hotelanalyst...marriott’s expansion continues at a pace, with the company’s development pipeline...
TRANSCRIPT
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Operators are becoming less rigid in their
relationships with owners and banks, as the
economic climate puts increasing pressure
on pipelines.
The need to be more lenient over terms of
agreements, with possible renegotiations on both
sides is becoming more pressing, as the previous
dominance of owners over operators in the boom
years fades.
Clive Hillier, CEO of Vision Hospitality
Management, told delegates at this year’s
International Hotel Investment Forum in Berlin:
“In general, the operators are responsive. Their
pipelines are decreasing, they need to put flags on
maps. It’s not palatable to renegotiate their fees.
We say: ‘Do you want to talk to the owner you
know, the bank you don’t know, or the receiver
you don’t want to know?’”
The conference’s panel on preventing and
managing default focused on the dissolution
of the Von Essen portfolio, seen by some as a
cautionary tale of investors’ naivety.
David Duggins, director, Von Essen Hotels, said:
“Fraud happens and it happens in every single
industry. You have to be on your guard.
“You need an appropriate level of scepticism
when looking at business plans. If you’re relying on
the asset being sold to repay the loan, remember
you’ve got to know that loan will survive whatever
is likely to come up. If you’re planning to lend with
the expectation you’ll get repaid by refinancing,
that’s not banking, that’s gambling.”
Tom Page, UK head of hotels and leisure group
at CMS Cameron McKenna, added: “When there’s
been a lack of trust in the operator, that’s when
the banks take action – if there’s any suspicion
•Bankersbackthebrandsp4
•InterCon’sservesupitshealthyoptionp7
•Ascottplanningalongstayfuturep8
•MeliarevalutionquestionsSpanishmarketrealityp11
•Whathasassetlightreallyachieved?p18
•KewGreen’sDukestalkssurvivalstrategiesp23
•Carefulthoughtminimizesdisputeimpactsp25
Sectorplayersbecomingflexiblefriends
about how truthful the borrower is being.”
Hillier said: “Von Essen’s an interesting study,
but for every Von Essen there are 99 distressed
situations that are caused by economic events, not
fraudulent ones.”
With much of the Von Essen portfolio having
been sold at the time of going to press, talk turned
to the end of the era of ‘pretend and extend’ and
the options to lenders when it came to selling
properties in the current climate.
Page said: “The banks need to factor in how
much the actual value of the building is. They
need to assess the business plan and then look at
a turnaround plan, or maybe it’s best just sell to
the asset immediately. You also need to look at the
future funding obligations – banks are unwilling to
put good money after bad if capex can’t be funded.”
Duggins commented: “Things get blurred when
you have an ‘extend and pretend’ approach.
Covenants are waived, payments are waived.
These situations are hard to explain, either to staff
or creditors. When you see a default coming, you
need a plan.”
After the rapid expansion at the top of the
market, one of the issues facing owners was
identified as lack of interest from brands, with
Page commenting: “A lot of deals done at the
peak are based on forecasts of keenly rising profits.
The operators are not getting any incentive fees.
From that point on, the operator has no alignment
with you in the business.”
Page suggested that it may be worth changing
the terms of the deal and returning an incentive
element to the relationship.
Volume 8 Issue 2 – May-June 2012
continued on page 3
ContentsNews Review 3, 6-12Marriott’s revpar lag – Steigenberger strategy – Tough Choice – IHG Even healthier – Premier Inn challenge – Long stayer Ascott – Melia looks abroad – NH back in the black – Hyatt solid – Expanding Accor – Rezidor looks eastConference Report 4-5Franchise complexity – MIPIM brand focusSector Stats 13-15Cost rises hit Europe – London strong, provinces weakAnalysis 16-25Boutique performance – Asset light impact – Dukes talks challenges – Dispute avoidanceThe Insider 28Bittersweet buyback – Modesty in Berlin – Travel takes off
www.hotelanalyst.co.ukVolume 8 Issue 2 – May-June 2012
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AlongwayfromboomCommentaryby AndrewSangster
The one hope on the horizon has been the
emergence of new forms of debt funding in the
form of insurance firms and pension funds.
According to research by DTZ published in May,
the debt funding gap in Europe is USD182bn.
The gap was increased by USD107bn thanks to
new rules from the European Banking Authority
which said capital reserves had to be 9%,
estimates DTZ.
The issue of whether the withdrawal of bank
debt could be replaced by new sources of debt
was discussed at the Global Real Estate Institute’s
UK event held at the Sofitel London St James
in May.
Whilst attendees thought there would be some
new debt available from these sources it was
widely felt that it would not compensate for the
problems of banks withdrawing from the market.
In particular, insurers and pension funds have
limited numbers of professionals to make funding
decisions with the average team being well
under 10 people. This means only the biggest
and most prime assets would attract attention.
The small teams meant alternative lenders were
not equipped to deal with smaller or more
complex transactions.
The net effect of the funding drought had
been to make deals difficult outside of prime,
gateway locations.
As well as team size, pension funds have
typically been focused on assets that match their
annuity profiles. So long-term, 25 year lease deals
are attractive but other forms of property lending
are not.
Some pension funds and insurers are looking
beyond this, perhaps using interest rate swap
management to give short-term investments the
right profile, but it remains a cultural problem
for many.
In the absence of significant new debt, most
attendees at the GRI believed that what had
to give were asset prices.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation
hotelanalystBut there would be no flood of cheap deals. As
long as central banks in Europe were prepared to
prop up the lending banks then there was unlikely
to be any motivation for the lending banks to
“scorch assets”.
Opportunity funds had, in some cases, adjusted
their expected returns down from Internal Rates
of Return set in the high teens to the low teens.
High returns were only possible in fast growing
markets like Asia; when distressed assets could
be bought cheap; or when significant leverage
was possible.
The US had seen some non-performing loans
transact but the pace in Europe was anaemic it
was argued. Most opportunity funds were focused
on working with borrowers as a way of getting
into transactions.
The greater readiness in the US for banks to
write-off loans was down to their healthier state,
it was argued. In Europe, there was little impetus
from regulators and no desire on the part of banks
to show the depth of the problem.
Nonetheless there would be a few portfolios
coming to market as banks were, generally, in a
better place than two to three years ago.
The current environment is forcing even
the most aggressive of investors to change
their approach. Lower IRRs are now seen as
acceptable in a world of low interest rates and
few easy opportunities.
At the start of the downturn, a lot of cash
was raised, or at least promised, to exploit
what were expected to be a flood of distressed
opportunities. But it has not turned out to be the
1990s revisited.
Don’t feel too sorry for the limited partners at
the opportunity funds, however. They have also
lowered the hurdle rates at which they are paid
carried interest (effectively their bonus pool). The
concession they have had to make in lowering
the hurdle, from 10% to 6% in the case of one
high profile fund Westbrook, was to reduce
the level of bonus they receive on achieving
hurdle rates (the elimination of the so-called
catch-up provision).
In addition, Westbrook is now pooling deals
and netting profits out across the fund rather than
paying out on a deal-by-deal basis.
Many of these changes will help to smooth
volatility. In particular, getting rid of the catch-
up provision there is less incentive to sell
assets early.
Of course, the changes can be easily reversed if
the “good times” come back but if some of the
sharpest minds in real estate are gearing up for
an extended period of low returns don’t expect
a boom any time soon.
ThereisamassivedebtfundinggapinpropertyacrossEuropeasbankshavebecomemorecautiousandareforcedtorebuildtheirbalancesheets.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 3
AlongwayfromboomNews
But the five to six years of cost growth since
then means it will be significantly longer before
its US hotels are paying out incentive fees to the
same extent as they were at the previous peak.
Marriott declared another strong performance
in revealing its fourth quarter figures, rounding off
what CEO Bill Marriott called “a great year”.
Revpar was up an average 6.3% across the
portfolio in the last quarter, while adjusted revenues
were USD3.4bn. And for the year as a whole,
revpar grew an average 6.4%, dragged down by
poor performances in Japan and the Middle East.
The quarter also saw the company spin off its
timeshare business, and put together key actions
to launch its boutique Edition brand, which will
tie up capital as trophy buildings are purchased to
give Edition initial traction in key markets.
Marriott’s expansion continues at a pace, with
the company’s development pipeline ending the
year with more than 110,000 rooms listed. CEO
designate Arne Sorenson said that the company
currently accounted for about 10% of all rooms
in North America but that Marriott brands claimed
20% of new rooms opened in 2011.
And expansion is increasingly focused overseas
with about half of the pipeline outside of North
America. In China alone, a pipeline of 17,000 rooms
will build on an existing presence of 23,000 rooms.
In terms of performance, Sorenson noted that
revpar was still around 10% below the previous
peak. “We need to grow the revpar back to
those levels.”
He expects Europe to deliver a 2-3% increase
in 2012, but warned: “Probably the biggest single
risk is that we could do worse in Europe.”
Group bookings for 2012 are already notably
ahead of a year ago, which will feed smaller hotels
first. “Big group business takes the longest to
come back,” said Sorenson, “and the big hotels
build slowest, but building they are”.
Sorenson expects more “pitching and catching”
of sales leads across the group, as a result of the
bedding in of the company’s new sales systems.
Sorenson spoke about the company’s recent
announcements to do with its boutique brand,
Edition. In retrospect, “our timing was not
great,” he admitted, with the recession having “a
profound effect” on the company’s progress.
The recent significant investment in sites in New
York, London and Miami was essential. “These are
projects in A locations, in A markets,” he explained.
“They are expensive, to be sure, but we think all
three will come out extremely strong.” Capex was
USD400m in 2011, and is likely to be in the range
USD550-750m this year. “Those numbers are not so
big that they are likely to change our model any.”
HA Perspective: Just 9% of Marriott’s fee
revenue came from Europe in 2011. And this looks
set to shrink in the current year.
The company estimated that 10% of lodging
demand in continental Europe comes from
government-related business. This is going only
one way.
While demand from European sources for
European hotels is set to be weak, Marriott is
hopeful for the 30% of demand for its European
hotels which comes from outside of the continent.
Marriottbelievesrevpartodayisstill10%belowitspreviouspeakachievedin2007andthatitwillbe2013beforerevparinitsdomesticUSmarkethitsthatpreviouslevel.
Marriottsaysrevparstilllags10%
Elsewhere at the conference, the CEOs panel
saw some caution expressed over the ongoing
straightened debt markets. Richard Solomons,
CEO, InterContinental Hotels Group, said: “As
brands we’re seeing a very good picture, for some
owners it’s less good. Banks talk about lenders and
finance, but debt’s the issue. We need our class
of asset to be something which banks will invest
in again.”
He added: “You’ve got to be concerned about
the level of personal debt and government debt in
Europe and the US. At some point this will have to
be addressed.”
The issue of pipeline maintenance was raised,
with an increasing reliance among the operators
on conversion, in particular in the European
market. Steve Joyce, president and CEO, Choice
Hotels International, thanked Solomons for IHG’s
decision to remove hotels from its Holiday Inn
brand as part of the flag’s relaunch, commenting:
“We love his owners, we give them a home”,
suggesting that the sector was not so much
expanding as exchanging the signs over the doors.
Long term, however, there was greater optimism
for real growth.
Frits van Paasschen, president and CEO,
Starwood Hotels & Resorts, said: “It’s hard to paint
a picture that we’ll get out of this unscathed as a
region, but as an industry we could be on the cusp
of a golden age. There will never be another Paris,
Rome or London and as wealth accumulates,
people will want to visit.
“What we’re seeing now is one of the great
transformations of humanity. There are five or
six billion cell phones out there and in three to
four years they will all be smartphones. The next
20 years will see three billion people join the
middle classes.”
The hopeful sentiment was carried over into
the rest of the sector, with Duggins concluding:
“The Von Essen portfolio has some properties that
have never made a profit and yet we’ve still sold
them. There’s always someone who thinks they
can make money from hotels.”
HA Perspective: There is clear evidence that
brand owning hotel operators are using their
balance sheets to promote growth. But this should
not be taken as a reversal of the asset light strategy.
Where the balance sheet is deployed, operators
are looking for a clear exit in a comparatively short
time frame (usually at most it is five or six years).
Speaking in a separate interview with Robert
Shepherd, svp development for IHG in Europe,
there are a number of approaches being deployed
or about to be unveiled.
IHG has four key markets in Europe – the UK
and Ireland; Germany; Russia and CIS; and Turkey.
For Germany in particular some novel approaches
are being wielded to enter what is a lease
dominated market.
According to Shepherd there is a clear gap
for development finance (something of an
understatement in reality) and IHG is stepping in
to help.
For leases, IHG is prepared to offer guarantees
to banks on behalf of developers when a multi-
site franchise deal is signed. Once the developer
reaches five or six operating units, this guarantee
can be transferred across to the developer/operator.
More ways of “filling the gaps in the value
chain” are under discussion but Shepherd is still
seeking approval which he hopes to get by May.
“This is a multi-faceted strategy, not a simple
franchise play. We hope to create a scale-able
management model,” he said.
The target in Germany is to have 200 properties
by 2020, although it was stressed that quality
would win out over quantity. The ultimate aim is to
unseat Accor as the largest operator in the country
although this was a big challenge, it was admitted.
continued from page 1
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 24
FranchiselandscapebecomescomplexLendersareincreasinglydemandingtheservicesofthird-partymanagementcompanieswhenindependentownersadoptafranchise,accordingtosomespeakersatHenryStewart’slatestLondonconference.
Despite this, many owners are looking to
franchise agreements ahead of management
contracts, as they seek to cap the fees paid
to brands.
Nick Pattie, MD, Whitebridge Hospitality, told
delegates at Henry Stewart’s Latest Thinking on
Hotel Operating Agreements conference, which
took place in March, that: “Now, certainly in the
mid-market, I would look for a brand – if I didn’t,
the bank would probably make me. Brands are a
force for good, or a least a necessary evil.
But he added: “If the revpar premium is the
same for a franchise or a management agreement,
why would I get a management agreement?”
Philip Johnston, joint head of hotels, Savills
Commercial, said: “I believe there will be more
franchises – do you need the brand and the whole
[management offer]? You may as well just have
the franchise.”
For the operators, the question was partially
one of geography. Peter Till, head of business
development, UK, The Rezidor Hotel Group, said:
“If you move into developing markets, we have no
franchise agreements. There is not an infrastructure
of third-party management companies.”
The increasing role of management companies
caused debate amongst the panellists as to
whether the added cost made management
contracts more attractive than franchises.
Nick Smart, VP development, UK, Ireland
& Nordics, Hilton Worldwide, said: “You join
a brand to get more than your market share.
You can choose how – as a gross simplification
management fees are twice the cost of franchise.
One half of the fees is the system, the other half is
for the management.”
Steve Terry, development director, UK & Ireland,
InterContinental Hotels Group, said: “If you go
down the franchised route, you’re paying double
fees; the franchise, plus the management fees.”
Terry said that, despite the rise of third party
management, IHG was “conscious of not trying
to be in competition with them. There’s a fine
balance between looking for management
contracts, but not being in competition with the
third party managers.
“We’re finding that the best deals will only get
funded with an experienced manager – whether
that is third-party or IHG. We’re finding that the
owner pool is changing. The traditional owner/
operator isn’t developing any more, now the
owner pool has less interest in operating.”
