changed rules of the game for hotel owners and investors

Heribert Gangl, K&P Budapest

NAPI Conference Budapest, 19 May 2009

Changed rules of the game for hotel owners and investors


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Table of Content

• About Kohl & Partner• Actual market environment• Changes and opportunities for hotel owners• Changes and opportunities for hotel investors• Conclusio


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About Kohl & Partner

• Independent and internationally operating consulting company specialized in the hotel and tourism industry

• Leading tourism consulting company in Austria with more than 25 years of experience

• 8 offices in 6 countries (Villach, Vienna, Munich, Stuttgart, South Tyrol, Sofia, Bucharest and Budapest)

• International team with 45 tourism experts and assistants

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Quality is our Mission

Kohl & Partner is …

• Winner of the Austrian

Quality Award 2006• Certified according to ISO 9001• Affiliated member of the UNWTO

(World Tourism Organisation)

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Kohl & Partner USPs

Austrian tourism know-how combined with local expertise

Detailed knowledge of the complex processes in tourism

Strong reputation and excellent industry contacts

More than 25 years of international experience

Services for small, private and large, international hotels

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Quality and tailor-made solutions for the hotel, tourism

and leisure industry by Kohl & Partner

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Our Customers

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Public Authorities Private sector

• Global organizations (e.g. World Tourism Organization, EBRD, UNDP)

• National authorities (e.g. Tourism Ministry)

• National tourism organizations

• Representative bodies of Regions & Republics

• Municipalities

• Entrepreneurs and business owners

• Investors• Project developer• Construction companies• Banks and financial institutions• Interest groups• Private organizations (e.g.

hotel associations)


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Kohl & Partner – Services for the hotel industry

• Asset Management and Advisory

• Market Intelligence Services• Feasibility Study• Project (Concept) Evaluation• Operator Selection • Hotel Valuation• Hotel Transaction• Turn Around Management• Other services

Hotel Industry

Destination Development

Tourism Infrastructure


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Real estate advisor and project management company for

domesticand international clients in Hungary and the CEE region• Brokerage – a real estate agency firm with only the finest,

exclusive properties• Project management – building services for the perfect quality

buildings on time• Lobbying – a specialist team, well-connected with the

municipalities, to assist you• Mediation – creating a holistic approach to accelerate your

project to the utmost

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Table of Content



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Actual market environment

• Decreasing tourism demand in Europe, especially in city and business destinations like Budapest or Vienna

• Dropping occupancy and ADR – lower revenues and yields, especially in the upscale 5/4-star segment

• Decreasing expenditures (business and leisure travellers) affecting the total service chain – especially additional guest expenses are reduced

• Lower priced budget- and midscale products benefit• Well-positioned and managed hotels are more resistant

and better performing


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• Tourism sector generally proves to be very resistant and is currently less vulnerable than other real estate sectors like offices, logistics or shopping center

• Tourism industry is usually affected with delays (we expect 6 months) – however experience shows that the tourism sector is able to recover fast

• Desire to travel is not affected (eg 9/11 or Sars) but concerns about who can (or wants) to afford it

• EMEA hotel transaction volume down by 81% in 1Q 2009 reaching the level of 2003– domestic investment activities are dominant


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• New hotel developments are slowed down but the market is still alive

• Project financing currently remains biggest challenge• Political framework conditions in Hungary are rather

unfavourable (e.g. tax increase, announced real estate tax, cut back on social benefits, etc.)

• Tourism in Hungary in general is not well organized – lack of professional tourism organizations and efficient structures to support tourism and related businesses


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Table of Content



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Changed rules for hotel owners

• Operational costs are increasing, affecting the operator performance and resulting in decreasing yields and asset values for the owner

• Many smaller operators are having problems with their cash-flows – flexibility from the owner-side required

• Re-Evaluation (and negotiation) of operator contracts

• Open and honest communication between operators, owners and banks essential

• More involvement required - demand detailed business plans for the next two years and review them on a monthly basis


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Opportunities for hotel owners

• Professional asset management: controlling, monitoring and benchmarking makes the difference

• Understand your business and collaborate closely with your operator jointly searching for possibilities to increase profitability

• Internal evaluation and re-structering - review your business model and operational concept

• Know the industry mechanism - don‘t cut back on sales and marketing expenses and maintain rate levels

• If you have a good operator agreement stay with it – don‘t loose a reliable long-term tenant for your asset


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Changed rules for hotel investors

• Increased equity capital demand – loan-value ratio of max. 55 -60% when financed locally

• Rental agreements vs. management contracts without guarentees • Contracts without guarentees require top renowned, international

operators like Hilton, Intercontinental, Marriott, Accor, Starwood…• Professional and profound project due diligence crucial• Professional hotel concept and management critical• Investment optimization (hotel facilities, room sizes…) important• Closer cooperation of all involved project proponents (investor,

constructor, operator, consultants) required


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Opportunities for hotel investors

• Decreased project costs (especially land and construction costs) – attractive opportunities for investors with strong financial background and equity capital

• Distressed sales – currently limited as valuations and prices are still too high but keep watching

• Demand from the operator side is high, especially for their budget- and midscale brands

• Lack of modern, quality hotels in Hungary and other CEE countries – especially in secondary cities like Györ, Kecskemét, Miskolc, Debrecen, etc.

• Spa, wellness and health tourism is one of the fastest growing tourism segments in CEE -) good market opportunities


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Conclusio

• Back to basics or renaissance of common sense • Location, location, location even more important again• Professional concept and partners are a must• Profound market and industry know-how inevitable• Lack of quality hotels in Hungary – attractive market

opportunities remain• If you are convinced of your operator be flexible and

patient – support your operator and jointly manage the current turbulent times

• It‘s time again for realistic yield expectation

Kohl & Partner Budapest Kft.Kölcsey u. 4.1085 BudapestHungary

T +36 1 235 00 70F +36 1 301 0793E [email protected] H www.kohl.at

Kohl & Partner Wien GmbHWallerstrasse 31010 ViennaAustria

T +43 1 532 6335F +43 1 532 6335-20E [email protected] H www.kohl.at

Thank you!

changed rules of the game for hotel owners and investors

Documents

hotel ownerschanges

hotel industryasset

investorschanged rules

tourism experts

world tourism organization

project management company

mission kohl partner

investorskohl partner