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Accor has called time on its involvement in American economy hotels, selling its complete portfolio of 1,102 Motel 6 and Studio 6 budget hotels to investor Blackstone.

Described by Accor as a “key milestone” in

its growth strategy, the move was welcomed

by commentators, with Accor shares rising on

the news.

At the same time, Blackstone has grown its

directly owned and shared interests in the hotel

sector to portfolios reckoned to add up to 1

million rooms, in 7,000 hotels. By cutting 107,000

rooms or 20% from its global portfolio, Accor

has explained the move as one that will improve

returns, and improve its asset light profile.

Conversely, new owner Blackstone has plans to

invest in the properties and grow Motel 6.

“This deal will provide Accor with additional

resources to address the tremendous growth

potential in the Asia Pacific region, in Latin America

and in Europe, where the leadership of our brands

is one of the key drivers of our future growth,”

said Accor CEO Denis Hennequin, announcing

the deal. “Motel 6 has a model that was not

suited to the group and had no synergies with

our other activities.”

At a stroke, Accor’s portfolio interest in north

America falls from 21% to just 1%, signalling

a further step in a major push into emerging

markets, and into the still relatively fragmented

European market.

As a result of the sale, the company’s portfolio

is now oriented 64% in Europe, and 22% in Asia

•Choiceand Wyndham enjoy home advantage p4

•Paineasesin Spanish market p6

•Brazillifts Orient-Express p8

•Dealssuggest markets are starting to move p12

•Dangerfield’srebranding challenge p17

•Prepareforthe next internet namingfightp21

Accor quits US economy sector

Pacific. The company had no expansion aspirations

in the USA, so the pipeline figures remain 50% in

Asia Pacific, and 27% in Europe, 13% in South

America and 10% in Middle East and Africa.

Hennequin has set Accor on a path to upend

its current dependence on Europe, which has

been responsible for 70% of its business, with

just 30% elsewhere in the world. He told the

German magazine WirtschaftsWoche he wants to

flip the figures to 30% Europe, 70% in emerging

markets. Taking account of the latest change, and

including pipeline, the figures currently stand at

56% Europe and 43% from emerging markets.

The disposal has cost Accor substantially, with

the company having to pay to exit the fixed

leases within the Motel 6 portfolio. Despite its

best efforts in the last year, when it opened 55

new franchised hotels, disposed of 41 sites and

exercised call options on 60 fixed leases, still 48%

of the portfolio was either owned or on fixed

leases with just 35% franchised.

Thus although the headline figure for the deal

is E1.5bn, the net contribution to reducing Accor’s

debt is just E330m. Fixed lease commitments will

reduce by E525m, while Accor will take a book

loss of around E600m, from the early buyout of

fixed leases.

The company restated its 2011 results to show

that had Motel 6 been disposed of earlier, the

company would have delivered better numbers.

In a hint of the direction Accor is now taking,

news of the deal broke on the same day the

company completed its previously announced

E195m deal to purchase the Mirvac portfolio,

Volume 8 Issue 3 – July-August 2012

continued on page 3

Contents

News Review 4-13

Euro debt gap – Choice growth slow

– De Vere upgrade – Spain eases –

Tourism misunderstood – Brazilian

outlook bright – InterCon positive on

Europe – Acquisitive Host – Costa lifts

Whitbread – European deals – Rezidor

ventures forth

Sector Stats 14-16

London’s pre-Olympic dip

– Warsaw wins with Euros

Analysis 17-21

Life in the new reality – Banks hold

back UK investment – The next

internet land grab

The Insider 24

Paramount coming soon – Larry’s

light touch – Hangover cure

www.hotelanalyst.co.ukVolume 8 Issue 3 – July-August 2012

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Marketing Sarah Sangstere sarah@hotelanalyst.co.uk

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ConsolidationopportunitiesCommentaryby AndrewSangster

The latest to spell out opportunities is consultancy

HVS, which has noted the large number of

significant properties for sale within the UK market,

as hotel groups look to reposition themselves and

cover off debt. Conference hotel group Principal-

Hayley is up for sale, with a possible GBP500m price

tag; De Vere group is selling off its non-core hotels;

Q Hotels is selling six of its hotels; Jurys Inn is about

to be sold; and the three-strong Big Sleep brand has

been put up for sale.

“These companies could provide an interesting

opportunity for an investor to gain a foothold in the

provincial UK mid-market, but there are additional

possibilities for an investor with deeper pockets

-possibly an existing hotel investor – to purchase,

say, two or more of these groups,” said HVS London

chairman Russell Kett. “It could then carry out

some overdue capital expenditure and then apply

a more distinctive and recognisable brand to those

which ‘fit’, dispose of those which don’t, and derive

additional bottom line earnings and value from the

economies of scale and branding benefits.”

Many of these hotels are in the mid-market,

which Kett acknowledges has not been a

comfortable part of the market over the last two

years. “The mid-market is a difficult sector to

operate in – cash-pressed consumers tend to trade

down squeezing the mid-market, particularly

those hotels which are not clearly branded.”

In Germany, too, there are opportunities to acquire

significant hotel assets and entire hotel portfolios.

But as recent figures from Jones Lang LaSalle pointed

out, transaction volumes in the first half of 2012

are substantially down. “Continued shortages in

funding, and also extensive due diligence processes

have led to the disappointing result,” said Thorsten

Faach, head of investment at JLL Hotels.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation

hotelanalystAs a result, the market is dependent increasingly

on private high net worth investors.

But the recent successful establishment of a

new hotel real estate fund managed by Internos

shows that a carefully constructed vehicle can

bring together buyers to good effect, and attract

banking support. The fund has just invested

around E100m in four hotels in Germany and

Holland, using institutional equity from four

German investors, and topping it up with bank

lending. These are standing investments, all leased

and with big name brands over the door.

An all together more daring suggestion came

in the last few weeks from analysts at Numis

Securities, with a proposal that Marriott should

take over InterContinental. Just days after the

report appeared, activist investor Trian Fund

Management bought a 4.27% stake in IHG,

apparently agreeing with the sentiment. While

shares advanced 6% the following day, they sit

today at around £15.50, some way off Numis’s

target price of £18.

Numis argued that the sector is too fragmented,

with consolidation “inevitable at some stage”.

With InterContinental’s shares consistently trading

at a discount to its US peers, they suggested a

merger would be a logical way to unlock that

value for shareholders.

“So long as the sector benefits from cyclical

recovery and secular expansion there may be no

rush for the industry to consolidate,” said the

Numis team. “However, in our view, there is a high

probability of consolidation at some stage.”

Numis said that IHG’s London-listed stock

remains undervalued. Using the price/earnings ratio

as a comparator, IHG at 16.7 sits alongside Choice

and Wyndham, while Marriott and Starwood,

which Numis argues are the company’s actual

peers, have P/E ratios of 23.5 and 21.9 respectively.

InterContinental’s lead in the booming Chinese

market is a distinct bonus. “In our view, IHG’s

strong market position and growth prospects in

China make it an attractive acquisition target.”

Searching for a good fit, Numis suggested “the

strategic rationale for a merger between IHG and

Marriott is compelling”. While it has similarly

transformed itself into an asset-light company,

Marriott has a greater weighting in its home US

market, and has been slower off the mark than

IHG into emerging markets. A takeover could drive

USD200m of operational savings, by merging

head office functions and cutting costs through

scale economies.

A takeover of IHG would require USD9bn

of firepower, probably best funded by a 70:30

shares/cash offer, that would not upset debt cover.

For shareholders in the new company, there would

be an increase in earnings per share of 20%.

With plenty of hotel product in the marketplace, commentators are increasingly talking about the opportunity for consolidation. For those with access to funds, both the British and German markets offer choice. And at a macro scale, one analyst suggested last month it is high time two major international chains merge.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 3 3

ConsolidationopportunitiesNews

adding 48 hotels in Australia and New Zealand.

Deutsche Bank analyst Simon Champion

called Accor’s move “transformational”, adding:

“It completes the group’s exit from U.S. budget

hotels, which has been a drag on group earnings

for two decades. The brand has a poor consumer

image at present in our view, and had no synergies

with the rest of the group.”

“Secondly, the deal frees up the balance sheet

as Accor now gets rid of E92m of annual lease

costs. And so this is a critical point in the group’s

move to divest assets and realize this hidden value

within the group’s real estate.”

Meanwhile, Motel 6’s new owners Blackstone

have already given a hint of the direction its is

planning for the chain. “We are excited about the

opportunity to acquire Motel 6,” said Jonathan

Gray, global head of real estate at Blackstone.

“Although it will be operated on a stand-alone

basis, similar to other lodging investments we

have made on behalf of our investors, we plan

to invest significant capital in the company’s

properties and to accelerate the expansion of the

franchise base.”

Those other lodging investments include

interests in Hilton Worldwide, La Quinta Inns &

Suites, Extended Stay America, Mint Hotels and

Columbia Sussex.

The holdings are substantially leveraged,

with the scale of borrowings and the stress

such borrowings are under was revealed with

Bloomberg reporting that Blackstone refinanced

of USD2.65bn of debt against the La Quinta

purchase. Funds for the two year loan extension

are reportedly costing Blackstone Libor plus 4.3%,

compared with a previous level of Libor plus 0.8%.

Motel 6 established in 1962, and was acquired

by Accor in 1990, at which time the chain was

550 strong. In 1999, the company added critical

mass by buying Red Roof Inns for USD1.115bn.

However, eight years later in 2007 Red Roof

was sold on, for USD1.3bn, to Citigroup and

Westbridge Hospitality.

Accor’s minimal presence in North America

now amounts to just eight US Sofitels and one in

Canada. There are10 Novotels spread thinly across

the continent, with seven in Canada, one in the

US and two in Mexico.

HA Perspective: Exiting Motel 6 is a brave move

and the courage it has taken should not be under

estimated. Reducing the size of your company by

20% is not an easy thing to do, particularly the

reduction involves selling-off what many might

perceive as a core part of your business, namely

economy hotels.

The Accor rooms portfolio goes from 535,200

rooms at March 2012 to just 427,800 restated to

account for the Motel 6 exit.

While the lack of corporate ego is welcome,

the disposal did highlight the hole Accor had

dug for itself since buying the chain more than

two decades ago. Buying out the fixed leases will

cause it to register a E600m loss when the deal

completes on the expected date in October.

The net cash impact of the USD1.9bn being

paid by Blackstone is just E330m once the cost of

taking out leases worth E525m is accounted for.

The numbers look much better when the Return

on Capital Employed is considered. Here, restating

2011 results based on the exit of Motel 6, ROCE

rises from 12.3% to 13.9%. And the disposal

barely dents growth prospects, with the pipeline

shrinking an immaterial 300 rooms to 114,100

in total.

In fact, if anything, growth should surely now

be buoyed thanks to the lack of distraction in

North America. This year, 30,000 organic rooms

are expected to be opened with a further 5,000

coming from acquisitions. Next year the organic

growth is expected to accelerate to 35,000 rooms.

Buyingoutfixedleaseswillcause Accor to register a E600m loss.

Despite recent talk of consolidation in the

industry, Accor does not look likely to be striking

any huge deals given its self imposed ROCE target

which must be above 12%.

And its ambition to return to investment grade

status for its corporate debt also militates against

it making a major move on any rivals.

With 50% of its pipeline in Asia Pacific, there

is big shift in Accor’s centre of gravity away from

developed markets towards emerging markets.

This shift will only be reinforced with the ongoing

asset restructuring programme which is to see the

sale of 400 hotels to impact net debt by E2.2bn

by 2015.

Post the Motel 6 sales, 54% of the portfolio is

management or franchise with just 10% owned

and a further 13% on fixed leases (the rest, 23%,

being variable lease).

Including the pipeline, 43% of Accor’s

rooms are in emerging markets with barely half

now in Europe. Accor is going to look a very

different company.

Hotel Analyst has for several years argued in a

favour of the Motel 6 disposal, pointing out that

it is a management distraction in a commoditised

market unlikely to yield decent returns for

many years.

Despite being the focus of concerted turnaround

efforts, the E532m of revenues last year generated

just E15m of EBIT. In 2010 there was a E4m loss.

The turnaround effort had seen 55 new franchise

hotels opened, bringing the total under franchise

to 35% of the portfolio. Some 41 hotels were sold

in the year.

Blackstone is making clear that it is not going to

absorb Motel 6 into either its Hilton or La Quinta

chains. Both these deals, struck at (in the case of

Hilton) or shortly before (in 2006 for La Quinta) the

peak of the market, have seen debt restructured.

Blackstone is making the latest deals using a

new real estate fund that is set to top USD12bn.

The latest deals are being done at distressed prices,

which have generally proved happier hunting

grounds for opportunistic funds. Deals struck near

cycle peaks, unless flipped quickly, have typically

led to burnt fingers.

As well as Motel 6, Blackstone is dabbling in the

debts of US chains such as Eagle Hospitality and

Extended Stay.

With its earlier purchases, Blackstone has had to

pay down debt and renegotiate terms. With Hilton

in 2010 it bought back around USD2bn of debt for

USD800m and converted other debt into equity to

reduce the load from USD20bn to USD16bn.

At La Quinta, it has this year removed USD415m

of debt and agreed to a 3.5 percentage point hike

on the rates it is paying on USD2.65bn so that it

can extend the term by two years to July 2014.

The price per room for Motel 6 is around

USD25,000 which is below replacement cost,

although this alone is no guarantee of making

money in what is an oversupplied and depressed

market segment.

It is not surprising then that Blackstone

recognises the need to invest in the chain and

further move towards franchising.

While the current crop of deals has been struck

a few years after the crash, it is probable the exit

could well be at the same time as those struck

before 2008. Blackstone, like other opportunistic

funds, typically prefers short hold periods of under

five years. The crash meant it has had to take pain

and hold for longer for those earlier acquisitions.

And Blackstone made clear during its first

quarter results presentation this April that it is not

anticipating making an early exit with its pre-crash

deals, stating that it is not yet a great time to be

selling real estate.

continued from page 1

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 34

News

Challengetofilldebtgapasreturnsambitionslowered

continued on page 5

The one hope on the horizon has been the

emergence of new forms of debt funding in the

form of insurance firms and pension funds.

According to research by DTZ published in May,

the debt funding gap in Europe is USD182bn. The

gap was increased by USD107bn thanks to new

rules from the European Banking Authority which

said capital reserves had to be 9%, estimates DTZ.

The issue of whether the withdrawal of bank

debt could be replaced by new sources of debt was

discussed at the Global Real Estate Institute’s UK

event held at the Sofitel London St James in May.

