hotel investment outlook 2012

abcReal value in a changing world

Hotel Investment Outlook2012

Hotel Investment Outlook

2010

Jones Lang LaSalle Hotels know how

Contributors

Arthur de HaastChairman Hotels

Mark Wynne-SmithGlobal CEO

Arthur AdlerCEO, Americas

Jon Hubbard CEO, Northern Europe

Christoph HärleCEO, Continental Europe

Craig CollinsCEO, Australasia

Scott HetheringtonCEO, Asia

David Green-MorganGlobal Capital Markets Research Director

Karen WalesSenior Vice President, Research, Asia [email protected]

Phoebe TeoVice [email protected]

Lauro FerroniVice President, Research, [email protected]

Larissa EsserAnalyst, [email protected]

Josef FilserAnalyst, Research, [email protected]

Jones Lang LaSalle Hotels is a global real estate services firm focused exclusively on hotels & hospitality. We provide acquisition and financing advice, valuations, investment sales and asset management for luxury hotels, select service and budget hotels, smaller hotels and pubs, from single assets to large portfolios and mixed-use developments.

In the last five years we completed nearly 4,000 advisory and valuation assignments and more sale, purchase and financing transactions than any other hotels real estate firm in the world…worth over $30 billion. With 42 offices in 20 countries, no other firm is better connected. Through our depth and breadth of research and experience we know the market at every level, we know the players and we know how to get results. www.joneslanglasallehotels.com

Hotel Investment Outlook | 2012

Global overview ..............................................................................2 Highlights from the report .............................................................2 Transaction volumes expected to hold steady ..............................2 Uncertainty to shape investor sentiment in 2012... .......................3 Fundamentals reassure outlook ...................................................3 Private equity players poised to lead the market ..........................3 Global capital flows in perspective ...............................................4 Alternative sources of debt emerging mainly in Europe ...............4 Mature markets: overleveraged markets focus on workout ..........6 Emerging markets: global growth engine .....................................6 Focus on flexibility ........................................................................6

Americas ..........................................................................................8 Positive momentum to continue despite overhang of volatility .....8 Fundamentals to continue to rise in 2012 .....................................8 The gates open for private equity buyers .....................................9 Sellers motivated by different factors ...........................................9 Size and quality of assets that transact to decrease ..................10 Demand from off-shore buyers ...................................................10 The "great deleveraging" ............................................................ 11 Mexico: roadblocks but underlying fundamentals are strong ............11 Caribbean and Central American resort markets still figuring it out ...11 South America: the next development frontier ............................12

EMEA ..............................................................................................13 Transaction volume expected to remain flat in 2012 ..................13 Receivership deals will drive 2012 deal landscape ....................13 Positive trading growth yet at a slower pace ..............................14 Tight debt levels to stall progress and favour equity rich investors ...15 Sovereign debt crisis puts pressure on real estate values .........16 Morocco, Istanbul and sub-Saharan Africa .................................16 Select service boutique/lifestyle hotels .......................................17

Asia Pacific ....................................................................................18 Investor valour gives way to opportunistic plays ........................18 Strong economic backdrop supports regional tourism growth ....18 Divergent strategies and risk appetite will direct the flow of capital ...19 Portfolio sales expected to dominate in Australasia ...................20 Lending restrictions may slow China's development pipeline ....20 Step closer to greater liquidity ....................................................21 Deconstruction of CMBS loans will drive deal flow in Japan ......22 Strategic dispositions will support redeployment of capital ........23

Sources and methodology ..........................................................24

Table of contents

1


Highlights from the report

• Global economic uncertainty will continue to result in delicate investor sentiment in 2012. Hotel transaction volumes are expected to remain stable compared to 2011 levels, totalling a projected $31.0 billion in 2012.

• Private equity players are expected to remain ambitious buyers in 2012, joined by high net worth individuals and sovereign wealth funds. Middle Eastern buyers are expected to remain at the forefront, based on their increase in activity in 2011.

• The biggest sellers in 2012 are likely to be bank induced as a result of debt maturities and consequent refinancing challenges.

• There will be no shortage of equity capital in 2012; however debt financing will continue to be constrained, particularly in the Eurozone and the U.S. Overleveraged markets will continue to focus on workouts.

• Emerging markets remain the global growth engine, driven by rising domestic demand. Although the pace of growth is expected to slightly moderate, fundamentals still point to further growth in 2012.

• Flexibility is a key theme for 2012, and the ability to react to change quickly will feature as a success indicator.

Transaction volumes expected to hold steady

The hotel investment market surged impressively in the first half of 2011 and early movers found success. Deal momentum continued the robust growth of the previous year and signs of a revival in debt markets were particularly encouraging. The outlook seemed positive just before going into the second half of the year with the pace of transaction volumes on target to exceed previous forecasts. In the third quarter though, chilly economic headwinds led to a more cautious attitude. Though momentum slowed, transaction activity remained buoyant in the second half of 2011, and full-year hotel trade volume reached $31.2 billion worldwide, a 17% year-on-year increase.

Regionally, the Americas recorded a 24% increase on last year’s volume totalling $15.2 billion. Activity was mainly driven by real estate investment trusts (REITs) acquiring assets in the first six months of 2011, plus various corporate and portfolio transactions in the remainder of the year. Europe, Middle East and Africa (EMEA) was the second most liquid region, and deal volume remained stable compared to the previous year, reaching $10.9 billion, mainly fuelled by pronounced portfolio activity in Europe. In Asia Pacific, volumes edged up by 21% totalling $5.1 billion, led by activity in Singapore and China.

Looking ahead to 2012, we forecast deal volume around the world to remain steady, totalling $31.0 billion. Constraints will be driven by illiquid markets and the shrinking balance sheet capacity of international banks to lend significant sources of new money. Still, the market will be flush with equity capital that will support transactional activity.

In the Americas, deal volume is expected to hold steady at $15 billion. Healthy and growing operating fundamentals and an abundance of equity capital will keep the market buoyant through the economic uncertainty.

Global overview

Source: Jones Lang LaSalle Hotels

Global hotel transaction volume 1998 - 2012F

140

120

100

80

60

40

20

0.

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Volum

e ($B

illion

s)

Hotel Investment Outlook | 2012 3

The circumstances will be broadly similar in EMEA where volume is expected to reach $11.0 billion in 2012, on par with 2011 volumes. As banks take a stronger stance on bringing hotels into receivership positions, investment activity will be driven by debt restructuring deals and an influx of distressed assets brought to the market.

Asia Pacific investors will remain conservative, with a projected volume for 2012 of $5.0 billion. Portfolio sales are expected to feature, dominated by Australia, with a number of assets already being marketed.

Uncertainty to shape investor sentiment in 2012…

Financial market instability and fears of a global double dip recession will continue to result in delicate investor sentiment in 2012. Confidence will need to be restored before growth can accelerate again and a resolution towards the Eurozone’s debt crisis is likely a precondition for this.

And things can go different ways… A scenario where the Eurozone crisis will be managed in an orderly way and general consensus will be reached on how to resolve the crisis would enhance confidence. In this situation, it can be expected that the stock markets will settle and stability will rebound. In contrast, a disorderly default might have severe consequences for certain markets and hotel assets might become available at deeply discounted prices compared to where they are today.

Moreover, the gap between prime and secondary assets is widening, and there is strong investor focus on core prime assets in gateway locations with secure income streams. We expect this to continue as long as uncertainty is evident.

… although fundamentals reassure outlook

So far, the dislocation in the financial markets has not impacted underlying trading fundamentals, reassuring investors to a certain degree and underlining the attractiveness of high quality, income producing hotel real estate as an asset class. Several gateway markets, including Hong Kong, Singapore, Sydney, London, Los Angeles and San Francisco posted significant gains in revenue per available room (RevPAR) in 2011, and assets in these markets have attracted substantial interest.

In the medium term, the overall outlook for drivers of hotel performance, namely occupancy and average daily rate (ADR), including visitor exports and domestic spend, are forecast to grow markedly in certain regions in the world over the next ten years, notably in Latin America and Asia according to the World Trade and Tourism Council. These markets have already enticed investor interest, and are likely to remain on the radar.

Source: WTTC

Tourism spend forecast through 2021

Middle East

Africa

Northeast Asia

South Asia

Southeast Asia

Oceania

European Union

Other Europe

North America

Caribbean

Latin America

8.0%6.0%4.0%2.0%0.0%

10yr. CAAG visitor exports 10yr. CAAG domestic spend

Private equity players poised to lead the market

Private equity investors increased their investment activity in the second half of 2011, and are expected to remain ambitious in 2012. Various large private equity firms have received significant capital commitments, notably from pension funds. With significant buying power and risk tolerance in a volatile environment, they are in a position to achieve opportunistic returns. Notwithstanding, deficient debt markets and limited availability of attractive acquisition opportunities will likely hamper higher levels of activity. Still, these players will selectively acquire assets in secondary locations, as well as distressed portfolios and non-performing loans.

Joining the buyer mix are sovereign wealth funds and private high net worth individuals who will take a long-term view and make strategic acquisitions globally. While uncertainty persists in the public markets, public companies, notably REITs, are expected to focus on existing assets rather than new acquisitions, consequently diluting the buyer pool. REITs were some of the most active buyers in 2011 and bought four of the five largest single asset hotels that traded during the first half of 2011. It can be expected that as soon as their share prices rebound, they will start to look more actively at acquiring assets again.

