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					                              Hospitality Directions US
                              Hospitality and Leisure
November 2012
Q3




At a glance
Lodging recovery setback,
but still positive.

Economy slows further,
growth to improve in 2013.

Storm effects concentrated
in fourth quarter.

Our RevPAR outlook for
2012 is stepped down to 6.6
percent growth, followed by
5.4 percent in 2013.
Reflecting slower near-term economic growth, weaker third-quarter results,
and the fourth-quarter impact of Superstorm Sandy, our expectations for
RevPAR growth in 2012 and 2013 are lower than in our August outlook.
PwC’s lodging outlook anticipates continued growth in occupancy and
average daily rate (ADR) will result in a 6.6 percent increase in revenue per
available room (RevPAR) in 2012, followed by a 5.4 percent gain in 2013.
Supply growth remains suppressed and occupancy is expected to advance
to 61.9 percent in 2013. ADR growth is expected to accelerate.
In this issue
                Lodging outlook setback 1

                Growth slows, uncertainty abounds 3

                Our outlook for the US lodging
                industry 10

                Our chain scale outlook 22

                The hoteliers’ role in rebuilding 31

                Contact us 32
Lodging outlook setback


             Reflecting slower near-term         adjusted basis by the second
             economic growth, weaker third-      half of 2013. ADR is expected
             quarter results, and the fourth-    to increase 4.4 percent in 2013,
             quarter impact of Superstorm        as rate gains accelerate from
             Sandy, our expectations for         the 3.8 and 4.1 percent gains
             RevPAR growth in 2012 and           achieved in 2011 and 2012,
             2013 are lower than in our          respectively.
             August outlook. However,
             we also see enough forward          As we prepare this outlook in
             momentum - assuming a baseline      early November, we’re working
             macroeconomic scenario—to           with a flow of incoming
             maintain a positive outlook on      information, and a set of
             the sustained pace of the lodging   assumptions on future conditions.
             recovery. Indeed, RevPAR in         Like many with close ties to
             the four-week period through        areas affected by the storm,
             October 27 (before Superstorm       we’re sensitive to Superstorm
             Sandy) was solidly ahead of         Sandy’s human toll. As we assess
             last year, showing a 7.3 percent    the economic consequences
             improvement. In this outlook,       of the storm, we are aware
             we anticipate RevPAR will grow      that in heavily impacted areas,
             6.6 percent in 2012, followed       recovery efforts are still in early
             by 5.4 percent in 2013. Demand      stages. As a result, information is
             growth is expected to continue to   incomplete and our comments are
             outpace supply, lifting occupancy   preliminary.
             to 62.0 percent on a seasonally




                                                       Q3/November 2012 PwC         1
With election day past,                                    contagion, and that the fragile                            also due to GDP growth that is
attention is shifting from                                 recovery in the US gradually                               now anticipated to increase just
political campaigns to the                                 strengthens in 2013.                                       1.6 percent in 2012 on a fourth-
nearing challenges presented                                                                                          quarter-over-fourth-quarter basis,
by existing fiscal policies, the                           In this context, our lodging                               and 2.9 percent in 2013. Overall,
“fiscal cliff” of tax increases                            outlook is somewhat weaker than                            we expect RevPAR to average
and spending cuts slated for                               this summer, but still positive.                           $65.06 in 2012, almost $0.50
next year. While the path is                               ADR, which gained less ground                              below its nominal peak in 2007,
unclear, the baseline scenario                             in the third quarter than in                               and then increase to $68.55 in
underlying our outlook assumes                             prior quarters, is assumed to                              2013. Adjusted for inflation, this
that a temporary solution is                               take slightly longer to recover.                           puts real RevPAR above its 15-
reached, that the sovereign debt                           Lodging demand is stepped back                             year average starting in the first
crisis in the Eurozone evolves                             slightly in the fourth quarter,                            quarter of 2013 (Figure 1).
without slipping into a financial                          partly due to storm impacts, but



Figure 1: RevPAR, real, 1987 to 2013
Figure 1—RevPAR, real, 1987 to 2013

RevPAR, 2011 dollars


    $75

                                                                                                                 RevPAR
                                                                                                               (2011 dollars)
    $70



    $65                               15–year average



    $60



    $55



    $50
          87        89           91          93          95          97          99          01           03          05          07          09          11    13

Note: RevPAR is shown seasonally adjusted, in 2011 dollars, adjusted by the consumer price index. The series is historical through the third quarter of 2012,
and estimated through the fourth quarter of 2013. Vertical grey bars indicate recessions. 15-year average is based on the period from 1997 to 2011.
Source: Smith Travel Research; Bureau of Labor Statistics; National Bureau of Economic Research; Macroeconomic Advisers, LLC; PwC




2              PwC Hospitality Directions US
Growth slows,
uncertainty abounds


                                                           The US economy has experienced                              the firm that provides the un-
                                                           a further deceleration in the pace                          derlying economic drivers to our
                                                           of economic activity in 2012. Even                          lodging outlook, now anticipates
                                                           as recently as August, it appeared                          annualized GDP growth of just
                                                           that growth would begin to im-                              1.3 in the fourth quarter, with full
                                                           prove moderately by the fourth                              year growth for 2012 at just 1.6
                                                           quarter of this year, but expecta-                          percent (Table 1 and Figure 2).1
                                                           tions have been marked down,
                                                           and Macroeconomic Advisers,                                 The October employment report
                                                                                                                       helped confirm that the economy
                                                                                                                       hasn’t slipped into recession, but
Table 1: GDP outlook summary                                                                                           the broad brush picture continues
                                                                                                                       to reflect a sluggish recovery.
    Outlook           2012 Second half                   2012 Full year                   2013 Full year               While earlier expectations had
    Current                    1.7%                             1.6%                             2.9%                  hinged on gradual gains in
    Prior                      1.9%                             1.8%                             3.0%                  momentum that would encourage
Note: Figures reflect real GDP growth at an annualized rate. Full year figures are reported on a fourth quarter over   a more favorable context for
fourth quarter basis. The current outlook corresponds to the Macroeconomic Advisors forecast released
November 2012, and the prior outlook refers to the Macroeconomic Advisors forecast released August 2012,
                                                                                                                       business decisions, incoming data
which was used as a base in PwC Hospitality Directions US August 2012                                                  confirms that firms have reined
Source: Macroeconomic Advisers, LLC                                                                                    in investment activities, limited




1
    Annual GDP growth rates are reported on a fourth-quarter over fourth-quarter basis, unless otherwise noted.



                                                                                                                             Q3/November 2012 PwC         3
Figure 2—Annualized rate of growth in real GDP and unemployment rate
Figure 2: Annualized rate of growth in real GDP and unemployment rate

    10%
                                     Unemployment rate                                                                           Forecast
    8%

    6%

    4%

    2%

    0%

    -2%

    -4%                                                                            Real GDP growth                                      GDP growth
                                                                                                                                         firms in the
    -6%
                                                                                                                                        second half
    -8%                                                                                                                                      of 2013

-10%
      2006             2007             2008             2009              2010             2011             2012                2013        2014



Source: Bureau of Economic Analysis; Bureau of Labor Statistics; Macroeconomic Advisers, LLC (forecast released November 2012)




payroll growth, and maintained                         in Europe, political brinkmanship                       more sustainable borrowing costs
a skeptical view of the course of                      on US fiscal policy, or a more                          and calming markets. However,
expansion.                                             pronounced slowing in the global                        a full-fledged resolution of the
                                                       economy, there are multiple                             crisis is not yet in place, and the
What has kept decisions in check?                      potential paths to a US recession.                      situation is made more difficult
In part, a context of uncertainty                      These key risks are summarized                          by the fact that the Eurozone
has contributed to hesitancy.                          as follows.                                             is currently experiencing what
With the economy near a stall                                                                                  is expected to be a shallow
speed, exposed to risks of tipping                     While risks in the Eurozone                             recession, with a cumulative
back into recession, and the                           appear to have lessened                                 decline in GDP of 1.0 percent
outcome of the Eurozone debt                           somewhat this fall, the debt                            from the fourth quarter of 2011
crisis and US “fiscal cliff” unclear,                  crisis remains far from                                 to the fourth quarter of 2012.
companies and households                               resolution. In September,                               There is still the potential that
have taken pause.2,3 Decision-                         the European Central Bank                               missteps in the Eurozone could
makers can readily conceive of                         announced support measures                              cause financial markets to pull
event sequences with downside                          that succeeded in lowering                              back from apparent risks, with a
outcomes. Whether initiated by a                       Italian and Spanish sovereign                           flight toward the perceived safety
drop in financial markets related                      debt yields, providing some                             of liquid, low-risk assets, such
to a loss of patience with progress                    breathing room in the form of                           as US Treasury securities. Such


2
  Economists surveyed by the Wall Street Journal in early-October estimated the probability of recession during the next 12 months is
approximately one in five (22 percent).
3
  Wall Street Journal (2012, October). Economic Forecasting Survey. Retrieved from: http://online.wsj.com/public/resources/documents/
info-flash08.html?project=EFORECAST07



4             PwC Hospitality Directions US
an outcome would quickly affect               be contractionary going into
growth not just in Europe but                 2013, primarily due to the
also the US.                                  expiration of the payroll tax
                                              holiday and federal emergency
While it is assumed the “fiscal               unemployment benefits at the
cliff” is successfully averted,               end of 2012, as well as new taxes
the road to a temporary                       under the Affordable Care Act.4
fix may not be smooth.
Macroeconomic Advisers                        The global economy has
assumes that Republicans                      slowed more than anticipated,
and Democrats will find a                     reducing the positive lift of
compromise to avoid the large                 export driven growth. In
fiscal contraction—spending                   its most recent outlook, the
cuts and tax increases equaling               International Monetary Fund
about five percent of GDP—that                (IMF) reduced its forecast of
is in place under current laws                global GDP growth relative to its
and which is being referred to                July 2012 outlook, citing, among
as the “fiscal cliff.” But the path           other factors: a slowing in global
during November, December and                 manufacturing activity; a sharp
potentially early January may not             slowing of growth in China;
be smooth, and greater attention              and slower growth in emerging
is being paid to the potential                markets including India, Latin
that Congress will fail to agree              America, and emerging European
on any type of resolution, which              economies. Looking ahead, the
would risk pushing the economy                IMF expects global growth to
into recession. Even assuming a               improve from 3.0 percent in 2012
successful temporary resolution,              to 4.0 percent in 2013.5
fiscal policy is expected to




4
  In October, Macroeconomic Advisers estimated that the drag on GDP growth in
2013 related to such likely fiscal contraction would be equivalent to approximately
1.2 percentage points. The analysis attributes 0.7 percentage point to the expiration of
the payroll tax holiday and extended unemployment benefits, 0.2 percentage point to
the assumed expiration of partial expensing and new taxes under the Affordable Care
Act, and 0.3 percentage point to dynamic effects of reduced discretionary spending.
5
  International Monetary Fund. (2012, October). World Economic Outlook, Coping with
High Debt and Sluggish Growth. Retrieved from http://www.imf.org/external/pubs/ft/
weo/2012/02/pdf/text.pdf



                                                                                           Q3/November 2012 PwC   5
Will growth resume as uncertainty lifts?