Smart said: “Some owners have a direct
relationship with us, while others have a stronger
relationship with an operating company. We’re
completely agnostic. Whatever unlocks the deal.”
Tim Walton, VP, Marriott International, was
quick to comment that there were still quality
checks in place in the rush to expand. He
commented: “You need to be selective with your
franchisees. We operate a fairly rigorous selection
process just to make sure we share a blood group,
an operating philosophy.”
Smart added: “It’s very attractive to deal with
people who have been there, got the t-shirt and
done the multiple deals. Success begets success.
Our speed of growth has accelerated, but the
number of people we deal with has fallen – it’s
become almost an unwritten rule of the game.”
The choice between franchised and managed
was not, the panel said, solely that of the owner,
despite increased pressure on pipelines. Terry said:
“We’re not really into managing small Holiday Inn
Express hotels. It’s not what we’re geared up to
do. It depends on location, size, potential fees of
course. Ultimately, though, it’s what’s going to get
the deal done. It’s up to the debt funder.”
Although there was increased enthusiasm for
franchise contracts amongst Europe’s operators,
in contrast, in the US, the home of franchising,
some were pulling back.
Till said: “The people in Carlson are starting
to understand that they’ve gone too far down
the franchising route and are trying to get more
involved with their guests in their hotels. They’ll
never go as far as we have at Rezidor, but they are
trying to get some control back.”
HA Perspective: The requirement of banks to
have third-party managers is yet another sign of the
increased, and possibly increasing, conservatism
among traditional senior debt lenders.
An established operator of hotels should be able
to secure funds to take on another hotel project
but it looks a forlorn hope for new entrants to the
hotels business.
To an extent, this is how it should be. Lenders
have always stressed the need for experienced
managers to be at the helm of any business
they lent to it. Unfortunately, during the boom
period, this was forgotten and money was doled
out to property investors without much, if any,
hotel experience.
There is a problem though in building up a
franchise community. And perhaps here the brands
can help in providing some form of financing to
assist new entrants.
There has been talk of mezzanine funds
by Hilton and InterContinental is, in some
territories, standing as guarantor for loans. Such
innovations are vital to keep the pipelines of
the brands growing.
Conference report
MIPIMtalksofbrandsandcommunicationStrong,clearbrandsthatcommunicatedirectlywiththeircustomersacrossallmediawillbethosethatwinoutinuncertaintimes.
That was the message from Henry Giscard
d’Estaing, chief executive of Club Med, in a
keynote address at the MIPIM property conference
in Cannes.
“You need a brand, but a brand is a lot of
work,” said d’Estaing, who was himself a former
FMCG executive who used to market bottled
water. And brands need careful positioning in
tough times.
“When the market starts to flatten, you see the
bipolarisation of the market.” The premium and
budget ends of the market survive, while “the one
in the middle is suffering.”
Club Med had itself been caught, said
d’Estaing. The brand was previously perceived
as expensive mid-market, “which is a very
difficult place to be when things get tough.
People want things to be simple.”
By repositioning as a premium, all-inclusive
brand, business had turned around. Club Med’s
latest resort at Valmorel opened in December with
full occupancy, he said.
The other area where opportunities abounded
was in the way hotel brands communicate with
their customers, said d’Estaing. “For us, the
internet is not a threat, but an opportunity.
The business is facing a total change in
continued on page 5
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 5
Conference report
distribution channels.” Club Med has set a target
of getting 60% of customers to come to the
company direct by the end of 2012. That may be
online, or it could be phone, said d’Estaing.
The hotel and leisure market has been hit by
a succession of geopolitical and economic body
blows, said d’Estaing. “The lesson is that the only
way to protect yourself is to protect yourself is to
split your risk.”
And one strategy is to be present in several
markets. “I’m not wanting to be worldwide, just
to be worldwide,” said d’Estaing. When the new
Valmorel resort opened, it welcomed customers from
19 different nationalities, a situation that minimises
the risks of exposure to single country markets.
Elsewhere at MIPIM, a separate debate
arranged by Jones Lang LaSalle brought together
senior executives from Accor and Invesco Real
Estate to consider the asset-light model, and
the problems of encouraging development in a
market constrained by the limited availability of
development capital that has to compete with
other property sectors.
New hotel brand concepts, including the Swiss/
German Fizz budget cool brand, were presented
at a series of presentations supported by PKF.
And in MIPIM’s 2012 awards, announced at the
closing of the event, the Six Senses Con Dao in
Ba-Ria, Vietnam, was declared the best hotel and
tourism resort of those shortlisted.
There were two other shortlisted projects in the
awards. One was the 85 room Bulgari Hotel in
central London, delivered by Prime Development
and opening this spring.
The other was the Victoria Tower Hotel in
Kista, Sweden. Located within a 34-storey mixed
use tower, designed in a radical geometric form,
the 229 room hotel is located on 22 floors of
the building.
HA Perspective: There is a lot of talk in the hotel
industry about brands but hotel companies do not
behave like brand owners.
During the IHIF in Berlin, Frits van Paasschen
spoke in a separate interview with Hotel Analyst
about his company’s approach to branding. As
a former senior executive at Nike, he was in a
position to comment on how the hotel industry
approaches branding compared to consumer
goods companies.
At Nike up to 15% of revenue was spent on
marketing, according to van Paasschen. This
compares to less than 1%, usually significantly less
than 1%, at hotel groups.
And to be clear, by marketing activity this is
spending on advertising, promotions and similar.
It does not include investment in product and
delivery systems.
So not included are what hotel groups
spend on their reservation system, their loyalty
scheme or, unless it is direct advertising, their
internet activity.
But van Paasschen was keen to point out that
hotel groups spend a lot indirectly. He compared
Nike’s approach of opening its stores – which
actually lose money, about one dollar for every
visitor was his estimate – to what hotel groups do
with their properties.
He said: “When customers see [say] our Westin
in Dubai we don’t need billboards.”
This is believable up to a point, and makes more
sense than d’Estaing’s rather obvious comments.
But it only matters when the billboards themselves
can be distinguished in the mind of consumers.
As van Paasschan said most five-star hotels
cannot be told apart by guests, and the same
applies across the segments, perhaps even more so.
Starwood Hotels is conscious of this and has
worked hard to turn its brands into something
distinctive, both for guests and owners. This
applies to equally to urban hotels and to resorts,
such as Club Med.
For more information contact:
James Williamson – 020 7911 [email protected]
Ian Thompson – 020 7911 [email protected]
Max Gaunt– 0131 469 [email protected]
First for service
gva.co.uk/hotels
Hotels
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continued from page 4
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 26
News
It said that it expects these cuts are sustainable
in the mid term.
The company finished 2011 with a strong
quarter and results ahead of expectations, and is
expecting good things from 2012.
“We wrapped up the year on a high note,” said
chief executive officer Stephen Joyce. There was
an acceleration in the fourth quarter delivering
7.8% revpar growth against an expected 6.5%.
December, January and February figures were
“showing acceleration of the revpar growth trend
to the high single figures”.
Choice is pushing up market, with its Cambria
Suites and Ascend Collection growing. Ascend
added five US properties, with the chain ending
the year on 69 hotels, of which 11 are outside the
US. In Brazil, Choice is the second largest operator
in what Joyce called “arguably the best hotel
market in the world”.
Joyce said that central sales had delivered
impressive growth in 2011. Gross revenues
delivered by the team were up 23%, while mobile
apps delivered “exceptional growth” of more than
250%. The company was first to market with an
Iphone app in 2010.
For 2012, the company is not expecting to grow
its portfolio. Conversions were driving additions
during 2011, but the constrained new construction
market is now reducing these opportunities.
HA Perspective: It seems an odd time to be
cutting costs given that the US looks to be
recovering, albeit slower than was the case after
previous recessions.
CEO Joyce said the company had concluded
“that we were going to be in a relatively uncertain
environment [during which] we could get a
significant upswing in unit growth or not”.
The problem is that the cuts will surely help the
latter outcome of limited unit growth predominate.
In the final quarter the company was below target
on its domestic hotel franchise signings, hitting
128, but it believes it will do better in 2012. It is
not clear why.
The big push is on refreshing the Comfort
brand, which has just been given a new look. In
the US Comfort totals around 2,100 hotels and
a number of these are for the chop, although
Choice believes it can persuade at least some
of these franchisees to adopt some of its other
brands instead.
The net result of the Comfort exits is that Choice
expects its conversion pipeline to remain flat.
And unfortunately, international growth is not
strong enough to help out. In one of its strongest
territories, Brazil, where there are 60 hotels, the
pipeline was described as “very strong”.
But as Joyce admitted when discussing Brazil:
“In terms of the actual revenue results that we
get from that it’s still relatively small. It would not
materially move the needle.”
ChoicemakesdifficultdecisionsChoiceHotelsistakinganaxetoitsoverheadsforthenexttwotothreeyears,withplanstoslash40%fromitssell,generalandadministrativeexpensesin2012comparedto2011.
Steigenbergerlooksforanewhead
A statement issued by company said: “The
differing strategic views with regard to future
development held by Arco Buijs and the
Supervisory Board mean that his contract will not
be extended when it falls due for renewal in the
middle of the year.”
Buijs left the company at the end of February.
Matthias Heck, CFO, is to be interim CEO. The
short statement by Steigenberger also thanked
Buijs for driving forwards the internationalisation
of the company and introducing significant
structural changes.
Frankfurt based Steigenberger operates in
Germany, Austria, Switzerland, the Netherlands
and Egypt. Of the portfolio, 47 operate under its
Hotels and Resorts brand, and 32 are branded
with its upper mid-range InterCityHotel.
In the summer of 2009, the company was
purchased by Egypt’s Travco, with Buijs joining in
mid 2010. Travco is a major force in tourism in
north Africa and the Middle East, with interests in
hotels, cruises, and tourist travel. Across Egypt, the
company has 52 hotels under the Jaz, Sol Y Mar
and Iberotel brands. However, in recent months it
has not been immune from the negative effects on
tourism of the upheavals in the country.
When the Travco deal was concluded,
Steigenberger had a portfolio of 81 hotels. Buijs
appeared keen to expand. In an interview in early
2011, Buijs spoke of his desire to add 15 hotels
a year, and of adding hotels in German tourist
locations in the Mediterranean, north Africa, and
the Middle East. Later that year, he spoke in an
interview of a three year, E100m plan to grow the
group, including buying a UK chain to add six or
seven British locations with a flagship London hotel.
Last summer, Steigenberger signed an
agreement with Austrian project management
company PORR to expand the InterCityHotel chain
into central and eastern Europe. At the time,
InterCityHotel brand Managing Director Joachim
Marusczyk said: “There has been a significant
increase in the number of business travellers in
the countries of Eastern Europe. We are convinced
that this region provides a major opportunity to
advance our brand.”
PORR was to act as developer, with Steigenberger
leasing the buildings. The announcement spoke
of an aspiration to add 15 locations, but to date
there have been no indications of pipeline deals.
Today, however the Steigenberger portfolio
has shrunk to 79, with a stated pipeline of three
German hotels opening this year and a further
three in 2013. The mismatch between Buijs’
stated aspirations, and the progress of expansion
to date, is marked.
HA Perspective: This is the second major
German chain to have parted company with its
CEO over “strategic differences” in recent years.
The other chain was Arabella and it has chosen to
focus on a role as an owner rather than operator.
It seems unlikely that in the near term
Steigenberger will adopt a similar strategy however,
despite its invidious position of being a mid-sized
player on a field that favours only the biggest.
What is clear is that the lofty expansion goals
have not been achieved. Egyptian parent Travco
has its own woes thanks to the meltdown of the
tourism industry in its home territory. Spending
hundreds of millions of euros growing its German
hotel subsidiary is probably not that appealing
right now.
But trying to grow in an asset light manner
looks challenging, especially given the strength of
the opposition in the form of the global majors.
The big chains have their reservation systems and
loyalty schemes, weapons that Steigenberger will
never outgun.
The logical move is to adopt a major brand.
However the hotel industry is not always a
logical place.
GermanhotelcompanySteigenbergersurprisedattheendofFebruarywiththeannouncementthatArcoBuijs,thecompany’sCEO,wastoleavethecompanybymutualconsent.
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News
The company says EVEN “meets the large and
growing customer demand for healthier travel, at
a mainstream price”.
Based on extensive research, InterCon thinks it
sees a big opportunity for providing hotels that
allow guests to stay healthy when they travel.
Despite widely publicised obesity and health issues
in the US, IHG believes it has a target market of
“17 million healthier-minded travellers who find
it hard to stay active and eat right, and often “fall
off the wagon” when they travel”.
EVEN is expected to fit into the portfolio at
a price point above Holiday Inn, and IHG is not
expecting much cannibalisation of its existing
brand markets by the newcomer. IHG’s president
for the Americas Kirk Kinsell said pricing has not
been set, but “our pricing will be someplace at
the higher end of a mainstream offer, but it will be
very inclusive to a whole host of travellers”.
The hotels will be designed to make exercise
easier. Rooms will be laid out to enable in-room
exercise, even having an exercise mat and a
hanging rail that doubles as a chin-up bar, while
well-equipped gyms with better information are
promised. And, a novelty in hotel construction,
stairs will be made more attractive and easier to
use. Healthier menus will be served from cafes and
bars that feature an exterior patio, while filtered
water, morning coffee and smoothies will be on
the house.
Room designs will incorporate better working
facilities, with a decent desk, multimedia ports and
high speed wifi. And once work is done, mood
lighting, better linens and power showers are
promised to ensure improved sleep and relaxation.
Initially IHG has set a target of signing 100 EVEN
locations within five years, and it has committed
up to USD150m of capex to help get early growth
going. While the brand is expected to consume
both new builds and conversions, the latter will be
the focus initially.
As with previous IHG brand launches, the
company plans to own and manage the first few
hotels, providing owners with a clear view of the
likely outturn when they take on EVEN franchises.
Owners are promised the operating model will be
similar to other limited service hotels.
IHG hopes to announce the first EVEN location
in the second quarter, and open for business
in early 2013. Once established in the US, the
company is also likely to look to key city locations
to expand internationally.
HA Perspective: There is always a danger with
new brand launches like this to take your own
personal prejudices and read through to the likely
success or failure of the concept.
So to be clear from the outset, this is not for
me. When I travel I have never been on the fitness
wagon and so am in little danger of falling off it.
And the idea of having a workout bench in my
room which has seen people sweating all over it is
something I find repellent.
The general reaction within our office to the
interior design was far from positive. “It looks like
a hospital,” was one of the more polite comments.
Let’s go back to basics to try to be more
objective. One of the oldest concepts in business
strategy is that of differentiation. If you open an
ice cream shack in the middle of the beach you
are best placed to gain the most business. But if
there are several already there, then you are likely
to do better business by opening at one end of
the beach (presumably muscle beach in this case).
Management guru Michael Porter talks about
four generic business strategies. The one adopted
by IHG for Even appears to be one of differentiation
focus (the others being differentiation, cost focus
and cost leadership).
Differentiation focus is where “a business aims
to differentiate within just one or a small number
of target market segments”. It is distinct from
differentiation in that there is a more limited
target market.
