CORPORATES

OUTLOOK
26 September 2016

Lodging and Cruise US

Lowering Our Outlook to Stable on Lower

Growth Prospects in 2017
Our outlook for the US lodging and cruise industry is stable. The outlook reflects our
expectations for the fundamental business conditions in the industry over the next twelve to
eighteen months.

Analyst Contacts
Margaret Taylor
212-553-0424
Senior Vice President
margaret.taylor@moodys.com
Elisa dos Santos
212-553-4171
Associate Analyst
elisa.dossantos@moodys.com

We have revised our US Lodging and Cruise outlook to stable from positive. Our
lower forecast reflects our expectation that the industry's adjusted EBITDA growth will
slow to 4% to 6% in 2017 following three years of strong growth. We continue to expect
2016 adjusted EBITDA will grow 8% to 10% following a robust 9.9% growth in 2015 and
10.6% growth in 2014.

Cruise industry growth will slow, but continue to outpace lodging. The cruise line's
EBITDA growth is also set to slow in 2017 due to low capacity growth. We estimate that
ocean cruise capacity for Carnival Corporation (A3 stable), Royal Caribbean Cruises Ltd.
(Ba1 positive), and Norwegian Cruise Line (NCL Corp. Limited Ba3 stable) will increase
3% in 2017 following a 6.7% increase in 2016. In addition, there will be less incremental
benefit from lower fuel prices, while foreign currency translation will continue to weigh
on earnings.

Lodging supply growth now outpaces demand growth. Supply began to modestly
exceed demand in 2016, with supply and demand growth at 1.5% and 1.3% respectively
through August 2016. This signals that the lodging cycle has likely reached its peak.
We anticipate that supply growth will accelerate in 2017 as all the major hotel chains
continue to increase their pipeline of new hotels, while demand growth will continue to
slow because occupancy is at historic peaks.

Stalling occupancy growth is driving the slowdown in lodging EBITDA growth. We

forecast that occupancy will be flat or decline -1% in 2017 due to increasing supply, the
likely toll from Airbnb competition, and weak corporate profit growth. This will pressure
Average Daily Room Rate (ADR), and ultimately Revenue Per Available Room (RevPAR)
growth. We view RevPAR as highly correlated with lodging EBITDA growth.

Oliver Alcantara
212-553-2896
Associate Analyst
oliver.alcantara@moodys.com
Louis Beck
+1 (212) 553-1172
Associate Analyst
louis.beck@moodys.com
Janice Hofferber, CFA
212-553-4493
Managing Director
janice.hofferber@moodys.com

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In the near term, there is more upside risk to our forecast than downside risk. We may be too early in our move to a
stable outlook as, over the next six months, we believe that the growth in EBITDA will trend toward the higher end of our forecast
range which is more indicative of a positive outlook. However, as we look further out into the back half of 2017, we anticipate the
slowdown will accelerate and earnings growth will trend to the low end of our range.

What could change our outlook to negative. We could revise our outlook to negative should occupancy and/or ADR experience
declines such that lodging RevPAR growth is flat to negative and/or the cruise companies experience declining yields such that the
combined industries experience break even to negative EBITDA growth. Conversely, we could revise our outlook back to positive
should industry fundamentals such as RevPAR and cruise yields support EBITDA growth greater than 5%.

A negative industry outlook indicates our view that fundamental business conditions will worsen. A positive industry outlook indicates that
we expect fundamental business conditions will improve. A stable industry outlook indicates that conditions are not expected to change
significantly. Since industry outlooks represent our forward-looking view on conditions that factor into ratings, a negative (positive) outlook
indicates that negative (positive) rating actions are more likely on average.

Lodging and Cruise EBITDA set to slow to 4% to 6% growth in 2017

Our stable outlook is based upon our expectation that the industry's adjusted EBITDA will grow 4% to 6% in 2017 and 8% to 10% in
2016 for the 18 US lodging and cruise companies that we rate. It is important to note that the lodging industry is highly fragmented
and that we rate just over 20% of the global lodging industry capacity. On the other hand, the cruise industry is highly concentrated
and we believe we rate a large majority of the cruise industry capacity.
Year-to-date through June 2016, lodging and cruise EBITDA grew 14% outpacing our full year forecast. This is attributed to the strength
of the cruise companies that have been experiencing robust earnings growth due to capacity expansion and low fuel prices. We
anticipate that growth in lodging EBITDA will slow down in the back half of 2016 and will drive full year growth to be in line with our
2016 forecast. This trend already started in the second quarter with year over year Q2 lodging EBITDA growth slowing to 4.5% from
6.3% in the first quarter.
Events that could cause our 2017 EBITDA forecast to be too low include the cruise companies' ability to drive higher yield increases
than currently anticipated, a further fall in fuel prices, or the hotel operators being able to drive higher growth in ADR's despite growing
supply. Risks to the downside include terrorist attacks in other markets that cause consumers to be hesitant to book cruises in more
markets than the eastern Mediterranean, or should the expected increase in supply have a greater negative impact than currently
estimated on occupancy and room rates.
Exhibit 1