Whilst attendees thought there would be some

new debt available from these sources it was

widely felt that it would not compensate for the

problems of banks withdrawing from the market.

In particular, insurers and pension funds have

limited numbers of professionals to make funding

decisions with the average team being well under

10 people. This means only the biggest and most

prime assets would attract attention. The small

teams meant alternative lenders were not equipped

to deal with smaller or more complex transactions.

The net effect of the funding drought had

been to make deals difficult outside of prime,

gateway locations.

As well as team size, pension funds have typically

been focused on assets that match their annuity

profiles. So long-term, 25 year lease deals are

attractive but other forms of property lending are not.

Some pension funds and insurers are looking

beyond this, perhaps using interest rate swap

management to give short-term investments the

right profile, but it remains a cultural problem

for many.

In the absence of significant new debt, most

attendees at the GRI believed that what had to

give were asset prices.

But there would be no flood of cheap deals. As

long as central banks in Europe were prepared to

prop up the lending banks then there was unlikely

to be any motivation for the lending banks to

“scorch assets”.

Opportunity funds had, in some cases, adjusted

their expected returns down from Internal Rates of

Return set in the high teens to the low teens. High

returns were only possible in fast growing markets

like Asia; when distressed assets could be bought

cheap; or when significant leverage was possible.

The US had seen some non-performing loans

transact but the pace in Europe was anaemic, it

was argued. Most opportunity funds were focused

on working with borrowers as a way of getting

into transactions.

The greater readiness in the US for banks to

write-off loans was down to their healthier state,

it was argued. In Europe, there was little impetus

from regulators and no desire on the part of banks

to show the depth of the problem.

Nonetheless there would be a few portfolios

coming to market as banks were, generally, in a

better place than two to three years ago.

HA Perspective: The current environment is

forcing even the most aggressive of investors to

change their approach. Lower IRRs are now seen

as acceptable in a world of low interest rates and

few easy opportunities.

At the start of the downturn, a lot of cash was

raised, or at least promised, to exploit what were

expected to be a flood of distressed opportunities.

But it has not turned out to be the 1990s revisited.

Don’t feel too sorry for the limited partners at

the opportunity funds, however. They have also

lowered the hurdle rates at which they are paid

carried interest (effectively their bonus pool). The

concession they have had to make in lowering the

hurdle, from 10% to 6% in the case of one high

profile fund Westbrook, was to reduce the level of

bonus they receive on achieving hurdle rates (the

elimination of the so-called catch-up provision).

In addition, Westbrook is now pooling deals

and netting profits out across the fund rather than

paying out on a deal-by-deal basis.

Many of these changes will help to smooth

volatility. In particular, getting rid of the catch-up

provision there is less incentive to sell assets early.

Of course, the changes can be easily reversed if

the “good times” come back but if some of the

sharpest minds in real estate are gearing up for

an extended period of low returns don’t expect a

boom any time soon.

There is a massive debt funding gap in property across Europe as banks have become more cautious and are forced to rebuild their balance sheets.

SlowsystemgrowthforChoiceandWyndham

But net system growth continued to be slow as

each company terminates franchises on properties

that fail to meet brand standards.

Choice lifted revenues by 12% assisted by

domestic revpar advancing 8.6%, to USD129m.

At Wyndham, hotel sector revenues rose 24% to

USD185m and US revpar grew 9%.

Choice Hotels saw domestic revpar grow 8.6%

in the first quarter of 2012, exceeding expectations.

The advance was a combination of rate

improvement and higher occupancy. The company

signed 64 new contracts, up from 56 in the same

period of 2011. Choice remains cautious, with a 5

to 7% revpar growth expected for the full year.

At Choice, the emphasis from CEO Steve

Joyce was on improving operational and booking

efficiencies. “Our proprietary central reservation

channels – our website and our call centres – had a

particularly strong quarter with revenue increasing

15% percent year-to-date. Central bookings

through our mobile apps continue to grow at a

significant pace and we are seeing traffic volumes

on our website that we do not normally see until

the summer travel season.”

“We believe consumers will continue to

increase their travel but getting a good value will

top their list of priorities and certainly this is right

in the sweet spot of our value-oriented brands.”

Wyndham, too, is pressing for more online

business. “The launch of our new hotel brand

websites and improved content were the first

step in our Apollo plan to drive more room

nights through our online direct distribution

channels,” said chairman and chief executive

Stephen Holmes. “Preliminary results have

exceeded our expectations with brand booking

increases averaging over 10%.” And a pilot to

put TripAdvisor reviews within Wyndham sites has

paid off. “We saw an approximate 30% increase

in bookings during the pilot period.” The change

is being rolled out across the portfolio.

Both companies are showing relatively flat

growth in their home markets, as they prune

weaker franchisees from their portfolios. As a

result, much of Choice’s 46 openings in the first

quarter were in international markets. And of

the 64 hotels signed into its pipeline, additions

included locations in Australia, Brazil, France,

Honduras, Italy and Norway.

Said Wyndham’s Holmes: “We’ve been weeding

out some of the weaker franchisees who have not

been reinvesting in their properties. Over the last

BothChoiceandWyndhamenjoyeda strong trading at the start of 2012, with revenues growing off the back of strong domestic market demand.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 3 5

News

continued from page 4

couple of years, we have not had the unit growth that

we would historically have seen. And that’s in part

because we’ve been terminating a lot of products.”

Choice says it is seeing an improvement in

financing in the market. “It’s still not enough for

us to say; hey we think new construction is coming

back. But we are seeing improvement and what

we are hoping is that while we are not counting

on it for this year that that financing market

sometime next year may open up some more.”

Wyndham, meanwhile, has indicated it is

prepared to support developers with finance to

help get projects going. Said Holmes: “We’re

constantly out in the market looking to see if there

are great transactions we can bring in to enhance

essentially our Wyndham brand through possible

use of mezzanine financing or other financial

support initiatives.”

“We haven’t done very many of them,” he

admitted. “We do them on a regular basis, so we

are providing some development advances, but

nothing that’s so meaningful that we’ve called it

out. A while ago, we said that we were setting

aside like USD200m dollars for these type of

mezzanine and development advances, just to

kind of throw a number out there, but we haven’t

come close to using anywhere near that over the

last couple of years.”

Wyndham closed the quarter with 609,300 rooms

and a pipeline of 108,200 rooms. Around 55% of

planned growth is outside the home US market.

HA Perspective: Net system growth for

Wyndham was negligible in the quarter and just

1% for Choice. But both were bullish on prospects

for adding new hotels.

Choice had a 14% increase in new franchise

sales in the quarter with 64 new contracts. And

Wyndham added 220 new deals in the first

quarter leaving it with a pipeline 6% bigger than

at the same time last year.

The move to clean up their respective portfolios

makes sense. But in the US in particular, both

companies struggle to shed the image of picking up

the cast-offs from companies like InterContinental.

The difference in appetite to grow comes when

it comes to preparedness to commit capital.

Wyndham’s USD200m is not a huge number,

however, and in any case it seems more geared to

the upscale product than the core economy offer.

What will make a difference is how well

the companies can deliver demand for their

franchisees. Both are focused on this.

Wyndham highlighted its use of TripAdvisor

on its own brand websites, fully implemented by

the end of May. At the same time, it is offering

franchisees a suite of tools to hep them manage

their online ratings and reviews.

According to Holmes: “Making ratings and

reviews readily available on our own brand sits

ensure consumers don’t have to leave our site to

get that information and ultimately book with us.”

Holmes claimed a 30% increase in bookings

during the pilot period. Not surprisingly he became

tetchy on the conference call when an analyst asked

about whether online travel agents were impacting

rates, stating that what OTAs are doing now is no

different to the past and that they were partners.

At Choice, the central reservation channels,

both voice and web, had a combined 15%

increase in revenue. The average royalty rate paid

by franchisees went down very slightly by one

basis point to 4.34% for the quarter thanks to an

incentive programme that offered reduced rates

for new franchisees.

This scheme ended in June last year and Choice

expects both the royalty rate and net system size

to increase in the next few years.

The Royal Bath in Bournemouth and De Vere

Daresbury Park in Warrington have been sold to

Britannia Hotels, yielding GBP20m. Also up for

grabs are the Grand Harbour, Southampton and the

University Arms, Cambridge, with De Vere saying it

will invest the proceeds in developing new hotels.

And in a separate announcement, recently

arrived Village CEO Robert Cook revealed where

some of those proceeds are to be spent. Plans

to upgrade a series of deluxe rooms at De Vere

Village hotels have been made public.

The superior rooms, which will borrow the

airline (or cruise liner) moniker Upper Deck, were

unveiled at the Chester, Swansea and Solihull

hotels, ahead of a portfolio-wide refit over the

summer that will upgrade 20 rooms per hotel.

The rooms get a better mattress and bedlinen, Sky

TV, a Bose sound dock, Starbucks coffee and guests

will have three months membership to an online club

offering special deals on partner products.

Cook commented: ”With UpperDeck we are

re-inventing the wheel! Across the industry, and

even before the economic downturn, we saw the

downgrading of the upgraded status, especially in

the midmarket segment. Cost cutting to improve

profitability or just to keep your head above

water has in most cases prompted the stripping

back of the basics in room amenities. Meanwhile,

the sector is not seeing much by way of new

investment and little is on the horizon.”

“So, with all the benefits that already come

with staying at a Village hotel I could see a great

opportunity to offer, to both corporate and leisure

guests alike, a must-have upgrade that has real

benefits, both during the stay and for another

three months afterwards if they maximise the

benefits of the UpperDeckClub website. Through

UpperDeck I can give an enhanced customer

experience and more room product choice whilst

still driving ARR and profitability.”

“I’ve always thought that the real potential of

Village was waiting to be realised. I also believe

that every weekday night away from home is

begrudged so it must be as good as, if not better

than, staying at home. What I want to achieve in

UpperDeck epitomises my hospitality philosophy:

great service, great rooms and, above all, an

amazing stay.”

Also promised are new hotels developed in the

company’s “Black Box” style already seen in the

most recent additions to the portfolio.

HA Perspective: The De Vere restructuring is now

well under way. While the company may talk up its

plans to invest in hotels, first call on the cash proceeds

will no doubt be Lloyds, its principal lender.

That is in no way a criticism as it is hugely to

Lloyd’s credit that a company with as troubled a

capital structure as De Vere is still be allowed to

make capital investments of any sort. The bank has

clearly decided that the way out of the problem

is to take a deep breath and dive deeper (while

maintaining some connection with the surface).

The provincial conference business, however, looks

to be in very deep water indeed. And there are no

signs of the wider economy coming to its rescue.

While also down in the depths right now, the

mid market Village brand probably has the best

chance of surfacing soonest. Spinning off Village

in a year or two would leave the De Vere Venues

and De Vere four-star properties with a bit more

air in their tanks to survive a bit longer.

SalesandanupgradeatDeVereDeVerehascompletedthefirsttwoof four intended hotel sales, as the company prunes its less attractive properties from its portfolio.

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News

Santander’s move to take a E2.7bn write-down

on its property loans book came as a result of a

Spanish government demand that the country’s

banks make provisions of E30bn against their

overall E128bn liabilities. For Santander, this

is a second write-down, meaning the bank

has now lopped E5bn off the value of their

loans. The government is also pushing through

mergers, including one between CaixaBank and

Banca Civica.

For hotelier NH Hoteles, the pain continued as

the company posted a first quarter loss of E26.7m,

a 3.9% improvement on the same period in 2011.

Whilte Ebidta was up 25% to E3.5m on the back

of cuts in operating costs, revpar fell 1.85% with

both rate and occupancy down overall.

The bright spot in the NH portfolio were American

hotels, which delivered a 6% revpar increase, with

Mexico expected to perform best into the second

quarter. Central Europe also turned positive, with a

1.6% improvement in revpar.

In Spain, revpar fell 5.7%, with Barcelona

holding up while Madrid hotels experienced price

pressure. The company expects revpar to pick up

after the summer.

NH’s debt rose E30m to E992.6m during the

quarter, which was put down to seasonal effects,

while the company is taking a E18m provision

this year against asset impairments. It is also now

committed to asset sales, as part of its recently

agreed refinancing agreement.

During the quarter, NH opened two hotels and

in Bratislava and Dominican Republic, and signed

three further properties into the pipeline. The

company also closed four hotels, of which two

were in Barcelona, and two leased.

Melia, which has a more broadly spread

portfolio, fared better overall, while still seeing the

home market struggling. Its US hotels delivered an

exchange rate assisted 20.1% increase in revpar,

or 15.6% in dollars, while in EMEA the increase

was 3.1%.

In the Americas, performance was headed by

the Dominican Republic, and Mexico, which saw

two new resorts in Playa del Carmen deliver 84%

ahead of budget. With strong demand from both

leisure and business guests, the company expects

the trend to be maintained into 2013.

In EMEA, France led the pack with a 15.6%

increase in revpar, helping to lift the region’s

average revpar improvement to 3.1%. Germany

and the UK were positive, too, while Greece and

Italy performed badly. Premium hotels raised room

rates 5.8%, but lower occupancy led to a 2.2%

decrease in revpar. Madrid was the best performer

in the urban segment, with Lanzarote the worst

resort performer, a situation that Melia is turning

around with additional marketing. Going forward,

Gran Melia Rome will start contributing, while the

new London hotel opens in the third quarter.

In Spain, the red ink continues to be spilt.

Although Madrid and Barcelona were in the black

with revpar up 2.3%, other cities saw an 8%

reduction. And reported figures for the resorts

were worse than they looked, down 7.9% thanks

to comparison against the 2011 quarter positively

affected by business displaced from North

African resorts.

Melia remains cautiously optimistic that the 2012 season will be better.

There is some hope looking forward, with the

company reporting: “The resort booking position

from the UK, Central Europe and melia.com point

to a positive summer season 2012 versus last year.”

In the Spanish Mediterranean, Melia has

seen summer bookings up between 5-10%,

and remains cautiously optimistic that the 2012

season will be better than last year. However,

the company says it is under no illusion that its

domestic business in Spain and Italy is coming

back any time soon.

Thanks to expenditure on the new resorts in

Mexico, company debt is up 2% on last year, at

E1,085m. But the company is planning no more

capex this year, and intends to repay E100m

through 2012 with asset disposals. During the

year, there are E107m of preference shares that

will need refinancing.

Already in the first quarter the company

disposed of the Tryp Blanch Fontaine, realizing

E14.8m, of which E8.4m was a capital gain. And

it is in talks to dispose of a 5m sq m landholding

in Brazil, which Melia will no longer develop itself.

