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Efforts to shift assets off banks’ balance sheets will be behind rising transaction volumes this year, with acquisitive Reits leading the drive to pick up properties coming to market after the market reached its floor in 2009.

Last year saw favourable pricing and initial

yields for assets, aided by high quality and limited

availability, which could see greater variety as

stock in more secondary markets is put up for

sale as these markets stabilise. Despite this, it is

thought that banks will proceed with caution,

taking care not to flood the market, disappointing

many vulture funds who had anticipated a flood

of distress, but reassuring existing investors.

The year ahead will also see a number of

refinancing or restructuring exercises due to take

place across the sector, giving banks an opportunity

to fund capital expenditure programmes in return

for greater stakes in the businesses involved.

Jeremy Hill, head of hotels at Christie & Co, said:

“The sector is in a crucial phase of its recovery

and one that is likely to be protracted. As trading

performance continues to improve, banks will

come under further pressure to release assets to

the market and to fund new investment.”

Hill added that banks must now decide whether

they believe in the future of the businesses they

have an interest in – and in their ability to deliver

sufficient returns in an acceptable time period,

adding: “Lenders who choose not to release

additional funding for capex programmes may

find themselves with permanently impaired assets

on their books – an interesting dilemma for banks

who retain assets.”

•Lloydshopes to make Mint p6

•IHGputsChina in its hands p12

•Supplygrowthchaosin Europe p14

•Raisingaglassto UK transactions p16

•Hiringwhileothersare firing p18

•Spreading the development risk p22

Banks to drive asset salesAn increase in volumes is also being driven

by an ongoing, if gradual, recovery in trading

fundamentals, allowing for more favourable

valuation multiples. This will combine with an

increase in equity available to the market to create

a gradual loosening of what has been a market

constricted to those with the capability to do all-

cash or cash-heavy deals.

Jones Lang LaSalle Hotels’ latest Hotel

Investment Outlook has forecast a 15% to 25%

increase in deals volume this year, reaching $28bn

to $30bn. Hotel real estate sales in the Americas

are expected to total up to $13bn in 2011. The

EMEA region is projected to increase to $13.1bn,

with bank-driven sales driving a significant portion

of this figure, particularly in the UK, Ireland and

Spain. Japan is forecast to lead the Asia Pacific

sales, slated to reach $3.5 billion in 2011, as banks

take a view on initiating structured sales.

“Investor confidence is on a robust rebound,”

said Arthur Adler, CEO and MD of Jones Lang

LaSalle Hotels. “Markets are expected to continue

to recover through 2011 as the economic upturn

solidifies. Dominant acquirers of hotel assets

in 2011 will be Reits, institutional investors,

and private and high net worth investors with

opportunistic capital.”

Mark Wynne-Smith, CEO for Jones Lang LaSalle

Hotels EMEA, added: “Financial institutions which

placed assets in administration and onto the

market during 2010 were often able to achieve a

sale price close to or higher than the outstanding

loan. This could be an additional driver to put

assets on the market during 2011.

“Investment activity in 2011 will be most

prominent where investors understand the market

and asset values. This year will bring a broad

range of capital looking to invest in real estate and

hotels, driven by the establishment of new capital

Volume 6 Issue 6

ContentsNews review 3-10Mid-market malaise – Accor raises target – Park Plaza updates – Spain’s domestic favour – Premier Inn overseas – Lloyds Mint move – Travelodge expansion – luxury focus – Denizen settlement – TripAdvisor’s Dragon – Orient-Express refinancing Analysis 11-18Avoiding the ambush – IHG’s China ambitions – Europe’s supply growth – UK transaction trends – Recruiting in a downturnSector stats 19-21London leads Europe – Provincial stagnationPersonal view 22Sharing the riskThe Insider 24Marriott cleans up – IHG loses InterContinentals – McKillen

beats NAMA

www.hotelanalyst.co.ukVolume 6 Issue 6

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Editor Andrew Sangstere [email protected]

Deputy Editor Katherine Doggrelle [email protected]

Marketing Sarah Sangstere [email protected]

Subscriptions Anna Drabickae [email protected]

Art Direction T Square Designe [email protected]

Design Lynda Sangstere [email protected]

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A bifurcated market beckons

Commentaryby AndrewSangster

The customers enjoying an extraordinary

bounce are corporations. Business travel is, as a

consequence, coming back strongly. Double digit

revpar climbs are being reported by those hotel

operators who are focused on this segment.

This is an extraordinary recovery. After what was

the deepest recession seen in several generations,

cash flows at US businesses have hit an all time

record. It is a pattern that is being replicated in

Europe, albeit a few months later.

The recovery for businesses is turning out to be

similar to recent previous recessions, only with a

more pronounced trough and sharper climb back.

And this is helping hotel companies to report

stronger than expected results.

The flip side to all this, however, is what is going

on with consumers. And here the patterns become

more country specific. Those countries which were

running big trade deficits prior to the recession are

having to deleverage. This deleveraging is being

done by clobbering consumers.

Economist Anatole Kaletksy, in a briefing hosted

in London during February by Colliers International,

said the UK is seeing the equivalent of 2% of GDP

squeezed out by tax increases and spending cuts

each year for the next four years. Kaletsky said

this was worse than anything experienced in a G7

economy since the Second World War.

This process has only just started. A squeeze is

also underway for Spain, Ireland, Greece, Portugal

and soon the US. For the leisure side of the hotel

business this is bad news indeed.

The European Travel Commission is forecasting a

2.2% increase in visitor numbers in Europe during

2011, rising to 3.6% in 2012. But this disguises a

significant North and South split, with the North

strong and the South weak.

For the most recent figures available in 2010,

Germany and the Netherlands were showing

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation

hotelanalystdouble digit increases in international visitor

arrivals while Spain and the UK were stagnant.

The ETC said in its latest quarterly report ‘European

Tourism in 2010: Trends and Prospects’ that: “There

remains a stark contrast between Germany’s

powering performance and the stagnating

peripheral Euro zone where the sovereign debt

crisis risks derailing the global recovery”.

In the UK, leisure business has helped shore-

up the hotel industry during the past two years

or so as the recession bit. It looks highly unlikely

that this is going to continue and hoteliers need

to switch back into the business market. For some

properties, particularly outside of London, it looks

to be a tough few years ahead.

It is possible that most will stagger on until

the economy fully recovers and consumers

again find their feet. But there are a number

of potential disasters.

Biggest of these would be sharply rising interest

rates. Inflation is once again back in fashion

and with this comes increasing pressure on the

monetary authorities to tighten policy.

If interest rates start to rise, borrowers with high

levels of leverage are going to come under extreme

stress. Short-term it will be borrowers on variable

rate terms. But the pressure will also be felt by any

leveraged borrower as refinancing loomed.

And of course rising interest rates will only

compound the pressure on an already enfeebled

consumer which in turn puts more pressure on the

already struggling borrower.

The smart money in the distressed debt market

now seems to be sitting tight. Keeping powder dry

until the real “war” begins is the option favoured

by some of the most experienced players.

Expectations are that in 18 months to two years,

the debt overhang will truly start to tell.

The Wharton School of Business in the US held

its annual restructuring conference in February

and the consensus emerging from the event was

that high risk loans are currently overvalued with

talk focusing on a credit bubble.