Uncertainty on the part of                     it appears that businesses have                 as the election results provide
businesses and households is                   been cutting back on investment.                greater clarity about the political
receiving increased attention                  Macroeconomic Advisers now                      representatives taking office and
as a factor contributing to the                expects business investment                     presumably a reduction in policy
slow pace of economic activity                 in equipment and software to                    uncertainty, the significance of
and investment. In economic                    contract in the fourth quarter,                 the new information on the course
theory, uncertainty about future               before gradually resuming growth                of business decisions remains
conditions can affect the macro                in 2013. In a change in recent                  speculative.
economy by reducing demand.                    months, manufacturing firms now
                                               report receiving reduced orders                 Nevertheless, even if we can’t
For example, businesses delay
                                               for capital goods and indicate less             isolate specific contributing factors
investment projects, taking time
                                               confidence that they will increase              and cite a specific estimate of the
to gather additional information
                                               spending on capital equipment in                lift in spending growth that could
and clarity before committing cash
                                               the near term (Figure 3a and 3b).               occur as uncertainty is reduced,
and other resources. Households
                                                                                               we can still observe the results
postpone certain purchases,
                                               Uncertainty about government                    of the decisions being made as
such as replacing aged, but still
                                               policies also plays a potential role,           economic data is reported in the
functional, vehicles or appliances.
                                               but it’s unclear just how large                 coming months. Are orders for
Creditors tighten the availability of
                                               a role it may be. In the current                equipment picking up? Is spending
loans, further crimping investment
                                               context, businesses have been                   on automobiles, furniture and
and growth.6
                                               uncertain how policymakers                      other household durables rising?
These theories appear to match                 will address the “fiscal cliff,”                Such measures may provide the
the current situation. The slow                and how the Federal elections                   clearest indication that the effects
growth of the economy raises                   will impact the course of tax                   of uncertainty have lessened, and
concerns that there may not                    and regulatory policy over                      that decisions are being made with
be adequate momentum to                        the longer term. Economists                     greater clarity and confidence.
overcome an adverse shock                      have experimented with using
without a recession. Businesses                measures of policy uncertainty,7,8
and households lack clarity and                to attempt to isolate the effects
certainty about the future, and                of such uncertainty from broader
hesitate with spending decisions,              macroeconomic uncertainty, but
reinforcing the slow pace of                   the interpretation of the results
growth. Indeed, in recent months,              is inconclusive.9 Thus, even




6
  Terrones, M. E. and Kose, M. A. (2012, October). How does uncertainty affect economic performance? Within, International
Monetary Fund, World Economic Outlook: Coping with High Debt and Sluggish Growth (pp. 49-53). Retrieved from: http://www.imf.
org/external/pubs/ft/weo/2012/02/pdf/text.pdf
7
   For example, economists have considered a measure of policy uncertainty based on the average of three indicators: (1) the
frequency of the appearance of terms such as “economic policy” and “uncertainty” in the media, (2) the number of tax provisions that
will expire in coming years, and (3) the dispersion of forecasts of government outlays and inflation.
8
  Baker, S., Bloom, N. and Davis, SJ. (2012) “Measuring Economic Policy Uncertainty,” Stanford University Working Paper. Cited
within Terrones, M.E. and Kose, M.A. (2012, October).
9
   Mackenzie, K. (2012, October 22). Is ‘uncertainty’ really that big a deal? Financial Times, FT Alphaville. Retrieved from: http://
ftalphaville.ft.com/2012/10/22/1222541/is-uncertainty-really-that-big-of-deal/#



6           PwC Hospitality Directions US
Figure 3a: New orders for manufactured capital goods, to 2012
Figure3a—New orders for manufactured capital goods, 2005 2005 to 2012

Millions of dollars
  $70



  $65

                                                                                                                  New orders for capital
                                                                                                                  goods weakened in July,
  $60
                                                                                                                  August and September

  $55



  $50



  $45
         2005         2006      2007         2008         2009         2010         2011        2012

 Note: Data shown through September 2012. Series includes nondefense sectors only, and is seasonally adjusted. Capital goods include objects used to produce
 other goods and services (e.g., machinery, tools, equipment, computers). Shaded areas represent recessions.
 Source: US Census Bureau; National Bureau of Economic Research




Figure 3b: Manufacturers’ expectations for future capital expenditures
Figure3b—Manufacturers’ expectations for future capital expenditures

Diffusion index

   40
                                                                                             Empire State Survey
   30


   20


   10                                                                                                                 There has been a sharp reduction
                Business Outlook Survey                                                                               in the share of manufacturers that
                                                                                                                      expect to be making higher levels of
     0
                                                                                                                      capital investments six months from now

  -10


  -20
         2005         2006       2007         2008        2009         2010         2011         2012

 Note: Data is shown through October 2012. Both series are based on survey questions that measure the intentions of manufacturing firms to make capital
 investments six months in the future. Both series are diffusion indexes in which the percentage of firms expecting capital expenditures to be lower six months in the
 future relative to survey month is subtracted from the percentage of firms expecting capital expenditures to be higher six months in the future. The New York Federal
 Reserve Bank's Empire State Manufacturing Survey tracks manufacturers in New York, while the Philadelphia Federal Reserve Bank's Business Outlook Survey tracks
 manufacturers in Delaware, New Jersey, and Pennsylvania. Given close national linkages in manufacturing, such regional surveys provide timely information relevant
 to national trends.
 Source: New York Federal Reserve Bank, Philadelphia Federal Reserve Bank; National Bureau of Economic Research




                                                                                                                             Q3/November 2012 PwC                        7
Assuming uncertainty recedes               stability in net worth, which is   greater portion of disposable
and confidence builds as                   expected to support spending       income is expected to be
progress in Europe, a temporary            growth. Also, confidence           available to support resumed
resolution to the "fiscal cliff",          that home prices are inching       growth in consumer spending.
and gradual resumption in the              upward is expected to
pace of global growth is evident,          encourage prospective home       • Recovering business
Macroeconomic Advisers' base-              buyers to step off the sidelines   investment: As uncertainty
line outlook anticipates US GDP            to purchase a home, boosting       recedes, businesses are
growth improves from 1.6 percent           related spending and helping to    expected to resume capital
in 2012 to 2.9 growth in 2013.             rekindle home building activity.   investments, helping to boost
This outlook is supported by the                                              spending on equipment and
following factors:                       • Slower pace of household           software from an expected
                                           deleveraging: Household            negative 2.0 percent pace in
• Gradual improvement                      balance sheets have improved       the fourth quarter of 2012 to
  in financial conditions:                 marginally, as households          a positive pace better than six
  US financial markets have                have partially "delevered",        percent annually over 2013
  weathered recent economic                reducing their debt burden         and 2014.
  developments without a severe            through a combination of
  correction. US equity values             higher personal savings and      Lastly, though fiscal policy is con-
  are up 11.5 percent so far in            debt forgiveness by lenders,     tractionary, the Federal Reserve
  2012, and are not far below              and rising equity values have    maintains an accommodative
  peak levels achieved in 2007.            helped boost household net       monetary policy. As expected,
  Risk spreads on corporate                worth. Situations differ greatly the Federal Reserve announced a
  debt, while elevated, are                across individual households,    third round of quantitative eas-
  below crisis levels. By 2013,            as 22.3 percent of residential   ing in September, referred to as
  with a renewed decline in risk           properties with a mortgage       QE3, as well as plans to keep the
  aversion, financial conditions           are still in a negative equity   federal funds rate at its current
  are expected to gradually                position, even as other          exceptionally low range through
  improve, resulting in increased          households are benefiting from mid-2015. This move reflects
  equity values and greater                the availability of low interest increased frustration on the part
  willingness on the part of               rate refinancing. However,       of the Federal Reserve that the
  banks to lend to businesses              households are generally         economy remains stubbornly
  and consumers.                           shifting from saving more,       below its potential, with excessive
                                           to spending more, with the       levels of unemployment.
• Improving home prices:                   personal saving rate declining
  With recent home price gains,            from near six percent in 2008
  existing home owners are                 to below four percent more
  expected to perceive greater             recently. Going forward, a




8        PwC Hospitality Directions US
Our key macroeconomic assumptions

The following describes the key assumptions supporting the current macroeconomic outlook.10,11
 Factor                       Assumption
 Consumer spending            Consumer spending dropped sharply during the recession in response to a huge
                              decline in wealth, slumping labor income, and cyclical weakening in the economy.
                              Looking ahead, consumer spending is expected to grow slightly faster in 2013 (2.3
                              percent) than in 2011 (1.9 percent) and 2012 (2.0 percent).
 Labor markets                The October employment report was above expectations, but labor markets remain
                              weak. Gains in the remainder of the year and the beginning of 2013 are expected to
                              be lackluster. Monthly nonfarm job gains are expected to average 148,000 during
                              2013, and then 223,000 in 2014. The unemployment rate is expected to remain
                              at or above seven percent through 2014, well above the estimated natural rate of
                              unemployment of approximately 5.5 percent.
 Oil prices                   Crude oil prices are slightly lower than at the start of 2012. The outlook assumes
                              prices gradually decline during 2013.
 US dollar                    Overall, the value of the dollar is expected to average 2.7 percent higher in 2012 than
                              in 2011, and retain its approximate current value under the baseline assumption that
                              the financial crisis in the Eurozone doesn’t materially worsen.
 Equity and                   After a rocky 2011 that saw a decline of $1.5 trillion, real estate net worth rose by
 housing markets              approximately $0.75 trillion during the first half of 2012, driven in large part by
                              increases in house prices. Overall, household net worth is expected to increase 8.9
                              percent in 2012 and 5.6 percent in 2013. Equity values have increased 11.5 percent
                              year-to-date (through November 7). Home prices measured by the CoreLogic Home
                              Price Index are expected to increase 5.5 percent this year, before rising 2.4 percent
                              in 2013.
 Inflation                    The consumer price index (CPI) is expected to increase 2.1 percent in 2012 and 1.6
                              percent in 2013. Long-term inflation forecasts among economists average 2.4 percent on
                              a CPI basis.
 Fiscal policy                The baseline assumes the 2.0 percent payroll tax holiday and federal unemployment
                              benefits expire at the end of 2012 as scheduled. However, the baseline also assumes
                              that lawmakers avoid the “fiscal cliff” by reaching an agreement to extend the Bush
                              era tax cuts beyond the end of this year, continue the Alternative Minimum Tax patch
                              and “doc fix” payments by Medicare, and avoid a full sequester dictated by the debt
                              limit law passed in August 2011.
 Monetary policy              On September 13, 2012, the Federal Reserve announced it would implement a
                              third round of quantitative easing (also referred to as QE3). This is expected to
                              last through the third quarter of 2013, with purchases of close to $900 billion of
                              Treasuries and mortgage-backed securities. The Federal Reserve is expected to
                              maintain the exceptionally low federal funds rate through at least mid-2015.
 Terrorist threats and The outlook assumes no significant terrorist acts in the United States or against US
 natural disasters     interests abroad that could negatively affect consumer travel. Also, the outlook does
                       not incorporate an expectation of any major natural disasters.