The biggest sellers in 2012 are likely to be bank induced as a result of debt maturities and consequent refinancing challenges. In addition to the influx of assets expected to come to market, a significant amount of note sales are anticipated as well. Private equity firms and institutional investors are also expected to liquidate some previous acquisitions, either to divest select non-core assets or to fund life maturities. In mature markets, particularly in the United States, sellers will be motivated by different factors in 2012 than they were in the first half of 2011, where they were motivated by record pricing in some cases.


Domestic investmentSource: Jones Lang LaSalle Hotels

Proportion of domestic vs. cross-border investment

100%

80%

60%

40%

20%

0%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Cross-border investment

Global capital flows in perspective

Cross border capital accounted for 32% of global hotel investment volumes in 2011, a decline on 2010 where cross border capital made up 53%. This decrease is largely driven by a decline in offshore capital from North America. Investors, notably REITs, generally focussed on their home market. It is expected that cross border capital will continue to flow, and possibly accelerate in 2012.

Asian capital featured strongly, both on an intra- and inter-regional level and accounted for 28% of inter-regional investment volumes. Target markets included France, Germany, the U.K., New Zealand, Australia and the U.S. It is expected that Asian capital will continue to feature strongly as Asian hotel operators, keen to secure a presence in key markets globally, continue pursuing acquisition targets. Asian high net worth counter cyclical buyers will also make investments in displaced hotel markets particularly where there are currency wins or where values are depressed.

Middle Eastern buyers nearly tripled cross-border acquisition volumes in comparison to the previous year and accounted for 42% of inter-regional volumes. Middle Eastern investors deployed capital in the U.K., France, Singapore, the U.S. and Argentina and are expected to be active buyers in 2012.

Improving levels of transparency worldwide are expected to have a positive effect on cross border capital flows. Transparency refers in general to the availability of performance data and market fundamentals, the overall legal framework and local law fairness and clarity regarding the transaction process.

Medium term projections include movement of capital from countries where wealth is building, for example Malaysia, South Korea and China. As a result of the growing domestic economies and a rising middle class, capital increasingly flows into savings vehicles such as pension funds and life insurance companies. Similar funds are expected to emerge in Indonesia and the Indochinese region, comprising significant pockets of capital, and over time this money will start to become more active. This also includes capital from resource-rich countries with a sovereign wealth fund, as well as African countries such as Angola.

Alternative sources of debt emerging mainly in Europe

There will be no shortage of equity capital in 2012. The market is flush with it, waiting to be invested, which will influence deal volume throughout the year.

On the flip side, large international banks, traditionally key providers of real estate debt financing, don’t have sufficient balance sheet capacity to lend significant sources of new money, due to their heavy exposure to non-performing real estate loans. These banks are now severely restrained to offer new lending and will focus on dealing with existing loans books, refinancing existing assets, taking write-offs and reducing their exposure. This workout process is expected to take several years and banks are becoming a decreasingly liquid source of debt.

Other forms of debt financing are required to fill the gap and various alternative groups, including sovereign wealth funds and insurance companies, have entered the real estate lending space by providing senior debt. Mezzanine financing is also beginning to feature although the costs remain relatively high.

4


4%

4%

2%

15%

92%12%

21%

100%

38%

6%

26%17%

2% 17%

8%

4%

92%

56%

23%

65%

100%North AmericaLatin AmericaEuropeMiddle EastAfricaAsiaAustralasiaGlobal

Region DomesticNorth America 92%Latin America 56%Europe 65%Middle East 100%Africa 100%Asia 92%Australasia 38%

Flow of capital around the globe in 2011

‘% global investment’ refers to transactions funded by private equity funds and investment banks that raise capital across a number of countries globallyAbsence of arrow connecting two regions indicates that no cross border investment was tracked in 2011Percentages of each of the seven regions add up to 100%Source: Jones Lang LaSalle Hotels


Mature markets: overleveraged markets focus on workout

It is anticipated that the Eurozone will continue to struggle under its debt mountain in the medium to long term, resulting in slow regional economic growth. In spite of this, the key major cities (e.g. London and Paris) continue to receive great interest. In the U.S., the short term looks cautiously optimistic although the country eventually has to address its looming deficit which is expected to adversely impact growth in the medium term.

In the U.K., the U.S. and Ireland, institutions with significant real estate exposure have started taking action by means of placing stressed assets into the market, although activity has yet to start in Spain and Japan. Borrowers in Spain have more control over administration processes as opposed to the U.K. and Ireland, creating reduced certainty for the banks and stemming greater levels of workout activity. Lenders in Japan are still reluctant to realise losses on hotel loans, which is causing delays in sales transactions.

It is expected that portfolio deals will dominate in several of these markets as banks, whenever they have a large portfolio, prefer to look for a portfolio solution to exit as opposed to selling assets individually. This might not be the case in Japan however, as limited debt availability is expected to hamper portfolio activity.

Emerging markets: global growth engine

Emerging markets remain the global growth engine, greatly driven by rising domestic demand. Fundamentals still point to further growth in 2012, though the pace is expected to slightly moderate, albeit from a very high basis.

China experienced great momentum in terms of hotel development, although some question whether the country invested too much in real estate and got ahead of the demand curve. For example, oversupply exists in the upper upscale end of the market, causing concerns over a potential bubble.

In Central and Eastern Europe, activity is building as a result of strengthening trading fundamentals. Notably, Poland’s trading volume reached an excess of $120 million, achieving a record high for the country. Poland currently has the highest GDP growth forecast in Europe and as a result, local demand is expected to rise, allowing for increased levels of investment activity in the short to medium term.

Russia witnessed a notable increase in activity in 2011. And although investors generally remain focused on quality stock, an increasing level of investment is being directed towards development projects, as financing for such projects becomes increasingly available, mainly from Russian banks.

In spite of the promising economic growth figures, activity in India is restrained due to insoluble problems and a perceived level of corruption. It remains difficult to do things quickly and efficiently, and as a result, transaction activity is expected to remain low.

Promising growth figures in South America continue to cause excitement among investors. Brazil is the region’s growth engine and largest market. Brazil is on the forefront of investors’ attention and increased development, transaction activity and consolidation of key stakeholders is expected in 2012, though from a moderate basis as the hotel transactions market is still in its infancy stages. Outside of Brazil, other South American countries appear less prominently on investors’ radars due to the relatively small size of the markets.

Focus on flexibility

Increased merger and acquisition activity is expected as several hotel management companies actively look for acquisition targets in the form of brands, operating companies and real estate to grow their business. A great part of these groups are increasingly flexible in deploying capital to secure brand presence in certain markets. Companies with strong balance sheets and healthy cash flows are expected to acquire smaller companies struggling in the present environment.

In times of uncertainty and fast-changing dynamics, greater flexibility is not only demanded from investors, but also hotel operators and asset managers in order to preserve and enhance asset values. New technologies in hotels, online customer loyalty applications and efficient revenue management aid capturing lodging demand, and fill the hotel with the right customer, at the right time and the right price.

Flexibility is a key theme for 2012, and the ability to react to change quickly will feature as a success indicator. Unexpected events, such as political unrest and natural disasters seem to have become the "new normal” and success will be predicated by investors and operators who can calculate risk and adapt the quickest.


Global real estate transparency index

TransparencyLevel

2010Composite

RankMarket

2010Composite

Score

2010Composite

Tier

1 Australia 1.22 1

2 Canada 1.23 13 United Kingdom 1.24 1

4 New Zealand 1.25 15 Sweden 1.25 1

High 6 United States 1.25 17 Ireland 1.27 18 France 1.28 19 Netherlands 1.38 1

10 Germany 1.38 111 Belgium 1.46 112 Denmark 1.50 113 Finland 1.53 2

14 Spain 1.58 215 Austria 1.71 216 Singapore 1.73 217 Norway 1.75 218 Hong Kong 1.76 219 Portugal 1.82 2

Transparent 20 Switzerland 1.87 221 Italy 1.89 222 Poland 1.99 2

23 South Africa 2.09 224 Czech Rebublic 2.15 225 Malaysia 2.30 226 Japan 2.30 227 Hungary 2.33 228 Israel 2.38 229 Greece 2.60 230 Slovakia 2.61 331 Russia Tier 1 Cities 2.64 332 Romania 2.68 333 Taiwan 2.71 334 Chile 2.72 3

Semi 35 Russia Tier 2 Cities 2.86 336 Turkey 2.90 337 UAE - Dubai 2.93 338 Brazil 2.95 339 Thailand 3.02 340 Bulgaria 3.03 341 India Tier 1 Cities 3.11 3

*Denotes new market added in 2010.Note: Scores shown rounded to two decimal places; rankings are based on unrounded scores.Sources: Jones Lang Lasalle, LaSalle Investment Management

TransparencyLevel

2010Composite

RankMarket

2010Composite

Score

2010Composite

Tier

42 South Korea 3.11 3

43 Russia Tier 3 Cities 3.12 344 Macau 3.13 3

45 China Tier 1 Cities 3.14 346 Mexico 3.14 347 Ukraine 3.14 348 Philippines 3.15 3

Semi 49 India Tier 2 Cities 3.17 350 Bahrain 3.28 351 Argentina 3.30 352 Cost Rica 3.32 353 Slovenia* 3.33 354 China Tier 2 Cities 3.38 3

55 India Tier 3 Cities 3.39 356 UAE - Abu Dhabi 3.45 357 Indonesia 3.46 358 Jordan* 3.46 359 Oman 3.50 460 Morocco 3.58 461 Croatia 3.59 462 Egypt 3.62 463 Saudi Arabia 3.66 4

64 Qatar 3.70 465 China Tier 3 Cities 3.73 466 Lebanon* 3.78 467 Panama 3.85 4

Low 68 Kuwait 3.90 469 Uruguay 3.92 470 Kazakhstan 3.93 471 Colombia 3.96 472 Peru 4.00 473 Pakistan 4.18 474 Venezuela 4.18 475 Tunisia* 4.24 476 Vietnam 4.25 477 Dominican Republic 4.28 478 Belarus 4.48 479 Syria 4.65 5

Opaque 80 Sudan 4.68 581 Algeria 4.74 5

Global Real Estate Transparency Index

Jones Lang LaSalle’s Global Real Estate Transparency Index is updated every two years and quantifies real estate market transparency across 81 markets worldwide. The Index aims to help real estate investors, corporate occupiers and retailers understand important differences when transacting, owning and operating in foreign markets.