But perhaps the most interesting observation

was that the markets will evolve to increasingly

restrict access to capital and credit for all but the

largest corporations.

If this holds true, the fragmented nature of the

European hotel industry means there will be plenty

of opportunity for restructuring in the coming years.

The winners look set to be the big corporate

hoteliers who are overwhelming focused on

business travellers. They have access to capital and

will see opportunities emerge.

The losers will be the small and medium

sized owners who are squeezed by their limited

credit facilities and operators who are focused

on leisure travellers.

This is a strange time for the global hotel industry. One group of customers, fortunately the biggest share for most hoteliers, are enjoying an astonishing recovery. The other main group, however, is, in most countries, undergoing an enormous income squeeze.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 6 Issue 6 3

News

continued from page 1

funds. Key gateway cities such as London and

Paris will continue to attract the bulk of investor

interest. Market dynamics will drive more prime

assets on the market in London, attracting high

values. These could represent great opportunities

when taking a long-term view as they will offer

a steady return. However, with demand for core

assets already starting to intensify, investors might

be willing to look further afield.”

Last year cross-regional capital flows increased

to 41% of total transaction volume in 2010

compared to 15% in 2009 as investors acquired

assets in displaced markets across the globe.

Global capital was most active with a share of

53% of cross-regional investments. Asian, Middle

Eastern and US investors were keen to secure

prime acquisition opportunities outside of their

region, particularly in Europe, a trend which is set

to continue.

The UK market has seen evidence of banks

ending the period of ‘pretend and extend’ and

reviewing what is best for each of their holdings.

RBS has sold the Grosvenor House and the hotels

that it has under the Hilton flag, but is also

thought to be considering taking ownership of

Jarvis Hotels, after failing to find a buyer for the

business, which is rooted in the provinces where

trading has been weak. RBS is the main lender to

the company alongside HSBC and Bank of Ireland,

and is thought to be looking at a restructuring

under which the banks would take control.

In addition, Lloyds Bank Group, which has

found itself with a number of hotel assets after

its merger with HBoS, is thought to be mulling

the sale of both Menzies Group and Mint Hotel

(formerly City Inn).

The disposal of the iconic London luxury hotel,

although subject to a lengthy sales process, was in

contrast to activity in the UK’s mid-market hotels

sector, which has suffered from poor trading as

a result of exposure to the provincial market and

competition from the branded budget sector

below and discounted hotels above.

This pressure on the mid-market was further

illustrated by the release of a study by Trowers &

Hamlins, which reported that a key trend of the

current ‘age of austerity’ had been consumers

increasingly looking for quality over quantity when

spending on travel and leisure by ‘bunching’ their

spend on fewer, but better experiences.

According to the report, owners and operators

should invest now to improve their offering or

risk being squeezed out of the market. It warned

that, “potentially the most dangerous place to be

in this situation is at the fringes of luxury, where

middle-ground offerings will face being left

behind by the luxury-leaders and so relegated to

the mid-market”.

The 40-strong Jarvis Hotels, slap-bang in the

mid-market, was taken private in 2003 in a £229m

deal and is reported to have breached its banking

covenants several years ago. It is also thought to

have been most-recently valued at less than its

£130m debt.

RBS is the main lender to the company

alongside HSBC and Bank of Ireland and the

banks are understood to be looking at a financial

restructuring under which they would take

control, following earlier failed efforts to sell the

group for an acceptable price. Akkeron Hotels –

which acquired Forestdale Hotels at the end of

last year – and Benson Elliott Capital Management

had been tipped as buyers, but it is thought that

concerns over Jarvis’s £17m pensions liabilities

were a deterrent.

A debt-for-equity swap or putting the group

into administration are seen as the most likely

options, but RBS is thought not to have decided

on a favoured course of action.

For Akkeron, the Forestdale deal would appear a

less complex proposition than taking on Jarvis. The

transaction to acquire the 18 hotels from private

owner Robin Collins increased Akkeron’s estate to

26 and made it one of the largest regional hotel

operators in the UK by number of hotels.

The acquisition was funded with a mixture of

equity, deferred consideration and a new £32m

18-year credit facility provided by Lloyds Banking

Group. James Brent, chairman of Akkeron, said

that the whilst the trading outlook for regional

hotel operators in the UK remained challenging,

the group continued to see “exciting opportunities

to acquire high quality hotel assets that will benefit

from capital investment and the operational

expertise that an operator of scale can provide”.

Akkeron expects to announce further

acquisitions this year and, although STR Global

forecasts an, albeit moderate, 4.4% increase in

revpar in the provinces, it is still likely to find many

opportunities to buy in the sector.

The Trowers & Hamlins report does give some

hope to the mid-market, suggesting that the

effect on the hotel industry of economic recovery

could be that UK domestic consumers could

abandon the luxury domestic market to return

to mid-market foreign travel, to be replaced by a

resurgence of foreign travellers coming to Britain.

The study concluded that this could be coupled

with a move by luxury brands from ‘attainable’

into ‘affordable luxury’, which in turn could lead

to a revitalised mid-market. Akkeron, with its

refurbishment plans, would be well-placed to

compete with such a development. The future for

Jarvis looks more uncertain.

HA Perspective: Midmarket malaise is not

exclusive to Britain. The situation is arguably even

more serious in other countries, particularly if they

have not benefited from a currency devaluation

as in Britain which has made the UK 25% or so

cheaper for foreign tourists paying in Euros.

NH Hoteles announced at the end of 2010 that

it had obtained a covenant waiver for the year

concerning a E650m loan signed in August 2007

of which E617.5m is still outstanding.

This waiver relates to net debt / Ebitda and

Ebitda / net financial expenses, giving until the end

of this year for compliance (or another waiver).

The current cost of financing, EURIBOR plus 120

basis points, is going up by 50 bp plus an upfront

waiver fee of 50 bp.

Such margin enhancements are likely to be

standard practice among banks as they seek to

restructure what were effectively loss making

lending positions established in the go-go period

of 2005 to 2007.

The result of increased margins is, of course,

further stress on the borrowers. If this is to be

compounded with base rate increases, then a large

number of hotel businesses are likely to fall over.

Added to all this cyclical woe is the shift in

customer sentiment away from the mid-market

towards either budget austerity or luxury splurge.

How profound this structural shift proves remains

to be seen but the changes in the airline industry,

which has a similar customer profile to chain

hotels, look pretty permanent.

It seems pretty clear where the hotel sector

casualties are likely to be over the next few years.

JarvisHotelstypifiesmid-marketmalaiseWhileRBSwassuccessfullysellingtheGrosvenorHouseHotelinLondon,rumoursstartedtoflutteraround that it was considering takingcontrolofJarvisHotels.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 6 Issue 64

News

The company said that it was seeing “continued

pressure” on occupancy and average room rate as

well as low visibility, with trading conditions in

2011 likely to remain “challenging”. This lack of

visibility is not limited to the hotel-using public,

but is a symptom of the wider global economy.