10
     Macroeconomic Advisers, LLC. (2012, November 6) Forecast at a Glance. Retrieved from http://macroadvisers.com.
11
     Macroeconomic Advisers, LLC. (2012, November 2) Macro Watch Compilation. Retrieved from http://macroadvisers.com.



                                                                                                 Q3/November 2012 PwC    9
Our outlook for the US
lodging industry


                                     The ongoing recovery in travel              As we prepare this outlook, it
                                     has been jostled and tested. In             appears that despite this trial,
                                     September, results appeared                 the underlying trajectory of
                                     weaker than expected, with year-            the travel recovery remains
                                     over-year gains in occupancy and            intact. While storm-impacted
                                     ADR across all of the chain scale           areas face a road of extended
                                     segments slowing relative to                recovery, broader national
                                     August. The timing of the Jewish            travel activity has resumed.
                                     holidays, while anticipated,                The trend preceding the storm
                                     partly obscured year-over-year              points to a continued expansion
                                     comparisons of travel volumes in            in travel volumes. During the
                                     September, limiting visibility to           first four weeks of October,
                                     the underlying trends.12 Further            which is a period prior to the
                                     deterioration in economic                   severe weather, US occupancy
                                     conditions and a context of                 averaged 66.1 percent according
                                     heightened uncertainty weighed              to preliminary results from Smith
                                     on expectations for travel                  Travel Research, which is 2.7
                                     activity. Then, at the end of               percent ahead of the comparable
                                     October, Superstorm Sandy                   period in 2011. With a US room
                                     traversed the Eastern US, with              inventory that is approximately
                                     tragic impacts.                             0.7 percent greater, this implies



                                     12
                                       In September 2012, the timing of the Jewish holidays of Rosh Hashanah and Yom
                                     Kippur tended to decrease the attractiveness of business transient and group travel
                                     relative to September 2011. Also, September 2012 had five Sundays, which are typically
                                     the lowest occupancy days of the week, compared to four Sundays in 2011



10   PwC Hospitality Directions US
a level of occupied room              growth of 7.2 percent in 2012,
nights 3.4 percent ahead of the       and 5.6 percent in 2013. The
prior year. In an economy in          differences are attributable to
which real GDP has expanded           three changes: third quarter
approximately 1.6 percent from        results that came in lower than
the prior year, these pre-storm       anticipated, particularly due to
October results point to a positive   performance in September; a
pace of travel activity.              more pessimistic macroeconomic
                                      outlook, which now calls for
Our outlook is for further growth     slower growth in the second
in the remainder of the fourth        half of 2012 than previously
quarter and into 2013, resulting      anticipated; and the effects
in 5.7 percent RevPAR growth in       of Superstorm Sandy. Despite
the fourth quarter, 6.6 percent       these changes, we anticipate
for 2012 overall, and 5.4 percent     that both lodging demand and,
in 2013. This outlook is weaker       importantly, pricing, remain on
than our outlook this summer,         positive trajectories.
which anticipated RevPAR




                                                                         Q3/November 2012 PwC   11
Snapshot: Superstorm Sandy

The damage wrought by Superstorm Sandy represents                        storm, as airlines anticipated the severe weather.
a substantial blow to many local areas but the effects to                Cancellations on Tuesday represented approximately
the US economy, and the broader lodging industry, are                    20 percent of the scheduled US flights that day, and
expected to be limited. Working with the information                     even as schedules normalized, airlines reported it
available to date, we have prepared the following                        was difficult to accommodate travelers who had been
preliminary observations. We note that such comments                     stranded during the storm.15
on storm damage and economic impacts in no way
capture the tragic human dimension of this event.       • Early estimates rank storm damage above
                                                          Hurricane Irene but below Hurricane Katrina.
• Superstorm Sandy caused lasting damage as it
                                                          In a preliminary analysis released October 30,
  struck the Eastern US. Following its impacts to
                                                          IHS Global Insight, an economic analysis firm,
  Caribbean countries the prior week, Superstorm
                                                          anticipated total economic losses of approximately
  Sandy made landfall near Atlantic City, New Jersey as
                                                          $30 to $50 billion, representing 1.0 to 1.7 percent
  a post-tropical cyclone on Monday, October 29, 2012.
                                                          of annual gross regional product for the 15 states
  The effects of the storm were felt across the entire
                                                          affected, equivalent to about 0.2 to 0.3 percent of
  coastline of the Mid-Atlantic region, up through New
                                                          annual national GDP.16 Moody’s Analytics estimates
  England and into inland areas as far as the Great
                                                          economic losses approximating $50 billion, with $20
  Lakes region. New York City experienced a 13-foot
                                                          billion attributable to lost output and $30 billion
  surge of seawater, flooding lower Manhattan and as
                                                          attributable to property damage.17 These estimates
  winds calmed Tuesday morning, it became clear that
                                                          compare to an estimated economic loss related to
  a range of areas, particularly within the New York
                                                          Hurricane Irene in August 2011 of $12.6 billion, and
  metro area and along the New Jersey coast, had been
                                                          Hurricane Katrina in August 2005 of $157.1 billion.18
  severely damaged.
                                                                      • Hotel operators reported short-term impacts
• The storm significantly disrupted US air travel.
                                                                        across a range of properties. Some hotels in storm-
  By Tuesday, October 30, the runways at LaGuardia
                                                                        damaged areas were forced to close due to damage or
  Airport and John F. Kennedy International airport
                                                                        safety concerns, and some properties were without
  were flooded, and Newark Liberty International
                                                                        power, but the impact was also felt in areas without
  Airport was without commercial power.13 Statistics
                                                                        substantial storm damage. For example, Sunstone
  reported by FlightAware show flight cancellations
                                                                        Hotel Investors, Inc., a REIT with 30 properties,
  (roundly) by day of planned departure rose from
                                                                        reported that even though none of its properties
  1,300 on Sunday, to 7,900 and 7,100 on Monday and
                                                                        suffered notable property damage, the short term
  Tuesday, before dropping to 2,900 on Wednesday
                                                                        impact was experienced across almost every hotel
  and back to below 1,000 on Thursday, for a total
                                                                        in the company’s portfolio, particularly in the form
  for the week of approximately 20,200.14 Many of
                                                                        of group cancellations. The company reported
  these cancellations had been announced prior to the


13
  Mann, T., Esterl, M. and Nicas, J. (2012, October 30). Travelers Face a Nightmare. The Wall Street Journal. Retrieved from http://
online.wsj.com/article/SB10001424052970203880704578088651056027558.html
14
     FlightAware. (2012, November 1). Hurricane Sandy Flight Update. Retrieved from http://flightaware.com/news/article/story/177
15
  Credeur, M.J., Schlangenstein, M. and Stilwell, M. (2012, October 31) Sandy Shuts NYC Airports as Airlines Cut 20% of U.S. Flights.
Bloomberg News. Retrieved from http://www.sfgate.com/business/bloomberg/article/Sandy-Shuts-NYC-Airports-as-Airlines-Cut-20-
of-3996706.php#ixzz2BSN03xl6
16
  IHS Global Insight. (2012, October 30). Hurricane Sandy: Monster Storm Just In Time for Halloween [Press release]. Retrieved from
http://press.ihs.com/press-release/country-industry-forecasting/hurricane-sandy-monster-storm-just-time-halloween
17
  Moody’s Analytics. (2012, November 1). The Economic Impact of Sandy [webcast slides]. Retrieved from http://www.moodys.com/
PublishingImages/MCO/ProductAttachments/Econ_Impact_of_Sandy.pdf
18
  Moody’s Analytics. (2012, November 1). The Economic Impact of Sandy [webcast slides]. Retrieved from http://www.moodys.com/
PublishingImages/MCO/ProductAttachments/Econ_Impact_of_Sandy.pdf



12            PwC Hospitality Directions US
     significant cancellations in Washington DC, as well              travelers. Some hotels experienced short term boosts
     as Baltimore, and stated that even a group-oriented              to demand during and immediately after the storm
     hotel in San Diego had experienced a significant                 related to displaced residents, particularly as there
     cancellation.19, 20 Other hotel operators also reported          were substantial delays in restoring electrical power
     impacts from group cancellations in other major                  to many residents in the Mid-Atlantic. Such transient
     US markets, primarily citing air lift constraints.21, 22         demand would help replace occupancy, but not
     Hotels that were proximate to storm-impacted areas,              catering revenue associated with group cancellations.
     but which were able to keep operating, such as hotels            Meanwhile, rebuilding that begins to occur in the
     in midtown Manhattan, were reportedly operating                  fourth quarter will help boost near-term lodging
     near capacity, as the properties accommodated                    demand in some areas.
     displaced residents, stranded travelers, employees
     who sought to stay near their workplace, and relief-          • Longer-term impacts are expected to be the most
     related travelers.                                              severe in coastal areas where buildings and
                                                                     infrastructure were destroyed or significantly
• The net impact to fourth quarter lodging demand                    damaged. In such areas, particularly along the
  will depend on several factors, and will likely                    New Jersey shore and coastal areas of New York,
  differ by sub-market. The initial disruption to air                rebuilding efforts will support additional lodging
  travel is expected to have mixed effects, as some                  demand in the broader area, but the damage
  stranded travelers required accommodations, while                  sustained in resort towns along the coast likely
  other travelers, including international visitors                  represents a substantial, more lasting setback.
  planning to arrive at New York area airports, were                 Many smaller hotels in these areas were closed for
  unable to start their trip. Preliminary daily lodging              the season, but some may be unable to reopen next
  results reported for the week ended November                       summer, potentially representing a reduction in
  3 indicate that national occupancy averaged 2.5                    regional lodging supply. In many New Jersey shore
  percent below the prior year, as compared to the                   communities, home rentals are the primary form
  average gain of 2.7 percent in the prior four weeks.               of accommodations available to visitors and the
  Impacts to occupancy relative to the prior year were               speed of repair and rebuilding will vary by property
  evident in many of the top 25 cities, particularly                 and community. While the Atlantic City casinos
  on Tuesday and Wednesday. Group and transient                      reportedly did not suffer severe damage and had
  cancellations during the storm period in many cases                all reopened by November 5, these facilities may
  are expected to be rebooked to later periods, though               experience a longer term impact as it takes time for
  that does require room inventory that would have                   the region to rebuild its visitor infrastructure, homes
  otherwise been available to accommodate other                      and accommodations.




