volume 7 issue 1 hotelanalyst · 2019-01-15 · volume 7 issue 1 . contents news review 3-11 burgio...
TRANSCRIPT
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The attack on the sector’s notoriously under-demolished failing hotels resumed at this year’s International Hotel Investment Forum in Berlin, with calls for sites which were not commercially viable to be closed for the good of those which were.
Banks in particular were accused of using
‘pretend and extend’ policies to keep hotels open,
because of fears over realising losses if they were
sold. It was thought increasingly likely that images
seen in the UK pub market – which saw 39 pubs a
week close last year, according to British Beer and
Pub Association – could and should be replicated
in the hotel sector.
Desmond Taljaard, COO Starwood Capital, said:
“You’re just keeping the vagrant on the street.
This is a sector which lacks Darwinian evolution –
some hotels are more dinosaur than chimpanzee.
The consequences of these hotels surviving are
not good for the industry.
“Clearly there’s not a moral or social responsibility
on the part of the banks, but it’s a big concern to me.
Why would you build a big swanky hotel when the
musty-duvet hotel down the road is kept going?”
Taljaard’s call was echoed by Paul Collins,
director, CBRE Hotels, who has been working
with NAMA (Ireland’s National Asset Management
Agency), and said: “There are some hotels which
just should be sold.”
Taljaard was unable to estimate how much of, for
example, the UK market, should be removed for the
benefit of the remaining hotels. A lack of visibility
of the sector, in particular of those assets held by
the banks, makes it hard for a clear assessment of
which sites could be truly said to be in distress, the
•Whitbread’s frothy deal p4
•Cosslettquits as Solomons moves up p5
•Ownersfinding their voice p12
•HotelsandUK govt strategy p14
•Therouteto recovery p20
•IntoAfricap24
Callsgrowtotakethepainofdistressdefinition for which varied at the conference, from
hotels which had breached loan-to-value covenants
to those unable to service their debts at all.
It was generally agreed at the distress panel that
over-exuberant lending was to blame for the distress
associated with many assets, which may under less
pressured circumstances be viable businesses.
There were calls for owners to be brutal in their
assessment of what a property could realistically
operate as, with some sites thought more suited to
a shift from four-star to budget rather than a less
radical solution such as a brand change. Taljaard
commented: “As regards regional UK, you have
to question how long the four-star can compete...
you’d rather have some of your money back than
none at all.”
Other discussions at the conference looked to
a more hands-off solution to many sites’ distress,
that of riding a recovery in trading back to a higher
valuation. Jeremy Hill, head of hotels at Christie
& Co, said rising trading was one of the essential
components needed to move the sector forwards.
He said: “The losses haven’t been realised yet.
There’s been some short term debt refinancing,
but that just brings the same problem back in a
couple of years unless there’s been some capex or
an improvement in trading.”
Robert Koger, president, Molinaro Koger, added:
“Once investors are convinced that the worst is
over, you will see a lot more aggressive bidding.
The banks that we’re working with are fixed on a
certain price and if they get that they’ll sell. Values
will continue to increase and that’s what will drive
transactions, as opposed to values falling and
banks just cutting and running.”
Jonathan Hubbard, managing director, Jones
Lang LaSalle Hotels, concluded: “For the banks
to get comfortable again they need to see more
transactions. The economic view is quite bullish, u
Volume 7 Issue 1
ContentsNews review 3-11Burgio cut – Trading debt – Whitbread’s frothy deal – Cosslett quits – Deal-flow up – Hennequin’s debut – 2012 rate battle – Wyndham backs brand – IHG recovery – Mid-market malaise – Hyatt, M&C spending – Host, Stategic shopping Analysis 12-15, 19, 20-21Finding their voice – Mood in Dubai – UK Government policy – Turning tides – Road to recoverySector stats 16-18London profitability stable – Double-digit DublinPersonal view 22In to AfricaThe Insider 24Bankers less bullish – A demo too far – Road warriors’ rights
www.hotelanalyst.co.ukVolume 7 Issue 1
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Marketing Sarah Sangstere [email protected]
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The Great GrindCommentaryby AndrewSangster
We are now exiting the recession and heading
into recovery. But this third period does not
look like the recoveries we have previously seen
following downturns in that it is much shallower
(at least for most Western economies). We should
perhaps dub it the Great Grind.
There are a number of notable characteristics
for the Great Grind. Firstly, it is a period of fiscal
tightening. We have already written at length
about the impact of rising taxes and public
spending cuts on the hotel industry. In particular,
Otus & Co has produced an insightful analysis of
the impact (see Volume 6 Issue 2).
These cuts and tax increases are only now
beginning to bite and thus impact on hotel
demand. In addition – the second characteristic
of the Great Grind – monetary tightening is
also starting. The rate rise in early April by
the European Central Bank to 1.25% from
1% is the most marked move by the major
central banks.
While it seems unlikely that the US or UK
central banks will follow this lead in the next few
months, most expectations are for interest rates
to begin rising by the end of the year or at least
in early 2012. And it seems highly unlikely that
the stimulus provided by quantitative easing will
be extended.
This is a twin pronged attack on consumers.
Real household incomes are now declining,
the first time in 30 years in the case of the UK
according to the Office for National Statistics, and
this is before the full effects of fiscal and monetary
tightening are felt.
There is some good news for the hotel business in
that the Great Recession has seen remarkably little
corporate distress. Most corporates are emerging
with strong balance sheets and an appetite for
growth. Given that it is corporates rather than
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation
hotelanalystindividual consumers that are the source for most
hotel demand, this gives some hope.
There is also encouraging signs that the period
of amend and pretend is drawing to an end.
Weak businesses that should have been put out
of their misery have been kept on life support
by banks who were too fragile to take write-
downs on their lending to such enterprises. The
tightening monetary policy will only accelerate
this trend.
PricewaterhouseCoopers, in a document
produced in April for its Portfolio Advisory
Group called “European outlook for non-core
and non-performing loan portfolios”, estimated
that European banks have u1.3 trillion of
non-core loans.
PwC makes the point that dealing with
this overhang will require a massive level of
transactions. And yet so far, there have been few.
In fact, for the vulture funds that have been set up
to swoop, far too few.
The first barrier to deals identified by PwC was
the bid-ask spread. Banks have been unable to sell
at the price buyers are willing to pay because of the
impact of the write-down on their balance sheets.
But PwC also makes the point that the process
takes time due to the complexity of many loan
books. The expectation of PwC is that it will take,
“at least”, another 10 years for the deleveraging
process to complete.
And where is there the most pain? In total
quantum it is that economic powerhouse and
paragon of financial virtue, Germany. A whopping
E225bn at the end of 2010 on PwC figures. Next
up is the not surprising appearance of the UK at
u175bn. Spain and Ireland also have big problems
with u103bn and u109bn respectively.
Of course, all these mega numbers are much
wider than the hotel industry but buried in the
figures are some significant hotel portfolios across
Europe. And the fundamental point is that the list
of reasons for doing a deal is getting longer, while
the list of reasons for not doing a deal is getting
shorter. In particular, rising interest rates will add
significant pressure.
During the period of the Great Grind there is
unlikely to be much opportunity to grow out of
trouble. The latest World Economic Outlook from
the International Monetary Fund is testament to
just how bleak growth prospects are for most
Western economies.
The WEO released in April forecast growth this
year of 1.6% in the Euro area (even Germany was
a below trend 2.5%) and 1.7% in the UK. Next
year it is little better at 1.8% in the Euro area and
2.3% in the UK.
The Great Grind will be a period of difficult deal
doing but the deals will have to get done.
The period leading up the credit crunch is now widely known as the Great Moderation, a period that started in the 1980s and saw a sharp reduction in economic volatility. The collapse that followed in the autumn of 2008 is often referred to as the Great Recession.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 3
News
continued from page 1
but across Europe there are varied dynamics. We
need to have a clear out of the assets that aren’t
bouncing back.”
Several advisory groups used the conference to
launch their latest transactions data, which have
indicated increases in 2010 and likely growth in
this year. The HVS European Hotel Transactions
Report saw a doubling in transaction volumes
last year, forecasting that deal volume would
“gradually pick up” during 2011, with an increase
in distressed sales likely as trading improved and
bank lending increased.
Deloitte supported an increase in transactions,
with Nick van Marken, global head of advisory
– tourism, hospitality & leisure at Deloitte,
adding: “2010 saw global transaction activity
approach c.$25bn in value. Europe saw a strong
upsurge in deals, with a total of c.E6bn in overall
transaction volumes.
Arthur de Haast, global CEO, Jones Lang LaSalle
Hotels, said: “There are definitely distressed
assets out there, but the banks have been taking
a long-term view. It wasn’t a bad strategy – I’m
not sure it was a strategy – but it has worked
out. We still expect debt to be a challenge in
2011. We could get a double-dip in pricing for
secondary markets.”
HA Perspective: With photos of shuttered
pubs appearing frequently in the UK press, some
observers have concluded that the short-term
pain may be replaced by a more sustainable
supply. However, the issues that have led to the
fall in the number of pubs have shared some
characteristics with hotels, but not all.
The key difference is that demand for hotel rooms is
increasing. The issue is mostly one of capital structure,
at least for chain hotels, rather than obsolescence.
Lack of cash to refurbish the properties can push
them into effective obsolescence, particularly if they
are competing with nearby hotels that have enjoyed
adequate capex.
Most of those calling for hotels to be demolished
really mean “sell them to me cheap”. The banks
are showing no signs of playing this game, having
seen how some investors made excessive profits in
the aftermath of the 1990s recession.
Across Europe there is a case for shutting down
hotels in a handful of difficult locations with excess
supply. Ireland is the main culprit. Even Spain is
probably OK outside of the Costas.
His exit puts NH firmly into play with the
possibility of a break-up if no bidder emerges for
the whole group.
Both NH and Burgio have been quiet since the
filing with Spain’s National Securities Market, which
said that his decision was made after having achieved
the objectives set out in the business plan agreed
in 2009 to address the impact of the downturn.
However, rumours persist that Burgio was ousted
by 10% shareholder Caja Madrid, rumours made
stronger by the fact that his replacement is currently
president of SOS Food Corporation, of which Caja
Madrid is the biggest shareholder.
It is thought that Caja Madrid, which is one of
Spain’s oldest savings groups, had been acting
with Group Hesperia, with the pair collectively
representing shareholder who own around 45%
of the group. Hesperia has a rocky history with NH
as far back as 2003, 10 years after Burgio joined,
when the company was eager to merge with NH.
NH rejected the unsolicited bid for a 26.1% stake as
too low, both in price and in terms of the stake size.
The company also said that the deal would raise
its debt and pointed to future recovery as well
as future cost savings, which it expected to buoy
its finances. The board at that time had faith in
Burgio’s long-term strategy, which, over the course
of his leadership, has taken it from under 100 sites,
all in Spain, to over 400 hotels across 24 countries.
Hesperia continued to nag at the group, building
up its stake gradually, until 2009, when the two
merged their hotel management businesses,
building the NH estate without the need for any
additional investment. Hesperia continued to own
or lease its 51 properties and, after a six-year wait,
also claimed a seat on the board.
Burgio’s exit had the support of the Spanish
stock exchange, with shares in NH rising by 7%
after the news, with analysts possibly looking at
the turnaround at SOS Food since Caja Madrid
rescued it.
NH is not in such dire straits, with recovery
gaining traction in its domestic market and, in the
third quarter, seeing rate growth for the first time
in seven quarters. Burgio himself thought that the
group had reached a point at which it could start
to build on its recovery, after instigating the 2009
plan, forecasting “moderate” revpar growth. The
group was also looking to expansion, focusing on
Germany, France and Latin America.
NH has also been pursuing an asset
rationalisation strategy, cancelling a series of low-
performing contracts. However, the group’s asset
disposal plans, which saw it intend to sell E300m
of non-strategic assets last year, was set to spill
over into the first months of this year.
By the end of the third quarter, the group had
raised E183m through the sale of three hotels in
Mexico and St Ermin’s Hotel in London. A further
E60m of sales had been committed at that time,
but, despite the wider defence of the weak
transactions market, this delay may have been the
straw that broke the donkey’s back.
Caja Madrid is keen to raise cash, and as fast
as possible, to aid its position in the country’s
ailing banking sector, under pressure from the
government. The bank leads a group of seven
savings banks under the name Banco Financiero y
de Ahorros, which is planning to list to raise capital
once Spain’s new regulations are clear. These
considerations mean that the group is unlikely to
view NH as a long term hold.
Hesperia has not been the only company to view
NH as a potential takeover target over the years,
with the then Hilton International thought to have
eyed the company, in addition to fellow Spanish
group Sol Melia. For Sol Melia, recent strategy
has seen it sell its Tryp brand, with the company
intending to expand outside the volatile Spanish
market and through low capital intensive means.
HA Perspective: Burgio has been ousted more for
the needs of some of the companies that part own
NH than for the benefit of NH’s wider shareholder
base. Caja Madrid in particular desperately needs
cash and the sale or even break-up of NH will
deliver this.
The new CEO has a track record of stripping out
companies. At SOS Perez Claver sold-off the rice
business at the end of last year, focusing on its core
olive oil operation. The cash raised was distributed
to shareholders and debt was paid down.
Maybe this is the answer for NH which has
struggled with its debt burden and exposure to
high rent leases. But it would be a sad end to what
is currently Spain’s only truly European hotelier.
It is also a worrying precedent for other
indebted hotel groups. Given the problems at
Lloyds Banking Group, the executives at newly-
minted Mint (formerly City Inn) and the Rocco
Forte Collection will not be sleeping easy.
Burgio falls victim to needs of shareholdersGabriele Burgio’s tenure at NH Hoteles came to a sudden end, with the news that he was to leave the group at the start of March, to be replacedbyMarianoPérezClaver.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 14
News
Objections were raised to the price – at 14 times
Ebitda – although Harrison pointed to extensive
expansion plans. The new boss was given an
additional headache by the group’s Premier Inn
business, which saw a slowing rate of sales growth
in the fourth-quarter.
An additional point of concern was that the
deal worked out at around £66,000 a machine,
compared with a cost of £15,000 for a new
machine. The news of the Coffee Nation deal
was more welcome at Deutsche Bank, one of
Whitbread’s brokers, with analyst Geof Collyer
estimating that the Ebitda multiple would drop to
four times by year five of the takeover, as Harrison
planned to take the group from 900 to 3,000 sites
as Costa Express over the next five years.
Harrison’s interest in the coffee business was
also backed by Morgan Stanley analyst Jamie
Rollo, who said: “Whitbread has reported an in-
line quarter for this trading update, with slower
sales growth in hotels (as expected) and at Costa,
but a strong restaurants performance and an
attractive acquisition. Whitbread is one of the
fastest-growing, property-rich and yet cheapest
hotel stocks.”
In keeping with the new CEO’s heritage at
Easyjet, and in line with the group’s increasing use
of a price-based competition strategy, the group
trialled £19 rooms, as a “test of elasticity”, during
the fourth quarter, which has historically been a
weak trading period.
Harrison said: “It was a small test, but was
successful and we’re looking to add that to the
commercial mix going forward, to use for different
customers and at different times of the year.”
Despite the Costa Express launch, expansion
at Premier Inn is continuing. Harrison said that
the group still planned to add 20% of its estate,
reaching 55,000 rooms by February 2014.
At Premier Inn, like-for-like sales growth fell
to 5.1% for the quarter to 17 February, down
from the 8.7% increase in the previous quarter.
Harrison told an analysts call that London had
seen “some softening” in the fourth quarter, with
rates down half a percentage point, but was still
growing, with occupancy up 4%. Performance
in the provinces was unchanged from the third
quarter. Total group sales in the last 11 weeks
were up 12.4%.
