3.2%
Uppe r Midscale
ADR
$87.06
$90.29
$92.44
$92.10
$93.66
$95.66
$97.24
$97.34
$94.83
$96.18
$92.85
$90.11
$92.72
$95.52
$97.15
$97.08
$97.98
$99.33
$100.68
$101.24
$99.00
$98.20
$93.28
$89.95
$91.43
$92.12
$92.15
$91.96
$92.58
$93.54
$94.51
$93.87
$92.14
$91.89
$87.34
$85.04
$85.93
$88.33
$90.01
$90.45
$91.69
$93.48
$95.08
$94.98
$93.26
$93.13
$89.08
$86.41
$87.52
$90.15
$92.69
$92.93
$94.72
$96.60
$98.92
yoy
% Chg.
6.9%
6.9%
7.5%
6.9%
7.4%
7.1%
6.6%
7.4%
7.1%
7.9%
7.4%
7.0%
6.5%
5.8%
5.1%
5.4%
4.6%
3.8%
3.5%
4.0%
4.4%
2.1%
0.5%
-0.2%
-1.4%
-3.6%
-5.2%
-5.3%
-5.5%
-5.8%
-6.1%
-7.3%
-6.9%
-6.4%
-6.4%
-5.5%
-6.0%
-4.1%
-2.3%
-1.6%
-1.0%
-0.1%
0.6%
1.2%
1.2%
1.4%
2.0%
1.6%
1.8%
2.1%
3.0%
2.7%
3.3%
3.3%
4.0%
% Change In Room
De mand
Supply Reve nue
-1.6%
0.2%
5.3%
-1.7%
0.6%
5.0%
-0.4%
0.8%
7.1%
-0.7%
1.0%
6.1%
0.0%
1.3%
7.4%
1.3%
1.4%
8.5%
-0.1%
1.6%
6.6%
2.3%
1.4%
9.9%
0.1%
1.5%
7.1%
2.1%
1.4%
10.2%
-0.7%
1.9%
6.6%
-2.3%
2.4%
4.5%
-0.4%
2.5%
6.1%
0.2%
2.4%
6.0%
-3.9%
2.3%
1.0%
1.9%
2.4%
7.4%
-2.1%
2.5%
2.5%
-3.2%
2.8%
0.5%
0.6%
3.2%
4.2%
-2.5%
3.5%
1.4%
-3.4%
3.9%
0.8%
-4.6%
-2.6%
3.9%
-9.3%
-8.9%
3.6%
-4.8%
-4.9%
3.3%
-9.5%
-10.8%
3.0%
-7.2%
-10.5%
3.5%
-8.3%
-13.0%
3.8%
-9.6%
-14.4%
3.8%
-9.0%
-14.0%
3.9%
-6.3%
-11.8%
4.0%
-4.8%
-10.7%
4.0%
-7.0%
-13.8%
4.1%
-4.2%
-10.8%
4.1%
-4.9%
-11.0%
4.2%
-2.2%
-8.4%
4.4%
-0.6%
-6.0%
4.4%
-5.8%
0.2%
4.4%
-2.4%
1.8%
4.0%
8.1%
3.7%
5.6%
6.9%
3.8%
5.2%
9.9%
3.6%
8.8%
9.2%
3.2%
9.2%
9.8%
2.7%
10.5%
9.5%
2.6%
10.8%
9.5%
2.3%
10.8%
10.2%
2.4%
11.7%
12.5%
2.3%
14.8%
6.9%
1.7%
8.7%
8.0%
1.3%
10.0%
7.5%
1.9%
9.7%
9.8%
3.6%
13.1%
10.7%
5.2%
13.8%
12.2%
5.9%
15.9%
11.5%
6.4%
15.2%
10.3%
6.9%
14.7%
Real GDP
% Chg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
C PI
% C hg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 279
20 September 2011
Figure 457: Midscale Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Midscale
RevPAR
$33.51
$40.83
$46.70
$44.58
$46.20
$54.08
$55.66
$54.48
$46.90
$47.49
$39.70
$32.13
$34.03
$41.60
$45.27
$45.07
$46.25
$52.44
$55.63
$54.12
$44.89
$44.81
$34.89
$29.44
$29.95
$35.72
$37.35
$37.74
$38.27
$43.77
$47.61
$43.58
$37.84
$37.56
$29.53
$25.96
$26.33
$32.81
$37.05
$37.52
$39.11
$45.76
$51.15
$46.34
$40.65
$40.37
$32.43
$27.44
$27.82
$34.31
$38.92
$39.08
$40.06
$46.53
$51.51
yoy
% Chg.
1.7%
2.2%
4.3%
1.8%
4.9%
5.6%
2.4%
7.1%
3.2%
5.6%
3.5%
0.1%
1.6%
1.9%
-3.0%
1.1%
0.1%
-3.0%
-0.1%
-0.6%
-4.3%
-5.7%
-12.1%
-8.4%
-12.0%
-14.1%
-17.5%
-16.3%
-17.3%
-16.5%
-14.4%
-19.5%
-15.7%
-16.2%
-15.4%
-11.8%
-12.1%
-8.1%
-0.8%
-0.6%
2.2%
4.5%
7.4%
6.3%
7.4%
7.5%
9.8%
5.7%
5.6%
4.6%
5.0%
4.2%
2.4%
1.7%
0.7%
vs
Peak
-1.5%
-1.8%
0.0%
-1.1%
-0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-3.0%
0.0%
0.0%
-3.0%
-0.1%
-0.6%
-4.3%
-5.7%
-12.1%
-8.4%
-12.0%
-14.1%
-20.0%
-16.3%
-17.3%
-19.1%
-14.5%
-20.0%
-19.3%
-20.9%
-25.6%
-19.2%
-22.6%
-21.1%
-20.7%
-16.8%
-15.4%
-15.4%
-8.1%
-14.9%
-13.3%
-15.0%
-18.3%
-14.6%
-18.3%
-17.5%
-16.7%
-13.3%
-13.4%
-14.0%
-7.5%
Midscale
O ccupancy
47.0%
54.6%
61.0%
59.0%
60.0%
67.8%
67.6%
66.3%
60.0%
61.1%
52.6%
43.7%
45.7%
53.7%
57.3%
57.8%
58.0%
64.2%
66.0%
63.4%
56.2%
57.0%
46.5%
40.3%
40.7%
47.7%
50.0%
50.7%
50.6%
56.7%
59.7%
55.4%
50.4%
51.0%
42.3%
37.8%
38.3%
46.2%
51.5%
51.8%
53.1%
60.1%
64.5%
59.2%
54.4%
54.8%
46.4%
40.1%
40.6%
48.5%
54.2%
54.4%
54.8%
61.8%
65.5%
yoy
% Chg.
-2.8%
-2.3%
-0.7%
-2.3%
-0.4%
0.1%
-2.4%
1.2%
-1.8%
0.0%
-2.1%
-4.1%
-2.6%
-1.7%
-6.1%
-2.0%
-3.3%
-5.3%
-2.4%
-4.5%
-6.3%
-6.8%
-11.8%
-7.7%
-10.9%
-11.2%
-12.7%
-12.4%
-12.9%
-11.6%
-9.5%
-12.7%
-10.2%
-10.6%
-8.9%
-6.1%
-5.9%
-3.1%
2.9%
2.3%
5.0%
6.0%
8.0%
7.0%
7.8%
7.5%
9.6%
6.0%
5.9%
5.0%
5.2%
4.9%
3.3%
2.8%
1.6%
Midscale
ADR
$71.35
$74.77
$76.55
$75.58
$76.94
$79.79
$82.30
$82.11
$78.21
$77.68
$75.41
$73.60
$74.43
$77.48
$79.06
$77.95
$79.68
$81.73
$84.28
$85.39
$79.90
$78.63
$75.10
$73.04
$73.52
$74.92
$74.69
$74.49
$75.70
$77.21
$79.72
$78.73
$75.01
$73.69
$69.76
$68.59
$68.70
$71.03
$71.99
$72.36
$73.69
$76.12
$79.33
$78.25
$74.72
$73.70
$69.89
$68.40
$68.54
$70.72
$71.87
$71.86
$73.08
$75.32
$78.62
yoy
% Chg.
