Where Are We Headed?

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Chris Kraus, MAI

Senior Vice President chris.kraus@pkfc.com

Governor Hotel - Portland March 1, 2012

Where Are We Headed?

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Topics

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•Our Forecasts

•The Economy

•Some Things to Think About

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How Accurate Have We Been?

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2011 2012

March

2011

Year End

Actual

March

2011

Current Forecast

Occupancy 60.1% 60.1% 61.7% 61.0%

ADR 4.6% 3.7% 7.0% 4.1%

RevPAR 9.0% 8.2% 9.9% 5.8%

ACCURACY ASSESSMENT

Not Too Bad ADR Growth Revised Downward

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United States

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The Economy The Economy

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Some Disconnects Some Disconnects

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A Fundamentally Good Sign:

Market

Number of Markets at or Above Past Peak Demand as of Q3 2011*

All Hotels 41

Upper-Priced 49

Lower-Priced 16

Source: Smith Travel Research

* Four Quarter Moving Average

Lodging Demand Has Recovered in Most of Our 50 Hotel Horizons

^®

Markets

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Something Different This Time Around:

Fact:

Changes in Total Employment

Correlate Closely with Changes in Lodging Demand

Fact:

There are Fewer Jobs in America Today

Than There were in the Year 2000

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Not Because There are Fewer People

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80%

90%

100%

110%

120%

130%

140%

150%

Albuquerque Anaheim Atlanta Austin Baltimore Boston

Charlotte Ch

icago Cincinnati Cleveland Columbus

Dallas Denver Detroit Fort Lauderdale Fort Worth

Hartford Ho

uston

Indianapolis Jacksonvi

lle Kansas City

Long Island Los Angeles

Memphis Miami Minneapolis Nashville New Orleans Ne

w York Ne

wark Oahu Oakland Orlando Philadelphia Phoenix Pittsburgh Portland Raleigh-Durham Richmond

Sacramento Saint Louis

Salt Lake City San Antonio San Diego San Francisco

Seattle Ta

mpa Tucson United States Washington DC West Palm Beach

Source: Moody’s Analytics

2011 Population vs.

2000 Population

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Not All Cities are Lagging 2000 Levels…

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80%

85%

90%

95%

100%

105%

110%

115%

120%

Charlotte Ch

Hartford Ho

uston

lle Kansas City

Memphis Miami Minneapolis Nashville New Orleans New York Ne

Seattle Ta

2011 Employment vs.

2000 Employment

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75%

80%

85%

90%

95%

100%

105%

Charlotte Ch

Hartford Ho

uston

lle Kansas City

Memphis Miami Minneapolis Nashville New Orleans New York Ne

Seattle Ta

……Although Most are Well Below Their Past Peak…..

2011 Employment vs.

Previous Peak Employment

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12

Employment Levels

>2000 >Peak

2011 28 3

2012 34 5

2013 41 12

Source: Moody’s Analytics

This is True in Almost Half of Our 50 Hotel Horizons

^®

Markets

...and the Return to Past Peaks will be

Slow.

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There is a Disconnect:

Employment is Weak

Lodging Demand is Strong

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Total Real Personal Income Levels up for Most Compared to 2000….

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80%

90%

100%

110%

120%

130%

140%

150%

Charlotte Ch

Hartford Ho

uston

lle Kansas City

Memphis Miami Minneapolis Nashville New Orleans Ne

w York Ne

Seattle Ta

2011 Real Personal Income vs.

2000 Real Personal Income

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The Answer: Part 1

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Total Real Personal Income Levels

>2000 >Peak

2011 49 13

2012 49 37

2013 49 43

Source: Moody’s Analytics

Consumers, Businesses have the $’s to Travel

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-20%

-15%

-10%

-5%

0%

5%

2011 Forecast ADR

Percentage Point Difference From Previous Peak

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50 U.S. Horizons ^® Markets

Source: PKF Hospitality Research, December –February 2012 Hotel Horizons^®

The Answer: Part 2

Room Rates Still Have a Long Way to Go!

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Our Forecasts

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The Hotel Market Cycle

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Rapid Development

Occupancy Declines, ADR Follows

Development at Minimum Levels Lodging Decline,

Leads Other Sectors

Occupancy Recovers

ADR and Margins Recover Development

Picks Up

Development Slows

Lodging Recovers, Lags Other Sectors (Not this

Time!) Long Run

Occupancy

Rapid

Development

Equilibrium ADR

U.S. is Here

2012-2013

2014-2015

A Year Ago

The Long, Hard Climb Up Growth Hill

Portland MSA

is Here

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Long Term

Average

2006 2007 2008 2009 2010 2011 2012F 2013F Supply 2.2% 0.2% 1.3% 2.5% 3.0% 1.8% 0.6% 0.6% 1.0%

Demand 1.5% 0.5% 0.7% -2.5% -6.1% 7.5% 5.0% 2.2% 2.9%

Occupancy 62.0% 63.1% 62.8% 59.8% 54.5% 57.6% 60.1% 61.0% 62.2%

ADR 2.8% 7.6% 6.4% 2.9% -8.5% -0.1% 3.7% 4.1% 4.7%

RevPAR 2.5% 7.9% 5.9% -2.1% -16.6% 5.5% 8.2% 5.8% 6.7%

National Forecast - 2012

Source: PKF Hospitality Research – March 2012 Hotel Horizons^®Report, Smith Travel Research