The CEO pointed to falling consumer confidence
as a possible explanation. He said: “Comparatives
are distorted by the winter weather patterns. The
rise in VAT is pretty recent. The rising oil price is
beginning to feed through to the forecourt. From
a consumer perspective there’s more negative
than positive news.
“Our businesses have traded well during the
tough recessionary period and we’re confident
that we will continue to deliver a good relative
performance. We are expecting a continuation of
the difficult consumer environment that we saw
last year.”
The group said, however, that its balance
sheet was “strong and remains underpinned by a
significant freehold asset base” and it anticipated
“that the outturn for the year will be in line u
Whitbread’sHarrisontakeshitoncoffeeAndyHarrison,Whitbread’snewCEO,sawhisfirstboldactinhisnewroletake5%offthecompany’sshareprice,astheCityreactedbadlytothecompany’s £59.5m purchase of self-servicecoffeegroupCoffeeNation.
In Europe, however, despite similar levels of
distress, there has been hardly any transactions
taking place. Lenders are adopting different
approaches according to the territory with the
same bank choosing to exit a distress situation at
a loss in the US while hanging on in Europe.
The most recent US deal involves the Mark in
New York. Dune Real Estate Partners is reported
to have acquired the $300m mortgage on the
Mark for $190m, giving it control of the property.
Dune will work with developer Alexico Group to
continue repositioning the hotel property. Alexico
has spent around $200m renovating the Mark, but
ran into difficulties over stalled sales of residential
units it had developed on the site.
Blackstone Group and Square Mile Capital are
reported to have agreed to buy mortgages worth
around $385m linked to 45 hotels, from the US
Federal Deposit Insurance Corporation. The pair will
pay about 80 cents on the dollar for the portfolio,
through a joint venture, according to The Wall
Street Journal, which was felt to be a relatively high
price compared with deals involving distressed debt
backed by hotels done earlier in the downturn,
indicating increasing optimism in the sector.
Both that deal and that to take control of the
Mark involved banks under pressure – the failed
Silverton bank in the US and Anglo Irish Bank,
respectively – and have seen the debt acquired
at a discount, indicating that the merry-go-round
of pain is finding a home, in this case with the
previous lender. AIB financed several Alexico
projects during the boom, but last year sold loans
for the group’s Alex Hotel and Flatotel.
This is not the first such deal for Blackstone,
which, at the end of last year took ownership
of 14 hotels it had previously sold to Columbia
Sussex five years ago, through acquiring the junior
debt on the sites.
For the new owners of the debt, it is not the
detached process of dealing debt that helped to
set up the position the wider financial market finds
itself in, one which those with cash are able to take
advantage of. The new owners are faced with real
assets which must be made to work and assessed
for flaws underlying what may just be over-leverage
as a product of the cycle’s frothy peak.
The Irish Times reports that, at the Mark, AIB is
being sued by Alexico, which claims that the bank
breached a series of agreements relating to $500m
of loans that it made to redevelop the Mark, Alex
and Flatotel. The developer has argued that the bank
should not sell on the loans and it is not known if the
deal with Dune will see this case dropped.
HA Perspective: The different approach adopted in
the US compared to Europe is at first sight puzzling.
Taking a write-down in the US hurts the balance
sheet of banks just as much as it does in Europe.
But there are complexities. The bankruptcy
process in many European jurisdictions is far from
clear cut and political pressure can be a significant
deterrent. Banks, having been bailed out either
directly or indirectly by governments, are reluctant
to be seen shutting down businesses.
Just as importantly, the European business
culture does not so readily accept failure as the
US. A failed business venture in Europe often
taints those who originally backed it rather than
being seen as an unfortunate and occasional side
effect of taking risk.
Distressed loans in Europe will have to be sorted
out eventually. It seems that the preference is to
do things quietly.
Passing the debt parcelDebt is continuing to be the critical factor for distress situations in the USandhasledtoanumberofsingleasset and portfolio hotel deals being struck in the past couple of years.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 5
News
with market expectations, demonstrating strong
profit growth”.
UK-specific concerns, such as the VAT rise,
caused Panmure Gordon to reiterate its ‘hold’
rating, with analyst Simon French commenting
in a note: “Whilst not expensive relative to its
hotel peers, Whitbread has almost 100% profit
exposure to the UK consumer and, on this basis,
is trading at a material premium to other freehold
backed, UK-focused leisure companies such as
Mitchells & Butlers.”
There was no mention in the group’s results as to
whether the soon-to-be-rebranded Coffee Nation
machines were likely to pop up in Premier Inn sites
– the company is focusing on high-traffic areas
such as hospitals, universities and train stations –
but the new CEO’s rapid expansion means there
should be no difficulty finding one.
Reassuringly for Harrison, despite falling like-for-
like sales at Costa, the wider coffee market looks
strong. Mintel said that there had been steady
growth over the past five years in the number
of coffee shop customers taking their purchases
away and Harrison said: “There are 6bn cups of
coffee sold through traditional vending machines.
That tells us there’s a huge customer demand for
speed and convenience”. His hope is that with
his company controlling the only machines that
currently use ground beans and fresh milk, he can
lure these users his way.
HA Perspective: Former CEO Alan Parker told the
International Hotel Investment Forum that Coffee
Nation was one of a number of companies that
had been identified as possible takeover targets
during his time at the helm.
However, the glory or opprobrium for this deal
will fall on the head of his replacement, Harrison.
The deal itself is not of great consequence for
Whitbread’s future, given that it represents just
a fraction of the investment Whitbread makes
annually into its hotel business.
Perhaps the share price drop was led by fears
that Whitbread will start overpaying to deliver
growth. Harrison needs to move swiftly to confound
such worries.
continued from page 4
IHG will now be headed up by Richard Solomons,
CFO and head of commercial development,
who has been a board member since 2003,
having joined in 1992. In contrast to Cosslett’s
background in marketing, Solomons’ CV includes
seven years as an investment banker prior to a
series of financial roles, experience which IHG will
now look to as it cements its recovery.
There has been no talk of a rift in the board
room and, when Cosslett told a conference call
that he had been overseas for up to 60% of
his time in the role, this was accepted as strong
cause by the sector, with analyst Nigel Parson of
Evolution Securities, commenting: “The market
will be disappointed ... but he has a good sense of
timing and is probably sick of living in an aeroplane
or hotel room... Solomons is very capable and will
ensure no change in strategy”.
Cosslett is also not moving to take on another
position, telling analysts: “I don’t have any
immediate plans... I’ve been globetrotting pretty
much non-stop for the last 24 years so it seems
like a good idea to stop doing that for a while and
let my brain settle.”
Cosslett’s departure was textbook, according
to data supplied by Chris Mumford, managing
director at HVS Executive Search. The group
compiles information on the 50 biggest hotel
companies and their executives and confirmed
that, at 55 years old Cosslett was three years
above the average age for CEOs to leave but, at
six years, was dead on the average CEO tenure.
Cosslett’s appointment was part of a trend
for leaders in the sector who had brand, but not
hotel experience, which began with Starwood
Hotels and Resorts’ appointment of Steve Heyer
from Coca-Cola in 2004. While that didn’t work
out too well for Starwood – Heyer left less than
three years later with the group citing “issues with
regard to his management style” – it didn’t stop
them hiring outside the sector in the form of Frits
van Paasschen, former CEO at Coors.
While Cosslett’s exit was more amicable than
some recent changes at the top in the hotel sector,
Mumford pointed out that, at both Accor and NH
Hoteles, the new CEOs had previously been non-
executive directors at the companies they were
now leading, a theme continued at IHG and, as
this went to press, Morgans Hotel Group.
The appointment of Solomons from within may
have been in keeping with current sector thinking,
but it is not known if he had any competition from
other IHG executives for the position. Observers
will note that he had, however, a dry run in the
role when he lead the group’s conference calls for
its third-quarter results last year.
One investor, talking to Hotel Analyst after the
announcement, described Solomons as a safe
pair of hands and a true hotelier, who would use
his financial acumen to steer the group forwards
in its recovery, now that the departing brand-
man had strengthened the group’s brands and
asset-light strategy.
For any aspiring future IHG CEOs thinking about
what undergraduate degree to do, heading to the
University of Manchester looks to be a good bet
– both Cosslett and Solomons earned their BAs
in economics from that seat of learning, although
with around five years between them were unable
to have made any succession plans in the uni bar.
It is felt by some observers that Cosslett would
have left the group earlier, had it not been for
the downturn, but stayed on to see the company
through to recovery. The question now is what
Solomons will do with his hand on the tiller now
that the route ahead is less stormy. Not a great
deal differently, seems to be the consensus, but,
after close to 20 years at IHG, he must have some
ideas of his own.
HA Perspective: Cosslett’s departure was a
shock and the City reacted as it always does to
unexpected and sudden news, badly. But after a
few days the fretting abated and stock market
investors renewed their faith in IHG.
To describe Solomons as a hotelier would be a
stretch for those of the old school given that he
has not had the hands-on operational experience
usually associated with executives lauded with the
term. But this is not necessarily a bad thing.
Solomons has been part of the cultural shift
at IHG that has seen it move from being a purely
guest focused company to one that understands
its customers are also the owners of its hotels.
IHG has already signaled that it is prepared to
dispose of all of its real estate, including its four
flagship InterContinentals in London, New York,
Hong Kong and Paris. This, and the ongoing work
refreshing the Crowne Plaza brand, is likely to
keep Solomons busy for the next few years.
Unlike his fellow newly installed CEOs at
Accor and NH he does not face the pressure to
change the pace or style of the leadership of his
predecessor.
IHGlookstosteadyhandasCosslettquitsTheresignationofAndyCosslett asCEOofInterContinentalHotelsGroupcameasashocktotheCity,but the impact soon passed, as the company’s shares regained the moderatelossessufferedaftertheannouncement within a few days.
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After predecessor Gilles Pélisson’s departure
over “strategic divergences” Hennequin showed
that his strategy was in line with the rest of
the board as he revealed an acceleration of the
company’s expansion and asset sales.
“Our objective will be to accelerate the execution
of our strategy,” he told analysts, with franchising
key to the group’s expansion. He added: “We want
to turn Accor into a global leader in franchises,
notably in Europe”. The group’s growth plan
calls for the addition of 101,000 rooms by 2014,
42% of which will be in Asia-Pacific and 32%
in Europe, 75% of which will be management
contracts and franchises.
The second part of the group’s strategy will see a
speeding up of its asset disposals, which is helping
it pay down debt. Accor has already completed
almost one third of the E2bn asset disposal plan
in place for 2010 to 2013 and has increased its
target for sales to E1.2bn by the end of 2012, up
from E800m previously.
The latest hotel to be identified for sale is the
480-room Hotel Novotel north of Times Square in
New York, with one of the sale conditions being
for the buyer to keep Accor on at the site under a
management contract.
Accor, which owns the Sofitel Luxury Hotels
and Motel 6 brands, among others, aims to u
AccorCEO’sdebutlackssurprisesWithGabrieleBurgio’sreplacementstillunpackinghisdesk,Accor’snewCEODenisHennequinwaseagertoprove to his shareholders that he was ready to hit the ground running at hisfirstresultspresentation.
Dealing with debtAfteraquietyearduringwhichahandful of trophy assets were fought over by a handful of high-net-worth individuals, institutional investors and hotel investment companies, a slew of forecasts released during the International Hotel Investment Forum suggests that 2011 will see an increase in activity.
Single asset deals in strong markets such as
London were the preferred flavour last year, with
a limited number of hotels coming to market
as banks preferred to ‘pretend and extend’. But
this postponement of reality cannot continue
indefinitely and when the banks bring assets to
market it is those investors who have taken canny
positions around the debt structure who will be
in the driving seat.
Deloitte, looking at the European hotel market,
has forecast “potentially” a 25% to 50% increase
in deal activity in the region, with a return of
portfolio deals, although said that risks remained
on the downside. HVS too, in its ‘2010 Europe
Hotel Transactions’ report, has pointed to a
gradual increase in banks selling distressed assets
would see deal volume “gradually pick up”, aided
in part by “genuine depth to the amount of equity
chasing deals”.
According to Ernst & Young’s Global Hospitality
Insights, the improvement in operating performance
in 2010 and the positive outlook over the next
several years has sparked a resurgence of investor
interest, which was likely to see an increase in
volume, globally, of 30% to 40%, to reach $30bn.
This would represent a return to 2004 levels, off the
$120bn transacted at the peak in 2007.
With the flood of distress never materialising,
many investors stayed away from the sector (and
property generally). However, with improvements
in trading fundamentals pulling up values and
causing analysts to call the bottom of the market,
an increase in investment has been provoked.
Low leveraged players are likely to remain the
main investors in the sector, with Ernst & Young
confirming that REITs were the most active hotel
buyers in the US, representing approximately
46.0% of the hotel transactions, as they took
advantage of the relatively lower cost of their capital
requirements. By comparison, REITs accounted for
only 16.0% of hotel acquisitions in 2009.
This year is expected to see an increase in the
number of bank-owned assets coming to market,
a state which is coming to pass with a further deal
by Royal Bank of Scotland, selling the Brighton
Hilton Metropole for £39.25m.
For the less cash-rich, one route into the sector
has been acquiring distressed debt. According
to Fitch Ratings, $22bn of the $48bn in hotel
commercial mortgage-backed security loans
mature over the next three years, with most
maturities occurring in 2011 and 2012, while this
year is expected to see financing arrangements on
many of the leveraged transactions seen in the
EMEA market coming up for renewal.
The most recent debt-triggered deal to be done
was Ashford Hospitality Trust’s acquisition of the
28-hotel US-based Highland Hospitality portfolio
for $1.28bn, through a new joint venture formed
with an unnamed institutional partner, thought to
be Prudential Financial. Ashford invested $150m
and took on $786m of debt in the hotels, giving it
71.74% of the joint venture.
Ashford described the acquisition and
restructuring, which includes hotels operated
under the Hyatt and Ritz-Carlton brands, as a
“consensual foreclosure”, a term the sector is
likely to become very familiar with.
Under the terms of the deal, Ashford is investing
$150m cash and assuming $786m of debt, with
senior lenders providing $530m of three-year
financing with two one-year extensions on 25 of
the hotels. The venture assumed first mortgages
of $146m on three hotels, with those loans
maturing in about two years. Unnamed lenders
are providing $419m of high-interest mezzanine
financing for the estate.
CEO Monty Bennett said that it would be “hard
to match the many benefits of this investment. We
believe there is a substantial opportunity to improve
the hotels’ performance with an aggressive asset
management strategy”.
The REIT, which focuses on upper-upscale and
upscale hotels and also looks at mid-scale and
luxury sites, favours direct investment but, in
keeping with the current state of the market, also
considers mezzanine financing, first mortgages,
and the purchase of its own debt at a discount.
The deal was thought to have been good news
in particular for Blackstone Group, who, according
to Bloomberg, earned about $260m on distressed
junior loans after paying around $60m for $320m
of Highland mezzanine debt, which is now thought
to be worth about its face value.
HA Perspective: Even though it is increasing,
deal flow is likely to remain subdued compared to
the go-go years of 2005-2007.
While debt is coming back, it is a long way short of
presenting an opportunity to rescue overleveraged
acquisitions made during the boom period.
Difficult and protracted negotiations are likely to
be needed for deals to happen. The days of term
sheets be faxed through by compliant lenders are
long gone.
But deals are being done and more will be
done. Debt, in one form or another, will remain
the determining factor.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 7
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sell the Novotel, at 226 W. 52nd St., as part of
its strategy to shed real estate and instead focus
on managing and branding hotels. A buyer of the
Times Square property will be required to keep
Accor as the hotel’s long-term manager, an Accor
spokeswoman said.
At the full-year results, the group said that net
debt had fallen E234m to E730m, compared to
E964m at its interims. In a note, Morgan Stanley
said that the figure was beneath its estimates of
E902m. The figure is expected to fall to close to
zero by the end of the year. The group ended the
year with total debt/Ebitda of 2.1 times, compared
to 3.9 times at the end of 2009.