Melia strengthened its pipeline during the

quarter, adding 6 hotels, 1,768 rooms). Pipeline

now totals 10,959 rooms, of which 87% is outside

Spain and the majority in emerging markets. All

of the projects are management, franchise or

variable lease, freeing the company from further

capital investments. Recent openings include

Melia Dubai, and the Gran Melia in Rome.

Meanwhile, Spanish hotelier Iberostar has

reorganised it portfolio of more than 100 hotels

around the Mediterranean and Caribbean, as

it prepares to take on further hotels in its home

market from Thomas Cook.

The rebranding of the portfolio aims to make it

easier for customers to identify the hotels that suit

them best. Its basic offer will be named Iberostar,

with Premium, Premium Gold and Grand Collection

providing progressively higher levels of service.

“This segmentation aligns with our standards

in terms of product, service and enjoyment at

Iberostar properties worldwide,” said Luis Hérault,

Iberostar’s chief marketing officer. “Within these

four categories, we guarantee star service for any

budget. We have worked on this segmentation

alongside our main operators and channels and

together have established a classification that

works best across our properties.”

At the end of May, Iberostar picked up five

further Spanish hotels, having negotiated a deal

to buy indebted tour operator Thomas Cook’s

interest in holding company HCV.

HA Perspective: It is hard to consider the hotel

market in Spain without being swamped by the

gloomy macroeconomic picture. Certainly, the

short-term outlook is grim.

With concern in financial markets over the

impact of the Greek elections on the Euro – a

Grexit – the ensuing chaos will prove particularly

damaging for Spain, now viewed as the next

probable victim.

It should not be taken as a given that Greece will

exit. UBS macroeconomists estimated that a Greek

exit would cost E225bn while a debt restructuring

would cost E60bn. There remains a clear incentive

to prevent any exit.

The big risk according to UBS, after Greece,

isSpain. The analysts highlighted three key

risks: whether the 2012 budget is deliverable;

the deep recession; and finally the ongoing

banking problems.

Given that the E225bn number of UBS only

takes into account the impact of a Grexit on Greek

debt write-downs, the possible added effects

of bank runs across southern Europe ought to

encourage a solution that keeps Greece inside the

Euro and shield Spain. We shall see.

PaininSpaineasesDuringMay,newsfromSpanishcompanies began to shed a little light on the likely outlook for the sector during 2012. Spanish bank Santandertookitsfirstwrite-downon property assets, while hotel operators NH Hoteles and Melia declaredfirstquarternumbersindicating the market may have lifted from the bottom.

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News

During last year, there was a global 4.6%

increase in tourist arrivals, leading to a 3.8%

increase in spending over 2010. And it is the

BRICs nations which are seeing the greatest

increases in international tourism spending, as

their increasingly affluent populations can afford

international travel.

But as UNWTO secretary general Taleb Rifai

called on governments to promote travel by

easing visa restrictions and equalising taxes, it

appears two of tourism’s favourite destinations

are adopting very different responses. The US

government has announced a plan to expand its

visitor numbers from just over 60 million in 2011

to 100 million in 2021. In contrast, the British

government stands accused of missing out on

the opportunity.

Globally, the positive trend is continuing into

2012, with the first two months showing a 5.7%

increase in tourism numbers, and unexpectedly

strong activity in Europe. The UNWTO’s latest

figures show a 5% increase across the whole of

the continent, with central and eastern Europe

leading the way showing an 8% uplift.

“These are welcome results for Europe in

a moment in which countries are looking for

sectors that can deliver on economic growth

and job creation,” said Rifai. “We need to work

together with tourism administrations to ensure

that governments give priority to tourism as

part of national policies to stimulate growth

and employment.”

The organization held its recent congress

in Batumi, Georgia, where Rifai noted the

country’s commitment to tourism. “Georgia is a

remarkable example of a destination with a strong

commitment towards tourism development. As a

result, arrivals have almost tripled in the past five

years, from just below a million in 2006 to close

to 3 million in 2011, with international tourism

receipts reaching almost USD$1bn in 2011.”

The US appears to have been listening to Rifai’s

calls. In January, President Obama demanded a

better performance from his country’s visa issuing

offices, and extended the country’s visa waivers

for foreign visitors. And he set up a Task Force

on Travel and Competitiveness, which has now

reported back with the 100m visitor target, and

a strategy which they say will drive USD250bn

of spending. Initiatives towards this will include

further opening up aviation, simplifying and

reducing the visa application process, improving

customer service at ports of entry, and improving

transport infrastructure to ensure a “world class

visitor experience”.

At the opposite end of the scale, the European

Tour Operators Association is the latest to articulate

its frustrations at the seeming indifference of the

British authorities, to the economic opportunities

of encouraging tourism. Having increased

airport departure taxes, and with no decision on

expanding much-needed capacity at Heathrow

airport, the government has recently had to deal

with travellers exasperated by unacceptably long

wait times at border control.

In a paper asking “Is Britain open for business?”

the ETOA says Britain is losing visitors thanks to

a complex, expensive visa application process.

One quarter of Chinese and Indians give up the

application as it is so difficult, they claim, while

since the introduction of visas for South African

visitors in 2009, arrivals have dropped 24%. Many

visitors go instead to mainland Europe, where a

Schengen visa covering the whole continent is

cheaper and easier to obtain.

“The damage done by our visa regime takes

place thousands of miles away, where the clients

are, in the origin markets,” said Tom Jenkins,

executive director of ETOA. “These markets, such

as India, China and Indonesia, are of enormous

long term importance to our strategic growth as a

destination. They are being lost.”

OnequarterofChineseandIndiansgive up the UK visa application as it is so difficult.

Through 2011, the biggest growth in tourism

spending was from the BRICs nations. The

Chinese increased their international tourism

spending by USD$18bn to USD73bn, while the

Russian Federation increased by USD6bn to

USD32bn. There were also notable increases from

Brazil, where outward spending grew USD5bn to

USD21bn, and Indian visitors spent USD3bn more,

to a new total of USD14bn.

The UNWTO figures also reveal the winners

in terms of receipts, listing five countries where

receipts grew by more than USD5bn in the year:

the USA, Spain, France, Thailand and Hong Kong.

“The past two years have shown healthy

demand for international tourism out of many

markets, even though economic recovery has been

uneven,” said Rifai. “This is particularly important

news for countries facing fiscal pressure and

weak domestic consumption, where international

tourism, a key export and a labour intensive

activity, is increasingly strategic to balancing

external deficits and stimulating employment.”

“We trust that governments worldwide will

progressively recognize this and engage in

measures that support tourism including fairer tax

policies and the facilitation of visas and travellers’

movements, as these have proven to stimulate

economic growth and job creation,” he added.

At least some, it seems, are listening.

HA Perspective: The ETOA is doing great work

in highlighting the damage done by bureaucrats

to the travel and tourism industry. It ought to be

perfectly possible to run an efficient border control

regime that says Europe is open to business. Sadly,

so far, governments have failed.

In the US, there seem genuine efforts to improve

its own poor performance in this area. Part of the

impetus has come from lobbying by senior hotel

industry executives.

It has worked. Waiting times for visas are coming

down, particularly for those people entering

from emerging markets. And Brand USA, the

new government body charged with increasing

international visits to the US, has already launched

a major marketing campaign.

Arne Sorenson, CEO of Marriott, said earlier

in May that one American job is created for

every 35 visitors to the country. This matters to

the government and the Obama administration

appears to be listening.

It is time that Europe’s hospitality leaders

started talking to their own governments in a

more meaningful way. When was the last time

that Richard Solomons went to see the British

Prime Minister or Denis Hennequin visited the

French President?

Tourism’seconomicvalueunderstoodbutignoredBooming tourism activity led to receiptsbreachingtheUSD1trnbarrier in 2011, and already thisyear’sfiguresgatheredby UNWTO show the positive trend is continuing into this year.

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News

Having successfully integrated last year’s

acquisition of the LodgeWorks portfolio, which

is performing ahead of expectations, Hyatt

management also raised the prospect of making

further strategic investments to help drive its

brands forward. Although fully 70% of Hyatt’s

pipeline outside the US is currently in China and

India, Europe was mentioned as one possible

region for targeting acquisitions.

The first quarter saw revpar up 8.1%. Revenues

were up to USD958m, from USD875m in Q1 2011.

North American hotels led the improvement, while

international hotels delivered a 5.7% revpar uplift.

During the quarter, the company opened six new

hotels – four in the US, and Park Hyatts in Ningbo

and Hyderabad. Elsewhere, the Park Hyatt Sydney

re-opened after refurbishment.

“Occupancy lift has been significant year-

over-year, and we’re looking forward to rate

growth later in this year,” said president and

CEO Mark Hoplamazian. “The industry dynamics

are generally very good. In the US, supply is

obviously still at a relatively low level. We’re

seeing a lot more intra-country and intra-regional

travel in places like China and India. And that is

having an impact on how we’ve gone to market

and how we think about driving presence in

those markets.”

In Mexico, Hyatt is buying a Mexico City

landmark, the Hotel Nikko Mexico, paying

USD190m. A further USD40m has been committed

for a three year improvement programme that will

upgrade conference and event space.

In the meantime, the hotel will reopen as a Hyatt

Regency, with the number of rooms reducing to

734 as some of the existing accommodation is

upgraded to create suites. Despite the upgrade

plans, the hotel is in good shape. Currently, a six

year renovation programme is nearing completion,

encompassing improvements to all the guestrooms

and the hotel’s two Japanese restaurants. In

addition to its commitment to Mexico, Hyatt

has already committed to a development in Rio,

which Hoplamazian has said will be ready for the

2016 Olympics.

With the success of LodgeWorks in mind,

Hoplamazian said he is looking for growth

opportunities in Europe. “We certainly are paying

attention to and looking for opportunities there.

The tumult in the market has not generated any

opportunities for us yet. But we continue to look

Hyatt makes Mexico pitch Hyattsawrevparup,butprofitsflatinthefirstquarter,asthecompanyconcurrently announced a major investment to take the Hyatt RegencybrandintoMexicoCity.

The luxury hotel group traditionally sees

negative numbers in the quarter, as some of its

resorts are closed for the winter season.

Bookings are ahead of last year, but the

company did warn that in its luxury end of the

market, European markets are not yet clear of

the downturn. And there is still no news of a

new chief executive to replace Paul White, who

left in 2011.

“We are now beginning to see some softening

in demand coming out of the sluggish economies

of the UK and Europe,” warned chairman and

interim CEO Bob Lovejoy. “That said, booking

pace is currently about 10% above the same

figure last year at this time.”

First quarter revenues were up 10% to

USD107m, while net losses were up to USD16.2m

from USD13.6m in the first quarter of 2011.

The company has improved both revenue and

Ebitda for nine consecutive quarters. A strong

performance in Brazil led to a 12% increase

in revenues from South American hotels. The

company reported revenues up 9% in Asia

Pacific, and a 7% improvement from US and

European properties.

The company has undertaken a number of

refurbishment projects, notably at its Italian

properties including the Cipriani in Venice. In

the upcoming quarter, Orient-Express will be

opening its all-suite Palacio Nazarenas in Cuzco,

Peru, and will be refurbishing all 121 rooms at

the Copacabana Palace in Rio de Janeiro. “We

will continue to focus the company’s resources

where our high end product strategy can produce

attractive financial returns,” promised Lovejoy

Owned hotels in Europe delivered a 7%

increase in revenue to USD15.8m, helped by the

earlier opening of Italian properties. Occupancy

was up to 33% from 29% a year previously.

Likewise, revenue in the US was up 7%, thanks to

an improvement in room rates.

In southern Africa, revpar was up 14% in local

currencies, but revenue remained flat at USD8.8m.

In South America, the company’s two Brazilian

hotels had their best ever quarter. A 25% increase

in room night sales to domestic customers lifted

combined Ebitda to USD8.3m, and helped regional

revpar to increase 16%.

Orient-Express has been without a chief

executive since Paul White announced he was

leaving in the middle of 2011, and Lovejoy said

the search continues. Following the results

announcement, in May, and with still no

appointment, Lovejoy passed the interim role to

fellow board member Philip Mengel. “The board

has conducted an extensive search over a number

of months. But to date, the board has not selected

anyone. We feel the company’s management

team is doing a first class job, and the company is

making excellent progress.”

However, there are moves to strengthen the

board, with two new independent nominees,

both with luxury brand experience: Ruth Kennedy,

from Kennedy Dundas and Jo Malone, creator of

the eponymous perfume brand.

HA Perspective: The proportion of European

guests staying at Orient-Express’s hotels is in

decline. The slack is being taken up by emerging

markets with Asia up one percentage point

increase from Asia and two percentage points

from South America. The proportion of guests

from Brazil is now as high as from the UK.

The company clearly sees emerging markets

as a key growth area. It has opened a sales

representation office in Dubai, is heading to India

and has doubled its sales force in Brazil.

Partly the shift reflects the enduring recession

in Europe. Demand from the US, for example, has

recovered and is currently outperforming the rest

of the world outside of Europe.

But, with increased sales focus on markets

outside of Europe and North America, the guest

mix looks set to swing towards emerging markets.

The proportion of revenues from European guests

slipped to 36% in the first quarter, down a full

percentage point from a year ago. This relative

decline seems set to continue, with or without the

help of a Eurozone meltdown.

Orient-Express looks outside of EuropeA strong performance from its BrazilianpropertieshelpeddeliverapositivefirstquarterforOrient-Express, though losses in the quarter were up compared with 2011.

continued on page 9

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And the company revealed its new brands,

Even and Hualuxe, have generated a positive

early reaction from landlords. “There’s already

high interest, with 20 letters of intent signed,”

said chief financial officer Tom Singer of the

new Hualuxe brand destined for China. The first

Hualuxe is scheduled to debut in early 2014, while

the first health-oriented Even will open in the US

in the first half of next year.

The company delivered solid results from all

parts of its portfolio. Revpar grew 7% globally,

with operating profits up 16% to $118m.

Greater China was the strongest market at

11.9%, while CEO Richard Solomons noted the

“relative resilience” of its core European markets

in Germany, France and the UK.

Indeed, Solomons said the environment

remained positive for the immediate future.

“Global industry demand for hotel rooms set a

new record high for the first quarter. Demand

records have been broken each month for the

past consecutive 12 months, while supply growth

in many of our major developed hotel markets is

close to record lows.”

During the quarter, IHG added 9,331 rooms in

59 hotels into the pipeline, over half of which are

Holiday Inn family.

In China, the company is now poised to almost

double in size over the next five years, with 56,000

rooms and 170 hotels open, but 52,000 rooms

and 155 hotels expected to open in next 3-5 years,

around 30% of the company’s pipeline. “The

underlying drivers of demand remain very strong,”

said Solomons. He said IHG openings in the region

were also delivering profit and 85% of managed

hotels in the region were paying incentive fees.

