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INDEPENDENT RESEARCH Hotels & Tourism 14th September 2015 Challenges in a changing environment

Hotels & Tourism

ACCORHOTELS BUY FV EUR53 Bloomberg AC FP Reuters ACCP.PA

Price EUR42.105 High/Low 51.34/30.02

Market cap. EUR9,829m Enterprise Val EUR10,004m PE (2015e) 23.1x EV/EBIT (2015e) 15.0x

InterContinental Hotels NEUTRAL FV 2650p Bloomberg IHG LN Reuters IHG.L Price 2412p High/Low 2880/2120 Market Cap. GBP5,695m Enterprise Val GBP6,081m PE (2015e) 20.3x EV/EBIT (2015e) 13.8x

MELIA HOTELS BUY FV EUR14.5 Bloomberg MEL SM Reuters MELL.MC Price EUR12.775 High/Low 13.71/7.33 Market Cap. EUR2,543m Enterprise Val EUR3,310m PE (2015e) 35.0x EV/EBIT (2015e) 18.1x

The Hotel industry is in good shape and fundamentals remain strong especially in Europe with a favourable balance between supply-demand and RevPAR still significantly lower than the previous peak. While network expansion remains strategic, we are not anticipating huge M&A consolidation from leaders In fact, hoteliers are facing main challenges to compete with digital intermediaries or new entrants that require financial flexibility to capture any new technological solutions. In that context, positive short term outlook for Melia and AccorHotels with respectively over 65% and 60% network in Europe. However, current economic environment in France and Brazil should weigh on AccorHotels’ RevPAR growth. More positive on medium term for AccorHotels or IHG, with innovative strategic options to compete with alternative accommodation or to meet digital challenges.

Short-term fundamentals in Europe sound much more positive than in the US. First of all, the balance between supply–demand is very positive with no net new supply, a situation that could last for a while due to the market structure. Secondly, RevPAR is still significantly lower than the previous peak (c. 20%) and should continue to recover mainly driven by ADR.

No huge M&A deals but expansion remains a priority: As recently confirmed by IHG’s CEO, the main hoteliers are focused on organic consolidation rather than a huge merger with nevertheless bolt-on acquisitions to complete the offer. Beyond current pipeline (IHG has a worldwide leading position with 13% share of active industry pipeline, AccorHotels around 9%) AccorHotels announced two main development which should boost its offer, i.e. the non-cash deal with China Lodging Group and the opening of accorhotels com to independent hotels.

Be different to compete with alternative accommodation and be open minded to meet digital challenges: Fighting against commoditisations by maintaining investments in new “concept” hotels should be the best way to compete with new entrants. Regarding digital, the issue is how hoteliers can evaluate the optimal channel distribution mix as well as win and keep customers and do it profitably. A wide range of solutions are being explored by hoteliers but it is difficult to say which will be the best.

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STOXX EUROPE 600 TRAVEL & LEIS E STOXX EUROPE 600

14/09/15

Source Thomson Reuters

Analyst: Bruno de La Rochebrochard 33(0) 1 56 68 75 88 [email protected]

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Table of contents

1. Where do we stand ..................................................................................................................... 3

1.1. Fundamentals still favourable but more limited upside in RevPAR in the Americas… ....... 3

1.2. …than in Europe ............................................................................................................................... 4

2. Hotel industry main challenges: Investing in digital and mobile platforms but not forgetting the hotel product ........................................................................................................... 7

2.1. Strong financials but no huge M&A consolidation anticipated from historical hoteliers .... 7

2.1.1. Financial resources to meet the challenges ..................................................................... 7

2.1.2. Network development: Partnerships or bolt-on acquisitions rather than huge industry consolidation ............................................................................................................................................ 9

2.1.3. Hotel product: Fighting against commoditisation ....................................................... 12

2.2. Digital and mobile platforms: A wide range of solutions which needs to be explored ...... 14

InterContinental Hotels .............................................................................................................................. 19

AccorHotels .................................................................................................................................................. 20

Melia Hotels .................................................................................................................................................. 21

European hoteliers valuation ..................................................................................................................... 22

Worldwide hotel supply .............................................................................................................................. 23

Worldwide hotel group ranking by geography ....................................................................................... 24

Price Chart and Rating History ................................................................................................... 25

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1. Where do we stand 1.1. Fundamentals still favourable but more limited

upside in RevPAR in the Americas… In the Americas, the positive RevPAR trend is continuing especially in the US and, based on our model using the Business Confidence Index with a lag of two quarters as the main indicator (giving a correlation of over 82% with a coefficient of determination of almost 67%), there is no short-term risk.

Fig. 1: US Hotel industry: Positive anticipation on RevPAR growth based on Business Confidence Index

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US Industrial confidence indicator (LHS)

US RevPAR (RHS)

Source: HNN; Bryan, Garnier & Co.

In the first 6 months of 2015, US RevPAR grew by 7.3% and, after a strong 8.3% RevPAR growth in July, RevPAR was up 7.4% in the first 7 months, mainly driven by ADR which was up 4.9% while occupancy was up 2.4%.

Fig. 2: US Hotel Industry: ADRs and ORs historical trends

ADR in the US OR in the US

$90$92$94$96$98

$100$102$104$106$108$110$112$114$116$118$120$122$124

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2012 2013 2014 2015

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Short-term fundamentals remain positive in the US. Nevertheless, the gap between supply and demand is being reduced…

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Compared with previous highs, in the first 7 months of 2015, occupancy is 2.4%pts higher than in 2007 (66.6% vs. 64.2%) and ADRs 10.8%, implying an average RevPAR of USD80 in 2015 which is 19.1% higher than in the 2007 previous peak.

RevPARs are still benefiting from the favourable balance between supply and demand. Nevertheless, even if supply continues to ramp up at a slower pace than initially anticipated, we have to notice a certain acceleration in new constructions in the last few months which are up 19% at the end of July yoy.

For 2015, STR (Smith Travel Research) estimates that supply should be up 1.2% and in 2016 1.4%, with demand respectively up 2.9% and 2.2%.

1.2. …than in Europe Due to market characteristics, the current net new supply is very limited in Europe. In fact, with branded chains representing less than 30% and independent players weakened by OTAs and new entrants, branded hoteliers have the opportunity to develop their network by conversion of independent.

Beyond this positive balance between supply and demand which should last for a while, current RevPAR in all European countries are well below the previous peaks but should continue to grow mainly driven by ADR.

Fig. 3: Europe Hotel Industry: RevPAR could continue to improve mainly driven by ADRs rather than ORs

ADR in Europe OR in Europe

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In Europe, although occupancy is in line with the previous high, i.e. average occupancy reaching 68.1% in the first 7 months of 2015 vs. 68.5% in 2007, ADRs are significantly lower than those in 2008 (previous pick) by nearly 18% at EUR89.2 vs. EUR108.4.

More, since some months, Europe is benefiting from the drop in the EUR vs. USD or GBP and the sense of insecurity that reigns in several traditional summer resorts due to the terrorist threat. Those positive effects were largely reflected in numbers with RevPAR up nearly 10% during the summer season (9.9% in June and 9.8% in July) and 6% in the first 7 months of 2015.

…which should weigh on the US RevPAR growth perspective.

More positive trend in most European countries with no new net supply, a situation that should last for a while due to market structure.

This is the main long-term positive driver for RevPAR. Moreover, for some months, European RevPAR has also benefited from the drop in the euro and the terrorist threat.

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Nevertheless, there is some disparity by country, with Spain & Portugal reporting month after month the best RevPAR performances, while it is still more challenging in France.

Fig. 4: Europe Hotel Industry: ADRs and ORs historical trends in some countries

ADR in Spain OR in Spain

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In Spain, RevPAR was up 11.6% in the first 6 months of 2015 and again showed a solid performance in July which was up 17.1%. Beyond the better economic environment, Spain is one the main countries in Europe benefiting from the euro parity and the terrorist threat. All in all, Spain announced it welcomed 29.2million foreign tourists in the first half of the year, i.e. a growth of 4.2% vs. last year and a new record for the country. The leading source market, the UK now represents 6.7 million visitors (+2.6%). Germany remains in second place with 4.7 million (+1.6%). And France completes the podium with 4.6 million (+7.5%). Among the strongest increases, we should mention the American market (+15.7%), whereas the Russian market has done quite the opposite and collapsed (-35.7%) due to the depreciation of the rouble.