The risks, according to Porter, are establishing
that there is a valid basis for differentiation and
that existing competitor products are not meeting
those needs and wants.
I’m sure IHG has invested significant sums in
researching the basis for this brand. Without
seeing the research it is difficult to claim it is
right or wrong. Nonetheless, it does seem an
extraordinary stretch to believe there are more
than 100 locations in the US where there is
sufficient demand for a hotel where you can do
chin-ups in the wardrobe.
And is it really that difficult to eat healthily in
existing hotels. I’m not a big user of hotel gyms
but most general managers I talk to say they are
under used.
What is clear, however, is that IHG is making
a big bet. Getting this wrong goes to the very
essence of what it is as a brand company. It has
to get it right. To me it looks IHG has positioned
itself so far up one end of the beach that only the
mermaids will be customers. We’ll see.
IHGgetsEVENAmericanroadwarriorswilleatandsleepbetter,thankstoInterContinental’snewEVENmid-marketbrand,launchedatthebeginningofMarch.Thenewbrand,oneoftwopromisedthisyear,isfocusedongrabbingmoreUSbusinessinitially.
Reporting figures from the previous short
quarter of 11 weeks to 16 February, Premier Inn
saw like for like sales drop 0.9% overall. Full year
figures for the 50 weeks to 16 Feb saw total sales
up 8.7%, or 3.4% like for like.
Drilling down into the most recent numbers,
chief executive Andy Harrison conceded: “We’ve
seen occupancy down 1.1% and rate down 1.3%
in the quarter.”
But the numbers have failed to dent Whitbread’s
expansion plans for its budget brand. “Premier Inn
has outperformed its competitive set and we shall
open 4,000 new rooms in this financial year,”
said Harrison.
“We continue to see an exciting opportunity to
grow Premier Inn and to win market share.” The
10,000 rooms in the pipeline means the company
is still on track for growing market share from
its current 7% to 10%, at the expense of small
rivals. “We believe we’ve got fundamental and
structural advantages over the independents.”
Thankfully, flat growth at Premier Inn is offset
by other parts of the Whitbread portfolio, which
in aggregate reported total sales up in first quarter
10.1%, and like for like 1.8%. The Costa coffee
shops, in particular, delivered “outstanding”
results with sales up 25% and expansion drawing
increasing revenues from markets outside the UK
such as India and China.
“We expect to report another year of double
digit growth in earnings, in line with expectations,”
promised Harrison.
PremierInnstruggleswithsoftUKmarketAtradingupdatefromWhitbread,ownersofthePremierInnbudgetchain,clearlydemonstratedtheweaknessintheUKmarket,withtheOlympicstheonlybrightspotonthehorizon.
continued on page 8
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News
London will be a continuing focus for Premier
Inn, even after the excitement of selling rooms
during the Olympics at GBP199 a night has
passed. “Around 25% of our growth is going
to be in London, where we’ve historically been
underrepresented,” said Harrison.
Currently, the London estate represents around
10-15% of the estate by room count, though
higher by revenue.
Harrison was asked about issues at rival
Travelodge, which he was not keen to be drawn
on. “Clearly it’s highly geared, it’s got liquidity
issues, anyone who’s been watching it will not be
surprised by what’s happening.”
In a notable contrast, the results presentation
stressed Whitbread’s commitment to continual
refurbishment of its hotels, to maintain brand
standards. “We will have invested £70m
in refurbishing 13,000 rooms over the two
years 2011-13.”
Going forward, Premier Inn is promising to
outperform the market, with tactics that include
dynamic pricing, and specific promotions based
around UK events including the Royal Jubilee
and Olympics.
“We still see dynamic pricing as something
that’s going to help our performance,” said
finance director Chris Rogers. He noted that with
more than 60% of customers being business
travellers, disruptions to normal business
routines needed to be planned for, and leisure
customers courted: “What we need to do is
make sure we’ve got our pricing absolutely right.”
But the low numbers mean advancing the like
for like business is going to be hard: “We still think
inflation’s going to mix out around 2-3%. So we
need like for likes of 2% to hold steady.”
HA Perspective: A couple of days after this
trading update, Travelodge had the official
opening of its 500th hotel and announced an
expansion programme of 184 hotels, just for
London, by 2025.
Fortunately for Whitbread, it looks highly
unlikely that Travelodge will be proceeding with
many of them in the next few years given its rather
stressed capital structure.
Travelodge agreed with Whitbread that the
London is currently under represented with
economy hotels compared to the rest of the
country. Economy hotels in London are 17% of
the total of hotel rooms against 28% for major
cities like Manchester, Birmingham, Leeds and
Glasgow, according to research by Melvin Gold, a
consultant hired by Travelodge.
But the higher price of property in London
makes it much harder to open profitable economy
rooms in the capital. While occupancy and rates
are higher, they are often not high enough to
outweigh the additional site costs.
Right now is probably the optimum time
to be acquiring sites in gateways like London.
And helping the cause for both Travelodge and
Whitbread are innovative investment schemes.
The Stratford site that is the 500th Travelodge
was funded by HotbedUK, a private investor
syndicate with Peveril Securities and Active Estates
being the JV developers.
HotbedUK, which was bought in February by
Connection Capital, a business set up in 2010
by Claire Madden and Bernard Dale, founders
of Hotbed who left in 2008, has also invested
in Premier Inns and start-up economy brand
Sleeperz.
Riverside Capital Group, joint venture partner
with Connection, has acquired Hotbed’s property
portfolio.
Together the JV partners have assumed control
of Hotbed’s entire investment portfolio which
totals GBP140m of equity under management in
assets valued at GBP500m across venture capital,
private equity and property deals.
It is investment like this that is enabling the
economy hotel sector to keep growing at the
pace it is. For how much longer such growth can
continue until significant diminishing returns set in
remains to be seen.
Meanwhile, for this year, the hope is clearly
being placed on the Olympics to provide a trading
boost. But British Airways has forecast that the
event is likely to disrupt normal traffic and result
in reduced demand, particularly from business
travellers. BA said the Olympics would, “at best”,
be neutral for it in the near term.
Those diminishing returns might kick in sooner
than feared.
continued from page 7
The company, owned by Singaporean property
giant CapitaLand, operates serviced apartments
under the Ascott, Citadines and Somerset brands,
with 28,000 rooms around the globe in more than
20 countries.
Across Europe, the company has 44 hotels,
totalling more than 4,900 studios or apartments,
of which 32 are in France and operating under
the Citadines brand. Ascott saw occupancy of
73% through the year, down a little on the 75%
recorded in 2010, but with the loss accounted
for by refurbishment work undertaken on eight
hotels. The company will refurbish a further
seven European hotels during this year. Ascott
sees around 60% of its revenues from corporate
travellers, and 40% from leisure.
With refurbishments, the company took the
opportunity to upgrade two of its locations to its
Prestige category.
Also during the year, it introduced its Club
Apartment concept to Citadines units, which
takes the better-positioned apartments in the
block and provides a more hotel-like range of
support services including an inclusive breakfast
and daily housekeeping.
Ascott has a target of 40,000 rooms by 2015,
with a current portfolio of 28,000. However,
its development pipeline in Europe is modest
and consists of just two openings, in Hamburg
towards the end of next year, and Frankfurt in
early 2014. The majority of the pipeline is planned
for Chinese and other Asian cities, and key Middle
Eastern locations.
HA Perspective: Ascott already lays claim to
being the world’s largest international owner-
operator of serviced residences. And while its
parent company remains focused on Asia for its
main property development business, Europe is
set for steady growth for its apartment operations.
Alongside Ascott Residence Trust, the Real
Estate Investment Trust which owns many of the
properties it operates including those in Paris,
London, Berlin, Brussels and Barcelona, The
Ascott Limited is an often overlooked rival to
hotel operators.
In the UK, its revenue per available unit
increased by 11% in 2011, thanks largely to its
London exposure. But in Singapore, the increase
was 18%. And so it is not surprising that the
bulk of the SGD665m (USD527m) of investment
committed was in Asia.
Ascott’slongstayplansAparthoteloperatorAscottisplanningfurtherimprovementstoitsEuropeanportfolio,followingayearwhenitsawrevenuesadvanceby8.8%toE152.9m.
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News
The company declared a net profit of E6.2m
for 2011, compared to a E43.2m loss in the
previous year.
The figures were helped by several hotel
sales, and a USD15m compensation payment
from Chinese investor HNA, who pulled out of a
proposed deal to buy a stake in NH during 2011.
Revenues were up 7% to E1.43bn in 2011, while
the final quarter saw revenues 5% ahead of the
final quarter in 2010.
The company is pinning its hopes on an
improvement in fortunes from the second
quarter of 2012, in order to lift performance
from a portfolio dragged down by its dominant
Spanish weighting.
“We also expect year-on-year growth starting
in the second quarter of the year,” said the NH
statement accompanying 2011 results. “The start
of the financial year has borne out this trend, with
a particularly good performance in Central Europe
and the Americas. Income increase (from 3% to
5%) and double-digit EBITDA improvements for
the year are also expected.”
One important constituent in the company’s
performance was an aggressive programme of
cost cutting and efficiency improvements, which
helped substantially improve the results. Gross
operating profit was helped by a 6.6% reduction
in overheads, headed by cost reductions of 14.4%
in Spain and 15% in Italy.
In 2011, like for like revpar grew by 4.9%
overall, combining a 3.1% increase in occupancy
with a 1.8% increase in average prices.
NH’s Americas region was the lead performer
in the portfolio, with a 7.5% advance like for
like through the year. Benelux delivered a 6.2%
increase. Italy and central Europe performed well,
too, with 5.3% and 5% uplifts respectively. But it
was in the home Spanish market that performance
was weakest, and a fourth quarter decline of
3.7% in revpar brought the 2011 average down
to a 2.7% rise overall. The last quarter saw
NHbackintheblackNHHotelesisbackintheblackafterayearofmodestlyimprovedoperationalfortunesandcostcutting.Butthecompanydoesn’texpectbusinessinitscoresouthernEuropeanmarketstostartliftinguntilthesecondquarterofthisyear.
continued on page 10
Despite apparent market weakness in Spain,
the company’s home market Sol brand delivered a
revpar increase of 19.1%, assisted by outstanding
results from island properties, up 26.7% in
the Balearics and 20.1% in the Canaries as
holidaymakers switched away from troubled north
African resorts. Wyndham’s TRYP brand, which is
substantially Spanish, improved by 4.1%, while
Melia Hotels & Resorts increased 4.2%.
Said a company statement: “In Spain, the
strength of holiday destinations dependent on
external demand contrasts with the weakness
in city hotels and segments which are more
dependent on Spanish domestic travellers, which
continue to await an economic recovery.”
The company’s premium brands are Paradisus,
Gran Melia and ME by Melia, predominantly in the
Americas and these delivered an average 9.8%
revpar improvement.
The company noted that an increase in demand
from Canadian and US visitors, up 12% and 9%
respectively, countered a 14.7% contraction in
visitors from Spain.
Melia reduced its debt burden to E1bn by the
end of the year, and renewed its credit facilities.
The year also saw a corporate rebranding,
losing the Sol Melia name in favour Meliá Hotels
International.
Behind this, a company reorganisation includes
a greater push into new markets such as Asia-
Pacific, and an admission that more asset-light
models are the way to go. Brazilian revenues were
up 43%, and 31% from Chinese hotels.
Meliá’s active pipeline contains 31 hotels,
while the current portfolio is 323 hotels. The
company added 20 hotels with 5,056 rooms in
2011, all following the asset-light model being
management, lease or franchise.
The company’s sales initiatives include beefing
up its Mas loyalty programme, whose 2.5 million
members now account for 22% of room sales.
Online, the company has stolen a march on many
competitors, with half a million Facebook fans,
a figure topped only by Hilton and Starwood in
the sector.
Melia is adopting a dual strategy for the immediate
future, focused on growth and improving profits in
international markets, while in Spain it is a case of
grinding through efficiencies and savings.
Expansion is focused on upscale and luxury
hotels, which account for 84% of the pipeline. And
it has promised an increasing focus on expansion in
Brazil, Russia, Eastern Europe and China.
HA Perspective: In contrast to NH, Melia is
making its Chinese partnership work. The idea is to
allow both chains to grow in the market in which
the other enjoys competitive advantage through a
joint growth strategy in China and Europe.
How this is going to work out in practice is not
clear, apart from getting expert advice on adapting
European hotels for the Chinese and vice versa.
Melia describes its new model as being asset
light(er). The crafty use of the brackets emphasises
that future hotels will mostly be management and
franchise while existing hotels will remain owned
although subject to an asset rotation model to
determine whether they ought to be sold.
It is an approach forced on the company if it
wants to grow and maintain its current debt
coverage. Again unlike NH, Melia managed to
meet all its bank covenants in 2011 and expects
to again this year.
Melia talks about inside and outside of Spain.
Inside, the situation looks grim with a severe
cost cutting agenda. Outside, it is a question of
maximise growth, tapping particularly into feeder
markets in the emerging economies of countries
like Brazil and China.
Demand from Spanish guests fell 5.1%, said
Melia, while that from Brazil rose 43%, China
31% and Eastern Europe 13%.
Still strong in Spain are the big cities of
Barcelona and Madrid. These two cities, along
with London, Berlin, Paris and Milan, have enjoyed
revpar growth for the last seven quarters.
MeliapushesoutfromSpainSpanish-basedhotelgroupMeliadeliveredstrongresultsfor2011,andisfocusedonaninternational,asset-lightexpansionplantoimproveits2012performance.Therenamedcompanyproducedanoverallrevpargrowthof9%forlastyearonrevenues,andisnowsetonatargetofbeinginthetoptenhotelmanagementcompaniesglobally.
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positive revpar growth in all markets except Italy
and Spain.
Looking ahead, NH doesn’t expect to see
an uplift until the second quarter of 2012.
Management are bracing themselves for a poor
first quarter, although believe it will not be as bad
as in the last quarter of 2011. But year on year
growth will return in the second quarter, with an
overall 3-5% revenue increase predicted for 2012.
“The last quarter of the year was characterised
by a worse performance with respect to 2010,”
said the company. This was not unexpected, as
NH’s seasonality usually delivers poor performance
in December. “In addition to this, the growing
uncertainty in European markets due to the
sovereign debt crisis has had a negative impact on
the hotel sector.”
One major distraction during 2011 was the
tabling of a bid from Chinese travel conglomerate
HNA, which in May signed an initial intent
to purchase a 20% in NH, a deal that would
have injected E431.6m into the company. The
cash would have been most welcome, while
the transaction also promised to take NH into
the management of Chinese hotels within
HNA’s portfolio.
And, as HNA also owns an airline, the deal
held out the possibility of building a pipeline of
Chinese visitors to NH’s key European markets.
The deal fell apart in December, as the Chinese
appeared spooked by eurozone problems. “I think
the Chinese looked at the situation in Europe with
the financial turbulence and Spain’s debt crisis and
things probably seemed horrible,” NH president
Mariano Pérez Claver said recently in an interview.