Lodging and Cruise Adjusted EBITDA Growth

Source: Company filings, Moody's Financial Metrics, Moody's estimates for rated companies
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

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Cruise industry EBITDA growth will continue to outperform lodging

Our 2017 adjusted EBITDA forecast is largely supported by continued solid growth in the cruise industry, offset by a further slowdown
in earnings for lodging. Lodging companies represent roughly 50% of our total 2017 industry EBITDA forecast, with cruise companies
accounting for the other 50%. Lodging companies EBITDA growth began to slow in 2015 and the trend continues into 2016. Year-todate June 2016, lodging companies adjusted EBITDA has grown 5.4% which is in line with our full year 2016 adjusted EBITDA growth
forecast of 5% to 6% for the lodging companies. We estimate that lodging EBITDA growth will slow further in 2017, to 3% to 5%
forecasted growth rate.
On the other hand, the cruise industry's EBITDA growth accelerated to 30% year-to-date June 30, 2016 up from 14.6% in 2015. We
anticipate its growth will slow in the back half of the year in 2016, with a 14% to 15% forecasted growth rate. In 2016, the rated cruise
companies benefited from ten ocean ship launches (up from six ocean ship launches in 2015). This, along with low fuel prices, drove
the strength in EBITDA growth in 2016. Looking to 2017, we expect adjusted EBITDA growth will slow to a still-solid 5% to 7% due to
moderate capacity expansion, with only six ship launches scheduled, which represents a relatively low 3% increase in berth capacity.
This compares to a 6.7% increase in berth capacity in 2016. We expect the increase berth capacity to rebound to 6.7% in 2018. We
also believe that the positive impact from low fuel prices will be more muted and that the negative impact from foreign currency
translation will continue.
Exhibit 2

2017 Cruise Ship Capacity Growth Expected to Fall

Total Increase in Capacity as a % of Beginning Year Capacity

Represents data from Carnival, NCL and Royal Caribbean

Source: Company Filings

Marriott's acquistion of Starwood will not drive industry consolidation

We do not expect that Marriott International, Inc.'s (Baa2 stable) acquisition of Starwood Hotels & Resorts Worldwide Inc. (Baa2
stable) to drive an industry-wide consolidation. Following the acquisition, Marriott has the largest market share of the global hotel
rooms. We estimate that the combined entity has 7% of the total global hotel rooms. Although it is a large transaction, it will not
give Marriott a significant lead over its nearest competitors. We estimate that Hilton Worldwide Finance, LLC's (Ba2 stable) and
InterContinental Hotels Group's market share to be about 5%. In addition, two of the seven largest worldwide hotel chains, Hyatt
Hotels Corp. (Baa2 stable) and Choice Hotels International (Baa3 stable), have a sizable family ownership, which would likely preclude
those companies from being acquired. Wyndham Worldwide Corp. (Baa3 stable), remains acquisitive, but has been unable to execute a
sizable transaction and its recent acquisitions have been modest. We therefore don't believe the transaction will spur an industry-wide
consolidation.

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Lodging and Cruise US: Lowering Our Outlook to Stable on Lower Growth Prospects in 2017

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Lodging supply to exceed demand, signaling the cycle has peaked

Fueled by the sizable expansion of the new hotel pipeline across the major hotel chains, a trend that began in 2013, we believe supply
growth will continue to climb higher in 2017. Major hotel chains grew their pipeline at over 6.8% through the first half of the year,
coming off a 7% increase in 2015 and 14% in 2014. Given that it can take on average up to four years for a new hotel to open, we
believe supply growth will approach 2% by the end of 2016 and reach 2.4% in 2017. This compares to Smith Travel Research and
PWC's expectation for 1.7% and 1.9% increase in supply for the years 2016 and 2017. Our 2017 supply growth forecast of 2.4% is
roughly the mid-point of Moody's 2017 GDP growth forecast, which we believe supports a modest improvement in ADR in 2017.
Exhibit 3