Current economic environment largely explains Spanish hoteliers’ performances. Melia reported a RevPAR increase of 11.5%, o/w 9.5% from ADR and 2% from occupancy. The group particularly highlighted the positive evolution in the main and secondary cities with RevPAR up 12% (7.1% in ADR and 4.5% in occupancy), notably in Madrid up 10.2% and Seville up 20.2%. Management announced during the H1 results conference call at the end of July that everything was pointing towards an excellent summer season.

Compared with the previous peak, occupancy is now above 2008, as was the case in 2014, but ADR is still well below (-20%) at EUR76.5 vs. over EUR96 in the first 6 months of 2008.

ADR in France OR in France

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2007 2008 2009 2013 2014 2015

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In Europe, Spain is one of the main countries in Europe benefiting from euro parity and the terrorist threat. Long-term perspectives sound also positive due to the economic recovery and RevPAR is still well below previous peak.

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In France, the more challenging environment due to the economic situation should limit the benefit of external positive factors. In the first 6 months, RevPAR was up 1.8% with occupancy up 0.5%pt and ADR up 1%. Despite a better market performance, AccorHotels confirmed the persistent mixed environment with RevPAR up 3.1% in H1, o/w a 2.2% increase in Q2. Despite more positive numbers for the summer season in France, RevPAR was up 7.3% in July, and August seems to be at the same pace, the economic growth perspective should continue to weigh on RevPAR growth. Remember that, linked to market concentration especially in the economy segment, RevPARs are less sensitive to GDP.

The trends were sustained in the UK and Germany, although more volatile due to the fair calendar, with RevPARs respectively up 4.8% and 6% in the first 6 months. RevPARs in July were up 2.7% in the UK and 6.3% in Germany. Regarding the UK, the H2 trend should be largely sustained with the Rugby World Cup starting on 18th September and ending 31st October.

ADR in the UK OR in the UK

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France still suffering from the today’s economic environment which is limiting current external positive factors.

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2. Hotel industry main challenges: Investing in digital and mobile platforms but not forgetting the hotel product

Taken into account OTAs such as Priceline and Expedia or reviews on sites like TripAdvisor which now has a booking system, digital intermediaries have considerably increased their share of hotel bookings. In fact, their market has doubled in the last five years and represents 24% of total hotel bookings in 2015 and 15% of EBITDA generated by the industry.

Room-sharing sites such as Airbnb, Flipkey, Home Away are another menace to the hotel industry considering notably that Airbnb, for example, offers not only low prices but access to more than 1.5m rooms, roughly double what IHG offers.

Regarding digital solutions and mobile platforms, a wide range of solutions have to be explored before finding the right one to attract customers.

Faced with these challenges, hoteliers have to adapt again and are exploring a range of solutions.

2.1. Strong financials but no huge M&A consolidation anticipated from historical hoteliers

Never say never, but we definitely believe that a huge consolidation in mature market between leaders would be value destructive when hoteliers are facing great challenges to attract customer. Nevertheless, networks remain strategic in terms of size and products but should be carried out organically or by setting up partnership alliances even if bolt-on acquisitions may still be needed to complete the existing offer for each player in its historical market.

2.1.1. Financial resources to meet the challenges Having benefited from strong fundamentals, which remain favourable regarding the balance between supply and demand, hoteliers have strengthened their balance sheet and have the financial resources to meet the challenges.

IHG’s balance sheet remains strong. The H1 2015 results confirmed again the quality of the business model, by generating high recurrent cash flow, and perfectly reflect the group’s financial strategy. Based on a managed & franchise model, hotel maintenance capex is limited and the group has room to continue to refresh brands or to support new ones and to invest in new technologies with an expected increased amount (c. USD100m announced in 2015) following the Amadeus partnership. All in all, medium-term per annum capital expenditure guidance is confirmed as a net amount of around USD150m (gross up to USD350m) which should be largely covered by cash from operations.

While network expansion remains strategic, hotel groups are facing digital challenges and new entrants.

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Fig. 5: Cash flow from operations

USDm 2007 2008 2009 2010 2011 2012 2013 2014

EBITDA 641 611 296 574 673 681 758 776

Interest paid -84 -112 -53 -59 -56 -50 -74 -76

Interest received 18 12 2 2 1 2 2 2

Tax received (paid) on operating activities -74 1 -1 -64 -89 -119 -92 -136

Cash flow from operations 501 512 244 453 529 514 594 566

Source: Company Data; Bryan, Garnier & Co ests.

Moreover, IHG has just finalised the disposal of a major owned asset with the agreement signed in early July to sell InterContinental Hong Kong for USD938m, coming after the completion of the sale of InterContinental Paris in H1 2015 for USD342m (at the end of 2015, IHG will operate under full property seven hotels compared with a current network of c. 5,000 hotels). We estimate net debt at the end of 2015 at c.USD600m and before the cash return to shareholders decided by the board that will be announced at the preliminary FY results in February 2016. Considering management’s guidance of a net debt/EBITDA ratio between 2x and 2.5x, IHG could return between USD900m and USD1,300m to shareholders.

AccorHotels is engaged in a vast asset restructuring programme launched in 2014 which should give the group more flexibility. Nevertheless, waiting for the full benefit from this huge transformation, the current cash flow from operations gives the group financial resources to assume notably its new digital strategy presented last October and representing around EUR250m including the recent decision to open accorshotels.com to independent hotels.

Fig. 6: Cash flow from operations (since the demerger of Edenred in 2010)

EURm 2010 2011 2012 2013 2014

EBITDA 880 928 850 754 923

Net financial expense -134 -97 -75 -92 -52

Income tax -129 -163 -122 -134 -151

Cash flow from operations 617 668 653 528 720

Recurring free cash flow 35 199 150 243 304

Source: Company Data; Bryan, Garnier & Co ests

To support AccorHotels’ strategy, management realised successful financing transactions in 2014 for a total amount of EUR3.7bn. The average cost of debt was reduced to 3.11% at the end of 2014 (2.95% at the end of June 2015) from 4.28% at the end of 2013. At the end of 2014, net debt was EUR159m (EUR118m at the end of June 2015) with a syndicated credit line of EUR1.8bn. Adjusted cash flow from operations on adjusted net debt reached 34.2%, in line with its investment grade status (rating is BBB- from S&P and Fitch).

In a better economic environment, Melia’s financial constraints are now manageable and the future sounds more positive based on RevPAR expectations and an expansion strategy predominantly under low capital intensive formulas. The balance sheet should be also strengthened taking into account the convertible bonds issued in 2013 and normally maturing in 2018 but which could be in March 2016 (conversion can be enforced by the company after three years if the share price is over 30% of the conversion price which is EUR7.32).

Having benefited from strong fundamentals, Hoteliers have strengthened their balance sheet and have the financial resources but…

…regarding all these challenges, they will have to manage priorities and preserve the means to capture any new technological solutions.

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Fig. 7: Cash flow from operations

EURm 2008 2009 2010 2011 2012 2013 2014

EBITDA w/o capital gains 252.3 132.2 167.9 118.9 159.5 188.3 213.8

Capital gains 4.3 70.2 67.7 126.9 88.1 57.9 25.5

Other -23.5 -110.4 -126.2 -130.0 -65.8 -96.4 -31.0

Reported cash flow from operations before IS 233.1 92 109.4 115.8 181.8 149.8 208.3

Gross capex -180.4 -71.3 -164.6 -134.8 -40.3 -34.8 -40.5

IS paid -12.1 -7 -18.5 -14.6 -25.8 -29.4 -20.2

Financial interests -75 -64.6 -65.9 -83.3 -89.6 -90.0 -75.7

FCF -34.4 -50.9 -139.6 -116.9 26.1 -4.4 71.9

FCF before capital gains -38.7 -121.1 -207.3 -243.8 -62.0 -62.3 46.4


After the H1 2015 results, management maintained its commitment for 2015 to deleverage the balance sheet with a target for the year end of a net debt/EBITDA ratio ex-capital gains below 3.5x.