Positive momentum to continue despite overhang of volatility

Hotel real estate investment transaction activity swelled to a four-year high in 2011, with annual volumes in the Americas reaching $15.2 billion as investors unleashed pent-up demand for hotel assets. This marks a 24% increase on 2010 hotel investment volumes.

Due to high interest and competitive bidding driven in the first half of 2011 by real estate investment trusts’ (REITs) appetite for high-quality urban assets and by private and institutional equity seeking value buys during the second half of the year, the level of single-asset trades increased to approximately $10.6 billion in 2011. Amid still-struggling debt markets, this shows just how bright of a year it was for transaction activity.

In addition to the sale of hotel assets, performing and non-performing hotel debt also traded at substantial levels which, if fully quantifiable, would show an even greater increase in total transaction volume for the year.

S&P’s downgrade of United States long-term debt, the ongoing high unemployment rate and volatile consumer confidence have led to investor unease since August 2011. Investors have been closely monitoring the state of the economy and its impact on hotel investment. While quarterly transaction volume peaked during the second quarter of 2011 at nearly $5 billion, there has been no evidence of a significant fall-off of hotel transactions as industry fundaments continue to show strength.

The general market volatility experienced in the final months of 2011 reinforced that the U.S. and other large economies in the Americas still face a slow and uneven recovery. But it is still a recovery, and room night demand remains strong in the Americas.

Thus, while global events, including the European sovereign debt issues, will likely continue to create uncertainty in early 2012, two driving forces behind the market for hotel acquisitions – healthy and growing operating fundamentals and an abundance of equity capital – will support a buoyant market for hotel transactions. Deal volume for the year is expected to reach $15 billion, holding steady on 2011 levels. This figure refers to asset sales and does not include note and loan sales, deed-in-lieu transfers, and the like.

Note: Excludes casino and land site salesSource: Jones Lang LaSalle Hotels

Americas hotel transaction volume 1998 - 2012F

60

50

40

30

20

10

0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Single asset transactions Portfolio transactions

Volum

e ($B

illion

s)

The expected hotel transaction volume for the Americas in 2012 would mark the second-highest level in five years and the U.S. will uphold its position as one of the most liquid hotel investment markets in the world. Investor outlook will be closely tied to the overall health of the hotel market and broader economy, but in the absence of any major demand shocks, corporate and group demand is expected to continue to build, and leisure travel, so long as consumer confidence levels hold steady, will continue to rise in 2012, even if on a cautious trajectory.

Fundamentals to continue to rise in 2012

The consensus in the U.S. investment community is that hotel operating performance will continue to improve in 2012, leading to further revenue per available room (RevPAR) gains, albeit at a moderated pace compared to 2011.

Operators of large urban hotels are generally budgeting an increase in occupancy and average daily rate (ADR) in 2012. While the performance of large hotels in the country’s biggest cities tends to be tied to the health of the market’s convention calendar for the year, we expect fundamentals to continue to trend upward in 2012. Should the growth in fundamentals stall, our projected transaction volume figure would be at risk because the difficulty in underwriting future performance would lead to some gridlock in the market.

The lack of construction financing, and the fact that most assets can be acquired at below replacement cost, is likely to further delay new construction. The U.S. lodging industry is in the early stages of a five to six-year run (at least) where annual supply growth will be one or more percentage points below the long term average and demand growth will outstrip supply growth.

Americas

8


Source: Smith Travel Research, Jones Lang LaSalle Hotels

Americas hotel development pipeline through 2013F

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

Chica

go

Los A

ngele

s

Miam

i

New

York

San F

ranc

isco

Was

hingto

n D.C

.

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ouve

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Mexic

o City

Bogo

t á

Rio d

e Jan

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Sao P

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Buen

os A

ires

2013 additions2012 additions2011 additions2010 base stock

Numb

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room

s (ur

ban a

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The gates open for private equity buyers

REITs, which were the largest net buyers in 2011, will likely be less active bidders in 2012 due to their lower stock valuations; the playing field with regard to public and private investment will resultantly be more evenly matched. Sellers will face a new buyer audience: a competitive bench of eager private equity and institutional buyers. Private equity players will become increasingly active in both primary and secondary U.S. markets—particularly if the debt markets are more liquid—and investors that take on calculated risks have the potential to be very successful.

There is no shortage of equity capital available for high-quality hotel transactions. Opportunity funds, value-added funds, and core-plus funds typically allocate 15% to 20% of their equity goal to U.S. hotel real estate and will be a driving force in the acquisitions market.

Debt markets will continue to oscillate in 2012 and all eyes will be on the commercial mortgage-backed securities (CMBS) market, determining to what degree the market for floating rate CMBS debt evolves. Balance sheet lenders are also selectively pursuing high-quality deals, but originations are generally capped at $100 million, and buyers for larger assets will need to seek a consortium of lenders or tap into a line of credit. Swaps and spreads will continue to be volatile during 2012 and the timing of when an investor locks in the interest rate will be crucial.

^Net shift = the difference between the respective group's market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2011Source: Jones Lang LaSalle Hotels

Americas 2011 buyer and seller net shift analysis

Corporates

Developer/Property company

HNWI

Hotel operator

Institutional investor

Investment fund/Private equity

REIT

Receiver

Sovereign wealth fund

Net shift^-15% -10% -5% 0% 5% 10% 15% 20% 25%

Sellers motivated by different factors

The phenomenon witnessed during 2011 through the end of the summer with owners selling assets at near-record valuations is unlikely to resurface in 2012, unless economic sentiment improves vastly and REITs’ share prices increase to early 2011 levels.

Hotel sellers in 2012 will be motivated by various factors. For example, lenders, banks and special servicers will be motivated to sell assets rather than further extend loans or foreclose and own an asset, particularly if the lender has marked the loan to a level at which it can clear the market.

Owners may be moved to sell in cases where they are not willing to invest additional capital for needed property improvements, do not want to invest additional equity to pay down or restructure debt that is nearing maturity, or have other issues in their portfolios that could be solved by selling assets. In addition, there will continue to be an aggressive market for loan-to-own note sales.

European-based institutional investors that have positions in the U.S. will continue to want to clear assets off their books in 2012, perhaps at an even faster pace than domestic banks. Additionally, REITs will look to dispose of non-core assets acquired before late 2010.

9


Size and quality of assets that transact to decrease

Due to the unprecedented number and size of the upper upscale and luxury assets that were acquired by REITs in urban centres during early 2011, the average single-asset transaction size during the year broke all records. With the likelihood of REITs being less active buyers in 2012, and more hotel sales being driven outside of the top 10 markets, the average size of single-asset transactions will likely decrease.

Quality assets with existing yield will be best positioned to transact in 2012. Market participants witnessed since 2009 that the strongest hotel assets rebound most quickly, even during protracted economic declines. Owning high-quality assets in key markets virtually ensures strong positioning. Portfolios of select service hotels that are selling at a discount will also feature strongly in the dispositions market due to buyers’ interest in acquiring assets at a favourable basis.

Not surprisingly, assets for which a disposition will be more difficult in 2012 include hotels located in secondary or tertiary markets that are subject to brand and management encumbrances with weak cash flow and those requiring significant capital. Furthermore, resort assets will continue to be less liquid. Merger and acquisition activity is unlikely to come to fruition in 2012 due to the lack of debt.


Americas average single-asset deal size 1998 - 2012F70

60

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30

20

10

0

1998

1999

2000

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2002

2003

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2008

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E

2012

F

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illion

s)

Demand from off-shore buyers

Middle Eastern capital, stemming from countries such as Abu Dhabi, Qatar and Kuwait, will selectively pursue opportunities in the U.S. in 2012, primarily in major East Coast markets. Their motivation: hotel assets act as a hedge against inflation. Hotel ADR in the U.S. has grown at a higher pace annually than the consumer price index in 26 out of the past 38 years.

Investors based in China and Southeast Asia will continue to scour the West Coast for purchases and may also consider East Coast gateway markets. European investors, on the other hand, are expected to be quiet in 2012 as they sort out economic difficulty in home markets. The volume of foreign capital invested will not be needle-moving on a national basis, but for several gateway cities, Asian-based investors have indeed defined the market.