Guillaume Rascoussier, an analyst at Oddo & Cie,
said in a note: “Hennequin’s experience is exactly
what Accor needs to turn the group into a cash
cow. He is better positioned than his predecessor
to manage Accor’s move from leased to franchise
hotels. The biggest change needs to be made
inside the company, which isn’t experienced in
promoting and attracting franchisees.”
However, there had been expectations of the
group returning cash as a result of the sale of the
company’s Lucien Barriere sale, with Rascoussier
describing this as “short-term disappointment”.
Operationally, the group has seen its position
strengthen, with hotels revenue up by 7.4% like-
for-like, to E5.69bn, helped by sustained growth
that gained momentum in the second half in
Europe. The results also reflected improvements in
the emerging markets of Asia and Latin America.
FD Sophie Stabile said that the company expected
the hotel sector recovery to continue this year,
driven in the main from rising occupancy and with
some improvement expected in room rates. She
added that, in regions where the turnaround had
been slower, such as Italy, Spain, the Middle East
and Africa, trading would likely remain “difficult”.
In the upscale and midscale segment, revenue
increased 10.1%, and the growth was 11.1% in
economy hotels, excluding the US, where Motel
6’s revenue rose 3.8% led by an increase in revpar.
The company said that average room rates were
improving in upscale and midscale hotels and
“gradually stabilising” at economy level, with
“strong growth” in emerging markets.
Despite Motel 6 continuing to underperform,
Hennequin refused to be drawn on whether the
group would sell the brand, and, although he
acknowledged that the company faced criticism
for its extensive brand stable, he commented that it
was too soon to consider selling any of its flags. He
added that the group would look mostly to organic
growth, but would not rule out acquisitions.
In announcing the group’s strategy under his
captaincy, Hennequin, who has also recently presided
over changes to the executive committee – described
by him as leaner and more efficient – used words
such as “accelerate” and “dynamic” to emphasis
the contrast in urgency with his predecessor.
HA Perspective: How much of an impact
Hennequin will have on Accor remains to be
seen. He is at least making the right noises from
the point of view of the shareholders behind the
ejection of Pelisson.
However, the strategy does not represent a sea-
change for Accor. While, at the presentation he
seemed to have a strong grasp of the group and its
business, observers are looking to see if he can make
the changes to the group’s mindset at ground level.
The challenge is not so much about changing
the approach of the troops in the front line – in
this case the hotel developers out there selling
franchises – but whether there is a realistic
opportunity to achieve the objectives being set.
Changing the structure and attitude of the
workforce is clearly something within Hennequin’s
control. And given his track record, it would be
unwise to bet against him succeeding.
But creating a suddenly dynamic demand for
franchising within Europe is another matter entirely.
Other major hoteliers believe it can be done – IHG
and Hilton are among the most aggressive.
If it does happen, then the industry is about
to undergo a radical period of transformation.
continued from page 6
The sector has had a mixed relationship with the
event since 2005, when London beat Paris to the
right to host. The global profile that the coverage
will give the capital has been welcomed, but there
have been concerns that non-sporting guests will
be deterred and that the increase in hotel supply
will have an impact on rates.
Liz Hall, head of hotels research at
PricewaterhouseCoopers, said: “Q3 2012 could
make many hoteliers’ dreams come true with
Farnborough Airshow, the Olympics and Paralympic
Games all in the same quarter. But outside this
crucial quarter, we remain concerned that reduced
demand and above average room supply will take
its toll on London trading. Hotels planning a bout
of price gouging during the Olympics will only
worsen any Olympic hangover.
“But it is what happens once the Games are
over that really matters, particularly for London
with its significant amounts of new supply coming
on in 2011 and the first half of 2012.”
The comments were made shortly before the
European Tour Operators Association complained
that high hotel rates and issues getting visas were
leading to a decline in tourists to the UK in the
run-up to next year’s London Olympics. The group
said London 2012 organisers had secured 40% of
hotel rooms at below market rates and now hotels
were seeking to recoup their losses by increasing
rates and tightening terms for the remainder of
their rooms, with executive director Tom Jenkins
commenting: “An industry stands in jeopardy
through overhyped fantasies of bonanza”.
The ETOA was joined by UKinbound, which
accused some London hotels of being “gripped by
a frenzy of greed” ahead of the 2012 Olympics, all
of which led to Johnson commenting: “We mustn’t
be seen as sharks through the actions of the short-
sighted Arthur Daleys out there who want to cash in
on the Games. Their actions could ruin the excellent
work put in by the rest of the tourist sector, with
repercussions for decades to come.
With every hotel currently being developed in
London seemingly due to open just in time for the
Games, the luxury segment is a key focus – PwC
estimates that there could be a 27% increase in
luxury rooms in London by 2012 with around 2,400
rooms in 18 hotels reported under construction or
planned in London.
Fears over hotels profiteering, triggered by the
events in Athens in 2004 which saw many rooms
left empty, caused the organising committee to
block-book 40,000 hotel rooms for Olympic officials,
international federations, foreign media and others
at rates agreed before London won the bid.
For the other rooms, Visit Britain has said it hoped
that hoteliers and other hospitality businesses
would sign up to an industry-led “fair pricing u
London count down courts controversyAstheLondon2012Olympicorganisers gave a hefty kick to the countdown clock when it stopped 499 days ahead of schedule, the city’s Mayor, Boris Johnson, put his own boot in to the hotel sector amid reportsofprofiteeringfromthecapital’s properties.
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News
and practice charter” under which they would
voluntarily agree to offer fair and reasonable prices
between 1 June and 30 September next year.
Visit Britain has not set down what it believes
to be “fair” or set a ceiling, and, with so many
new hotels coming on stream, eager to recoup
development costs using the Games as a boost,
there is no great incentive to hotels to take one
for the team, as such. One of London’s current
attractions is its comparative cheapness, which,
as long as the government maintains its policy of
keeping the pound low, will continue.
The British Hospitality Association was due to
meet with the London 2012 organising committee
over concerns that hotels were being resold at
inflated prices.
Hotels have complained that rooms which
were part of the 56,000 allocation agreed at a
predetermined “fair price” based on the average
room rate between 2007 and 2010 were being
resold as part of ticket-and-accommodation
packages by Thomas Cook, the “official provider
of short breaks” for London 2012.
For those for whom the pound is their home
currency, there are other options available:
camping is set to be set up at sites in and around
the capital which will also come with bars, big
screens and other festive paraphernalia.
HA Perspective: Building hotels for events has
always been a recipe for losing money. Luckily
for those foolish enough to do it in London, the
combination of the UK capital’s size and resilient
demand means most of the extra supply will be fairly
easily absorbed without the bumps seen in cities like
Barcelona, Sydney and most recently Beijing.
The one possible exception is luxury hotels. In
this segment, the weaker players are going to have
to trade down to find enough custom, potentially
doing long-term damage to their status as luxury
hotels as high paying guests suffer tour groups
and similar traipsing past.
Meanwhile, the hotel industry has a potential
media storm on its hands unless it yield manages
carefully. It was willing to sign-up to a formula
that effectively restricted its ability to maximise
profits in order to win the bid. It now needs to
apply a similar moderating approach to those
60% of rooms which fall outside of the reasonable
pricing policy struck with London’s Olympic
organisers Locog.
If it does not, the public relations damage will
far outweigh the relatively modest profit uplift to
be extracted during the few weeks of the Games.
In the past year the group has bolstered its
stable with, amongst others, the Tryp brand, which
it acquired from Sol Melia, in addition to signing
deals to licence the Planet Hollywood brand and
franchise the Dream and Night brands.
The group said that it would continue to
grow its system, under Wyndham Hotel Group,
and increase revenues through brand affiliations
which, CEO Stephen Holmes said, would allow it
to increase its overall presence “with little or no
capital investments”.
In a conference call, Holmes said that the
acquisition of the James Villa Holiday brand in
November had given it “geographic and product
expansion, growth opportunities in Europe”
providing scale in Spain and Portugal and good
representation in Greece.
While Wyndham spent much of 2010 looking
outside its existing stable to strengthen the range
of brands that it would be able to offer owners
in the future, Holmes said that the group was
also keen to grow its Wyndham Hotels and
Resort brand.
Wyndham brand openings were up over
60% in 2010, with 2,000 rooms added in the
fourth quarter, in locations including Orlando
and Chicago, as well as international openings,
including Mexico, Panama and Australia.
Holmes was confident of growth in the current
year, commenting that the outlook in the hotel
owner community had “significantly improved”,
adding that the company expected asset trading
“to increase in 2011 as the credit markets
continue to improve”. Revpar growth that the
company had seen in the US was also expected to
gain momentum globally.
Revenues at the hotel group were up 9%, Ebitda
increased 25% and margins improved over 300
basis points. In the US, revpar improved 8%, with
the majority coming from occupancy gain. With
other operators in the hotel market seeing rate
increases, Wyndham said that it was looking to
2012 to see growth in rate. In constant currency,
revpar in China and the UK grew 18% and 13%,
respectively. The UK, China and UK represent 84%
of the group’s total system, which is set to change
as the group looks to expand its brands overseas,
both organically and through acquisitions.
Excluding the Tryp acquisition, the group opened
over 54,000 rooms in 2010 and terminated
approximately 52,000, half of which it attributed
to financial difficulties amongst franchisees. CFO
Tom Conforti said that the group expected “these
types of terminations to moderate over time as
the economy continues to recover. In general,
retaining our strong franchisees remains a key
priority for our lodging business”.
In addition to the company’s hotel business,
the 6.9% increase in fourth-quarter earnings
was attributed to the group’s timeshare business,
Wyndham Vacation Ownership, which ended the
year with adjusted Ebitda of 32% above 2009.
vacation ownership interest sales rose 9% after
falling 21% a year earlier, with the increase was
attributed to 13% growth in tour flow.
Holmes commented: “While credit markets
for timeshare developers are still in the recovery
process, sentiment among developers … was
markedly positive.”
During the year Wyndham generated $600m
of free cash flow, which it spent on dividends,
buybacks, and acquisitions. The group said that it
would continue to strengthen its financial position,
with Holmes adding that the group would look
to “continue to deploy free cash flow to create
more value for our shareholders in 2011 through
acquisitions, share repurchases and dividends”.
Despite the Q4 increase, the markets were
disappointed that the recovery was not as strong
as that reported by Starwood Hotels & Resorts in
the previous week and the group saw its share
price drop by 2% after the announcement.
Fred Lowrance, analyst with Avondale Partners,
described the group as the most acquisitive of the
hotel groups, excluding Reits and commented:
“They will perform just fine considering their bias
towards mid- to lower-tier hotels and their focus
on leisure travellers”.
HA Perspective: It is easy to forget that
Wyndham is a timeshare company with a hotel
franchise business attached given the scale of the
company’s hotel franchise operation, the biggest
in the world on some measures.
The timeshare focus, which sees Wyndham u
WyndhamtopursuebrandgrowthWyndhamWorldwide,whichreported a 10% increase in revpar in thefourthquarter,saidthatitwouldcontinue to pursue its strategy of expanding its brand presence.
continued from page 7
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News
make money out of both selling timeshare and
via its exchange programme formerly called
RCI, means Wyndham is skewed to the leisure
market. This is a challenge given the fastest
recovery right now is in corporate travel rather
than leisure.
With timeshare related sales at 80% of total
revenue, it is interesting that the company has
moved to re-label itself under a hotel brand rather
than anything to do with timeshare or even the
more euphemistic vacation ownership.
This naming decision should at least give the
hotel company reassurance that it is fully joined
to the greater whole. More worrying though is
the lack of capital commitment to grow this same
hotel business.
Rather than buying up brands, Wyndham ought
to be focused on cleaning up its existing portfolio.
This is a longer term, less immediately rewarding,
exercise. But ultimately it is where there is the
opportunity to build the greatest value.
continued from page 8
Speaking at the company’s final quarter results
presentation, outgoing CEO Andy Cosslett said
that the forecasts for a 3% decline in US revpar
in 2010 have in reality turned into a growth of
more than 8%.
In addition to revpar growth, another of the
three drivers of profits, rooms, also saw progress
with more rooms signed in Europe and Asia in 2010
than in 2009 (the final driver is royalty rates).
There has been a phenomenal recovery in the
US with a 7.7% increase in total room nights sold,
the largest ever according to Cosslett.
The trading outlook is also good with revpar
forecast to grow by between 6.1% and 9.0%
in the US. As well as economic recovery, the
situation is helped by slowing supply growth and
a strengthening of the mid market.
Cosslett said that the differential between mid
scale and more upscale properties was “steadily
being restored” and that this “favours the midscale
in particular”.
Total pipeline is expected to grow only modestly
this year due to continuing system exits following
the Holiday Inn upgrade but it is expected that
future years will see growth in the 3% to 5%
range as there will be fewer exits.
Operating profit before exceptional items grew
22%, perhaps a fairly modest result given the
exceptional operating performance improvement.
But profitability typically results from rate increases
and only Asia Pacific has been enjoying better
rates during 2010.
In fact, Asia Pacific saw revpar growth back in
December 2009 and significant rate improvement
from the middle of 2010. Revpar in the region is
now close to peak levels. Globally, revpar is $9 or
14% behind the peak for the group as a whole.
Also holding back profitability growth has been
the volume of exits in the system due to the Holiday
Inn upgrade programme. This will close by the end
of this year with 46,000 rooms still to exit or relaunch
(so far 370,000 rooms have been relaunched). Even
so, franchise fees grew 6% in 2010.
On the management side, 70% of the growth
came in Asia. Fees were up from $333m to $263m
year-on-year although still below 2008’s level
of $339m.
For the owned and leased hotels, which number
15 worth $1.5bn (although four properties account
for 80%), margins improved three percentage
points although this is still four percentage points
below 2008.
The sharp improvement in trading increased
costs as the company paid out for performance
related bonuses to its staff. People are about half
of the group’s regional and central costs.
IHG struck a different tone to that in past
presentations by saying that now it had successfully
paid down debt priorities had changed and now it
would invest for growth.
A key target was China where it is looking to
acquire brands. It is seeking something in the
luxury or upper upscale space just below the
InterContinental brand which it said was “sold
out” in territories such as Shanghai.
Also on the agenda were “halo hotels”,
properties such as the San Diego Indigo that would
have a wider impact on a market. It was unlikely
that this would be in China but rather countries
such as India where IHG had less distribution.
The total number of such investments would
remain small, perhaps two or three InterContinentals
and between four and six Crowne Plaza properties.
“A few iconic properties can make a big difference,”
said CFO Richard Solomons.
Also on the growth agenda were new segments.
Resorts were mentioned with a key driver being
the need to offer somewhere for customers to
redeem their loyalty points.
“We’re not about to buy and build a $500m resort.
We will risk weight where we invest,” said Solomons.
Other key areas for investment include in brands and
in technology and systems infrastructure.
Since 2007 IHG has put in $200m of investment,
typically sliver equity. This compares to more
than $400m in capital released.
“There will be occasions where the use of cash will
accelerate development but this will represent a small
proportion of the total number of hotels signed,”
said Solomons. And the preference will always be
to have a selling horizon and for the investment to
deliver a return above the cost of capital.
The closing of the Holiday Inn upgrade
programme had enabled IHG to move on to its
Crowne Plaza offer. This was described as the
fourth largest upscale brand with 388 hotels and
a value placed on it of $3.5bn. It is also the third
largest brand in the global industry pipeline (the
top two are Holiday Inn and Express).
The IHG pipeline stands at 204,000 rooms,
roughly 18% of the global branded pipeline
according to IHG’s estimates from STR figures. It
put Hilton’s share at 13%, Marriott’s at 10% and
Starwood’s at 3%.
HA Perspective: It seems strange that IHG is seeking
another luxury brand in Asia while creating another
midscale brand in the US. Logic would suggest that
the opportunity for midscale was strongest in Asia
given the demographic in that country.