2.1.2. Network development: Partnerships or bolt-on acquisitions rather than huge industry consolidation

Since IHG shareholders began to call for a merger with another leading hotelier, and the announcement made at the end of April by the new CEO of Starwood Hotels & Resorts that the Board of Directors has “determined to explore a full range of strategic and financial alternatives to increase shareholder value and has retained Lazard to assist in the process”, rumours about a big deal have been frequent.

Regarding the most recent market speculation about talks between IHG and Starwood Hotels & Resorts with a view to combining the businesses, the Board of Directors of IHG have officially denied this in a press release. Moreover, during the H1 results conference call, Richard Solomons, IHG’s CEO, confirmed that the focus for IHG and for many of their competitors, is on organic consolidation, reminding that IHG has a worldwide leading position with a 5% market share in the number of rooms and 13% of the future pipeline. But, as it did with the acquisition of Kimpton Hotels & Restaurants, the world’s largest independent boutique hotel operator with the management of 62 hotels, announced at the end of 2014 for a total amount of USD430m, there may be new bolt-on deal as IHG’s management confirmed that it is always looking to service guests through a portfolio of brands. Note that IHG is not present in the “super luxury” (rumours are now reportedly on Fairmont Hotels & Resorts) or “economy” segments.

As mainly illustrated by Continental European hoteliers, we consider that setting up partnership alliances are the best way for hoteliers to strengthen their offers especially in emerging countries without burdening other needs for R&D investments on digital solutions and new “concept” hotels which should be the priority of hotels’ key executives to fight against commoditisation and to compete with OTAs and “alternative” accommodation businesses. Nevertheless, bolt-on acquisitions to complete the range of their products especially in mature markets or to accelerate the development of new “concept” hotels will remain a solution provided that it is done at a reasonable price.

For the leaders, network expansion is a priority and will drive hotel sector consolidation but we exclude huge M&A deals, too risky regarding all challenges.

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AccorHotels’ strategy perfectly mirrors this drive. To bolster its presence in emerging countries in general and in high-potential countries such as Brazil, India and China in particular, AccorHotels made two hotel network acquisitions in 2012 – Mirvac in Australia and Grupo Posadas in Latin America – and sealed with Huazhu (China Lodging Group) a major alliance for AccorHotels’ expansion in China at the end of 2014.

Regarding this deal, we consider that it should enable the companies to capitalise on the strengths of each partner while retaining their specificities, but especially to respond quickly to competition from OTA networks.

In fact, as part of the arrangement, Accor’s Economy and Midscale hotels in China (12 under full property) will be sold to China Lodging which will hold an exclusive master franchise agreement for the ibis, ibis Styles, Mercure, Novotel and Grand Mercure brands. China Lodging will also become a minority shareholder in AccorHotels’ Luxury and Upscale business in China with a 10% stake. In exchange, Accor will receive a 10% interest in China Lodging Group and a seat on the Board

In addition, Mr Ji Qi, founder, Executive Chairman and CEO of China Lodging Group, should bring his expertise bearing in mind that he was co-founder and former CEO of Home Inns (current Chinese hotel leader) and co-founder, former CEO and President of Ctrip.com. Ctrip is China’s leading online travel agent offering the biggest Chinese hotel network. Ctrip has had a commercial relationship with Priceline Group since 2012 and, in May, Priceline Group decided to reinforce its partnership by investing an additional USD250m via a new convertible bond following the previous one of USD500m in August 2014. All in all, Priceline Group may hold up to 15% of Ctrip’s outstanding shares.

Another initiative from AccorHotels is that it recently decided to widen the scope of its activity by opening accorhotels.com to independent hotels which then becomes a marketplace. This represents the first commercial platform for hoteliers developed by an hotelier.

For AccorHotels, this is an opportunity to enlarge the hotel network offer and make the offer more attractive to customers (see figure below). Having identified the countries covering demand from key markets and the key destinations in these countries, AccorHotels has selected around 80 countries and over 300 destinations where the offer should be increased with an objective of over 10,000 hotels by the end of 2018. AccorHotels is today present in 92 countries with c. 3,800 hotels.

However, major consolidation could be realised under partnerships which should be in our view the best way to strengthen the geographic offer of hotel leaders.

More, hoteliers could create a market place by opening their reservation platform system: a solution decided by AccorHotels.

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Fig. 8: Enlargement of Accorhotels.com to independent hotels

Source: Company Data.

AccorHotels’ expectations seem to be reasonable as the offer represents an alternative distribution channel with competitive rates to independent hoteliers compared with OTAs with a total transparency on customer information. Moreover, independent hoteliers dominate the hotel market offer with OTAs representing a large proportion of their bookings with fees that could represent 25% of ADR.

Fig. 9: Independent hotels dominate the hotel segment

Source: Company Data.

In the emerging markets, Chinese groups, which are growing faster than historical leaders mainly on their national market, could have ambitions abroad.

In 2014, Jin Jiang International Hotels Group joined Home Inns amongst the top ten hotel groups worldwide and three other Chinese groups are fighting over the next rungs. In fact, the five Chinese leaders in Greater China are in the top 15 (see appendix). Chinese groups are mainly in Greater China and Jin Jiang is the only one which has developed an international M&A strategy with

In emerging markets, high speed expansion of Chinese groups mainly in Greater China but they could be more aggressive abroad…

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the acquisition in 2010 of 50% of Interstate in the US and last year the takeover of Louvre Hotels Group.

Fig. 10: Chinese Hoteliers’ international presence

Chinese groups beyond China 2015 Rooms

o/w beyond China

Home Inns 296 075 0

Huazhu (China Lodging Group) 209 955 0

Planeto Hotels Group (ex. 7 Days Hotels Group) 190 000 0

Jin Jiang International Hotels Group 153 543 88 365

Greentree Hotel Management 142 038 0


At the end of July, according the journal China Travel News, Jin Jiang and Planeto were in talks to sign a merger agreement for their two companies while keeping operations independent. At the same time, they are said to be studying the possibility of buying Starwood Hotels & Resorts, which will allow them to become the biggest hotel group worldwide, i.e. with a total number of rooms of c. 780,000 rooms.

2.1.3. Hotel product: Fighting against commoditisation R&D investments on new “concept” hotels should be the priority of hotels’ key executives to fight against commoditisation and to differentiate themselves successfully from alternative accommodation solutions which keep getting more appealing every day. Customer demand is more and more for unique and customised hotels with a desire for cultural immersion (foods, design). They also want an improved sense of interaction, leading hoteliers to upgrades and to renovate community spaces like bars and lounges or to transform the traditional lobby into interactive common areas.

IHG’s strategy focuses on five key objectives, the first being to have a strong portfolio of preferred brands. To do this, IHG builds brand preferences by defining each of their brands to provide a differentiated experience to meet both the targeted guests’ needs and occasion and be consistent in the experience they deliver.

…bearing in mind that their expertise is mainly on the economy segment.

If the geographical development remains a priority, such as investments in new technologies, hoteliers are reminded that product innovation is the best way to differentiate.

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Fig. 11: IHG’s portfolio of preferred brands

Source: Company Data

As part of having a portfolio of preferred brands, IHG continually reviews its portfolio of brands in light of the evolving needs and preferences of their guests. As part of this, EVEN Hotels was launched in February 2012 as the first wellness lifestyle hotel brand. To build and leverage scale, IHG has committed up to USD150m of its own capital to the development of this brand over the next few years with the first hotel opened in June 2014, two hotels opened at the end of June 2015 and four in the pipeline.