In the UK, where the group has just opened

its flagship hotel, Park Plaza Westminster Bridge,

GDP fell by 0.5% in the fourth quarter, after

expanding by 0.7% in the third quarter, with the

ONS commenting that, but for the harsh weather,

it would have been flat. Within those figures,

distribution, hotels and restaurants decreased

by 0.5%, compared with an increase of 0.8%

in the previous quarter. Hotels and restaurants

contributed most to the decline in this quarter.

At the same time, the Investment Property

Databank reported that UK commercial property

values rose 0.3% in December, from a 0.1%

growth in November, extending its 17 month run

of price increases. However, growth has slowed

since the summer, as wider concerns over the

economy grew. The IPD has attributed capital

growth to yield compression with initial yields

falling 50 basis points to 6.5% by June, after

which, yields shortened by 10 basis points for the

final six months of the year.

The rapid rebounding of the FTSE after the

announcement of the GDP figures suggested that

it was inclined to view them as an aberration,

although market feeling suggests that the UK’s

route to recovery, potted with VAT and income

tax rises and government spending cuts, will be

closer to ‘slow and steady wins the race’ than a

rapid ascent. While the snow was an unexpected

hit, it did allow a preview of what could happen

when all the various tax increases and spending

cuts come into effect this year.

While the initial shock at the drop still held, there

was talk that the now widely-forecast increase u

Lackofvisibilitylimits2011outlookParkPlazaHotelssaidinatradingupdate that, despite improvements in trading in the second half, it was still “too early to comment” on whether this represented a more sustained recovery.

Accor has seen countries including France,

Germany and the UK cement their recovery, and

the company has made a rapid start to the New

Year, selling its stake in Groupe Lucien Barrière and

adding 10 hotels to its Mercure brand in the UK.

However, observers appear uninspired by the lack

of strategic drama at the top.

Hennequin, who is due to lead the group’s

full-year presentation this month, was replaced

by CFO Sophie Stabile at the conference call for

group’s fourth-quarter update. She said that the

first quarter had started with “good” bookings,

although “less visibility than last year”. She

commented: “In 2011, we will be in a mixed

situation, with a hotel cycle recovery and a risk in

the macro-economic environment particularly for

European countries.”

Despite the increased Ebit forecast, the company’s

shares fell to an eight-month low, part of which

could be attributed to profit taking – Accor’s shares

have risen 47% since the company span off from

Edenred in July. However, full-year sales were

slightly below analysts’ hopes, according to a survey

by Bloomberg, and 3.5%, or u183m, of the 9.8%

revenue increase (to E5.70bn) was attributed to

currency factors, including the weak Euro.

Accor’s shares have in part ridden the increase

in general hotel sector fundamentals and, in turn,

as comparisons become tougher going into this

year as the recovery moves to stabilise, it will start

to see growth rates slow.

For Accor specifically, analysts are looking for

rapid expansion, with as little capital deployed

as possible, combined with a reduction in debt

through asset sales. In a research note Morgan

Stanley expressed disappointment that the group

had not cut its debt further since its interims when

it reported it at “around u1bn”, according to

Stabile, in October.

The fourth-quarter update showed that

expansion sped up towards the end of the year, as

the company opened 84 hotels, out of the full-year

total of 214 hotels. For the quarter these openings

added E15m, or 1.1% to revenue, which was up a

total of 11.8% on the year to E1.45bn. The need

for further growth was underlined by the 2.6%

negative impact of the group’s asset-right strategy,

which reduced revenue by E34m. Stabile said the

group was planning to open between 210 and

240 hotels this year.

She added that previous growth in occupancy

was now translating into rate increases for the

company, with the exception of Spain and Italy.

The increase was led by Germany and the UK.

In the latter economy hotels saw revpar up by

11%, further encouraging Accor’s plans to make

expansion into the sector a key strategy.

Across the estate, room rates were up by 4%

in the midscale and upscale segments and flat in

economy. The emerging markets reported double-

digit like-for-like revenue growth, being “especially

robust” in the fourth quarter, with increases of

10.7% in Latin America and 13.5% in the Asia-

Pacific region.

Signs of recovery were seen in the group’s

beleaguered Motel 6 brand, currently undergoing

refurbishment, with occupancy up by 4.5% in

the fourth quarter and rates close to flat, with a

0.1% decline. Like-for-like revenue growth stood

at 0.7% with a strong 7.2% increase in the fourth

quarter, building on the 4.9% rise in the third

quarter. Accor said that the brand had opened 58

hotels during the year under franchise contracts,

of which 23 were in the fourth quarter.

Analyst’s eyes are now on Hennequin, in the

hope that he will put other people’s money where

Accor’s mouth is and continue to speed up the

group’s franchise ambitions.

HA Perspective: It is ridiculously early to expect

change at Accor already. By any reasonable

measure, a new CEO needs months, arguably at

least 12, before implementing radical change.

After all, Accor is hardly a stricken ship.

But stock market investors are not typically

reasonable and Hennequin will have to throw them

something before the year is out. In particular,

Colony and Eurazeo need to be kept onside.

Simply carrying on with Pelisson’s previous

programme will not be enough. That is not why

Pelisson was thrown overboard in favour of

Hennequin. A radical new course needs to be

charted.

Simply speeding up the Pelisson programme is

not a realistic prospect. Hennequin’s task is to find

something radical enough to keep his investors

content but sensible enough to ensure his ship

remains seaworthy. It is going to be some voyage.

Accor ups target despite cautious outlookDenisHennequin,Accor’sreplacementforGillesPelisson,was able to celebrate moving into theCEOandchairmanrolebyincreasing the group’s full year Ebit forecast by E20m to around E440m.


News

in interest rates was likely to be postponed,

with rumours of a return to quantitative easing

circulating. The GDP figures were, however,

in contrast to inflation numbers, which have

continued to rise, reaching 3.7% in December,

close to double the Bank of England’s target and

causing two of its policy-makers to call for an

increase in interest rates.

For hotels, the snow was not all bad – PKF

reported that the drop in occupancy was balanced

by rate increases, with airport hotels benefiting

from the closure of runways, while cities like

Edinburgh, suffered due to peoples’ inability to

visit the city. However, closing runways is not a

business plan and, as Park Plaza commented,

uncertainty has lead to a reduction in visibility.

Hotels, like consumers, are now operating with a

much shorter horizon.

Similar to the UK, in the Eurozone, GDP growth

was revised down to 0.3% quarter-on-quarter in

the third quarter of 2010, from a growth rate of

1% in the second quarter, with the performance

varying markedly across countries. Consensus

opinion looks, as with the UK, to a muted recovery

with limited risk of an increase in interest rates,

dependent on inflation.

However, elsewhere greater hope was pinned

on initial GDP figures for the fourth quarter coming

out of the US, which saw growth of 3.2%, up from

2.6% in the previous quarter, but off forecasts of

3.5%. Consumer spending, however, was up by

4.4%, the fastest rise since the first quarter of

2006. The US, however, has been causing concern

with its unemployment level, currently running at

around 10%, similar to that in the Eurozone, but

above the UK, which was most-recently recorded

at just under 8%.

The US hotel sector is now making the transition

into rate-driven growth, according to STR, with

2011 expected to see more moderate occupancy

gains. The country is also set to lead what Jones

Lang LaSalle Hotels’ Hotel Investment Outlook

report forecasts to be a 15% to 25% increase in

deals volumes this year.