It is perhaps similarly surprising that it is Holiday
Inn core brand rather than Express that has made
the running in Asia. Express has just 30 sites in the
region against 1,700 in the US.
If Asian development follows the pattern of
the US then there is gobsmacking potential for
Express. IHG has a new partner in ICBC for its
China joint venture for Express and has signed a
20 hotel deal with Duet in India.
But the course of Asian development is unlikely
to be as smooth as might be hoped. Even if it does
prove bumpy, IHG and other hoteliers still have
plenty of cause for optimism.
As Cosslett said during the conference call, a
key feature of the hotel industry is the headroom
there is for organic growth given the tiny market
shares of existing players.
His challenge will be in deciding how much he
is willing to pay to speed-up that organic growth
through acquisition.
IHG lauds sharpest ever recoveryIt is the sharpest recovery in the hotel industry’s history, according toInterContinentalHotelsGroup.
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Both companies took the opportunity to discuss
their intentions to expand, although a lack of
available properties was likely to limit these
ambitions to growth through management and
franchise contracts rather than ownership, despite
the groups’ strong cash positions.
Hyatt has previously spoken of its intention to
use its balance sheet – the group had cash or cash
equivalents of $1.1bn at the end of the quarter –
to grow its estate, but did not acquire anything
during the period.
The company has forecast capital expenditure
of up to $400m this year – against $310m last
year – with the latter part of 2011 seeing further
renovations in addition to five sites currently being
refurbished, which are being improved with a view
to future divestment. In a note Citigroup said that
it expected these renovations to have an impact
for most of 2011, but believed that the company
was poised for outsized growth in 2012.
Commenting on the group’s results, president
and CEO Mark Hoplamazian said that the company
would continue to “pursue many opportunities
for expansion with existing and new owners”,
adding that many of the group’s owners were now
multi-site owners. However, in a conference call
Hoplamazian did not have any further news on
hotels that the group might acquire itself.
During 2010 the group sold six hotels, four of
which were in the final quarter. During the period
the company executed sale-and-franchise back
deals for the Hyatt Lisle, Hyatt Deerfield and Hyatt
Rosemont in the Chicago area, for $51m and a
$59m sale-and-manage-back for the Grand Hyatt
Tampa Bay.
Expansion for the group is currently through
management or franchise contracts, with a current
pipeline of 140 hotels, up 15% on the same period
in the previous year, approximately 70% of which
were located outside North America, including
eight countries in which the group does not have
a presence, with 50% of the total signed pipeline
in China and India. u
Hyatt,M&CeagertobuyHyattHotelsCorporationandMillennium&Copthornebothreportedanincreaseinprofits intheirrespectivefourth-quarterresults, buoyed in large part by their exposure to major global cities.
As Akkeron Hotels was acquiring 10 sites from
the administrators of Butterfly Hotels and Crowne
Hotels, Whitehall Real Estate, a Goldman Sachs
fund, failed in attempts to agree a debt restructuring
deal on 14 Queens Moat House hotels.
The news that KPMG had been appointed to
look at loan enforcement options marked another
rung downwards on the ladder for QMH, which
was one of the highest profile collapses in Europe
of the 1990s recession.
There is £107m of debt secured against the
hotels, which trade under Crowne Plaza and
Holiday Inn brands and are part of a portfolio
of 28 hotels purchased by Whitehall Real Estate
in 2005. This debt has been extended once, in
February 2010.
Debt servicer Capital Asset Services (Ireland) said
that talks over the loan, which is due to mature on
23 February, were no longer being pursued. The
group said that it estimated that, should it pursue
loan enforcement, it would take between six
months and a year to recover the money. However,
it also said that a sale would pay the loan in full,
with the estate thought to have been valued at
around £230m.
At its peak, QMH was formed of around 190
hotels, in 11 countries. However, after a scandal
around dubious accounting practices, an asset
write-down and the firing of its board in 1993, it
underwent a major restructuring in 1994, over 18
months after its shares were suspended. The move
saw £1.2bn of debt rescheduled, £200m of which
was converted to equity.
The move failed to end the story for QMH, which
was in breach of its banking covenants in October
2003 and failed to publish its full-year accounts.
It was at this point that Goldman Sachs stepped
in, in a deal which saw Westmont Hospitality take
over management of the hotels, which at that
point numbered 80, in the UK, the Netherlands
and Germany.
Following the sacking of three directors and the
chairman in 1993 – a High Court judge ruled found
them guilty of preparing ‘seriously misleading’
accounts; making false representations to the stock
market, concealing ‘dubious’ deals and entering
into ‘wholly artificial’ transactions – Andrew
Coppell was bought in as CEO, a role he stayed
in for a decade. Coppell has most recently bought
his restructuring skills to bear at Alternative Hotel
Group – itself now subject to sale rumours – in its
£650m debt-for-equity swap with Lloyds Banking
Group in March last year.
One company which could show an interest in
the portfolio, should it come to market, is Akkeron,
which continued to show a taste for pressured mid-
market hotels with its deal to buy 10 sites from
Butterfly Hotels and Crowne Hotels. The deal saw
it increase its estate to 36, many of which are, like
the QMH portfolio, under the Holiday Inn Express
brand. Matthew Welbourn, MD, described Butterfly
as “an unfortunate victim of the recession”.
Akkeron has been active over the past few
months, acquiring the 18-strong Forestdale Hotels
in December. The group entered the regional UK
market in 2009 with the purchase of eight Folio
hotels from Mulbourn Hotels.
Welbourn added that the Butterfly acquisition
provided “the initial phase of the third leg of
our mid-scale business, bringing to the group a
portfolio of hotels that trade under international
brands”. The group has aspirations towards a
150-strong portfolio, operating outside London in
the UK provinces, comprising a blend of ownership,
leases and management contracts.
For Welbourn, acquiring the remains of QMH
would have a special resonance. Prior to joining
Akkeron, he was operations director at the group
from the restructuring in 1994, to 2006. Twelve
years in which he will have learned many lessons
about the UK provincial market.
HA Perspective: It is wrong to equate mid
market with disaster but that is precisely how the
segment finds itself labelled in many quarters.
This is not so much a function of being squeezed
between economy hotels from below and upscale
from above but from the fact that so many properties
are under invested, over leveraged or both.
That said, the way out for many mid market
hotels is still far from clear. Simply refinancing
and shuffling around a few badges over the top
of the properties is unlikely to result in a radical
transformation of the underlying business.
Perhaps the likes of Akkeron have a master plan
to revolutionise the segment. If there is one, it has
yet to be made clearly visible.
UKmid-marketunderfurtherpressureTheUK’sbeleagueredmid-marketcontinued to make the news, as strength in the budget sector and a recovery in corporate travel put pressure on the provincial hotels in the middle.
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News
Host, which is to acquire the 1,625 room
Manchester Grand Hyatt San Diego for $570m,
also reported a 6.2% increase in fourth-quarter
revpar. Strategic, meanwhile, has made an
acquisition despite its high levels of debt and has
in fact cut its overall debt ratio through its most-
recent deal.
Strategic is to buy two Four Seasons hotels from
The Woodbridge Company, neither of which are
carrying any debt, paid for by issuing 15.2 million
shares, valued at $95m to Woodbridge. It will also
then sell another eight million shares to Woodbridge
for $50m. In the act of making the group larger, it
has made its debt proportionally smaller.
Jeff Donnelly, Wells Fargo Securities analyst, was
quoted in the Wall Street Journal as calculating
that, in addition to plans by Strategic to pay debt
incurred restructuring the Hotel Del Coronado, its
debt-to-value ratio would fall to 59% from 65%.
Strategic has asset managed the two hotels on
behalf of Woodbridge for the past two years.
The deal makes Woodbridge the group’s
largest shareholder, with 13.2%. Laurence
Geller, CEO, said: “This ... adds two high-quality,
unencumbered assets to our portfolio, deepens
our ownership within the Four Seasons brand,
and will welcome a sophisticated and successful
investor into our stock.”
Host and Strategic make buysThe exit from Europe for Strategic continued
with the sale of the leasehold interest in the
Pairs Marriott Champs Elysees for E26.5m to
an undisclosed buyer. Strategic also expects to
receive a further E13.2m related to the release of
a leasehold guarantee and other adjustments.
Host’s deal was more traditional, and followed
a year in which it closed approximately $500m in
acquisitions by purchasing the W New York Union
Square, Westin Chicago River North, the Meridien
Piccadilly in London and the JW Marriott Hotel
Rio de Janeiro, and announced acquisitions in
New York, New Zealand and San Diego totalling
more than an incremental $1bn, which CEO and
president Ed Walter described as “some exciting
transactions” at the group’s earnings call.
“History has demonstrated that early cycle
acquisitions tend to add the best value, and we
are acting on that premise,” he added. “We have
a strong pipeline of acquisition opportunities and
expect that we will purchase additional hotels
during 2011.” During the quarter, the group raised
approximately $248m under its continuous equity
offering programme to fund future acquisitions.
The group ended the quarter with over $1.1bn
in cash and cash equivalents and, after closing
on all of the acquisitions, will have an excess of
$200m in cash and $542m of available capacity
on its credit facility. Host also announced a strong
quarter’s trading, with revenue rising to $1.49bn
from $1.33bn a year earlier and a net loss of $6m,
compared with a loss of $72m last year.
Strategic sold its Prague hotel at the end of
last year in an effort to cut its exposure to Europe
and Host too has aspirations to sell properties,
however, Walter said that the difficulties in
buyers raising debt had meant it had not sold any
sites. It anticipated the market improving as the
year progressed.
HA Perspective: The turnaround at Strategic is
extraordinary. At the depths of the recession most
bets would have been placed on the company
going bust but it has come roaring back to health.
While the U-turn in Europe does not look very
strategic it has at least been executed well. And
there seems no compelling reason why Europe is
a market that does not work in general, even if
specifically for Strategic it no longer makes sense.
Certainly Host’s joint venture in Europe is
blooming. Revpar in 2010 was up 8.5% in
constant Euros and an increase of between 5%
and 7% is expected this year.
The market for luxury and upper upscale hotels
was always going to show the sharpest recovery
given that it was the hardest hit in the downturn.
Nonetheless, the pace of recovery is impressive and
tax advantaged REITs are set to be big beneficiaries
of the low leverage future.
Alongside this is the shifting of sands in favour
of owners at the expense of operators. A clear
example of this is a titbit that came out of the Host
conference call which saw the company confirm
that it had received key money from Starwood for
the forthcoming New York Westin.
All told, for well capitalised owners of upscale
and luxury hotels, the recovery is shaping up nicely,
particularly if you can factor in tax advantages too.
Host Hotels & Resorts and Strategic Hotels & Resorts have both announcedacquisitions,astheREITmodel looks increasingly strong.
Like Hyatt, M&C is pursuing a renovations
programme, with work underway at the Millennium
Seoul Hilton and The Grand Hyatt Taipei and plans
for refurbishment of The Millennium UN Plaza,
although no figures were given for the likely cost
of these works.
Its only deal during the fourth quarter was
to increase its equity ownership in the Grand
Millennium Beijing Hotel, from 30.0% to 70.0%.
M&C CEO Richard Hartman, whose replacement is
due to be announced at the end of the first quarter,
said that the group looked at many projects that
were coming onto the market, but that most were
“either too expensive or in locations we are not
interested in”.
The group’s worldwide pipeline consists of 25
hotels, which it said were “mainly” management
contracts. During the full year the group cut net
debt from £202.5m to £165.7m and saw gearing
fall from 11.6% to 8.5%.
Analysts at Morgan Stanley had expected to see
further sales since the announcement of sale of
land in Kuala Lumpur in September. In a note, the
group said that, while M&C continued “to advance
its asset management strategy … we think the
market may be disappointed not to see disposals”.
The transactions market is loosening up, but
for those who do not wish to compete with the
cash-rich Reits or high net worth individuals, the
pickings are still limited. Both Hyatt and M&C
are considering purchasing sites, but, as they are
looking to build their management businesses,
must rely on finding owners eager to work with
them to build their portfolios until either sellers
become less ambitious, or more hotels come to
the market, neither of which looks imminent.
To garner support for acquisitions from
shareholders, both groups must also show that
performance is continuing to move upwards.
Hyatt gave no guidance on revpar growth, other
than to warn on the impact of renovations, but
did point to corporate rate growth in the mid-to-
high single digits.
At M&C, the group reported fourth-quarter
revpar up 11% on a constant currency basis, but
commented at its results that like-for-like revpar
was up by 4.5% for the first five weeks of the
year, at what is a weak trading season. The group
said: “Though conditions appear more favourable
than this time last year, there are uncertainties that
have yet to be dealt with in the world economy,
including re-capitalisation of banks, the changing
economic balance between East and West and the
evident fiscal strains within the Eurozone.”
continued from page 10
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Finding their voiceKatherineDoggrelltalkstoDrEdwardWojakovskiofTheTonstateGroup as owners become more vocal
According to current socio-political thinking, the
success of the US can be attributed to its attitude
towards property ownership. Early settlers divvied-
up the land and the nascent American dream
meant that even the poorest immigrant could earn
property. With land came votes and so a nation
was enfranchised. Don’t mention the slaves.
Ownership of property meant power, a state of
play which has remained true, with power linked not
just to the vote, but also financial dominance. True
everywhere, it seems, apart from the hotel sector.
For, despite owning the asset, the feeling amongst
many owners is that the power base is with the
brand operating the property and not with them.
The downturn started to see this balance shift, as
development finance plunged and brands needed
to make themselves more attractive in the form of
strategies such as key money, or guarantees, as
has been previously discussed in this publication.
However, the owners themselves have largely
been quiet, with the brands making it known that
they are willing to negotiate on terms in order
to maintain their pipelines. Perhaps as the result
of years of being the silent partner, apart from
sporadic outbursts, they have been mute.
But as Andy Cosslett, outgoing CEO of
InterContinental Hotels Group, can attest, owners
were a lot more vocal at this year’s International
Hotel Investment Forum in Berlin. Cosslett was on
a panel with Pandox CEO Anders Nissen and Ian
Livingstone, international managing director of
London & Regional, both of whom expressed their
dissatisfaction with the status quo.
Cosslett admitted that the sector had a way to
go before hotel brands were as efficient as brands
operating in other markets. He said: “In any industry
the great brands are also the most efficient. But in
this industry they don’t make the best use of their
scale. We should be able to bring all that scale to
bear. It’s a bit of a Holy Grail, but the next 15 to 20
years will see us make the best use of that.”
He came under attack from his fellow panelists,
both owners, with Nissen replying: “I like that
vision a lot. I don’t see it.” Livingstone added:
“If you’re that certain of your abilities you would
have much more frequent performance tests.
Twenty five years is a long time to go without the
possibility of divorce.”
As identified by Livingstone, the leading issue
raised by owners was the feeling that contracts
favoured the brands. Speaking on the distress
panel, Desmond Taljaard, COO Starwood Capital,
said: “The operators have been the slowest of the
snails to react. There are some serious question
marks. The operators have burned their bridges in
some cases and we’ve got longer memories than
they give us credit for – I don’t believe you’ll get
NDAs [non-disturbance agreements] for the next
10 years to come.”
Paul Collins, director, CBRE Hotels, agreed with
him, adding: “Interests haven’t aligned, the higher
you go up, the brands are inflexible.” Earlier at the
conference, Majid Mangalji, founder and president,
Westmont Hospitality, drew attention to the potential
negative effect on property, commenting: “It tends
to have a small negative impact on valuation if it has
a long-term management contract.”
Also speaking at the event, Nick Skea-Strachan,
senior associate, hotels, Berwin Leighton Paisner,
called for contracts to be less simplistic, allowing
for owners to identify the revenues achieved by
the brand and those generated by themselves. He
said: “The idea of being a much more incremental
relationship is good. When it’s just doubling up
fees I don’t know if it’s worth it to take a brand.”