For Chinese travellers in Greater China, IHG launched HUALUXE Hotels and Resorts brands in March 2012. HUALUXE is the first luxury international hotel brand which has been designed specifically to suit the tastes and sensitivities of the Chinese guest. The first hotel was opened in early 2015, with today two hotels managed and 23 in the pipeline.

Actually this is the case, with the launch of new concepts under new brands as done by IHG with EVEN or HUALUXE…

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Between 2011 and 2014, AccorHotels radically revamped the design and standard of comfort as well as the digital features of its ibis brand family. Undoubtedly, these transformations based on the notions of well-being, modernity and simplicity at the best price seem to satisfy customers’ and investor’s expectations. In fact, during that period, the ibis brand family (ibis, ibis Styles and ibis budget), which represented 1,845 hotels at the end of 2014, i.e. nearly 50% of AccorHotels’ hotels, has added more than 240 hotels and will be opening 400 more during the next three years. Moreover, ibis has built the highest exposure and is the “first choice” brand in 11 countries around the world.

Beyond a new brand, the acquisition of a 36.6% stake of Mama Shelter, for a total amount of EUR29m, perfectly illustrates the objective of AccorHotels to be open minded to new concepts. In fact, Mama Shelter’s establishments (over 700 rooms with 6 restaurants), created by the Trigano family with the assistance of entrepreneur Michel Reybier and designed in collaboration with Philippe Stark, are not just hotels but more like “urban retreats” offering customers the expertise of both an hotelier and a restaurateur.

For AccorHotels, another way to differentiate itself is to “rethink” its offer in food and beverages which is part of its strategy to ensure the success of AccorHotels’ transformation. To accelerate the implementation of its strategy in food and beverages, which is a real asset that the group should be able to capitalise upon, AccorHotels appointed Amir Nahai as CEO Food & Beverage, effective since 1st September 2015, with the mission to elaborate on the catering offer as a truly differentiating factor for customers.

2.2. Digital and mobile platforms: A wide range of solutions which needs to be explored

Technology represents another threat for hoteliers with travel consumers wanting mobility, flexibility and easy real-time access to information and to shop and pay safely and easily to go. They expect seamless connectivity allowing them to access the content they want when they want it across all platforms, and also increasingly expecting seamless transitions between different platforms.

This is largely illustrated with the acceleration of the use of smartphones by people. A TripAdvisor study (June 2015) revealed that 42% of travellers worldwide now use a smartphone to plan or book their trips. Moreover, the smartphone is the second most popular booking device after laptops for travel activities and the number of people using mobile apps to book their accommodation has doubled yoy. By geography, the study confirmed that emerging markets have the largest number of connected travellers with Thailand, China and Brazil in the top 3 while the US is ranked n°8.

While these trends present some opportunities for hoteliers, they also present a complex dilemma because as hotels try to differentiate themselves from each other and from online intermediaries, the issue is how can they evaluate the optimal channel distribution mix as well as win and keep customers and do it profitably.

…or the review of the portfolio of brands in light of the evolving needs and preferences of hotel guests…

…like the acquisition of new concepts developed by a hotel start-up company as AccorHotels did with Mama Shelter.

The development of mobile platforms is vital, especially all apps on smartphones to maintain a direct relationship with the most frequent guests…

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Moreover, new entrants are diluting hotels’ brand visibility, threatening their margins and weakening customer loyalty by eroding the direct relationship between the hotel operator and even its most regular loyal customers. IHG Rewards Club has more than 88m members compared with 18m for Le Club AccorHotels (and around 50m if we include the China Lodging loyalty programme) or 4m for MeliaRewards.

Fig. 12: Hospitality players are widening the scope of their activity

Source: Bain Analysis from AccorHotels presentation on 3rd June 2015

Fig. 13: Digital intermediaries already account for 15% of the hospitality industry’s

profit

Source: Company Financial report, specialised press, analyst report, Bain analysis and AccorHotels estimates

To sum up, what strategies will hotel companies have to put in place for supplying more choice, value and incentives for customers to come to them directly.

…and to capture new customers with specific hotel apps.

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Fig. 14: Enterprise value of the biggest hotel groups, distribution groups and new entrants (USDbn)

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

EV 2015e

Source: Bryan, Garnier & Co ests, I/B/E/S

On 31st March 2014, IHG announced a strategic relationship on technology with Amadeus. After the first phase (planning and development), IHG and Amadeus confirmed their partnership at the end of April 2015 to develop a new Guest Reservation System (GRS). As a launch partner, IHG is to work with Amadeus on the design, functionality and evolution of the system which will ultimately replace Holidex, IHG’s proprietary reservation system. The aim is to offer online booking with the highest rated app in the hotel and travel industry and offering Mobile check-in and check-out.

IHG has today the #1 rated mobile app. This is a “one-stop-shop” for guests whether they are researching travel, making a booking, managing their stay or their rewards programme (Dream, Plan, Book, Stay and Share). Regularly, the group adds new functions, including recently geo-fencing which allows IHG hotels to send relevant messages to guests when they are near the hotel, or the collaboration with digital travel service “stay.com” to enhance the guest’s journey.

On average, 21% of IHG’s direct online bookings come from mobile devices, o/w 15% from mobile and 6% from tablet. Such a development has helped to grow IHG’s revenue with an increase in mobile revenue from USD2.5m in 2009 to just under USD1bn in 2014.

AccorHotels is also exploring different technologies under the responsibility of Vivek Badrinath, the new deputy CEO in charge of marketing, digital solutions, distribution and information systems. The digital transformation plan was presented in October 2014 and was designed with three targets in mind – customers, employees and partners. Its objectives are to rethink and incorporate digital technology throughout the customer journey, improve the services on offer for investor partners and consolidate AccorHotels’ distribution market share.

The digital plan relies on existing tools, i.e. TARS, the AccorHotels reservation system, accorhotels.com, which recently decided to open the portal to independent hoteliers, and Le Club Accorhotels. AccorHotels should also make “tactical” acquisitions to strengthen its expertise and

To do so, hoteliers have to be open minded to enter all innovations that bring new services and meet consumer expectations.

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17

technology as illustrated with the acquisition for EUR1.9m of Wipolo, a French start-up travel software company that offers mobile and web itinerary management services and, more recently, the take-over of Fastbooking, a French digital services provider for the hotel industry with expertise on website development, distribution channel management solutions, digital marketing campaign management, revenue management optimisation tools and competitive intelligence.

Initially, AccorHotels decided to invest EUR225m between 2014 and 2018 to bring all of their initiatives to fruition, o/w 55% on capex. That amount has been increased by 10% with the decision to open accorhotels.com to independent hoteliers.

For Melia, without much detail on specific actions, management’s commitment is to consolidate the group’s direct channels as a competitive advantage and customer knowledge as a key lever for income generation. Melia.com is today the main distribution channel with total revenue of EUR264m in 2014 and an expectation of EUR356m, i.e. over 20% of hotel sales with 92.5% from direct customers. The current 4m members of the Melia’s loyalty programme generated EUR325m in sales, o/w 65% through melia.com and representing around 30% of total room nights and reaching higher spending ratios vs. other customers of 12%.

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Appendix Fig. 15: Group geographic exposure

IHG revenue IHG EBIT IHG network (in number of rooms)

Americas; 50,4%

Europe; 21,6%

AMEA; 14,0%

Greater China; 14,0%

Americas; 67,5%

Europe; 11,0%

AMEA; 10,4%


The Americas;

64,8%

Europe; 14,7%

AMEA; 9,6%


AccorHotels revenue AccorHotels EBIT AccorHotels network (in number of rooms)

France; 32,5%

NCEE; 40,2%

MMEA; 8,8%

Asia-Pacific; 9,9%

Americas; 8,6%

France; 30,4%

NCEE; 45,7%

MMEA; 4,9%

Asia-Pacific; 10,6%

Americas; 8,3%

France; 29,2%

NCEE; 25,8%

MMEA; 11,0%

AsPac; 24,5%

Americas; 9,5%

Melia revenue Melia EBIT Melia network (in number of rooms)

Americas; 25%

EMEA (ex Spain);

37%

Mediterranean (Resorts); 19%

Spain (Cities);

19%

Americas; 82%EMEA (ex

Spain); 39%

Mediterranean (Resorts); 8%

Spain (Cities); -

28%

Americas; 28,9%

EMEA; 15,7%

Mediterranean; 34,1%

Spain; 18,2%

Asia Pacific;

3,0%

Source: Company Data; Bryan, Garnier & Co.