The Americas, led by the US, are expected to see

the bulk of this, followed by EMEA. Much of this is

expected to be driven by bank-forced sales, which

will require trading to remain on an upwards curve

to support their pricing ambitions.

Park Plaza Hotels said that it was “confident

that the quality of the group’s hotel portfolio

and its development potential” meant that

it remained well positioned to benefit from a

recovery in market conditions “as and when”

these occur. “As and when” continues to be

a repeated phrase in the sector.

HA Perspective: Although the worst of the

recession is almost certainly behind us from a GDP

point of view, the next few years are likely to be

when the real pain is felt.

Most of Europe, including the UK, looks set for a

long, hard climb back to higher growth levels. The

central case most forecasters put forward is for a

below trend economic recovery. So far, only the

US and Germany of the big Western economies

look healthier.

The problem is that low growth is nearly as bad

as no growth. And a similar prospect in store for

those investment professionals dependent on the

deal process to generate fees.

For existing hotel owners and equity investors

the next few years are going to be a race to shore-

up balance sheets before interest rate rises begin

to inflict serious pain. For would-be buyers, it is a

case of hoping a few of the existing owners trip-

up during the race.

Given that right now it looks more like an amble

out of recession, don’t count on lots of fallers.


The hotel had been operated under management

contract with Hilton Worldwide, which ended

when the site went into administration, to be sold

for a figure thought to be between E42m and

E45m, off the build price of E110m.

It is thought that the new owners, Continental

Property Investment, were more confident of

attracting local Spanish business to the property’s

extensive meetings space and proximity to

Valencia’s Congress Hall by using a local brand.

CPI, which is based in Paris and led by Boutros

El Khoury, made its first move into Spain in 2009

and has since built up a portfolio of four hotels

in the country, in Barcelona and Madrid. The group

said that the country was a “clear target” for

future investments.

Although the global brands are gradually

building their exposure to the Spanish market, it

has been in established markets such as Madrid

and Barcelona, with the smaller markets, such as

Valencia, less welcoming. Unlike the larger cities,

Valencia, host to many of Spain’s trade fairs, is

seen as more of a national destination than an

international one and the local customers within

it more attracted to local brands.

It is thought that the previous owner of the

property, Commercial Hotel Palacio de Congresos,

had built a bigger hotel than was required in that

location – at 304 rooms, and the tallest building

in the city and home to the largest ballroom – and

had suffered the consequences of over-extending

itself in the mid-decade boom. Although not

much is known about the group’s president,

Lal Bhagwandas Sirwani, it is thought that the

hotel sector was a move away from his previous

established business interests.

At the time of signing the hotel, it was the

second site in the country for what was then

Hilton International. The group is gradually

building its estate in the country and now has six

hotels open in Spain, half of which are in Madrid

or Barcelona.

Marriott International’s deal with AC Hotels is

expected to see it gain sufficient critical mass to

overcome issues of non-recognition and move into

a market dominated by home-grown brands such

as Sol Meliá, NH Hoteles and Barceló.

Chris Day, international MD at Christie & Co,

which handled the sale of the Hilton Valencia as

adviser to Eurohypo – the owner’s biggest creditor, at

a reported exposure of E60m – and on behalf of the

administrators, said that, as trading performances

continued to improve across Spain “the demand

for such assets will continue to grow”.

HA Perspective: Despite the Spanish hotel

industry being among the hardest hit of those

in Europe’s major economies, there has been

comparatively little public distress.

It is not easy to spot what might be a catalyst

for this to increase in the near term, assuming the

truly apocalyptic scenario of sovereign default is

avoided.

There is clearly significant pain in Spain among

hotel owners. This asset, which sold for around

40% of replacement cost, is probably among the

worst victims of the recession but is also unlikely

to be an exceptional outlier. The challenge for

any would-be bottom fishers is finding similar

opportunities.

SpaincontinuestofavourdomesticbrandsThesaleoftheHiltonHotelValenciaanditssubsequentre-flaggingwithSolMeliáHotels&Resortsindicatesthe ongoing difficulties which brands fromoutsideSpainhavepenetratingthe market.


News

The seven-strong company is trying to secure

a figure in excess of £550m from buyers drawn

to its combination of owned assets and potential

for expansion.

The company was co-founded in 1995 by Sandy

Orr, executive chairman, Donald MacDonald, vice

chairman, and David Orr, CEO, with Bill Crerar

and was set up as a joint venture with Uberior

Ventures, the HBoS investment vehicle which is

now part of Lloyds.

David Orr has objected to the use of the

word “sale” in the press, preferring to describe

the process as looking at options to push the

group’s growth in Europe, while confirming the

appointment of JP Morgan Cazenove as adviser.

The story came as the group opened its new

hotel near the Tower of London and prepared to

open its first hotel overseas – in Amsterdam in

April. It is these hotels which are thought to have

precipitated the move to sell, driven by the debt

the group has gained during their building.

The group has only recently rebranded as Mint

Hotel, with the company feeling that the name

City Inn was too reminiscent of the budget sector,

rather than its offering, which includes strong f&b

at a level closer to four star.

The company said: “It was clear that the name

did not do justice to the overall experience of the

brand, which has built its reputation on offering

outstanding quality, innovation, exemplary customer

service and exceptional value for money”.

The group has also seen recent staffing changes,

with MD Huw O’Connor leaving the role after 10

years at the company. He initially served as FD and

for the last seven years as MD. The group has now

lost the MD role, with Bill Starn coming in as FD.

Mint bucks the trend for asset-light operation

which is so widespread in the sector, with all

properties freehold or long-leasehold. Not only

that, but they are new-build and often in costly

locations. Put together, this created short-term

pain, but the potential for long-term gain as it

holds the assets going forward.

However, when this policy was combined with

a desire for growth, exacerbated by the need to

strengthen the new brand name with a larger estate,

the need to find what David Orr has been quoted

as calling “a new partner”, became pressing.

Competition is expected to be tough for

prospective buyers, with the group having a sound

reputation within the sector, both operationally

and for its popularity with customers – doing

the basics right has been a theme, with award-

winning bars and innovations such as iMacs in

guest rooms on top.

In a statement, the company, which is u

LloydshopestomakeMintwithsaleMintHotel,thechainformerlyknownasCityInn,hasbecomethelatestHBoS-backedentitythatnewownerLloydsisrumouredtobelooking to sell.

PremierInnmakesoverseashireWhitbread’s appointment of Paul Macpherson as international MD of WhitbreadHotelsandRestaurantsseems to indicate that the company is ready to look overseas, weeks after the group’s Q3 trading update, at which it said that it would focus on the UK ahead of its foreign business.

While the company has not added any

specifics around its growth plans, the act of

hiring suggested increased confidence and was in

line with other operators, which have this week

been bolstering their development teams for the

New Year, amongst them Orient-Express Hotels

and Malmaison.

Macpherson has joined from Jumeirah Group,

where he was chief development officer, building

on his experience in Asia and the Middle East

for groups including Hilton. Andy Harrison,

Whitbread’s new CEO, commented that the new

hire would see the group “continue to develop

our strategy building on our recent experience in

the Middle East and India”.