19
  Sunstone Hotel Investors, Inc. (2012, November 1). Sunstone Hotel Investors Reports Results for Third Quarter 2012 [Earnings
release]. Retrieved from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTYwMDk0fENoaWxkSUQ9LTF8VHlwZT0z
&t=1
20
   Sunstone Hotel Investors, Inc. (2012, November 2). Sunstone Hotel Investors Management Discusses Q3 2012 Results. Based on
transcript reported by Seeking Alpha. Retrieved from http://seekingalpha.com/article/974591-sunstone-hotel-investors-management-
discusses-q3-2012-results-earnings-call-transcript
21
  Ryman Hospitality Properties, Inc. (2012, November 6). Ryman Hospitality Properties Inc. Reports Third Quarter 2012 Results
[Earnings release]. Retrieved from http://ir.rymanhp.com/phoenix.zhtml?c=72635&p=irol-newsArticle&ID=1754798&highlight=
22
  Hyatt Hotels Corporation. (2012, October 31). Hyatt Hotels Corporation’s CEO Discusses Q3 2012 Results. Based on transcript
reported by Seeking Alpha. Retrieved from: http://seekingalpha.com/article/966671-hyatt-hotels-corporation-s-ceo-discusses-q3-
2012-results-earnings-call-transcript




                                                                                                 Q3/November 2012 PwC            13
Demand                                         part, this is attributable to the              was running 14.9 percent behind
                                               activity that is evident in sectors            its 2007 level during 2011, in
Overall, we expect lodging
                                               that are important to lodging,                 the year-to-date period through
demand in the fourth quarter
                                               such as technology, healthcare,                September 2012, that same
to average 2.5 percent ahead
                                               biotechnology, and business and                measure was slightly better, at
of the prior year. After weaker
                                               professional services, as well as              14.7 percent behind (Figure 4).
than anticipated demand levels
                                               moderately better conditions                   Group business during the
in August and September, solid
                                               in the financial sector. Broadly,              four-week, pre-storm period in
pre-storm results in October,
                                               consumer spending, which                       October showed a year-over-year
which is typically a strong
                                               is estimated to remain weak                    increase in group occupancy
month for business travel,
                                               in the fourth quarter of 2012                  contribution of 4.5 percent at
provided a favorable start to the
                                               and first quarter of 2013, is                  upper-tier hotels in the top 25
fourth quarter. The short term
                                               expected to improve as 2013                    markets, ahead of a 1.9 percent
impacts of Superstorm Sandy
                                               progresses. This points to some                improvement in transient
are expected to have negatively
                                               incremental growth in leisure                  occupancy.
impacted aggregate lodging
                                               travel demand in 2013, though
demand at the end of October,
                                               elevated levels of unemployment                Travel from emerging markets
even as certain sub-markets
                                               and underemployment weigh on                   has helped boost performance
experienced heightened levels
                                               household spending choices.                    of US hotels, even as the global
of post-storm demand. With the
                                                                                              economy has weakened. After
normalization of scheduled air                 Meanwhile, there are indications               strong growth in the first quarter,
capacity, ongoing storm-damage                 that group travel continues                    spending by international
remediation and rebuilding                     to recover. Hotel owners and                   visitors eased slightly in the
efforts, and positive underlying               operators report group bookings                second quarter and the first two
demand trends, aggregate                       in place for 2013 are ahead of                 months of the third quarter, but
travel volumes in November and                 the pace recorded at this point a              spending remains above year-
December are expected to be                    year ago. There are indications                ago levels and above the trend
ahead of last year, though these               that groups with longer booking                since 2005 (Figure 5). Despite
months are less important to the               windows, such as associations                  this slowing, the World Tourism
fourth quarter than October.23                 that plan annual events several                Organization remains confident
                                               years in advance, are showing                  that international arrivals will
Trends in transient and group
                                               greater interest in securing                   surpass one billion in 2012 on
travel are important to our
                                               space, even as some more near-                 a global basis. As an example of
outlook going into 2013.
                                               term, typically corporate, group               this growth, international travel
Despite slow economic growth,
                                               business remains dependent on                  spending by residents of China
transient business travel has
                                               shorter-term decision making.                  grew at a 30 percent pace during
continued to gradually improve
                                               While the group occupancy                      the first half of 2012.
from recession-related lows. In
                                               contribution at upper-tier hotels




23
  November and December tend to be lighter than average travel months. The holidays reduce the number of weeks that are
favorable for group events and business travel, even as holiday-related leisure travel is strong. Nationally, 39 percent of fourth quarter
room nights have typically occurred in October, followed by 32 percent in November, and 29 percent in December. In 2012, the mid-
week timing of Halloween and the Federal elections somewhat reduced the attractiveness of those two weeks to meeting planners.



14          PwC Hospitality Directions US
Figure 4: Transient and group comparison
Figure 7—Transient and group comparison
Performance of the transient and group segments upper-tier hotels, shown as as percentage difference 2007 levels
Performance of the transient and group segments at at upper-tier hotels, shown percentage difference from from 2007 levels

 Occupancy
                                Weekday                                                                                Weekend
                                                                                                                                                      8.2%
                                                                                                                                      5.0%
                                                              2.5%
                                              0.5%                                                                     1.2%


                             -2.3%                                                                    -1.9%
-5.2% -4.7%                                                                           -4.3%
                                                                                           -6.2%
          -8.3%
                                                                                                                                                           -12.1%
                                                   -14.9%          -14.7%                                                                  -14.7%
                                                                                                                           -17.2%
                                    -18.0%
                                                              Commercial group                              -20.5%
                    -23.9%                                    business has further
                                                              room to recover

    2008           2009            2010           2011         2012 YTD                       2008          2009             2010           2011         2012 YTD


 ADR
                                Weekday                                                                                Weekend

       4.4%                                                                                   4.0%
 0.8%                                                                 1.4%                                                                                    1.0%


                      -1.5%                                                           -0.7%                                            -1.8% -1.1%
                                                     -1.8% -2.9%                                             -1.9%
                                      -3.7%                                                                                  -3.9%
                                                                                                                                  -6.3%
                                              -8.1%       Commercial transient
                             -12.0%                       rates are 2.9 percent                                      -11.0%
               -13.8%                                     below 2007 levels                          -14.8%




    2008           2009            2010           2011         2012 YTD                       2008           2009            2010           2011         2012 YTD

   Transient
   Group

Note: Information for 2012 is year-to-date through September compared to the same period in 2007. Upper-tier refers to luxury, upper upscale and upper-tier independent
properties, as tracked by Smith Travel Research.
Source: Smith Travel Research; PwC




                                                                                                                           Q3/November 2012 PwC                      15
Supply                                                      basis, and is expected to          recession peak. However, supply
                                                            accelerate gradually through       is 8.2 percent greater than in
Construction starts have
                                                            2013. Overall room supply is       2007, and as a result, industry
gradually increased from a
                                                            expected to increase 0.5 percent   occupancy—in aggregate—
trough reached in the first
                                                            in 2012 and 0.8 percent in 2013.   remains below its 2007 level.
quarter of 2010. As a result,
                                                                                               With growing demand and
there are more hotels under                                 Occupancy                          decelerating supply growth, we
construction than there were a
                                                            Lodging demand has surpassed       expect occupancy will increase
year ago, but the current pace
of construction starts is still                             its pre-recession peak, but in the to 61.4 percent during 2012 and
equivalent to only 1.2 percent                              meantime, additional hotels have 61.9 percent in 2013.
annual supply growth, before                                opened, and occupancy still has
                                                            some room to recover. Overall,     Hotels in higher priced chain
removals of closed hotels, and                                                                 scale segments have recovered
approximately 0.9 percent after                             on a seasonally adjusted basis,
                                                            the average daily number of        to more solid occupancy levels.
removals. Net supply growth,
which lags construction starts,                             room nights occupied during the Indeed, we anticipate that
                                                            second quarter was 5.8 percent     2012 occupancy at luxury,
is estimated to have reached a                                                                 upper upscale, upscale, and
trough in the fourth quarter of                             ahead of the annual average
                                                            during 2007, the industry’s pre-   upper midscale hotels will
2011, on a seasonally adjusted                                                                 surpass each segment’s 15-year



Figure 5: International visitor spending in the US
Figure 6—International visitor spending in the US

International spending,
in billions of real 2011 dollars
  $14                                                                                                                         International visitor spending


  $13
                                                                                                                                                              Trend
  $12


  $11


  $10


     $9


     $8
          2005               2006                 2007                 2008                2009                 2010                 2011                 2012



Note: Data is shown as a three-month moving average with August 2012 as the most recent data point. Series is the seasonally adjusted total US travel and tourism
export figure, and reflects spending by international arrivals to the US, including visitors from Canada and Mexico. Series is adjusted to real, 2011 dollars using the
consumer price Index. Trend line is based on the period from 2005 to 2012
Source: Bureau of Economic Analysis; Bureau of Labor Statistics




16               PwC Hospitality Directions US
Figure 6: Chain scale 2012 occupancy compared to 15-year average
Figure 5—Chain scale 2012 occupancy compared to 15–year average

   indicates 2012 occupancy
   indicates 15–year
   average occupancy

                                              73.3%
                                      70.0%           68.9% 70.7% 68.3% 70.7%
     60.9% 61.4%                                                                62.8% 62.9%
                                                                                                                        59.1% 58.3%
                                                                                              55.8% 54.7% 55.7% 54.3%




        US total                        Luxury          Upper       Upscale       Upper        Midscale    Economy      Independents
                                                        Upscale                  Midscale

 Note: 2012 is an estimate
 Source: Smith Travel Research, PwC




average occupancy (Figure 6).                     average for the segment (Figure             Many hotels in these segments
For example, upper upscale                        7), as ADR levels have yet to               have traditionally operated
hotels are expected to achieve                    fully recover from the recession.           with a base of group business
70.7 percent occupancy in                         Upscale hotels are in a similar             scheduled in advance, but in
2012, compared to a 15-year                       situation, with a 4.0 percent real          recent years that base has been
average of 68.9 percent. Many                     RevPAR gap. Upper midscale                  smaller. As nights with more
upper upscale hotels have                         hotels are operating at RevPAR              solid group demand levels
                                                                                              become more frequent, the
compensated for reduced levels                    levels that are moderately above
                                                                                              hotels accommodating these
of group demand and weaker                        the 15-year benchmark. These
                                                                                              groups are expected to be able
volumes of less-rate sensitive                    properties tend to be more                  to realize higher ADR levels on
corporate business travel, by                     recently constructed hotels                 the remaining inventory that is
accommodating leisure travelers                   (approximately one-third of                 offered to transient guests. Also,
and more rate-sensitive business                  today’s upper midscale room                 as hotels that accommodate
transient customers at lower                      supply opened in the 10 years               group demand displace more
price points.                                     between 2001 and 2011), and                 transient business to other hotels
                                                  operate with little reliance on             in their local market, these other
ADR and RevPAR                                    meetings business.                          hotels are expected to achieve
Despite stronger occupancy                                                                    better ADR levels.
                                                  Improving group demand is
levels, upper upscale hotels are
                                                  expected to help lift ADR levels            Looking ahead to 2013,
still expected to achieve RevPAR
                                                  at hotels in the higher-priced              trends appear favorable for
in 2012 that is 5.5 percent below                 chain scale segments in 2013.               improvements in corporate
the 15-year, inflation adjusted