The other issue exercising management
currently is the scale of NH’s debt. The company
realised E16.97m from property sales during 2011,
including four hotels and nine plots of land, sales
that helped towards reducing net debt, which fell
to E962.8m, from E1.06bn at the end of 2010.
But talks are ongoing with funders, as February
was the deadline for a E195m payment of due on
a syndicated loan, part of a E650m package taken
out by the company in 2007.
During the year there were five new hotels
added, totalling 540 rooms, all under management
contracts. Two of these were in Spain, a hotel in
Bratislava that will open this year, and projects in
Turin and Mexico scheduled for 2013 openings.
Ten hotels totalling 1,416 rooms were added,
while eight hotels, totalling 1,051 rooms and all
based in Europe, left the portfolio.
Following some pruning, the NH pipeline now
consists of 21 projects and 2,620 rooms. All but
one in Panama are leased or managed, while
there are eight hotels for Spanish locations, six in
Italy, five in eastern Europe and three additions in
South America.
HA Perspective: NH’s forecast for revenue
growth of 3% to 5% coupled with EBITDA growth
in the double digits looks ambitious. Given that the
company has been walking wounded for several
years now, it seems extraordinary that extra profits
can be squeezed out of more restructuring. It calls
into question what the previous management
team were doing.
Since arriving a year ago as chairman and ceo,
Mariano Perez Claver has dramatically cut costs
and brought in a new team, last year hiring Mikael
Anderson as chief commercial officer and more
recently Rafael Ros as the new head of sales.
Customer service 2.0 has been the big
management brainstorm with a particular
emphasis on exploiting online distribution
channels. Quite how effective this can be in the
cash-constrained environment remains to be seen.
While the ongoing economic woes of Spain are
a huge problem, more than 75% of NH’s EBITDA
are generated outside of the country. And it is
now benefiting from its German exposure which
until recently had been a source of woe.
Not surprisingly given its debt burden,
expansion has been modest. The collapse of the
deal with HNA further dented whatever hopes of
growing out of the problem remained.
Now the focus is back again on Latin America
with the first Columbian hotel opening in the past
year. NH said it was in talks to enter the Brazilian
market and is looking at other countries.
All-in-all it looks like a good effort in very
difficult circumstances. Whether it adds up to
something that will transform the company’s
prospects is much less certain.
continued from page 9
News
“The outlook has never been brighter,” insisted
CEO Mark Hoplamazian, although he remained
concerned at short term issues in Europe.
Revpar was up 6% in the quarter, compared
with the end of 2010. North American operations
performed well, while international revpar rose
just 2.9% in the quarter.
The portfolio saw one net addition in the US,
and four additions internationally during the
quarter. Total revenues for the year 2011 were
USD3.698bn.
The business is looking increasingly
internationally spread as it grows. The current
pipeline measures a third of the size of the existing
portfolio, and around 70% of that pipeline is
located outside Hyatt’s home US market.
Having successfully absorbed the LodgeWorks
acquisition during last year, Hyatt will be
looking for more. “We are seeing interesting
opportunities of hotels, small collections of hotels
and some opportunities for brand acquisitions,”
Hoplamazian told analysts. “The deal activity in
the second half of last year was actually relatively
low. And so as we’ve looked across the globe, it’s
really been more outside the U.S. than in.
“We are admittedly very focused on key
gateway city representation. We do expect
transactional activity to grow…. So I would tell
you that we expect to be active on both sides.”
With effectively no net debt on the balance
sheet, and credit lines of USD1.2bn, Hyatt is well
placed to make larger acquisitions. Hoplamazian
told analysts: “Having flexibility in terms of capital
available to us, to be able to act both definitively,
but with some rapidity is important to us.”
HA Perspective: Hyatt is on a growth path. Two
years ago, its contracted pipeline represented
28% of its existing portfolio. Today, the contracted
pipeline is 35% of a bigger portfolio.
And the company is looking to add to this
through acquisitions, especially outside of the US
having bedded in the USD661m LodgeWorks deal.
Hoplamazian talked about putting the balance
sheet to work “more aggressively” over the next
couple of years. But this should not be seen as an
abandonment of an asset right strategy towards
more ownership.
He said: “I think we will be pursuing new
investments but we will also be pursuing sales that
will help us fund those new investments as well.”
HyattlookstogrowthHyattsignalleditsinterestingrowthbyfurtheracquisition,asitannouncedsolidfourthquarternumbers.
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News
The exercise, undertaken by Jones Lang LaSalle
Hotels, suggests Melia’s estate is today worth
E3,314m. Of that figure, E3,162m relates directly
to hotel real estate.
Today, the company owns 90 hotels, while the
valuation included a further 13 assets, and this is
against a total portfolio under management of
323 hotels.
However, while the headline 14% like for like
decrease in value may not sound too bad, the
overall valuation is not exactly comparing like for
like – the devil is in the detail.
Melia’s press announcement noted that “the
2007 figures also included the valuation of the
hotel brands and the contracts for hotels operated
lease, management and franchise agreements”.
Melia insists the 14% reduction “is in line with the
discounts observed in recent asset rotation activity”.
One relief for the banks, currently holding
around E1bn of the company’s debt, is that Melia’s
accounting policy has been conservative, in that
it did not update its asset book values to reflect
the rather more positive valuations evident in the
2007 valuation.
As a result, the historical values within the
balance sheet mean that even today’s downgraded
values are showing a 61% premium to historical
book value. Melia notes that the declines in
Spain are partly offset by improvements on assets
elsewhere in Europe, and in Latin America.
For the future, Melia is pursuing an asset light
business model, as illustrated by its announcement
earlier this month of a project in La Defense, Paris.
There, it will open a 369 room hotel in late 2014,
having tied up construction of the project, and a
German landlord, Union Investment, to finance
the completed development.
Melia’s most recent results demonstrated
an increase in revpar of 9% during 2011, with
performance improved by a switch to developing a
presence in expanding markets in south America,
notably Brazil, and in Asia-Pacific.
During the year, the company added 20 hotels
with 5,056 rooms, all following the asset-light
model, being one of management, lease or
franchise. Expansion is focused on upscale and
luxury hotels, which account for 84% of the
pipeline. And it has promised an increasing focus
on expansion in Brazil, Russia, Eastern Europe
and China.
And the company is no slouch when it comes
to social networking, it claims to be behind only
Hilton and Starwood in its use of social media,
with 500,000 Facebook fans, while its loyalty
programme already generates 22% of room
night bookings.
HA Perspective: Leaving aside whether having
lots of Facebook fans is a benefit (it is bookings
that count, as readers of our sister title Hotel
Analyst Distribution & Technology will well know),
Melia International is presenting the best face it
can on what is an ugly situation.
The latest valuation of Spanish hotel assets
shows a 17% decline from the 2007 peak, on a
comparable basis (that is excluding the value of
brands and so forth that were lumped in last time).
Given that Ireland has seen a 50% plus crash in
its real estate values and the Spanish economy is in
a similar fix, the decline looks surprisingly modest.
The depth of the problem was highlighted in late
March with the acquisition of savings bank Civica
by rival Caixabank at a third of book value. The
deal saw a E3.4bn write-down of troubled real
estate assets out of the total of around E10.5bn
held by Civica.
The problem for Melia is that it is incredibly
close to its debt covenants. These are set such
that EBITDA must be 4.5 times net interest
expense. In 2011, it was 4.52, a comfort margin
of just 0.02. Any EBITDA slippage is going to see it
breach covenants.
Spain is now increasingly seen as the next crisis
for the Eurozone. And this is going to impact its
international tourism business. Greece estimates
that bookings from German tourists are down
20% to 30% for 2012. It has seen double digit
declines from Britain, the US and Italy as well,
according to the Reuters report from earlier
in March that was based on an interview with
Andreas Andreadis, the head of Greece’s main
tourism association Greek Tourism Enterprises.
Rioting and continued bad headlines about the
economy have thus clearly impacted Greek tourism
and it will do so in Spain. The net impact of this is
surely to make the likely decline in Spanish hotel
property prices more pronounced than those of
other commercial property sectors.
Melia claims that the 17% drop in prices in
Spain is in line with its “recent asset rotation
activity”. But the reality is that very little is actually
being sold and so it almost impossible to use a
market comparison method for valuation.
The projections used for the discounted cash
flow analysis method are unlikely to have factored
in a major decline in tourism revenue nor the
massive economic contraction that is going to
occur following the latest round of austerity
measures that is taking E27bn out of the economy
with 17% cuts to government spending.
Without radical action, it looks a certainty that
Melia will join NH Hoteles in busting through its
debt covenants.
Melia’scrumblingpropertyassetsAttheendofMarch,SpanishhotelgroupMeliaannouncedthelatestvaluationofitshotelassets,revealinganapparentlymodestfallinvaluesof14%comparedwithits2007valuation.
“We have initiated strategic changes that will
structure our business for the future, with the
ambitious objective of becoming the global reference
in the hotel industry,” said Denis Hennequin,
chairman and CEO, announcing the 2011 results.
“Performance in 2011 was remarkable and
demonstrates the new growth potential of Accor, of
its brands and of its operations,” added Hennequin.
“All of our objectives have been met or
exceeded. The group is in excellent financial health,
which enables us to continue our growth strategy.”
Revenues were up 5.2% like for like at E6.1bn,
with operating profit up 39.2% at E438m.
With the exception of southern Europe, all regions
were in positive territory. The economy sector outside
the US delivered a 6.3% like for like uplift, helped
by improving room rates and occupancy maintained
above 70%, the best in the group.
In the US, while diposals hit the reported
figures, like for like revenue at Motel 6 was up
4.3%, helped by rate increases in the second half.
A record expansion of 38,700 rooms added
during the year was helped by the acquisition
of 24 franchised hotels in the UK, helping the
Mercure brand to 11,000 openings. Of these
openings, 95% were in franchises, management
contracts or variable leases, with almost half in
Europe and a third in Asia-Pacific.
AccorsteamsaheadAccorended2011onaverypositivenote,andshowsnosignofslowingdownitsexpansionplansasitaimshigh.
continued on page 12
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The portfolio now has half its rooms under
franchise or management contract, continuing the
push to asset-light.
Its 2012 target is to raise openings to 40,000
and already Accor is off to a good start, with the
Mirvac acquisition in Australia adding 6,100 rooms
at a stroke. And the total pipeline now stands at
104,000 rooms, of which 45% are planned in
Asia-Pacific, further tilting the portfolio towards
emerging markets.
One target that looks a little more challenging
is that to reduce adjusted net debt by E1.2 billion
over the 2011-2012 period.
During 2011, the company disposed of
peripheral operations Groupe Lucien Barrière and
Lenôtre , and refinanced 129 hotels. Thanks to a
flurry of New Year deals, including the sale of the
Novotel New York and the Pullman Rive Gauche in
Paris, a further net E119m has been paid down,
meaning the company is over half way to its goal.
For the coming year, Accor has E1.8bn in unused
lines of credit, with no debt maturing.
In the US, work continues to restructure the Motel
6 business, with 41 hotels sold in 2011 and another
100 pencilled in for sale this year. During last year, 55
new franchised Motel 6 outlets were opened.
Also well underway is a rebranding of Accor’s
budget brands, under one Ibis umbrella. All 919
Ibis, 517 Etap and 131 All Seasons hotels will be
renamed as a three tier brand of Ibis, Ibis Styles
and Ibis Budget.
Accor said 70% of the portfolio (more than
1,000 hotels) would be rebranded by the year-
end. It is also promising “additional innovation”
with bedding and public spaces on the brand.
HA Perspective: Accor is making steady progress
on its asset light ambitions. At the end of 2010,
64% of its then 507,000 rooms were in asset
light structures (which includes 18% on variable
leases). By the end of 2011, 68% of its 531,700
rooms were asset light.
But there is still E3.7bn worth of assets on
the books. And this means the company is still
leveraged into any upswing or indeed exposed if
the Eurozone travails turn even uglier.
The EBIT sensitivity has reduced significantly,
Accor claimed. At the end of 2010, a 1% rise in
revpar led to a E20m increase in EBIT. This shrank
to E14m by the end of last year.
Conversely, a 1% decline led to EBIT down
E25m at the end of 2010 but this had decreased
to E20m by the end of 2011.
During 2011 and the start of this year to mid-
February, Accor had sold 137 hotels worth E652m.
It is targeting 400 by 2015 to shave E2.2bn off
net debt.
Net system growth last year was 24,700 rooms,
or just under 5%. This is not a bad result given
the current economic climate. Next year a further
40,000 rooms are slated to open; exits have not
been forecast, but might well be more this year
given the promise to speed up the changes at
Motel 6 in the US.
The Accor roadmap for 2012 is built around
brands, expansion and asset management.
So far, all seems on course with the main fears
being further macroeconomic turmoil and more
restiveness from its activist shareholders.
continued from page 11
The fourth quarter was the best the company
has seen since 2007. Revpar grew 3.2%, driven by
rate growth, but it was a dramatic performance
in the eastern European region which held up the
portfolio. Here, revpar rose 17.3%, with occupancy
up 10.3% and rate improving 6.3%. In contrast,
occupancy fell 11.6% in the Middle East and
Africa. Within this region, finance director Knut
Kleiven noted some contrasts – South Africa was
up, while Dubai “has performed extraordinarily”.
The last quarter figures lifted Rezidor’s 2011
year end figures, which saw a12 month increase
of 3.7% in revpar and average occupancy ease up
0.3%. Revenues increased 10% to E864.2m, but
were flat on a like for like basis.
Rezidor used the 2011 results to take a write
down on its UK regional portfolio. And Kleiven
signalled the company will be exiting lease
contracts that don’t fit with the company’s
structure, and where individual properties have
proved difficult to turn round into profit. In the UK,
this could affect around 20% of leased properties,
Kleiven revealed during analysts’ questions.
In the short term, economic problems in Europe
and troubles in north Africa will continue to impact
on performance, said CEO Kurt Ritter. “There is no
reason to get over-enthusiastic at this stage,” he
said of the first quarter figures.
Medium term, he re-iterated the group’s Route
2015 plans, aiming to lift ebitda margin by 6-8%
in three years.
And he outlined the benefits of the combination
of operations with Carlson, announced in January.
“We are convinced that it helps generate revenues
through global sales channels,” and in particular
Ritter stressed the importance of grabbing
consumers from the US and Asia. “There are
more attractive financial returns for hotel owners,
greater value for all our shareholders, and the
legal status of Rezidor remains the same.”
“The core areas of collaboration are branding,
revenue with marketing synergies, purchasing and
communications.”
Rezidor’s 2015 plan includes a portfolio target of
growth to 100,000 rooms. Ritter noted Rezidor’s
activities in Russia and the Baltics, where he believes
the company is well placed. The company is twice
as large as its nearest brand competitor in the
region. “It’s a significant contributor to our future
growth” he promised, with close to a quarter of
the Rezidor pipeline in this region. Combining
existing stock and pipeline, the company will
have 60,000 rooms in these markets.
Rezidor saw net 7% portfolio growth of in 2011
During the year, the company signed 9,600 rooms
to the pipeline, of which 75% were in emerging
markets, with one quarter conversions. There are
no more leased hotels in the pipeline, and this, in
combination with the judicious exit from those in
the UK which are dragging the numbers down,
will have a positive impact on cash flow.