Solomons also noted the recent reinforcement of

the senior team at IHG. “Technology is at the core

of our business, and it is a competitive advantage

for IHG,” and as a result Eric Pearson has been

appointed chief information officer. To help with

the brand launches, industry veteran Larry Light has

come on board as chief brands officer.

HA Perspective: China is a vital market for IHG,

as it is more than happy to point out. Although

the US room pipeline, at 80,314, is bigger than

China’s at 51,742, there are far more upscale and

luxury hotels in China in development than in the

US. InterContinental and Crowne Plaza in the US

total 5,940 while in China the number is 31,553.

In broad brush terms, the fee revenues from

a management contract are twice that of a

franchise. InterContinental and Crowne Plaza are

mostly managed, Holiday Inn and below are nearly

all franchised.

In addition, the fees from upscale hotels are, on

average, going to be higher than for a midscale

hotel thanks to the higher revpar levels.

In summary then, the key market for future

fee growth is going to be China rather than

the US. But there are clear signs of stress in the

development market in China.

The latest statistics from the Chinese state

showed that home prices in April remain in

decline, more than two years after tightening

measures were introduced.

IHG said during its conference call that this

tightening was affecting other hotel groups more

than it was IHG as IHG’s owner base was of a higher

quality. It was further suggested by CFO Tom Singer

that the slowdown would be short-lived.

This is an optimistic outlook. Others suggest that

a huge crash is imminent in the Chinese property

market that will in turn devastate overall economic

growth. Such sceptics point to the decades of

stagnation in Japan following its property bust

and the current problems in countries like Ireland

and Spain.

The optimists, however, believe that the

Chinese state has stepped in quick enough to

prevent the real estate boom destabilising the

overall economy.

Growth has slipped back from the heady

double digits of a few years ago but only to a still

impressive 7% plus.

If you buy the sustainable growth story there is

even more good news from a hotel perspective.

And this is that the rebalancing in the economy

from an export-led model to one more reliant

on domestic consumption will disproportionately

increase hotel demand.

The outcome in China is critical not only to that

country but to the wider emerging market story

and to hopes of Western hotel groups like IHG.

News

InterContinentalseesrecoveryinEuropeInterContinentaldeliveredstrongfirstquarterresults,withitsseventhsuccessive quarter of revenue growth. The outlook remains strong, with 6.1% revpar growth in April and European markets showing a strong recovery, up 9%.

for opportunities, especially because our presence

in Europe remains relatively modest. And there are

a lot of attractive markets into which we would

like to further expand.”

Hyatt has also announced an internal

reorganisation, running three regions – Asia,

the Americas, and Europe/Africa/Middle East –

supported by a Global Operations Centre.

“We’ve covered quite a lot of ground over the

last few years and established a great foundation

for our future,” said Hoplamazian. “As we look

forward, we recognize that our business mix will

shift over time as we open hotels in our pipeline.

We also recognize that the velocity of the changes

in consumer behaviour is increasing. There’s a large

increase of consumers and business travellers in

places like China and India. And that will change

the profile of our customer base over time.”

HA Perspective: Hyatt reckons the growth rate

of its pipeline has been 15% or so over the last

few years. And it is not being shy about pointing

out that it is its willingness to use its balance sheet

that has helped to deliver that.

The Mexican acquisition is but the latest

example. But Hyatt is equally keen to point out

that it will recycle the capital deployed in this

deal once it has finished its three year renovation

and repositioning.

It is not saying too much though about recycling

capital in the properties it has owned for longer.

If it wants to maintain momentum, it is likely to

need some cash from these at some point. Right

now, however, Hyatt is firmly in the asset right

rather than asset light camp.

The other notable feature of the conference

call was the emphasis being placed on the

management changes. The company is keen

to emphasise how it is operationally focused,

something of a departure from its rivals who

continue to be brand-focused.

The incoming CFO, Gebhard Rainer, is an old

Hyatt hand with extensive operations experience.

And this again plays to Hyatt’s willingness to

be an owner. Improving operations at hotels are a

key driver of growth. While other big players talk

about revpar, the emphasis is far more on fees.

As a significant owner, Hyatt is far more

leveraged to the revpar cycle and it matters more

to its bottom line that operations are improved.

CEO Hoplamazian says what matters for

earnings growth is improving operations and

adding additional Hyatt branded hotels. There is

no mention of fees. Hyatt is clearly setting out its

stall differently to its rivals.

continued from page 8

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With its Costa Coffee division continuing to

deliver strong profits, management is sticking

to its target of getting Premier Inn to 65,000

rooms by 2016, and growing judiciously in key

overseas markets.

With the company’s main competitor UK

Travelodge currently going through a restructure,

chief executive Andy Harrison admitted to analysts

at the company’s results presentation that Premier

Inn has plenty of choice of new sites.

“Premier Inn faced an increasingly difficult

market,” said Harrison, during a presentation of

annual results that failed to mention the hotel

chain’s revpar figures. Harrison said Premier Inn

had “outperformed our competitor set”. The

appendix with the results presentation showed

that revpar in full financial year was £41.58

against £40.90 in the preceding year.

Group sales in the 12 months to end March

2012 were up 11.2% to GBP1,778m, with Costa

the leading division growing sales 27.5% and

profits 38% to GBP69.7m. Premier Inn sales grew

8.3%, while restaurants were flat.

For the coming months, the company is looking

to improve returns by rolling out a new dynamic,

two tier pricing structure. The lower priced Premier

Saver non-refundable, while a higher price Premier

Flexible booking allows customers to change their

reservation up to the last minute.

“This makes us more competitive at a longer lead

time, driving occupancy,” said Harrison. “We’ve

been trialling this system, and our experience

so far suggests this dual pricing will lead to an

uplift in revpar of a couple of percentage points,

and we are rolling this out to the whole estate.”

Increasingly sales are over the internet: last year

the company’s website saw 44 million visits, up

27% on the previous year, and online sales now

account for 77% of revenues. Business accounts

now provide 25% of revenue.

During the year, the company completed

GBP53.8m of sale and leaseback deals, booking

a profit of GBP24.2m. A similar level of sale and

leasebacks is expected during 2012, and there

is a clear preference for signing leases to open

new hotels.

Two areas where capital will continue to be

spent are on refurbishments, now running at

around GBP70m a year, and on expansion in

Whitbread’sCostakeepsPremierInnontrackWhitbread is ploughing ahead withitsgrowthplanforPremierInn,despiteaweakperformance in the UK market.

Europe, too, provided a better than expected

performance, while Host has underlined its interest

in Asian markets with an AUD61m purchase in

Perth, Australia.

“Demand growth has been strong in the higher-

rated segments of both our group and transient

business leading to a better-than-expected topline

and bottom-line growth,” said president and CEO

Ed Walter. “Group bookings for the remainder of

the year surged by more than 13% compared to the

prior year and are now approximately 7.5% ahead

of last year’s pace for the remaining 3 quarters and

meaningfully positive in every quarter.”

Revpar was up 6.1% in the first quarter, off the

back of a 2.1% improvement in occupancy and

room rates up 2.9%.

Europe was a positive surprise. “Excluding the

Sheraton Roma, which is under major renovation,

revpar calculated in constant Euros increased 4.8%

for the quarter,” said senior vice president Larry

Harvey. “Inbound travel to the eurozone from the

US, UK, Asia and the Middle East continues to

be strong and is a major source of euro lodging

demand. The Westin Europa & Regina in Venice,

the Sheraton Warsaw, the Sheraton Skyline

in London and the Pullman Paris Bercy all had

double-digit revpar increases for the quarter.”

In Asia, where Host has a joint venture, a 278

room hotel in Perth has been bought for AUD61m.

Following a AUD17m upgrade, this will open as a

Four Points by Sheraton.

Walter said Host would be active in both buying

and selling through this year. “Overall, we would

expect to be a net buyer this year, but we intend

to remain disciplined.” An additional USD150-

170m will probably be invested, as Host sees the

lack of construction activity making hotel assets a

good medium term hold. “If pricing levels move

too high, we will look to take advantage by

accelerating our sale activity.”

In the US, “we expect we will see additional

assets that satisfy our criteria come to market

later in the year.” But the situation in Europe was

less liquid. “The amount of product that’s on the

market in Europe right now is relatively low, and

what’s there is there because debt is maturing. I

think we need to be cautious investing in Europe

for all the obvious reasons. But I also think that

we need to remember a couple of points. One

is that Europe is a very varied place, and so we

would generally feel better about the economies

in northern Europe than the ones in southern

Europe. The major cities of Europe are incredible

tourist destinations. I think one of the reasons why

Europe has done far better than most folks would

have expected is not because of some surprising

pockets of economic strength in Europe itself, but

rather because the rest of the world is interested

in going to Europe.”

“We would certainly be interested in acquiring

more in Australia. We think that’s the market that

even with some of the signs of slowing growth in

China, that means that a little bit of reduction in

China’s growth outlook does not change the outlook

for Australia in our minds in a meaningful way. There’s

a tremendous natural resource boom that’s going to

continue to happen there and that the acquisition of

Perth is a great way to play on that.”

HA Perspective: The acquisition in Perth

was made at a 15% discount to replacement

cost, reckoned Host, even after factoring in the

AUD17m capital improvement plan.

This gives some indication as to how Host wants

to make its acquisitions. In Europe, this is going to

be a challenge. Even with stagnant or declining

economies, there have been few bargains and the

type of asset Host is seeking – prime in gateway

locations – also appeals to trophy buyers who

place a bigger emphasis on wealth preservation

than on returns.

The company will probably fulfil its prediction

of being a net buyer during the year, but no

acquisition binge is beckoning.

PositiveHosteyesupforeignbuysAstrongfirstquarterforHostHotels led management to increase their outlook for 2012, aided by the strength of forward group bookings. The US Reit, the largest in the lodging sector, sees the American economy clearly on the mend, and is eyeing up further investment opportunities.

News

continued on page 11

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new markets. “We’ve invested £4.4m in the last

year, primarily in completing the construction of

our hotels in Delhi and Abu Dhabi, and we plan

to invest £15m in this year,” said Harrison. Four

hotels are open and operating in Abu Dhabi,

with more in the pipeline. In India, the company

has just opened its second hotel, in New Delhi,

with properties in Pune and Goa on the way.

“India is a huge potential market, and we are in

a good position.”

Portfolio growth last year in the UK added

4,055 rooms giving a year end total of 47,429.

Harrison noted the 10,500 strong pipeline includes

3,300 rooms in London, where the company is

under-represented.

“Of course, returns are as important as growth

targets, and this growth in London will increase

our return because the profit contribution on a

leasehold room in London is significantly higher

than a similar room in the regions.”

Harrison was asked whether Travelodge’s woes

were benefitting the business. “We are seeing

developers being naturally reluctant to continue

growing with Travelodge, we’ve picked up a few

sites and we would expect that to continue.”

HA Perspective: Premier Inn is at a turning point

in its development. For two decades it has been

able to shrug off recessions and keep growing

revpar. It is now at a size and scale where it cannot

ignore market conditions.

The end of last year and the start of this one

looked particularly difficult with declines in revpar

in both London and the UK provinces. And these

declines came despite dynamic pricing which

ought to have helped optimise revpars.

The latest dynamic pricing initiative is Premier

Flexible and Premier Saver, offering customers

the opportunity to commit to a date at a lower

price or to be able to reserve the room and be

able to cancel. The brand is now a long way from

its launch status of offering one price whenever

and wherever.

Another key change is the switch to a lease

focus. Although three-quarters of the existing

estate is freehold or long leasehold (over 35

years), of the 10,500 committed pipeline 70%

is leasehold. This will shift the balance when the

new rooms are online to two-thirds freehold.

More sales and leasebacks are also planned.

Much of the growth is in the UK capital with

a target of 13,000 to 14,000 rooms by 2016

giving Premier Inn roughly 10% of the London

market. EBITDA of a leasehold room in London

is significantly higher than in the regions,

said Whitbread.

So more leases, more London openings, and

more dynamic pricing. With whispers of a Costa

spin-off fading and some embryonic overseas

expansion for hotels, the course seems set.

News

continued from page 10

With current owners unwilling or unable to

inject further funds, and lending banks also loathe

to commit more cash to the 35 strong hotel group,

a new participant is now rumoured to be circling

the UK and Irish chain.

Mount Kellett, a vulture fund run by former

Goldman Sachs trader Mark McGoldrick has

been tipped to step in as part of a consortium

assembling a GBP160m equity injection. A deal

put before shareholders would see bank lenders

including Royal Bank of Scotland, Allied Irish and

Irish Bank Resolution Corp write off some of their

current GBP600m plus debt against Jurys in return.

The deal would be the latest twist in the Jurys

story, which has seen the Irish-based brand

expand across the UK as its ownership changed

hands several times. At one time, its owners were

talking of Jurys competing with Premier Inn and

Travelodge, but despite a modest expansion spurt

in 2009-10, the funds to create the momentum

were never made available.

In 2007, Jurys was sold to Avestus, having been

split from the Jurys Doyle group as a portfolio

of 20 three and four star hotels. Seller the Irish-

backed Crownway Investments had taken the

previously Irish listed group private in 2005; the

restructure retained the group’s 12 luxury hotels,

while achieving a sale price of E1.165bn for the

budget chain.

At the time Quinlan, who headed Avestus,

had just taken a role in the GBP1.1bn purchase

of the UK Marriott portfolio, another highly

leveraged deal. And the dealmaker had previously

been involved in a consortium that bought the

Savoy group of luxury London hotels in 2004

for GBP750m. Avestus subsequently sold a 50%

stake in Jurys to the Oman Investment Fund, an

investment business of the Sultan of Oman.

Expansion of the chain continued after the

purchase, with leased properties adding seven

new hotels in 2009, and further locations in 2010.

However, with a debt of more than GBP600m to

service, the company was not well placed to face

a downturn in revenues.

In 2011, the holding company that owns the

Jurys Inn assets recorded a GBP463m loss for the

previous year. Record sales revenues of GBP138.8m

were knocked into the red by substantial write-

downs in property asset values.

Meanwhile, at the front desk, Jurys Inn

hotels have continued with business as usual.

Recently, the company has rolled out a six-week

E1m poster campaign around the UK to drum

up further business.

While the original constituents of the Jurys

portfolio were acquired freehold, the more

recently added hotels are leased. And the details

of the Jurys Inn in Dublin’s Parnell Street, which

has just been placed on the market, illustrate

some of the problems the group faces with lease

costs. The 253 room has a passing rent of E2.35m

per year, on a lease with five yearly, index linked

uplifts. With 27 years remaining on the lease, the

next review is due in 2014.