                                                                                                     Q3/November 2012 PwC              17
Figure 7: Chain scale real 2012 RevPAR, percentage difference from 15-year average
Figure 4—Chain scale real 2012 RevPAR, percentage difference from 15–year average

         US total                           Luxury         Upper            Upscale          Upper        Midscale   Economy   Independent
                                                          Upscale                           Midscale                              hotels

                                                                                             0.9%
          -1.2%                             -1.3%
                                                                                                                                 -3.0%
                                                                            -4.0%
                                                           -5.5%




                                                                                                          -11.0%

                                                                                                                     -13.4%
  Note: 2012 is an estimate
  Source: Smith Travel Research, PwC




                                                                                                         negotiated rates. While markets
Figure 8: Occupancy                                                                                      remain competitive, and many
Figure 8—Occupancy
                                                                                                         travel managers are under
Occupancy
                                                                                                         pressure to keep a lid on travel
  66%                                                                                                    costs, the balance is shifting.
                                                                                      Forecast
                                                                                                         Improved occupancy levels in
  64%                                                               Occupancy
                                                                                                         specific sub-markets give hotel
                                                                                                         operators greater confidence to
  62%
                                                                                                         set higher rates, with less risk
                                                                                                         that a competitive hotel will
  60%                     15-year average                                                                under-cut the offer. Meanwhile,
                       occupancy = 60.8%                                                                 ADR gains in markets that
  58%
                                                                                                         accommodate substantial
                                                                                                         government business will be
                                                                                                         constrained by the freeze that
  56%
                                                                                                         has kept government “per diem”
                                                                                                         rates at last year’s levels.
  54%
         87     89     91     93       95   97       99   01   03      05      07      09    11     13
                                                                                                         Our outlook for occupancy is
                                                                                                  Year   shown in Figure 8, and Tables 2
Source: Smith Travel Research; PwC                                                                       and 3 summarize the key annual
                                                                                                         and quarterly measures in our
                                                                                                         US outlook.




18            PwC Hospitality Directions US
Table 2: US lodging outlook, November 12, 2012

                              2002      2003       2004      2005        2006       2007      2008      2009      2010     2011     2012     2013
Occupancy (percent)         59.0%      59.2%     61.3%      63.0%      63.2%      62.8%      59.8%     54.6%     57.5%    59.9%    61.4%    61.9%
Percentage change           -1.1%       0.3%      3.5%       2.9%       0.2%       -0.5%     -4.8%     -8.8%      5.4%     4.2%     2.4%     0.9%
from prior year
Pct. point difference          (0.7)      0.2        2.1        1.8        0.1       (0.3)     (3.0)     (5.3)      3.0      2.4      1.4      0.5
from prior year
Average daily rate ($)      $82.53     $82.67    $86.19    $91.03      $97.82 $104.33 $107.40          $98.07    $98.09 $101.80 $106.02 $110.73
Percentage change           -1.3%       0.2%       4.3%      5.6%       7.5%        6.7%      2.9%     -8.7%      0.0%     3.8%     4.1%     4.4%
from prior year
Nominal RevPAR ($)          $48.70     $48.91    $52.80    $57.36      $61.78     $65.55     $64.24    $53.50    $56.41   $61.02   $65.06   $68.55
Percentage change           -2.4%       0.4%       7.9%      8.6%       7.7%        6.1%     -2.0%     -16.7%     5.4%     8.2%     6.6%     5.4%
from prior year
Inflation-adjusted          $52.87     $51.91    $54.57    $57.36      $59.85     $61.73     $58.28    $48.69    $50.51   $52.97   $55.30   $57.34
RevPAR
($, 2005 base)
Percentage change           -3.9%      -1.8%       5.1%      5.1%       4.3%        3.2%     -5.6%     -16.5%     3.7%     4.9%     4.4%     3.7%
from prior year
Inflation as measured        1.6%       2.3%       2.7%      3.4%       3.2%        2.9%      3.8%      -0.3%     1.6%     3.1%     2.1%     1.6%
by CPI
Real GDP, percentage         1.8%       2.5%       3.5%      3.1%       2.7%        1.9%     -0.3%      -3.1%     2.4%     1.8%     2.1%     2.2%
change from prior
year (annual average)
Real GDP, percentage         1.9%       3.9%       2.9%      2.8%       2.4%        2.2%     -3.3%      -0.1%     2.4%     2.0%     1.6%     2.9%
change from prior
year (fourth quarter
over fourth quarter)
Average daily rooms          2,572      2,606     2,710      2,786      2,798       2,818     2,747     2,576     2,762    2,892    2,976    3,025
sold (000s)
Percentage change            0.5%       1.3%       4.0%      2.8%        0.5%       0.7%     -2.5%      -6.2%     7.2%     4.7%     2.9%     1.7%
from prior year
Room starts (000s)             68.4      76.6       81.3      83.4      138.9       145.9     132.0      47.9      29.8     45.8     54.6     66.4

Percentage change          -24.4%      12.0%       6.0%      2.6%      66.5%        5.0%     -9.5%     -63.8%    -37.7%   53.6%    19.2%    21.6%
from prior year
End-of-year                  4,351      4,386     4,388      4,381      4,415       4,490     4,627     4,748     4,786    4,800    4,836    4,869
supply (000s)
End-of-year supply           1.5%       0.8%       0.0%     -0.2%        0.8%       1.7%      3.1%      2.6%      0.8%     0.3%     0.8%     0.7%
change from
prior year
Average supply               1.6%       1.0%       0.4%     -0.1%        0.2%       1.2%      2.4%      2.8%      1.7%     0.5%     0.5%     0.8%
change from
prior year

Source: Smith Travel Research; Macroeconomic Advisers, LLC (forecast November 2012); PwC




                                                                                                                  Q3/November 2012 PwC          19
Table 3: US lodging outlook, quarterly

                                                         2009 Q1       2009 Q2    2009 Q3    2009 Q4    2010 Q1   2010 Q2   2010 Q3   2010 Q4

 Occupancy (percent)                                         50.9%      57.2%      60.0%      50.0%      51.9%     60.6%     63.9%     53.4%

 Percentage change from prior year                           -11.1%    -11.0%      -8.0%      -4.7%       2.0%      6.0%      6.5%      6.8%

 Pct. point difference from prior year                         (6.4)      (7.1)      (5.2)      (2.5)       1.0       3.4       3.9       3.4

 Occupancy (percent, seas. adj.)                             55.2%      53.9%      54.0%      54.9%      56.2%     57.2%     58.0%     58.6%

 Average daily rate ($)                                  $100.70        $97.98     $97.48     $96.34     $96.39    $98.02    $99.29    $98.33

 Percentage change from prior year                            -7.6%     -9.5%      -9.6%      -7.5%      -4.3%      0.0%      1.9%      2.1%

 Average daily rate ($, seas. adj.)                      $100.95        $97.88     $96.91     $96.76     $96.92    $97.91    $98.44    $98.85

 RevPAR ($)                                                  $51.21     $56.06     $58.47     $48.19     $50.02    $59.44    $63.41    $52.53

 Percentage change from prior year                           -17.9%    -19.4%     -16.9%     -11.9%      -2.3%      6.0%      8.4%      9.0%

 RevPAR ($, seas. adj.)                                      $55.74     $52.72     $52.32     $53.16     $54.47    $55.98    $57.05    $57.89

 Inflation as measured by CPI (percentage                     -0.1%     -1.0%      -1.6%       1.5%       2.3%      1.8%      1.2%      1.2%
 change from prior year)
 Average daily rooms sold (000s)                              2,360      2,702      2,862      2,379      2,465     2,921     3,091     2,565

 Percentage change from prior year                            -8.5%     -8.4%      -5.4%      -2.1%       4.5%      8.1%      8.0%      7.8%
 Average daily rooms sold (000s, seas. adj.)                  2,584      2,537      2,561      2,616      2,692     2,749     2,789     2,816
 Room starts (000s)                                            12.9       14.1       11.1        9.8        5.5       8.1       7.8       8.4

 Percentage change from prior year                           -64.2%    -62.5%     -68.3%     -58.3%     -57.1%    -42.3%    -29.6%    -14.7%

 End-of-quarter supply (000s)                                 4,655      4,746      4,779      4,748      4,761     4,835     4,842     4,786

 Percentage change from prior year                            2.9%       2.8%       2.8%       2.6%       2.3%      1.9%      1.3%      0.8%

Source: Smith Travel Research; Macroeconomic Advisers, LLC




20            PwC Hospitality Directions US
2011 Q1   2011 Q2   2011 Q3   2011 Q4   2012 Q1   2012 Q2   2012 Q3   2012 Q4   2013 Q1     2013 Q2    2013 Q3   2013 Q4

 54.7%     63.2%     66.3%     55.4%     56.7%     65.1%     67.1%     56.4%     57.1%        65.3%     67.7%     57.4%

  5.4%      4.2%      3.8%      3.7%      3.7%      3.1%      1.2%      1.7%      0.7%         0.2%      0.9%      1.7%

    2.8       2.5       2.4       2.0       2.0       1.9       0.8       1.0       0.4          0.2       0.6       1.0

 58.8%     59.7%     60.5%     60.7%     61.2%     61.5%     61.5%     61.5%     61.5%        61.7%     62.0%     62.2%

 $99.62   $101.67   $103.28   $102.26   $103.60   $106.47   $107.34   $106.28   $107.68      $110.27   $112.32   $112.28

  3.4%      3.7%      4.0%      4.0%      4.0%      4.7%      3.9%      3.9%      3.9%         3.6%      4.6%      5.7%

$100.41   $101.40   $102.27   $103.26   $103.28   $106.06   $106.65   $107.16   $108.45      $109.87   $111.38   $112.89

 $54.47    $64.24    $68.47    $56.67    $58.77    $69.34    $72.00    $59.93    $61.49       $71.99    $76.05    $64.41

  8.9%      8.1%      8.0%      7.9%      7.9%      7.9%      5.1%      5.7%      4.6%         3.8%      5.6%      7.5%

 $59.06    $60.53    $61.87    $62.69    $63.21    $65.27    $65.54    $65.85    $66.71       $67.79    $69.01    $70.25

  2.1%      3.3%      3.8%      3.3%      2.8%      1.9%      1.7%      2.1%      1.7%         1.8%      1.6%      1.3%

  2,615     3,059     3,221     2,670     2,720     3,165     3,278     2,736     2,762        3,198     3,333     2,803

  6.1%      4.7%      4.2%      4.1%      4.0%      3.5%      1.8%      2.5%      1.5%         1.0%      1.7%      2.4%
  2,838     2,883     2,923     2,929     2,958     2,985     2,982     2,988     2,998        3,011     3,027     3,047
    7.7      13.2      12.0      12.9      11.5      13.3      15.7      14.2      15.1         16.1      17.1      18.0