4.6%
4.6%
5.0%
4.1%
5.3%
5.5%
4.9%
5.8%
5.1%
5.6%
5.8%
4.4%
4.3%
3.6%
3.3%
3.1%
3.6%
2.4%
2.4%
4.0%
2.2%
1.2%
-0.4%
-0.8%
-1.2%
-3.3%
-5.5%
-4.4%
-5.0%
-5.5%
-5.4%
-7.8%
-6.1%
-6.3%
-7.1%
-6.1%
-6.6%
-5.2%
-3.6%
-2.9%
-2.7%
-1.4%
-0.5%
-0.6%
-0.4%
0.0%
0.2%
-0.3%
-0.2%
-0.4%
-0.2%
-0.7%
-0.8%
-1.0%
-0.9%
% Change In Room
Demand
Supply Reve nue
-0.9%
1.9%
3.6%
-0.6%
1.7%
4.0%
1.0%
1.7%
6.1%
-0.7%
1.6%
3.4%
0.9%
1.3%
6.3%
1.2%
1.1%
6.7%
-1.2%
1.2%
3.6%
1.9%
0.7%
7.8%
-1.5%
0.3%
3.5%
0.1%
0.1%
5.8%
-1.8%
0.3%
3.9%
-3.6%
0.6%
0.7%
-1.7%
1.0%
2.5%
-0.8%
0.9%
2.8%
-5.3%
-2.2%
0.9%
-1.1%
0.9%
2.0%
-2.3%
1.1%
1.2%
-3.9%
-1.5%
1.5%
-0.8%
1.6%
1.5%
-2.1%
2.5%
1.8%
-3.9%
-1.8%
2.6%
-4.1%
-2.9%
2.9%
-9.0%
-9.4%
3.1%
-4.7%
-5.4%
3.2%
-7.9%
-9.0%
3.4%
-8.4%
-11.5%
3.1%
-9.5%
-14.5%
3.6%
-9.3%
-13.4%
3.5%
-9.8%
-14.3%
3.5%
-8.7%
-13.8%
3.3%
-5.9%
-11.0%
4.0%
-9.2%
-16.3%
3.9%
-6.7%
-12.4%
4.0%
-7.1%
-12.9%
3.9%
-5.6%
-12.3%
3.6%
-2.9%
-8.8%
3.4%
-2.9%
-9.2%
3.2%
-5.2%
0.0%
3.2%
5.4%
2.4%
1.6%
4.7%
2.3%
1.7%
7.2%
2.1%
4.3%
7.9%
1.7%
6.4%
8.4%
0.4%
7.9%
7.0%
0.0%
6.4%
-0.3%
7.5%
7.1%
-1.2%
6.2%
6.2%
-1.9%
7.6%
7.8%
-2.2%
3.7%
3.4%
-3.5%
2.2%
2.0%
-4.4%
-0.1%
0.3%
-1.1%
-6.0%
-1.2%
-4.0%
-8.5%
-4.7%
-6.6%
-9.6%
-7.4%
-7.3%
-9.8%
-8.3%
-8.8%
-10.2%
-9.6%
Re al GDP
% Chg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
CPI
% Chg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 280
20 September 2011
Figure 458: Economy Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Economy
RevPAR
$23.38
$27.64
$31.26
$30.17
$31.92
$36.98
$38.44
$37.44
$32.36
$31.89
$27.29
$22.87
$23.05
$27.64
$30.14
$29.80
$31.79
$35.15
$37.37
$36.27
$30.36
$29.92
$24.39
$20.93
$20.76
$23.86
$24.70
$25.01
$26.05
$29.11
$31.85
$29.39
$25.68
$25.10
$20.52
$18.30
$18.23
$21.99
$24.03
$24.60
$26.16
$30.05
$33.63
$31.01
$27.43
$26.90
$22.36
$19.43
$19.17
$23.27
$25.79
$26.44
$27.56
$31.52
$35.18
yoy
% Chg.
0.5%
1.3%
4.1%
1.3%
4.5%
5.0%
1.6%
7.2%
1.9%
3.2%
1.9%
-1.3%
-1.4%
0.0%
-3.6%
-1.2%
-0.4%
-5.0%
-2.8%
-3.1%
-6.2%
-6.2%
-10.6%
-8.5%
-9.9%
-13.7%
-18.0%
-16.1%
-18.1%
-17.2%
-14.8%
-19.0%
-15.4%
-16.1%
-15.9%
-12.5%
-12.2%
-7.8%
-2.7%
-1.7%
0.5%
3.2%
5.6%
5.5%
6.8%
7.2%
9.0%
6.1%
5.2%
5.8%
7.3%
7.5%
5.3%
4.9%
4.6%
vs
Peak
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-1.4%
0.0%
-3.6%
-1.2%
-0.4%
-5.0%
-2.8%
-3.1%
-6.2%
-6.2%
-10.6%
-8.5%
-11.2%
-13.7%
-21.0%
-17.1%
-18.4%
-21.3%
-17.1%
-21.5%
-20.6%
-21.3%
-24.8%
-20.0%
-22.0%
-20.5%
-23.1%
-18.5%
-18.0%
-18.7%
-12.5%
-17.2%
-15.2%
-15.6%
-18.1%
-15.1%
-18.0%
-15.8%
-17.5%
-12.4%
-13.7%
-14.8%
-8.5%
Economy
O ccupancy
46.7%
53.3%
58.5%
57.2%
59.0%
65.4%
65.9%
64.3%
58.5%
58.5%
51.7%
44.5%
44.8%
51.8%
55.3%
55.1%
57.1%
61.7%
63.5%
61.4%
54.7%
54.8%
47.0%
41.6%
41.4%
47.1%
48.8%
49.4%
50.2%
55.0%
58.1%
54.5%
50.4%
50.5%
43.8%
40.2%
40.3%
47.2%
50.6%
51.1%
52.9%
58.7%
62.4%
58.3%
54.2%
54.1%
47.6%
42.5%
42.2%
49.6%
53.5%
54.1%
54.9%
60.4%
63.8%
yoy
% Chg.
-2.6%
-1.2%
0.7%
-0.6%
1.5%
1.7%
-0.9%
2.7%
-1.2%
-0.2%
-1.9%
-4.2%
-4.1%
-2.8%
-5.6%
-3.6%
-3.2%
-5.7%
-3.6%
-4.6%
-6.4%
-6.4%
-9.1%
-6.4%
-7.7%
-9.1%
-11.7%
-10.2%
-12.1%
-10.8%
-8.5%
-11.1%
-7.8%
-7.8%
-6.8%
-3.5%
-2.5%
0.2%
3.7%
3.3%
5.5%
6.7%
7.3%
6.9%
7.3%
7.0%
8.5%
5.8%
4.7%
5.1%
5.8%
5.9%
3.9%
2.8%
2.3%
Economy
ADR
$50.06
$51.87
$53.43
$52.78
$54.11
$56.54
$58.33
$58.23
$55.33
$54.48
$52.76
$51.41
$51.44
$53.33
$54.54
$54.12
$55.68
$57.01
$58.82
$59.11
$55.46
$54.60
$51.88
$50.26
$50.18
$50.65
$50.65
$50.61
$51.93
$52.92
$54.82
$53.91
$50.91
$49.67
$46.82
$45.54
$45.20
$46.59
$47.52
$48.17
$49.47
$51.19
$53.92
$53.18
$50.66
$49.77
$47.01
$45.68
$45.41
$46.91
$48.20
$48.90
$50.16
$52.21
$55.17
yoy
% Chg.