HA Perspective: There are unfortunate parallels

with the Jurys story and Travelodge. Both companies

have overleveraged after deals struck with Gulf-

based equity at the height of the market. And now

both are coming into the sights of vulture funds.

In another interesting parallel, both companies

have recognised the need to invest in demand

generation via consumer advertising: via TV in the

case of Travelodge and with a poster campaign

with the smaller Jurys.

The end result in both cases does not look

likely to be pretty. As well as needing a debt

restructuring, both appear to have entered into

leases that are stretching them. Both the debt

financiers and the landlords are likely to share

some of the forthcoming pain.

Restructuring at Jurys moves closerPlanstoinjectnewequityfundsintoJurysInnhotelgroupappear to be coming to a head, after months of negotiations.

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In France, investment vehicle Verquin has

bought two hotel assets into its portfolio. The

joint venture between hotel manager Algonquin

France and Very SAS bought its first three hotels in

2011, all located in Reims, and is looking to create

a multi-brand hotel group within France.

The first is the 150 room Toulouse Blagnac

Holiday Inn, which was placed in administration

last summer. The hotel, which sits close to the

Airbus headquarters at Toulouse, was built in 2002

and will be refurbished by its new owners to meet

Holiday Inn’s latest four star brand standards.

The second property is at Disneyland Paris,

where Verquin has scooped the 390 room

Explorers Hotel. The three star unit, which was

opened in 2003, has been sold by tour operator

Thomas Cook. Again, a refurbishment is planned,

to spruce up the hotel ahead of Eurodisney’s

twentieth anniversary celebrations.

Elsewhere, in Sardinia Qatari money has taken

over from US funds as Qatar Holding has acquired

a complete island resort from Colony Capital.

In one deal, Qatar Holding have taken on four

luxury hotels totalling 372 rooms, the Porto Cervo

marina and its yacht club, a shipyard, golf club and

a 51% interest in 2,290 hectares of undeveloped

land alongside, all on Costa Smeralda.

Ahmad Mohamed Al-Sayed, managing director

and CEO of Qatar Holding, said: ”We intend to

continue supporting the on-going development

programme which will see Costa Smeralda

strengthen its position as a top luxury resort

destination.” The existing management team is

coming across to the new owners, with Starwood

remaining in place managing the four hotels.

Tom Barrack, Chairman and Chief Executive

Officer of Colony Capital, commented: “Their

increased investment is a huge vote of confidence

for Italy, Sardinia, Costa Smeralda and all of

its peoples.”

And in Scandinavia, hotel investment manager

Sveafastigheter has added a seventeenth hotel

to its third fund, by purchasing the 190 room

Ibis Stockholm Hagersten. The acquisition was

undertaken in partnership with asset manager

Midstar, and operating partner Event Holding.

“We are thrilled to complete deals in the current

financial climate,” said Sveafastigheter CEO Simon

de Château. “The task was greatly facilitated by

our strong relationship with DNB who display an in-

depth understanding of the hotel industry and our

business plan when it comes to financing this type of

acquisition. The hotel will undergo a comprehensive

renovation programme and will be well placed to

compete in the market when finished.”

Sveafastigheter initiated its third fund in 2010,

by buying out Accor’s local operating company,

renamed Norse Hotels, along with 14 properties.

Last year it added the Ibis Malmö and Ibis Nyköping.

HA Perspective: Deals are being done but the

overall volume remains depressingly low. The

above three deals are all examples of buyer and

seller interests converging at the right time and at

the right price.

While there are plenty of buyers seeking

opportunities, few sellers are willing to meet them

at their price. And there seems no obvious catalyst

for this to change in the near term.

This year is likely to see a few portfolio

transactions if market rumours prove correct and

the high profile and large numbers will help bring

a brighter glow to the transaction market.

Unfortunately, there is little change in the

underlying circumstances. The grind has several

more years to run.

With region in positive territory, CEO Frits van

Paasschen described what he sees as the hotel

sector’s perfect storm of rising global demand,

and constrained supply that will continue to drive

up returns for the foreseeable future.

“Going into the year, we said that 2012 was

more likely to surprise on the upside. So far, that

is playing out. More importantly, we remain very

bullish on the long-term. Seemingly unstoppable

demographic and economic trends are fuelling

global growth in demand for high end travel.

Rising wealth around the world and globally

interconnected businesses will lead to ever

more travel.”

Across the portfolio, revpar grew 5.8% in

the quarter, with Latin America the best region,

advancing 14.4%. The home US market rose

7.2%, and Asia Pacific 6.7%. The European

portfolio delivered a drop of 1.9%, although the

move into negative territory was down to currency

movements, and in local currency European revpar

rose close to 2%.

And looking ahead, the company expects both

the next quarter and the full year to deliver a 6% to

8% lift in revpar at managed and franchised hotels,

with a lower 4% to 6% increase at owned hotels.

Starwood also provided a split by brand, which

shows that Aloft is the top performer, with a

revpar growth of 9.4%, ahead of W with 8.5%

and Westin with 7.2%. Currently, the weakest

performers in the group are the St Regis and Le

Meridien, which saw revpar move up 2.7 and

3% respectively.

Van Passcchen explained his optimism. “North

America, Europe and Japan have unusually tight

supply this early in the business cycle, thanks to

a decade of below-trend hotel construction. The

result is sustained revpar growth, and we expect

the law of supply and demand will push rates

upward for some time to come. Even if developers

were building hotels tomorrow, it would be at

least three years before that supply would hit the

market. But in all likelihood, construction won’t

start tomorrow.”

“I don’t think that we’ve ever been in a place

where occupancies have been this high this early

in the cycle with no prospect of meaningful supply

growth in the mature markets. So I think that

again, alluding to the supply-demand dynamic

here, this could be a very benign rate environment

for some time to come.”

“The U.S. economic picture is steadily

improving. Europe is stable with some indications

that the back half of 2012 may be better than the

first. Europe remains a global travel destination

from source markets around the world.”

“We also see widespread growth across the fast-

growing and resource-rich economies. Looking

back over just the past few months, we’ve signed

new hotel deals in places like Baku, Colombo,

Erbil, Kaluga and Dhaka, or take another example,

Malaysia. We expect to grow our footprint there

by 40% over the next 2 years. And in Thailand,

over a 9-year period ending in 2014, we’re on

track to add 20 new hotels.”

Starwood Hotels looks on bright sideStarwood management described a bright outlook for the hotel sector in general, as they announced positivefirstquarterresults.Itwasthecompany’seleventhsuccessivequarter of revpar growth.

News

Movement in EuropeThree transactions in continental Europe, completed in late April, give a hint that markets are beginning to move once more, as investors regain confidence,andassetsarepricedat a level which will encourage them.

continued on page 13

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During the first quarter, Starwood opened

4,500 rooms, and signed 32 new management

and franchise contracts, adding 9,000 rooms to

the pipeline. Of these additions, 22 are new builds

and 10 conversions. The company’s total pipeline

now stands at 95,000 rooms.

The company’s finances also received a boost

with all three major rating agencies lifting

Starwood to investment grade, keeping the

company on track to hit its BBB rating target. “A

stronger balance sheet and lower cost of debt

gives us flexibility to make acquisitions or to invest

in our core operations,” said van Paasschen. “It

also protects us in the event of another major

disruption like 9/11 or the financial crisis.”

Starwood also believes it is well placed for the

next phenomenon in the hotel market, increasing

demand from baby boomers for luxury. “They’re

wealthy and had their taste shaped in a world

where luxury consumption is a matter of individual

taste and customization. They have little interest

in protocol. They’re also the most well-travelled

generations in human history. In a world made

smaller by technology, they expect luxury wherever

they go. At Starwood, we feel uniquely suited to

benefit from these major shifts.”

Van Paasschen said Starwood’s St Regis was

among the brands that stand to win. “St. Regis’

revpar index has grown by 310 basis points since

2007, and we’re on our way to a threefold growth

in footprint. And the brand is ready for tomorrow.

By our estimates, over 85% of our guests are Gen

X or Gen Y.”

In Asia, he said “the limited supply of great

destinations is quickly being outstripped by the

growing numbers of luxury travelers. That’s in part

why we’re looking forward to opening the Westin

and Sheraton Changbaishan as part of a first-of-

its-kind ski resort in China.”

Starwood’s strong showing in luxury, and its

pipeline, delivered two key advantages, said van

Paasschen. “First, it adds to our lead and allows us

to benefit from rising global wealth. Over 90% of

our luxury pipeline lies outside of North America.

Second, high room rates mean higher fees. Our

luxury brands account for about 10% of rooms,

but close to 20% of our fees. So it means our

pipeline is much more valuable on that basis.”

HA Perspective: According to Starwood, this

year has more potential to surprise on the upside

than the downside. Despite listing the three threats

of a Eurozone crisis, a Chinese hard landing and

conflict in the Middle East, van Paasschen insisted

that corporate travel plans reflected confidence in

a global recovery.

Whether or not you agree with van Paasschen

that the events have a low probability of occurring,

his sunny outlook also hinges on you agreeing

that supply is very much in the incumbents’ favour.

His argument is that there has been little new

supply and little is coming. Hotels are currently selling

at below replacement cost meaning development is

unlikely to start in the short-term and even if it did, it

would take three years to hit market.

The difficulty with his rationale is squaring it

with the size of pipelines all the global majors

currently have. With more than half a million

new rooms’ worth among just the top five, there

is clearly significant new product scheduled. And

despite all the talk of emerging markets, much of

this pipeline is in established hotel territories.

Even if net room supply is not growing, the

growth of rooms in the hands of major brand and

operating companies will create stiffer competition.

Increased occupancy levels were responsible for

the improvement across the portfolio, while room

rates were flat overall.

Strong meetings and event business also helped

Rezidor to its best growth since the first quarter

of 2011.

CEO Kurt Ritter commented: “While we are

happy the results have turned out that way, but

we still have some blurry pictures when it comes

to reservations. It is good news so far.”

Rezidor’s improving performance in the Middle

East and Africa took the region’s revpar into

positive territory since the last quarter of 2010,

with like for like revpar up 10.8%. Although

occupancy was up 11.7%, helped by locations in

North Africa returning to more normal business

after recent upheavals, rate fell 0.8%. Saudia

Arabia, South Africa and the UAE markets also

saw strong growth.

In Western Europe, the Nordics were the

weakest region, delivering 1.7% like for like

revpar growth. Eastern Europe was very strong

throughout the whole of 2011.

Leased hotels, particularly in Western Europe,

are still costing Rezidor money.

The first quarter saw an EBIT loss of E11.2m, an

improvement from the E12.3m lost in Q1 2011.

“You have quite modest growth, in the rest of

western Europe, where we have been hit a bit

by higher travel agency commission, energy costs

and also some f&b costs,” said deputy president

Knut Kleiven.

The company is not planning to sign any new

leases going forward.

“Our focus specially in 2012 is more and more

on asset and contract management. More and

more of the owners are in difficult conversations

with the banks.”

During the first quarter, Rezidor opened four

new hotels in locations including Istanbul, Sochi

and Gabon, while two hotels in Brighton were lost.

Six more hotels, with 1,400 rooms, were added to

the pipeline. For the rest of 2012, executive vice

president Puneet Chhatwal noted there was a

balance of openings between emerging markets

and mature European markets.

HA Perspective: Rezidor provides ample

evidence of why hotel companies want to avoid

fixed leases. The cyclical nature of the business

simply leaves too much exposure to downside with

little, other than a lower than would otherwise be

the case rent, on the upside.

But it is not as simple as leases bad, management

and franchising good. Leases in the Nordics have

continued to be profitable for the company

throughout the recession with the EBITDA margin

never dropping below double digits.

In the rest of Western Europe, however, it has

been painful. Even at the height of the boom, in

2007, the margin was just 3%. In 2009 it dropped

to negative 8%.

Rezidor put it down to lower brand awareness

and revpar together with too high rents. The

high rents were perhaps a function of the lower

brand awareness and revpar. Owners tried to

squeeze what they could from the properties and

signed-up whoever was prepared to pay the most,

regardless of the ability of the business to support

the rent. And operators, keen to grow, took on

inappropriate contracts.

But leases, even if fixed, have to take account

of the underlying operating business that

supports them if they are to be a long-term viable

proposition. The landlords of the three leases

Rezidor terminated in 2010 and 2011 are probably

all too aware of that now.

RezidorbenefitsfromemergingmarketsA strong performance from hotels in Eastern Europe, the Middle East and AfricahelpedRezidordeliverbetterthanexpectedfirstquarterfigures.

