U.S. HOTEL REVENUE GROWING, BUT SLOWING

U.S. Hotel Operating Performance Takes a Breather in 2015

Atlanta – May 24, 2016 – U.S. hotel revenue growth is slowing down, while expenses are on the rise. According to CBRE Hotels’ Americas Research’s 2016 edition of Trends® in the Hotel Industry, operating performance continued to improve in 2015, but at a much slower pace. Trends® is the firm’s annual survey of operating statements from thousands of hotels across the nation. The data for the 2016 survey was processed in accordance with the new 11th edition of the Uniform System of Accounts for the Lodging Industry.

“After five years of strong increases in occupancy, average daily rate (ADR) and profits, U.S. hotels reached the top of the current business cycle in 2015,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “Therefore, it is not a surprise that Total Operating Revenues grew just 5.3 percent from 2014 to 2015. What stands out as a concern for hotel owners and operators was the 4.7 percent increase in expenses, especially during a year when inflation was just 0.1 percent.”

Other Revenues Grow

From 2014 to 2015, 56.9 percent of the hotels in the Trends® sample posted an increase in occupancy, down from the 70+ percent marks posted the prior few years. “This clearly is an indicator that hotels are approaching the top of the cycle when occupancy is at near capacity levels, and in certain markets the negative consequences of new supply growth are being felt,” said Woodworth.

86.1 percent of the properties in the sample were able to raise their room rates during the year, while 80.5 percent of the hotels were able to enjoy an increase in revenue per available room (RevPAR). On average, the Trends® sample achieved a RevPAR gain of 4.6 percent.

“In 2015, we saw continued improvement in the growth of other hotel revenue sources beyond the rental of guest rooms. During the year, Food and Beverage Revenue rose by a healthy 6.6 percent, while Miscellaneous Income (former Rentals and Other Income) grew by 25.4 percent,” Woodworth added. Because of the strong growth in other revenue sources, Total Operating Revenue for the overall sample increased by 5.3 percent from 2014 to 2015.

Real Expense Growth

“History has proven that hotels are an expensive business to operate. Over the years, annual changes in operating expenses have averaged roughly twice the pace of changes in the Consumer Price Index (CPI),” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research. “Therefore, with a CPI increase of just 0.1 percent in 2015, it would imply that hotel operators would benefit in their efforts to control costs.”

Hotel expenses increased by 4.7 percent during the year, or 4.6 percent in real terms. The 4.6 percent increase in real expense growth was the greatest annual change in the past 20 years. Two categories that contributed to the extraordinary rise in operating expenses were labor and fees.

Total labor costs and related expenses grew by 4.6 percent from 2014 to 2015. This was the result of a 5.2 percent increase in the Salaries and Wages (salaries, wages, service charges, contract labor and bonuses) and a 3.0 percent rise in Payroll-Related Expenses (employee taxes and benefits). This is only the second time since 2000 that the Salary and Wage component of labor costs increased at a greater pace than Payroll-Related Expenses.

“In 2015 the Bureau of Labor Statistics reported a third consecutive year of hospitality industry compensation growth greater than 3.0 percent. This sustained increase in hospitality compensation primarily is attributable to the continued decline in the nation’s unemployment rate,” Corgel noted. “Additional stress on hotel Salaries and Wages is coming from a rise in legislation regarding minimum wage, living wage, overtime rules, and joint-employment regulations.”

The fees a hotel pays to credit card, franchise and management companies are influenced heavily by changes in revenues. Since Rooms, Food and Beverage, and Total Operating Revenue all increased in 2015, we saw growth in Management Fees (4.9 percent), Franchise Fees (6.7 percent), and Credit Card Commissions (7.0 percent).

CBRE did observe a decline in some operating expenses for U.S. hotels from 2014 to 2015. During the year, hotel Utility Costs fell 2.7 percent, while the Cost of Food declined by 3.3 percent. “This is consistent with the declines in both the energy and food price components of CPI in 2015,” Corgel added.
 