3.2%
2.6%
3.4%
1.9%
3.0%
3.2%
2.5%
4.3%
3.1%
3.4%
3.9%
3.0%
2.8%
2.8%
2.1%
2.5%
2.9%
0.8%
0.8%
1.5%
0.2%
0.2%
-1.7%
-2.2%
-2.5%
-5.0%
-7.1%
-6.5%
-6.7%
-7.2%
-6.8%
-8.8%
-8.2%
-9.0%
-9.8%
-9.4%
-9.9%
-8.0%
-6.2%
-4.8%
-4.7%
-3.3%
-1.6%
-1.4%
-0.5%
0.2%
0.4%
0.3%
0.5%
0.7%
1.4%
1.5%
1.4%
2.0%
2.3%
% Change In Room
Demand
Supply Reve nue
-0.8%
1.8%
2.4%
0.7%
1.9%
3.3%
2.5%
1.8%
6.0%
1.2%
1.9%
3.2%
3.6%
2.1%
6.7%
3.9%
2.1%
7.2%
1.2%
2.1%
3.7%
4.9%
2.2%
9.5%
1.2%
2.4%
4.4%
2.1%
2.3%
5.7%
0.2%
2.2%
4.2%
-2.3%
2.0%
0.7%
-2.0%
2.1%
0.7%
-0.7%
2.1%
2.1%
-3.5%
-1.5%
2.1%
-1.7%
2.1%
0.8%
-1.3%
2.0%
1.6%
-4.0%
-3.2%
1.8%
-1.8%
-1.0%
1.8%
-2.8%
-1.3%
1.9%
-4.9%
-4.7%
1.6%
-4.8%
-4.6%
1.7%
-7.6%
-9.2%
1.6%
-4.9%
-7.0%
1.6%
-6.0%
-8.4%
1.8%
-7.7%
-12.4%
1.5%
-10.5%
-16.9%
1.4%
-9.0%
-14.9%
1.4%
-11.2%
-17.2%
1.1%
-9.6%
-16.1%
1.3%
-7.6%
-13.9%
1.0%
-10.3%
-18.2%
0.9%
-6.9%
-14.5%
1.0%
-6.9%
-15.3%
0.9%
-6.0%
-15.1%
0.9%
-2.6%
-11.7%
0.9%
-2.0%
-11.7%
0.6%
-7.3%
0.8%
0.6%
-2.0%
4.4%
0.7%
-1.1%
3.9%
0.6%
6.0%
0.6%
1.0%
0.0%
6.7%
3.2%
0.0%
7.3%
5.6%
6.9%
0.0%
5.5%
-0.1%
7.2%
6.7%
-0.4%
6.5%
6.7%
-0.5%
8.0%
8.5%
-0.5%
5.3%
5.6%
-0.3%
4.3%
4.8%
-0.2%
4.8%
5.6%
-0.2%
5.6%
7.1%
-0.1%
5.8%
7.4%
4.0%
0.1%
5.4%
3.2%
0.4%
5.3%
2.6%
0.3%
5.0%
Re al GDP
% Chg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
CPI
% Chg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 281
20 September 2011
Figure 459: Independent Monthly Operating Trends
Month
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Inde pe ndent
RevPAR
$47.77
$58.01
$63.45
$59.68
$60.58
$68.89
$72.51
$71.40
$63.38
$64.81
$54.48
$47.27
$49.86
$59.84
$64.42
$60.57
$61.93
$68.50
$72.69
$72.38
$60.27
$59.83
$46.88
$41.81
$41.25
$48.55
$49.09
$49.16
$48.57
$54.52
$61.43
$58.47
$51.64
$50.92
$40.48
$38.61
$38.31
$46.63
$50.62
$50.47
$51.49
$59.28
$66.89
$62.31
$55.66
$55.28
$45.11
$41.22
$41.69
$49.57
$56.10
$55.18
$55.53
$63.77
$71.81
yoy
% C hg.
6.0%
8.0%
9.3%
5.2%
8.5%
8.2%
6.1%
11.2%
6.9%
9.8%
6.8%
5.0%
4.4%
3.2%
1.5%
1.5%
2.2%
-0.6%
0.2%
1.4%
-4.9%
-7.7%
-13.9%
-11.5%
-17.3%
-18.9%
-23.8%
-18.8%
-21.6%
-20.4%
-15.5%
-19.2%
-14.3%
-14.9%
-13.7%
-7.7%
-7.1%
-4.0%
3.1%
2.7%
6.0%
8.7%
8.9%
6.6%
7.8%
8.6%
11.4%
6.8%
8.8%
6.3%
10.8%
9.3%
7.8%
7.6%
7.4%
vs
Peak
-4.2%
-3.1%
-1.5%
-1.5%
-2.2%
0.0%
-0.2%
-1.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.6%
0.0%
0.0%
-4.9%
-7.7%
-13.9%
-11.5%
-17.3%
-18.9%
-23.8%
-18.8%
-21.6%
-20.9%
-15.5%
-19.2%
-18.5%
-21.4%
-25.7%
-18.3%
-23.2%
-22.1%
-21.4%
-16.7%
-16.9%
-14.0%
-8.0%
-13.9%
-12.2%
-14.7%
-17.2%
-12.8%
-16.4%
-17.2%
-12.9%
-8.9%
-10.3%
-7.4%
-1.2%
Indepe nde nt
O ccupancy
49.5%
57.2%
62.5%
60.6%
61.7%
68.8%
69.9%
68.7%
63.0%
63.1%
55.1%
46.8%
48.0%
56.0%
59.5%
58.7%
59.5%
65.0%
67.4%
66.2%
58.0%
58.0%
48.4%
42.7%
42.8%
50.2%
51.9%
52.6%
52.4%
57.9%
62.4%
59.2%
54.6%
53.9%
45.7%
41.3%
42.0%
49.7%
53.8%
54.3%
55.1%
61.5%
66.3%
62.3%
57.6%
57.6%
49.5%
43.3%
44.6%
52.3%
57.5%
57.3%
57.3%
64.3%
68.6%
yoy
% Chg.
-2.4%
-1.8%
0.6%
-1.4%
1.3%
1.5%
-0.5%
2.7%
-0.3%
1.3%
-0.8%
-2.6%
-2.9%
-2.1%
-4.9%
-3.2%
-3.6%
-5.5%
-3.5%
-3.7%
-8.1%
-8.2%
-12.3%
-8.7%
-10.9%
-10.4%
-12.8%
-10.2%
-11.9%
-11.0%
-7.5%
-10.5%
-5.8%
-7.0%
-5.6%
-3.3%
-1.8%
-1.0%
3.7%
3.1%
5.2%
6.3%
6.4%
5.3%
5.5%
6.7%
8.4%
4.9%
6.2%
5.1%
6.9%
5.5%
4.0%
4.5%
3.4%
Independe nt
ADR
$96.54
$101.44
$101.46
$98.51
$98.19
$100.15
$103.73
$103.92
$100.54
$102.67
$98.86
$101.09
$103.82
$106.87
$108.29
$103.27
$104.14
$105.33
$107.80
$109.41
$103.97
$103.19
$96.96
$97.90
$96.40
$96.74
$94.64
$93.38
$92.71
$94.22
$98.53
$98.77
$94.54
$94.40
$88.67
$93.50
$91.19
$93.81
$94.07
$93.01
$93.41
$96.34
$100.82
$99.95
$96.60
$96.01
$91.13
$95.17
$93.49
$94.86
$97.56
$96.37
$96.86
$99.18
$104.67
yoy
% Chg.