It was felt that the market was, partially as a result
of the downturn, becoming more sophisticated in
its decision-making process about when and how
to take on brands. Ted Teng, president and CEO,
The Leading Hotels of the World, drew attention
to their use by short-term investors such as private
equity groups, adding: “If your exit horizon is
three to five years, you don’t have time to build
a brand, but if your investment period is three to
five generations, why would you want to pay rent
for 100 years?”
Back in London, Dr Edward Wojakovski, group
CEO and executive chairman of The Tonstate
Group, is an owner who plays the long game,
describing the group’s strategy as “generational
investment”. Part of this ownership, he said,
involved adhering to the view that hotels were
“not simply a commodity”. Treating them as such
during the boom around 2007 had led to many of
the failing hotels in the UK, where operation was
not taken account of properly, part of which was
failure to properly address investment in the sites.
He commented: “Capex is the equivalent of
exercise in human beings – it keeps you healthy,
fresh and hopefully attractive. You get guests
willing to pay for the product, but projects must
be planned, not just done as a whim.”
The company’s holdings included the Staple Inn
on Chancery Lane, the London Hilton Metropole,
Birmingham Hilton Metropole and the Cardiff
Hilton and, for Wojakovski, the relationship
between brand and owner is more sophisticated
than it may appear. He said: “It is like a marriage
contract. One needs to see them as a framework
for guidance. … you make adjustments, any
operating company will change with time as you
will be dealing with different people.
“The relationship needs to be adjusted all the
time. People never get divorced over the big
things, they get divorced over the small things.
There needs to be an alignment of interests.”
Wojakovski agreed that operators were
“under much more scrutiny”, with more “hybrid
arrangements – there are a “lot of dresses to this
lady” – in the form of some ownership, equity
stakes and guarantees.
The power base has been further split during the
downturn by the rise of asset managers, which,
Wojakovski said, “are like a good PA or other
professional – you have to know how to use them
well”. There is the risk that, with a lot of them in the
downturn themselves former operators – the game-
keeper turned poacher – there could be issues over
relationships. He said: “The asset manager needs the
help of all the parties to be effective. If the parties
do not co-operate, it will never work. If the operator
sees them as the long arm of the owner they can
become very defensive and if the owner sees them
as their stick that also doesn’t work. The two parties
need to know how to use an asset manager. It is like
a Stradivarius violin – it would be very different if I
played it, or if Itzhak Perlman plays it.
“A very good asset manager, working with the co-
operation and guidance of a professional Owner, will
achieve more for the parties than the two alone.”
Relationships are also seen as key to long-term
strength in banking, with Wojakovski adding:
“It’s not enough just to take the money. You
Analysis
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are a partner with the banker, and the bank is
your partner, and there must be cooperation
and maintenance of the flow of expectation and
information. Half-crippled banks take advantage of
the disability badge even if they are not deserving
of it, and some clients doe the same. There must
be a return to relationship driven, long-term, old-
fashioned banking. It needs deep understanding
so that banks can accommodate clients in the
short, medium and long-term.”
Looking forward, Wojakovski is eager to
continue owning in the sector. He commented
that, although “markets are never the same”
there would always be high prices paid for certain
assets. “At the high end there is ego and prestige
attached to it, the same as in the art world. It
depends on the objective of the buyer. If you can
afford to pay more ...it depends how much longer
you have to wait but good assets always provide
good growth and protection of capital.
“You need to be happy [with the price] at the
specific moment you do the deal. One should
think about whether one feels comfortable and
can afford it.”
Wojakovski’s decision as an owner to take the
long view marks him out as different from many
owners who, unlike him, entered the sector at
the top of the market, looking to make quick
money and then make an exit. But the issues
when bringing in a brand remain the same, and
both sides are looking to make the same money
they saw at the peak, often by attempting to
recoup that from each other when the customer
sleeping in the room is unwilling to pay higher
rates. Flexibility is important, to ensure that the
relationship between the two has not broken
down by the time that the recovery is firm and
bickering at conferences, while entertaining for
journalists, does not sour deals.
Wojakovski concluded: “The operation has been
done but the patient needs to recover. The patient
also needs to look after themselves. An economy
where everything is good is not an economy. It’s an
artificial environment. A business which does not
have pain? It’s not natural. In a real environment
you must adapt. That’s what makes it interesting
and, in essence, profitable”
Analysis
Hilton Birmingham, London Hilton Metropole
and Hilton Cardiff, part of The Tonstate
Group’s portfolio
The shock of the economic collapse in Dubai that
undermined the Emirates plans was a harsh lesson
learned for many. The emirate was well known for
its sheer will to prove to the world that it would
be a world class tourism destination as well as a
financial centre for the Middle East.
Despite the economic implosion, in speaking
to our network of expats living in Dubai, they
see evidence that some sustainable plans are
beginning to be put in place so the emirate can
create a path for continued, realistic growth.
A great number of investors are committing
heavily in Qatar, Abu Dhabi, Saudi Arabia, Jordan
and other Middle East destinations, but have
slowed their commitments to Dubai. Officials
responsible for granting permission to build hotels
sometimes approve without much planning or
studying of existing inventory, growth rates or
future demand.
So what does this mean for those expats
wanting to live and work in Dubai? The expat life
is good for those with jobs and a positive air still
floats in Dubai regardless of a lack of long term
planning, especially within hospitality.
With many projects having been halted or
shut down over the last two years, the expat’s
perspective of where the future lies is still a grey
area but these are a hardy crowd.
Likened to pioneers in the Wild West about ten
years ago, the expats who have invested their time
and that of their families are the ultimate optimists.
You have to respect and admire the tenacity
of those in power in this emirate to accept the
economic crash that happened, downscale, go
back to the drawing board, and relaunch the
development of Dubai slowly but surely.
There are fewer senior jobs available than there
were just several years ago due to the real estate
economy and its downturn. Despite this, we note
a clear desire for those expats who were made
redundant and who are still living in Dubai to find
new responsibilities allowing them to remain there.
The lifestyle is still good and as long as you do
not fall behind on finance payments, which can
see you jailed for non-payment, and respect the
expected codes of behaviour as well as show
respect for the country you’re in, expats are
generally able to have a happy and fairly care-free
existence in Dubai.
For several of our candidates, the worst thing in
Dubai is having to leave. No matter how restrictive
the local culture may seem from the outside due
to media coverage of certain westerners and their
bad behaviour, most expats have never had it so
good and there is plenty of optimism.
When the economic bubble burst, life changed
for foreign nationals both within their quality of
life and working conditions. Still an emirate with
affluence and excess, the exorbitant compensation
packages of yesterday have been tempered, which
can be viewed as a good thing, making investment
in people attractive.
Today’s expat can expect a much more modest
offering while coming to terms with the slow
decision making processes. Out of control
compensation then prices the candidate right
out of the market for the rest of the world,
making it impossible to be rehired if one holds to
those expectations.
Time is not always relevant in the process and
time-keeping is not a strength in the emirates. Being
reasonable in our expectations, hard work, respect
for the local laws and way of life and patience make
for a harmonious existence in Dubai.
Corinne Winter-Rousset, divisional director
EMEA and the Americas, Portfolio
SustainabilityandexpatsintheMiddleEastPortfolio’s Corinne Winter-Rousset reports on the mood in Dubai following the economic collapse
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Analysis
IntroductionFor Hotel Analyst readers we have already discussed the extent to which hotel chain recovery in the UK will be impacted by chain supply growth and the fiscal tightening proposed by the UK government (v6i2, v6i3 and v6i5).We noted that the 15% rate of chain room supply growth over the period of the credit crunch and recession would constrain the rate of recovery in hotel chain performance. We argued that the recovery in hotel demand would be impacted further by the 25% reduction in public sector budgets and the increase in VAT to 20%.
On 23rd March 2011 the Chancellor of the Exchequer delivered the UK budget. National budgets are a macroeconomic fest and macro economists do not normally soil their hands with the dynamics of industries and businesses. However, this budget was different because it had to address not only the question of overall economic growth, but also the segments of the economy that would deliver the growth and the economic policies that would create the context for the growth to be achieved. In this note we will discuss the government’s economic growth strategy and the impact it will have on the recovery of the hotel business.
2011 budget overviewThe strained fiscal position in the UK and the measures already announced to recover a sustainable position within four years meant that the 2011 budget could only be neutral.
Before the budget was announced, The Office for Budget Responsibility, the body constituted to make independent assessments of the public finances and the economy, reduced its estimate for economic growth in 2011 from 2.1% to 1.7%. It reduced its estimate for 2012 from 2.6% to 2.5% and for 2013 to 2.9%, which further illustrates
TheUKgovernmenteconomic growth strategies and hotel chains
the challenges for the economy and in our case the hotel business. Inflation in the current year is expected to be in the 4% to 5% range, reducing to 2.5% in 2012 and to 2% in 2013.
Unemployment is expected to peak at 8.3% in the middle of 2011 as the reduction in the public sector workforce begins to bite before economic growth can be achieved. Currently, it is estimated that over the next four years the public sector workforce will be reduced by 400,000. Unemployment in 2012 is expected to reach 8.1%, worse than the previous forecast of 7.7%.
After the budget announcement and the proposed growth strategy, the OBR declined the opportunity to lift its estimates, which is explicit evidence that on top of the growth in hotel chain rooms supply and the public sector budget cuts, the macro economic forecasts will constrain the rate of post recession recovery in the hotel business.
ThePlanforEconomicGrowthThe assumption underlining The Plan for Growth by HM Treasury and the Department of Business Innovation and Skills http://cdn.hmtreasury.gov.uk/2011budget_growth is that the government has not only cut the public sector budget by 25%, but also that it has no money to invest. Any investment by the government in the promotion of one economic segment will reduce its promotion of other segments. Thus, the Plan for Growth is long on rhetoric about the various economic segments, but short on committed funds. The one exception is the industrial segment, which received most of the tangible support and cash at the expense of other segments. The long list of promotions for the industrial segment included the following:• Theestablishmentofatleast24newuniversity
technical colleges by 2014 focussed on training in skills mostly for the industrial segment
• The launch of a high value manufacturingtechnical innovation centre
• Theestablishmentofninenewuniversitycentresfor innovative manufacture by 2012
• The extension of the range and eligibility ofproducts offered by the Export Credit Guarantee Department
• TheincreaseintherateofsmallcompaniesR&Dtax relief to 200% in 2011 and 225% in 2012
• Thecreationof21newEnterpriseZones• £3billioncapitalforthegreeninvestmentbank
for investment in green energy• £250 million committed to first-time home
buyers, which will boost the construction industry
• £200 million for the construction of railinfrastructure
• £100milliontofillpotholesinroads• £100millionfornewuniversitysciencefacilities• £75 million support to smaller manufacturers
for training and apprenticeships• £10millionfundingtoacceleratedevelopment
of the International Space Innovation Centre.
The long list of promotions has been offset by the £2 billion tax imposed on North Sea oil to reduce pump prices by 1p per litre.
In contrast, the treatment of the other segments was long on platitudes, short on substance and absent of cash. The government held its nerve at the macroeconomic level with bold moves to re-establish equilibrium within four years. It is concerned at the reliance of the regions outside of London and the South East on the public sector to provide employment. It is further aware that these regions will experience most of the reduction in public sector employment over the next four years and only the private sector will be able to create new jobs to reduce the unemployment. However, its solution of promoting the industrial segment at the expense of all others is cockeyed for two reasons.
First, in the industrial segment, the past century of British economic history has been characterised by growth in industrial productivity reducing the labour force required to deliver the output, but insufficient to stem the loss of export markets and the decline in domestic demand for UK manufactures. The economic, social and logical reasons why manufacturing share of employment in the UK has declined from 37% in 1951 to 10% in 2011 are rational and compelling to the extent that there is no good reason to believe that the proposed policies will reverse this very long-term trend. The Plan for Growth in the industrial segment at the expense of the service businesses is designed to shift the structural balance of the UK economy backwards.
Second, over the past sixty years, the default policy solution to the rise in structural unemployment from the decline in the industrial segment and the growth in the number of women in the workforce has been to create jobs in the public sector, but that route is no longer available. The new government policy is to seek to create more industrial jobs.
This is a high risk strategy. We have been unable to find any example of an economy that has resolved high progressive structural unemployment and growth challenges by reverting to more basic economic activities. It is loading all of its support on to the declining industrial segment and adopting a laissez faire approach to the service businesses which, after the public sector, accounts for the bulk of employment and GDP. Ministers have been persuaded by the extensive lobbying of the industrial segment for support, which has increased the risk of recovery reflected by the poor and declining macroeconomic forecasts from the OBR.
The last example of policy to halt the natural trend in economic development towards service businesses in the UK was the introduction by the Labour government in 1966 of Selective Employment Tax. SET was a 7% levy on all service businesses to limit their growth in demand and employment and to promote employment in
Paul Slattery and Ian Gamse from Otus & Co look at the impact of government policy on the sector
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Analysis
the declining industrial segment. The tax failed. The industrial segment continued its decline and in spite of the impediments service businesses continued to grow.
The implications for hotel chains of the budget and plan for growthThe rate of recovery in the UK hotel business has suffered from the self-inflicted 15% growth in hotel chain room stock over the recessionary years as the table above illustrates.
We have assumed that room stock in 2011 will grow by only 1% adding 4,000 rooms and that in 2012 only 3,000 rooms will be added as a result of the decline in debt availability and the tentativeness of developers and chains to continue to add rooms in the face of only marginal growth in demand.
All of the demand constraints on the rate of recovery have been as a result of government policy. Domestic business demand recovery in chain hotels is being impacted most severely by the 25% reduction in public sector budgets over the next four years. The impact is only beginning to be felt in 2011. We estimate that the public sector at its peak generated 25% of domestic business demand into chain hotels and that the reductions in the budgets and the restrictions that are being placed on travel by civil servants and other professionals in the public sector as well as by executives from professional and business service companies acting on public service contracts will reduce domestic business demand into chain hotels by two million room nights in the current year.
The industrial segment is a low yielding generator of business demand. Most hotel demand from the industrial segment is from sales and marketing executives. In contrast, service businesses are a high yielding generator of business demand into chain hotels because a much wider range and a higher proportion of executives from service businesses use hotels. Moreover, service businesses use hotels for conferences and meetings more frequently and in higher volume than the industrial segment. The emphasis in the Plan for Growth on exporting manufactured goods will generate some more demand by industrial business travellers, but it will be in hotels outside of the UK rather than inside.
As a result, we estimate that the shift to the industrial segment will add no more than 100,000 room nights sold by hotel chains. Thus, our estimate of no growth in domestic business
room nights in chain hotels in the UK in 2011 assumes a 5% growth in demand from service businesses, which is a sharp recovery that may be too ambitious a target.
We expect domestic leisure demand in chain hotels in the UK to fall by 1% in the current year for the following reasons:• TheincreaseinVATto20%• The4%to5%rateofinflationforthecurrent
year• Thegrowth inunemployment fromthepublic
sector and the slow rate of economic recovery will limit spending on short breaks in hotels
• The postponement of Air Passenger Dutycoupled with lower VAT rates in many continental European countries will encourage more leisure travellers to travel outside of the UK.We estimate no more than 1% growth in
foreign business demand into chain hotels in the UK adding 100,000 room nights because of the projected slow economic recovery in most western European economies as well as the UK. The small size of the industrial segment also limits the level of foreign investment in the UK thus constraining the rate of growth in foreign business demand.
We expect only marginal growth in 2011 in foreign leisure demand into chain hotels in the UK. The £100 million fund, three quarters of which is funded by hospitality and tourism companies following the halving of the Government’s contribution to £25 million over the past three years, will be a positive influence. However, the low value of Sterling relative to the Euro has been offset by the increase in VAT, while the growth in unemployment and slow economic growth throughout Western Europe will limit the level of demand.