HA Perspective: Route 2015 is never going
to trip off the tongue but it does offer mouth
watering improvements to EBITDA margins. This
is being driven by openings of margin-friendly
management contract hotels rather than leases.
It would be wrong to assume that the company
is totally lease shy. In the Nordics, the final quarter
was boosted by new leased hotels.
But the overall direction continues to be
towards fee business, either management
contract for Radisson or franchise for Park Inn.
The ambition remains to exit what it describes as
“non-strategic” leases.
And much of this growth is to come in emerging
markets with three quarters of the nearly 10,000
rooms signed in 2011 being in emerging markets.
Russia, CIS and the Baltics account for almost a
quarter of the current pipeline.
With exits planned in the UK, the centre of
gravity for Rezidor is shifting rapidly.
RezidorlookseastforupliftRezidor’syearendand2011resultsdeliveredthepromiseofgreatthingstocome,asthecompanydrewattentiontoitsstrongpipeline,andrecentcombinationofoperationswithCarlson.
News
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 13
Europeanhoteliersstruggleascostsrise
A drop in TrevPAR was suffered in Amsterdam
(-1.5%), Frankfurt (-9.7%), Zurich (-0.9%) and
the freefalling Athens (-17.5%) this month.For
three of these four cities, the decline in TrevPAR
was primarily as a result of a drop in RevPAR,
but for hotels in Amsterdam, a positive rooms
Europeanchainhotels–performancereport
Source: TRI Hospitality Consulting
performance (+0.4%) was cancelled out by
declines in food and beverage revenue (-1.7%) and
meeting room hire revenue (-31%) per available
room. Unsurprisingly, due to the current instability
in its economy, hotels in the Greek capital suffered
declines in all headline performance measures
during March. In addition to the 16.9% decline
in RevPAR, which was primarily as a result of
a 13.1% drop in achieved average room rate,
an 11.3 percentage point increase in payroll, to
70.2% of total revenue, would suggest that
labour costs in the Greek capital have not been
modified to reflect declining demand levels. Rising
payroll costs are clearly an issue for many of the
hotel markets polled this month, with profit
levels impacted by increases in Athens, Brussels,
Frankfurt, Istanbul, Moscow and Zurich.
The month of March 2012 Twelve months to March 2012
Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR
74.6 168.97 126.06 31.1 68.92 Amsterdam 77.9 176.11 137.25 29.9 78.82
43.0 121.76 52.40 70.2 -11.75 Athens 54.8 164.34 90.13 49.7 20.51
69.9 123.06 86.01 32.3 43.72 Barcelona 72.3 134.59 97.32 31.4 51.02
72.3 143.59 103.88 28.4 49.99 Brussels 69.2 126.66 87.66 33.4 31.89
60.1 128.48 77.25 31.7 38.82 Frankfurt 61.2 127.86 78.27 31.1 36.92
74.6 190.24 141.87 28.5 110.92 Istanbul 72.3 219.00 158.27 26.4 124.01
80.3 175.80 141.16 24.0 93.58 London 81.9 184.82 151.29 23.4 100.97
69.0 173.84 119.97 25.0 81.59 Moscow 70.3 159.10 111.83 26.4 73.86
59.4 79.90 47.44 27.3 27.57 Prague 69.3 78.15 54.13 25.4 31.06
81.5 195.70 159.49 33.4 105.70 Zurich 79.4 182.53 144.83 36.4 79.69
The month of March 2011 Twelve months to March 2011
Occ% ARR RevPAR Payroll % GOP PAR Occ% ARR RevPAR Payroll % GOP PAR
71.6 175.50 125.59 31.3 71.39 Amsterdam 77.6 166.88 129.47 31.2 71.51
45.0 140.15 63.04 58.9 -4.51 Athens 55.4 168.56 93.37 47.5 27.84
63.2 121.31 76.68 34.2 35.81 Barcelona 68.1 130.42 88.75 32.6 45.21
71.4 143.42 102.33 27.0 50.02 Brussels 67.5 125.06 84.40 33.8 31.41
61.1 145.40 88.83 26.6 49.10 Frankfurt 62.8 125.08 78.51 30.1 38.36
76.1 183.44 139.57 27.4 114.16 Istanbul 75.5 181.87 137.23 30.9 92.13
80.3 169.25 135.95 24.1 90.63 London 81.4 174.70 142.24 23.8 96.09
64.8 171.55 111.21 24.3 83.99 Moscow 67.1 149.48 100.30 25.2 70.88
55.6 75.07 41.74 29.4 21.71 Prague 64.7 77.81 50.34 27.8 25.30
77.8 214.01 166.51 31.4 112.99 Zurich 79.3 185.43 147.03 35.1 83.50
Movement for the month of March Movement for the twelve months to March
Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change
3.0 -3.7% 0.4% 0.2 -3.5% Amsterdam 0.3 5.5% 6.0% 1.3 10.2%
-2.0 -13.1% -16.9% -11.3 -160.5% Athens -0.5 -2.5% -3.5% -2.2 -26.3%
6.7 1.4% 12.2% 1.9 22.1% Barcelona 4.3 3.2% 9.7% 1.1 12.9%
1.0 0.1% 1.5% -1.4 -0.1% Brussels 1.7 1.3% 3.9% 0.4 1.5%
-1.0 -11.6% -13.0% -5.2 -20.9% Frankfurt -1.5 2.2% -0.3% -1.0 -3.8%
-1.5 3.7% 1.6% -1.1 -2.8% Istanbul -3.2 20.4% 15.3% 4.5 34.6%
0.0 3.9% 3.8% 0.1 3.3% London 0.4 5.8% 6.4% 0.4 5.1%
4.2 1.3% 7.9% -0.8 -2.9% Moscow 3.2 6.4% 11.5% -1.3 4.2%
3.8 6.4% 13.7% 2.1 27.0% Prague 4.6 0.4% 7.5% 2.5 22.8%
3.7 -8.6% -4.2% -2.0 -6.5% Zurich 0.0 -1.6% -1.5% -1.4 -4.6%
Although the 5.2 percentage point increase in
payroll levels at hotels in Frankfurt, to 31.7% of
total revenue, is somewhat unsettling, it is not
surprising as the cyclical nature of major events
at the Frankfurt am Main causes significant peaks
and troughs in performance throughout the year.
This month, year-on-year headline performance
levels at Frankfurt hotels plummeted as a result
of the absence of the biennial ISH Renewable
Energies exhibition, which in 2011 attracted more
than 200,000 visitors to the city. Whilst hoteliers
in the German city can take heart from the fact
that the ISH event will be back in 2013, the impact
of this event not taking place in the city in 2012
was a 20.9% year-on-year decline in profitability
to €38.82 per available room.
WhilstsixoftheEuropeancitiespolledthismonthsuccessfullyachievedanincreaseinTrevPAR,onlythreewereabletoconvertthisgrowthintotalrevenueintogrowthinprofitperroomduringMarch,accordingtothelatestHotStatssurveybyTRIHospitalityConsulting.
Sector stats
ThemonthofMarch2012
The3monthstoMarch2012
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 214
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year March 2012 London 79.4% £127.75 £101.40 51.6% 5.7% 9.9% 22.2% 10.6% £139.69 £143.38 £83.69 £127.71 £102.39 £3,240 £1,124 £186 £4,549 71.2% 24.7% 4.1% 100.0% 46.4% £2,113
March 2012 Provincial 67.7% £68.69 £46.52 49.0% 11.7% 6.2% 25.6% 7.5% £69.99 £81.30 £54.27 £67.41 £56.58 £1,466 £1,049 £295 £2,810 52.2% 37.3% 10.5% 100.0% 28.1% £791
March 2012 All 71.9% £91.99 £66.13 50.0% 9.4% 7.6% 24.2% 8.7% £98.36 £96.27 £69.30 £89.16 £78.61 £2,094 £1,076 £256 £3,426 61.1% 31.4% 7.5% 100.0% 36.7% £1,259
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change March 2012 London (0.3) 3.3% 2.9% 0.8 (0.4) (1.1) 1.1 (0.5) 2.2% 4.4% -2.3% 3.5% 11.8% 2.9% 1.3% 12.3% 2.8% 0.0 (0.4) 0.3 – (0.3) 2.1%
March 2012 Provincial 0.1 1.0% 1.2% (2.8) (0.7) 0.8 1.3 1.4 0.4% 4.4% 6.2% 1.1% 7.8% 1.3% 2.4% -1.7% 1.4% (0.0) 0.4 (0.3) – (0.9) -1.7%
March 2012 All (0.1) 2.2% 2.1% (1.4) (0.6) 0.1 1.3 0.6 2.5% 4.3% -2.2% 2.2% 6.6% 2.2% 2.0% 1.5% 2.1% 0.1 (0.0) (0.0) – (0.6) 0.6%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year March 2012 London 79.7% £123.66 £98.58 50.8% 6.1% 10.9% 21.0% 11.1% £136.67 £137.27 £85.65 £123.44 £91.60 £3,149 £1,110 £165 £4,424 71.2% 25.1% 3.7% 100.0% 46.8% £2,069
March 2012 Provincial 67.6% £67.98 £45.97 51.8% 12.5% 5.4% 24.3% 6.1% £69.75 £77.86 £51.12 £66.69 £52.47 £1,447 £1,024 £300 £2,771 52.2% 37.0% 10.8% 100.0% 29.0% £804
March 2012 All 71.9% £90.02 £64.76 51.4% 9.9% 7.6% 23.0% 8.1% £95.93 £92.31 £70.84 £87.24 £73.73 £2,049 £1,054 £252 £3,356 61.1% 31.4% 7.5% 100.0% 37.3% £1,252
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year YTD London 75.3% £124.14 £93.46 50.2% 5.9% 9.5% 23.5% 11.0% £135.91 £141.34 £84.98 £122.33 £98.55 £8,510 £2,873 £498 £11,881 71.6% 24.2% 4.2% 100.0% 42.5% £5,052
YTD Provincial 62.4% £67.37 £42.07 50.3% 11.3% 5.0% 25.8% 7.7% £69.09 £78.30 £53.13 £65.85 £54.43 £3,833 £2,649 £814 £7,297 52.5% 36.3% 11.2% 100.0% 21.9% £1,595
YTD All 67.0% £89.96 £60.26 50.2% 9.1% 6.8% 24.9% 9.0% £95.65 £94.49 £70.88 £87.07 £75.80 £5,489 £2,729 £702 £8,920 61.5% 30.6% 7.9% 100.0% 31.6% £2,819
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London 1.3 2.6% 4.4% 0.7 (0.8) (0.9) 1.6 (0.6) 0.8% 3.8% 1.6% 3.2% 10.0% 5.7% 2.0% 4.3% 4.7% 0.7 (0.7) (0.0) – (0.1) 4.5%
YTD Provincial 0.3 0.1% 0.5% (1.2) (0.8) 0.3 0.1 1.5 -0.3% 1.9% 4.3% 0.6% 4.4% 1.7% -0.4% -0.5% 0.7% 0.5 (0.4) (0.1) – (1.5) -6.0%
YTD All 0.6 1.7% 2.7% (0.4) (0.8) (0.1) 0.7 0.7 1.2% 2.1% 0.8% 3.2% 4.3% 3.9% 0.5% 0.6% 2.6% 0.8 (0.6) (0.2) – (0.7) 0.4%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year YTD London 74.0% £121.04 £89.56 49.4% 6.7% 10.4% 21.9% 11.6% £134.87 £136.21 £83.64 £118.50 £89.57 £8,049 £2,818 £478 £11,344 70.9% 24.8% 4.2% 100.0% 42.6% £4,836
YTD Provincial 62.2% £67.33 £41.85 51.5% 12.0% 4.6% 25.7% 6.2% £69.30 £76.85 £50.93 £65.42 £52.11 £3,770 £2,659 £819 £7,248 52.0% 36.7% 11.3% 100.0% 23.4% £1,696
YTD All 66.3% £88.48 £58.70 50.7% 9.9% 6.9% 24.2% 8.3% £94.50 £92.55 £70.33 £84.37 £72.70 £5,284 £2,715 £698 £8,697 60.8% 31.2% 8.0% 100.0% 32.3% £2,807
Sector stats
Londonstartsstrongwhileprovincessuffer
strong increases in GOPPAR recorded in January
(+6.8%) and March (+2.1%).
In line with the performance of London hotels
in 2011, the year-on-year growth in TrevPAR in
Q1 2012 has been primarily as a result of a strong
increase in achieved average room rate, which
in the first quarter of the year grew by 2.6%
to £124.14.
The 3.3% increase in achieved average room rate
in March, to £127.75, was as a result of a strong
increase in corporate (+3.3%), residential conference
(+4.5%) and leisure (+3.5%) rates as significant
volume levels enabled the capital’s hoteliers to
effectively yield demand across all sectors.
Although hotels in the capital have been able
to successfully grow profit per room across Q1; in
line with the provincial market, hotels in London
have been the victim of increasing food costs,
which have impacted the overall profitability in this
department, which dropped by 0.3 percentage
points to 31.8% of food and beverage revenue.
“Whilst revenue and profit levels between London
and the Provinces become increasingly disparate,
the one thing which unites the two hotel markets
is the price of goods. And whilst branded hotels
in the regions are feeling the pinch because
of inflationary increases in food cost, hotels in
London will undoubtedly be equally hard hit,”
said Jonathan Langston, managing director at TRI
Hospitality Consulting.
Despite suffering a 1.7% decline in food and
beverage revenue per available room, hotels
in London’s five-star sector achieved a 3.3%
increase in profit to £97.49 per available room.
The GOPPAR increase in the five-star sector for Q1
2012 was primarily as a result of a 5.1% increase
DespitetheslightdeclineinroomoccupancyinMarch,hotelsinLondonhaverecordedanearfaultlessperformanceacrossallheadlineperformancemeasuresinthefirstquarterof2012suggestingthattheyareshapingupforasuccessfulOlympicyear,accordingtothelatestHotStatssurveyofapproximately560full-servicehotelsacrosstheUK.