8.7%
10.0%
8.7%
6.7%
7.1%
6.6%
6.7%
8.3%
7.2%
8.3%
7.7%
7.8%
7.5%
5.4%
6.7%
4.8%
6.1%
5.2%
3.9%
5.3%
3.4%
0.5%
-1.9%
-3.2%
-7.1%
-9.5%
-12.6%
-9.6%
-11.0%
-10.5%
-8.6%
-9.7%
-9.1%
-8.5%
-8.5%
-4.5%
-5.4%
-3.0%
-0.6%
-0.4%
0.7%
2.2%
2.3%
1.2%
2.2%
1.7%
2.8%
1.8%
2.5%
1.1%
3.7%
3.6%
3.7%
2.9%
3.8%
% Change In Room
De mand
Supply Re ve nue
-2.8%
-0.4%
5.6%
-2.1%
-0.3%
7.7%
-0.4%
0.2%
8.9%
-1.6%
-0.2%
5.0%
-0.3%
1.0%
8.2%
-0.4%
1.2%
7.8%
-0.9%
-0.4%
5.7%
-0.3%
2.4%
10.9%
-0.8%
-0.5%
6.3%
-0.4%
0.9%
9.3%
-1.2%
-0.4%
6.4%
-3.0%
-0.4%
4.6%
-3.0%
0.0%
4.3%
-1.9%
0.2%
3.3%
-4.5%
0.3%
1.9%
-2.8%
0.4%
1.9%
-3.2%
0.5%
2.7%
-4.7%
0.8%
0.2%
-2.6%
1.0%
1.2%
-3.0%
0.8%
2.1%
-7.1%
-3.9%
1.0%
-7.2%
-6.7%
1.0%
-10.9%
-12.6%
1.5%
-7.0%
-9.9%
1.9%
-10.2%
-16.7%
0.8%
-9.7%
-18.3%
0.7%
-12.4%
-23.4%
0.5%
-9.9%
-18.5%
0.4%
-11.6%
-21.3%
0.3%
-10.9%
-20.3%
0.2%
-7.5%
-15.5%
0.0%
-10.6%
-0.1%
-19.3%
-6.2%
-0.4%
-14.7%
-7.4%
-0.5%
-15.3%
-6.3%
-0.8%
-14.3%
-3.9%
-0.6%
-8.2%
-1.8%
0.0%
-7.2%
-0.8%
-3.8%
0.1%
4.0%
0.3%
3.4%
3.4%
0.3%
3.0%
5.5%
0.3%
6.3%
7.0%
0.6%
9.4%
7.3%
0.9%
9.8%
6.2%
0.9%
7.5%
6.8%
1.2%
9.1%
8.2%
1.4%
10.0%
9.6%
1.0%
12.6%
5.8%
0.9%
7.7%
7.8%
1.6%
10.6%
6.7%
1.5%
7.9%
8.2%
1.3%
12.3%
6.9%
1.3%
10.7%
5.3%
1.2%
9.1%
5.5%
0.9%
8.6%
4.4%
1.0%
8.4%
Re al GDP
% Chg.
2.5%
2.5%
2.5%
1.7%
1.7%
1.7%
2.5%
2.5%
2.5%
1.8%
1.8%
1.8%
2.1%
2.1%
2.1%
1.0%
1.0%
1.0%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-3.3%
-3.3%
-3.3%
-5.0%
-5.0%
-5.0%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-3.7%
-0.5%
-0.5%
-0.5%
3.3%
3.3%
3.3%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
3.1%
3.1%
1.6%
1.6%
1.6%
0.0%
C PI
% Chg.
2.0%
2.4%
2.8%
2.6%
2.7%
2.7%
2.3%
1.9%
2.8%
3.6%
4.4%
4.1%
4.3%
4.1%
4.0%
3.9%
4.1%
4.9%
5.5%
5.3%
5.0%
3.7%
1.0%
0.0%
-0.1%
0.1%
-0.4%
-0.6%
-1.0%
-1.2%
-2.0%
-1.5%
-1.3%
-0.2%
1.9%
2.8%
2.6%
2.2%
2.4%
2.3%
2.0%
1.1%
1.3%
1.2%
1.1%
1.2%
1.1%
1.4%
1.7%
2.2%
2.7%
3.1%
3.4%
3.4%
3.6%
Page 282
20 September 2011
Hotel Segments
Smith Travel Research, an industry data provider, compiles industry statistics for each chain
scale segment.
Hotels that are not affiliated with a brand are categorized as independent hotels, regardless
of price or amenities. At the end of June 2011, there were 1,483,852 independently operated
hotel rooms in the Unites States, or 30.3% of the 4,884,997 total hotel rooms in the United
States.
Figure 461 through Figure 466 show the brands and each brand’s parent as Smith Travel
Research has categorized them.