 40.0%     61.9%     54.3%     53.7%     48.4%      1.0%     30.0%     10.2%     31.7%        21.4%      9.5%     26.8%

  4,792     4,857     4,860     4,800     4,803     4,880     4,891     4,836     4,844        4,916     4,924     4,869

  0.6%      0.5%      0.4%      0.3%      0.2%      0.5%      0.6%      0.8%      0.8%         0.7%      0.7%      0.7%




                                                                                          Q3/November 2012 PwC        21
Our chain scale outlook
                                              The following provides a brief              shown as Tables 5 to 11. As noted
                                              analysis of our current outlook             in a previous edition of PwC
                                              for the US, and each of the                 Hospitality Directions US, Smith
                                              six chain scale segments and                Travel Research has revised its
                                              independent hotels, as shown                chain scale classifications, and
                                              in Table 4. Additional tables               PwC has updated its analysis to
                                              with our chain scale outlook are            reflect the changes.24




Table 4: US and chain scale segment outlook

 Percent change from 2011 to 2012                                  Percent change from 2012 to 2013
                Demand Average Occupancy ADR           RevPAR                    Demand Average Occupancy        ADR     RevPAR
                       room                                                             room
                       supply                                                           supply
 Luxury             3.3       (0.0)     3.3      4.7      8.1      Luxury          0.8      0.1         0.8       6.0         6.8

 Upper              2.1        0.1      2.0      4.6      6.8      Upper           1.2      0.5         0.7       5.4         6.1
 upscale                                                           upscale
 Upscale            3.7        2.0      1.7      4.6      6.3      Upscale         2.4      1.6         0.8       5.0         5.8
 Upper              5.2        2.6      2.6      3.8      6.4      Upper           2.3      1.1         1.1       4.0         5.1
 midscale                                                          midscale
 Midscale         (0.8)       (3.5)     2.7      2.9      5.7      Midscale        1.3      0.2         1.1       2.7         3.8
 Economy            1.5       (0.2)     1.7      3.8      5.6      Economy         1.0      0.2         0.8       2.6         3.5
 Independent        3.2        0.6      2.6      3.6      6.2      Independent     1.6      0.8         0.7       4.3         5.0
 hotels                                                            hotels


 US total           2.9        0.5      2.4      4.1      6.6      US total        1.7      0.8         0.9       4.4         5.4



Source: Smith Travel Research; PwC




24
     PricewaterhouseCoopers LLP. (Q1 May 2011) Hospitality Directions US. Retrieved from: http://www.pwc.com/us/hospitality



22            PwC Hospitality Directions US
                  Real RevPAR percentage
              difference from 15-year average

Chain scale    2010       2011      2012      2013 Comments

Luxury        (13.4)%     (6.7)%    (1.3)%    3.8%     Luxury hotel performance has improved at an impressive pace during 2012, but ADR during the third
                                                       quarter was weaker than anticipated. Third quarter ADR was 3.3 percent ahead of the prior year,
                                                       which is the lowest percentage increase since the second quarter of 2010, and comes at a point
                                                       when occupancy levels should be allowing luxury hotels to orient revenue management toward
                                                       improving ADR. We expect the average occupancy at luxury hotels to reach 73.3 percent during
                                                       2012, and improve further to 73.9 percent in 2013. In comparison, during the previous peak, luxury
                                                       hotel occupancies averaged 72.5 percent in both 2006 and 2007. Luxury hotel performance is still
                                                       constrained by lower levels of group demand. Group demand growth is positive for the year-to-date
                                                       period, but it appears there was some weakness in the third quarter that contributed to less ability to
                                                       push ADR. Actual construction of new hotels remains scarce, though there are reportedly increasing
                                                       numbers of projects in preliminary stages of development.
Upper           (12.5)      (9.6)     (5.5)    (1.3)   Upper upscale hotels showed a slight slowing of occupancy gains in the third quarter, with occupancy
upscale                                                0.5 percent ahead of the prior year. Though this gain was slightly lower than anticipated, it is consist-
                                                       ent with the expectation that many upper upscale hotels are primarily oriented toward growing profit
                                                       through a combination of improved business mix, including increased group business with the
                                                       accompanying catering revenue and higher-rated segments of transient business; and higher room
                                                       rates. Our expectation for full-year ADR growth stands at 4.6 percent for 2012 and 5.4 percent for
                                                       2013, which is slightly lower than our previous outlook. Few new hotels are under construction, with
                                                       active construction projects equivalent to approximately 1.6 percent of existing supply.
Upscale         (12.1)      (7.8)     (4.0)    (0.1)   The upscale segment includes a mix of more traditional full-service hotels, as well as smaller
                                                       select-service hotels. The upscale segment has shown a strong ability to rebuild occupancy after
                                                       the twin impacts of the recession and an active construction pipeline that delivered a 29.7 percent
                                                       increase in rooms between the end of 2006 and the end of 2011. The rate of occupancy recovery
                                                       has slowed in recent quarters, and occupancy in the 28-day pre-storm period through October 27
                                                       showed an occupancy level that was 2.1 percent ahead of the prior year. Going forward, we
                                                       anticipate upscale hotels can drive stronger ADR levels, helping boost RevPAR growth from
                                                       slightly below the US average in 2012 to slightly above the average in 2013. This segment
                                                       continues to have a more active construction pipeline than any of the other segments, but even
                                                       that level of activity is quite low (3.5 percent of existing supply) relative to historical levels.
Upper             (8.1)     (3.2)      0.9      4.4    The upper midscale segment held ADR levels during the recession better than the industry overall,
Midscale                                               but experienced moderately greater declines in occupancy. Upper midscale hotels are expected to
                                                       drive ADR increases in 2013 but also look to capture increased levels of demand. In some cases,
                                                       upper midscale hotels may benefit as upscale hotels set higher transient rates, causing more price
                                                       sensitive leisure and, in some cases, business travelers, to return to upper midscale hotels.
                                                       Reporting of results for the upper midscale segment is still being impacted by the substantial
                                                       number of Best Western properties that moved from the Best Western core affiliation, which is
                                                       classified by Smith Travel Research in the midscale segment, to the Best Western Plus designation,
                                                       which is classified as upper midscale. While the majority of the affected properties were reclassified
                                                       within the Smith Travel Research data by June 2011, there were still additional properties reclassified
                                                       during the second half of 2011. The full-year operation of these properties continues to impact
                                                       year-over-year comparisons, though the effect is narrowing. STR has reported that, adjusting for the
                                                       reclassification, upper midscale performance was slightly stronger than is apparent in the published
                                                       chain-scale data (occupancy year-to-date through September was up 2.9 percent on a same-store
                                                       basis, compared to 2.8 percent as reported, and ADR was up 3.8 percent on a same-store basis,
                                                       compared to 3.7 percent as reported).
Midscale        (13.1)     (14.0)    (11.0)    (9.1)   Consistent with the comments related to the upper midscale segment, year-over-year
                                                       comparisons in the midscale segment are still being slightly impacted by the reclassification of
                                                       Best Western properties (Best Western Plus properties to upper midscale, and Best Western
                                                       Premier properties to upscale). STR has reported that, adjusting for the reclassification, midscale
                                                       performance was slightly different than is apparent in the published chain-scale data (occupancy
                                                       year-to-date through September was up 2.5 percent on a same-store basis, compared to 3.2
                                                       percent as reported, and ADR was up 3.3 percent on a same-store basis, compared to 2.8
                                                       percent as reported). RevPAR performance in the third quarter was weaker than anticipated,
                                                       though preliminary pre-storm October results show improvement relative to September.
Economy         (18.6)     (16.3)    (13.4)   (11.9)   RevPAR performance in the economy segment has generally traced a weaker than average path.
                                                       Results in the third quarter show the pace of RevPAR recovery remains weak, though occupancy
                                                       was slightly better than expected. There is very little new construction underway in the economy
                                                       segment, and supply growth primarily occurs through conversions.
Independent     (11.1)      (6.7)     (3.0)     0.3    Of the US inventory of hotel rooms at year-end 2011, 30.3 percent were independent hotels that
hotels                                                 were not affiliated with a brand. This segment spans a range of product and price tiers, with
                                                       aggregate occupancy and ADR levels that are slightly below the US average.
US total         (9.8)      (5.4)     (1.2)     2.4

Source: Smith Travel Research; Macroeconomic Advisers, LLC (forecast released November 2012); PwC




                                                                                                                       Q3/November 2012 PwC                    23
Table 5: Luxury outlook

                   2001       2002        2003        2004      2005    2006    2007    2008    2009     2010    2011    2012    2013
Occupancy          65.2%      65.1%       65.9%       69.2%     71.7%   72.5%   72.5%   69.0%   63.6%    67.6%   71.0%   73.3%   73.9%
(percent)
Percentage         -12.3%     -0.2%       1.2%        5.0%      3.7%    1.0%    0.1%    -4.8%   -7.9%    6.3%    5.0%    3.3%    0.8%
change from
prior year
Change in          -9.1       -0.2        0.8         3.3       2.5     0.7     0.1     -3.5    -5.4     4.0     3.4     2.3     0.6
occupancy
points
Average daily      $229.59 $219.49 $217.66 $230.51 $249.49 $274.23 $292.83 $292.70 $243.18 $247.34 $261.50 $273.79 $290.19
rate ($)
Percentage         -2.0%      -4.4%       -0.8%       5.9%      8.2%    9.9%    6.8%    0.0%    -16.9%   1.7%    5.7%    4.7%    6.0%
change from
prior year
Nominal            $149.77 $142.84 $143.36 $159.46 $178.92 $198.68 $212.35 $202.05 $154.64 $167.25 $185.68 $200.75 $214.42
RevPAR ($)
Percentage         -14.1%     -4.6%       0.4%        11.2%     12.2%   11.0%   6.9%    -4.9%   -23.5%   8.2%    11.0%   8.1%    6.8%
change from
prior year
Inflation-         $165.19 $155.07 $152.14 $164.83 $178.92 $192.48 $199.98 $183.29 $140.73 $149.75 $161.18 $170.62 $179.34
adjusted
RevPAR ($)
Percentage         -16.4%     -6.1%       -1.9%       8.3%      8.6%    7.6%    3.9%    -8.3%   -23.2%   6.4%    7.6%    5.9%    5.1%
change from
prior year
Demand             40.1       44.5        48.7        53.0      55.0    59.0    61.3    61.6    62.0     70.4    75.5    77.9    78.6
(thous.)
Percentage         -4.5%      11.1%       9.3%        8.7%      3.9%    7.2%    4.0%    0.4%    0.7%     13.6%   7.2%    3.3%    0.8%
change from
prior year
Average room 61.5             68.4        73.9        76.6      76.7    81.4    84.6    89.2    97.5     104.1   106.3   106.3   106.4
supply (thous.)
Percentage         8.9%       11.4%       8.0%        3.5%      0.2%    6.1%    3.9%    5.5%    9.3%     6.8%    2.1%    0.0%    0.1%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