Outside the UK, the group has three hotels in

Dubai, plus two being built in Abu Dhabi, one in

Bangalore and one in Delhi. The Dubai hotels have

recently been held back in terms of occupancy and

rate by the wider issues in the Dubai economy and

Harrison identified India as the biggest potential

opportunity for the group, describing the current

openings as along the lines of “test marketing”.

Now that this test marketing looks to be

moving up a level, the group will be turning to

Macpherson for the best method of expansion,

somewhere Harrison is keen to “limit the capital

that we commit to opportunities like that in a

sensible balanced way”.

Macpherson will not oversee the company’s

other international brand, Costa Coffee, which

has more than 600 stores in 25 countries. It is

unlikely that the group is planning to take Brewers

Fayre or Taybarns to India, making Premier Inn

Macpherson’s sole focus.

When expanding Costa, the group has looked

predominantly to franchising, a route it is unlikely

to follow in India, where it had expanded as part

of a 50:50 joint venture agreement with developer

Emaar-MGF, which it is thought to have bought

out last year, as a result of the slow speed of

growth. At the time, the partners set out to build

80 Premier Inn hotels in India over a decade with

an investment of £300m.

Whatever the short to medium-term plans

overseas, for Harrison, Macpherson’s appointment

will at least be a diversion from squabbles at home.

Back in the UK, Whitbread and Travelodge are

once again at loggerheads in the press, this time

over claims that Premier Inn was only providing

selected data to TRI Hospitality Consulting’s

HotStats service.

This, Travelodge e-commerce director Charlie

Herbert told the Mail on Sunday, meant that it was

getting “a distorted view” of the budget market.

Whitbread has said that the TRI benchmarkers had

full access to their data in accordance with their

agreement. And TRI has made clear that it sees

no problem with the data. Despite this, Travelodge

has withdrawn from HotStats.

HA Perspective: It would be easy to read too

much into the appointment of Macpherson. The

truth is that it will be many months before we

understand whether Harrison is intent on pursuing

growth outside of the UK more energetically.

What the row with Travelodge does suggest,

however, is that the UK market is becoming

increasingly competitive. The period when simply

opening a branded budget hotel was enough to

succeed has gone.

In the near term, there is undoubtedly more

growth to be squeezed out, even if much more

care is needed. Longer term, it looks unlikely

that the UK can deliver the pipeline expansion

Whitbread needs to maintain momentum. Either a

route to overseas growth is found, or Premier Inn

will become a stagnating business.


News

reported to have debts of around £500m, with

the new London site thought to have cost around

£150m and the Amsterdam hotel around £135m,

said it had “appointed advisers regarding its

strategic options to continue the roll out of its

successful chain of new build, custom made hotels

across Europe”.

Orr added: “With the expected completion of

our Amsterdam hotel we believe it is the right time

to take advantage of the significant opportunities

we have to roll out the Mint brand across Europe.”

The group’s expansion focus remains on developing

hotels in prime UK and international city centres

such as Paris and Rome.

Mint is thought to have made operating profits

of around £13m in 2009 on turnover of £46m,

with the group’s City Cafes contributing around a

quarter of turnover.

No names have yet been linked to a bid for the

group. Mint may not be one for those looking to

develop and sell on at a profit, now that it seems

to have stabilised as a business. However, the good

news for journalists is that, because of this, we

can look forward to some time off, having already

written the headline “Mint sells for a Mint”.

HA Perspective: When the financial crisis took

hold, the first moves among stricken banks such

as HBoS were to shut down obvious basket cases.

In the hotel sector, for HBoS, the biggest hotel

lender in the UK, this was Guest Invest and aAim.

The next moves have been to work out the

scale and nature of the problems with its other

investments. Some, such as the Alternative Hotel

Group, would have led to too big a write-off were

they to be brought to market. Refinancing was the

preferred solution.

For others, such as Mint, there is an opportunity

to realise a little cash to shore-up HBoS’s battered

balance sheet and reduce its exposure to property.

The fact it is coming to market first is testament to

its perceived strength rather than weakness.


The comments came after owner Dubai

International Capital restructured the parent

group’s $2.5bn debt. DIC described the refinancing

as “an important milestone” which allowed for

the implementation of the management team’s

long term business plan. It also underlined DIC’s

commitment to the brand, ending sales rumours

sparked by Dubai’s financial struggles.

Under the terms of the restructuring, $2bn of

the debt was extended for six years, with creditors

receiving a 2% cash interest coupon on the

restructured facilities. The remaining $500m was

extended for four years, with interest unchanged.

CEO Guy Parsons has now been tasked with

maintaining the group’s strategy of growing

profitability and cash flow by increasing supply

through the leased financed model, while

also improving efficiencies. Under the revised

expansion plans, the group has extended its target

by five years from 2020, when it was planning

70,000 rooms and 1,000 hotels, to the new plan

for 100,000 rooms.

In DIC’s statement confirming the refinancing, it

said that the portfolio was “sound” and performing

ahead of management’s expectations. The most

recent publicly-available financial figures, for 2009,

reported a 3% increase in revenue, to £297.3m.

However, Ebitda fell by 20% to £45.7m.

Revpar for the UK business was down 9% like-

for-like, pulled down by a 5 percentage point

fall in occupancy – all in provincial towns, with

London flat – and rate down by 3%. Excluding

motorway and roadside locations (which the group

is reducing, down to 20% of the estate by the end

of 2009), revpar fell by 8%. London revpar was

described as “positive”.

Announcing the expansion, Parsons said that

London occupancy was back at 2008 levels, with

rates touching historic highs. Outside the capital,

he acknowledged that some markets had yet to

recover. This recovery would have reassured DIC

that it was correct to hold onto the group last year

when commentators were pointing to a possible

sale to Premier Inn owner Whitbread.

The group’s new expansion plan was built

around a study of towns and cities with a

population above 17,000, marking a determined

move from the group’s motorway and roadside

origins.

This year will see Travelodge plan to build 35

hotels, taking it to 495 hotels and more than

35,800 rooms, with an investment of £300m.

Eight of these will be in London, in line with

Travelodge’s strategy to lead the branded budget

market in the capital, which provoked a spat with

rival Premier Inn last summer.

Travelodge has, said Parsons, been able to

acquire “superior sites” as a result of the recession,

which has lowered market property prices to a

level which made them suitable for hotel use.

Last year the group exchanged on 96 sites, 52

of which were with Mitchells & Butlers. The group

has yet to repeat a similarly-sized group deal, which

would speed it towards its target. With more hotels

due to come onto the market as trading stabilises,

the group will have its eye open for bargains.

However, with much of the anticipated stock likely

to be in the provinces and in need of expenditure,

the brand may find itself building more in the

future, with the challenge of fewer property deals

available as the downturn wanes.

The brand remains second in the branded

budget sector, behind Premier Inn, with the likes of

Accor yet to pose a real threat. With the top two

now determined to compete on price, Travelodge

will find an ever greater focus on keeping its estate

rising and costs falling.

HA Perspective: It is hard to know exactly how

well Travelodge is performing as unlike arch-rival

Premier Inn it does not have to make quarterly

reports to the stock market.

It ought, theoretically, to be in a better position

to pursue long-term value enhancing deals and

strategic initiatives rather than be driven by the

need to keep producing solid quarterly numbers.