Modest Profit Growth

With revenues increasing at a greater pace than expenses, U.S. hotels enjoyed a sixth year of growth in profits. In 2015, Gross Operating Profits (GOP) increased by 6.3 percent, while Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) grew by 3.6 percent.

“After years of achieving record levels of occupancy and double-digit growth in profits, U.S. hotels appear to have taken a breather in 2015. However, it should be noted that the industry is not out of breath. Our Hotel Horizons® forecasts call for continued RevPAR growth in the near-term, which should lead to persistent, albeit modest, gains in profits,” Woodworth concluded.

To purchase a copy of the 2016 edition of Trends® in the Hotel Industry, please visit:
https://pip.cbrehotels.com

CBRE Hotels is a specialized advisory group within CBRE providing brokerage, valuation, consulting, research and capital markets services to companies in the hotel sector. CBRE Hotels is comprised of more than 375 dedicated hospitality professionals located in 60 offices across the globe.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.

The Preiss Company Acquires Two Student Housing Properties in New Joint Venture

Brings to Seven Acquisitions Year-to-Date

RALEIGH, N.C., May 16, 2016—Officials of The Preiss Company, the nation’s third largest, privately-held, student housing owner-operator, today announced that it had formed a joint venture with a private investment group to acquire two student housing complexes in Raleigh, N.C., for an undisclosed amount. The transaction brings to seven the number of properties transacted by Preiss year-to-date. Both student housing units — the 440-bed College Inn and the 288-bed University Village at 2505 — will continue to be operated by The Preiss Company.

“Preiss previously was a joint venture partner in these properties,” said Donna Preiss, founder and CEO of The Preiss Company. “Our former partner had achieved its objectives with these assets and wanted to harvest the return on their investment.

“We have a diverse number of strategic partners with different investment criteria. This allowed us to work with another of our investor partners to acquire these assets which still have great upside,” she said.

“Coming into 2016, Preiss set a goal of adding 10 properties,” she noted. “We have the largest pipeline in our history and could exceed that goal by as early as this summer. Based on our current rate of acquisitions, we will have an exceptional year, perhaps a record. There are a large number of properties on the market, ranging from those that would benefit from major renovation/repositioning to those that need more focused management. There also remains opportunities to develop new properties. Financing remains attractive, and we see continued demand growth. We continue to believe this is an excellent time to be investing in student housing.”

Acquired Properties
• College Inn—Located at 2717 Western Blvd, the 440-bed facility is housed in a four-story building on a three-plus-acre-site. Conveniently situated across from North Carolina State’s Main Campus and close to its Centennial Campus, the property features a large club house with a computer lab and study rooms, fitness center and game room. Fully furnished rooms include plank wood floors, washers and dryers. Preiss will oversee a substantial rooms upgrade of College Inn with an expected start date during the fourth quarter of this year. Elements include new lighting, appliances, cabinets, countertops and furniture. The clubhouse and building exteriors, as well as landscaping, will be enhanced.

• University Village at 2505—Located at 2505 Red Lodge Place, less than a mile from the Centennial Campus, the complex consists of four, four-story buildings housed on approximately nine acres. The gated community has a club house with internet café, fitness center and self-serve Starbucks coffee bar, as well as a resort-style swimming pool and sand volleyball court. Each fully furnished, four-bedroom suite has a common social area, private bedrooms and bathrooms and walk-in closets. The rooms offer state-of-the-art interior finishes, including stainless steel appliances, granite countertops and plank wood flooring. The property provides a free shuttle to the Main and Centennial Campuses, as well as resident events. University Village 2505 was developed by Preiss in 2012 specifically for student housing.

“Upon completion of the renovation to College Inn, these two complexes will be in excellent physical condition. Both properties will benefit from the significant operational economies of scale we have in Raleigh,” she said. “We own and or operate 14 student housing complexes in the city and work closely with our student residents and North Carolina State University to provide quality housing and a great college experience.”