Fig. 16: Group operating mode in number of rooms

IHG AccorHotels Melia

Franchised; 72,5%

Managed; 27,0%

Owned & Lease; 0,4%

Managed; 33,6%

Franchised; 27,7%

Owned & Lease; 38,7%

Owned; 22,2%

Leased; 23,4%Managed &

Franchised; 54,4%

Source: Company Data; Bryan, Garnier & Co.

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InterContinental Hotels Income Statement (USDm) 2012 2013 2014 2015e 2016e 2017e Sales 1,835 1,903 1,858 1,909 1,867 1,975 % change 3.8% 3.7% -2.4% 2.7% -2.2% 5.8% EBITDA 685 753 747 765 775 829 Underlying Operating Profit 614 668 651 679 701 750 % change 9.8% 8.8% -2.5% 4.3% 3.2% 7.1% Financial result (54.0) (73.0) (80.0) (79.0) (60.6) (54.6) Profit before tax & exceptionals 556 600 600 650 640 696 Tax (11.0) (226) (208) (208) (205) (223) Earnings from associates (before tax) 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Reported net attributable profit 545 374 392 442 435 473 Adjusted net attributable profit 407 420 392 442 435 472 % change 8.0% 3.2% -6.7% 12.8% -1.6% 8.5% Cash Flow Statement (USDm) Debt, y-1 548 1,082 1,162 1,533 594 547 - Cash flow 728 782 774 815 775 829 + Change in WCR (24.0) (1.0) 43.0 10.0 (8.2) 21.2 + Net capex (40.0) 301 256 1,092 (150) (150) Free cash flow 664 1,082 1,073 1,917 617 700 + Net financial investments (88.0) (126) (133) (430) 0.0 0.0 + Dividends (679) (534) (943) (186) (212) (218) + Other/Miscellaneous (1,965) (1,822) (2,520) (1,594) (782) (809) = Net debt 1,082 1,162 1,533 594 547 437 Balance Sheet (USDm) Tangible fixed assets 1,056 1,169 741 447 476 504 Intangibles assets 447 518 643 388 413 438 Cash & equivalents 195 134 162 975 1,022 1,132 current assets 465 452 462 467 457 484 Other assets 1,100 680 810 302 322 340 Total assets 3,263 2,953 2,818 2,579 2,691 2,898 L & ST Debt 1,277 1,296 1,695 1,569 1,569 1,569 Others liabilities 1,669 1,731 1,840 1,784 1,745 1,845 Shareholders' equity, 100% 317 (74.0) (717) (774) (622) (516) Total Liabilities 3,263 2,953 2,818 2,579 2,691 2,898 = Capital employed 1,220 1,366 1,066 508 570 604 Financial Ratios Operating margin 33.46 35.10 35.04 35.59 37.53 37.99 Net financial charges/EBIT (x) (0.09) (0.11) (0.12) (0.12) (0.09) (0.07) Tax rate 1.98 37.67 34.67 32.00 32.00 32.00 Net margin 22.18 22.07 21.10 23.17 23.31 23.90 ROE (after tax) 172 (505) (54.67) (57.16) (69.93) (91.61) ROCE (after tax) 37.75 36.68 45.80 100 92.15 93.15 Gearing 341 (1,570) (214) (76.74) (87.80) (84.67) Payout ratio 131 127 241 42.06 48.77 46.10 Number of shares, diluted ('000) 287,000 264,000 264,000 264,000 264,000 264,000 Data per Share (USD) Reported EPS NM NM NM 1.83 1.80 1.96 Adjusted EPS 1.42 1.58 1.58 1.83 1.80 1.95 % change 8.5% 11.9% 0.0% 15.7% -1.6% 8.5% BV/share 0.11 (0.03) (0.27) (0.29) (0.24) (0.20) CF/share 2.54 2.96 2.93 3.09 2.94 3.14 FCF/share 2.31 4.10 4.06 7.26 2.34 2.65 Net dividend/share 0.64 0.70 0.77 0.88 0.90 0.98


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AccorHotels income Statement (EURm) 2012 2013 2014 2015e 2016e 2017e Sales 5,649 5,425 5,454 5,691 5,904 6,110 %change -7.4% -4.0% 0.5% 4.3% 3.8% 3.5% EBITDA 850 754 923 1,022 1,181 1,270 Rental expenses 938 894 849 831 770 758 EBITDAR 1,788 1,648 1,772 1,853 1,950 2,038 Depreciation, amortisation and provisions 324 329 321 353 355 366 EBIT 526 425 602 669 826 905 %change -0.7% -19.2% 41.6% 11.1% 23.5% 9.5% Financial result (75.0) (92.0) (52.0) (64.3) (64.0) (62.9) Profit before tax & exceptionals 451 333 550 605 762 842 Exceptional items (909) (186) (163) 0.0 0.0 0.0 Tax (143) (121) (175) (187) (235) (258) Earnings from associates (before tax) 17.0 2.0 28.0 20.0 20.0 20.0 Minority interests 15.0 13.0 17.0 17.7 18.4 19.0 Reported net attributable profit (599) 15.0 223 419 529 584 Adjusted net attributable profit 310 145 386 419 529 584 %change 120% -53.2% 166% 8.7% 26.1% 10.4% Cash Flow Statement (EURm) Debt, y-1 226 421 230 159 174 96.7 - Cash flow 786 606 767 770 882 949 + Change in WCR 158 (133) (103) (32.6) (29.4) (28.3) + Net capex (711) (598) (1,105) 26.0 26.0 0.0 Free cash flow 1,339 1,337 1,975 777 885 977 + Net financial investments 305 (140) 1,185 200 200 200 + Dividends 269 189 197 219 231 289 + Other/Miscellaneous 1,431 631 2,215 1,271 1,299 1,421 = Net debt 421 230 159 174 96.7 16.9 Balance Sheet (EURm) Tangible fixed assets 2,592 2,448 3,157 2,924 2,691 2,450 Intangibles assets 1,104 990 984 912 839 764 Cash & equivalents 1,878 1,928 2,677 2,641 2,697 2,781 current assets 1,047 983 936 977 1,013 1,049 Other assets 939 711 1,001 606 557 509 Total assets 7,560 7,060 8,755 8,059 7,797 7,552 L & ST Debt 2,381 2,231 2,866 2,846 2,826 2,831 Others liabilities 2,190 2,072 2,022 2,089 2,167 2,243 Shareholders' equity, 100% 2,989 2,756 3,867 3,124 2,804 2,478 Total Liabilities 7,560 7,059 8,755 8,059 7,797 7,552 Capital employed 2,939 2,773 3,391 3,053 2,718 2,374 Financial Ratios Operating margin (%) 9.32 7.83 11.04 11.75 13.99 14.80 Net financial charges/EBIT (x) (0.14) (0.22) (0.09) (0.10) (0.08) (0.07) Tax rate (%) 31.69 36.34 31.82 30.99 30.79 30.71 Net margin (%) (10.60) 0.28 4.09 7.37 8.96 9.56 ROE (after tax) (%) (19.53) 1.02 6.21 13.99 19.52 24.34 ROCE (after tax) 12.54 10.73 12.43 15.33 21.28 26.67 Gearing (%) 14.09 8.36 4.11 5.58 3.45 0.68 Payout ratio (%) (28.85) 1,214 98.08 55.07 54.67 54.56 Number of shares, diluted (m) 227,266 227,613 230,232 230,232 230,232 230,232 Data per Share (EUR) Reported EPS (2.63) 0.07 0.97 1.82 2.30 2.54 Adjusted EPS 1.37 0.64 1.68 1.82 2.30 2.54 % change -% -% -% -% -% -% BV/share 13.15 12.11 16.80 13.57 12.18 10.76 CF/share 3.46 2.66 3.33 3.35 3.83 4.12 FCF/share 1.76 2.05 2.63 2.47 2.91 3.16 Net dividend/share 0.76 0.80 0.95 1.00 1.26 1.38