24           PwC Hospitality Directions US
Table 6: Upper upscale outlook

                   2001        2002       2003        2004      2005     2006    2007    2008     2009     2010     2011     2012     2013
Occupancy          65.2%       66.0%      66.2%       68.9%     70.7%    70.6%   70.5%   68.0%    63.2%    67.4%    69.3%    70.7%    71.2%
(percent)
Percentage         -9.6%       1.3%       0.3%        4.1%      2.6%     -0.1%   -0.2%   -3.5%    -7.1%    6.6%     2.8%     2.0%     0.7%
change from
prior year
Change in          -7.0        0.9        0.2         2.7       1.8      -0.1    -0.1    -2.5     -4.8     4.2      1.9      1.4      0.5
occupancy
points
Average daily      $135.34 $129.26 $126.26 $131.06 $140.11 $150.07 $158.81 $161.16 $143.55 $142.75 $147.96 $154.84 $163.19
rate ($)
Percentage         -2.9%      -4.5%       -2.3%       3.8%      6.9%     7.1%    5.8%    1.5%     -10.9%   -0.6%    3.7%     4.6%     5.4%
change from
prior year
Nominal            $88.22     $85.37      $83.61      $90.33    $99.04   $105.99 $111.98 $109.63 $90.76    $96.24   $102.58 $109.51 $116.21
RevPAR ($)
Percentage         -12.3%     -3.2%       -2.1%       8.0%      9.6%     7.0%    5.7%    -2.1%    -17.2%   6.0%     6.6%     6.8%     6.1%
change from
prior year
Inflation-         $97.30     $92.68      $88.73      $93.37    $99.04   $102.68 $105.46 $99.45   $82.59   $86.17   $89.05   $93.08   $97.20
adjusted
RevPAR ($)
Percentage         -14.7%     -4.8%       -4.3%       5.2%      6.1%     3.7%    2.7%    -5.7%    -16.9%   4.3%     3.3%     4.5%     4.4%
change from
prior year
Demand             304.7      315.0       323.2       341.6     351.7    348.1   349.5   347.6    338.2    366.2    383.2    391.2    396.0
(thous.)
Percentage         -6.2%      3.4%        2.6%        5.7%      2.9%     -1.0%   0.4%    -0.6%    -2.7%    8.3%     4.6%     2.1%     1.2%
change from
prior year
Average room 467.5            477.0       488.0       495.7     497.5    492.9   495.7   511.0    534.9    543.2    552.7    553.1    556.1
supply (thous.)
Percentage         3.9%       2.0%        2.3%        1.6%      0.4%     -0.9%   0.6%    3.1%     4.7%     1.6%     1.7%     0.1%     0.5%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




                                                                                                           Q3/November 2012 PwC               25
Table 7: Upscale outlook

                   2001       2002        2003        2004      2005     2006     2007     2008     2009     2010     2011     2012     2013
Occupancy          65.2%      65.1%       65.5%       68.7%     70.1%    70.1%    69.6%    67.3%    62.2%    66.7%    69.5%    70.7%    71.3%
(percent)
Percentage         -7.6%      -0.2%       0.7%        4.8%      2.1%     0.0%     -0.8%    -3.3%    -7.6%    7.3%     4.2%     1.7%     0.8%
change from
prior year
Change in          -5.3       -0.1        0.4         3.2       1.5      0.0      -0.5     -2.3     -5.1     4.5      2.8      1.2      0.6
occupancy
points
Average daily      $100.73 $96.10         $94.06      $97.35    $104.43 $114.20 $121.28 $122.76 $109.77 $107.60 $111.71 $116.81 $122.62
rate ($)
Percentage         -0.7%      -4.6%       -2.1%       3.5%      7.3%     9.4%     6.2%     1.2%     -10.6%   -2.0%    3.8%     4.6%     5.0%
change from
prior year
Nominal            $65.68     $62.53      $61.61      $66.84    $73.24   $80.11   $84.43   $82.62   $68.28   $71.80   $77.65   $82.58   $87.36
RevPAR ($)
Percentage         -8.2%      -4.8%       -1.5%       8.5%      9.6%     9.4%     5.4%     -2.1%    -17.4%   5.1%     8.2%     6.3%     5.8%
change from
prior year
Inflation-         $72.44     $67.88      $65.39      $69.09    $73.24   $77.61   $79.51   $74.95   $62.14   $64.29   $67.41   $70.18   $73.07
adjusted
RevPAR ($)
Percentage         -10.7%     -6.3%       -3.7%       5.7%      6.0%     6.0%     2.5%     -5.7%    -17.1%   3.5%     4.9%     4.1%     4.1%
change from
prior year
Demand             243.7      256.8       268.3       285.5     296.3    304.9    317.0    325.5    327.6    372.9    396.2    411.0    421.0
(thous.)
Percentage         -0.4%      5.4%        4.5%        6.4%      3.8%     2.9%     4.0%     2.7%     0.6%     13.8%    6.2%     3.7%     2.4%
change from
prior year
Average room 373.7            394.7       409.6       415.9     422.4    434.7    455.3    483.7    526.6    558.8    569.9    581.3    590.8
supply (thous.)
Percentage         7.8%       5.6%        3.8%        1.5%      1.6%     2.9%     4.7%     6.2%     8.9%     6.1%     2.0%     2.0%     1.6%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




26           PwC Hospitality Directions US
Table 8: Upper midscale outlook

                   2001       2002        2003        2004      2005     2006     2007     2008     2009     2010     2011     2012     2013
Occupancy          61.8%      61.3%       60.9%       63.1%     65.2%    66.0%    65.1%    61.5%    55.4%    58.2%    61.3%    62.9%    63.6%
(percent)
Percentage         -4.8%      -0.8%       -0.6%       3.6%      3.3%     1.2%     -1.4%    -5.6%    -9.9%    5.1%     5.3%     2.6%     1.1%
change from
prior year
Change in          -3.1       -0.5        -0.3        2.2       2.1      0.8      -0.9     -3.6     -6.1     2.8      3.1      1.6      0.7
occupancy
points
Average daily      $74.38     $73.50      $73.51      $75.73    $80.95   $87.19   $93.44   $96.96   $91.48   $91.01   $93.93   $97.46   $101.33
rate ($)
Percentage         0.9%       -1.2%       0.0%        3.0%      6.9%     7.7%     7.2%     3.8%     -5.6%    -0.5%    3.2%     3.8%     4.0%
change from
prior year
Nominal            $45.95     $45.03      $44.78      $47.78    $52.78   $57.55   $60.84   $59.62   $50.67   $52.97   $57.58   $61.29   $64.44
RevPAR ($)
Percentage         -4.0%      -2.0%       -0.5%       6.7%      10.5%    9.0%     5.7%     -2.0%    -15.0%   4.5%     8.7%     6.4%     5.1%
change from
prior year
Inflation-         $50.68     $48.88      $47.52      $49.39    $52.78   $55.75   $57.29   $54.09   $46.11   $47.42   $49.99   $52.09   $53.90
adjusted
RevPAR ($)
Percentage         -6.6%      -3.5%       -2.8%       3.9%      6.9%     5.6%     2.8%     -5.6%    -14.7%   2.8%     5.4%     4.2%     3.5%
change from
prior year
Demand             417.7      427.1       435.6       454.8     466.0    470.3    471.1    459.4    430.7    465.9    515.0    542.0    554.3
(thous.)
Percentage         -1.3%      2.3%        2.0%        4.4%      2.5%     0.9%     0.2%     -2.5%    -6.2%    8.2%     10.5%    5.2%     2.3%
change from
prior year
Average room 676.2            697.2       715.1       720.8     714.7    712.6    723.6    747.1    777.7    800.5    840.0    861.7    871.6
supply (thous.)
Percentage         3.7%       3.1%        2.6%        0.8%      -0.8%    -0.3%    1.5%     3.2%     4.1%     2.9%     4.9%     2.6%     1.1%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




                                                                                                             Q3/November 2012 PwC               27
Table 9: Midscale outlook

                   2001       2002        2003        2004      2005     2006     2007     2008     2009     2010     2011     2012     2013
Occupancy          54.6%      53.6%       54.1%       56.4%     58.7%    59.0%    58.3%    55.5%    49.4%    51.6%    53.2%    54.7%    55.3%
(percent)
Percentage         -4.6%      -1.8%       1.0%        4.2%      4.0%     0.6%     -1.3%    -4.8%    -10.9%   4.4%     3.1%     2.7%     1.1%
change from
prior year
Change in          -2.6       -1.0        0.5         2.3       2.3      0.3      -0.8     -2.8     -6.0     2.2      1.6      1.4      0.6
occupancy
points
Average daily      $64.72     $63.87      $63.80      $65.30    $68.77   $73.05   $76.71   $78.66   $74.39   $73.11   $72.33   $74.40   $76.39
rate ($)
Percentage         0.6%       -1.3%       -0.1%       2.4%      5.3%     6.2%     5.0%     2.5%     -5.4%    -1.7%    -1.1%    2.9%     2.7%
change from
prior year
Nominal            $35.36     $34.26      $34.54      $36.86    $40.36   $43.13   $44.71   $43.64   $36.76   $37.73   $38.50   $40.68   $42.23
RevPAR ($)
Percentage         -4.1%      -3.1%       0.8%        6.7%      9.5%     6.8%     3.7%     -2.4%    -15.7%   2.6%     2.1%     5.7%     3.8%
change from
prior year
Inflation-         $39.00     $37.19      $36.66      $38.10    $40.36   $41.78   $42.10   $39.58   $33.46   $33.78   $33.42   $34.58   $35.32
adjusted
RevPAR ($)
Percentage         -6.7%      -4.6%       -1.4%       3.9%      5.9%     3.5%     0.8%     -6.0%    -15.5%   1.0%     -1.1%    3.5%     2.2%
change from
prior year
Demand             285.2      281.4       279.3       287.9     295.8    298.2    296.6    286.5    263.9    277.6    259.5    257.4    260.8
(thous.)
Percentage         -4.7%      -1.3%       -0.7%       3.1%      2.7%     0.8%     -0.5%    -3.4%    -7.9%    5.2%     -6.5%    -0.8%    1.3%
change from
prior year
Average room 522.0            524.7       515.9       510.0     503.9    505.0    508.8    516.5    533.9    537.9    487.6    470.6    471.7
supply (thous.)
Percentage         -0.1%      0.5%        -1.7%       -1.1%     -1.2%    0.2%     0.8%     1.5%     3.4%     0.7%     -9.4%    -3.5%    0.2%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