News

continued from page 12

The month of June 2012

The 6 months to June 2012

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Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year June 2012 London 83.3% £148.18 £123.47 50.0% 5.0% 13.0% 20.9% 11.1% £166.10 £171.19 £101.76 £144.68 £114.54 £3,851 £1,115 £206 £5,173 74.5% 21.6% 4.0% 100.0% 51.8% £2,679

June 2012 Provincial 75.9% £71.46 £54.28 41.8% 11.3% 12.4% 27.0% 7.4% £75.51 £81.23 £52.68 £72.72 £60.79 £1,664 £1,140 £327 £3,131 53.1% 36.4% 10.5% 100.0% 32.9% £1,030

June 2012 All 78.6% £100.86 £79.29 45.0% 8.9% 12.7% 24.7% 8.8% £114.11 £100.55 £72.04 £96.09 £86.62 £2,446 £1,131 £284 £3,861 63.4% 29.3% 7.4% 100.0% 41.9% £1,619

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change June 2012 London (5.7) -0.8% -7.1% 1.1 (1.0) (2.9) 2.2 0.6 -2.7% -6.7% 9.7% -5.3% 4.0% -10.2% -2.6% 5.4% -8.1% (1.7) 1.2 0.5 – (2.5) -12.3%

June 2012 Provincial (1.0) -0.6% -1.9% (4.0) (0.7) (0.2) 3.6 1.2 0.2% 0.3% 2.1% -2.7% 2.1% -3.0% -1.4% -2.0% -2.3% (0.4) 0.3 0.0 – (1.3) -6.0%

June 2012 All (2.8) -2.0% -5.4% (2.1) (0.7) (1.3) 3.1 0.9 -0.8% -5.6% 2.3% -5.7% 0.3% -7.2% -1.8% -0.2% -5.2% (1.4) 1.0 0.4 – (2.2) -9.8%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year June 2011 London 89.0% £149.34 £132.95 48.9% 5.9% 15.9% 18.7% 10.5% £170.72 £183.40 £92.75 £152.72 £110.10 £4,289 £1,145 £196 £5,630 76.2% 20.3% 3.5% 100.0% 54.3% £3,055

June 2011 Provincial 77.0% £71.92 £55.35 45.8% 11.9% 12.6% 23.4% 6.2% £75.33 £80.96 £51.60 £74.77 £59.53 £1,715 £1,156 £334 £3,205 53.5% 36.1% 10.4% 100.0% 34.2% £1,096

June 2011 All 81.4% £102.94 £83.78 47.1% 9.5% 14.0% 21.5% 7.9% £115.05 £106.50 £70.45 £101.93 £86.37 £2,634 £1,152 £285 £4,071 64.7% 28.3% 7.0% 100.0% 44.1% £1,796

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year YTD London 79.2% £132.00 £104.59 49.3% 5.6% 11.3% 22.9% 10.9% £145.30 £150.28 £93.24 £130.69 £104.50 £19,047 £6,033 £1,062 £26,142 72.9% 23.1% 4.1% 100.0% 46.1% £12,040

YTD Provincial 67.7% £68.84 £46.60 47.0% 11.1% 8.0% 26.4% 7.4% £71.20 £79.36 £52.62 £68.50 £56.85 £8,486 £5,803 £1,762 £16,051 52.9% 36.2% 11.0% 100.0% 26.0% £4,178

YTD All 71.8% £93.75 £67.32 47.9% 9.0% 9.3% 25.0% 8.8% £101.27 £96.96 £72.02 £90.92 £80.12 £12,261 £5,885 £1,512 £19,658 62.4% 29.9% 7.7% 100.0% 35.6% £6,989

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change YTD London 0.1 1.8% 1.9% 1.3 (1.1) (1.4) 1.9 (0.7) -0.6% 0.6% 4.1% 1.6% 9.7% 2.0% 1.7% 6.2% 2.1% (0.1) (0.1) 0.2 – (0.6) 0.7%

YTD Provincial 0.4 0.3% 0.9% (1.4) (0.6) (0.0) 0.8 1.2 -0.2% 1.6% 3.9% 0.4% 4.5% 1.3% -0.2% -1.5% 0.4% 0.4 (0.2) (0.2) – (1.4) -4.7%

YTD All 0.3 1.0% 1.4% (0.4) (0.8) (0.6) 1.2 0.5 0.5% -0.7% 2.3% 1.8% 4.2% 1.7% 0.5% 0.3% 1.2% 0.3 (0.2) (0.1) – (1.0) -1.4%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year YTD London 79.1% £129.73 £102.63 48.0% 6.7% 12.7% 21.0% 11.6% £146.11 £149.32 £89.58 £128.69 £95.27 £18,679 £5,934 £1,000 £25,613 72.9% 23.2% 3.9% 100.0% 46.7% £11,960

YTD Provincial 67.3% £68.64 £46.17 48.4% 11.7% 8.1% 25.6% 6.2% £71.35 £78.13 £50.64 £68.22 £54.42 £8,380 £5,814 £1,789 £15,983 52.4% 36.4% 11.2% 100.0% 27.4% £4,385

YTD All 71.5% £92.82 £66.37 48.3% 9.7% 9.9% 23.8% 8.3% £100.78 £97.62 £70.39 £89.35 £76.91 £12,057 £5,856 £1,508 £19,421 62.1% 30.2% 7.8% 100.0% 36.5% £7,090

Sector stats

JubileehitsBritishbookingsinfirsthalf

Profit per room fell 9.3% in June, with trevpar

dropping 5% as occupancy fell 5.7% to 83.3%.

The marginal drop in room rate of just 0.8% was

notable as June was the first month in 32 that this

figure recorded a fall. Further squeezing profits

was a 2.1% increase in payroll costs per room.

While there was a 2.1% increase in demand

from leisure travellers, partly a result of the opening

of the Wimbledon tennis tournament, this was

insufficient to offset the business lost as a result

of two bank holidays, and the decline due to the

Olympic ramp-up. The worst hit subsector was

residential conferences, which saw not only a 0.9%

decline in demand, but featured a fall in room rates

of 6.7%, down from GBP183.40 to GBP171.19.

The best rate managed in the Best Available Rate

category, a peak indicator, dropped by 13%.

“Although the Jubilee festivities enabled

London to look busy in June, the city was primarily

filled with day visitors with everyone else choosing

to escape to the country or overindulging on street

party tea and scones,” said David Bailey, deputy

managing director at TRI.

“Amongst the doom mongering brought about

by the decline in headline performance levels,

we must remember that at a room occupancy

of 83.3% and an achieved average room rate of

£148.18, the performance in June was well ahead

of the year-to-date stats for London and remains

very strong.”

HotelsinLondonendedthefirsthalf of 2012 with declining sales. Business travellers stayed away from the UK capital, with an extended national holiday for the Queen’ssilverjubilee,andastheyheeded warnings that the upcoming Olympics would put pressure on thecity’stransportinfrastructure.

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Sector stats

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year June 2012 London 83.3% £148.18 £123.47 50.0% 5.0% 13.0% 20.9% 11.1% £166.10 £171.19 £101.76 £144.68 £114.54 £3,851 £1,115 £206 £5,173 74.5% 21.6% 4.0% 100.0% 51.8% £2,679

June 2012 Provincial 75.9% £71.46 £54.28 41.8% 11.3% 12.4% 27.0% 7.4% £75.51 £81.23 £52.68 £72.72 £60.79 £1,664 £1,140 £327 £3,131 53.1% 36.4% 10.5% 100.0% 32.9% £1,030

June 2012 All 78.6% £100.86 £79.29 45.0% 8.9% 12.7% 24.7% 8.8% £114.11 £100.55 £72.04 £96.09 £86.62 £2,446 £1,131 £284 £3,861 63.4% 29.3% 7.4% 100.0% 41.9% £1,619

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change June 2012 London (5.7) -0.8% -7.1% 1.1 (1.0) (2.9) 2.2 0.6 -2.7% -6.7% 9.7% -5.3% 4.0% -10.2% -2.6% 5.4% -8.1% (1.7) 1.2 0.5 – (2.5) -12.3%

June 2012 Provincial (1.0) -0.6% -1.9% (4.0) (0.7) (0.2) 3.6 1.2 0.2% 0.3% 2.1% -2.7% 2.1% -3.0% -1.4% -2.0% -2.3% (0.4) 0.3 0.0 – (1.3) -6.0%

June 2012 All (2.8) -2.0% -5.4% (2.1) (0.7) (1.3) 3.1 0.9 -0.8% -5.6% 2.3% -5.7% 0.3% -7.2% -1.8% -0.2% -5.2% (1.4) 1.0 0.4 – (2.2) -9.8%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year June 2011 London 89.0% £149.34 £132.95 48.9% 5.9% 15.9% 18.7% 10.5% £170.72 £183.40 £92.75 £152.72 £110.10 £4,289 £1,145 £196 £5,630 76.2% 20.3% 3.5% 100.0% 54.3% £3,055

June 2011 Provincial 77.0% £71.92 £55.35 45.8% 11.9% 12.6% 23.4% 6.2% £75.33 £80.96 £51.60 £74.77 £59.53 £1,715 £1,156 £334 £3,205 53.5% 36.1% 10.4% 100.0% 34.2% £1,096

June 2011 All 81.4% £102.94 £83.78 47.1% 9.5% 14.0% 21.5% 7.9% £115.05 £106.50 £70.45 £101.93 £86.37 £2,634 £1,152 £285 £4,071 64.7% 28.3% 7.0% 100.0% 44.1% £1,796

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year YTD London 79.2% £132.00 £104.59 49.3% 5.6% 11.3% 22.9% 10.9% £145.30 £150.28 £93.24 £130.69 £104.50 £19,047 £6,033 £1,062 £26,142 72.9% 23.1% 4.1% 100.0% 46.1% £12,040

YTD Provincial 67.7% £68.84 £46.60 47.0% 11.1% 8.0% 26.4% 7.4% £71.20 £79.36 £52.62 £68.50 £56.85 £8,486 £5,803 £1,762 £16,051 52.9% 36.2% 11.0% 100.0% 26.0% £4,178

YTD All 71.8% £93.75 £67.32 47.9% 9.0% 9.3% 25.0% 8.8% £101.27 £96.96 £72.02 £90.92 £80.12 £12,261 £5,885 £1,512 £19,658 62.4% 29.9% 7.7% 100.0% 35.6% £6,989

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change YTD London 0.1 1.8% 1.9% 1.3 (1.1) (1.4) 1.9 (0.7) -0.6% 0.6% 4.1% 1.6% 9.7% 2.0% 1.7% 6.2% 2.1% (0.1) (0.1) 0.2 – (0.6) 0.7%

YTD Provincial 0.4 0.3% 0.9% (1.4) (0.6) (0.0) 0.8 1.2 -0.2% 1.6% 3.9% 0.4% 4.5% 1.3% -0.2% -1.5% 0.4% 0.4 (0.2) (0.2) – (1.4) -4.7%

YTD All 0.3 1.0% 1.4% (0.4) (0.8) (0.6) 1.2 0.5 0.5% -0.7% 2.3% 1.8% 4.2% 1.7% 0.5% 0.3% 1.2% 0.3 (0.2) (0.1) – (1.0) -1.4%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year YTD London 79.1% £129.73 £102.63 48.0% 6.7% 12.7% 21.0% 11.6% £146.11 £149.32 £89.58 £128.69 £95.27 £18,679 £5,934 £1,000 £25,613 72.9% 23.2% 3.9% 100.0% 46.7% £11,960

YTD Provincial 67.3% £68.64 £46.17 48.4% 11.7% 8.1% 25.6% 6.2% £71.35 £78.13 £50.64 £68.22 £54.42 £8,380 £5,814 £1,789 £15,983 52.4% 36.4% 11.2% 100.0% 27.4% £4,385

YTD All 71.5% £92.82 £66.37 48.3% 9.7% 9.9% 23.8% 8.3% £100.78 £97.62 £70.39 £89.35 £76.91 £12,057 £5,856 £1,508 £19,421 62.1% 30.2% 7.8% 100.0% 36.5% £7,090

Provinces

In the provinces, the leisure trade was hit towards

the end of the first half by a prolonged period of

very wet weather – even by UK standards. The 5%

decline in profit per room was not unexpected,

and compares with earlier months; but in

addition, hotels struggled to raise revpar, which

they managed to achieve earlier in the year.

Corporate demand fell 3.6%, while residential

conference business drifted down 0.6%. The

popularity of “staycations” which has helped

provincial UK hoteliers is now slipping, due to a

combination of the poor weather and stronger

sterling making foreign trips more attractive. As a

result, leisure rate slipped 2.7% in June.

With weak demand, hotels in the provinces

are relying more on third party websites to drive

business. And this fed through into a lower net

average room rate, down to GBP61.46 in June

2012, against GBP62.53 a year previously.

“Provincial hoteliers just can’t seem to catch a

break at the moment,” said David Bailey, deputy

managing director at TRI. “The poor weather

has caused events that would usually drive the

demand for hotel accommodation to be cancelled

across the country, such as the North Yorkshire

County Show, the CLA Game Fair at Grantham

and the Godiva Festival in Coventry.”

“And although the ONS is reporting year-to-

date inflation levels declining to 2.4%, which is

good news for food costs, a lack of rain in the

US and too much rain in the UK is threatening to

put upward pressure back on to food prices in the

medium term.”

Overall, profit per room declined 5.1% in the

first half, to GBP22.94 compared with GBP24.16

in the first half of 2011.

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Sector stats

European capitals lifted by Olympic displacement

London hotels saw a 6.6% decline in goppar, the

first month of 2012 they experienced a drop. This

was mainly down to a 5.2% drop in occupancy,

down to 83.3%. As a result, trevpar was down

3.6% to E240.66. The strength of sterling, added

to miserable weather, helped dissuade visitors.

“I guess Boris Johnson’s pre-Olympic message

to ‘get ahead of the games’ has not gone unheard

European chain hotels – performance report

Source: TRI Hospitality Consulting

as it appears many visitors have decided to avoid

the UK capital entirely. To what extent they have

been displaced to other cities in Europe is hard

to say, but other mayors were presumably more

encouraging of a visit than London’s during June,”

said Jonathan Langston, managing director at TRI

Hospitality Consulting.

In contrast, Berlin was a top performer, with

profit per room up 29.2% A 16% improvement

in room rate, combined with a 1.5% occupancy

improvement pushed trevpar up 14.6% to

E176.34.

Berlin’s improvement was driven by growth in

corporate rate achieved, up 19.2%, and a 12.4%

uplift in residential conference rate. Also during

the first half, Berlin’s ICC picked up May’s EULAR

medical conference with 16,000 participants – an

event held the previous year at London’s ExCel.