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Portland MSA Lodging Market

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2012

March

2011

Current Forecast

66.8% 65.1%

6.5% 5.2%

10.4% 6.5%

2011

March

2011

Year End

Actual

Occupancy 64.5% 64.3%

ADR 4.5% 4.6%

RevPAR 8.1% 9.0%

ACCURACY ASSESSMENT

Pretty Close Lower Occupancy and ADR

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Portland MSA

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Portland Convention & Visitors Bureau

Convention Calendar Outlook

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Total Number of Booked Room

Nights 2006 80,059 - 2007 85,981 7%

2008 85,359 -1%

2009 143,531 68%

2010 130,871 -9%

2011 115,330 -12%

2012 97,890 -15%

2013 53,993 -45%

2014 42,177 -22%

2015 34,718 -18%

2016 31,429 -9%

2017 4,200 -87%

84%

62%

57% 62%

97%

20%

0 0.2 0.4 0.6 0.8 1 1.2

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Room Nights Total Future Room Nights Booked Pace Percentage

2009 was the strongest convention year on record

2016 Room Nights Are 97% of Pace

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Portland International Airport

Airport Passenger Statistics

23 0

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000

Total Domestic Passengers Total International Passengers

Source: Bureau of Transportation Statistics

Passenger Count increased 3.7% in 2011 to

13.7 million Record numbers in 2007 – nearly

14.7 million total passengers

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Portland Economic Assumptions

Leading the U.S

Source: Moody’s Analytics, January 2012 24

January 2012 Forecast

Payroll Employment

Real Personal

Income Real GDP CPI (Inflation)

2009 -5.9% ‐4.4% ^-4.5% ‐4.4% ^-4.4% ‐3.5% ^0.6% ‐0.3%

2010 -0.8% ‐0.7% ^1.4% 1.9% ^3.6% 3.0% ^1.2% 1.6%

2011 1.2% 1.0% ^2.3% 2.3% ^2.8% 1.8% ^2.2% 3.2%

2012 1.4% 1.1% ^3.6% 2.5% ^3.3% 2.6% ^2.4% 2.1%

2013 1.5% 1.5% ^3.8% 3.2% ^3.2% 3.3% ^3.2% 2.2%

L.R.A. 1.2% 2.7% U.S. in Red 2.9%

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Portland MSA

All Hotels

ADR Growth Leads RevPAR Growth in 2012

Source: PKF Hospitality Research – March to May 2012 Hotel Horizons^®Report, Smith Travel Research

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2008 2009 2010 2011 2012F 2013F

Long- Term Average Occupancy 64.5% 57.8% 61.7% 64.3% 65.1% 66.0% 63.9%

% Change -2.7% -10.5% 6.7% 4.2% 1.3% 1.4% - ADR $99.81 $91.50 $90.42 $94.58 $99.46 $105.47 -

% Change 5.5% -8.3% -1.2% 4.6% 5.2% 6.0% 3.5%

RevPAR $64.41 $52.88 $55.78 $60.79 $64.74 $69.73 -

% Change 2.6% -17.9% 5.5% 9.0% 6.5% 7.6% 4.0%

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Portland MSA

Upper-Priced Hotels

ADR Growth Leads RevPAR Growth in 2012

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2008 2009 2010 2011 2012F 2013F

Long- Term Average Occupancy 72.0% 66.4% 70.8% 73.4% 74.2% 74.9% 70.4%

% Change -3.4% -7.8% 6.6% 3.7% 1.1% 0.9% -

ADR $127.51 $114.28 $114.46 $119.96 $126.58 $134.82 -

% Change 5.5% -10.4% 0.2% 4.8% 5.5% 6.5% 3.3%

RevPAR $91.80 $75.87 $81.03 $88.10 $93.94 $100.96 -

% Change 1.9% -17.4% 6.8% 8.7% 6.6% 7.5% 4.0%

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Portland MSA

Lower-Priced Hotels

ADR Growth Leads RevPAR Growth in 2012

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2008 2009 2010 2011 2012F 2013F

Long- Term Average Occupancy 59.5% 51.6% 54.9% 57.5% 58.3% 59.4% 60.1%

% Change -2.3% -13.3% 6.4% 4.6% 1.5% 1.9% -

ADR $77.17 $70.42 $67.46 $70.54 $73.90 $77.92 -

% Change 5.4% -8.7% -4.2% 4.6% 4.8% 5.4% 3.0%

RevPAR $45.92 $36.3 $37.05 $40.54 $43.11 $46.30 -

% Change 3.0% -20.9% 2.0% 9.4% 6.3% 7.4% 3.2%

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Some Things to Think About

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Summary

1. Uncertainty, both at home and abroad, remains high – some slowdown will occur. Weak housing markets remain a substantial problem.

2. Personal incomes and corporate profit growth will continue, but at less robust levels. Lodging demand growth in 2012, while still positive, will pale relative to the past two years.

- Higher rooms rates will impede demand growth as well.

3. Unemployment will remain high – helps to keep labor costs in check and profit growth up.

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4. Oil is a wild card for 2012 – too big an increase will undermine the economy – lodging demand will suffer as a result.

Summary

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Thank You

www.pkfc.com

www.pkfc.com/presentations

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