Figure 460: Breakdown of U.S. hotels by STR’s chain scale segments
Existing Supply of
4.9M hotel rooms
Luxury
3%
Ind't
30%
Upper
Upscale
11%
Upscale
12%
Upper Midscale
17%
Economy
16%
Midscale
11%
Page 283
20 September 2011
Figure 461: U.S. Luxury Brands
Luxury
Brand
Preferred
JW Marriott
Ritz-Carlton
InterContinental
W Hotel
Grand Hyatt
Four Seasons
Fairmont
Loews
Waldorf=Astoria
Luxury Collection
Sofitel
Trump Hotel Collection
St Regis
Affinia
Helmsley Hotel
Mandarin Oriental
RockResorts
AKA
Rosewood
Park Hyatt
Conrad
Andaz
The Peninsula
Langham
Montage
Doyle Collection
Viceroy
Jumeirah
Taj
Edition
The Prince
Mokara
Firmdale
Colony
The Tides
U.S. Luxury Brand Rooms:
Parent
Preferred Hotels & Resorts
Marriott Corporation
Intercontinental Hotels
Hyatt
Fairmont Hotels
Loews Hotels Company
Hilton Worldwide
Accor Company
Hyatt
Hilton Worldwide
Hyatt
The Doyle Collection
The Indian Hotel Company
Prince Hotels & Resorts
Omni
Room Share
13.9%
9.7%
9.1%
7.8%
6.7%
6.6%
6.4%
6.1%
6.0%
5.8%
3.2%
2.1%
1.9%
1.7%
1.6%
1.4%
1.3%
1.0%
0.8%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.3%
0.3%
0.2%
0.1%
0.1%
0.0%
0.0%
124,428
Page 284
20 September 2011
Figure 462: U.S. Upper Upscale Brands
Upper Upscale
Brand
Parent
Marriott
Hilton
Hilton Worldwide
Sheraton Hotel
Hyatt
Hyatt
Embassy Suites
Hilton Worldwide
Westin
Renaissance
Omni
Omni
Wyndham
Wyndham Worldwide
Kimpton
Kimpton Hotels
Gaylord
Millennium
Millennium & Copthorne Global
Autograph Collection
Joie De Vivre
Hard Rock
Marriott Conference Center
Club Quarters
Le Meridien
Dolce
Swissotel
Fairmont Hotels
Hotel Nikko
JAL Hotels Company
Hilton Grand Vacations
Camino Real
Marriott Executive Apartment
Dream Hotel
Wyndham Worldwide
St. Giles Hotel
Doral
Starhotels
Pan Pacific
Pan Pacific Hotel Group
New Otani
Red Carnation
U.S. Upper Upscale Brand Rooms:
Room Share
23.3%
19.2%
12.3%
9.4%
9.0%
7.8%
5.2%
2.6%
2.5%
1.7%
1.4%
1.1%
0.7%
0.7%
0.6%
0.6%
0.5%
0.4%
0.3%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
550,314
Page 285
20 September 2011
Figure 463: U.S. Upscale Brands
Upscale
Brand
Courtyard
Residence Inn
Hilton Garden Inn
Doubletree
Crowne Plaza
Caesars
Springhill Suites
Homewood Suites
Radisson
Disney`s
Hyatt Place
Staybridge Suites
Four Points
aloft Hotel
Aston Hotel
Hotel Indigo
Great Wolf Lodge
Ascend Collection
Outrigger
Grand America
Cambria Suites
Hotel Sierra
Coast Hotel
element
Sonesta Hotel
Prince Hotel
Legacy Vacation Club
Melia
Adam`s Mark
Novotel
Miyako
NYLO Hotel
Club Med
Fitzpatrick Hotel
Jolly
Park Plaza
Canad Inn
Room Mate
O`Callaghan
U.S. Upscale Brand Rooms:
Parent
Hilton Worldwide
Hilton Worldwide
Hilton Worldwide
Carlson Hospitality Company
Hyatt
Hyatt
ResortQuest Hawaii Grp
Choice Hotels International
Outrigger Hotels Company
Lodgeworks
Coast Hotels & Resorts
Prince Hotels & Resorts
Grupo Sol Melia
Accor Company
Room Share
18.5%
11.8%
10.7%
8.9%
7.7%
6.6%
5.4%
5.4%
4.5%
3.9%
3.4%
3.2%
2.2%
1.0%
0.9%
0.7%
0.6%
0.6%
0.6%
0.5%
0.4%
0.4%
0.4%
0.3%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
608,784
Page 286
20 September 2011
Figure 464: U.S. Upper Midscale Brands
Upper Midscale
Brand
Parent
Holiday Inn Express
Holiday Inn
Hampton Inn
Hilton Worldwide
Comfort Inn
Hampton Inn Suites
Hilton Worldwide
Fairfield Inn
Best Western Plus
Best Western Company
Comfort Suites
Clarion
TownePlace Suites
Drury Inn & Suites
Drury Hotels
Ramada Plaza
Wyndham Worldwide
Xanterra
Wyndham Worldwide
Isle of Capri
Ayres
Lexington
Vantage Hospitality
Drury Inn
Drury Hotels
Holiday Inn Select
Ohana
Outrigger Hotels Company
Chase Suites
Park Inn
Silver Cloud
Doubletree Club
Hilton Worldwide
Drury Plaza Hotel
Drury Hotels
Westmark
Best Western Premier
Phoenix Inn
3 Palms
America`s Best Franchising
Scanticon
Home2 Suites
Hilton Worldwide
Drury Suites
Drury Hotels
Drury Lodge
Drury Hotels
Travelodge
Sunspree Resorts
Golden Tulip
Golden Tulip Group
Night Hotel
Wyndham Worldwide
Key West Inns & Suites
Key West Inns Company
U.S. Upper Midscale Brand Rooms:
Room Share
18.0%
14.5%
13.9%
13.8%
7.3%
7.3%
7.0%
5.9%
3.6%
2.4%
1.3%
0.9%
0.5%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
813,279
Page 287
20 September 2011
Figure 465: U.S. Midscale Brands
Midscale
Brand
Parent
Best Western
Quality Inn
Ramada
Wyndham Worldwide
La Quinta Inn & Suites
LQ Management LLC
Country Inn & Suites
La Quinta Inn
LQ Management LLC
Sleep Inn
Candlewood Suites
Baymont
Wyndham Worldwide
Wingate By Wyndham
Wyndham Worldwide
AmericInn
Howard Johnson
Wyndham Worldwide
Red Lion
Red Lion Hotels Company
Wyndham Worldwide
Shilo Inn
Quality Suites
Mainstay Suites
Vagabond Inn
Settle Inn
Boomerang Company
Crystal Inn
InnSuites Hotel
Cabot Lodge
GrandStay Residential Suites
GrandStay Hospitality
Yotel QQ
ClubHouse
Vista
Signature Inn
Crossings by GrandStay
GrandStay Hospitality
America`s Best Suites
Heartland Inn
Rode Inn
Lakeview
U.S. Midscale Brand Rooms:
Room Share
20.3%
16.8%
10.3%
9.3%
7.1%
6.5%
5.6%
5.6%
4.2%
2.8%
2.4%
1.8%
1.7%
1.4%
0.9%
0.6%
0.6%
0.6%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
519,509
Page 288
20 September 2011
Figure 466: U.S. Economy Brands
Economy
Brand
Parent
Days Inn
Wyndham Worldwide
Super 8
Wyndham Worldwide
Motel 6
Accor Company
Americas Best Value Inn
Vantage Hospitality
Econo Lodge
Extended Stay America
Homestead Village, Inc
Red Roof Inn
Westmont Hospitality Group
Travelodge
Wyndham Worldwide
Microtel Inn
Wyndham Worldwide
Rodeway Inn
Value Place
Value Place
Knights Inn
Wyndham Worldwide
InTown Suites
Wyndham Worldwide
Homestead
Extended Stay Deluxe
Jameson Inn
Studio 6
Accor Company
Budget Suites of America
Country Hearth Inn
Red Carpet Inn
Budget Host
America`s Best Inn
GuestHouse Inn
Boomerang Company
Crossland Suites
Scottish Inn
Studio Plus
Crestwood Suites
Sun Suites
E-Z 8
Masters Inn
Savannah Suites
Good Nite Inn
Pear Tree Inn
Drury Hotels
Family Inn
Budgetel
National 9
Key West Inn
Key West Inns Company
Home Towne Suites
Affordable Suites
Select Inn
Master Hosts Inns
Passport Inn
Lees Inn Of America
Great Western
1st Interstate Inn
Roadstar Inn
Wellesley Inn
Homegate
Shoney`s Inn
Boomerang Company
Downtowner Inn
U.S. Economy Brand Rooms:
Room Share
16.6%
14.2%
12.5%
6.7%
6.3%
5.2%
4.7%
3.0%
2.7%
2.7%
2.6%
2.6%
2.3%
2.2%
2.1%
1.3%
1.0%
0.9%
0.9%
0.9%
0.9%
0.9%
0.8%
0.8%
0.7%
0.6%
0.5%
0.5%
0.4%
0.4%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
784,831
Page 289
20 September 2011
Hotel Supply
Figure 468 through Figure 476 provide a snapshot of current hotel construction. As we
explain in our report, construction activity has waned since 2008, which should lead to
minimal supply growth in 2012 and 2013. Compared to the steady demand-supply balance in
the late 1980’s and 1990’s, supply has surged ahead of demand, even considering the
significant recovery in lodging demand during 2010 and 2011. From a national perspective,
we believe no new supply will need to be added until at least 2014.