The month of June 2012 Twelve months to June 2012

Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR

89.6 197.66 177.12 25.1 115.17 Amsterdam 78.0 178.19 138.93 29.7 79.58

61.8 214.80 132.80 39.7 62.75 Athens 50.1 161.51 80.94 53.1 11.16

82.6 141.58 116.96 23.5 77.02 Berlin 75.6 121.15 91.59 27.6 49.64

80.8 100.10 80.86 24.2 47.40 Budapest 67.5 89.45 60.40 29.0 28.52

90.3 148.13 133.71 31.0 79.99 Dublin 77.8 126.41 98.38 36.3 51.82

85.6 281.98 241.32 20.0 218.98 Istanbul 73.0 225.97 165.05 26.5 127.06

83.3 215.16 179.28 20.9 127.63 London 81.8 189.89 155.36 23.5 103.56

92.4 241.74 223.42 30.3 136.26 Paris 79.9 203.55 162.67 36.9 79.12

80.9 140.81 113.87 35.0 57.33 Vienna 71.4 133.31 95.22 39.5 39.38

81.3 253.55 206.22 13.4 171.72 Warsaw 73.2 110.65 80.96 23.2 57.50

The month of June 2011 Twelve months to June 2011

Occ% ARR RevPAR Payroll % GOP PAR Occ% ARR RevPAR Payroll % GOP PAR

88.6 187.38 166.10 26.5 107.33 Amsterdam 79.3 171.52 136.04 30.1 78.38

78.3 201.38 157.74 35.5 88.03 Athens 58.3 164.89 96.19 46.3 29.88

81.1 122.05 98.99 25.2 59.59 Berlin 72.6 121.03 87.92 28.0 46.94

80.6 90.30 72.77 26.0 38.66 Budapest 66.4 86.39 57.37 30.2 26.15

86.6 129.37 111.99 34.3 63.05 Dublin 73.9 120.32 88.86 38.7 43.48

82.5 257.48 212.46 20.8 191.58 Istanbul 75.0 200.62 150.49 28.9 107.94

88.6 215.62 190.94 19.6 138.25 London 81.8 185.11 151.49 23.4 102.68

89.0 254.57 226.61 29.3 144.09 Paris 77.9 196.75 153.25 37.1 76.77

78.2 141.77 110.80 36.7 51.99 Vienna 72.6 133.75 97.15 38.7 42.04

80.1 97.04 77.76 23.4 58.10 Warsaw 72.1 87.71 63.26 25.7 41.29

Movement for the month of June Movement for the twelve months to June

Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change

1.0 5.5% 6.6% 1.4 7.3% Amsterdam -1.3 3.9% 2.1% 0.4 1.5%

-16.5 6.7% -15.8% -4.2 -28.7% Athens -8.2 -2.0% -15.9% -6.8 -62.7%

1.5 16.0% 18.2% 1.7 29.2% Berlin 3.0 0.1% 4.2% 0.4 5.8%

0.2 10.9% 11.1% 1.9 22.6% Budapest 1.1 3.5% 5.3% 1.2 9.1%

3.7 14.5% 19.4% 3.3 26.9% Dublin 4.0 5.1% 10.7% 2.4 19.2%

3.1 9.5% 13.6% 0.8 14.3% Istanbul -2.0 12.6% 9.7% 2.4 17.7%

-5.2 -0.2% -6.1% -1.3 -7.7% London 0.0 2.6% 2.6% -0.1 0.9%

3.4 -5.0% -1.4% -1.0 -5.4% Paris 2.0 3.5% 6.1% 0.2 3.1%

2.7 -0.7% 2.8% 1.7 10.3% Vienna -1.2 -0.3% -2.0% -0.8 -6.3%

1.2 161.3% 165.2% 10.0 195.6% Warsaw 1.1 26.2% 28.0% 2.5 39.3%

June was also good for Budapest, with goppar

up 22.6%, Istanbul up 14.3%, Vienna 10.3%

and Amsterdam up 7.3%. Dublin saw a 26.9%

increase in profit per room in June, demonstrating

a consistent improvement from its 2010 lows.

Warsaw’s home win

Hotels in Warsaw benefitted greatly from the city’s

hosting of the Euro 2012 football tournament.

The event, held across Poland and Ukraine in

June, attracted a record 1.4 million spectators.

Warsaw itself hosted three group stage matches,

a semi- and quarter-final match, as well as hosting

the Russian and Polish teams and their support

group. As a result, Warsaw hotels improved

profit per room by 195.6% to E171.72. Revpar

was up 165.2%, putting the city among the top

performers in Europe.

Towardstheendofthefirsthalfof the year, it was evident hotels in otherEuropeancapitalsbenefittedfromLondon’sdecline,mostnotablyAmsterdam,BerlinandDublin,accordingtofiguresfromTRIHospitalityConsulting.

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Analysis

HR implications of “the new reality”

Six years ago, Tony was appointed CEOofwhatisnowknownasDeVereVenues.Sincethen,hehas successfully transformed and developed this business through tough times, and developed a new typeofCSRventureforthefuture.

A picture emerges of 20 conference centres,

most of which were under-invested, with very

basic bedrooms and restaurants that looked rather

like hospital cafeterias that served mostly brown

food (deep fried everything) – these were the

first impression’s which greeted Tony Dangerfield

when he was appointed COO of the conference

and training estate, then known as Initial Style

Conferences, immediately following its acquisition

by AHG in 2006. “Our over-riding objective was

to create the UK’s leading training, conference and

event brand – and we use the work ‘brand’ here

purposefully because we firmly believed that if we

focussed on brand leadership and development then

the business would become hugely successful.”

“The training and conference centre market was

not dominated by any one player. We saw the

opportunity to make a statement in this space and

our ‘rallying cry’ was to ensure everything we did

was focused on building a strong client/ fan base.”

First up, Tony recognised he needed a team

that would be unreservedly committed to this

objective. He was able to make some great internal

appointments identifying some individuals with

great ideas, fundamental capability and a passion

for the business but who had felt handcuffed

previously; and he then strengthened the team

with some external appointments bringing in core

skills to compliment the internal experience.

There is no doubt Tony and his team had their

work cut out for them. Until last year De Vere

Venues was managed by AHG, a private company

that wanted and needed to see immediate results

– both financial as well as brand development.

“As we were implementing our plan at pace, we

were very fortunate that we were also spending

significant money on product improvement which

turned out to be a hit with our business customers.

We discovered a corporate fan base that loved our

new, modern bedroom spec with large, comfortable

beds, big power showers, modern work desks and

chairs, great lighting and contemporary mirrors.

Our restaurants and bars got complete make-

overs which encouraged training delegates to mix

and chat. Our meeting rooms were brought up to

date with air conditioning, modern lighting and

excellent new furniture.”

Three brand names in nine months!

A lot of ground was clearly covered, so with such

apparent clarity of purpose, I am intrigued as to

how the team, and more importantly, the market

responded to a business that presented itself with

three brand names within a nine month period?

Tony was quick to explain that on taking over Initial

Style, they had engaged a branding agency and on

finalising their brand pillars had defined the brand

name – Verve Venues. “The word ‘Verve’ summed

up both what our customers said they wanted in the

type of environment in which they trained and held

events but also it resonated so well with the mission

we were on with the brand.” One thing that made

the brand launch relatively straightforward was the

fact that the business was so very focussed on the

B2B market. “We needed to get the message out to

the UK business community and after four months

Verve Venues was the strongest recognised brand in

the training marketplace,” reflects Tony.

So with money spent on the rebranding,

recognition of Verve Venues growing , a huge

dilemma was presented to the management

team when, six months later, AHG acquired the

De Vere Group.

The debate was evidently strong and searching

– whether to stick with Verve Venues or consider

utilising the established De Vere name and the

potential of more conference enquiries that could

catapult the business forward commercially.

Clearly a brave decision and one that expanded the

customer base greatly and enabled a significant

increase in revenues.

How many CEO’s admit that the recession came

at the right time for them? Well Tony Dangerfield

felt just that! Quick to explain, he says that having

completed most of their refurbishment, they had

a great looking physical product, ‘brand pillars’

that had really taken hold and a business that had

been transformed.

So, as companies were cutting training and event

budgets, De Vere Venues was able to continue

to grow market share. At the height of the last

recession they added 12 new sales positions and

25% to the marketing spend. But Tony wasn’t

about to sit on his laurels and he felt this was the

exact time to take the next big step forward. They

saw the chance to overpower their competitors and

act with strength allowing their client base to grow

even further. “We needed to diversify our revenue

streams. Prior to the acquisition of Initial Style,

several venues closed at weekends. So we decided

to open at weekends and have grown weekend

occupancy from 29% to 63% in five years, and our

wedding business has grown from 300 weddings

pa to 1400 in the same time. Being able to grow

these streams during the recession had a very

positive impact on our overall results.”

It’s all been very business-like and there is a sense

of urgency and hurry to optimise achievement in

Tony Dangerfield that I find impressive. There is

humour and a Kiwi- tenacity in him and despite

a seemingly corporate background, a refreshing

entrepreneurial streak best illustrated by their

latest restaurant venture, ‘Brigade’, at London

Bridge. Tony explains: “DeVere has been involved

with various charities and over the past few

years has raised millions of pounds. At DeVere

Venues, we engaged with these charities but I

always felt the culture of our brand fitted with a

deeper involvement with a charitable project of

some kind. When the opportunity came along

for us to partner with PWC and The Beyond

Food Foundation to create a restaurant operation

that would, at its heart, offer homeless people

the opportunity to join a kitchen apprenticeship

scheme, I jumped at it. This venture has provided

us something a lot more to be committed to than

‘ just raising funds’. This is a real business, open 6-

days a week with an exceptional food offering.”

Tony is acutely aware of the challenge – to be

successful, it must be sustainable and here for the

long term and currently, it is achieving just that by

offering homeless people the opportunity to work

and gain life skills. “I believe this is the future of

corporate involvement with charities,” he says.

Dangerfieldfavourites:• Favouritegadget–ScottyCameronputter and

cork screw (preferably in that order)

• Holidaydestination–takingthekidstoNewZealand

to explore the country with extended family

• Golfcourse(apartfromalloftheDeVerecourses)

– Pebble Beach

• Website–definitelyDeVereVenuesfollowedby

Laithwaites NZ wine section

Brigade is at 139 Tooley Street, SE1 2HZ, open

Monday to Saturday

Lesley Reynolds is chief executive

of Portfolio International

lesley.reynolds@portfoliointl.com

Lesley Reynolds, CEO of Portfolio, talks with Tony Dangerfield of De Vere Venues

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 318

CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Budapest Hotel Le Meridien Budapest Hungary Luxury Lifestyle 218 Unknown May-12 $80,000,000 63,440,000 366,972 Israeli CEE Geoup Khalaf Ahmed Al Abtoor Group

The Hoxton Hotel London United Kingdom Luxury Budget 208 Freehold May-12 £65,000,000 80,730,000 312,500 Quest Hotels Ennismore CapitalPark House Travelodge Hotel Teddington United Kingdom Budget 113 Unknown May-12 £9,400,000 11,674,800 103,317 Longford Securities Mayfair Capital Investment

ManagementHoliday Inn Express Greenock Greenock Scotland Budget 71 Unknown May-12 Undisclosed Undisclosed Group of High-Net-Worth

IndividualsBDL BDL has managed the property since 2001;

hotel recently refurbishedHotel Indigo Berlin Germany Upscale 153 Unknown May-12 23,200,000 151,634 Azure Property Group Invesco RE Part of two-property portfolioHoliday inn Alexanderplatz Berlin Germany Midscale 242 Unknown May-12 36,800,000 152,066 Azure Property Group Invesco RE Part of two-property portfolioSomerset Serviced Apartments and Barwa Al Sadd Hotel

Doha Qatar Upper Upscale and Luxury

432 Unknown May-12 $320,000,000 253,760,000 587,407 Barwa Real Estate Katara Hospitality Barwa Al Sadd Hotel is under construction and scheduled to open by 2013

Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

St Ermin's Hotel London United Kingdom Upscale 331 Freehold May-12 £150,000,000 186,300,000 453,172 Angelo, Gondon & Co; Amerimar Enterprises and Gracemark

Operated by Accor and part of its MGallery collection

Barcelo Raval Barcelona Spain Upscale 186 Freehold May-12 40,000,000 215,054 Barcelo Hotels & Resorts Opened in 2008; Option of lease or management contract with Barcelo Hotels & Resorts

Martinez, Palais de la Mediterranee, Concorde Lafayette, Hotel du Louvre

Cannes, Nice, Paris, Paris

France Luxury 1724 Unknown Jun-12 750,000,000 Starwood Capital Katara Hospitality A promise to sell has been signed recently and there will be an announcement on the matter on Thursday June 28

St Pauls Hotel and Gracechurch Hotel

London United Kingdom Upscale 468 Freehold Jun-12 £170,000,000 211,140,000 451,154 Chelsfield Club Quarters branded

The Big Sleep Hotel Cardiff Cardiff, United Kingdom Budget 80 Leasehold Jun-12 £2,000,000 2,484,000 31,050 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

The Big Sleep Hotel Cheltenham Cheltenham United Kingdom Budget 60 Freehold Jul-12 £3,000,000 3,726,000 62,100 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

The Big Sleep Hotel Eastbourne Eastbourne United Kingdom Budget 50 Freehold Aug-12 £1,600,002 1,987,202 39,744 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

Astir Palace Resort Athens Greece Luxury Unknown Jun-12 166,000,000 National Bank of Greece + Hellenic Republic of Asset Development Fund

The resort complex includes three hotels Arion, a Luxury Collection Resort & Spa, The Westin Athens and W Athens (to be opened in 2014)

Analysis

Banks hold back investment activity in UK marketremained modest with the only notable hotel sales

having some element of ‘need to sell’. There have

been fewer examples in and around London of a

consensual sale arrangement between the owner

and their funder due mainly to the fact that trading

levels in the region have remained strong and banks

haven’t decreased their support to hotel owners.

Where we have seen some movement from

2011, is the level of polarisation where the gap

between the good and the bad continues to

widen. It is the quality of the available asset as

much as the trading performance which draws

serious interest and examples of this are some

of the Von Essen sales where in certain cases

premium figures have been achieved (particularly

when considering the return on the investment

based on profit) where buyers are proceeding in

the knowledge that the gain that they make in the

future will be in the medium to long term and not

a quick turnaround for profit.

The good versus bad scenario is also apparent in

the provinces where dependent on the quality of

the asset, premium and fair values are still being

achieved particularly when a competitive sale

environment is achieved.

Several markets continue to trade and generate

A lack of lending is limiting sales, says Julian Troup of Colliers International

The UK Hotel Market in 2012 is in a similar position to 2011 in terms of hotel transactions and trading performance. As the market has contracted since the boom years of 2002 to 2007, a selection of markets generating high demand remain. Not only in terms of hotel transactions, but also markets where trading performance has gone against the general trend of a decline in performance.

In terms of trading performance these pockets

of success are led by London where strong trade is

fuelled by international visitors and the succession of

events including the Diamond Jubilee celebrations

and The Olympics, which generate significant

leisure-driven business. Whilst the recession has

gone on around us, London has continued to be the

hub of commerce and in line with this commercial

hotel business has continued to flow.