We expect a greater growth in foreign leisure demand into chain hotels in the UK in 2012 due to the Olympics impact and the efforts to attract long-haul visitors particularly from Asia.
For hotel chains in 2012 to regain their 2006 peak room occupancy of 70% would require 11 million more room nights to be sold than our current estimate for the Olympic year, a shortfall of 16%. With the current supply and demand context this looks like a pipedream.
Conclusions The five years since the start of the credit crunch and recession have changed the room supply context of the UK, not only have hotel chains
increased room stock by 15% with the addition of 42,440 rooms, but also chain concentration has grown to 62%.
A feature of the recession has been that there have been fewer than expected redundant hotels removed from the market. We estimate that redundant hotels account for 10% of total hotel room stock, around 50,000 rooms. Most of these are independent, old, small hotels under-invested in for decades, based in smaller provincial locations and significantly mortgaged.
Not all of the “at risk” hotels are independents. There are 47 small brands with an average of 270 rooms per brand whose portfolios are provincial and whose hotels are small, old, mid-market and up market, full feature hotels that have lost much of the local demand for their restaurant, bar and health club. They have also suffered heavily from the structural decline in conference and meetings demand in the provinces. Many of these hotels will require considerable creativity to survive and achieve growth.
In terms of demand, the only option in the hands of hotel chains to increase demand over our estimates is to attract a higher volume of foreign leisure demand. The commitment of hospitality and tourism companies to invest in the fund to generate foreign visitors is commendable and unmatched in other segments. It is also timely since in a period when economic growth is problematic, increasing foreign earnings is crucial. However, the government has enacted contradictory policies that will limit the growth of foreign income to the economy as a whole. The increase in government support for manufacturers to export has the potential to be cancelled out by the Brown and Cameron governments halving of their investment in generating foreign visitor demand into the UK. Simultaneously, the rise in VAT and the postponement of the APD is driving more British holiday makers to the Costas, which will encourage UK spending into other economies.
When it is difficult to reduce supply and increase demand, the one option left to improve the performance of hotel chains is to consolidate, which will open a new phase in the economic ascent of the hotel business in the coming years.
Paul Slattery, Otus & Co Advisory Ltd [email protected] Gamse, Otus & Co Advisory Ltd [email protected]
British hotel supply and demand performance 2006-2012
Chain Chain Chain Chain Chain Chain Chain hotels hotels Change hotels Change hotels Change hotels Change hotels Change hotels Change 2006 2007 % 2008 % 2009 % 2010 % 2011E % 2012E %
Rooms 274,540 282,820 3% 297,560 5% 308,740 4% 316,890 3% 320,890 1% 323,890 1%
Room nights available m 100 103 3% 109 6% 113 3% 116 3% 117 1% 119 1%
Domestic business room nights sold m 32 33 2% 33 0% 31 -5% 32 2.3% 32 0.0% 32 0.3%
Domestic leisure room nights sold m 9 9 1% 9 2% 9 -4% 9 2.2% 9 -1.1% 9 1.1%
Foreign business room nights sold m 11 11 3% 12 3% 11 -5% 11 3.6% 12 0.9% 12 0.9%
Foreign leisure room nights sold m 18 18 3% 19 2% 18 -5% 19 3.4% 19 0.5% 19 3.2%
Total room nights sold m 70 71 2% 72 1% 69 -5% 71 2.8% 71 0.1% 72 1.3%
Room occupancy % 70% 69% 66% 61% 61% 61% 61%
Room nights sold m 70 71 2% 72 1% 69 -5% 71 3% 71 0% 72 1%
Source: Otus Analytics
The month of February 2011
The 2 months to February 2011
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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 February 2011 London 74.5% £122.60 £91.39 50.9% 6.1% 9.5% 21.0% 12.4% £137.05 £146.53 £79.27 £121.14 £85.64 £2,559 £901 £146 £3,606 71.0% 25.0% 4.1% 100.0% 42.2% £1,520
February 2011 Provincial 65.9% £67.25 £44.32 50.7% 11.0% 4.5% 27.2% 6.5% £69.95 £75.95 £48.56 £66.05 £48.78 £1,255 £859 £211 £2,325 54.0% 36.9% 9.1% 100.0% 23.3% £543
February 2011 All 69.0% £88.72 £61.22 50.8% 9.1% 6.4% 24.8% 8.8% £96.02 £94.30 £66.17 £84.16 £68.92 £1,727 £874 £187 £2,788 61.9% 31.4% 6.7% 100.0% 32.1% £896
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change February 2011 London (3.0) 7.4% 3.3% 1.6 0.1 (0.3) (1.0) (0.5) 8.2% 15.8% 3.3% 4.3% 2.7% 3.3% -0.9% -15.7% 1.3% 1.4 (0.5) (0.8) – (0.4) 0.4%
February 2011 Provincial (0.3) 1.2% 0.8% 0.3 (0.1) (0.7) (0.2) 0.7 2.6% -0.6% -6.8% 1.6% -5.2% 0.8% -1.7% -20.2% -2.4% 1.7 0.3 (2.0) – (2.7) -12.5%
February 2011 All (1.2) 4.0% 2.1% 0.9 0.0 (0.6) (0.5) 0.2 5.5% 5.3% 0.8% 1.8% -2.1% 2.1% -1.4% -19.0% -0.7% 1.7 (0.2) (1.5) – (1.5) -5.0%
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 February 2010 London 77.6% £114.10 £88.49 49.3% 6.0% 9.8% 22.0% 12.9% £126.66 £126.53 £76.71 £116.13 £83.42 £2,478 £909 £173 £3,560 69.6% 25.5% 4.9% 100.0% 42.5% £1,514
February 2010 Provincial 66.2% £66.43 £43.96 50.4% 11.1% 5.2% 27.4% 5.8% £68.19 £76.40 £52.13 £65.04 £51.47 £1,245 £874 £264 £2,383 52.3% 36.7% 11.1% 100.0% 26.0% £620
February 2010 All 70.3% £85.32 £59.94 49.9% 9.1% 7.0% 25.3% 8.6% £91.04 £89.52 £65.68 £82.68 £70.39 £1,691 £887 £231 £2,809 60.2% 31.6% 8.2% 100.0% 33.6% £944
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 70.9% £119.54 £84.73 49.0% 6.7% 10.2% 21.3% 12.8% £134.36 £141.61 £75.00 £118.58 £87.08 £4,906 £1,708 £310 £6,923 70.9% 24.7% 4.5% 100.0% 40.1% £2,778
YTD Provincial 59.7% £66.29 £39.56 51.3% 11.6% 4.4% 26.3% 6.3% £68.71 £74.28 £48.27 £64.94 £49.73 £2,320 £1,613 £422 £4,356 53.3% 37.0% 9.7% 100.0% 19.4% £845
YTD All 63.7% £87.55 £55.76 50.4% 9.6% 6.7% 24.3% 8.9% £94.18 £92.88 £64.46 £83.71 £71.14 £3,255 £1,647 £382 £5,284 61.6% 31.2% 7.2% 100.0% 29.2% £1,544
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London (3.5) 8.2% 3.1% 1.7 0.3 (0.5) (1.1) (0.4) 8.0% 16.0% 1.4% 6.8% 4.7% 3.2% -1.4% -7.2% 1.5% 1.1 (0.7) (0.4) – (0.6) 0.0%
YTD Provincial 0.1 1.6% 1.7% 0.7 (0.0) (0.4) (0.7) 0.5 2.3% -0.7% -4.8% 3.2% -4.2% 1.8% -0.2% -16.3% -1.0% 1.5 0.3 (1.8) – (1.8) -9.4%
YTD All (1.2) 4.4% 2.5% 1.1 0.2 (0.5) (0.8) 0.0 4.9% 5.7% -0.5% 3.9% 0.1% 2.6% -0.6% -13.8% 0.2% 1.4 (0.3) (1.2) – (1.1) -3.5%
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 74.3% £110.51 £82.15 47.3% 6.4% 10.7% 22.4% 13.2% £124.36 £122.07 £73.94 £111.01 £83.20 £4,755 £1,731 £334 £6,820 69.7% 25.4% 4.9% 100.0% 40.7% £2,777
YTD Provincial 59.6% £65.23 £38.88 50.7% 11.6% 4.9% 27.0% 5.9% £67.18 £74.78 £50.73 £62.93 £51.93 £2,278 £1,616 £505 £4,399 51.8% 36.7% 11.5% 100.0% 21.2% £933
YTD All 64.9% £83.85 £54.41 49.3% 9.5% 7.2% 25.1% 8.9% £89.74 £87.90 £64.78 £80.57 £71.04 £3,174 £1,658 £443 £5,275 60.2% 31.4% 8.4% 100.0% 30.3% £1,600
ProfitabilitystableforLondondespiteoccupancy declines
Whilst the business mix remained broadly similar
this month against the same period last year,
London hoteliers were able to increase achieved
average room rate levels across all sectors, with
the standout increase made in the conference
sector, with a growth of 15.8% to £146.53 from
£126.53. Furthermore, in contrast to the same
period last year, when corporate rates declined
by 0.4%, this month London hoteliers were able
to increase the average rate in this sector by 6%
to £131.36.
Although the decline in room occupancy levels
at London hotels appears to illustrate a drop in the
number of visitors to the capital, it is more likely
that hoteliers have successfully managed volume in
order to leverage rate and achieve revpar growth.
Major events such as London Fashion Week will
have helped by continuing to drive demand for
accommodation in the capital. This month, the real
success for London hoteliers has been to maintain
profitability levels against the high watermark
achieved in February 2010, when goppar soared
by 12.4% during the capital’s resurgence.
“It was always going to be hard for London
hoteliers to equal the strong performance of
2010 and the year has begun with consecutive
months of volume decline. That said, profitability
levels during February have once again remained
Despite a three percentage point decline in room occupancy, profitabilitylevelsremainedstablefor London hoteliers in February, according to the latest HotStats survey fromTRIHospitalityConsulting.
The 0.4% increase in goppar to £54.30 was
driven by a 7.4% increase in achieved average
room rate to £122.60. As a result of the movement
in room occupancy and average room rate, revpar
at London hotels grew by 3.3% to £91.39.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 17
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 February 2011 London 74.5% £122.60 £91.39 50.9% 6.1% 9.5% 21.0% 12.4% £137.05 £146.53 £79.27 £121.14 £85.64 £2,559 £901 £146 £3,606 71.0% 25.0% 4.1% 100.0% 42.2% £1,520
February 2011 Provincial 65.9% £67.25 £44.32 50.7% 11.0% 4.5% 27.2% 6.5% £69.95 £75.95 £48.56 £66.05 £48.78 £1,255 £859 £211 £2,325 54.0% 36.9% 9.1% 100.0% 23.3% £543
February 2011 All 69.0% £88.72 £61.22 50.8% 9.1% 6.4% 24.8% 8.8% £96.02 £94.30 £66.17 £84.16 £68.92 £1,727 £874 £187 £2,788 61.9% 31.4% 6.7% 100.0% 32.1% £896
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change February 2011 London (3.0) 7.4% 3.3% 1.6 0.1 (0.3) (1.0) (0.5) 8.2% 15.8% 3.3% 4.3% 2.7% 3.3% -0.9% -15.7% 1.3% 1.4 (0.5) (0.8) – (0.4) 0.4%
February 2011 Provincial (0.3) 1.2% 0.8% 0.3 (0.1) (0.7) (0.2) 0.7 2.6% -0.6% -6.8% 1.6% -5.2% 0.8% -1.7% -20.2% -2.4% 1.7 0.3 (2.0) – (2.7) -12.5%
February 2011 All (1.2) 4.0% 2.1% 0.9 0.0 (0.6) (0.5) 0.2 5.5% 5.3% 0.8% 1.8% -2.1% 2.1% -1.4% -19.0% -0.7% 1.7 (0.2) (1.5) – (1.5) -5.0%
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 February 2010 London 77.6% £114.10 £88.49 49.3% 6.0% 9.8% 22.0% 12.9% £126.66 £126.53 £76.71 £116.13 £83.42 £2,478 £909 £173 £3,560 69.6% 25.5% 4.9% 100.0% 42.5% £1,514
February 2010 Provincial 66.2% £66.43 £43.96 50.4% 11.1% 5.2% 27.4% 5.8% £68.19 £76.40 £52.13 £65.04 £51.47 £1,245 £874 £264 £2,383 52.3% 36.7% 11.1% 100.0% 26.0% £620
February 2010 All 70.3% £85.32 £59.94 49.9% 9.1% 7.0% 25.3% 8.6% £91.04 £89.52 £65.68 £82.68 £70.39 £1,691 £887 £231 £2,809 60.2% 31.6% 8.2% 100.0% 33.6% £944
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 70.9% £119.54 £84.73 49.0% 6.7% 10.2% 21.3% 12.8% £134.36 £141.61 £75.00 £118.58 £87.08 £4,906 £1,708 £310 £6,923 70.9% 24.7% 4.5% 100.0% 40.1% £2,778
YTD Provincial 59.7% £66.29 £39.56 51.3% 11.6% 4.4% 26.3% 6.3% £68.71 £74.28 £48.27 £64.94 £49.73 £2,320 £1,613 £422 £4,356 53.3% 37.0% 9.7% 100.0% 19.4% £845
YTD All 63.7% £87.55 £55.76 50.4% 9.6% 6.7% 24.3% 8.9% £94.18 £92.88 £64.46 £83.71 £71.14 £3,255 £1,647 £382 £5,284 61.6% 31.2% 7.2% 100.0% 29.2% £1,544
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London (3.5) 8.2% 3.1% 1.7 0.3 (0.5) (1.1) (0.4) 8.0% 16.0% 1.4% 6.8% 4.7% 3.2% -1.4% -7.2% 1.5% 1.1 (0.7) (0.4) – (0.6) 0.0%
YTD Provincial 0.1 1.6% 1.7% 0.7 (0.0) (0.4) (0.7) 0.5 2.3% -0.7% -4.8% 3.2% -4.2% 1.8% -0.2% -16.3% -1.0% 1.5 0.3 (1.8) – (1.8) -9.4%
YTD All (1.2) 4.4% 2.5% 1.1 0.2 (0.5) (0.8) 0.0 4.9% 5.7% -0.5% 3.9% 0.1% 2.6% -0.6% -13.8% 0.2% 1.4 (0.3) (1.2) – (1.1) -3.5%
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 74.3% £110.51 £82.15 47.3% 6.4% 10.7% 22.4% 13.2% £124.36 £122.07 £73.94 £111.01 £83.20 £4,755 £1,731 £334 £6,820 69.7% 25.4% 4.9% 100.0% 40.7% £2,777
YTD Provincial 59.6% £65.23 £38.88 50.7% 11.6% 4.9% 27.0% 5.9% £67.18 £74.78 £50.73 £62.93 £51.93 £2,278 £1,616 £505 £4,399 51.8% 36.7% 11.5% 100.0% 21.2% £933
YTD All 64.9% £83.85 £54.41 49.3% 9.5% 7.2% 25.1% 8.9% £89.74 £87.90 £64.78 £80.57 £71.04 £3,174 £1,658 £443 £5,275 60.2% 31.4% 8.4% 100.0% 30.3% £1,600
stable thanks to astute yield management,”
said Jonathan Langston, managing director, TRI
Hospitality Consulting.
Although Provincial hoteliers achieved a growth
in revpar levels of 0.8%, a decline in trevpar and
an increase in payroll levels meant that goppar
declined by more than 12% this month, according
to the latest HotStats survey.
This represents the greatest margin of profitability
decline for provincial hoteliers since poor weather
severely impacted headline performance levels
across the UK in January 2010, causing goppar
levels to plummet by approximately 19%.
February has proven to be a challenging period of
trading in recent years and this month represents
the fourth year in a row in which overall provincial
profitability levels have fallen.