Following the period of decline in Q4 2011,
hotels in London have successfully achieved a
3.1% increase in profit per room in Q1 2012, with
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 15
Sector stats
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year March 2012 London 79.4% £127.75 £101.40 51.6% 5.7% 9.9% 22.2% 10.6% £139.69 £143.38 £83.69 £127.71 £102.39 £3,240 £1,124 £186 £4,549 71.2% 24.7% 4.1% 100.0% 46.4% £2,113
March 2012 Provincial 67.7% £68.69 £46.52 49.0% 11.7% 6.2% 25.6% 7.5% £69.99 £81.30 £54.27 £67.41 £56.58 £1,466 £1,049 £295 £2,810 52.2% 37.3% 10.5% 100.0% 28.1% £791
March 2012 All 71.9% £91.99 £66.13 50.0% 9.4% 7.6% 24.2% 8.7% £98.36 £96.27 £69.30 £89.16 £78.61 £2,094 £1,076 £256 £3,426 61.1% 31.4% 7.5% 100.0% 36.7% £1,259
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change March 2012 London (0.3) 3.3% 2.9% 0.8 (0.4) (1.1) 1.1 (0.5) 2.2% 4.4% -2.3% 3.5% 11.8% 2.9% 1.3% 12.3% 2.8% 0.0 (0.4) 0.3 – (0.3) 2.1%
March 2012 Provincial 0.1 1.0% 1.2% (2.8) (0.7) 0.8 1.3 1.4 0.4% 4.4% 6.2% 1.1% 7.8% 1.3% 2.4% -1.7% 1.4% (0.0) 0.4 (0.3) – (0.9) -1.7%
March 2012 All (0.1) 2.2% 2.1% (1.4) (0.6) 0.1 1.3 0.6 2.5% 4.3% -2.2% 2.2% 6.6% 2.2% 2.0% 1.5% 2.1% 0.1 (0.0) (0.0) – (0.6) 0.6%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year March 2012 London 79.7% £123.66 £98.58 50.8% 6.1% 10.9% 21.0% 11.1% £136.67 £137.27 £85.65 £123.44 £91.60 £3,149 £1,110 £165 £4,424 71.2% 25.1% 3.7% 100.0% 46.8% £2,069
March 2012 Provincial 67.6% £67.98 £45.97 51.8% 12.5% 5.4% 24.3% 6.1% £69.75 £77.86 £51.12 £66.69 £52.47 £1,447 £1,024 £300 £2,771 52.2% 37.0% 10.8% 100.0% 29.0% £804
March 2012 All 71.9% £90.02 £64.76 51.4% 9.9% 7.6% 23.0% 8.1% £95.93 £92.31 £70.84 £87.24 £73.73 £2,049 £1,054 £252 £3,356 61.1% 31.4% 7.5% 100.0% 37.3% £1,252
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year YTD London 75.3% £124.14 £93.46 50.2% 5.9% 9.5% 23.5% 11.0% £135.91 £141.34 £84.98 £122.33 £98.55 £8,510 £2,873 £498 £11,881 71.6% 24.2% 4.2% 100.0% 42.5% £5,052
YTD Provincial 62.4% £67.37 £42.07 50.3% 11.3% 5.0% 25.8% 7.7% £69.09 £78.30 £53.13 £65.85 £54.43 £3,833 £2,649 £814 £7,297 52.5% 36.3% 11.2% 100.0% 21.9% £1,595
YTD All 67.0% £89.96 £60.26 50.2% 9.1% 6.8% 24.9% 9.0% £95.65 £94.49 £70.88 £87.07 £75.80 £5,489 £2,729 £702 £8,920 61.5% 30.6% 7.9% 100.0% 31.6% £2,819
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London 1.3 2.6% 4.4% 0.7 (0.8) (0.9) 1.6 (0.6) 0.8% 3.8% 1.6% 3.2% 10.0% 5.7% 2.0% 4.3% 4.7% 0.7 (0.7) (0.0) – (0.1) 4.5%
YTD Provincial 0.3 0.1% 0.5% (1.2) (0.8) 0.3 0.1 1.5 -0.3% 1.9% 4.3% 0.6% 4.4% 1.7% -0.4% -0.5% 0.7% 0.5 (0.4) (0.1) – (1.5) -6.0%
YTD All 0.6 1.7% 2.7% (0.4) (0.8) (0.1) 0.7 0.7 1.2% 2.1% 0.8% 3.2% 4.3% 3.9% 0.5% 0.6% 2.6% 0.8 (0.6) (0.2) – (0.7) 0.4%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year YTD London 74.0% £121.04 £89.56 49.4% 6.7% 10.4% 21.9% 11.6% £134.87 £136.21 £83.64 £118.50 £89.57 £8,049 £2,818 £478 £11,344 70.9% 24.8% 4.2% 100.0% 42.6% £4,836
YTD Provincial 62.2% £67.33 £41.85 51.5% 12.0% 4.6% 25.7% 6.2% £69.30 £76.85 £50.93 £65.42 £52.11 £3,770 £2,659 £819 £7,248 52.0% 36.7% 11.3% 100.0% 23.4% £1,696
YTD All 66.3% £88.48 £58.70 50.7% 9.9% 6.9% 24.2% 8.3% £94.50 £92.55 £70.33 £84.37 £72.70 £5,284 £2,715 £698 £8,697 60.8% 31.2% 8.0% 100.0% 32.3% £2,807
in RevPAR as the top hotels in the capital achieved
a 3.7% year-on-year increase in average room rate
to £212.99.
However, at 39.7%, profit conversion at hotels
in the five-star sector was slightly below the
overall London market at 42.5% of total revenue,
reflecting the higher operational cost base
associated with the five-star product, particularly
in payroll.
In contrast, the first three months of 2012
make for gloomy reading for provincial hoteliers
as profit per room suffered a year-on year decline
of 7% in Q1.
March was the strongest period of trading
for provincial hoteliers since the beginning of
the year with a 1.2% increase in RevPAR, which
was primarily driven by a one per cent increase
in achieved average room rate, to £68.69.In
addition to the growth in rooms revenue, hotels
in the provinces were able to achieve a 4.5%
increase in food and beverage revenue, to £28.89
per available room, which contributed to the first
TrevPAR increase in the regions in 2012.
However, rising costs were to blame for a swing
from a TrevPAR increase of 1.3% to a GOPPAR
decrease of 1.8% during March. Following the
tough start to the year which included a 14.3%
decline in profit per room in January and a 10.2%
decrease in February, the 1.8% decline in profit
per room in March may be considered a step in the
right direction. Whilst payroll costs for the month
remained stable at approximately 32.6% of total
revenue, the decline in profit per room only
served to highlight the threats to profitability in
other costs.
One of the hardest hit this month was food and
beverage, which, despite the increase in revenue
levels showed a decline in food profit conversion of
0.8%. “During a period when hoteliers are finding
it increasingly difficult to pass on any increases in
costs to the consumer, the latest figures from the
British Retail Consortium show that the rate of
food price inflation in the UK climbed to 5.4%
in the year to March, up from 4.2% in the year
to February. This has undoubtedly impacted the
ability of hoteliers to convert a strong increase in
food and beverage revenue to an increase in profit
in this department,” said Langston.
Good news has been hard to find in the
provincial hotel market during the first quarter
of the year, but the markets which have recorded
positive profit results on a per available room
basis during this period have included Cambridge
(+0.7%), Reading (+6.5%) and Chester (+29.5%).
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CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Edgwarebury Hotel Elstree UK Upscale 49 Freehold April 2012 5,800,000 7,018,000 143,224 Corus Hotels Laura AshleyIbis Prague Prague Czech Republic Midscale 226 Freehold April 2012 Undisclosed Undisclosed Undisclosed Quinn Group HPI Hotelbesitz GmbH Hotel will be renovated and rebranded Royal Crescent Hotel Bath UK Upper Upscale 77 Freehold April 2012 18,000,000 21,780,000 282,857 Administrator for Von Essen Topland Group Price is reportedSeaham Hall Durham UK Upper Upscale 20 Freehold April 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Seasons Holidays Asking price was £5mHilton Southwark Hotel London UK Upper Upscale 281 Unknown April 2012 Undisclosed Undisclosed Undisclosed Shiraz Boghani Partner buyout. Hotel is currently under constructionExplorers Hotel Ile-de-France France Midscale 390 Unknown April 2012 24,000,000 24,000,000 61,538 Thomas Cook Verquin SAS Thomas Cook will receive cash proceeds of €3.4m and Verquin
will assume €20.1m operating lease liability Holiday Inn Eindhoven Eindhoven Netherlands Upper Midscale 206 Sale &
LeasebackMarch 2012 22,500,000 22,500,000 109,223 Eden Hotel Group Invesco Real Estate Hotel is on a hybrid lease under and InterContinental
franchise agreement3 Penta Hotels in Germany Various Germany Upper Midscale 414 Freehold March 2012 Undisclosed Undisclosed Undisclosed CRE Hotel Immobilien GmbH HPI Hotelbesitz GmbH Pentahotel Braunschweig, Pentahotel Eisenach and
Pentahotel KasselPremier Inn Princess Street and Retail Unit
Edinburgh UK Economy 97 Unknown March 2012 34,000,000 41,140,000 Unknown Deramore Property Group La Salle IM The development include the 97 room hotel and 30,000 sq ft retail unit pre-let to New Look
2 Scarborough Hotels Scarborough UK Midscale 188 Freehold March 2012 Undisclosed Undisclosed Undisclosed Administrators for ERH Limited Britannia Hotels The Royal Hotel and the Clifton Hotel were marketed at £7.5m-8m and £2m-2.25m
American Hotel Amsterdam Amsterdam Netherlands Upper Upscale 175 Sale & Leaseback
March 2012 Undisclosed Undisclosed Undisclosed Eden Hotel Group Deka Immobilien
Melia Hotel Esplanade de Charles de Gaulle
Paris France Upscale 369 Freehold March 2012 Undisclosed Undisclosed Undisclosed Union Invest RE Vinci Immobilier The hotel is leased to Melia Hotels International
Dalhousie Castle Edinburgh UK Upper Upscale 29 Unknown March 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Robert and Gina Parker The hotel was on the market for £5mSuite Novotel Hamburg City Hamburg Germany Upscale 186 Unknown March 2012 Undisclosed Undisclosed Undisclosed iii-investments Deka Immobilien
AvailabledealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Intercontinental Vienna Vienna Austria Luxury 453 Unknown March 2012 59,700,000 59,700,000 131,788 Toufic Aboukhater WestInvest Group Deal is expected to close at the end of H1 2012. Planned renovation
Reid's Hotel Madeira Madeira Portugal Luxury 163 Unknown March 2012 Unknown Unknown Unknown Orient-Express Wyndham Grand Chelsea Harbour
London UK Upper Upscale 158 Long Lease March 2012 Unknown Unknown Unknown
Staybridge Suites Newcastle UK Upscale 128 Unknown March 2012 Unknown Unknown Unknown Administrator for Trinity Hotels
Analysis
BoutiquehotelsareheretostayBlakes Hotel in London and Morgans Hotel in New
York. Since then the concept of boutique hotels
has evolved with the entry of international chains
into the sector, with brands such as Edition by
Marriott, W initially and later Aloft and Element by
Starwood, Indigo by Intercontinental and Andaz
by Hyatt. Mostly known with the term “lifestyle”,
these hotels provide the same unique experience
as boutique hotels but tend to be larger and
more formulaic.
However, the question is how do boutique hotels
(excluding “lifestyle” brands) perform in relation
to their branded competitors? Is the demand for
good quality boutique hotels so strong that these
hotels can survive without being connected to an
internationally branded network? To answer this
question we analysed the performance (sourced
from STR Global) of a sample (chosen and
defined by Colliers International) of good quality,
centrally located boutique hotels in and around
central London and in major provincial UK cities,
and compared their trading performance to a
The boutique concept certainly seems to be paying its way in the UK, says Justin Lanzkron of Colliers International
Althoughnostandarddefinitionofboutiquehotelshasbeenagreedupon,mostboutiquehotelsdosharesomecommoncharacteristics.Theyaredesign-ledpropertieswithusuallynomorethan100roomsandprovideauniqueexperienceatanupscalelevel.Mosttendtobeofgoodqualityandwelllocated.
As with any other hospitality product, the
success stories of boutique properties relies on
fundamentals such as location, a personality-based
product, quality, market demand and a clearly
defined marketing approach. Most boutique
hotels can be found in trendy neighbourhoods of
sophisticated urban destinations, but lately they
are increasingly being found in gateway cities as
well as rural and regional locations.
Boutique hotels first appeared in the 1980s with
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Analysis
CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Edgwarebury Hotel Elstree UK Upscale 49 Freehold April 2012 5,800,000 7,018,000 143,224 Corus Hotels Laura AshleyIbis Prague Prague Czech Republic Midscale 226 Freehold April 2012 Undisclosed Undisclosed Undisclosed Quinn Group HPI Hotelbesitz GmbH Hotel will be renovated and rebranded Royal Crescent Hotel Bath UK Upper Upscale 77 Freehold April 2012 18,000,000 21,780,000 282,857 Administrator for Von Essen Topland Group Price is reportedSeaham Hall Durham UK Upper Upscale 20 Freehold April 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Seasons Holidays Asking price was £5mHilton Southwark Hotel London UK Upper Upscale 281 Unknown April 2012 Undisclosed Undisclosed Undisclosed Shiraz Boghani Partner buyout. Hotel is currently under constructionExplorers Hotel Ile-de-France France Midscale 390 Unknown April 2012 24,000,000 24,000,000 61,538 Thomas Cook Verquin SAS Thomas Cook will receive cash proceeds of €3.4m and Verquin
will assume €20.1m operating lease liability Holiday Inn Eindhoven Eindhoven Netherlands Upper Midscale 206 Sale &
LeasebackMarch 2012 22,500,000 22,500,000 109,223 Eden Hotel Group Invesco Real Estate Hotel is on a hybrid lease under and InterContinental
franchise agreement3 Penta Hotels in Germany Various Germany Upper Midscale 414 Freehold March 2012 Undisclosed Undisclosed Undisclosed CRE Hotel Immobilien GmbH HPI Hotelbesitz GmbH Pentahotel Braunschweig, Pentahotel Eisenach and
Pentahotel KasselPremier Inn Princess Street and Retail Unit
Edinburgh UK Economy 97 Unknown March 2012 34,000,000 41,140,000 Unknown Deramore Property Group La Salle IM The development include the 97 room hotel and 30,000 sq ft retail unit pre-let to New Look
2 Scarborough Hotels Scarborough UK Midscale 188 Freehold March 2012 Undisclosed Undisclosed Undisclosed Administrators for ERH Limited Britannia Hotels The Royal Hotel and the Clifton Hotel were marketed at £7.5m-8m and £2m-2.25m
American Hotel Amsterdam Amsterdam Netherlands Upper Upscale 175 Sale & Leaseback
March 2012 Undisclosed Undisclosed Undisclosed Eden Hotel Group Deka Immobilien
Melia Hotel Esplanade de Charles de Gaulle
Paris France Upscale 369 Freehold March 2012 Undisclosed Undisclosed Undisclosed Union Invest RE Vinci Immobilier The hotel is leased to Melia Hotels International
Dalhousie Castle Edinburgh UK Upper Upscale 29 Unknown March 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Robert and Gina Parker The hotel was on the market for £5mSuite Novotel Hamburg City Hamburg Germany Upscale 186 Unknown March 2012 Undisclosed Undisclosed Undisclosed iii-investments Deka Immobilien
AvailabledealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Intercontinental Vienna Vienna Austria Luxury 453 Unknown March 2012 59,700,000 59,700,000 131,788 Toufic Aboukhater WestInvest Group Deal is expected to close at the end of H1 2012. Planned renovation
Reid's Hotel Madeira Madeira Portugal Luxury 163 Unknown March 2012 Unknown Unknown Unknown Orient-Express Wyndham Grand Chelsea Harbour
London UK Upper Upscale 158 Long Lease March 2012 Unknown Unknown Unknown
Staybridge Suites Newcastle UK Upscale 128 Unknown March 2012 Unknown Unknown Unknown Administrator for Trinity Hotels
sample of internationally branded hotels in similar
locations in and around London and the same
provincial UK cities.