Conversely the flow of London hotel sales has

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 3 19

Analysis

CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Budapest Hotel Le Meridien Budapest Hungary Luxury Lifestyle 218 Unknown May-12 $80,000,000 63,440,000 366,972 Israeli CEE Geoup Khalaf Ahmed Al Abtoor Group

The Hoxton Hotel London United Kingdom Luxury Budget 208 Freehold May-12 £65,000,000 80,730,000 312,500 Quest Hotels Ennismore CapitalPark House Travelodge Hotel Teddington United Kingdom Budget 113 Unknown May-12 £9,400,000 11,674,800 103,317 Longford Securities Mayfair Capital Investment

ManagementHoliday Inn Express Greenock Greenock Scotland Budget 71 Unknown May-12 Undisclosed Undisclosed Group of High-Net-Worth

IndividualsBDL BDL has managed the property since 2001;

hotel recently refurbishedHotel Indigo Berlin Germany Upscale 153 Unknown May-12 23,200,000 151,634 Azure Property Group Invesco RE Part of two-property portfolioHoliday inn Alexanderplatz Berlin Germany Midscale 242 Unknown May-12 36,800,000 152,066 Azure Property Group Invesco RE Part of two-property portfolioSomerset Serviced Apartments and Barwa Al Sadd Hotel

Doha Qatar Upper Upscale and Luxury

432 Unknown May-12 $320,000,000 253,760,000 587,407 Barwa Real Estate Katara Hospitality Barwa Al Sadd Hotel is under construction and scheduled to open by 2013

Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

St Ermin's Hotel London United Kingdom Upscale 331 Freehold May-12 £150,000,000 186,300,000 453,172 Angelo, Gondon & Co; Amerimar Enterprises and Gracemark

Operated by Accor and part of its MGallery collection

Barcelo Raval Barcelona Spain Upscale 186 Freehold May-12 40,000,000 215,054 Barcelo Hotels & Resorts Opened in 2008; Option of lease or management contract with Barcelo Hotels & Resorts

Martinez, Palais de la Mediterranee, Concorde Lafayette, Hotel du Louvre

Cannes, Nice, Paris, Paris

France Luxury 1724 Unknown Jun-12 750,000,000 Starwood Capital Katara Hospitality A promise to sell has been signed recently and there will be an announcement on the matter on Thursday June 28

St Pauls Hotel and Gracechurch Hotel

London United Kingdom Upscale 468 Freehold Jun-12 £170,000,000 211,140,000 451,154 Chelsfield Club Quarters branded

The Big Sleep Hotel Cardiff Cardiff, United Kingdom Budget 80 Leasehold Jun-12 £2,000,000 2,484,000 31,050 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

The Big Sleep Hotel Cheltenham Cheltenham United Kingdom Budget 60 Freehold Jul-12 £3,000,000 3,726,000 62,100 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

The Big Sleep Hotel Eastbourne Eastbourne United Kingdom Budget 50 Freehold Aug-12 £1,600,002 1,987,202 39,744 Private Owner The three Big Sleep Hotels can be sold independently or as a portfolio

Astir Palace Resort Athens Greece Luxury Unknown Jun-12 166,000,000 National Bank of Greece + Hellenic Republic of Asset Development Fund

The resort complex includes three hotels Arion, a Luxury Collection Resort & Spa, The Westin Athens and W Athens (to be opened in 2014)

a good deal of buyer interest including the likes

of Edinburgh, Oxford, Cambridge, Manchester,

Birmingham and Bristol, which all remain robust

due to a strong commercial base and year-round

leisure demand. Despite new supply in these

markets, which is putting pressure on trade, there

is still a good deal of investor backed and outright

owner operator appetite for these key destinations.

We continue to see strong interest from

branded limited service operators including

Premier Inn, Travelodge and Accor where the

on-going demands of the investor for expansion

are still deliverable through the lease or franchise

model. Encouragingly there are some signs of

actual funded support returning to back their

expansion programme.

Conversely the full service corporate model

is going down the route of being less reliant on

funding support through the franchise model.

The likes of Hilton, IHG and Marriot have made

considerable headway on the back of a franchise

model where owners have been attracted to the

prospects of additional trade and potential savings

despite the cost of the franchise arrangement and

a PIP (Property Improvement Plan) that is required

to reach brand standards.

As was the case during the recession of the

early nineties, the banks appear to have taken the

risk aversion route backing deals in and around

London. However, all too often overlooking the

opportunities to fund viable businesses in the

provinces unless the deal is fully supported on the

basis of a multiple of EBITDA replacing what was

the accepted lending model being backed on a

loan to value basis.

Encouragingly there are some signs of UK

lenders getting their focus back on lending and

whilst a larger part of the bank may be looking at

reducing the levels of debt through a consensual

arrangement or restructuring that incorporates

some reduction in debt, there are parts of the

bank prepared to lend money into the market

where they see an opportunity backed by a

proven and experienced hotel operator who the

bank have faith in them delivering the goods in

the period ahead.

The private hotel sales market has seen an

improvement and we are still seeing a steady flow

of transactions.

In terms of the buyer it has taken three to four

years for sellers to re-assess their expectations

on pricing. Sellers are more willing to be realistic

in order to sell, safe in the knowledge that they

can offset a reduction on selling price onto their

next purchase also with the comfort of no longer

having the commitment and responsibility of

running their own business.

In summary, much of what we have experienced

during 2012 is similar to what we saw in 2011.

However, the course of the next 12 months will

be heavily dependent on the actions taken by the

banks. Their desire to reduce the level of debt and

also to whom and on what they are prepared to

support will have a significant effect on the levels

of growth in the hotel industry. Also the actions

of clientele on the back of the general economy

will determine the trading performance of hotels

in the UK, which in turn will have a material effect

on values and the level of transactional activity.

Julian Troup is Head of UK Hotels

– Agency at Colliers International

julian.troup@colliers.com

This table features individual asset and

portfolio transactions in excess of €5m in

the EMEA region. The exchange rate used

on the table was £1 = €1.2420, 1$ = €0.7930.

Banks hold back investment activity in UK market

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On 13 June 2012 the Internet Corporation for

Assigned Names and Numbers (ICANN) announced

details of the applications it has received for new

generic Top Level Domains (gTLDs). ICANN has

said a total of 1,930 applications were received,

a number in excess of most expectations. These

included seven applications for .hotel, and a

number of others which will be of interest to those

in the hotel industry.

We are all used to top-level domains such as

.com, .org and .net, but the release of the new

generic Top Level Domains (gTLDs), expected to

start from early 2013, will change the landscape

of the internet. Some operators will own their

own gTLDs (such as .marriott), and numerous

domain name companies will be seeking to

persuade businesses to sign up for second level

domains within truly generic TLDs such as .hotel.

Obtaining and running a gTLD is an expensive

undertaking, costing several hundreds of

thousands of dollars. Those operators who have

applied to register their name as a gTLD will have

been driven by a number of factors, but one key

motivation is likely to have been brand security

on the internet. Once internet users have learnt

that anything ending in .marriott is approved by

the Marriott group, for example, it is hoped that

it will be more difficult for third parties to take

traffic away through the use of confusingly similar

domain names.

ICANN’s “big reveal” on 13 June marked the

beginning of a lengthy period of evaluation and

potential objections for the gTLD applicants,

which is expected to last at least 9 months. All

brandowners (whether they applied for a gTLD or

not) will no doubt be keen to check whether any

of the domains applied for are confusingly similar

to their own brands, and to take appropriate

action if that is the case. They should also consider

their strategy for second level domains within

Stake your claims in the next internet land grab

DLA Piper’s John Wilks and Damien Herrington unravel the maze of website naming

some of the new gTLDs. We set out below some

pointers for what hotel operators should think

about doing, and when they should be doing it.

1.Checkoutthelist(asap)The application list is available from ICANN’s

website. It is important to review it as soon as

possible, and determine:

• Whetherthereareanydomainssimilartoyour

brands, which you might want to oppose?

• Whether there are there applications for

generic terms which your industry might

want to oppose?

• Whether there are applications for “open

registry” gTLDs (i.e. gTLDs intended to be

open for third parties to register second level

domains within, eg. Ritz-Carlton applying to

the owner of .hotel to register ritz.hotel) for

which you might want to block or register

second-level domains?

Main categories of gTLDs applied for which are

likely to be of interest to the hotel sector include:

• brands, such as .marriott, .hilton, .cipriani,

.tui, .clubmed;

• industry-relevantgenericterms,suchas.hotel,

.holiday, .restaurant, .room, .spa, .viajes,

.voyage. Most of these appear to have been

applied for by domain name speculators, but it

is interesting to note that Amazon have applied

for .room;

• broadergenericterms,whichcouldpotentially

be used to cause harm to brands, such as .sucks;

• geographic terms, eg .vegas, .paris, .madrid,

.london, .nyc, .bayern, .tirol.

2.ConsiderwhethertofileanObjection(deadline:aroundmid-January2013)There are four potential grounds for objections,

based on confusion, legal rights, a public or

community interest.

Each objection is filed with one of three dispute

resolution providers (“DRS providers”) rather

than ICANN. Objections will result in either the

application prevailing and therefore proceeding

to the next stage, or the objection prevailing, so

the application will be rejected. Detailed rules on

the objection processes can be found on the DRS

providers’ websites.

3.Stayawareofothers’objections(fromnowuntilaroundmid-January2013)Details of objections filed will be published on

the DRS providers’ websites and later by ICANN.

This will allow other interested parties to lend

support to existing objections, particularly

community objections.

4. Register your marks in the Trademark Clearinghouse(expectedtobeavailablefromAutumn2012)To help deal with the potential trade mark issues

of gTLD operators selling second level domains

(i.e. the word to the left of the dot) to third parties,

ICANN is setting up the Trademark Clearinghouse,

an online database which will serve as “a central

repository for information to be authenticated,

stored, and disseminated, pertaining to the rights

of trademark holders”.

5. Use the sunrise periods and Trademark ClaimsService(firstsunriseperiodslikelytobearoundFebruary2013)Each gTLD registry must adopt the following as a

minimum in connection with their gTLD launch:

• a“SunrisePeriod” (anopportunity foreligible

rightsholders to register (second level) domain

names within the TLD for 30 days before its

launch); and

• a “Trademark Claims Service” (a service

providing notice (1) to prospective domain

registrants of potential conflicts with existing

trademarks and (2) to trademark owners of

conflicting domain registrations for at least 60

days following launch)

Brandowners should formulate a strategy for

which second level domains they would like to

register, and which they would file objections to,

and use the Sunrise Period and Trademark Claims

Service to support that strategy.

6.ConsiderobjectingtoSecond-LevelDomains(firstsecondleveldomainslikelytoberegisteredaroundMarch2013)A Uniform Rapid Suspension Procedure (URS) will

be set up and used in order to help resolve clear

cases of cybersquatting in second level domain

registrations. The URS is effectively an expedited

and streamlined version of the UDRP, which many

will be familiar with as the existing policy used to

determine top level domain disputes such as those

involving .com domains.

The URS will sit alongside the UDRP proceedings

and court proceedings (e.g. for trademark

infringement) which a brand owner could use in

order to contest a domain registration.

John Wilks is a partner and Damien

Herrington a solicitor in DLA Piper’s

Intellectual Property group, based in London.

Analysis

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The Insider

Featured businessesAccor 1, 3, 12, 19AlgonquinFrance 12Amazon 21Big Sleep 2Blackstone 2Bloomberg 2Choice 2, 4Colliers 18, 19Colony Capital 12De Vere 2, 5, 17DLA Piper 21DTZ 4Event Holding 12Goldman Sachs 11Hilton ,19Host 10HVS 2Hyatt 8, 9InterContinental 2, 5, 9, 19, 24Jones Lang LaSalle 2Jurys 2, 11Lloyds 5Marriott 2, 7, 11, 19, 21Melia 6Midstar 12NH Hoteles 6Orient-Express 8Paramount 24Premier Inn 10, 11, 19Portfolio 17Principal-Hayley 2PWC 17Q Hotels 2Qatar Holding 12Rezidor 13Royal Bank of Scotland 11Santander 6Starwood 2, 12, 13Sveafastigheter 12Thomas Cook 12Travelodge 10, 11, 19Tripadvisor 5Very SAS 12Von Essen 18Westbrook 4Whitbread 10, 11Wyndham 2, 4

hotelanalyst

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Comingsoon–Paramounthotels

Fromburgerstobeds:InterCongoesLight

Hotels with their own movie cinemas are promised

with the imminent launch of the first hotel under

the Paramount label, in a bid to create a new

brand with all the excitement of Hollywood.

The idea is being promoted by Dubai-based

Paramount Hotels & Resorts, which has a licence

agreement signed with Paramount Pictures. And it

could well be in Dubai or nearby Abu Dhabi that

the first of the proposed chain will appear.

“The Paramount brand is known the world over,

from its iconic gates to its impressive cinematic

history,” said van PHR chief executive Thomas Van

Vliet. “Our goal is to deliver on the expectations

of the brand with experiences that are unmissable,

unforgettable, and unmistakable.”

Apart from guaranteeing guests star treatment,

the hotels will draw on the 100-year history

of Paramount the California lifestyle, and the

glamour of Hollywood. “It’s not like we are

trying to develop something that looks like Planet

Hollywood or Hard Rock Hotel,” Van Vliet said. “It

will be a more subtle and creative adaptation of

the Hollywood element into the concept.”

“What we will showcase will be unique, be

it a transformed lobby with video walls and 3D

celebrity moving pictures to a giant screening

room that can be utilised by guests or corporates,

alike. In fact, the screening room could even host

a mini film festival that pays tribute to Paramount

films; the potential is endless.”

InterContinental has underlined the importance

it places on its brands, with the appointment

of a global chief brands officer. Larry Light, a

former chief marketing officer at fast food chain

McDonald’s, is the first appointee in the new role.

The company has placed much emphasis on

the importance of strong brands. During a recent

results presentation, IHG chief executive Richard

Solomons noted the financial benefits delivered by

the company’s makeover of its Holiday Inn brand,

which saw weaker hotels in the chain removed,

and new brand standards enforced across

the portfolio.

“I am delighted to welcome Larry to our senior

leadership team and look forward to working

with him,” said Solomons. “One of our strategic

priorities is to develop our brands and Larry’s

wealth of experience and brand expertise will help

Hangover cure?London deputy mayor Kit Malthouse told the

Hospitality & Tourism Summit held in London this

June that his team were already planning for the

moment the Olympics finished.

“We at City Hall are very focused on the

hangover, and we’re engaging to try and avoid

that. Making sure we deal with the hangover is

critical,” he said.

While London government is doing what it

can he noted key points where government help

was needed: “We need to get people here easier,

cheaply and quickly. We need to sort out our visa

problem, we need to look at our airport.” He said

the mayor is keen on a new airport in the Thames

estuary, because “a third runway at Heathrow

is not a long term solution. But we do need a

Heathrow that works.”

“The value proposition is absolutely critical,”

he said, with London needing to be positioned as

a destination that was sufficiently attractive and

affordable to warrant visiting time and again, not

a place to be visited once after years of saving up.

us build a stronger platform for future growth.”

Light has a long pedigree in marketing and

advertising agencies. He was executive vice-

president at BBDO; chairman and ceo of the

international division of Bates Worldwide; and a

member of Bates’ board of directors. He was with

McDonald’s from 2002 to 2006, and has long

run his own brand consultancy, Arcature, having

worked with high profile clients including Mars,

Nissan, 3M and IBM.

In 2009, Light authored ‘Six Rules for Brand

Revitalization’, a book drawing on the McDonald’s

transformation. It advises the following key

steps for any organisation looking to improve

its brand: refocus the organisation, restore the

brand relevance, reinvent the brand experience,

reinforce a results culture, rebuild brand trust, and

realize global alignment.