Supply and Demand Growth

Source: Smith Travel Research

At the same time, demand growth has decelerated such that supply began to modestly exceed demand in 2016, a trend that we expect
will continue into 2017. We believe one of the drivers of the lower demand growth is a slowdown in corporate transient travel. In
addition, occupancy while modestly weakening, remains at historic peaks, making it challenging for lodging companies to post further
healthy increases in demand and occupancy barring a sizable strengthening in corporate profits which drive business travel or in GDP.
Airbnb is also extracting demand from the market another factor that we believe is slowing hotel occupancy (please see Airbnb box
on page 7).
Our lodging EBITDA forecasts are based upon the following assumptions for occupancy, ADR and RevPar in 2016 and 2017. Our
expectation for slow growth in lodging EBITDA in 2017 is predicated on occupancy growth remaining mildly negative at -1% to flat.
Modest global GDP growth should support some improvement in ADR's as long as GDP growth remains in pace with or exceeds the
new hotel supply coming on board. In addition, while we expect occupancy declines, the declines will be very modest allowing the
hotel operators to maintain pricing power. Thus we expect the lodging industry will be able to drive an overall growth of 2% to 3% in
ADR's, which will result in a 1% to 3% growth in RevPAR in 2017. Our forecast compares to flat occupancy growth in 2017 from Smith
Travel Research, Inc. (STR) and PWC. We are more pessimistic on ADR growth and RevPar growth. STR estimates a 3.8% growth in ADR
and RevPAR and while PWC estimates a 3.3% growth ADR and a 2.9% growth in RevPAR in 2017.
Exhibit 4

US Lodging Industry Key Metrics, Actual and Forecast

Source: Smith Travel research and Moody's estimates

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Exhibit 5

Historic ADR, RevPar, and Occupancy

Source: Smith Travel Research; US hotel operating statistics; Moody's estimates

US Corporate Profit Growth will be weak in 2017

Modest global GDP growth and Moody's MacroEconomic Board's expectation for weak corporate profit growth in 2017 support
out forecast for -1% to flat occupancy declines and muted growth in ADR. Although The Global Business Travel Association (GBTA)
forecasts that global business travel spending will hit US$1.3 trillion in 2016, an 8% growth over 2015, the growth is largely driven by
China, while the lodging companies we rate remain concentrated in the US, which is experiencing much lower growth in corporate
travel due to weak corporate profits. Euromonitor forecasts only a 2% growth in corporate business trips in the US in 2017. In addition,
the annual forecast was developed before Brexit which will likely be a drag on corporate travel by UK companies. Given the growth
in China, many of the major hotel chains such as Marriott International and Hilton Worldwide are accelerating their hotel pipelines in
China and the Asia Pacific region.
Exhibit 6

Source: U.S. Bureau of Economic Analysis (BEA); Moody's Macro Economic Board

Modest Global GDP Growth will support ADR growth in 2017

The lodging and cruise industry demand is correlated to economic cycles and GDP (see exhibit 7, page). When economic growth slows,
occupancy usually decreases as consumers clamp down on discretionary leisure travel and businesses scale back corporate travel
budgets. Declining occupancy reduces operators' pricing power and average daily room rates. The combination of lower occupancy and
reduced ADR leads to falling RevPAR and EBITDA. On the other hand, GDP growth supports higher occupancy and increasing room
rates. We therefore view occupancy as a leading indicator of a recession or recovery.

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CORPORATES

Exhibit 7

RevPAR versus Real GDP

Source: Smith Travel Research; U.S. Bureau of Economic Analysis (BEA); Moody's Investors Service

We currently forecast muted global economic growth. Our forecast for GDP growth in the US, which remains the largest source of
earnings for Moody's rated lodging and cruise companies, is 1.5% to 2.5% in 2016, a slowdown from the 2.4% GDP growth experienced
in 2015. We forecast 2% to 3% growth in GDP in 2017. We also expect growth to be muted in Canada, Mexico, Germany, the UK and
France, which are significant departure points for inbound travel to the US. We forecast that G20 Advance economies GDP growth will
be 1.5% to 2.5% in 2016 and 2017 which is in line with 2015's G20 Advanced GDP growth of 1.9%. We recently revised upward our
growth expectation for emerging markets with a 2017 forecast of 4.5% to 5.5% GDP growth in emerging markets.
Exhibit 8

GDP Growth will be Muted for Most Economies

Moody's GDP Growth Forecasts

Source: Moody's Investors Service

Euromonitor forecasts inbound travel to the US to grow 2.2% in 2016, which also supports our slowing occupancy expectations.
Looking forward to 2017, Euromonitor forecasts continued slow growth of inbound travel into the US from the three largest countries
of origin, Canada (2% growth according to Euromonitor), Mexico (3% growth), and the UK (3% growth). We believe UK travel into the
US may actually be weaker than the current 3% Euromonitor forecast in the aftermath of Brexit.