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Melia Hotels Income Statement (EURm) 2012 2013 2014 2015e 2016e 2017e Sales 1,330 1,369 1,464 1,644 1,655 1,814 % Change -0.4% 2.9% 7.0% 12.3% 0.6% 9.6% EBITDA 248 239 229 271 291 343 Rental expenses 103 107 126 135 142 149 EBITDAR 351 346 354 407 433 492 Depreciation, amortisation and provisions 83.8 91.1 95.8 88.4 100 110 EBIT 168 175 133 183 191 233 % Change 12.3% 4.4% -24.0% 37.8% 4.3% 22.1% Financial result (83.7) (187) (66.0) (63.2) (53.7) (45.0) Profit before exceptionals and tax 83.8 (12.3) 66.8 120 137 188 Exceptional items 0.0 (3.9) 0.0 0.0 0.0 0.0 Tax (16.9) (9.2) (25.0) (32.9) (38.1) (53.4) Earnings from associates (before tax) (16.7) (17.8) (9.2) (10.0) (10.0) (10.0) Minority interests (4.8) (2.1) (1.5) (2.0) (2.0) (2.0) Reported net attributable profit 45.4 (41.4) 31.1 74.8 87.0 123 Adjusted net attributable profit 45.4 (41.4) 31.1 74.8 87.0 123 % Change 12.9% -191% -175% 140% 16.2% 41.0% Cash Flow Statement (EURm) Debt, y-1 1,003 1,002 1,158 983 768 403 - Cash flow 156 120 188 238 253 290 + Change in WCR 20.3 7.9 41.1 3.0 0.18 2.7 + Net capex (49.3) (105) (13.3) 130 (70.0) (70.0) Free cash flow 127 22.9 216 372 183 223 + Net financial investments 0.20 0.60 0.10 0.0 0.0 0.0 + Dividends (7.9) (7.7) (7.4) (8.0) (10.0) (12.0) + Other/Miscellaneous (119) (171) (34.2) (148) 191 (119) = Net debt 1,002 1,158 983 768 403 311 Balance Sheet (EURm) Tangible fixed assets 1,762 1,567 1,555 1,413 1,394 1,368 Intangibles assets 90.3 139 138 125 123 121 Cash & equivalents 468 437 334 427 597 652 current assets 436 495 483 411 414 454 Other assets 713 737 699 635 626 615 Total assets 3,470 3,374 3,209 3,011 3,154 3,209 L & ST Debt 1,358 1,111 1,019 859 662 593 Others liabilities 929 1,095 922 1,014 1,021 1,119 Shareholders' equity, 100% 1,184 1,169 1,268 1,138 1,471 1,497 Total Liabilities 3,471 3,374 3,209 3,011 3,154 3,209 = Capital employed 2,027 1,859 1,801 1,631 1,608 1,575 Financial Ratios Operating margin (%) 12.59 12.78 9.07 11.13 11.54 12.85 Net financial charges/EBIT (x) (0.50) (1.07) (0.50) (0.35) (0.28) (0.19) Tax rate (%) 20.17 (74.80) 37.40 27.50 27.81 28.40 Net margin (%) 3.41 (3.02) 2.13 4.55 5.26 6.76 ROE (after tax) (%) 4.24 (3.36) 2.57 6.75 6.05 8.32 ROCE (after tax) (%) 5.79 6.59 5.16 7.85 8.31 10.36 Gearing (%) 84.64 99.06 77.53 67.42 27.42 20.79 Payout ratio (%) (16.96) 18.60 (23.76) (10.69) (11.50) (9.79) Number of shares, diluted (000) 172,678 171,189 171,189 192,689 192,689 192,689 Data per Share (EUR) Reported EPS 0.21 (0.41) 0.18 0.39 0.45 0.64 Adjusted EPS 0.26 (0.24) 0.20 0.36 0.42 0.58 % change 14.7% -192% -184% 79.8% 14.7% 37.6% BV/share 6.86 6.83 7.41 5.91 7.63 7.77 CF/share 0.90 0.70 1.10 1.24 1.31 1.51 FCF/share 0.62 0.09 1.02 0.87 (0.09) 0.11 Net dividend/share 0.04 0.04 0.05 0.05 0.06 0.07


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European hoteliers valuation EV EV /Sales EV/EBITDA EV/EBIT PER

Last price 2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e

ACCOR 42,98 10 244 10 522 1,80 1,73 9,98 9,00 15,41 13,30 24,1 20,8

IHG 2433 9 854 9 999 5,30 5,23 12,54 11,74 14,07 13,13 21,5 18,9

MELIA 12,77 3 295 3 148 2,01 1,91 11,88 11,51 17,95 17,06 41,2 29,3

NH HOTELS 5,03 1 730 1 830 1,24 1,16 10,77 8,66 25,77 16,48 122,6 39,6

MILLENIUM 553,00 232 651 224 906 2,69 2,60 9,91 9,50 12,99 12,39 18,3 17,7

WHITBREAD 4660,00 908 629 934 009 3,48 3,06 13,56 11,83 18,01 15,63 22,0 19,3

REZIDOR 33,10 601 605 0,62 0,59 6,62 5,33 11,32 8,26 17,8 12,4

Average 2,45 2,33 10,75 9,65 16,50 13,75 38,22 22,57

Source: IBES

US hoteliers valuation

EV EV /Sales EV/EBITDA EV/EBIT PER

Last price 2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e

MARRIOTT INTL.'A' 72,27 23 339 23 786 1,59 1,46 13,41 12,10 16,74 14,47 23,1 19,0

CHOICE HOTELS INTL. 51 3 481 3 374 4,16 3,95 14,56 13,47 15,29 14,11 23,2 20,8

HILTON WORLDWIDE HDG. 2 433 9 854 9 999 5,30 5,23 12,54 11,74 14,07 13,13 21,5 18,9

STARWOOD HTLS.& RSTS. WORLDWIDE 72 13 997 13 956 2,42 2,31 11,72 11,06 16,87 14,95 24,0 21,2

WYNDHAM 78 11 797 11 764 2,14 2,06 9,08 8,53 11,23 10,49 15,6 14,1

Average 3,12 3,00 12,26 11,38 14,84 13,43 21,48 18,79

Source: IBES

Hotel group historical valuation IHG AccorHotels

4

8

12

16

20

4

5

6

7

8

9

10

11

12

MELIA HOTELS

4

6

8

10

12

14

16

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Worldwide hotel supply Global Hotel & Extended Stay Hotel Supply by continent (January 2015)

Global supply Non-branded

rooms

Branded rooms Branded rooms

penetration

Number of rooms

per 1,000

inhabitants

Latin America 1 936 264 1 488 770 447 494 23.1% ~2 rooms

Africa-Middle East 1 490 601 1 051 186 439 415 29.5% ~2 rooms

Europe 7 902 916 5 836 908 2 066 008 26.1% >10 rooms

Asia-Pacific 5 070 278 2 723 284 2 346 994 46.3% < 2 rooms

North America 5 351 437 1 533 718 3 817 719 71.3% >15 rooms

Total 21 751 496 12 633 866 9 117 630 41.9% Source: MKG Hospitality/WTO - May 2015

15 Highest-Volume Countries for Hotel Supply & Extended Stay Hotels (January 2015)

Country Rooms Market share Room nights per inhabitant Population (CIA World

Factbook)