Between 2006 and 2010 the London boutique
hotels achieved occupancy levels between 80%
and 84%, while the London branded sample
achieved a level of occupancy between 85%
and 87% in the same period. Regarding average
room rate (ADR), the London boutique hotel
sample consistently achieved an ADR between
£195 and £200 (dropping to £189 in 2009), while
the London branded sample achieved an ADR
between £100 and £130. The London boutique
hotel sample’s ADR has consistently outperformed
the London branded hotel sample. In 2005 the
gap between the two samples was £100 while
in 2010 the gap between the two samples was
£66. Although the data indicates the occupancy
of the London boutique hotel sample is much
more sensitive to economic fluctuations compared
to the branded hotels, what is impressive is that,
despite not being part of a larger international
brand or network, the boutique hotels can achieve
almost the same occupancy as the branded hotels
and a significantly higher ADR.
The same trend exists for the sample of UK
provincial boutique hotels. Over the last two
years UK provincial boutique hotel’s occupancy
has outperformed their branded competitors by
two percentage points. Over the last six years
the ADR of the provincial boutique hotels sample
has consistently outperformed their branded
competitors in similar markets by between £42
and £53. In 2010 the difference in ADR between
the two samples was £44 (£117 compared to
£73). Again it is impressive that, despite not being
part of a larger international brand or network,
the boutique hotels can still generate much higher
ADRs compared to the branded hotels within
the same market. This again indicates the high
demand and power of the boutique concept, and
the importance of having a high quality hotel in a
good central location within a particular market.
The rise in boutique hotels has been aided by
the rapid advancement of technology and a new
generation of hotel guests who expect speedy
gratification of their wishes and highly customised
products. The boutique hotel sector has enjoyed
significant growth, particularly in the UK/London,
over the last five to ten years. Given the continued
popularity and increasing demand for the boutique
hotel concept and impressive performance of this
type of hotel (particularly in ADR), it is likely this
growth and popularity trend will continue in the
future. Boutique hotels are here to stay!
Justin Lanzkron is Associate Director
at Colliers International
This table features individual asset and
portfolio transactions in excess of €5m
in the EMEA region. The exchange rate
used on the table was £1 = €1.2100.
Boutiquehotelsareheretostay
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Amovetoassetlightpromisedatransformationintheperformanceandunderstandingofhotelcompanies.Ithasdeliveredinsomeways,buthasleftunansweredquestions.
IntroductionAsset light has become the modus operandi of
the global major hotel companies reflected in
both their capital structure and their corporate
structure. Some smaller hotel companies have
tried to climb on the band wagon by achieving
some management contracts and franchises, but
few have succeeded in becoming significantly
asset light. In this note we examine the move
to asset light, explore its implications for the
valuation of hotel chains and for the management
of supply, demand and performance by global
major hotel chains.
TheemergenceofassetlighthotelcompaniesIn the broadest terms asset light hotel companies
are those affiliated to their hotels through
management contracts and franchises. Those
companies which own or lease as well as
manage their hotels are asset heavy. In practice
the distinction between asset light and asset
heavy companies is not binary since many hotel
companies have a mixture of both and style
themselves as asset right or asset smart companies.
Franchising started seriously in the US in the
early 1950s. Holiday Inns grew dramatically from
a standing start in 1952 to 25,000 rooms in
1960, mostly through franchising. Management
AssetLightHotelCompanies:WhereNext?contracting followed in the US driven by the larger
publicly quoted hotel companies such as Hilton
and Sheraton needing to access more capital than
was available to them from their shareholders and
seeking to de-risk their international expansion. A
further boost to asset light was the development
of the US accounting convention requiring public
companies to depreciate owned and leased real
estate, which was a precursor to the introduction
of REITS.
In the UK, the move to asset light did not begin
until the 1990s and was for different reasons
than in the US. By the mid-1990s investors had
become irrevocably dissatisfied with the returns
achieved by asset heavy hotel companies and
marked their valuations sharply downwards. As a
result, over the following years, most of the 51
publicly quoted hotel companies operating in the
UK in 1995 with 125,000 rooms were either taken
private or were acquired reducing the number of
quoted hotel chains operating in the UK by 2010
to 20 with 139,000 rooms. Over the period the
quoted global majors grew their UK asset light
portfolios from 19,000 rooms to 88,000 rooms.
The presence of the other quoted companies in the
UK fell from 106,000 asset heavy rooms in 1995
to only 51,000 in 2010, which is a measure of
change in the perception of value by shareholders.
CorporatevaluationandthetransitiontoassetlightThe promise of the asset light structure was that it
would reduce the risk profile of the companies, it
would accelerate portfolio expansion, increase the
level of free cash flow and would be rewarded with
higher PE multiples producing higher valuations.
The problem is that there is little evidence that the
valuation multiples of asset light hotel chains have
benefited from the transition. At the end of 1996,
the shares of Bass, the precursor company of IHG,
which in addition to its hotel business owned
breweries, pubs, bingo clubs, betting shops, a
share in a soft drinks business and sundry other
leisure businesses stood on a price earnings ratio
of 15.6x in November 1996 against 17.5x for IHG
in April 2012. Additionally, in 1996 the forward
EV/EBITDA of Bass was 10.6x whereas in April
2012 it was 10.1x for IHG.
Over the past 15 years the business profile of
Bass changed radically as did its capital structure,
its corporate structure, its corporate culture and
the expertise it needs to run the business. Over the
period, Bass sold its non-hotel businesses and its
hotel real estate. Moreover, it boosted shareholder
returns materially with a progressive dividend
policy, returned circa $3 billon to shareholders from
asset disposals and grew its hotel rooms portfolio
by a CAGR of 4% adding 280,000 rooms, net,
on an asset light basis. In return investors have
rewarded the company with little change to the
two prime valuation metrics and left the enterprise
value of the company 40% below its 1996 level.
The asset light model means that the companies
consolidate only the fee income from franchises
and management contracts and have been unable
to produce enough free cash flow or attract higher
ratings to provide larger valuations. An example of
this is from the sale of Le Meridien to Terra Firma
in 2001 on which we advised the seller when we
were at Kleinwort Benson. At the time, Le Meridien
had a portfolio of 146 hotels with 41,000 rooms
in 55 countries. 37 of the hotels were owned or
long leases, 96 were management contracts and
13 were franchised. The 37 owned and leased
hotels accounted for 90% of the brand EBITDA,
while in economic terms the 109 managed and
franchised hotels were marginal.
Despite vigorous efforts to expand their asset
light portfolios, none of the global majors have
amassed enough management contracts and
franchises to generate significant market value
in global terms. The largest global major hotel
company by market value, Marriott International,
would need to grow its value by one third to
become the 500th largest company in the world
as table 1 illustrates.
Paul Slatteryand Ian Gamsefrom Otus & Co assess the good and the bad of asset light
Table 1: Global major hotel companies and market value 2011
Market Value Discount to Businesses in end 2011 $m FT Global 500 addition to hotels
Accor 5,686 -66% None
Choice Hotels International 2,268 -86% None
Hyatt 6,402 -61% Timeshare
InterContinental Hotels Group 5,385 -68% None
Marriott Internatioinal 11,087 -33% None
Starwood Hotels & resorts 10,032 -39% Timeshare
Wyndham Worldwide 5,797 -65% Timeshare
Source: Bloomberg and Financial Times
Analysis
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continued on page 20
Portfoliogrowth1995-2010The most vigorous activity of the asset light
companies over the past 15 years has been to
expand their portfolios. Collectively, the global
majors have doubled their room stock through
organic hotel growth and chain acquisition as
table 2 illustrates.
The most notable of the chain acquisitions
include the Hilton Hotels Corporation acquisitions
of Promus and Hilton International. Similarly,
Bass/IHG acquired Intercontinental Hotels and
Posthouse, which provided the spine of its UK
Holiday Inn portfolio.
Most of the doubling of the global major
portfolios over the past 15 years has been organic,
which required the substantial expansion of
development teams incentivised to sign as many
new hotels as possible, thus annual additions to
the portfolios and the pipeline of each company
have become signs of corporate virility. However,
the focus on portfolio growth has produced an
imbalance in the structure and performance of
the global chains. Over the past 15 years in the
US, the UK, France and Germany, most of the key
markets for the global majors, a sharp imbalance
between room supply and demand has emerged
as the chart for the US illustrates.
During the first decade of the 21st century,
187 million hotel room nights, net, were added
by hotel chains in the US, but they sold only 50
million more room nights. Although there were
cyclical elements to the volume of room nights
sold between 2007 and 2010, room supply growth
was impervious to the pattern of demand growth
throughout the period. In the US, as well as the
UK, France and Germany the chains, the hotel
owners and their advisors have been ineffective
in assessing supply and demand risk. The chains
have been lured into accelerating supply growth
because of the assumption that they suffer little
or no supply risk, however that assumption has
proved to be misguided.
One manifestation of the supply and demand
imbalance is that the incentive fees earned from
management contracts have collapsed. Marriott
and IHG have reported that in the US a minority of
their managed hotels have been paying incentive
fees and there are no good reasons to believe that
the other global majors have fared any better.
Hotel supply management by the asset light
chains is now a problem for the chains and the
owners of the hotels.
DemandgenerationandassetlightcompaniesAnother way to look at the issue of the imbalance
between supply and demand is that the chains
have been focused too much on portfolio
growth and focused too little on their capacity
to generate demand. It is an article of faith that
hotel chains are more effective at generating
demand than unaffiliated hotels and further that
the global major chains are more able to generate
premium demand than short chains. The asset
light period requires these beliefs to be considered
more closely.
There is little evidence that any one of the
global majors is noticeably better than any other
in generating demand even though there is a
significant difference in the size of their marketing/
media funds. Of the chains that publish the size of
their funds, IHG recorded $1,200m in the most
recent year, three times more than the €310m,
$400m recorded by Accor and a reflection of the
much heavier concentration of the IHG portfolio at
mid-market and above, while the Accor portfolio
is concentrated at mid-market and below.
Table 2: Global chains expansion 1995-2010
Company Global rooms Company Global rooms 1996 1995 2010 2010 Net change CAGR %
Accor 248,200 Accor 485,300 237,100 5%
Bass 377,700 InterContinental Hotels 656,700 279,000 4%
Carlson 89,000 Carlson Rezidor 163,000 74,000 4%
HFS 434,800 Wyndham Hotel Group 606,800 172,000 2%
Hilton Hotels Corporatiion 92,600 Hilton Worldwide 597,200 504,600 13%
Hyatt 78,000 Hyatt 126,000 48,000 3%
ITT Sheraton 139,700 Starwood Hotels & Resorts 300,900 161,200 5%
Manor Care 267,000 Choice Hotels International 490,500 223,500 4%
Marriott 219,780 Marriott International 595,500 375,720 7%
Total Global Majors 1,946,780 Total Global Majors 4,021,900 2,075,120 5%
Source: Otus & Co Ltd
-20
-10
0
10
20
30
-20
-10
0
10
20
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Ann
ual c
hang
e in
roo
m n
ight
s (m
illio
ns)
Chain room nights supply growth p.a.
Chain room nights sold growth p.a.
Hotel chain supply and demand growth: US 2000-2010
Source: Otus & Co
Analysis
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Demand generation capacity also relies on
the geographic spread of the global majors.
Carlson Rezidor, Choice Hotels, Hilton, Hyatt,
InterContinental, Marriott, Starwood and
Wyndham all have a significant presence in the
US and Accor has a material presence in France as
table 3 illustrates.
In the US and for Accor in France, the global
majors have the market share, the cash flow,
the brand power, the brand infrastructure and
the manpower to generate premium demand.
However, even in these countries and despite
outperforming unaffiliated hotels over the past
decade, hotel chains as a whole added to hotel
supply at a faster rate than they sold room nights
and the proportion of managed hotels on which
they earned incentive fees declined.
In most of the other countries their
market share, cash flow, brand power, brand
infrastructure and manpower are too low to
generate premium demand. Hyatt, for instance,
has more rooms in Chicago than it has in the
whole of Europe. There are 38 European countries
in which it has no presence. It has only one hotel
in Greece, Italy, Kazakhstan, Kyrgyzstan, Poland,
Serbia, Switzerland and Ukraine. It has only two
hotels in Azerbaijan, Russia and Turkey. It has
three hotels in France and the UK and five hotels
in Germany. Its fee generation from these hotels,
its microscopic market share, its absence of brand
power and its limited brand infrastructure means
that it is a greater challenge for Hyatt to generate
effective demand. Additionally, it has the second
lowest exposure of the global majors in the US
and thus has more limited funds to subsidise
demand capture throughout Europe. The evidence
from the past decade in the US, the UK, France
and Germany is that the global majors have not
developed effective enough strategies to close the
supply/demand imbalance, to earn incentive fees
on greater proportions of their managed hotels
and to enhance their share valuation.
Despite the challenges of the supply and
demand imbalance, the inherent structure of the
asset light global major companies enables them
to generate more significant free cash flow than
asset heavy companies, which invariably they have
used to buy back their shares to try to enhance
the valuation metrics or to make special dividend
payments to enhance the total returns for
shareholders. The impact of these actions has put
a floor on share valuations more than they have
enhanced the ratings of the companies involved.
ConclusionsIf the global major hotel companies had not
made the transition to asset light, the valuation
of their shares and thus their corporate valuations
would have collapsed. However, the transition to
asset light has not delivered much of a re-rating
of their shares in spite of reducing the risk profile
of the companies, accelerating the growth of the
companies, focussing more on the hotel business
and generating more free cash. The companies are
now faced with complex strategic issues about the
performance of their portfolios and about how
they will be able to achieve a medium to long term
rate of growth that will sustain and enhance their
valuation multiples. These are very adult issues that
will require the main boards of the global majors
to analyse more creatively than they have done
in the past the economies in which they operate
and aspire to operate. It will also require them to
capture greater market share of hotel supply and
demand in ways that does not impede hotel and
chain performance. The most able managements
will be those that deliver faster sustained growth
than their global major competitors. Sadly there
is little sign that, thus far, they have had many
good ideas.
Paul Slattery, Otus & Co Ltd
Ian Gamse, Otus & Co Ltd
Analysis
continued from page 19
Table 3: Global major hotel chains – world presence 2010
World rooms US rooms US share % Europe rooms Europe share % Elsewhere rooms Elsewhere share %
Intercontinental Hotels Group 656,700 394,200 60% 95,300 15% 167,200 25%
Wyndham Worldwide 606,800 458,800 76% 27,600 5% 120,400 20%
Hilton Worldwide 597,200 481,800 81% 46,900 8% 68,500 11%
Marriott International 595,500 476,900 80% 39,900 7% 78,700 13%
Choice Hotels International 490,500 389,600 79% 42,200 9% 58,700 12%
Accor 485,300 111,200 23% 257,700 53% 116,400 24%
Starwood Hotels & Resorts 300,900 146,300 49% 39,500 13% 115,100 38%
Carlson Group 163,000 69,300 43% 64,000 39% 29,700 18%
Hyatt 126,000 91,100 72% 6,100 5% 28,800 23%
Totals 4,021,900 2,619,200 65% 619,200 15% 783,500 19%
Source: Company Websites, Otus & Co Ltd
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Analysis
HRimplicationsof“thenewreality”
AschairmanofKewGreenHotelsandHOSPA,andanexperiencednon-executivedirector,Paulhasaninvaluableperspectiveonthecurrentclimateandhowthisinfluencesthecriticalrelationshipbetweenthebanksandmanagementteams.