Whilst London hoteliers enjoyed rate
increases across all sectors, the 1.3% increase
in achieved average room rate in the Provinces
was primarily fuelled by a return to growth in
the corporate (+2.5%) and leisure (+1.6%)
sectors. Notwithstanding the overall growth in
average room rate, filling beds remains a priority
for provincial hoteliers, exemplified by the soft
achieved rate in the tours/group sector, which
declined by 6.8% to just £48.56 per room sold.
Despite a growth in rooms revenue of 0.8%
to £44.32, a decrease in discretionary spend
at provincial hotels, which included a decline in
leisure revenue per available room of more than
30%, a 1% decline in food and beverage revpar
and further declines in meeting room revenue
(-13%), resulted in a 2.4% drop in trevpar
to £82.08.
“Having fought back from the decline in revpar
levels since the onset of the current economic
downturn, provincial hoteliers are facing a new
challenge in 2011 as total revenue levels are
impacted by a reduction in discretionary spend
and payrolls levels remain high to accommodate
the recovery in volume,” added Langston.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 118
Dublin delivers double-digit growth
The upmarket hotels in the Dublin sample for
the survey increased revpar by a third and trevpar
by 16.4%. Driving these strong figures were a
significant uplift in occupancy performance (9
percentage points) and strong average room rate
growth (14.4%). The uplift in revpar performance
resulted in goppar performance of E30.20, up
40.4% on February 2010 performance.
“The continued increase in the Dublin market
performance is remarkable, particularly when
considering the negative headlines on the Irish
Europeanchainhotels–performancereport
Source: TRI Hospitality Consulting
economy and significant increase in hotel supply
severely affecting hotel performance over the past
two years.
Whilst no one can say for certain that there
will be a sustained improvement in hotel revenue
and profit performance in 2011, a double-
month growth will give hoteliers some hope for
the future,” said Jonathan Langston, managing
director, TRI Hospitality Consulting.
Whilst revpar and trevpar performance had
increased in eight of the 10 cities surveyed in
the latest HotStats survey, only five city markets
had achieved an increase in goppar performance
in February.
Amsterdam, Budapest, Dublin, Dusseldorf, and
Zurich experienced double digit growth in goppar
performance. Zurich was the star performer
as hotels increased revpar, trevpar and goppar
performance by 25.3%, 32.3% and 86.5%
The month of February 2011 Twelve months to February 2011
Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR
60.4 156.59 94.59 42.3 31.26 Amsterdam 76.0 167.60 127.43 31.4 69.77
58.3 147.57 85.99 35.0 33.42 Barcelona 65.6 119.43 78.35 35.1 33.74
62.2 136.20 84.75 34.8 36.01 Berlin 71.0 127.71 90.64 29.5 51.01
52.4 79.78 41.77 40.3 5.80 Budapest 64.3 88.98 57.24 30.9 25.10
67.2 129.40 86.95 44.0 30.20 Dublin 72.9 123.00 89.69 40.7 39.58
70.3 145.89 102.60 26.3 62.17 Dusseldorf 63.6 120.47 76.59 28.4 42.39
74.8 168.12 125.78 26.7 76.94 London 81.6 172.01 140.35 23.9 95.26
63.5 177.97 112.93 51.4 22.02 Paris 76.4 200.24 153.01 38.9 72.64
53.8 150.02 80.63 55.3 -3.54 Rome 70.3 183.40 129.01 40.6 45.40
76.7 172.60 132.34 39.8 65.26 Zurich 79.4 169.14 134.29 35.7 75.28
The month of February 2010 Twelve months to February 2010
Occ% ARR RevPAR Payroll % GOP PAR Occ% ARR RevPAR Payroll % GOP PAR
61.7 141.50 87.29 42.6 28.41 Amsterdam 70.1 152.88 107.10 33.7 51.53
59.2 144.09 85.36 33.0 40.40 Barcelona 62.1 117.85 73.23 35.6 30.54
63.8 132.96 84.76 32.8 41.19 Berlin 70.4 116.90 82.25 29.9 46.92
49.5 79.49 39.38 42.0 4.91 Budapest 59.4 93.07 55.23 30.7 23.96
57.8 113.14 65.35 47.5 21.51 Dublin 66.2 133.90 88.63 42.4 37.58
68.1 109.61 74.69 30.8 39.22 Dusseldorf 59.4 103.41 61.42 31.0 30.21
79.0 154.73 122.18 26.3 76.94 London 81.9 154.82 126.73 24.5 85.40
60.5 177.77 107.49 51.5 22.63 Paris 73.6 189.01 139.12 38.7 65.33
51.4 161.45 83.01 54.6 4.22 Rome 66.4 182.50 121.20 38.8 41.66
63.6 166.12 105.62 44.7 35.00 Zurich 73.8 167.56 123.68 36.3 66.21
Movement for the month of February Movement for the twelve months to February
Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change
-1.3 10.7% 8.4% 0.3 10.0% Amsterdam 6.0 9.6% 19.0% 2.3 35.4%
-1.0 2.4% 0.7% -2.0 -17.3% Barcelona 3.5 1.3% 7.0% 0.5 10.5%
-1.5 2.4% 0.0% -2.0 -12.6% Berlin 0.6 9.2% 10.2% 0.4 8.7%
2.8 0.4% 6.1% 1.7 18.1% Budapest 5.0 -4.4% 3.6% -0.2 4.8%
9.4 14.4% 33.1% 3.4 40.4% Dublin 6.7 -8.1% 1.2% 1.8 5.3%
2.2 33.1% 37.4% 4.5 58.5% Dusseldorf 4.2 16.5% 24.7% 2.6 40.3%
-4.1 8.7% 2.9% -0.4 0.0% London -0.3 11.1% 10.7% 0.6 11.5%
3.0 0.1% 5.1% 0.2 -2.7% Paris 2.8 5.9% 10.0% -0.2 11.2%
2.3 -7.1% -2.9% -0.7 -183.9% Rome 3.9 0.5% 6.4% -1.8 9.0%
13.1 3.9% 25.3% 4.9 86.5% Zurich 5.6 0.9% 8.6% 0.7 13.7%
respectively. Occupancy performance increased
by an astonishing 13.1 percentage points as
Switzerland’s commercial hub experienced a strong
pick-up in commercial demand in February 2011.
Whilst revpar performance increased in London,
Berlin and Paris, an increase in operating costs
had resulted in stagnant goppar performance in
London and a decline in Paris and Rome when
compared to February 2010 performance.
Data from the latest HotStats survey also
highlighted a decrease in trevpar performance
in Barcelona and Rome, by 4.6% and 2.5%
respectively, resulting in significant reduction in
goppar performance.
In the majority of the markets examined
throughout Europe, a decline in non-rooms
revenue performance had occurred in February
which reflects the current trend of a reduction in
consumer confidence in Western Europe.
Dublinhotelsshrugged-offtheeconomic woes of Ireland during February and recorded an astonishing growthinprofitsofmorethan40%,according to the latest HotStats survey fromTRIHospitalityConsulting.
Sector stats
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 19
Analysis
InQ12011DLAPiperconducteditsannualHospitalityOutlookSurveys,oneinEuropeandoneintheUS,tounderstandhowthemarket has changed in the last year. KarenFriebeandSandraKellman,Co-ChairsofDLAPiper’sGlobalHospitality & Leisure Sector Group below provide a short comparison ofthefindings.
TheOutlookisBullishIn line with general market sentiment, the outlook
is positive in both surveys. Looking back at past
surveys, the three year trend is broadly the same,
with a marked increase in bullish sentiment from
last year. There is greater optimism in the US, with
sentiment rising from 5% in 2009 to 88% in 2011,
compared to a more conservative rise in Europe,
from 5% to 67%. The US quoted the increase
in the number of assets changing hands in 2010
as a key reason for their optimism, whereas the
European respondents noted the change is largely
down to an increase in operating performance as
well as an increase in business travel.
The bullish US sentiment is further reflected by
the positive sentiment in response to the question
of whether asset values would rise in 2011. 82%
of respondents thought that values would rise,
in sharp contrast to Europe, where only 36%
TurningtidesDLA Piper’s Karen Friebe and Sandra Kellman look ahead at the new financial year
thought they would rise, and 58% expected there
to be no significant change. This in itself is positive,
with European respondents expecting the market
and the industry to enter a period of stability,
making it a good investment option for more
cautious investors.
InvestmentOpportunitiesTrends in both surveys remain similar to previous
years, but again there is a notable difference
between the two continents. When asked which
sector of the industry was the preferred option
for investment, the economy/budget sector
remained the preferred choice in Europe due to
the consistent returns over the past years, while in
the US the mid and upscale sectors continued to
be most attractive as they are not as overbuilt.
The rising dragonUnsurprisingly the countries of focus for outbound
investment do vary between the two surveys, with
Germany and Russia standing out as attractive
investment prospects across Europe and Brazil
being particularly attractive to US investors. The
country common to both surveys is China, which
demonstrates the confidence in the Chinese
economy that is also seen in other sectors.
China proved the common theme for both
markets for inbound investment too, although
there is greater expectation of Chinese investment
into the US (65%), than Europe (42%). The
prominence of China in driving investment comes
as no surprise. The expansion of the Chinese
economy is expected to have a profound impact
on the number of business and leisure travellers
entering the European and US markets – a key
driver for growth.
LendingThe US survey shows an increase in activity from
investment banks, up from 2009. Respondents
now expect them to be the most active lenders
in 2011, followed closely by commercial banks,
something which can again be attributed to the
positive outlook for the US market as a whole.
While Europe expects investment banks to
be more active in 2011 (33%, up from 8% in
2009) there is more expectation that commercial
banks will be the sector’s most active lenders.
Pension funds have also seen a marked increase
(29%, up from 8% in 2009), a sharp contrast to
the US where they have stayed at 5-6% for the
past two years.
There is, in general, far more variety in the
responses received from Europe than in the US,
likely down to the fact that over the past few
years traditional funders have retreated to their
home markets.
As reflected by the predictions for asset values,
Europe is considered to be entering a period of
stability, making it attractive to conservative
lending entities such as pension funds. In contrast,
the US hospitality industry is expecting to enter a
period of growth, and thus there is the anticipation
that entities such as hedge funds will be more
active lenders.
Social media revolutionWhilst the US is leading the way in the social media
revolution (70% of US respondents, as opposed to
45% of UK, are embracing this as a promotional
tool), both sets of survey results provide some
interesting insights of how organisations in the
hotel sector are increasingly interacting with
guests online, the growing prominence of sites
such as Trip Advisor being of particular interest.
Companies are becoming more aware of the
importance of social media as a tool for reaching
their clients and engaging with them. However
if you are keen to join this trend you need to be
aware of the rules of the game you are getting
into and the potential impact on your brand, as
the standard terms and conditions of most social
media sites require you to give a very wide licence
of your intellectual property rights.
Andfinally…The results of both surveys provide an interesting
indication of how the market is adapting to the
post credit crunch economy. We can all see that
the market has changed and organisations have
had to deal with that – whether by reassessing
their approach to investments and joint ventures,
or by taking a look at their operations and making
the necessary changes to streamline the business.
Going back to basics and sharpening your tools
have definitely been the winning strategies over
the last couple of years. Only time will tell if our
respondents’ predictions for this year come to
pass, but it’s positive to see the general belief that
the tide is turning.
Copies of the full surveys can be found at
www.dlapiper.com
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 120
Analysis
CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Portfolio of ten limited service & three-star hotels
Various UK Limited Service/Mid-market
Unknown Various February Unknown Unknown Unknown Butterfly Hotel Ltd Akkeron Includes a mix of Holiday Inn Express, Ramada, and Best Western Hotels
Hilton Hotel Barcelona Spain Upper upscale 289 Unknown February 40,000,000 40,000,000 138,000 Morgan Stanley Westmont Hospitality The hotel will be operated by the Westmont Hospitality chain from April 2011
Hyatt Regency Hotel Mainz Germany Upper upscale 268 Unknown February Unknown Unknown Unknown Mainzer Aufbaugesellschaft (MAG)
Azure Property Group
Portfolio of 5 NH Hotels Various Germany & Austria Mid-Market 1,153 Leased to NH Hotels
March 170,000,000 170,000,000 147,000 NH Hotels Invesco Real Estate Sale and leaseback transaction. The portfolio is long-let on 25-year hybrid leases to NH Hotels
Sir Christopher Wren's House Hotel and Spa
Windsor UK Luxury 96 Unknown March Unknown Unknown Unknown Sir Christopher Wren's House Limited
Savora Hotels
Hilton Brighton Metropole Brighton UK Upscale 340 Leased to Hilton
March 39,300,000 45,000,000 132,000 Royal Bank of Scotland Topland A 20 year operating lease from 2001 to Hilton
Cadogan Hotel London UK Luxury 65 Leasehold March 15,500,000 18,000,000 277,000 Trinity Hotel Investors Cadogan Estate Long lease with 28 years unexpired. The Cadogan Estate already owns the freehold
2 Beetham Hotels Manchester & Liverpool
UK Upscale 473 Unknown March Unknown Unknown Unknown Beetham Organisation Loucas Louca Radisson Blu Hotel Liverpool and Hilton Manchester Deansgate bought out of administration
Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
The Cavendish Hotel London UK Upscale 230 Unknown February 240,000,000 274,000,000 1,191,000 Barclay Brothers Marriott Champs-Elysées Paris France Luxury 192 Leasehold February 39,700,000 39,700,000 207,000 Strategic Hotels and Resorts Undisclosed The sales of the leasehold interest to expected to be
completed by 30 April 2011Portfolio of Hotels Various Kenya Various Unknown Unknown February Unknown Unknown Unknown Kenya Tourist Development Corp Portfolio includes Hilton Nairobi, InterContinental Nairobi,
Fairmont The Ark Nairobi and TPS SerenaW Hotel Leicester Square London UK Luxury 192 Unknown March 200,000,000 228,000,000 1,188,000 McAleer & Rushe Portfolio of 15 Hotasa Hotels Various Spain Midscale Unknown Unknown March Unknown Unknown Unknown Neuva Rumasa The Hotels are available on a portfolio, sub-group or
individual basis
The road to recovery TimingwillbeeverythingEveryone agrees that the best returns on investment
depend as much on the moment the investment
is done as on the bottom end of the profit and
loss statement whether these cash-flows are
generated from the adequacy of the hotel in its
market, general upturn of the market conditions
and/or the restructuring of an underperforming
asset. Are we now in the eye of the perfect storm,
have we missed the window or are there more
opportunities heading our way?
The industry’s fundamentals are moving in the
right direction and statistics nearly everywhere
indicate increased occupancy and rates. But the
picture is not the same across all markets. Whilst
investors active in the mature hotel markets such
as Western Europe are focussed primarily on
acquisitions and/or restructuring of assets, other
parts of the world are still at the infancy of a well-
rounded hotel market, with much potential for
land acquisition and development.