USA 4 926 543 22.6% 5.6 318 892 103

China 1 749 843 8.0% 0.5 1 355 692 576

Italy 1 089 770 5.0% 6.4 61 680 122

Germany 948 667 4.4% 4.2 80 996 685

Spain 914 263 4.2% 6.9 47 737 941

UK 902 998 4.2% 5.1 63 742 977

France 827 956 3.8% 4.5 66 259 012

Japan 785 050 3.6% 2.2 127 103 388

Thaïland 528 128 2.4% 2.8 67 741 401

Canada 424 894 2.0% 4.4 34 834 841

Indonesia 405 778 1.9% 0.6 253 609 643

Greece 401 196 1.8% 13.4 10 775 557

Brazil 383 466 1.8% 0.7 202 656 788

Mexico 355 203 1.6% 1.1 120 286 655

Turkey 328 133 1.5% 1.4 81 619 392 Source: MKG Hospitality/WTO - May 2015

Worldwide Top 15 hoteliers in number of rooms

Number of rooms Nationality

IHG 710 295 UK

Hilton Worldwide 708 268 USA

Marriott International 701 899 USA

Wyndham Hotel Group 660 826 USA

Choice Hotels International 504 808 USA

AccorHotels 482 928 France

Starwood Hotels & Resorts 346 599 USA

Best Western 302 144 USA

Home Inns 296 075 China

Jin Jiang International Hotels Group 241 908 China

Huazhu (China Lodging Group) 209 955 China

Plateno Hotels Group (ex. 7 Days Hotels Group) 190 000 China

Carlson Rezidor Hotel Group 172 234 USA

Hyatt Hotels Corp 152 984 USA

Greentree Hotel Management 142 038 China

Total worldwide market share 26,8%

Source: MKG Hospitality/WTO - May 2015

Hotels & Tourism

24

Worldwide hotel group ranking by geography The 5 first groups in Europe (January 2015)

Groups Hotels Rooms Change in no.

of rooms

%

2014 2015 2014 2015

Accor Hotels 2 608 2 653 282 797 287 782 4 985 1.8%

IHG 630 645 102 222 103 996 1 774 1.7%

Best Western 1 419 1 364 98 339 95 019 -3 320 -3.4%

Carlson Rezidor Hotel Group 315 314 70 306 70 819 513 0.7%

Jin Jiang International Hotels Group - 977 - 68 740 - - Source: MKG Hospitality/WTO - May 2015

The 5 first groups in North America (January 2015)


of rooms

%

2014 2015 2014 2015

Hilton Worldwide 3 569 3 708 536 221 556 419 20 198 3.8%

Marriott International 3 287 3 399 527 274 543 361 16 087 3.1%

Wyndham Hotel Group 6 213 6 146 485 218 479 311 -5 907 -1.2%

Choices Hotels International 5 447 5 530 422 683 423 830 1 147 0.3%

IHG 3 400 3 456 414 204 419 588 5 384 1.3% Source: MKG Hospitality/WTO - May 2015

The 5 first groups in Latin America (January 2015)


of rooms

%

2014 2015 2014 2015

Accor Hotels 250 266 38 887 41 437 2 550 6.6%

IHG 210 243 37 064 40 429 3 365 9.1%

Melia Hotels International 48 50 18 814 20 388 1 574 8.4%

Grupo Posadas 113 131 18 119 19 922 1 803 10.0%

TUI Hotels & Resorts 40 45 21 509 19 585 -1 924 -8.9% Source: MKG Hospitality/WTO - May 2015

The 5 first groups in Asia-Pacific (January 2015)


of rooms

%

2014 2015 2014 2015

Home Inns 2 180 2 609 256 555 296 075 39 520 15.4%

Huazhu (China Lodging Group) 1 425 1 995 152 879 209 955 57 076 37.3%

Planeto Hotels Group (ex. 7 Days Hotels Group) 1 726 2 000 165 696 190 000 24 304 14.7%

Jin Jiang International Hotels Group 918 1 114 128 952 153 543 24 591 19.1%

Greentree Hotel Management 1 230 1 580 124 130 142 038 17 908 14.4% Source: MKG Hospitality/WTO - May 2015

The 5 first groups in Africa-Middle East (January 2015)


of rooms

%

2014 2015 2014 2015

TUI Hotels & Resorts 107 109 34 691 34 306 -385 -1.1%

IHG 98 126 25 256 30 587 5 331 21.1%

Accor 152 161 27 948 30 254 2 306 8.3%

Hilton Worldwide 87 102 25 133 29 942 4 809 19.1%

Marriott International 46 173 13 040 28 006 14 966 114.8%

Source: MKG Hospitality/WTO - May 2015

Hotels & Tourism

25

Price Chart and Rating History AccorHotels

24.2

29.2

34.2

39.2

44.2

49.2

54.2

11/03/14 11/06/14 11/09/14 11/12/14 11/03/15 11/06/15 11/09/15

ACCORHOTELS Fair Value Achat Neutre Vente

Ratings Date Ratings Price 22/05/14 BUY EUR35.7 28/11/13 NEUTRAL EUR31.05 18/01/12 BUY EUR21.08 14/09/11 NEUTRAL EUR21.5 24/06/11 BUY EUR28.59

Target Price Date Target price 09/04/15 EUR53 25/03/15 Under review 07/01/15 EUR47 22/05/14 EUR46 09/01/14 EUR33 15/01/13 EUR32 23/05/12 EUR31 09/03/12 EUR30 23/02/12 EUR29 28/09/11 EUR25.5 14/09/11 EUR27 24/06/11 EUR34.5

InterContinental Hotels

1702.0

1902.0

2102.0

2302.0

2502.0

2702.0

11/03/14 11/06/14 11/09/14 11/12/14 11/03/15 11/06/15 11/09/15

ICTL.HTLS.GP. Fair Value Achat Neutre Vente Ratings Date Ratings Price 17/06/14 NEUTRAL p 2278 21/03/14 BUY p 1866 23/06/11 NEUTRAL p 1196

Target Price Date Target price 07/04/15 p 2650 07/01/15 p 2450 05/05/14 p 2300 20/12/13 p 2150 08/04/13 p 1925 15/01/13 p 1650 06/09/12 p 1620

Melia Hotels

5.4

6.4

7.4

8.4

9.4

10.4

11.4

12.4

13.4

14.4

11/03/14 11/06/14 11/09/14 11/12/14 11/03/15 11/06/15 11/09/15

MELIA HOTELS INTL. Fair Value Achat Neutre Vente Ratings Date Ratings Price 31/07/13 BUY EUR6.45 13/11/12 SELL EUR5.58 26/09/11 NEUTRAL EUR4.7 24/06/11 BUY EUR7.9

Target Price Date Target price 09/04/15 EUR14.5 18/03/15 EUR13.1 07/01/15 EUR11.5 09/01/14 EUR11 08/11/13 EUR10 31/07/13 EUR7.2 15/01/13 EUR5.8 15/11/12 EUR5.7 15/05/12 Under review

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Bryan Garnier stock rating system For the purposes of this Report, the Bryan Garnier stock rating system is defined as follows: Stock rating

BUY Positive opinion for a stock where we expect a favourable performance in absolute terms over a period of 6 months from the publication of a recommendation. This opinion is based not only on the FV (the potential upside based on valuation), but also takes into account a number of elements including a SWOT analysis, positive momentum, technical aspects and the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

NEUTRAL Opinion recommending not to trade in a stock short-term, neither as a BUYER or a SELLER, due to a specific set of factors. This view is intended to be temporary. It may reflect different situations, but in particular those where a fair value shows no significant potential or where an upcoming binary event constitutes a high-risk that is difficult to quantify. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

SELL Negative opinion for a stock where we expect an unfavourable performance in absolute terms over a period of 6 months from the publication of a recommendation. This opinion is based not only on the FV (the potential downside based on valuation), but also takes into account a number of elements including a SWOT analysis, positive momentum, technical aspects and the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion.

Distribution of stock ratings

BUY ratings 62.3% NEUTRAL ratings 33.3% SELL ratings 4.4%

Research Disclosure Legend 1 Bryan Garnier shareholding

in Issuer Bryan Garnier & Co Limited or another company in its group (together, the “Bryan Garnier Group”) has a shareholding that, individually or combined, exceeds 5% of the paid up and issued share capital of a company that is the subject of this Report (the “Issuer”).