Canada’s hotel transaction activity has not recovered to the same degree as it has in the U.S. Though Canada benefits from one of the soundest banking sectors in the world and a relatively healthy demand outlook, investors in the market have retained a domestic focus. Sellers of Canadian assets have not attracted bids from U.S. REITs and face a narrower buying audience. The relatively limited stock of hotels available for sale will continue to keep the lid on a large uptick of deal volume in 2012.

Hotel market cycle 2012 - North America


Washington, D.C.

New York

Los Angeles

Toronto

Miami

San Francisco

RevPARdeclineslowing

RevPARrising

RevPARfalling

RevPARgrowth slowing

`

Chicago

Vancouver


The “great deleveraging”

The U.S. market faces a significant amount of CMBS loan maturities over the next several years. The aggregate unpaid balance of hotel CMBS loans with initial maturity dates through 2012 totals nearly $30 billion, according to Morningstar, LLC. The debt markets are simply unable to provide sufficient capital to refinance these loans, so most are being extended.

Assuming that CMBS loan maturities with an original maturity date between 2011 and 2013 will get three-year extensions, the new maturity dates will hit beginning in 2014, with as much as $27 billion in loans having to get sold or refinanced that year.

The year 2014, in our view, will mark the beginning of the “great deleveraging” of the U.S. hotel business—a period that will cause unprecedented reshuffling of loans and capital in the market, creating considerable opportunities for buyers and sellers and will define active market participants for years to come.

Mexico: roadblocks but underlying fundamentals are strong

Mexico is in the midst of an economic rebound driven by its emerging middle class. Visitor levels to the country recovered strongly in 2010 and 2011. Overall, Mexico’s lodging market and tourism infrastructure is the most sophisticated in all of Latin America in terms of the proportion of international-grade hotel stock. However, reports of drug-related violence mark a stark contrast to the country’s otherwise largely healthy fundamentals. The hope is that Mexico’s new presidential administration will succeed in taking a new stance on easing drug-related violence upon taking office in 2012.

Markets expected to generally see the highest demand in 2012 include Mexico City, Cancun/Riviera Maya and Los Cabos. These markets have largely been spared from negative headlines surrounding violence, and 2012 visitor levels will be close to the previous peak, barring any negative one-off events.

The market for existing assets is expected to remain relatively illiquid in 2012. The exception will be forced sales, which will face a limited buyer audience, unless they are unencumbered by brand and management. Buyers will be limited to opportunistic groups and private equity investors.

Even Mexican conglomerates and high net worth individuals, which have invested hundreds of millions of dollars in Mexican hotel real estate over the past decade, are expected to remain largely absent from the local market in 2012, and even look outside of Mexico for investments. With Mexico’s transactions market below potential, the primary growth opportunity lies in the expansion of the country’s network of branded limited service hotels to service the country’s middle class.

Canada United States Mexico Brazil

Source: IHS Global Insight

Policy interest rates for major Americas economies

15%

10%

5%

0%

Polic

y inte

rest

rate

2007 2008 2009 2010 2011E 2012F 2013F

Caribbean and Central American resort markets still figuring it out

Though the Caribbean has recorded a rise in demand levels, hotel operations remain susceptible to changes to airlift, hurricanes, and high energy costs. Generally speaking, the all-inclusive sector will fare best in 2012, while the luxury market will struggle most.

With the bulk of large resorts in the Caribbean having been financed by high levels of debt and many featuring a struggling residential component, any sales activity will be driven by owners who are forced to sell due to default or debt maturities that cannot be modified. The buyer audience for distressed resorts will be limited to opportunistic buyers. The region is however home to numerous shovel-ready or partially completed projects which, as the cycle finds strength, will attract investor interest.

The good news is that, following a number of years of above-average supply increases, in particular in the upper upscale and luxury sectors, the region will face a limited supply pipeline in 2012 and beyond.

Like the Caribbean, Costa Rican resort markets experienced a wave of development over the last six to seven years with many properties including residential units. Due to its stable political environment, healthy economic fundamentals, natural beauty, and the newly expanded Liberia airport, Costa Rica will again be on the radar of investors and we expect several projects to be revitalized in the medium term. However, this rests on equity injections, a retooling of joint ventures and confirmation that Costa Rica’s source markets remain on solid path to economic recovery.

Panama marks a contrast to Costa Rica and the Caribbean. Though Costa Rica’s neighbour, Panama’s hotel development has largely been concentrated in Panama City and as such caters to urban, and not resort demand. Hotel development has primarily been funded by domestic developers in some cases coupled with Colombian or Venezuelan investors, and as such will continue to be driven by different factors in 2012 than the Caribbean or Costa Rica.


Exchange rates (local / USD period average)2007 2008 2009 2010 2011F 2012F 2013F

North AmericaCanada 1.0 1.2 1.1 1.0 1.1 1.0 1.0 Mexico 10.9 13.5 13.1 12.4 13.2 12.7 12.3 South AmericaArgentina 8.7 6.8 0.9 9.2 6.9 3.6 5.3 Brazil 1.8 2.3 1.7 1.7 1.8 1.8 1.7 Chile 495.8 629.1 506.4 468.4 507.9 478.9 504.3 Colombia 1,987.8 2,198.1 2,044.2 1,989.9 1,843.9 1,886.6 1,921.8 Peru 3.0 3.1 2.9 2.8 2.7 2.8 2.8


South America: The next development frontier

With the underwhelming pace of economic recovery in the U.S., Western Europe and Japan, conditions in South America offer a stark contrast, with economic growth rate over the next several years to be double that of the U.S.

Over the next decade, investors’ focus will be on new development, which is accompanied by large-scale opportunity in Brazil and a number of other key countries in the region. Brazil’s development potential is underlined by the upcoming FIFA World Cup in 2014 and the Summer Olympic Games in 2016.

Just 15% of room supply in Brazil is affiliated with an international hotel brand and the country still lags with respect to the product differentiation seen in mature lodging markets. Over the medium term, Brazil will attract a high level of brand differentiation to serve different demographic groups, in particular the emerging middle class. Relatively speaking, South America’s hotel transaction market is still undeveloped, though it will slowly continue to open up over the medium term. The full service hotels that transacted in São Paulo and Rio de Janeiro in 2010 and 2011 will help set the market in 2012 and beyond. The number of hotels that come to market in the near term will continue to be limited as the market is dominated by domestic and intra-regional investors, most of whom are long-term holders.

The next largest South American economies, Argentina, Colombia, Chile and Peru are increasingly on the radar of domestic and intra-regional investors who are seeking to pick up opportunistic investments, driven by their strategy of earning greater returns in hotels than in other asset types.

Real GDP growth (annual %)2007 2008 2009 2010 2011F 2012F 2013F

North AmericaCanada 2.2% 0.7% -2.8% 3.2% 2.2% 1.9% 2.6%Mexico 3.3% 1.2% -6.1% 5.4% 3.9% 2.5% 3.6%United States 1.9% -0.3% -3.5% 3.0% 1.7% 1.4% 2.4%South AmericaArgentina 8.7% 6.8% 0.9% 9.2% 6.9% 3.6% 5.3%Brazil 6.1% 5.2% -0.6% 7.5% 3.6% 3.9% 5.2%Chile 4.3% 4.0% -1.7% 5.2% 5.6% 4.5% 4.8%Colombia 6.9% 3.5% 1.5% 4.3% 4.8% 4.2% 4.7%Peru 8.9% 9.8% 0.9% 8.8% 6.7% 5.3% 5.6%


Hotel market cycle 2012 - Latin America


Bogotá Caribbean

São Paulo

Mexico City


RevPARrising

RevPARfalling


Buenos Aires

Rio de Janeiro

Colombia is witnessing a considerable amount of development, driven by local investors, with little direct activity from the U.S. The country’s stable economy, large population and greatly improved business environment will continue to lead to future investment in 2012 and beyond.

Chile has long enjoyed macroeconomic stability, an open business environment and consequently, relatively sophisticated capital markets. International investors will continue to have limited appetite in Argentina in 2012 until the country’s political and fiscal situation improves, but the market will present select favourable investment opportunities.

Peru has also followed pro-growth policies which, together with its rich cultural heritage have increased tourism appeal; hotel demand should continue its upswing in 2012. Lima has seen a lesser degree of institutional-grade hotel development and the market still lacks the depth of international hotel brands seen in Buenos Aires and Santiago and will as such be on the radar of investors active in the region.


Transaction volume expected to remain flat in 2012

The hotel investment market in Europe, Middle East and Africa (EMEA) remained solid in 2011. Growth in international arrivals and a rebound in business travel enhanced trading performance and increasing liquidity accelerated hotel investment activity.

Hotel transaction volume reached $10.9 billion in 2011, a moderate increase of 5% compared to the prior year. The year brought strong growth in the first quarter, a slowdown in the second quarter, and a pickup in the remainder of the year, with some large deals, such as the Mint portfolio and InterContinental Hotels & Resorts’ European portfolio changing hands. Despite a positive year, investors have become more cautious, especially in the last quarter, with deals generally taking longer to close than originally expected.