Unfortunately, with DIC’s debt problems,

Travelodge is if anything under even more pressure

and will be expected to produce as much cash as

possible as quickly as possible.

The leased estate is not going to help it here. In

the current downturn, the highly leveraged nature

of leases will have significantly dented profits. A

quick look at the impact at Rezidor of its leased

portfolio makes this clear.

And it is hard to see how committing to lots of

smaller, peripheral sites around the UK is going to

make a positive difference to corporate profitability.

Instead, there is a very real risk of the group over

extending itself and its management team.

Other hospitality companies have been here

before, notably Starbucks in 2008 when it was

forced to close hundreds of stores across the

globe, including many in the UK, and Burger King

in France in 1998 when it withdrew completely

from the country.

Travelodge expands on the back of refinancingTravelodge’s announcement that it was extending its growth plans will see it aim for an estate of 1,100 hotels by 2025, following an extensive survey of cities in its core market of the UK.


News

Unlike some such holiday stories, the news was

good for the sector, as ongoing proof that the

luxury market remains attractive to international

buyers looking for a home for their money. Despite

the lack of availability helping to maintain prices

for trophy properties, the buyer of the Grosvenor

House, Sahara India Pariwar, is reported to have

felt that it got a good price with the £470m deal.

The deal, thought to be the largest ever single

asset transaction in Europe, represented a yield of

just over 5%, according to sources close to the

situation. In keeping with the current climate

of limited debt, it was thought to have been an

all-cash deal.

The hotel has been on the market since 2007,

with figures around the £700m level being sought

for it. Two failed auctions later, the sale marks the

end of an era for the hotel industry, with hotel’s

disposal the last in the group of Le Méridien

properties included in RBS’s £1.25bn 2001 sale-

and-leaseback deal, which helped to popularise

the structure in the sector and heralded the era of

the bricks and brains split.

The hotel was re-let to Marriott International

in 2003 when Le Meridien went into receivership

and the company will continue to manage the

site, reportedly jointly with new owner Sahara.

Sahara said that the deal was part of major

expansion plans for the group, which also owns

the Sahara Star hotel in Mumbai and the Aamby

Valley township in western India. It plans to add

restaurants, a business centre, a night club and

other facilities to the Grosvenor House.

The deal came as Rocco Forte and Family Ltd

– a company jointly owned by Rocco Forte

and family and the Bank of Scotland – sold Le

Richemond, in Geneva, to an investment-holding

company represented by Cedar Capital Partners

for around £100m.

The Rocco Forte Collection will continue to

operate the hotel under a management contract

until at least the summer of next year, with a

potential longer-term management relationship

being subject to discussion and agreement

between the parties.

Le Richemond, a 109-room luxury hotel, was

opened in 1875 by the Armleder family and

purchased in 2004 by Rocco Forte and Family (Luxury

Hotels) Ltd. The proceeds from the sale will be used

to repay debt in the joint venture company.

Sir Rocco said: “We said a year ago that we

intended to sell Le Richemond hotel but only to

the right buyer and at the right price. We are

very satisfied with this transaction and it gives

us the opportunity to develop a longer-term

management relationship with a well respected

hotel investment firm.”

The deal was part of ongoing efforts by

the group to cut debt and it looks to drive its

expansion through management contracts. It said

that it expected to announce more additions to its

portfolio this year.

HA Perspective: What seems to be two similar

deals are in fact quite distinct. The Grosvenor is

essentially a property deal with Sahara simply

buying a rental stream thanks to Marriott’s lease

on the property while Cedar’s client has bought

a hotel business with the right to terminate

management.

It is not at all clear how Sahara intends to

implement its plans for the Grosvenor. It is to

be hoped that the comments made to the press

about “joint management” refer to Sahara’s role

as an asset manager of the property. If not, Sahara

and Marriott look set for an unhappy partnership.

InvestorsmaintainluxuryfocusThe tradition of slipping news past unsuspecting hacks busy with the festivities of the season continued at the close of last year with the sale of boththeGrosvenorHouseHotelandLeRichemondHotelinGeneva.

The agreement is also thought to put on hold

Hilton’s ambitions towards the luxury lifestyle

market for two years, at a time when the segment

is attracting plenty of development cash and W,

Starwood’s brand in that space, is expanding.

The dispute escalated in the period between

early 2009 and the settlement at the end of last

year. Starwood initially sued Hilton and executives

Amar Lalvani and Ross Klein, alleging that they

had stolen documents relating to its W brand,

containing “competitively sensitive information”

to create Denizen. Starwood later upped the ante

to allege that the misconduct reached to the top

of the Hilton corporate hierarchy.

Details of the terms under which the lawsuit was

been bought to a close are to remain confidential,

with only the consent by Hilton Worldwide to

an injunction “that includes certain business

restrictions for a period of two years” being made

known. However, leaks and speculation have

been rife.

Key to Hilton’s expansion plans and ability to

compete with W, it is believed that the company

must be supervised by two federally-appointed

monitors to ensure conduct such as the alleged use

of Starwood’s documents does not occur again,

and to ensure that all Starwood documentation is

removed from Hilton. What form this supervision

will take is unclear, although having monitors

involved in the business is likely to add a layer of

delay to the group’s workings.

It is also reported that Hilton agreed to pay

$75m to Starwood, with the company also

said to be entitled to a further $75m in hotel

management contracts although what this means

in reality was not made clear in the Bloomberg

report. There are additional comments in the press

that the agreement forbids Hilton from buying

or franchising any Starwood lifestyle brand hotel

that Starwood operates and prevents Hilton from

hiring any Starwood employee for its luxury and

lifestyle brands group for the duration of the

two-year period.

Denizen would have filled a gap in the Hilton’s

brand stable. At the time of its launch Chris

Nassetta, president and CEO, said that the flag

“rounds out our luxury and lifestyle portfolio”.

Hilton was thought to have around 20 hotels in

development under the brand, with the Trafalgar

in London expected to be the first to open. The

hotel has since been refurbished and opened as

an unbranded Hilton property, very much in the

luxury lifestyle vein.

Nassetta responded to the announcement of

the settlement with Starwood, saying that the

company “regrets the circumstances surrounding

the dispute ... and is pleased to bring an end to

this prolonged litigation.

He added: “Hilton Worldwide is committed

to fair, ethical and robust competition in the u

SettlementdelaysHilton’slifestyleaspirationsThe settlement of the corporate espionagedisputebetweenHiltonWorldwideandStarwoodHotels &Resortshasboughttoanendalmost two years of litigation, which means that the Denizen Hotelsbrandwillmakeitno further than its launch party at IHIFinBerlininMarch2009.


News

marketplace, and we will continue to focus on

what we do best – providing exceptional services

for all of our guests around the world.”

In a statement Frits van Paasschen, president and

CEO of Starwood said: “Given the facts, we had

no choice but to stand up and protect our brands

on behalf of our investors, associates, owners and

customers”, adding that the settlement “restores

a level playing field for fair competition”.

According to reports, a court filing deposited

in the southern district of New York has said that

a federal grand jury would continue looking into

whether Hilton and its former executives should

face criminal charges.