Supply data is sourced from Smith Travel Research / McGraw – Hill Construction Dodge
Figure 467: Pipeline Phase Definitions
In Construction:
Final Planning:
Planning:
Active Pipeline:
Pre-Planning:
Phase Definitions
Ground has been broken or the owner is finalizing bids on
the prime (general) contract
The project will go out for bids, or construction will start
within 4 months
An architect or engineer has been selected for the project
and plans are underway. Initial approvals have usually been
granted
In Construction + Final Planning + Planning
No architect has been selected
The availability of financing, issuance of building permits, owner commitment, and many
other factors can alter anticipated completion dates, number of rooms to be constructed, or
the viability of the project. Number of projects and number of rooms in the construction
pipeline are subject to change. Projects in early stages of development are less likely to be
completed than projects in later stages.
Recently Opened hotels
Figure 468: Overview of Pipeline by Development Status
(opened <1yr) declining as
Rooms
Aug-11
Sequential
vs.
Jul-11
4,881,917
46,636
0.1%
-3.9%
0.7%
-54.9%
1.0%
In Construction
Final Planning
Planning
Active Pipeline
53,753
90,574
171,341
315,668
-2.0%
3.5%
-5.2%
-2.3%
-8.3%
40.8%
-27.9%
-12.4%
1.1%
1.9%
3.5%
6.5%
continued improvement in
Early Planning
101,760
-1.7%
5.8%
2.1%
the economy.
Total Pipeline
417,428
-2.1%
-8.6%
8.6%
market is absorbing supply
built during 2006-2008
lending boom.
Final Planning has started to
pick up. Whether these
projects continue to
Construction will depend on
financing availability and
Existing Supply
Recently Opened
Deferred or abandoned
Returned to pipeline
8,681
2,240
Yr/Yr
% of
vs.
Existing
Aug-10 Supply
0.2%
0.0%
Page 290
20 September 2011
Wyndham has primarily
conversion brands.
InterCon’s pipeline in the US
is from Holiday Inn
Figure 469: Pipeline Overview by Company as of August 2011
Current Share of
Share of Active
U.S. rooms
Pipeline
InterContinental
7.7%
17.6%
Hilton
10.0%
18.3%
Marriott
10.0%
16.8%
Choice
8.1%
5.9%
Starwood
3.0%
1.9%
Hyatt
1.8%
2.5%
Wyndham Worldwide
9.3%
0.8%
Carlson
1.3%
0.8%
Total
49.9%
63.8%
Variance
987 bps
828 bps
687 bps
-226 bps
-109 bps
72 bps
-847 bps
-53 bps
1393 bps
Figure 470: U.S. Existing Supply in Top 26 MSA’s as of August 2011
Big convention markets, like
Las Vegas, Orlando, and
Chicago are the top hotel
markets in the US.
Existing
Market
Supply
Las Vegas, NV
169,029
Orlando, FL
117,686
Chicago, IL
107,485
Washington, DC-MD-VA 104,785
New York, NY
101,239
LA-Long Beach, CA
98,169
Atlanta, GA
93,857
Dallas, TX
76,796
Houston, TX
72,929
Phoenix, AZ
61,166
San Diego, CA
58,146
53,717
51,652
Boston, MA
50,300
Miami-Hialeah, FL
47,616
Tampa-St Pete, FL
44,022
Philadelphia, PA-NJ
43,286
Detroit, MI
41,655
Seattle, WA
40,560
Denver, CO
40,122
39,793
St Louis, MO-IL
38,863
Minn-St Paul, MN-WI
37,983
New Orleans, LA
35,505
Nashville, TN
35,386
Oahu Island, HI
29,267
Total
1,691,014
Total (ex-LV)
1,521,985
Top 26 MSA %
of Total Supply
10.0%
7.0%
6.4%
6.2%
6.0%
5.8%
5.6%
4.5%
4.3%
3.6%
3.4%
3.2%
3.1%
3.0%
2.8%
2.6%
2.6%
2.5%
2.4%
2.4%
2.4%
2.3%
2.2%
2.1%
2.1%
1.7%
100.0%
90.0%
% of Total
U.S. supply
3.5%
2.4%
2.2%
2.1%
2.1%
2.0%
1.9%
1.6%
1.5%
1.3%
1.2%
1.1%
1.1%
1.0%
1.0%
0.9%
0.9%
0.9%
0.8%
0.8%
0.8%
0.8%
0.8%
0.7%
0.7%
0.6%
34.6%
31.2%
Page 291
20 September 2011
Figure 471: Total Hotels In Construction as of August 2011
New York still has
significant construction in
the pipeline. New York has a
higher occupancy and
should be able to absorb the
supply. Most of this supply
is in the upscale segment.
Midtown will see supply
growth.
Nashville’s supply is coming
from the $250M, 800-room
Omni Hotel near the
Nashville Convention
Center. The hotel broke
ground in June ’11 and is
scheduled to open in late
2013.
Existing
In
Market
Supply
Construction
New York, NY
101,239
7,212
Nashville, TN
35,386
1,365
Philadelphia, PA-NJ
43,286
1,224
Orlando, FL
117,686
3,233
Washington, DC-MD-VA 104,785
2,404
Miami-Hialeah, FL
47,616
1,026
Dallas, TX
76,796
1,550
New Orleans, LA
35,505
655
Minn-St Paul, MN-WI
37,983
566
Seattle, WA
40,560
538
Denver, CO
40,122
480
Chicago, IL
107,485
1,258
St Louis, MO-IL
38,863
402
San Diego, CA
58,146
584
Houston, TX
72,929
630
Phoenix, AZ
61,166
507
51,652
253
Oahu Island, HI
29,267
142
Atlanta, GA
93,857
455
Boston, MA
50,300
216
Tampa-St Pete, FL
44,022
180
LA-Long Beach, CA
98,169
326
53,717
130
Las Vegas, NV
169,029
308
Detroit, MI
41,655
72
39,793
0
Total
1,691,014
25,716
Total (ex-LV)
1,521,985
25,408
% of
Existing
Supply
7.1%
3.9%
2.8%
2.7%
2.3%
2.2%
2.0%
1.8%
1.5%
1.3%
1.2%
1.2%
1.0%
1.0%
0.9%
0.8%
0.5%
0.5%
0.5%
0.4%
0.4%
0.3%
0.2%
0.2%
0.2%
0.0%
1.5%
1.7%
Page 292
20 September 2011
Figure 472: Luxury Hotels In Construction as of August 2011
There are only 4 luxury
branded hotels under
construction right now:
St. Regis Bal Harbour
Four Seasons Inner Harbor
Preferred’s Meritage Resort
Park Hyatt New York
Luxury hotels have
experienced significant
growth in the last decade. A
high-end development
slowdown is needed to
allow profitability to
recover.
Market
Miami-Hialeah, FL
New York, NY
Chicago, IL
Orlando, FL
LA-Long Beach, CA
Phoenix, AZ
Atlanta, GA
San Diego, CA
Las Vegas, NV
Boston, MA
New Orleans, LA
Dallas, TX
Oahu Island, HI
Houston, TX
Philadelphia, PA-NJ
Seattle, WA
Denver, CO
Tampa-St Pete, FL
St Louis, MO-IL
Minn-St Paul, MN-WI
Detroit, MI
Nashville, TN
Existing
Supply
5,436
13,842
6,654
6,481
6,265
5,807
5,749
4,934
4,116
3,728
3,559
3,506
3,367
2,763
2,006
1,925
1,817
1,631
1,630
1,336
1,294
817
647
550
462
425
In
Construction
189
210
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
% of
Existing
Supply
3.5%
1.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Page 293
20 September 2011
Figure 473: Upper Upscale Hotels In Construction as of August 2011
The Omni Hotel in Nashville
is to open in late 2013. One
of Gaylord’s four large
hotels is in Nashville. While
Gaylord has worked to
provide a unique experience
at its hotel complexes, the
Omni Hotel adds 11% to
room supply in the market,
which will likely reduce
Gaylord’s pricing power in
Nashville.