EMEA hotel transaction volume 1998 - 2012F

35

30

25

20

15

10

5

0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Single asset transactions Portfolio transactions

Volum

e ($B

illion

s)

Hotel investment volumes in 2012 are expected remain similar to 2011 levels with a forecasted transaction volume of $11.0 billion for the year. Investments will be driven by debt restructuring deals as banks take a stronger stance on bringing hotels into receivership positions with the region’s economies facing increasing challenges. Receivership deals already increased by 26% in 2011 and the number of distressed assets brought to the market is therefore likely to increase. Assets with attractive yields will appeal to investors, as they are assured of vendors’ commitment to sell, coupled with the difficulty in developing new properties directly due to the limited availability of financing and high construction costs.

In 2011, hotel investors shifted to an acquisition strategy and this is expected to continue into 2012 with this buying sentiment firmly based on an expectation that prices will fall. High net worth individuals (HNWIs) and sovereign wealth funds are expected to seek trophy assets in key markets, which are regarded as a secure and long-term investment. This will result in strong competition for the few assets that match these criteria.

Raising capital for acquisitions and developments will remain very difficult until a firm recovery is established. On a more positive note, insurance companies are expected to emerge as alternative lenders. They are attracted by the relatively higher returns achieved in hotel investments, and will therefore become more active in lending capital to potential investors – both in senior and mezzanine loans.

Receivership deals will drive 2012 deal landscape

Growth in trading performance and increasing liquidity resulted in an uplift in hotel investment activity throughout 2011. The second half was impacted by an overall uncertainty, much of it caused by the lack of decision making within the European Union, which showed itself in IRR requirements shifting upward.

The majority of transactions in 2011 were single-asset deals with various trophy assets sold in prime locations, especially in London and Paris. Those assets attracted a surge of interest, which drove pricing to peak levels.

The proportion of portfolio deals increased in 2011, with hotel operators continuing to divest to institutional investors and private equity firms. A notable example was Accor’s sale of 49 hotels in France, Belgium and Germany to a consortium of Predica, an institutional investor and Foncière des Murs, a real estate investment trust.

The U.K. was again the most liquid market, followed by France, Germany, Spain and Russia. The average deal size for a single asset transaction remained stable at around $48 million. For 2012, single asset transactions will continue to drive the majority of activity and are expected to account for approximately 60% of the total volume. The average deal size is expected to remain stable.


EMEA average single-asset deal size 1998 - 2012F70

60

50

40

30

20

10

0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Volum

e ($M

illion

s)

The U.K. is expected to remain the most liquid market and is predicted to see a slight increase in transaction activity in 2012. This will be driven by receivership deals as banks have to meet stricter capital requirements and uncertainty around the pace of a recovery in capital values causing the hold option to become less attractive.

EMEA


Investment activity will remain strong in London, which benefits from solid trading fundamentals and a stable and resilient tourism environment which will be boosted by the Olympics in 2012.

The stock of regional hotels for sale is expected to increase in 2012. Owners of provincial hotels are facing the prospects of continued weak trading performance and projected higher costs due to higher inflation leaving margins under increasing pressure.

Ireland is also likely to see growth in transactional activity. This will be primarily led by NAMA and a number of U.K. banks including Lloyds (BOSI) and RBS (Ulster Bank). NAMA has already off-loaded a number of U.K. hotels; however we expect more Irish hotel transaction activity (albeit coming from a very low base) in 2012. NAMA have also started offering stapled debt packages in an attempt to increase activity, whilst they are also likely to dispose of a number of loan books to specialist debt/private equity investors.

Transaction activity in France is expected to remain at or slightly above 2011 levels, which benefitted from the sale of landmark trophy assets such as the Marriott Champs Elysees. Investment activity will mainly be driven by private investors acquiring larger single assets with strong fundamentals and institutional investors seeking more secure cash flows in the budget/economy hotel sector. Paris will remain the primary driver of investment activity with trophy and large first class assets continuing to attract the attention of many global players, particularly from the Middle East and Asia.

In Germany, transaction levels in 2012 are forecast to remain constant or increase slightly compared to 2011. Institutional investors and HNWIs will focus on assets in key cities with less inherent risk. Those investors are not so much dependent on debt financing and will be less affected by the difficult financing conditions in 2012. Furthermore, private equity and property companies will continue to seek real estate investments in the German market, also considering secondary assets as investment opportunities.

In Spain, a significant amount of the transactions will be bank-driven in 2012. Spanish banks that have followed a wait-and-see approach are now forced to restructure. They will increase the speed of their workout programmes, and put more hotels up for sale in 2012. There will be an uptick in loan sales which will help to establish pricing norms for a market that has seen few transparent transactions take place in 2011.

Russia is expected to see lower transaction volumes in 2012. The number of deals will remain similar to 2011 but a lack of trophy sales will reduce the total volume of sales. A number of acquisitions, which originated in 2011, are likely to close in the first half of 2012. Investors, primarily domestic, will continue to focus on quality branded assets in Moscow and gateway cities, as well as existing old stock with significant development upside across the country – aided by an increased willingness of local banks to enter the hotel arena.

Exchange rates (local / USD period average)2007 2008 2009 2010 2011E 2012F 2013F

Western EuropeEurozone 0.7 0.7 0.7 0.8 0.7 0.8 0.7Sweden 6.8 6.6 7.7 7.2 6.5 7.1 6.7Switzerland 1.2 1.1 1.1 1.0 0.9 0.9 0.9UK 0.5 0.5 0.6 0.6 0.6 0.6 0.6Central & Eastern EuropeCzech Republic 20.3 17.1 19.1 19.1 17.4 17.6 18.1Hungary 183.6 172.1 202.3 207.9 200.2 237.6 227.3Poland 2.8 2.4 3.1 3.0 3.0 3.3 2.9Romania 2.4 2.5 3.0 3.2 3.1 3.3 3.0Russia 25.6 24.9 31.7 30.4 29.2 30.2 29.9Turkey 1.3 1.3 1.6 1.5 1.7 1.9 1.9MENAMorocco 8.2 7.8 8.1 8.4 8.1 8.5 8.4Oman 0.4 0.4 0.4 0.4 0.4 0.4 0.4Qatar 3.6 3.6 3.6 3.6 3.6 3.6 3.6UAE 3.8 3.8 3.8 3.8 3.8 3.8 3.8


Compared to its neighbours, Dubai is expected to benefit from being a safe haven and attract some investor interest, given that its occupancy has recovered to 2008 levels this year. This, however, is predicated on sellers’ pricing expectations, understanding that it may not be realistic to achieve a sale price on a par with construction costs in the current market environment.

Positive trading growth yet at a slower pace

Trading fundaments posted solid growth rates in 2011 but the economic headwinds will dampen growth expectations for 2012. Revenue per available room (RevPAR) growth is expected for EMEA in 2012, albeit at a slower pace than in 2011.

Hotel market cycle 2012 - Europe



RevPARrising

RevPARfalling


Frankfurt

Hamburg

Istanbul, Warsaw, Bucharest Düsseldorf, Amsterdam, Copenhagen Munich

BerlinRome

Milan

Barcelona, Cologne

Madrid Dublin Regional UK

Gatwick

Zurich

Paris Moscow, St Petersburg

Brussels, Vienna Bratislava

Lisbon, Stockholm

Heathrow

Budapest, Oslo, Prague

Krakow

LondonGeneva

Sofia

14


Hotel market cycle 2012 - MENA



RevPARrising

RevPARfalling


Doha Abu Dhabi

BeirutDamascus

Amman

Muscat

Cape Town

Manama

Cairo

Johannesburg

Marrakesh

Dubai

The travel recovery in EMEA has continued in 2011, with nearly all destinations posting increases in international visitors. Notably, Eastern Europe and Southern Europe experienced a surge in international arrivals, with hotels reporting significant gains in RevPAR. Markets in EMEA benefited from increasing arrivals from Russia as well as the U.S. and Japan. Countries in the Middle East and North Africa, struggling with political unrest, suffered from falling international visitations during 2011. This was reflected in their hotel performance with countries such as Egypt, Bahrain and Syria, showing RevPAR declines between 40% and 50% for the year.

Due to the economic and financial challenges in 2012, Tourism Economics1 predicts inbound tourism growth to decline from 5.6% in 2011 to 2.3%. European hotels are therefore expected to see a slowdown in their RevPAR progression. Markets in the Middle East and North Africa have started to stabilize since the political turmoil in the first half of 2011 and are anticipated to see an improvement in arrivals and hotel performance.

However, growth will be mixed, with markets such as Dubai, Morocco and Qatar expected to benefit from the political unrest in countries like Bahrain, Syria, Egypt, Libya and Tunisia. Dubai for example, is forecast to see a significant rise in tourism demand in 2012. On the contrary, in Libya and Tunisia, the political situation remains very uncertain, making a strong recovery in international arrivals in the short term very unlikely.

Tight debt levels to stall progress and favour equity rich investors

As banks continue to take control of their non-performing loans, debt will remain difficult to source. This will favour equity rich investors over those having to rely largely on debt in financing acquisitions. Where distress or high leverage is not apparent, activity will be driven by selected disposals by owners/operators and private equity sales – either voluntary or “encouraged” due to maturing terms.