The Wall Street Journal reported that Hilton

has received indication that prosecutors do not

intend to file charges against the company. There

was, however, no word on where this left former

executives Klein (Hilton’s global head of luxury,

now chief brand officer and executive VP of

Harry & David Holdings, the speciality food and

gift retailer) and Lalvani (Hilton’s global head of

luxury and lifestyle brand development, now

founder of One Day Partners, a travel consultancy)

or indeed Steve Goldman (Hilton’s head of global

development, now CEO of Groupe du Louvre).

In a statement, Klein’s lawyer Ronald Nessim

told Hotel Check-In: “Although Mr. Klein

continues to deny the allegations against him

in Starwood’s Complaint, he is pleased that this

litigation has been resolved. Mr. Klein remains

committed to acting ethically and with integrity in

all his endeavors.”

Christopher Morvillo, Lalvani’s lawyer, said:

“Amar is very pleased that this matter has been

amicably resolved and looks forward to focusing

his attention, energy and considerable talents on

more productive and constructive endeavors.”

HA Perspective: After close to two years of

every detail of the conflict between the two

companies appearing in the press, right down to

emails between Klein and Lalvani, in contrast the

complete terms of the settlement are being kept

strictly between the parties involved, indicating

a desire to move on from what has been an

uncharacteristically-unpleasant episode for the

industry.

There can be little doubt that, once the two

years are up, Hilton will look to compete with

W and the close scrutiny that the new brand will

come under should ensure that it will seek to

make it truly unique and extraordinary, something

for the sector to look forward to.

While on the one hand, the settlement means

one less brand for the hotel sector (at least for

now), it also means that somewhere in those

documents must be something that the market

has been crying out for – a precise, legal definition

of a luxury lifestyle hotel.


At the crux of Bannatyne’s complaint are two

reviews which, he says, are dishonest, with one

being posted by a reviewer which he claims did

not visit the hotel. He added that TripAdvisor failed

to remove these reviews.

This is not the first time that TripAdvisor has

angered hoteliers by allowing derogatory reviews

to be posted, it is an ongoing issue for the sector.

The website’s defence remains that it is merely

publishing the opinions of others.

However, in this case, Bannatyne is accusing

TripAdvisor of keeping inaccurate reviews on

the site after he has told them they were based

on a lie.

Daniel Byrne, barrister for hotels and leisure

specialist law firm Thomas Eggar, said: “This

means that the recipient hoster would ordinarily

investigate the complaint it receives and be

required to make a choice about whether to

continue hosting the content. If it’s in receipt of

a legal letter from the complainant this is likely

to comply with the pre-action protocol and

explain the basis for the complaint to allow it to

make its choice.

“As an international hotel review site,

TripAdvisor would be understandably reluctant

to make itself responsible for ensuring comments

are compliant with laws the world over. However,

it should be in TripAdvisor’s interests that the

reviews it hosts are, at least, factually accurate

and consequently helpful.

“To the extent that the review that Mr Bannatyne

complains of is factually inaccurate and damages

his hotel’s reputation in the UK, Mr Bannatyne is

entitled to seek an enforceable court order. It is

likely that TripAdvisor will only receive such court

orders in situations where the inaccuracy is of

such a nature as to cause considerable damage

and where the recipient is able to fund the UK

legal action and USA enforcement. Even if Mr

Bannatyne is successful in this he is unlikely to

change TripAdvisor’s policy.”

TripAdvisor said that a team of “quality

assurance specialists” investigated suspicious

reviews. The group has also stuck to its ‘wisdom of

crowds’ argument, where those reading reviews

will take the majority view of a hotel, rather than

that of individuals commenting outside the norm.

If Bannatyne successfully sues for defamation,

blood will be scented by other hoteliers who have

previously felt hard done by and TripAdvisor could

find itself busy defending itself on many fronts.

Much of the increased policing required on the

site will no doubt be undertaken by the hotel

owners and operators themselves, but verifying

these claims will require untold man hours from

TripAdvisor.

Indeed Kwikchex, which is warming up a

group legal action against the group in the UK,

this past weekend estimated that there were at

least 27,000 legally defamatory comments on the

website, with “several million reviews” that were

out of date by more than 18 months and more

than 100,000 businesses listed on the site that

were closed.

For the reviewers themselves, who drive the site,

the face-off may cause pause. Many of those who

post bad reviews imagine the comeback from the

hotel to, hopefully, be a response that the issue

has been noted and resolved. Who knows, maybe

they’ll get a free night thrown in.

The reviewers in the disagreement between

TripAdvisor and Bannatyne have themselves

come under media scrutiny, isolating them from

the security of the crowd. The faceless nature

of electronic communication means that many

people feel protected in being more vehement

in their opinions than perhaps they would

face-to-face.

The ruckus has come as the UK government

is expected to announce that it is removing its

backing for the star-based reviews system u

Dragon slaying the dragonDuncan Bannatyne, a UK entrepreneur and star of television series Dragons’ Den, is reportedly mulling legal action against TripAdvisor following reviews published about one of his hotels.


News

The properties included the Hotel Cipriani in

Venice, Hotel Caruso in Ravello, Villa San Michele

in Florence and Hotel Splendido and Splendido

Mare in Portofino, which have seen recent

improvements in trading. Revpar rates rose by

8% in the third quarter, with the Caruso and the

Cipriani both up by double-digits.

Martin O’Grady, CFO, said: “This was a key

refinancing for Orient-Express and we were pleased

to assemble a club of commercially-minded banks

who completely understood the high quality and

value of the underlying portfolio.”

Crédit Agricole CIB and Barclays Corporate

acted as joint mandated lead arrangers and

bookrunners. They were joined by Aareal Bank,

BNL BNP Paribas Group and IntesaSanpaolo who

acted as arrangers. Crédit Agricole CIB acted also

as facility agent.

Nicola Meles, head of the Italian real estate

finance team for Crédit Agricole CIB, said: “The

outstanding quality of this portfolio of hotels has

been confirmed by the successful involvement

of leading Italian and International financial

institutions”.

Tim Helliwell, head of hotel finance, Barclays

Corporate, added: “We are very proud to be

working alongside a brand as iconic as Orient-

Express Hotels. This is an excellent example of

two global corporate banks working alongside a

multinational corporate to structure a syndicated

loan in one of their home markets, and it should

provide an excellent platform for management to

achieve their growth ambitions in Italy.”

O’Grady said at the time of the group’s third-

quarter results that the five-year loan carried

a margin of 2.5% over LIBOR, with annual

amortisation of E3.75m. The loan is one of

four that the group has agreed since the end of

September, totalling $379m and replacing existing

loans of $439m.

The CFO said that it had enjoyed “constructive

dialogue” with its lenders over two smaller loans

that mature in 2011 totalling $60m and expected

to refinance these loans by the end of the first

quarter of next year.

The company is focused on getting its debt to

Ebitda ratio down to less than five times, through

Ebitda growth, asset sales and the sale of real estate.

It was at 7.9 times at the end of the third quarter,

down from 8.4 times in the previous quarter.

November saw Orient-Express raise $123.6m

of new equity via a share issue. The group is also

expected to announce the sale of a non-core

asset $12.5m, which it alluded to in its earnings

call but has yet to confirm. The group has also

been linked to rumours that Von Essen Hotels is

in talks with investors over a possible bid for its

European hotels.