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CORPORATES

Airbnb is contributing to a slowdown in hotel growth

While there is limited public data available on the San Francisco-based home rental service company Airbnb Inc. , it is well known that Airbnb
has been experiencing phenomenal growth. According to its website, Airbnb currently has over two million listings worldwide, which is up from
300,000 listings at the end of February 2014 (according to a report by Euromonitor). This compares to 15.7 million worldwide hotel rooms at
the end of 2015, according to Smith Travel Research, which indicates that Airbnb has gained meaningful scale.
We believe this rapid growth is another factor slowing hotel growth in certain markets, though many cities also have regulations governing
short term rentals. Also, certain types of travelers, including business and group travelers, prefer hotel amenities and the larger space that
hotels offer.
We looked at what we believe are Airbnb's top five US markets to assess how their occupancy, ADR, and RevPAR have performed. According
to Airdna, a company that provides data on Airbnb, New York City is Airbnb's largest domestic market with 37,153 listings. This is followed by
Los Angeles with 12,877 listings and Miami/Hialeah with 11,348 listings combined. We roughly estimate that New York and Miami/Hialeah
have the highest concentration of Airbnb listings (see Exhibit 9) and, coincidentally, these markets also have declining RevPAR year-to-date
in 2016. However, in 2015 Miami/Hialeh experienced solid RevPAR growth while New York was negative. In two markets where Airbnb has a
lower concentration, Los Angeles and San Francisco, RevPAR growth remains healthy. Whereas Chicago, with the lowest concentration, has
negative RevPAR growth in 2016 that we attribute to weak inbound international travel.
We believe Airbnb is one of the drivers of the weak occupancy and ADR's in New York and Miami. These markets are also being hurt by the
strong US dollar, which has curtailed international travel into those markets as well as into Chicago. In addition, New York is also feeling the
effects from increased hotel supply ahead of the Super Bowl in 2014. Despite these pressures, these two cities have only experienced modest
declines in RevPAR. On the other hand, the robust growth in Los Angeles and San Francisco indicates that Airbnb can co-exist in a market
without hurting price or causing occupancy declines when its market saturation falls below a certain level.
Its unclear what Airbnbs daily occupancy rate is, and whether this rate is rising or falling relative to hotels, which would better clarify what
impact Airbnb is having on the lodging companies. For example, if the Airbnb listings in New York were running at very low occupancy rates
and their occupancy rates were also declining, this would indicate that the strong US dollar is the likely driver of the declines in New York. In
addition, the RevPAR declines in Chicago (which has a low Airbnb concentration) support this argument.
Exhibit 9

Top Five Airbnb Markets

Note: Airbnb listings as of September 12, 2016, hotel rooms as of June 30, 2016. San Francisco hotel market estimated. Miami data includes Miami Beach and Hialeah. Los Angeles and San
Francisco data include Long Beach and San Mateo, respectively.
Source: Smith Travel Research, Airdna.com

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Appendix A - US Lodging and Cruise Industry - Rated Companies

Source: Ratings shown in this table are the Corporate Family Rating for speculative grade issuers and the senior unsecured rating for investment grade issuers.

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Moody's Related Research

SECTOR IN-DEPTH

US Lodging and Cruise: June Lodging Data Signals Moderate Q2 Earnings Growth (25 July 2016)

Outlook Update: US Lodging and Cruise: 2016 Growth to Remain Healthy Despite Slowing Lodging Demand (21 April 2016)

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this
report and that more recent reports may be available. All research may not be available to all clients.

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Analyst Contacts
Margaret Taylor
Senior Vice President
margaret.taylor@moodys.com

11

26 September 2016

CLIENT SERVICES
212-553-0424

Americas

1-212-553-1653

Asia Pacific

852-3551-3077

Japan

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EMEA

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Lodging and Cruise US: Lowering Our Outlook to Stable on Lower Growth Prospects in 2017