1Tourism Economics: European Tourism 2011 – Trends & Prospects

^Net shift = the difference between the respective group's market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2011


Corporates


HNWI

Hotel operator



REIT

Receiver

Sovereign Wealth Fund

Net shift^

-30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20%

EMEA 2011 buyer and seller net shift analysis

The enduring theme in 2012 in EMEA will be the increasing pricing gap between primary and secondary assets and the narrowing bandwidth of what constitutes a prime asset. The prime market will continue to see HWNIs and sovereign wealth funds buying trophy hotels in key gateway cities. Those assets are regarded as a secure and long term investment, despite their low yields and high cost per key. The equity rich investors for this type of hotel property are primarily from the Middle East and Asia and will continue to pay high prices for quality assets with focus on long-term capital protection rather than short-term returns on investment. Asian investors also have the added benefit of being able to obtain financing from local banks in their home country.

Institutional investors will also be active buyers in 2012. As part of their diversification strategy they will invest in hotel real estate but aim for secure long term income streams. Therefore, they will benefit from an increasing number of operators willing to engage in lease arrangements. However, this will be evident mainly in Germany, France and the key cities in Spain, where domestic operators remain willing to engage in lease contracts.

As developments continue to be constrained by the lack of financing, hotel operators are expected to become more active buyers of unencumbered assets in 2012, jointly investing with other investors. As these operators move away from an “asset light strategy” to an “asset right strategy,” they will continue to purchase hotels in key locations to gain market entry, increase their market share or establish new brands.

Softening yields will also encourage more private equity firms onto the playing field. Private equity firms will continue to show interest in hotel assets which are unencumbered, allowing for a repositioning with the potential to achieve a high return. The growing number of distressed assets coming on the market, selling at discounted prices with high yields, will offer lucrative opportunities for those investors.

15


Private equity funds will also be in disposition mode, with expiring debt on their books that will need to be refinanced in 2012. The market anticipates that some private equity funds will not be able to refinance their loans and go into default. An example is MSREF which, whilst selling the InterContinental European portfolio out of one fund, remain active purchasers through their Fund VII.

Banks will also continue to play a major role on the sell side, taking hotels into receivership and placing distressed assets on the market. Receivership sales are expected to increase in 2012 with the Marriott portfolio of 42 assets in the U.K. and the Hyatt Birmingham which are currently being marketed and expected to transact in 2012.

The main constraint of the market will continue to be the lack of debt and this will persist in 2012 with loan to value ratios between 50% and 60% and loan to construction ratios of about 50% for developments. Thus, smaller lot sizes will continue to attract more interest with lower capital outlay and hence justify higher yields.

Sovereign debt crisis puts pressure on real estate values

The sovereign debt crisis will continue into 2012. Despite the agreement of the European members to write down the Greek debt held by private investors by 50%, the markets are still nervous considering the many European countries that are heavily indebted. The European Financial Stability Facility has been expanded but will face significant risks if it will have to support countries such as Italy or Spain. The Basel III rules require banks to hold more high-quality capital and recent analysis suggests that European banks collectively require capital injections of up to $150 billion.

UKSweden


Policy interest rates - Western Europe

6%

5%

4%

3%

2%

1%

0%

Eurozone2007 2008 2009 2010 2011E 2012F 2013F

Polic

y inte

rest

rate

Despite government pressure to increase lending, realistically there is little prospect of fresh debt emerging in 2012. Another blow to the market relates to recent news regarding Eurohypo, one of the most significant real estate lenders in Europe. The bank has made the decision to suspend new business outside of Germany and Poland as it had to write down almost $1 billion of exposure to Greek debt. Given the economic uncertainty that persists, there is an inherent risk that other banks will follow suit.

Many countries will implement further austerity measures to regain confidence in the financial markets. The high private savings rates and the poor bank credit availability will limit growth in Western Europe, which is forecast to slow to 0.3% in 2012. The uncertainty and volatility will therefore remain and significantly drive the number of distressed assets coming on the market. Consequently, it will dampen hotel real estate values. This, coupled with the all-time high inflation due to rising fuel and food costs will result in further downward pressure on transaction prices and valuations. Investors will be expected to be more selective in their buying behaviour due to the broad choice of stock available.

Morocco, Istanbul and Sub-Saharan Africa

Morocco was one of the North African countries least affected by the political uprisings in 2011 and is expected to see strong construction and investment activity in tourism over the coming years. The growth will be backed by the government, which has announced its Vision 2020 campaign, which aims to double tourism arrivals and add an additional 200,000 beds by 2020. It has created a fund, partially financed by the government to invest in infrastructure and hotel developments. With a projected GDP growth of 3.5%, and international visitations expected to climb by 44% to 14.8 million in 2012, Morocco is anticipated to see increasing investment activity.

Russia PolandHungary


Policy interest rates - Eastern Europe

14%

12%

10%

8%

6%

4%

2%

0%

Czech Republic 2007 2008 2009 2010 2011E 2012F 2013F

Polic

y inte

rest

rate


Real GDP growth (annual %)2007 2008 2009 2010 2011E 2012F 2013F

Western EuropeFrance 2.2% -0.2% -2.6% 1.4% 1.5% 0.2% 1.5%Germany 3.4% 0.8% -5.1% 3.6% 3.0% 0.8% 1.5%Italy 1.4% -1.3% -5.2% 1.2% 0.6% -0.6% 0.4%Netherlands 3.9% 1.8% -3.5% 1.6% 1.7% 0.4% 1.6%Spain 3.6% 0.9% -3.7% -0.1% 0.7% -0.3% 1.0%Switzerland 3.6% 2.1% -1.9% 2.7% 1.8% 0.5% 1.3%UK 3.5% -1.1% -4.4% 1.8% 0.9% 0.3% 1.6%Central & Eastern EuropeCzech Republic 6.1% 2.3% -4.0% 2.2% 2.0% 1.3% 2.9%Hungary 0.8% 0.6% -6.5% 1.1% 1.3% 0.6% 3.2%Poland 6.8% 5.1% 1.6% 3.8% 3.9% 2.8% 3.9%Romania 6.3% 7.3% -6.6% -1.3% 1.3% 2.2% 3.4%Russia 8.5% 5.2% -7.8% 4.0% 4.0% 3.8% 3.8%Turkey 4.7% 0.7% -4.8% 9.0% 7.4% 2.4% 4.2%MENAMorocco 2.7% 5.6% 4.8% 3.7% 3.2% 3.5% 4.9%Oman 6.7% 12.8% 1.1% 4.8% 4.0% 5.8% 5.4%Qatar 26.8% 25.4% 8.6% 16.4% 17.0% 8.1% 4.8%UAE 3.2% 3.3% -1.6% 1.4% 5.3% 4.0% 4.4%


Istanbul is another hot spot, expected to come on the radar of many hotel investors. The market is poised for buoyant economic growth, robust trading performance, and with the easing of visa requirements, is predicted to see an increase in inbound tourism in 2012. As an emerging market, foreign investors will primarily focus on developments and partner with local property companies or HNWIs to invest in the upscale hotel market. The attractive yields do reflect the higher risk associated with investments in the country.

Sub-Saharan Africa is likely be another focus of investor interest in 2012 and beyond, despite the concerns about safety, corruption and political volatility. The area is expected to see a 5% GDP growth and an increase of 45% in international tourist arrivals in 2012. The area benefits greatly from its wealth of natural resources attracting many overseas investors. Increasing interest in its tourism industry has been observed in 2011, with InterContinental Hotels & Resorts announcing to open its first hotel in Uganda, as part of an expansion plan into East Africa. However, whether the interest translates into actual transactions remains to be seen as the risks present in the region are still very high.


EMEA hotel development pipeline through 2013F

100,000

80,000

60,000

40,000

20,000

0

Barce

lona

Berlin

Lond

onMu

nich

Paris

Rome

Buch

ares

tBu

dape

stIst

anbu

lMo

scow

Prag

ueW

arsa

wAb

u Dha

biDo

haDu

bai

Marra

kech


Numb

er of

room

sSelect service boutique/lifestyle hotels

The trend of full service, design-led boutique hotels has gained popularity, giving way to the same trend in the select service sector. Select service boutique/lifestyle hotels benefit from the same unique interior designs and large trendy bars that form the focus of the hotels but with better profit margin restaurants, large public area spaces and more favourable payroll costs. Consequently, these properties make strong economic sense with lower construction costs and higher profit conversions, and are thus more financially viable.

Examples of such brands are aloft by Starwood Hotels and Resorts, Indigo by InterContinental Hotels & Resorts, TRYP by Wyndham, Citizen M, and Motel One.

17


Investor valour gives way to opportunistic plays

Bullish enthusiasm took hold of the Asia Pacific investment landscape during the first half of 2011 as decisive investors sought to capitalise on the trading upswing, but hotel deal flow slowed during the third quarter as it became evident that the road to global growth had become rocky. In the wake of greater global economic uncertainty and in spite of strong underlying fundamentals across Asia Pacific’s hotel markets, hotel investors are expected to remain conservative in 2012.

Hotel transaction volume across Asia Pacific is projected to reach $5.0 billion in 2012, a similar level to 2011, as long term owners continue to make strategic dispositions in Southeast Asia, domestic funds sell into a strong trading market in Australia and bank motivated sales gain traction in Japan. Contrary to recent years, portfolio sales are also expected to come to the fore, dominated by Australia, with a number of assets already being marketed.

