D The Hospitality Industry – What Just Happened? …Where is it Going? Dave Scypinski November 19, 2009

Hotel Trends from 2003 through Mid Major increase in the number of new brands Wholesale shift of hotel ownership from brands to individual owner companies Unprecedented growth in all segments Runaway development of new properties Record revenue and profits Subtle shift away from service as a cornerstone philosophy Less overall training for hotel staff

September 2008 to Present Transient travel has dried up Corporate group business cancelled at record rate Attrition problems for many groups Owners of hotels racked by increasing losses Brand companies seeing fees evaporate Fights developing between owners and operators Hotels declaring bankruptcy daily- The Clift, Dafuskie Island, Greenbrier, The Wigwam, W Scottsdale, Sheraton Orlando, Tropicana, Ritz and Loews Lake LV, Renaissance St. Louis, W San Diego, St Regis MB, Fontainebleau LV, Amelia Island…and many more coming

Heading In the Wrong Direction

US Top 15 Markets a Mess

And…It’s Not Just the U.S. Nov 5, Hotel performance results for Oct, released today by Smith Travel Research, illustrated the global nature of the economic downturn, with all four major regions—the Americas, Europe, Asia/Pacific and Middle East/Africa—showing double-digit percentage decreases in occupancy and revenue per available room and RevPAR in many markets plummeting by 25 percent or more. Occupancy in the Americas dropped 7 percent year-over-year to 57 percent, while average daily rate was down 11.4 percent and RevPAR down 14 percent, according to the data. The United States took the hardest hit in terms of average daily rate, which dropped 8 percent to $99.38.

Occupancy/Revenue Trends

What Lies Ahead Financial analysts believe hotel recovery will take the form of a W…predicting another trough ahead 2/3 of all CBMS hotel deals done in the last 5 years will remain under water through at least 2013 Hotel fee flows will continue to evaporate Bigger, nastier open disputes between owners and operators Hotel bankruptcies predicted to peak in 2011 Next 5 years will see the greatest transfer of hotel ownership in history Inevitable consolidation of major hotel brands 5,000+ new hotels scheduled to open in the next 3 years Many industry insiders believe the worst is still ahead

What This Means to You Hotel decision process has a new layer…the owner Brand operators under severe pressure to perform or lose the hotel Hotels will push and be pushed to bring in every dollar of revenue…nickel and diming is back Service will continue to suffer via staff reductions Hotel failures to continue at record pace… the hotel you book may not be in operation when meeting occurs Cancelled/postponed renovation projects- older rooms, restaurants and meeting space

The Hotel Industry’s Current Focus… Hotel Company Drop in Group Business… “Hotel Company (ABC), which owns several large convention properties, said its hotels experienced a “substantial decline” in business volumes related to its group business. Chairman and CEO, said the decline was partially offset by increased attrition and cancellation fee collections.”

Tips on Minimizing Attrition Exposure Insist on a 60 to 70% attrition threshold; accept no less than 80% and should be cumulative, not ‘night by night’ or ‘use it or lose it’ Add a room block review clause to your contracts (allows flexibility in case of year over year drops in attendance)…(Example follows) Make sure the hotel mitigates (resells) unused room commitment Insist the Hotel crosschecks for rooms outside the ‘official’ block Add a “best rate” clause to your contract Have the hotel constantly update customer on pick-up pace Insure that main arrival days in the room pattern have rooms available Change revenue to profit in the attrition clause Avoid concessions being tied to room pickup, if possible

Room Block Review Clause ROOM AND SPACE BLOCK REVIEW Group and Hotel agree to review the room and space commitment on or before the following dates: -(date #1) -(date #2) -(date #3) As part of this review, Group will provide Hotel with the history (room block pick up and food and beverage events held at all hotels) for the same event held between the date this Contract is signed and the date that this Contract is to be performed. The parties will evaluate the room and space commitments and compare them to the Group’s history. Based on such evaluation, the parties agree to adjust the guest room block, as well as mutual corresponding changes to Group’s meeting and function space block and food and beverage attrition amounts set forth in the Attrition clauses in this agreement, and such changes to the Contract shall be confirmed in writing and signed by both parties. Once both parties agree on a modification of the contracted room block, the new room block will be used as the basis for attrition calculation and any other areas of this agreement affected by the guestroom pick-up.

Tips on Minimizing Attrition Exposure Review reservation and registration pace vs. last year Manage room blocks and anticipate “shoulder” nights not picking up. Determine “pressure” in destination. Is your group booked on top of city wide? Check room rates on travel portals and hotel web site to ensure hotel is not offering lower rates. Develop incentive with hotel partner for those attendees whom pay the group rate and stay at official designated hotel i.e. double miles

Other Tips on Minimizing Group Exposure Hotel should not cut off group rooms…this impacts the enforcement of the attrition clause Review F&B minimums to insure understanding of potential liabilities and insist on F&B resale Consider renegotiating group room rate with hotel based on hotel’s competitive set pricing Can you release meeting space so that hotel can lower room block commitment?

Other Tips on Minimizing Group Exposure Cancellation clause should contain: specific timeframes w/graduated damages Resale clause which prevents double-dipping Future credit at same or another property in the chain Based only on profit, not revenue Apply only for peak nights, not shoulder nights

Other Tips on Minimizing Group Exposure Add a change in MANAGEMENT, OWNERSHIP AND BRAND AFFILIATION clause Insure that the contract is predicated on the condition of the hotel being the same or better than time of booking…use Mobil or AAA rating if needed Add a provision to the contract that allows cancellation if the hotel management company or hotel owner declares bankruptcy Dispute resolution clause should only allow for a court trial, not arbitration NO recovery of legal fees to the prevailing party

Questions?

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