In Europe, two elements will influence the
behaviour of investors in the short to medium
term: valuations and timing. As business levels
recover and hoteliers dare to start increasing rates,
bottom line profits will increase exponentially once
fixed costs are covered. We note however that
before reaching the levels achieved in 2007 there
will be a long hill to climb to match these numbers
in real terms. More difficult still, for development
financing, investors and banks won’t be rushing
back in until they are sure there is an immediate
uplift in value over and above land acquisition and
development costs. But as time goes by and the
market stabilises, yields will begin to compress
making way for new development in markets
which can sustain an increase in supply. Of course,
there are exceptions and the nature of each
Colliers’ Alexandra Dumoulin and Karen Callahan look at the route ahead
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 21
Analysis
CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Portfolio of ten limited service & three-star hotels
Various UK Limited Service/Mid-market
Unknown Various February Unknown Unknown Unknown Butterfly Hotel Ltd Akkeron Includes a mix of Holiday Inn Express, Ramada, and Best Western Hotels
Hilton Hotel Barcelona Spain Upper upscale 289 Unknown February 40,000,000 40,000,000 138,000 Morgan Stanley Westmont Hospitality The hotel will be operated by the Westmont Hospitality chain from April 2011
Hyatt Regency Hotel Mainz Germany Upper upscale 268 Unknown February Unknown Unknown Unknown Mainzer Aufbaugesellschaft (MAG)
Azure Property Group
Portfolio of 5 NH Hotels Various Germany & Austria Mid-Market 1,153 Leased to NH Hotels
March 170,000,000 170,000,000 147,000 NH Hotels Invesco Real Estate Sale and leaseback transaction. The portfolio is long-let on 25-year hybrid leases to NH Hotels
Sir Christopher Wren's House Hotel and Spa
Windsor UK Luxury 96 Unknown March Unknown Unknown Unknown Sir Christopher Wren's House Limited
Savora Hotels
Hilton Brighton Metropole Brighton UK Upscale 340 Leased to Hilton
March 39,300,000 45,000,000 132,000 Royal Bank of Scotland Topland A 20 year operating lease from 2001 to Hilton
Cadogan Hotel London UK Luxury 65 Leasehold March 15,500,000 18,000,000 277,000 Trinity Hotel Investors Cadogan Estate Long lease with 28 years unexpired. The Cadogan Estate already owns the freehold
2 Beetham Hotels Manchester & Liverpool
UK Upscale 473 Unknown March Unknown Unknown Unknown Beetham Organisation Loucas Louca Radisson Blu Hotel Liverpool and Hilton Manchester Deansgate bought out of administration
Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
The Cavendish Hotel London UK Upscale 230 Unknown February 240,000,000 274,000,000 1,191,000 Barclay Brothers Marriott Champs-Elysées Paris France Luxury 192 Leasehold February 39,700,000 39,700,000 207,000 Strategic Hotels and Resorts Undisclosed The sales of the leasehold interest to expected to be
completed by 30 April 2011Portfolio of Hotels Various Kenya Various Unknown Unknown February Unknown Unknown Unknown Kenya Tourist Development Corp Portfolio includes Hilton Nairobi, InterContinental Nairobi,
Fairmont The Ark Nairobi and TPS SerenaW Hotel Leicester Square London UK Luxury 192 Unknown March 200,000,000 228,000,000 1,188,000 McAleer & Rushe Portfolio of 15 Hotasa Hotels Various Spain Midscale Unknown Unknown March Unknown Unknown Unknown Neuva Rumasa The Hotels are available on a portfolio, sub-group or
individual basis
project, location and specificities of the market will
influence the out-come of any decision making.
Transaction volumes are increasing with the
underlying value of the asset going up and vendors
are increasingly reaching the point at which they see
benefits in selling. While many anticipated a sale
frenzy of distressed assets, the reality is that banks
and owners have and continue to hold back as much
as possible from writing these properties off their
books too quickly. We therefore expect to see more
and more assets coming on the market as a result
of improving values. Hopefully, in order to avoid a
negative chain reaction, these properties will flow
progressively on a market where a lot of investors
have been patiently waiting in the side-lines to make
a profit on assets in a market up-swing.
While money appears to be less tight, the
number of active hotel lenders has only marginally
increased and evidence shows that banks are still
extremely cautious who they lend to, the type and
prospects of the hotel, as well as applying stricter
underwriting standards. A borrower with a good
track record and experience in the hospitality
business as well as capital, an asset that has good
historical cashflows or good prospects of recovery
in the market and a reputable brand will all
determine the likelihood to obtaining finance.
The end of 2010 and the beginning of 2011
have shown clear signs that there is light at the
end of the tunnel. For a time at least, the hotel
sector will look quite different in terms of lending
terms and conditions and in terms of investment
focus, however, there is always a risk of amnesia
setting in as the euphoria of dealing once again
inflates the market. But hopefully and for the good
of the industry, caution and long term equilibrium
will be on our mind to prevent such a large bubble
bursting again.
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 = €1.1400.
Alexandra Dumoulin is a senior consultant
at Colliers International Hotels
Karen Callahan is a director of Colliers
International Hotels
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Personal view
Now that the West’s ‘we love him, we love him
not’ affair with Muammer Gaddafi has settled on
‘not’, those who have done business in and with
Libya are in a difficult position.
While the pundits try and second-guess how long
the country will be subject to the Nato-imposed
no-fly zone and the different permutations for
power, depending on whether Gaddafi remains or
not, the region continues to wobble, while protests
in Yemen and Syria continue to gather pace.
Libya has, for the past few years, been a key
focus for development in that area of the world.
Described by travel agents as where the Sahara
meets the Mediterranean, it is rich in ancient
Greek and Roman ruins, with five UNESCO
World Heritage Sites, as well as desert oases and
extensive coastline.
Despite the volatile nature of getting visas to
the country – even the diplomatic Swiss found
themselves on Gaddafi’s bad side when they
arrested his son – developers, operators and
consultants have favoured the country. That is
now over for the foreseeable future and, mere
weeks after the change in regime in Egypt, the
risks of investing in such volatile regions are being
illustrated across global news networks.
At the panel discussing development in Libya
held at the International Hotel Investment Forum
in Berlin in March, it was felt that short-term
disruption was almost a small price to pay for
what could be long-term stability and the chance
for a more open trading environment.
Talking to the press, Eric Danziger, president
and CEO of Wyndham Hotel Group, typified such
feelings, commenting: “The US had a revolution
200 years ago and some countries are born from
change and over the long term things might
happen. Some countries like Egypt may end up
being greater, better business opportunities over
the long term because of what has gone on.”
There have been benefits for some more
established regions. The Spanish hotel market
is seeing a recovery in inbound tourist numbers,
IntoAfricaHotel Analyst deputy editor Katherine Doggrell looks at the impact of political unrest on global expansion
aided by general growth as the global economy
recovers, but also picking up business as travellers
are unable to visit many countries in North Africa.
After two years of falling arrivals, Spain saw
a year-on-year increase of 4.7% in January, with
2.66 million visitors, according to Frontur, an
institute that surveys tourism. This looks set to be
accelerated by the diversion of tourists away from
troubled regions.
Simón Pedro Barceló, president of Barceló
Hotels, told the New York Times: “The events
in North Africa will accelerate a recovery that
was already underway thanks to price cuts. The
impact has so far been most clearly seen in the
Canary Islands, but I certainly expect it to spread
to coastal Spain and the Balearic Islands over the
coming months.”
Sebastián Escarrer, vice chairman of Sol Meliá,
said that diverted travel from North Africa amounts
to “fresh air for us, but certainly no reason to get
complacent or believe that nothing more needs to
be done to reposition our tourism product”. He
added that when Egypt, for example, returned to
compete for consumers, it was likely to do it with
aggressive pricing.
However, while Spain’s streets are unlikely to
see the riots that have affected other countries,
it is not immune to political upset. Airport
workers in the country had announced 19 strike
days timed to coincide with the peak periods of
Easter and summer, with strikes starting on April
20 and continuing into May, June and July. They
were called off at the end of March, but remain
a threat, coming after the Spanish government
had to declare a state of emergency for the
first time in the country’s 33-year democracy to
halt a wildcat strike by air traffic controllers just
before Christmas.
In spite of this, faith in the country has been
reiterated as Marriott International announced
that four AC hotels would join its Autograph
Collection and Hilton Worldwide added a Waldorf
Astoria. For the existing domestic operators,
growth in trading has seen increased optimism
following a difficult period.
Although this growth in Spain has been good
news for the expansion of the brands in the
developed European territory, it is the developing
markets that the operators must focus on to
maintain their pipelines.
For those already investing Libya, a cautionary
tale comes in the form of IHI. Libya’s involvement
with the group goes back to the early 1970s when
the Libya Foreign Investing Company created
Corinthia Hotels as a 50/50 joint venture with the
Pisani family of Malta.
In 2001, the group’s hotel assets were floated
on the Maltese stock exchange, with LIA taking a
35% stake, the Pisani family 35%, and Isthithmar
a 22% holding, the remaining 8% being held
by smaller investors. This ownership structure
has, the group said, been replicated at the
Corinthia London, which is described as an IHI-led
investment project.
Under an order issued by the European Union,
LFICO was one of five entities against whom the
EU imposed “restrictive measures” because the
entities were under control of Gaddafi and his
family, and were a potential source of funding for
his regime.
IHI has said: “The asset-freezing orders
announced by national governments and the
EU are having no effect on any hotels in IHI. It is
business as usual.”
A source close to the situation told Hotel Analyst
that the group viewed the actions of the LIA as
investing Libya’s oil money on behalf of the Libyan
people, rather than the Gaddafi family.
Under the terms of the orders, LFICO cannot
sell the assets or receive income or returns from
them. However, operationally, there is no impact
and the fit-out of the Corinthia London and its
opening will go ahead. IHI’s spokesman said that it
had sought and obtained clarification from the UK
government that it could trade as normal.
Similarly, at CHI, the hotel management
company in which Wyndham Hotel Group is
a 30% joint venture partner with IHI, there has
been no change to the day-to-day operations of
the group.
IHI is playing the long game, with an anonymous
source pointing out that the LIA had held the
stake for the past 30-odd years. IHI was, they
added, eager to see the will of the people of Libya
adhered to.
While the future for Libya looks uncertain,
those wishing to pursue expansion are looking to
Africa, with Hilton Worldwide and Rezidor Hotel
Group amongst those looking to the continent.
Hilton currently has hotels in Sandton and Durban
in South Africa, is looking for opportunities
countrywide. And Rezidor is planning to open
eight new hotels throughout sub-Saharan Africa.
With favour moving as quickly as waves of
protest, those wishing to open hotels are caught
between the low-risk, but restricted options in
developed markets and the high-risk, but open
emerging markets. After the heady rush into
countries such as Libya, levels of caution are likely
to be raised, as are demands from those putting up
the cash and the flags. However, growth demands
that these territories be explored, but with a clear
understanding of both the risk and reward.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 23
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The Insider
Featured businessesAccor 5, 6, 7Akkeron Hotels 10, 21Alexico Group 4Ashford Hospitality Trust 6Azure Property Group 21Barcelo Hotels 22Barclay Brothers 21Beetham Organisation 21Berwin Leighton Paisner 12Blackstone Group 4British Hospitality Association 8Butterfly Hotels 10, 21Cadogan Estate 21Caja Madrid 3Capital Asset Services 10CBRE Hotels 1, 12CHI 22Christie & Co 1Colliers International Hotels 20, 21Deloitte 6Deutsche Bank 4DLA Piper 19Dune Real Estate Partners 4Ernst & Young 6Evolution Securities 5Folio Hotels 10Forestdale Hotels 10Four Seasons 11Group Hesperia 3Host Hotels & Resorts 11HVS 3HVS Executive Search 5Hyatt Hotels Corporation 10, 11Hyatt International 24IHI 22InterContinental Hotels Group 5, 9, 12Invesco Real Estate 21Jones Lang LaSalle Hotels 1, 3Kenya Tourist Development Corp 21KPMG 10London & Regional 12Loucas Louca 21Mainzer Aufbaugesellschaft 21Marriott International 22McAleer & Rushe 21Millennium & Copthorne 10, 11Molinaro Koger 1Morgan Stanley 4, 21Morgans Hotel Group 5Mulbourn Hotels 10NH Hoteles 3, 21, 22Nueva Rumasa 21Otus & Co 14, 15Portfolio 13PricewaterhouseCoopers 2, 7Queens Moat Houses 10Royal Bank of Scotland 6, 21Savora Hotels 21Sol Melia 8, 22Square Mile Capital 4Starwood Capital 1, 12Starwood Hotels & Resorts 5Strategic Hotels & Resorts 11, 21The Tonstate Group 12, 13The Woodbridge Company 11Topland 21Travelport 24TRI Hospitality Consulting 16, 17, 18Trinity Hotel Investors 21Westmont Hospitality 12Whitbread 4Whitehall Real Estate 10Wyndham Worldwide 8
hotelanalyst
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Bankers less bullish over bears
Ademotoofar
The International Hotel Investment Forum in Berlin
has, over the years, has been known to drive news
both on and off the official programme, whether
it is delegates taking a dip in the decorative pool
at the Marlene Bar, or controversy over the use of
ringers at the table football contest.
But these are sobering times. The table
football tournament is no more and the pool is
hidden under a pop-up bar. However, you can’t
keep a good conferencer down and, like the
child who makes a toy out of a stick and a tin
can, there is always entertainment to be had,
even in a downturn.
Reports came into our Marlene eeyrie that one
delegate, driven to speak out against the bankers –
possibly by their Chorus-Line style repetition of the
phrase ‘we’re still lending’ – accused one of usury.
Except they didn’t, they accused them of ‘ursury’.
According to our ursury correspondent –
identity concealed for what will become frankly
obvious reasons – this is less to do with excessive
interest charges and more to do with having carnal
knowledge of bears. Appropriate for the location
– the bear is the symbol of Berlin – but a little
mysterious in relation to bankers. They should, if
anything, be courting the bull.
Our ursury correspondent – who spends a lot of
their free time around salmon leaps, rather like bears
do… – was unable to confirm which, out of brown
bears or black bears one runs from and which one
lies still, plays dead and presumably, thinks of the
upturn when hearing approaching.
With Cairo’s Tahrir Square now empty and Egypt
waiting for its next move towards democracy under
its ruling military council, the city is set to lose its
Grand Hyatt hotel as the result of demonstrations,
this time precipitated by its staff.
Hyatt International (Europe Africa Middle
East) cited “unresolved contractual disputes”
with the hotel’s owner, Saudi Egyptian Touristic
Development Company for the move at the hotel,
which it has managed since 2003.
Hyatt International is looking for further
development opportunities in the country, in
addition to two hotels already open. The country
is still feeling the pain after the numbers of visitors
fell as a result of the pro-democracy protests, with
revenues from tourism down an estimated 75%,
according to the Ministry. It is hoped, however,
that Tahrir Square itself could become a tourist
attraction and help fortunes recover.
According the Egyptian Hotel Association, Hyatt
International made its decision following several
weeks of strikes by the hotel staff, who took to
the street in front of the property, chanting and
staging sit-ins. The workers’ list of demands
included salary adjustments, profit shares, and
contractual job security for all those who had been
working on a month-to-month basis.
It is reported in the local Egyptian press that
the owner’s response was to consider shutting the
hotel, but the Ministry of Tourism contacted the
country’s armed forces and they agreed to forbid
the owner from shutting down the hotel and
adding to the country’s unemployment problem.
The plan in that event being that the Ministry
would run the hotel in the event of its closing, the
kind of hands-on approach that many countries
would welcome from their own ministries, if only
to allow them to appreciate the issues involved.
RoadwarriorsfightforrightsAs anyone who has tried to keep the attention
of delegates on the final day of a conference will
attest, the business community likes its mobile
technology. There in body, but not always in spirit,
the jaded attendee is often to be found catching
up with their correspondence, relevant sector
news and Facebook.
The latest study from Travelport reports that
business travellers are driving the use of mobile
technology, with 56% of them using it to search
for and book hotels.
The study found that 80% those polled would
like to see mobile applications offering suggested
restaurants and bars around the hotel location,
while 71% ranked wifi as one of the most
important technology solutions that should be
included as standard in hotel rooms – 82% of
travellers expecting this service to be in all rooms
within five years.
It’s not all good news for the road warrior. At
the recent Berlin conference, one speaker who
broke through the third-day Blackberry barrier
was David Rowan of Wired magazine. Amongst
his suggestions was the idea that guests’ activity
be monitored so that, should they visit again, their
preferences would be readily available.
So, for example, if they had enjoyed a game of
golf, then they should be offered the chance to book
another, hire clubs and so on. All very convenient,
unless the next time you visit is with your boss and
the last time you were meant to be hard at work
keeping up with your correspondence.