jones lang la salle
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Overview of property development and construction in the hotel and leisure markets – latest trends, key players and unique aspects of the sectorTRANSCRIPT
Opening the door to opportunityHotel Development & Construction
Latest trends, key players and unique aspects of the sector
Michelle WebbToby Wait
27 April 2010
opportunity
Today’s agenda – spotlight on…
• Brands of opportunity- Active players and new entrants
• Hotel operating structures
• Hotel development - London- General trends
• Questions
Key players, trends, and unique aspects of the sector
Brands of opportunityActive players in the marketplace
Brands of opportunityNew entrants / operators
Hotel operating structures – management contractSubdued investor appetite
• Owner owns property and hotel business• Owner pays manager a fee to operate the hotel on their behalf• Complex business structure
Sample summary hotel P&L
Room Count 180
Occupancy 74%
ADR £104.18
RevPAR £77.09
Total Revenue
000’s
£8,554
Departmental Expenses £3,220 37.6%
Undistributed Expenses £1,578 18.4%
Gross Operating Profit £3,756 43.9%
Base Fee (3% revenue) 257 3.0%
Incentive Fee 350 4.1%
Other Fixed Costs 624 7.3%
Net Cash Flow £2,525
29.5%
Management contract
Hotel operating structures – franchise contractActive franchisees
• Established hotel brands allow independent operators to use their brand and reservation systems
• Franchise fee paid to international hotel company
• Typically owner/operators – potentially more efficient
Sample summary hotel P&L
Room Count 180
Occupancy 74%
ADR £104.18
RevPAR £77.09
Total Revenue (Rooms, F&B, MOD)
000’s
£8,554
Departmental Expenses £3,220 37.6%
Undistributed Expenses £1,578 18.4%
Gross Operating Profit (AGOP) £3,756 43.9%
Base Fee (5% rooms revenue) 253 3.0%
Other Fixed Costs 624 7.3%
Net Cash Flow £2,878 33.6%
Franchise contract
Hotel operating structures – occupational leaseStrong investor interest in indexed link leases
• Owner / Landlord receives a rental income – fixed or variable
• Operator / Tenant receives remaining income from trading
• RPI / CPI or open market reviews
Source: Jones Lang LaSalle Hotels
Hotel operating structuresUK hotel investment market: deal type
0
1,000
2,000
3,000
4,000
5,000
6,000
2006 2007 2008 2009 2010f
Franchise
Management Contract
Lease (including S&L)
VP
Development trends – London v regions
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Budget Region Budget London 5 Star Region 5 Star London
£
Indicative gross development value per bedroom
Development trends – London v regions
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Budget Region Budget London 5 Star Region 5 Star London
£
Less build cost per bedroom
Development trends – London v regions
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Budget Region Budget London 5 Star Region 5 Star London
£
Less other development costs per bedroom = residual site value
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Bed
room
s un
der
Con
stru
ctio
n
2007 2008 2009 2010
London Development Pipeline
Y - Opening inFollowing Year
Y - Opening inCurrent Year
Hotel development in London
Activity focused on leases / budget sector
Reduced development pipeline since 2007/08
Development trends – office conversions
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011 2012
Conversions New Build
(Forecast)
Office conversions
Travelodge, Tower Hill Premier Inn, Cardiff
Providing the expertise to know what to look for
Development trends – the requirement for sleepEfficient and effective use of space feeds the bottom line
Development trends – sustainabilityResponsible development achieves win-win status for all
Development trends – refurbishmentsA growth market?
In summary…
• Complex and unique properties
• Combine property and business investment principles
• Effectively ‘daily tenanted’
BUT
• Major opportunities exist in London
QuestionsQuestions