No

2 Issuer shareholding in Bryan Garnier

The Issuer has a shareholding that exceeds 5% of the paid up and issued share capital of one or more members of the Bryan Garnier Group.

No

3 Financial interest A member of the Bryan Garnier Group holds one or more financial interests in relation to the Issuer which are significant in relation to this report

No

4 Market maker or liquidity provider

A member of the Bryan Garnier Group is a market maker or liquidity provider in the securities of the Issuer or in any related derivatives.

No

5 Lead/co-lead manager In the past twelve months, a member of the Bryan Garnier Group has been lead manager or co-lead manager of one or more publicly disclosed offers of securities of the Issuer or in any related derivatives.

No

6 Investment banking agreement

A member of the Bryan Garnier Group is or has in the past twelve months been party to an agreement with the Issuer relating to the provision of investment banking services, or has in that period received payment or been promised payment in respect of such services.

No

7 Research agreement A member of the Bryan Garnier Group is party to an agreement with the Issuer relating to the production of this Report.

No

8 Analyst receipt or purchase of shares in Issuer

The investment analyst or another person involved in the preparation of this Report has received or purchased shares of the Issuer prior to a public offering of those shares.

No

9 Remuneration of analyst The remuneration of the investment analyst or other persons involved in the preparation of this Report is tied to investment banking transactions performed by the Bryan Garnier Group.

No

10 Corporate finance client In the past twelve months a member of the Bryan Garnier Group has been remunerated for providing corporate finance services to the issuer or may expect to receive or intend to seek remuneration for corporate finance services from the Issuer in the next six months.

No

11 Analyst has short position The investment analyst or another person involved in the preparation of this Report has a short position in the securities or derivatives of the Issuer.

No

12 Analyst has long position The investment analyst or another person involved in the preparation of this Report has a long position in the securities or derivatives of the Issuer.

No

13 Bryan Garnier executive is an officer

A partner, director, officer, employee or agent of the Bryan Garnier Group, or a member of such person’s household, is a partner, director, officer or an employee of, or adviser to, the Issuer or one of its parents or subsidiaries. The name of such person or persons is disclosed above.

No

14 Analyst disclosure The analyst hereby certifies that neither the views expressed in the research, nor the timing of the publication of the research has been influenced by any knowledge of clients positions and that the views expressed in the report accurately reflect his/her personal views about the investment and issuer to which the report relates and that no part of his/her remuneration was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Yes

15 Other disclosures Other specific disclosures: Report sent to Issuer to verify factual accuracy (with the recommendation/rating, price target/spread and summary of conclusions removed).

No

A copy of the Bryan Garnier & Co Limited conflicts policy in relation to the production of research is available at www.bryangarnier.com

London Heron Tower 110 Bishopsgate London EC2N 4AY Tel: +44 (0) 207 332 2500 Fax: +44 (0) 207 332 2559 Authorised and regulated by the Financial Conduct Authority (FCA)

Paris 26 Avenue des Champs Elysées 75008 Paris Tel: +33 (0) 1 56 68 75 00 Fax: +33 (0) 1 56 68 75 01 Regulated by the Financial Conduct Authority (FCA) and the Autorité de Contrôle prudential et de resolution (ACPR)

New York 750 Lexington Avenue New York, NY 10022 Tel: +1 (0) 212 337 7000 Fax: +1 (0) 212 337 7002 FINRA and SIPC member

Geneva rue de Grenus 7 CP 2113 Genève 1, CH 1211 Tel +4122 731 3263 Fax+4122731 3243 Regulated by the FINMA

New Delhi The Imperial Hotel Janpath New Delhi 110 001 Tel +91 11 4132 6062 +91 98 1111 5119 Fax +91 11 2621 9062

Important information This document is classified under the FCA Handbook as being investment research (independent research). Bryan Garnier & Co Limited has in place the measures and arrangements required for investment research as set out in the FCA’s Conduct of Business Sourcebook. This report is prepared by Bryan Garnier & Co Limited, registered in England Number 03034095 and its MIFID branch registered in France Number 452 605 512. Bryan Garnier & Co Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 178733) and is a member of the London Stock Exchange. Registered address: 110 Bishopsgate, London EC2N 4AY, United Kingdom This Report is provided for information purposes only and does not constitute an offer, or a solicitation of an offer, to buy or sell relevant securities, including securities mentioned in this Report and options, warrants or rights to or interests in any such securities. This Report is for general circulation to clients of the Firm and as such is not, and should not be construed as, investment advice or a personal recommendation. No account is taken of the investment objectives, financial situation or particular needs of any person. The information and opinions contained in this Report have been compiled from and are based upon generally available information which the Firm believes to be reliable but the accuracy of which cannot be guaranteed. All components and estimates given are statements of the Firm, or an associated company’s, opinion only and no express representation or warranty is given or should be implied from such statements. All opinions expressed in this Report are subject to change without notice. To the fullest extent permitted by law neither the Firm nor any associated company accept any liability whatsoever for any direct or consequential loss arising from the use of this Report. Information may be available to the Firm and/or associated companies which are not reflected in this Report. The Firm or an associated company may have a consulting relationship with a company which is the subject of this Report. This Report may not be reproduced, distributed or published by you for any purpose except with the Firm’s prior written permission. The Firm reserves all rights in relation to this Report. Past performance information contained in this Report is not an indication of future performance. The information in this report has not been audited or verified by an independent party and should not be seen as an indication of returns which might be received by investors. Similarly, where projections, forecasts, targeted or illustrative returns or related statements or expressions of opinion are given (“Forward Looking Information”) they should not be regarded as a guarantee, prediction or definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors, in addition to the risk factors stated in this Report, could cause actual results to differ materially from those in any Forward Looking Information. Disclosures specific to clients in the United Kingdom This Report has not been approved by Bryan Garnier & Co Limited for the purposes of section 21 of the Financial Services and Markets Act 2000 because it is being distributed in the United Kingdom only to persons who have been classified by Bryan Garnier & Co Limited as professional clients or eligible counterparties. Any recipient who is not such a person should return the Report to Bryan Garnier & Co Limited immediately and should not rely on it for any purposes whatsoever. Notice to US investors This research report (the “Report”) was prepared by Bryan Garnier & Co Limited for information purposes only. The Report is intended for distribution in the United States to “Major US Institutional Investors” as defined in SEC Rule 15a-6 and may not be furnished to any other person in the United States. Each Major US Institutional Investor which receives a copy of this Report by its acceptance hereof represents and agrees that it shall not distribute or provide this Report to any other person. Any US person that desires to effect transactions in any security discussed in this Report should call or write to our US affiliated broker, Bryan Garnier Securities, LLC. 750 Lexington Avenue, New York NY 10022. Telephone: 1-212-337-7000. This Report is based on information obtained from sources that Bryan Garnier & Co Limited believes to be reliable and, to the best of its knowledge, contains no misleading, untrue or false statements but which it has not independently verified. Neither Bryan Garnier & Co Limited and/or Bryan Garnier Securities LLC make no guarantee, representation or warranty as to its accuracy or completeness. Expressions of opinion herein are subject to change without notice. This Report is not an offer to buy or sell any security. Bryan Garnier Securities, LLC and/or its affiliate, Bryan Garnier & Co Limited may own more than 1% of the securities of the company(ies) which is (are) the subject matter of this Report, may act as a market maker in the securities of the company(ies) discussed herein, may manage or co-manage a public offering of securities for the subject company(ies), may sell such securities to or buy them from customers on a principal basis and may also perform or seek to perform investment banking services for the company(ies). Bryan Garnier Securities, LLC and/or Bryan Garnier & Co Limited are unaware of any actual, material conflict of interest of the research analyst who prepared this Report and are also not aware that the research analyst knew or had reason to know of any actual, material conflict of interest at the time this Report is distributed or made available..

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