Private individuals or companies amassing portfolios in advance of real estate investment trust (REIT) formation or public listing were some of the most active investors across Asia Pacific in 2011. However, these buyers are expected to become more selective in 2012 whilst volatility prevails, distinctly unpalatable to the public equity markets. Uncertainty is expected to give rise once again to the cavalier counter cyclical buyers who dominated in 2009 and the private equity groups who have raised capital in the post-global financial crisis era. Strategic acquisitions by owner operators will also continue, with a focus on opportunities which combine both real estate and management control in Asia Pacific’s most highly sought premier cities.

Single asset transactions


Asia Pacific hotel transaction volume 1998 - 2012F

12

9

6

3

0

Portfolio transactions

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Volum

e ($B

illion

s)

2IHS Global Insight

^Net shift = the difference between the respective group's market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2011Source: Jones Lang LaSalle Hotels

Corporates


HNWI

Hotel operator



Receiver

REIT

Sovereign wealth fund

Other

Net shift^

-15% -10% -5% 0% 5% 10% 15%

Asia Pacific 2011 buyer and seller net shift analysis

Strong economic backdrop supports regional tourism growth

Following a "V-shaped recovery" in 2010, growth in Asia Pacific economies moderated through 2011 and is projected to continue to do so in 2012. Lower growth forecasts for several countries including India, China, Australia, and most of Southeast Asia reflect worrisome signals that the United States economy is close to a double-dip recession and that the Eurozone sovereign debt crisis may worsen rather than improve2.

As such, Asia Pacific as a whole will markedly outperform the rest of the global economy over the next 18 months with GDP growth projected to range between 1.0% in Fiji to 7.8% in China in 2012. Faced with increasingly negative global news, Asia Pacific monetary policy is expected to shift focus from inflation fighting to supporting growth, as evidenced by the Reserve Bank of Australia’s decision to cut official interest rates by 0.25% in November and December 2011.

Asia Pacific


Real GDP growth (annual %)2007 2008 2009 2010 2011E 2012F 2013F

North Asia and India China PRC 14.2% 9.6% 9.2% 10.4% 9.2% 7.8% 8.6%Hong Kong 6.4% 2.3% -2.7% 7.0% 5.1% 3.8% 5.0%India 9.8% 4.9% 9.1% 8.8% 6.8% 7.2% 8.2%Japan 2.3% -1.1% -5.5% 4.5% -0.7% 2.9% 2.9%Taiwan 6.0% 0.7% -1.8% 10.7% 4.5% 3.9% 4.9%South Korea 5.1% 2.3% 0.3% 6.2% 3.6% 3.3% 3.6%South East AsiaIndonesia 6.3% 6.0% 4.6% 6.1% 6.4% 5.8% 6.3%Malaysia 6.3% 5.1% -1.6% 7.2% 4.4% 3.3% 5.2%Philippines 7.1% 4.6% 1.1% 7.6% 3.8% 4.1% 5.0%Singapore 8.8% 1.5% -0.8% 14.5% 4.8% 2.0% 5.6%Thailand 5.0% 2.5% -2.3% 7.8% 1.3% 3.8% 5.1%Vietnam 8.5% 6.2% 5.3% 6.9% 5.9% 5.8% 6.6%Pacific Australia 4.6% 2.6% 1.4% 2.6% 2.0% 3.1% 3.0%New Zealand 3.5% -0.8% 0.1% 2.2% 1.6% 2.9% 2.8%Fiji -0.9% 0.2% -3.0% 0.6% 1.7% 1.0% 1.4%


Hotel and tourism demand is well positioned against this backdrop, thanks to robust income growth, higher company profits, currency appreciation and the expansion of low cost airlines. Supply-driven cycles will still occur, reflective of the high pace of growth in many markets and level of investment which is being directed towards critical infrastructure. Supply increases across Asia Pacific are expected to average 5.5% between 2011 and 2013 with the majority of rooms slated to open in 2011 and 2012. Rooms under development are highest in Shanghai (11,214 rooms or 28.1%), Hong Kong (9,923 rooms or 16.4%) and Bangkok (9,887 rooms or 15.6%).

*Branded hotel room stock onlySource: Jones Lang LaSalle Hotels

Asia Pacific hotel development pipeline through 2013F

120,000

100,000

80,000

60,000

40,000

20,000

0

Sydn

ey

Melbo

urne

Auck

land

Beijin

g*

Shan

ghai*

Hong

Kon

g

Mumb

ai*

New

Delhi

*

Jaka

rta Bali

Toky

o

Osak

a

Sing

apor

e

Bang

kok

Phuk

et

Ho C

hi Mi

nh C

ity


Numb

er of

room

s


Asia Pacific average single-asset deal size 1998 - 2012F60

50

40

30

20

10

0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

F

Volum

e ($M

illion

s)Strong domestic economies are also resulting in emerging sources of capital with offshore hotel investments made by players from China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Singapore, South Korea and Thailand. Asian investors have invested a total of $7.5 billion in global hotel real estate since 2009, accounting for 26% of total cross border investments and the highest proportion for any source region. This trend is likely to gain pace in 2012 as more groups look to deploy capital offshore to take advantage of displaced global hotel markets.

Divergent strategies and risk appetite will direct the flow of capital

Increasingly, the region’s hotel markets will need to compete with Europe and the U.S. which arguably offer better value, while Asia Pacific offers unrivalled opportunities for growth. Globally, competition between buyers has reduced as volatility and risk aversion has diluted the buyer pool. In this environment it is likely that Asian investors will once again come to the forefront, but unlike investment funds, there is no driving need for them to invest. Whilst the fundamentals in the U.S. and Europe remain unclear, Asian investors are likely to adopt a ‘wait and see approach.’

Where acquisitions do occur, capital will likely be directed toward familiar markets where there are currency wins or significantly depressed values; i.e., in locations with a high number of home country expatriates or where they have studied or lived. Examples include the U.S., U.K. and Australia, as well as cross borderinvestments within Asia. Debt is also not an issue with most Asian investors conservatively geared, with access to plentiful sources from well-funded regional banks.


Adelaide, Cairns

Hotel market cycle 2012 - Australia and New Zealand



RevPARrising

RevPARfalling


MelbourneWellington, Auckland

Sydney

Perth

Brisbane

Gold Coast

Portfolio sales expected to dominate in Australasia

Dichotomy and differentiation have been key features of the Australasian hotel investment market in recent years and 2012 looks set to be similarly distinct. Transaction volume is expected to reach around $1.5 billion, representing a sharp uplift of 30% over 2011. Contrary to the rest of the region, portfolio sales are also expected to dominate with three major transactions already underway. They offer the opportunity to acquire assets in Australian state capitals, which have been rare in recent years. However, more owners are expected to take advantage of the trading upswing and exit over the next couple of years.

Australian hotel markets are trading very well with many having reverted to the strong growth trajectory, which was evident prior to the global financial crisis. Low levels of new supply and a resilient economy, underpinned by the magnanimous resources sector, are also resulting in a continued outlook for growth. There are segments of distress, for example smaller management rights businesses in Queensland and some hotel development projects or properties in leisure and regional markets. New Zealand’s hotel markets are expected to stabilise through 2012 as trading patterns normalise following the euphoria of Rugby World Cup 2011.

Asian buyers are expected to continue to dominate, although competition is increasing with a number of Middle Eastern sovereign wealth funds targeting acquisitions in the world’s most transparent real estate market. Uncertainties in Europe, however, could result in fewer buyers in the market as Asian investors adopt a "wait and see" approach, confident that better value will become available in Europe and to a lesser extent, the U.S.

Lending restrictions may slow China’s development pipeline

The Chinese Government has introduced measures to stem the flow of lending to the real estate sector amid concerns of a pricing bubble, fuelled by underground private lending practices. Residential sales have since slowed and it is likely that this will have a carry-over effect for the hotel sector during 2012.

China’s hotel development pipeline has continued unabated with approximately 1,200 hotels or 300,000-400,000 rooms currently under development. Low tax revenues mean government land sales are the primary means for raising capital to bring Chinese cities into the 21st century with significant investment in infrastructure. Land is being released on the proviso that large-scale residential developments also include a commercial or hotel component.

For developers, profits from residential sales are sufficiently high to offset any potential loss from components which would otherwise not be warranted. Strong economic growth and rising incomes mean residential prices are increasing by 5-10% per annum, which coupled with land appreciation of 10-12% per annum makes a compelling investment case. With land banking prohibited in China, projects are also required to start construction within 24 months, which is underpinning the hotel development pipeline.

A high proportion of upscale properties represent development bolstered by the government’s desire for prestige and the operator’s quest for growth. Arguably the accommodation need is greatest in the midscale segment but the price differential between budget and full service hotels is not sufficient for consumers to demand such product and there is low appetite to build.

New ZealandSource: IHS Global Insight

Policy interest rates - Australia and New Zealand

10%

8%

6%

4%

2%

0%

Australia

2007 2008 2009 2010 2011E 2012F 2013F

Polic

y inte

rest

rate


Management fees in China also remain high, even if operating incomes have become diluted by low market rates and unwarranted new supply. Burgeoning domestic demand, however, means that supply/demand imbalances are only temporary. The domestic market accounts for around 95% of total travel demand in China’s tier one and two cities and is growing at an average rate of 15-20% per annum. This compares to growth of 5-10% per annum for the international segment, from a much smaller base.

Lending restrictions for the residential sector, should they persist, are therefore likely to slow the hotel development pipeline over the medium term as fewer large projects will commence. This may also result in more capital being directed offshore as domestic opportunities dry up and the allure of displaced global markets becomes hard to resist.