A $140M, 500-room
Radisson Blu is scheduled to
open at the Mall of America
in March 2013.
The 1,000-room Omni Dallas
Convention Center Hotel is
scheduled to open in
November 2011. Another
Gaylord property is in
Dallas.
A $520M, 1,175-room
Marriott Marquis Hotel is in
construction near the Walter
E. Washington Convention
Market
Nashville, TN
Minn-St Paul, MN-WI
Dallas, TX
Orlando, FL
New York, NY
Philadelphia, PA-NJ
St Louis, MO-IL
Chicago, IL
Phoenix, AZ
Las Vegas, NV
San Diego, CA
LA-Long Beach, CA
Atlanta, GA
Boston, MA
Houston, TX
Oahu Island, HI
Denver, CO
Seattle, WA
New Orleans, LA
Tampa-St Pete, FL
Detroit, MI
Miami-Hialeah, FL
Existing
Supply
7,417
6,842
16,305
29,598
17,983
19,215
8,466
8,144
30,403
10,450
9,906
11,652
20,591
18,473
18,133
14,538
12,663
12,273
10,065
8,586
7,673
7,645
7,382
7,042
6,528
3,754
In
Construction
800
500
1,030
1,175
700
662
270
212
759
250
212
215
0
0
0
0
0
0
0
0
0
0
0
0
0
0
% of
Existing
Supply
10.8%
7.3%
6.3%
4.0%
3.9%
3.4%
3.2%
2.6%
2.5%
2.4%
2.1%
1.8%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Center in Washington, DC.
The Hotel is scheduled to
open spring 2014.
The Wyndham Grand (400
rooms Oct 2011) and
Embassy Suites Orlando
(300 rooms Sep 2012) are in
construction in Orlando.
Page 294
20 September 2011
Figure 474: Upscale Hotels In Construction as of August 2011
New York Construction:
Hyatt is opening a Hyatt
Place hotel on W 36th St (Apr
12) and a Hyatt Place hotel
on E 52nd St (Jun 13).
Marriott is opening a
Courtyard at 960 6th Ave
(Sep 12) and a Residence Inn
& Courtyard at 1717
Broadway (Aug 13).
InterCon is opening Hotel
Indigo at 180 Orchard St (Jul
12)
Orlando Construction is
related to Disney’s Art of
Animation Resort Phases 1,
2, & 3 Opening in May, July,
and December of 2012,
respectively.
Market
New York, NY
Philadelphia, PA-NJ
Miami-Hialeah, FL
Orlando, FL
New Orleans, LA
San Diego, CA
Oahu Island, HI
Atlanta, GA
Boston, MA
Chicago, IL
Denver, CO
Dallas, TX
Phoenix, AZ
Houston, TX
Las Vegas, NV
LA-Long Beach, CA
Minn-St Paul, MN-WI
Seattle, WA
Detroit, MI
Tampa-St Pete, FL
St Louis, MO-IL
Nashville, TN
Existing
Supply
12,970
10,616
5,574
33,645
4,464
5,244
7,759
5,005
13,886
19,572
10,249
17,620
8,620
13,487
10,808
9,007
12,390
28,090
13,476
9,158
7,533
6,168
5,946
5,242
5,225
4,639
In
Construction
1,922
878
369
1,984
253
284
291
142
378
509
216
337
150
221
156
130
90
96
0
0
0
0
0
0
0
0
% of
Existing
Supply
14.8%
8.3%
6.6%
5.9%
5.7%
5.4%
3.8%
2.8%
2.7%
2.6%
2.1%
1.9%
1.7%
1.6%
1.4%
1.4%
0.7%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Page 295
20 September 2011
Figure 475: Hotels In Construction without Brand Affiliation as of August 2011
Manhattan Hotels:
Hotel Americano, 56 rooms,
September 2011
Allen St Hotel, 80 rooms,
October 2011
The NoMad, 165 rooms,
March 2012
Gem Hotel, 114 rooms, May
2012
Audobon Hotel, 36 rooms,
June 2012
Pod Too, 369 rooms, August
2012
Axel Hotel, 127 rooms,
October 2012
Cosmopolitan, 25 rooms,
September 2012
25 Great Jones, 48 rooms,
Date TBD
Market
New York, NY
Seattle, WA
New Orleans, LA
Philadelphia, PA-NJ
Tampa-St Pete, FL
LA-Long Beach, CA
San Diego, CA
Dallas, TX
Miami-Hialeah, FL
Chicago, IL
Las Vegas, NV
Orlando, FL
Atlanta, GA
Houston, TX
Phoenix, AZ
Detroit, MI
Oahu Island, HI
Boston, MA
St Louis, MO-IL
Nashville, TN
Denver, CO
Minn-St Paul, MN-WI
Existing
Supply
39,465
8,094
13,764
7,823
5,272
12,071
33,253
15,960
10,053
20,586
18,131
114,227
28,564
14,137
13,347
12,685
11,533
11,122
9,456
9,408
8,957
8,479
5,454
4,444
4,027
3,726
In
Construction
1,660
250
318
120
76
72
164
78
27
51
42
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
% of
Existing
Supply
4.2%
3.1%
2.3%
1.5%
1.4%
0.6%
0.5%
0.5%
0.3%
0.2%
0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Page 296
20 September 2011
Figure 476: Scheduled Openings through 2012 for Luxury, Upper Upscale, Upscale, and Independent Hotels in the
Top 25 Markets
Scheduled
Opening
9/12/11
9/14/11
9/20/11
9/26/11
9/30/11
9/30/11
9/30/11
10/1/11
10/1/11
10/1/11
10/4/11
10/5/11
10/18/11
10/18/11
10/19/11
10/21/11
10/24/11
10/25/11
11/1/11
11/1/11
11/11/11
11/15/11
11/22/11
12/1/11
12/1/11
12/1/11
12/7/11
12/8/11
1/6/12
1/7/12
1/17/12
1/19/12
2/1/12
2/1/12
2/8/12
2/17/12
3/1/12
3/10/12
3/15/12
4/1/12
4/1/12
4/10/12
5/1/12
5/1/12
5/6/12
5/10/12
6/1/12
7/1/12
7/1/12
7/1/12
7/1/12
7/1/12
7/2/12
7/15/12
7/15/12
8/3/12
8/15/12
8/15/12
9/1/12
9/1/12
9/20/12
9/24/12
10/15/12
10/19/12
11/1/12
11/1/12
12/1/12
12/20/12
Project
Rooms
City
State
The Hotel Williamsburg @ McCarren Park
64
Brooklyn NY
Hotel Americano
56
New York NY
Federal City Inn & Suites
120
New Orleans LA
Hilton Garden Inn Mount Laurel
140
Mount Laurel NJ
Residence Inn Hyattsville Largo
96
Landover MD
Wrigleyville Hotel
42
Chicago IL
Shore Hotel
164
Santa Monica CA
Staybridge Suites Chicago
200
Chicago IL
Wyndham Grand Orlando Resort Bonnet Creek
400 Lake Buena Vista FL
Allen Street Hotel
80
New York NY
Hotel Indigo French Quarter
168
New Orleans LA
Embassy Suites St Louis Downtown
212
St Louis MO
Hilton Garden Inn Covington
116
Covington LA
Hotel Sierra
147
King Of Prussia PA
Hilton Garden Inn Devens
118
Devens MA
Homewood Suites Boston Canton
98
Canton MA
Residence Inn Dallas DFW Airport South Irving
118
Irving TX
Hyatt Regency Union Square
175
New York NY
Radisson Blu Aqua Hotel
334
Chicago IL
Hotel 718
128
Brooklyn NY
Omni Dallas Convention Center Hotel
1000
Dallas TX
Aulani Resort & Spa Ko Olina Phase 2
142
Kapolei - Oahu HI
SpringHill Suites New York Queens Corona
230
Corona NY
Staybridge Suites Houston IAH Beltway 8
90
Houston TX
Bal Harbour Quarzo Phase 2
51
Bal Harbour FL
Hotel Lumen Expansion
30
Dallas TX
Courtyard by Marriott San Diego Oceanside
140
Oceanside CA
element Miami International Airport
209
Miami FL
SpringHill Suites Philadelphia King of Prussia Valley Forge
131
King of Prussia PA
