Hotel Forecasting Methodology Improves Accuracy of Projections

A study has found that new, sophisticated forecasting methodology produces more accurate and meaningful data for hotel owners and developers who rely on industry forecasts to make informed business decisions. A recently completed study by PKF Hospitality Research (PKF-HR) and Torto Wheaton Research (TWR) found that forecasts of occupancy, ADR and RevPAR published in the fall 2003 Hotel Outlook were 99.9 percent accurate when compared to actual results in 2004. Hotel Outlook is a lodging forecast report developed by PKF-HR and TWR and published quarterly.

The study went further when the company tested the impact of forecasting accuracy on a potential real-life business decision. PKF-HR and TWR simulated a common lodging investment scenario using both historical and forecasted data. The retrospective exercise contemplated the selection of 10 markets within which to invest hotel development dollars in 2004. One method relied solely on historical data (1999-2003) to determine which markets would be the best performers. The other method tested used the MSA RevPAR forecasts contained in the September 2003 Hotel Outlook report. The best markets were determined by the greatest actual RevPAR growth in 2004 as reported by Smith Travel Research.

"As it turned out, of the top 10 markets in 2004, the historical approach identified only two MSAs," said R. Mark Woodworth, executive managing director of Atlanta-based PKF-HR. "By using the RevPAR forecasts from Hotel Outlook, seven of the top 10 MSAs were identified. Our hypothetical investor would have been headed in the correct direction toward generating higher returns-on-investment using the Hotel Outlook forecast."

"To our knowledge, no other firm in the lodging forecast business has conducted as detailed or objective an evaluation of the predictive qualities of their lodging forecast model," Woodworth said. "Results of our study indicate that Hotel Outlook provides our subscribers with extremely accurate forecasts that they can rely on to make the best informed business decisions. We are particularly gratified to have achieved these results without having to tweak our forecasts. The accuracy assessment will be an on-going annual review that will be reported to our clients and the hospitality industry at-large."

Woodworth noted that the accuracy study, which is available on the company's Web site (www.pkfc.com/outlook), contains detailed information regarding the method used to forecast lodging performance, as well as the steps taken to conduct the accuracy analysis. "We realize that people might be skeptical of our internal self-analysis. Therefore, the report lays everything out on the table to enable readers to reach their own conclusions. While we have a relatively brief track record at this time, we believe we will be able to sustain this level of accuracy, excluding major unpredictable events, such as 9/11," he said.

Hotel Outlook is a joint product of PKF Hospitality Research and Torto Wheaton Research. It was first published in September of 2001 and provides econometric forecasts for the U.S. and 51 of the largest Metropolitan Statistical Area (MSA) hotel markets in the nation. Forecasts are prepared on a quarter-by-quarter basis for a term of six years. The model projects supply, demand, occupancy, ADR, and RevPAR for both full- and limited-service hotels within each market. Data from Smith Travel Research, Economy.com, PKF Hospitality Research, and Torto Wheaton Research are used to run the model.

The accuracy assessment studied forecasts made in September of 2003 for the five ensuing quarters--fourth quarter 2003 through fourth quarter 2004. In addition, the 2003 and 2004 year-end annual forecasts were examined. The analysis covered forecasts made for each of the 51 markets, as well as the national total. Accuracy was determined by the percent variance between the forecast numbers of Hotel Outlook and the actual results reported by Smith Travel Research.

To download a complimentary copy of the Hotel Outlook accuracy assessment, visit the company's Web site, www.pkfc.com/outlook, or call Claude Vargo toll free at (866) 842-8754.

PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.

Boston-based Torto Wheaton Research is the premier provider of commercial real estate data, analysis, and consulting in the U.S. An independent business unit of CB Richard Ellis, TWR tracks and forecasts commercial real estate supply and demand indicators and updates them quarterly.

                       TEST OF FORECAST ACCURACY

          PKF Hospitality Research and Torto Wheaton Research

----------------------------------------------------------------------



                            2003                      2004

                 --------------------------- -------------------------

                    ADR    Occupancy RevPAR    ADR   Occupancy RevPAR

                 -------- ---------- ------- ------ ---------- -------

All Hotels

----------

      Forecast*    $93.77     62.2%  $58.28   $96.83    65.5%  $63.46

      Actual**     $94.22     61.7%  $58.11   $98.20    64.7%  $63.52

      Difference   $(0.45)     0.5%   $0.17   $(1.37)    0.8%  $(0.06)

      Score          99.5%    99.2%    99.7%    98.6%   98.8%    99.9%



Full-Service

------------

      Forecast*   $111.46     64.1%  $71.48  $115.55    67.6% $78.14

      Actual**    $112.01     63.8%  $71.41  $116.83    67.0% $78.32

      Difference   $(0.55)     0.3%   $0.07   $(1.28)    0.6% $(0.18)

      Score          99.5%    99.5%    99.9%    98.9%   99.1%   99.8%



Limited-Service

-----------------

      Forecast*    $56.75     58.4%  $33.13   $57.53    61.5% $35.40

      Actual**     $56.93     57.7%  $32.85   $58.91    60.2% $35.48

      Difference   $(0.18)     0.7%   $0.28   $(1.38)    1.3% $(0.08)

      Score          99.7%    98.8%    99.1%    97.7%   97.8%   99.8%



Note: * Forecast - Made in September 2003

      ** Actual - As reported by Smith Travel Research



Sources: Smith Travel Research, Torto Wheaton Research, PKR

 Hospitality Research



                       TEST OF FORECAST ACCURACY

          PKF Hospitality Research and Torto Wheaton Research

----------------------------------------------------------------------



       Forecasted            Length of       Period of        Accuracy

         Sector                Time            Time             Score

----------------------------------------------------------------------

All Major U.S. Cities         Annual            2003             99.7%

All Major U.S. Cities         Annual            2004             99.9%

All Major U.S. Cities        Quarterly    4Q 2003 thru 4Q     98.7% - 

                                                2004             99.6%



Individual MSA's              Annual            2003             98.0%

Individual MSA's              Annual            2004             99.9%

Individual MSA's             Quarterly    4Q 2003 thru 4Q     93.5% -

                                                2004             95.3%



Source: Torto Wheaton Research and PKF Hospitality

 Research

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