LR:Howwouldyousummarisetheoverallsituation.Whatisthebackground?
PD: The hotel sector, whilst inherently cyclical in
nature, has failed to bounce back after four years
of downturn since its peak in 2007, in line with
the economy as a whole. The general consensus of
opinion in 2009, seemed to be that recovery would
commence in 2011. It has not, and remains flat at
best. Where we are in the business cycle is, frankly,
anyone’s guess ( assuming there still is “a cycle”!)
The sector’s fortunes have historically been
closely correlated with movements in overall GDP
and there is now no clear visibility of the timing of
an eventual economic recovery, and this could well
take at least two years to come through. Some
financial pundits are even less optimistic.
Given the over-lending to the sector up until
2007, and the subsequent sharp fall in performance
and property values, many individual hotels and
groups of hotels, are significantly over-leveraged,
have breached covenants, and have been in this
parlous condition for some time. Transactions in
the sector have been minimal, largely negated by
the continued lack of availability of bank finance
from nil at best, to now anything at more than
a maximum of 50% of LTV (or 5-6x EBITDA) in
prime locations.
There have been some high profile flops in
the past two years, and subsequent piecemeal
disposals (for example, Von Essen), but by and
large the lending banks have sought, so far,
to avoid hoisting the “For Sale” signs, or from
placing hotels into administration or receivership.
There now seems to be a realisation that the
banks, and their clients, post a re-financing of
their portfolios in some cases, will need to learn
to live with their heavily-indebted hotel companies
until the market recovers sometime down the line.
This “new reality” for the banking sector, is
unfamiliar territory (and indeed, an unknown and
uncomfortable space).
LR:Fromyourperspective,whataretheHRimplicationsofthecurrentsituation?
PD: Whilst post a re-financing, the banks may have
board representation, the quality of the management
teams in the hotel companies is crucial.
Banks are not renowned for their hands-on
managements skills, and indeed, have needed to
incentivise key players at hotel management team
level that can recover value over time and share
in the overall economic interest. Management
teams will need to be strengthened in some cases
with an emphasis on financial awareness, solidity
and experience
Where there are several different lending banks
involved in financing the company, and different
sections of each bank providing debt or equity
finance, all with differing priorities, it requires a
skilled bank-appointed chairman or non-exec to
navigate the company forward, whilst binding
in the executive team to the achievement of the
agreed, sometimes diverse, objectives. Often, the
only route to value-enhancement in the short and
medium term is to be able to demonstrate to the
banking community that other portfolios under
their wing would be better managed by one of
their other investee companies. The free availability
and the plethora of independently benchmarked
sector relevant KPI’s, has enabled this analysis to
be performed at arms length. This new set of
relationships, requires an understanding that the
next few years will require a partnership between
lending banks and management to work through
to a position of mutual benefit.
LR:Doyouseethetrendofbankstakingonindustryadvisorsasanongoingtrend?
PD: Yes. Whilst expensive in the short term, it
seems eminently sensible to seek advice from
industry specialists when the banks are considering
their strategic options. I see this trend as welcome
and ongoing.
LR:AschairmanofKewGreenHotels,whathavebeenthebiggestchallengesfacedbythecompanyinthelastyear?
PD: Following the re-financing of the company
in March 2011 with Lloyds and Barclays, the
management team have had their heads down
maximising returns, and nailing down the cost
base given the weak economic outlook, with
little available organic growth. This has made
the company much leaner, with industry-leading
profit conversions. This now gives all parties the
confidence to move forward, albeit in a flat market.
All but one of our properties carry a major
brand flag, and each of our franchise partners
have “played ball” and been supportive. Similarly,
all of our leasehold properties have had their
leases re-negotiated in the last year. We have been
active with the banking community in growing
the company through management contracts,
being able to demonstrate our superior profit
conversions. The shortage of capital has prevented
us from other forms of expansion and value
creation, and this drought is likely to continue.
LR:Whatdoyouthinkarethekeyattributesforaneffectivenon-execorchairman?
PD: In the current and uncertain economic malaise,
I see the key qualities are, inter alia:
• Astrongfinancialbackground
• Agoodlistener
• Agoodfacilitator
• Goodnetworkingskills
• Awidespreadcontactbase
• Strongdiplomaticskills
• Persistence
• Personalandprofessionalintegrity
• Aboveall,widespreadandextensiveexperience
in the sector, in understanding the bank’s
requirements, and in what motivates the
management team.
LR:Andwithyourcrystalballfirmlyinplace,whatisyourprognosisofthenext24months?
PD: Tough! Very! It will be a long and hard road to
recovery, with little or no visibilty! Both operators
and banks will need to learn to live with this
new reality.
Lesley Reynolds is chief executive
of Portfolio International
Lesley Reynolds, CEO of Portfolio, talks with Paul Dukes
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Recentturbulenteconomicconditionshaveledtoariseincommercialdisputes.However,bythetimecompaniesarefacedwiththerealityofalegalbattle,manyfindthattheyarealreadyatatacticaldisadvantage,andhotelsarenoexceptiontothisrule.
When it comes to the drafting of commercial
contracts, whether it be an international hotel
management contract, a franchise agreement or
otherwise, dispute resolution clauses are often
an afterthought, addressed at the tail end of the
negotiation process. Yet when a conflict does
arise, a well considered clause could mean the
difference between resolving the dispute swiftly
and preserving the commercial relationship, or
being trapped in a lengthy, costly and adversarial
legal battle.
There is no ‘one size fits all’ approach when
deciding whether to opt for litigation, arbitration,
or some other dispute resolution process.
However, there are a number of key questions that
hotel operators can consider when negotiating
contracts to ensure that any potential disputes
are addressed by the method that is most likely to
protect their interests, and minimise financial risk.
The questions below are by no means exhaustive
but illustrate some of the key differences between
arbitration and the court process.
Litigateorarbitratetosettlethescore?DLA Piper’s Matt Dudley says thinking ahead can prevent disputes getting out of hand
Doyouenterintointernationalcontracts?Given that some nations do not automatically
recognise judgments of the courts of other
countries, it can be difficult to enforce such
judgments across jurisdictions. Whilst EU
legislation provides for judgments automatically
to be recognised within the EU, no universally-
applicable legislation exists outside the EU.
International hotel operators need to ensure at the
outset that any judgments arising from disputes
could be adequately enforced – particularly to
jurisdictions outside the EU.
Arbitration awards, on the other hand, are
generally easier to enforce in other countries.
The majority of developed countries have agreed
to recognise arbitration awards made in other
countries, through ratification of a treaty known as
the New York Convention. At the time of writing,
146 states have ratified the New York Convention,
including states such as Afghanistan, India and
the United States where the enforcement of
foreign court judgments can prove particularly
problematic.
This being so, arbitration can be the preferred
process when dealing with multi-jurisdictional
trading relationships, though it ultimately depends
very much on which countries are involved.
Whatistheestimatedvalue/complexityoftheclaim?The commonly held view is that arbitration is
cheaper and faster than court litigation. In reality,
however, the speed and cost of any process
greatly depends on the attitudes of the parties
involved, the skills of the arbitrator/judge and
the complexity of the claim. For example, a well-
selected arbitrator can implement a streamlined
process that achieves an early and cost-effective
solution. However, a less well-managed arbitration
process can prove to be inefficient and costly. The
selection of the tribunal is therefore an important
ingredient if arbitration is your preferred route.
Equally, selecting the right arbitration rules to
apply is important – some rules, for example,
provide for confidentiality whilst others do not.
For a lower value claim, the cost of paying
the arbitrator’s fees may be disproportionate
when balanced against the value of the claim,
particularly if the relevant dispute resolution clause
obliges the parties to appoint a three member
tribunal. Consider, for example, a low value claim
by an operator for an unpaid franchise fee. It is
likely that the operator would wish to avoid a
binding commitment to use three arbitrators to
determine the claim. Careful consideration of the
likely nature of any dispute is key to shaping the
relevant dispute resolution mechanism.
Shouldthedisputebekeptconfidential?It is not only money that is at stake during a dispute.
Companies may be equally concerned over the
long term risk to brand reputation and commercial
relationships. The last thing an operator may
want is for allegations of mismanagement to be
reported on by the media.
If the quality of your services is being called into
question, there will likely be a significant benefit
to keeping the dispute out of the public domain.
Arbitration allows this to happen as hearings can
be held in private and all statements of case, orders
and awards usually remain private documents.
By contrast, court trials are open to the public.
Moreover, third parties, such as competitors
and the media, can freely obtain copies of any
statements of case, courts orders and judgments
relating to the proceedings.
Isthereanon-goingrelationshiptoprotect?For the reasons discussed above, if it is likely that
there will be an ongoing trading relationship
notwithstanding any dispute, the privacy and
flexibility of an arbitration process can be
preferable to the court process.
Doyouwanttohavetheoptiontoarbitratebutstillusethecourtsifnecessary?Parties can seek to retain the option to decide
whether to use the courts or an arbitration process
(whether for specific claims or more generally) at
the time of a dispute arising. This requires more
careful drafting at the time when the contractual
documentation is drawn up, but can be a valuable
tactical option to have later.
ConclusionIt is not always possible to avoid disputes,
particularly in an increasingly litigious climate.
There are however a wide range of options for
dealing with disputes (not just arbitration or court
processes), and it is worth taking time early in
the negotiation process to identify the areas in
which conflict may arise and drafting appropriate
methods to address those areas. If an appropriate
course is taken at the outset, businesses can avoid
placing themselves at a costly disadvantage and
actually empower themselves to be able to achieve
effective and positive solutions to future problems.
Matt Dudley is a solicitor in DLA Piper’s
Litigation & Regulatory Group
Analysis
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The Insider
Featured businessesAccor 5, 11, 12, 19, 20Active Estates 8 Arabella 6Ascott 8Barclays 23Capitaland 8Carlson 4, 12, 20CBRE 28Choice 3, 6, 20Club Med 4CMS Cameron McKenna 1Colliers International 16, 17Connection Capital 8DLA Piper 25DTZ 2 Hilton 4, 18, 19, 28HNA 9, 10HotbedUK 8Hyatt 10, 16, 20InterContinental 3, 4, 7, 16, 18, 19, 20, 28Invesco Real Estate 5Jones Lang LaSalle 5, 11Kew Green 23Lloyds 23Marriott 3, 4, 16, 18, 19, 20Melia 9, 11NH Hoteles 9, 10, 11Otus & Co 18, 19, 20Peveril Securities 8PKF 5Portfolio 23Prime Development 5Rezidor Hotel Group 4, 12, 20Riverside Capital Group 8Savills 4Sheraton 18Splendid Hotels 28Starwood Hotels & Resorts 3, 5, 16, 20Steigenberger 6STR Global 16Travco 6Travelodge 8TRI Hospitality Consulting 13, 14, 15Vision Hospitality Management 1Von Essen 1, 3, 23Westbrook 2 Whitbread 7Whitebridge Hospitality 4Wyndham 9, 20
hotelanalyst
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SplendidresultforBhoghani
Nomorejellydoughnut
The InterContinental Westminster, still under
construction, is back in the hands of one of its
original development partners. And the deal
would appear to have substantially settled a
spat between the partners of the Splendid Hotel
Group, which came to the fore as the hotel was
put on the market last September.
The InterCon, which CBRE was asking more than
GBP80m for, was put up for sale alongside the
Southwark Hilton, which had a GBP35m price tag.
The sales of the part built hotels were forced
by a disagreement between Shiraz Boghani and
Bashir Nathoo, joint owners of the Splendid
Hotel Group.
Founded in 1986, the company built a portfolio
of hotels in the UK. But when IHG signed to
manage the new Westminster InterCon in 2009,
clearly all was not sweetness and light. In 2010,
Splendid put a portfolio of seven Holiday Inn and
Express hotels on the market, aiming to raise
GBP200m to help fund the move upmarket.
Matters came to a head in April 2011, when
Boghani served notice to dissolve the Splendid
partnership. Boghani wanted to sell the two hotel
assets as they stood, while Nathoo wanted to share
the spoils once the schemes were completed. A
High Court judge decided the hotels could be sold
while incomplete.
Berlin is haunted by three events: Hitler’s suicide,
the rise and fall of the Berlin wall and the launch
of Hilton’s Denizen brand.
Since the launch party and lengthy lawsuit
that was Denizen, operators have been wary of
revealing their brands in Berlin, where there is a
tough crowd, but one that can often be mollified
with the adroit application of a mini-burger.
It was not lost on perennial IHIF panel chair
Simon Johnson, CBRE’s director of specialist
markets, that InterContinental chose the week
before the conference to launch its wellness
brand, Even Hotels.
IHG has stuck to the defence that, with Even
launching in the US, it was not appropriate to
reveal the brand at a Europe-centric event (despite
the roll of delegates including the senior executives
of many of the global operators).
You’reintherightplaceTravel and tourism’s inexorable rise as a business
sector has been underlined by figures delivered by
the World Tourism & Travel Council, who reckon
2012 will be a landmark year when the sector will
contribute more than USD2trn in GDP.
WTTC suggests the industry will grow 2.8%,
ahead of global economic growth of 2.5%, and
will directly sustain 100.3 million jobs.
“It is clear that the travel and tourism industry
is going to be a significant driver of global growth
and employment for the next decade,” said said
David Scowsill, WTTC president. “Our industry is
responsible for creating jobs, pulling people out of
poverty, and broadening horizons. It is one of the
world’s great industries.”
But growth in tourism still faces some
fundamental challenges, according to the UN
World Tourism Organization. “Complicated,
lengthy and overpriced entry formalities are
making it extremely difficult for tourists, especially
from emerging economies which are leading
growth in terms of outbound markets, to travel,”
said UNWTO Secretary-General, Taleb Rifai.
“Travel facilitation must top our agenda and we
must speak together on this if we are to be heard
at the highest levels of decision-making,” he said.
The impact of restrictive border formalities has
not been lost in the USA, where in January president
Obama called for action after noting the USA has
slipped from grabbing a 17% share of international
traveller spend in 2000, to just 10% in 2010.
Government departments were given two
months to sharpen up their visa procedures,
allowing Chinese and Brazilian visitors easier
access. Until recently, visitors would wait up to
four months to obtain the necessary paperwork.
It may be that IHG had in mind John F Kennedy’s
“Ich bin ein Berliner” quote – translated, it reads
“I am a jelly doughnut”. Not the image that a
brand which encourages you to do chin-ups on
the clothes rail necessarily wants to foster.
IHG ceo Richard Solomons spoke up for the
brand, including the rationale that the flag, which
is priced above Holiday Inn, would give the group
another option in cities which already have a
number of IHG properties.
However, it was his comment that IHG had
already seen “interest from corporates who are
encouraging wellness in their employees” which
struck fear in the delegates’ hearts. For those
who have seen gyms and juice bars pop up in
their HQs, the business trip was the last refuge, a
chance to kick back and relax with a fry-up, away
from prying eyes. Alas no more.