SpringHill Suites Dallas Richardson
103
Richardson TX
Hotel Indigo Atlanta College Park
120
College Park GA
St Regis Resort & Residences Bal Harbour
189
Bal Harbour FL
The Hotel Zamora
72
St Pete Beach FL
Spa Castle Hotel
27
Carrollton TX
Courtyard by Marriott Scottsdale Pima Reservation
156
Scottsdale AZ
Courtyard by Marriot Philadelphia Coatesville
125
Coatesville PA
The NoMad Hotel
165
New York NY
Kimpton Hotel Palomar @ CityScape
250
Phoenix AZ
Staybridge Suites Greenbelt
118
Greenbelt MD
Hyatt Place Midtown South
188
New York NY
Hyatt Place Vista Carlsbad
151
Vista CA
Homewood Suites Philadelphia University of Pennsylvania 136
Philadelphia PA
Centerstone Hotel Warner Theatre
76
West Chester PA
Disney's Art of Animation Resort Phase 1
Marriott Chicago Naperville
425
Naperville IL
Gem Hotel Union Square
114
New York NY
aloft Hotel SFO
253
Millbrae CA
Park Hyatt Hotel New York
210
New York NY
SpringHill Suites Denver Downtown @ Metro College
150
Denver CO
Hotel Monaco
270
Philadelphia PA
Hotel Indigo
151
New York NY
Unnamed Hotel
73
Brooklyn NY
Hilton Carlsbad Beach Resort & Spa
215
Carlsbad CA
aloft Hotel Miami Brickell
160
Miami FL
Homewood Suites Warrington
95
Warrington PA
Pod Too
369
New York NY
Residence Inn Orange County San Juan Capistrano
130 n Juan Capistrano CA
Unnamed Hotel
78
Imperial Beach CA
Cambria Suites Schaumburg
137
Schaumburg IL
Courtyard by Marriott Manhattan Midtown South
168
New York NY
Embassy Suites Orlando Lake Buena Vista South
300
Kissimmee FL
Axel Hotel @ The Out NYC
127
New York NY
Courtyard by Marriott Washington DC Foggy Bottom
147
Washington DC
Unnamed Boutique Hotel @ Mosaic
150
Merrifield VA
Hotel Sierra
148
Fairfax VA
Homewood Suites Atlanta Midtown
105
Atlanta GA
Brand
Independent
Independent
Independent
Hilton Garden Inn
Residence Inn
Independent
Independent
Staybridge Suites
Wyndham
Independent
Hotel Indigo
Embassy Suites
Hilton Garden Inn
Hotel Sierra
Hilton Garden Inn
Homewood Suites
Residence Inn
Hyatt
Radisson Blu
Independent
Omni
Disney`s
Springhill Suites
Staybridge Suites
Independent
Kimpton
Courtyard
element
Springhill Suites
Springhill Suites
Hotel Indigo
St Regis
Independent
Independent
Courtyard
Courtyard
Independent
Kimpton
Staybridge Suites
Hyatt Place
Hyatt Place
Homewood Suites
Independent
Disney`s
Marriott
Independent
aloft Hotel
Park Hyatt
Springhill Suites
Kimpton
Disney`s
Hotel Indigo
Independent
Hilton
aloft Hotel
Homewood Suites
Independent
Residence Inn
Independent
Cambria Suites
Courtyard
Embassy Suites
Independent
Courtyard
Independent
Hotel Sierra
Disney`s
Homewood Suites
Chain Scale Segment
Independents
Independents
Independents
Upscale Chains
Upscale Chains
Independents
Independents
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Luxury Chains
Independents
Independents
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Independents
Upscale Chains
Luxury Chains
Upscale Chains
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Independents
Upscale Chains
Independents
Upscale Chains
Upscale Chains
Upscale Chains
Owner
Kiska Group LTD
Grupo Habita
Sun Development & Management Corporation
Tharaldson Development Company Inc
Tim Collins
Farzam Family
Dellisart Lodging LLC
Wyndham Hotels & Resorts
D.A.B. Group LLC
Seabrook Lodging, Inc
Spinnaker Real Estate Partners
Patel Construction LLC
Lodgeworks,LLC
True North Hotels Group
Benderson Development Company
Chase Hospitality
Hersha Hospitality
V3 Hotels
Matthews Southwest Properties
Walt Disney Co
HBC Corona LLC
Surendra Patel
R D Olson Development
Norwich Partners
Ruchi Enterprises
Lowen Hospitality Management
Intercontinental Hotel Group
St Pete Beach Properties, LLC
Waterford Hotel Group
1170 Broadway Associates LLC
CDK Partners
Greenbelt Hospitality LLC
Brisam East 52nd LLC
ABA Development LLC
Campus Realty Properties
The McFadden Group
Walt Disney World
Gemini Real Estate Advisors
Starwood Group
Extell Development Co
Auraria Higher Education Center Facilities Mgmt.
Kimpton Hotel and Restaurant Group, Inc.
LES Realty Group LLC
80 Wythe LLC
Wave Crest Resorts II
Sunview Companies
BD Hotel LLC
R D Olson Development
Pacifica Companies
960 Associates LLC
Caribe Royale All-Suites Resort & Convention Ctr
Parkview Developers LLC
MJ Tyler and Associates LLC
Edens & Avant
Lodgeworks LLC
North Point Hospitality Group Inc
Page 297
20 September 2011
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
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Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject
issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report. Carlo Santarelli
Equity rating key
Buy: Based on a current 12- month view of total share-holder
return (TSR = percentage change in share price from current
price to projected target price plus pro-jected dividend yield )
, we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder
return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out
and, based on this time horizon, do not recommend either a
Buy or Sell.
Notes:
1. Newly issued research recommendations and target prices
always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Buy: Expected total return (including dividends) of 10% or
more over a 12-month period
Equity rating dispersion and banking relationships
450
400
350
300
250
200
150
100
50
0
52 %
46 %
47 %
37 %
3 % 40 %
Buy
Hold
Companies Covered
Sell
Cos. w/ Banking Relationship
North American Universe
Hold: Expected total return (including dividends) between 10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10% or
worse over a 12-month period
Page 298
20 September 2011
Regulatory Disclosures
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EU
countries:
Disclosures
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under
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Page 299
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