28           PwC Hospitality Directions US
Table 10: Economy outlook

                   2001       2002        2003        2004      2005     2006     2007     2008     2009     2010     2011     2012     2013
Occupancy          56.6%      55.0%       54.2%       55.6%     57.4%    57.2%    57.0%    54.1%    49.1%    51.6%    53.4%    54.3%    54.8%
(percent)
Percentage         -3.4%      -2.9%       -1.4%       2.5%      3.3%     -0.4%    -0.4%    -5.1%    -9.1%    5.0%     3.5%     1.7%     0.8%
change from
prior year
Change in          -2.0       -1.6        -0.7        1.4       1.8      -0.2     -0.2     -2.9     -4.9     2.4      1.8      0.9      0.4
occupancy
points
Average daily      $47.10     $46.81      $46.78      $47.82    $49.99   $52.71   $54.40   $55.01   $50.86   $49.28   $50.47   $52.37   $53.74
rate ($)
Percentage         0.0%       -0.6%       -0.1%       2.2%      4.5%     5.4%     3.2%     1.1%     -7.5%    -3.1%    2.4%     3.8%     2.6%
change from
prior year
Nominal            $26.67     $25.74      $25.38      $26.59    $28.70   $30.15   $31.00   $29.75   $25.00   $25.42   $26.96   $28.46   $29.45
RevPAR ($)
Percentage         -3.4%      -3.5%       -1.4%       4.8%      7.9%     5.0%     2.8%     -4.0%    -16.0%   1.7%     6.0%     5.6%     3.5%
change from
prior year
Inflation-         $29.42     $27.95      $26.93      $27.49    $28.70   $29.20   $29.19   $26.99   $22.75   $22.76   $23.40   $24.19   $24.63
adjusted
RevPAR ($)
Percentage         -6.0%      -5.0%       -3.6%       2.1%      4.4%     1.7%     0.0%     -7.6%    -15.7%   0.1%     2.8%     3.4%     1.8%
change from
prior year
Demand             421.1      412.3       402.1       411.5     425.9    424.6    431.8    417.5    384.1    403.9    418.8    425.2    429.5
(thous.)
Percentage         -1.2%      -2.1%       -2.5%       2.3%      3.5%     -0.3%    1.7%     -3.3%    -8.0%    5.1%     3.7%     1.5%     1.0%
change from
prior year
Average room 743.6            749.6       741.2       739.9     741.7    742.5    757.8    772.0    781.6    782.9    784.0    782.5    783.8
supply (thous.)
Percentage         2.2%       0.8%        -1.1%       -0.2%     0.2%     0.1%     2.1%     1.9%     1.2%     0.2%     0.1%     -0.2%    0.2%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




                                                                                                             Q3/November 2012 PwC               29
Table 11: Independent hotels

                   2001       2002        2003        2004      2005      2006      2007      2008      2009      2010      2011      2012      2013
Occupancy          58.7%      57.7%       58.1%       59.8%     61.2%     61.1%     61.0%     57.6%     52.4%     54.6%     56.9%     58.3%     58.8%
(percent)
Percentage         -5.1%      -1.7%       0.7%        2.9%      2.3%      -0.1%     -0.1%     -5.6%     -9.1%     4.2%      4.2%      2.6%      0.7%
change from
prior year
Change in          -3.1       -1.0        0.4         1.7       1.4       -0.1      -0.1      -3.4      -5.3      2.2       2.3       1.5       0.4
occupancy
points
Average daily      $82.15     $81.95      $82.64      $86.64    $89.70    $95.53    $103.09 $107.18 $96.79        $97.52    $101.25 $104.85 $109.32
rate ($)
Percentage         -0.9%      -0.2%       0.8%        4.8%      3.5%      6.5%      7.9%      4.0%      -9.7%     0.8%      3.8%      3.6%      4.3%
change from
prior year
Nominal            $48.19     $47.28      $48.01      $51.79    $54.85    $58.37    $62.93    $61.77    $50.68    $53.21    $57.57    $61.16    $64.23
RevPAR ($)
Percentage         -6.0%      -1.9%       1.5%        7.9%      5.9%      6.4%      7.8%      -1.9%     -18.0%    5.0%      8.2%      6.2%      5.0%
change from
prior year
Inflation-         $53.15     $51.33      $50.95      $53.53    $54.85    $56.55    $59.27    $56.03    $46.12    $47.65    $49.97    $51.98    $53.73
adjusted
RevPAR ($)
Percentage         -8.6%      -3.4%       -0.7%       5.1%      2.5%      3.1%      4.8%      -5.5%     -17.7%    3.3%      4.9%      4.0%      3.4%
change from
prior year
Demand             848.2      835.1       848.7       875.4     895.1     893.3     890.9     848.6     769.8     804.7     844.3     871.2     884.8
(thous.)
Percentage         -4.3%      -1.5%       1.6%        3.2%      2.3%      -0.2%     -0.3%     -4.8%     -9.3%     4.5%      4.9%      3.2%      1.6%
change from
prior year
Average room 1,445.8          1,447.4     1,460.7     1,464.6   1,463.8   1,462.1   1,459.5   1,472.5   1,470.2   1,474.8   1,485.0   1,493.6   1,505.9
supply (thous.)
Percentage         0.8%       0.1%        0.9%        0.3%      -0.1%     -0.1%     -0.2%     0.9%      -0.2%     0.3%      0.7%      0.6%      0.8%
change from
prior year

Note: Inflation-adjusted RevPAR is expressed in 2005 dollars.
Source: Smith Travel Research; PwC




30           PwC Hospitality Directions US
The hoteliers’ role in
rebuilding

               Hotels are at once a local          Recognizing these connections
               business, grounded in the           also points to a potential role
               success and attractiveness of       for hoteliers as some local
               the destination, and a broader,     communities face the daunting
               at times global, business,          task of rebuilding. Hotels are
               dependent on inbound travel         part of the local community,
               and supporting infrastructure.      whether downtown business
               The impact of Superstorm Sandy      district or small beach
               reiterates the importance of both   town, but also a source of a
               connections. At the local level,    broader perspective. Hotel
               the type and extent of damage in    operators are experienced with
               particular submarkets will play     adversity, changing markets,
               a role in determining the path      and the necessity of staying
               of recovery in lodging demand.      relevant. At the right time, the
               Meanwhile, the dependence           experienced hotelier speaking
               of many hotels on smoothly          with a forward orientation
               functioning transportation          can offer an inspiring, resilient
               infrastructure was made clear.      message to local communities,
                                                   helping gather momentum for
                                                   rebuilding.




                                                         Q3/November 2012 PwC          31
Contact us


                                     Hospitality &                     Requests for data
                                     Leisure Sectors                   Supplemental data requests
                                     Convention center                 related to this publication
                                                                       are available at PwC’s current
                                     Cruise
                                                                       billing rates. For data requests,
                                     Gaming                            please call Abhishek Jain at
                                     Lodging                           (646) 471-2016.

                                     Marinas                           For Hospitality Directions
                                     Sports facilities & teams         Europe edition, please call
                                                                       Liz Hall at +44 207 213 4995.
                                     Travel & tourism
                                     Vacation ownership

                                     For more information,
                                     please contact
                                     Maridel Gutierrez at
                                     (305) 375-6253,
                                     maridel.gonzalezgutierrez@
                                     us.pwc.com or email us at
                                     contact.hospitality@us.pwc.com.




32   PwC Hospitality Directions US
Permission to reproduce          PwC Hospitality research            Data sources
This document contains           Information about PwC’s             PwC would like to credit the
proprietary information of       hospitality research services       following organizations with
PwC. No disclosure or use of     and publications is available on    providing data used in this issue:
any portion of the contents of   our global site (www.pwc.com/       MHC Construction Analysis
these materials may be made      hospitality), and on our US site,   System—quarterly hotel starts;
without the express written      (www.pwc.com/us/hospitality).       Smith Travel Research—monthly
consent of PwC. For permission                                       hotel performance statistics
to reproduce any material        Time series data                    (occupancy rate, ADR, supply,
contained in this publication,   Time series data in this            demand); Macroeconomic
please call Abhishek Jain at     publication are subject to          Advisers, LLC—macroeconomic
(646) 471-2016.                  revision periodically. All prior    forecasts; Bureau of Economic
                                 forecasts are superseded by         Analysis—real GDP; Bureau of
                                 the most current forecast.          Labor Statistics—consumer
                                                                     price index.




                                                                           Q3/November 2012 PwC       33
     Further reading


                                                                                 www.pwc.co.uk/hospitality-leisure




                                                                                 After the party
                                                                                 UK hotels forecast 2013
                                                                                                                                Emerging
                                                                                                                                              13
                                                   November 2012

                                                   At a Glance
                                                                                                                                 Trends
                                                                                                                                 in Real Estate
                                                                                                                                              ®

                                                   • The Olympics meant highs
                                                     and lows for London but
                                                     2012 should end with
                                                     record breaking rates and
                                                     revenues
                                                   • A generally poor summer
                                                     in the provinces but a
                                                     glimmer of hope that ADR
                                                     falls have stabilised
                                                   • 2013: We forecast a
                                                     flattish year in the
                                                     provinces and a hangover
                                                     in London as record high
                                                     rates and above average
                                                     supply additions leave
                                                     their mark.




                                         After the Party, UK hotels                                                  Emerging Trends in Real
                                         forecast 2013                                                               Estate® 2013
                                         How is the prolonged period                                                 The real estate recovery is set to
                                         of structural adjustment and                                                advance in 2013 as modest gains
                                         relatively low growth in the UK                                             in leasing, rents, and pricing
                                         and other western countries                                                 will extend across US markets
                                         affecting UK hotel performance?                                             from coast-to-coast and improve
                                         How is the London hotel                                                     prospects for all property sectors,
                                         market performing following                                                 according to the findings of the
                                         the Olympics? Is the two-speed                                              Emerging Trends in Real Estate®
                                         economy—with a healthy                                                      2013 report, recently released
                                         London market but much                                                      by PwC US and the Urban Land
                                         weaker demand in the UK                                                     Institute (ULI).
                                         regions—expected to persist?
                                                                                                                     Now in its 34th year, Emerging
                                         The latest outlook from our                                                 Trends is one of the oldest, most
                                         colleagues in the UK assesses                                               highly regarded annual industry
                                         the potential for a “new normal”                                            outlooks for the real estate and
                                         for hotels.                                                                 land use industry.




34       PwC Hospitality Directions US
Acknowledgements



                   PwC

                   Hospitality Directions US

                   Q3 November 2012

                   Published by

                   PwC

                   Warren Marr, Editor

                   Aran Ryan, Contributing writer




                                                    Q3/November 2012 PwC   35
www.pwc.com




To have a discussion about
Hospitality Directions US,
please contact:

Scott D. Berman
Principal and US Industry Leader,
Hospitality & Leisure
Phone: +1 (305) 375 6210

Warren Marr
Managing Director,
Hospitality & Leisure
Phone: +1 (267) 330 3062

Aran Ryan
Director, Hospitality & Leisure
Phone: +1 (267) 330 3136

Address all inquiries to:
contact.hospitality@us.pwc.com




© 2012 PwC. All rights reserved. “PwC” and “PwC US” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not
be used as a substitute for consultation with professional advisors. MW-13-0104 kd

				
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