Taiwan

India

South Korea

Hong Kong

JapanSource: IHS Global Insight

Policy interest rates - North Asia and India

10%

8%

6%

4%

2%

0%

China

2007 2008 2009 2010 2011E 2012F 2013F

Polic

y inte

rest

rate

A step closer to greater liquidity as buyer and seller expectations in India narrow

Hotel investment activity in India is expected to increase in 2012 as the buyer and seller pricing gap has narrowed. On the whole, trading markets have stabilised, although severe supply-driven cycles are still prevalent in some markets. Demand remains robust, underpinned by the large population base and generally rising wealth of a nation dominated by young people and an overall shift in spending habits towards greater consumerism.

Opportunities to acquire established hotels in India remain limited, but higher debt costs are likely to result in more opportunities to fund or co-invest in hotel development projects. The cost of debt in India is expensive at around 14% and has increased by around 100 basis points over the past year, increasing the cost of construction. Loan terms are also quite short, around seven years, although most offer an initial three year interest-only period. Loans which were executed prior to the global financial crises are therefore moving towards principal and interest payments and will require a capital injection for construction to complete. The notion of distress in India, however, is false. Developers may run into problems, but it is unlikely that projects will sell for below cost.

Hotel market cycle 2012 - North Asia and India


Shanghai


RevPARrising

RevPARfalling


Beijing, Bangalore, Osaka

Okinawa

New Delhi, Mumbai

Guangzhou

Tokyo

Buyer expectations have also moderated, but the country still represents a high cost investment for foreign capital. A number of private equity groups with an Indian hotels mandate are nearing the end of their investment horizon, with few acquisitions made to date. Initially thwarted by high land prices, these investors have moderated their return expectations and are becoming more flexible on the basis upon which acquisitions are being assessed. Hotels are owned or being bought/developed by private equity or venture capital groups and local corporate companies, which bodes well for the future of a developed and liquid investment market. Whilst it remains to be seen if motivating factors driving buyers and sellers will be sufficient to bridge the pricing gap, buyers who are likely to prove most successful will be those with a long term investment horizon. In a fast-paced, emerging market like India, understanding the market is critical to getting deals done as limited opportunities and changing conditions make investment dynamics hard to gauge.


Deconstruction of CMBS loans will drive deal flow in Japan

Trading recovery, following the March 2011 earthquake and tsunami, is expected to gain pace through 2012 with the likely catalyst being the announcement by the Japanese Government in December 2011 that Phase Two of the containment efforts are complete. Reconstruction efforts are expected to see domestic consumption increase with GDP growth of 2.7% projected in 2012 – the highest level for more than five years. Stronger inbound visitation is also anticipated following the Chinese New Year holiday period in January 2012.

Against this backdrop, transaction volumes are expected to increase to $750 million in 2012, representing the highest volume since 2008. Appreciation of the Japanese Yen, as well as increased activity by J-REITs – for whom details are publicly announced – resulted in greater visibility and higher volumes in 2011. Looking forward, activity by J-REITs is expected to reduce as stock prices have come under pressure as global volatility has increased.

Exchange rates (local / USD, period average)2007 2008 2009 2010 2011E 2012F 2013F

North Asia and India China PRC 7.6 6.9 6.8 6.8 6.5 6.2 5.8 Hong Kong 7.8 7.8 7.8 7.8 7.8 7.8 7.8 India 41.3 43.5 48.4 45.7 46.7 54.2 49.1 Japan 117.8 103.4 93.6 87.8 79.8 77.0 77.4 Taiwan 32.8 31.5 33.1 31.5 29.4 30.1 29.3 South Korea 929 1,102 1,277 1,156 1,102 1,092 1,025 South East AsiaIndonesia 9,141 9,699 10,390 9,090 8,773 9,205 8,957 Malaysia 3.4 3.3 3.5 3.2 3.1 3.1 3.0 Philippines 46.1 44.3 47.7 45.1 43.3 43.2 41.8 Singapore 1.5 1.4 1.5 1.4 1.3 1.2 1.2 Thailand 34.5 33.3 34.3 31.7 30.5 30.8 30.2 Vietnam 16,105 16,302 17,065 18,707 20,487 22,095 23,244 Pacific

Australia 0.8 0.8 0.8 0.9 1.0 1.0 1.0 New Zealand 0.7 0.7 0.6 0.7 0.8 0.8 0.8 Fiji 1.6 1.6 2.0 1.9 1.8 1.9 1.9


Global investment trends are expected to weigh heavily on the Japanese investment market. Nervousness surrounding the global economic outlook is expected to result in a more cautionary approach by cross border investors, whereas the disentangling of commercial mortgage-backed securities (CMBS) loans will drive deal flow. Whilst some local banks and financial institutions are prepared to recognise losses, others are less likely to act. How quickly bad CMBS loans are resolved will be one of the key determinants of Japanese hotel transaction activity in 2012, coupled with the extent to which sellers are prepared to meet the market. In Japan, lenders do not take full control of the asset at loan maturity but rather direct the actions of borrowers as the puppet master behind the scene.

The buyer pool is also deepening with a number of new funds having been raised by groups who did not invest prior to the global financial crisis looking to enter the sector. Most of these groups are very experienced and could be presented with some very attractive buying opportunities should workout solutions be employed as expected above.


Hotel market cycle 2012 - Southeast Asia



RevPARrising

RevPARfalling


Hong Kong, Macau

Bali, Jakarta, Seoul, Hanoi,Ho Chi Minh City

TaipeiKuala Lumpur

Singapore

Phuket

Bangkok, Manila

The availability of debt to fund new acquisitions has also improved, highlighting greater confidence in the outlook for the hotel sector. More lenders are expressing an interest in funding hotel acquisitions as they look to balance loan portfolios with higher risk assets. Properties priced between $10 million and $15 million are expected to dominate as they can be funded by cash or local banks. Larger asset sales are more problematic and likely to attract offshore or international groups with access to regional banks.

VietnamThailandSingaporePhilippinesMalaysia


Policy interest rates - Southeast Asia

16%

12%

8%

4%

0%

Indonesia

2007 2008 2009 2010 2011E 2012F 2013F

Polic

y inte

rest

rate

Strategic dispositions in Southeast Asia will support redeployment of capital

After a record year in 2011, primarily driven by a surge of sales in Singapore, hotel transaction activity in Southeast Asia is expected to moderate through 2012 to total around $1.5 billion. Hong Kong and Singapore continue to be held in the highest regard, viewed by many as ‘must have’ destinations. With rates and profitability now above the 2008-market peak, some long term owners will exit to redeploy funds to acquire assets in the U.S. and Europe. This may result in some rare hotel investment opportunities in these tightly held markets in 2012, but overall volumes are likely to be lower than in 2011.

On the contrary, activity in Thailand is projected to increase as some counter cyclical buying opportunities emerge. The political environment is more stable and trading is expected to rebound over the next 12 to 18 months, notwithstanding the impact of the recent flooding disaster in Bangkok. Similar to Hong Kong and Singapore, long term Thai owners are looking to exit to redeploy capital offshore.

Vietnam will also see some activity although inflationary challenges make it a hard proposition for international investors and the market will continue to be dominated by domestic players. The fundamentals are good but further investment in infrastructure is needed to support the strong economic growth that has been evident in recent years.


Sources

This report includes hotel transactions tracked by Jones Lang LaSalle Hotels valued at US$5 million and above. The sale price is not necessarily the actual contract price, but rather that reported in the press, the confirmed price, or amount apportioned to hotel component. This information is publicly available and Jones Lang LaSalle Hotels provides no warranty for accuracy. All dollars are U.S. dollars unless otherwise indicated. Local currencies have been converted to U.S. dollars using monthly average exchange rates. All economic forecasts, unless otherwise noted, have been obtained from IHS Global Insight and are as of the fourth quarter of 2011.

Hotel market cycle

The hotel market cycle is a proprietary graphic of Jones Lang LaSalle Hotels, used to provide a snapshot of the state of the hotel property market. Each quadrant describes our observation of the state of the market as indicated by current RevPAR movements and annual outlook at a particular point in time. The cycle clock uses RevPAR as a proxy for the market as a whole. The clock is a simple tool and should only be used in a broad impressionistic way. The property clock is not intended to depict precise forecasts or property market cycles, and does not suggest that markets will move in a clockwise direction. The references to movement in RevPAR are in local currency.

Definition of buyer and seller types

Corporates: Public and private companies from whom investment in hotels is not their primary business activity and who do not operate hotels

Developer/Property company: Property developers who buy with the intent of redevelopment

HNWI: High net worth individual

Hotel operator: Listed or unlisted companies that operate hotels or serviced apartments as their core business

Institutional investor: Direct investment by pension funds, banks and insurance companies

Investment fund/Private equity: Companies, including investment banks, which invest on behalf of other investors. Investments are opportunistic and require an active management strategy

Receiver: Court appointed third party that acts on behalf of bond holder or share holder

REIT: Real Estate Investment Trust or Property Trust. Includes Listed Property Trusts (LPTs) in Australia

Sovereign wealth fund: Funds owned by a state composed of various financial assets

Sources and methodology

COPYRIGHT © JONES LANG LASALLE IP, INC. 2012

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

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