About The Preiss Company
Celebrating its 29th year, Raleigh-based The Preiss Company specializes in the development, acquisition and management of off-campus student housing. The company is the nation’s third largest privately held owner-operator of private student housing. The company’s portfolio currently is comprised of approximately 28,000 beds located in 16 states and 23 markets.

Michigan State Students Cameron Armstrong & Di Wang Win 2016 Hospitality Asset Managers Association (HAMA) Student Case Competition

Students Provided Solutions on “How to Best Reach Chinese Millennials via Social Media”

BOSTON, May 16, 2016—The Hospitality Asset Managers Association (HAMA) today announced that senior Cameron Armstrong and junior Di Wang of Michigan State University were selected as the 2016 winners of the Tenth Annual HAMA Student Case Competition. The MSU team was chosen from a select field of top hotel schools that also included the Pennsylvania State University and the University of Denver. Student teams researched and prepared a case study from a list of topics that currently impact the hotel industry.

Wang and Armstrong presented on “How to Best Reach Chinese Millennials via Social Media,” a task they noted was all the trickier due to China’s restrictions on sites like Facebook and Twitter. The University of Denver’s Chris Allmann and Jon Willis focused on the “Minimum Wage Increase on the Lodging Industry” and how to mitigate its impact. Samantha Martin and Charles Garber were chosen to represent The Pennsylvania State University and researched, “Out of Control Third Party Commissions,” offering insights into how best to work with OTAs.

“Each year, I continue to be more impressed by the level of sophistication and insight from tomorrow’s future hotel leaders,” said Kim Gauthier, HAMA education chair and senior vice president of Hotel Asset Value Enhancement. “While these students still are in the learning phase of their very young careers, their perspectives shine new and interesting light on problems that we deal with on a daily basis as professional asset managers. It is HAMA’s goal to embrace and nurture these young minds as they grow into our industry.”

Working with a HAMA member and their respective university professors, student participants were required to give a multi-part presentation, complete with research paper and accompanying PowerPoint, over the course of two sessions that included initial and revised findings. Topics included “Rising Minimum Wage,” “Rising Health Care,” “Social Media Management Issues and Trends,” “Room Design – What Does the Future Room Look Like,” “Out-of-Control Third-Party Commissions (Primarily Group Airbnb/VRBO),” “Alternatives for Room Service,” and “Wi-Fi Solutions.”

Winners received an all-expense-paid trip to HAMA’s Spring Meeting in Boston to meet and network with some of the industry’s leading hotel asset managers. In addition to the award presentation, the two-day event also hosted a number of informational sessions and group meetings to discuss the latest industry trends and share best practices.

“With governmental restrictions on sites like Facebook and Twitter, it is a challenge to reach Chinese Millennials via social media,” noted Wang. “That being said, there certainly are Chinese equivalent sites that allow hoteliers to reach this hugely profitable traveling segment.”

“Our goal was to find alternatives that allow socially proactive organizations to place better advertising and interaction opportunities in front of this target audience,” added Armstrong. “This competition has been a huge learning experience for us, not just regarding this immediate issue, but through working with established asset managers and seeing things from that discipline’s viewpoint. This award really validates our decision to pursue careers within the hospitality industry.”

ABOUT HAMA
HAMA was established in 1992 in the U.S. and has affiliates in Japan, Singapore (Asia/Pacific), England (Europe) and Dubai (Middle East/Africa). Its members are involved in asset management, acquisition, financing and disposition of hotels and resorts and are directly responsible for making decisions concerning capital investments, renovations, asset repositioning, operational policies and management selection. Its U.S. members represent more than 3,500 hotels and resorts across every major brand, accounting for 775,000 hotel rooms, 250,000 employees, $40 billion in annual revenue and $3 billion in capital expenditures.