HA Perspective: The wind is clearly at the back of

corporates right now, at least compared to where

things were three and a half years ago when all

the action was with private equity buyers.

For Orient Express this is something of a double-

edged sword. The better financing conditions it

enjoys as a corporate are also enjoyed by its rivals.

The group remains small enough to be devoured

by a bigger rival, although its share structure

should be enough to see off all but the most

determined of suitors.

Orient-ExpressbolsterspositionwithrefinancingOrient-ExpressHotelshasseenfourhotelsinitsItalianportfoliorefinanced by a club of European banks for E150m as part of its ongoing efforts to strengthen its financial position.

when it publishes its tourism strategy document

next month. The Department for Culture, Media

and Sport will instead back a collective rankings

system along the lines of TripAdvisor’s, which it sees

as more reliable. Tourism minister John Penrose

told Radio 4’s PM programme that the industry

was welcome to continue with a star rating system

“off its own bat” but that it would be without the

government’s support, which after all, he said, had

no such system for “cars or cornflakes”.

The star-rating system has been criticised

because it takes into account breadth of service,

rather than standard. What it does have, however,

are fully accountable reviewers. TripAdvisor’s

gathering of opinions has volume on its side, but

reviewers whose motivation is not known.

HA Perspective: The controversy with TripAdvisor

is, at least in the short-term, likely to provide yet

more publicity for the Expedia-owned brand that

will strengthen its hold on consumers.

And for these reasons it seems unwise of hoteliers

to react in a similar fashion to Bannatyne. Rather

than legal action or, even worse, campaigning

against the site, a cooler and calmer response is

surely better.

Most larger operators already have procedures

in place for dealing with social media. The

latest controversy only increases the need for a

systematic approach.

The bigger picture question is how much of a

role will social media play in swaying guest buying

decisions? And here there is a real danger of

overhyping its impact, particularly in relation to

providing an opportunity for smaller operators to

compete with the largest.

Hotel brands are becoming increasingly key and

the smartest brand owners will use social media

as a tool to reinforce their brands’ position in the

market, much as they are using other internet-

related services such as search engines.

TripAdvisor is a powerful platform for Expedia

but the big hotel brand owners will remain

in control provided they invest adequately in

understanding and using new technology. Some

are good and some are not so good at this. It

is another differentiator for hotel owners and

investors to consider.



Analysis

Q: When your hotel’s marketing team is creating

a savvy new advertising campaign, what could be

more inspiring than a topical event, such as the

Olympics or the World Cup?

A: Whilst it might seem like a good idea to show

the hotel’s support for the national team, if it is

not an official sponsor of the event you run the

risk of infringing “ambush marketing” laws.

What is “ambush marketing”?Ambush marketing occurs when an advertiser

uses unauthorised marketing activities to associate

itself with a particular event, thereby capitalising

on the reputation and popularity of the event. In

most cases, such marketing will be at the expense

of another company, which has paid licence or

sponsorship fees for the privilege of being officially

partnered with the event.

WhatabouttheLondon2012Olympics?The Olympic Games always present a unique

marketing opportunity, not least for the hotels

and leisure facilities located near the Olympic

sites. However, much of the cost of the Olympic

events is recovered through lucrative licensing

arrangements with sponsors, who naturally expect

an exclusive arrangement in return. As a result,

the Games have become one of the most forcibly

protected events in the world.

The London 2012 Olympic and Paralympic Games

are no different: London was required to enter

into a “Host City Contract”, the obligations under

which include protecting the rights of the official

sponsors. There are two pieces of legislation to be

aware of, which are enforced by the London 2012

Organising Committee (LOCOG):

Avoiding the ambushRuth Hoy and Rebecca Kay from DLA Piper consider the pitfalls of ‘getting behind the team’

• The Olympic Symbol (Protection) Act 1995

prohibits unauthorised use of a “controlled

representation” (e.g. the word Olympics, and

the Olympic rings) in the course of trade.

• The London Olympic Games and Paralympic

Games Act 2006 further prohibits any

unauthorised representation used in the course

of trade and in relation to goods/services, which

is likely to suggest an association between the

business and the London Olympics. The concept

of “association” includes any kind of contractual

or commercial relationship or sponsorship. There

are also certain “Listed Expressions” which a

court may take into account when determining

whether the legislation has been infringed.

These are the use of any two words from List

A (Games, Two Thousand and Twelve, 2012,

Twenty Twelve), or any word in List A with one

or more words from List B (Gold, Silver, Bronze,

London, Medals, Sponsor, Summer). However,

advertisements may still infringe even if none

of these expressions are used, if the images,

sounds and/or words suggest a contractual or

commercial relationship with the Games.

There are certain defences under the Olympics

legislation, such as:

• Use of your own name/address – e.g. if you

have been called the Olympic Hotel since

before the new rights, you may continue to

use the name.

• Honest statements of fact – e.g. a statement

that your hotel has an ‘Olympic-sized swimming

pool’ (provided it is not made gratuitously for

marketing purposes).

WhathappensifIambushmarket?There have traditionally been four main causes of

action to be aware of when launching unauthorised

events-led marketing campaigns in the UK (which

may be used individually or in combination):

• Trade mark infringement claim – If your

campaign uses a registered trade mark such

as the name of the event, the organisers may

bring an action against you for trade mark

infringement.

• Copyright infringement proceedings – If you

use an event image such as a logo, then (provided

the image attracts copyright protection), you

risk being sued by the organisers for copyright

infringement.

• Passing off action – If your campaign suggests

(directly or indirectly) that you are connected

with an event that has a reputation, and the

organisers can prove that they have suffered (or

are likely to suffer) damage as a result, the tort

of passing off may be invoked.

If a successful action were brought against you

under any of the above three heads, you are

likely to be ordered to cease the marketing

campaign and pay damages to the event

organisers.

• Complaint to the Advertising Standards

Authority (ASA) – The ASA would adjudicate

the complaint to determine whether your

advertisements breach one of the ASA regulatory

codes by, for example, being dishonest,

misleading or untrue. The ASA can order you

to withdraw or change the campaign, and

even has the power to refer you to the Office

of Fair Trading.

Penalties for breach of the specific Olympics

legislation may include a fine of up to £20,000, an

injunction, damages or an account of profits. In

addition, new regulations provide for the erasure

of offending trade marks on infringing goods,

forfeiture and destruction of infringing articles. It

is worth noting that so far, LOCOG has taken an

extremely vigilant approach to its role.

SowhatCANIdo?Although it can be tempting to create event-led

marketing campaigns, either in order to show

support for a national team, or simply because

it makes commercial sense to use the event as

a profile-raising platform, you should proceed

with caution.

• Read the guidelines – LOCOG has issued

guidance materials which give background

and tips on the Olympics legislation; see http://

www.london2012.com/documents/brand-

guidelines/guidelines-for-business-use.pdf.

Similar guidance is produced for other events.

• Be honest – Avoid making statements which

could mislead or confuse consumers into thinking

you are officially partnered with the event.

• Be creative – Think of creative ways to

market your hotel, which do not fall foul of

the legislation. For example, Kulula airlines’

tongue-in-cheek advertisement, timed to

coincide with the opening of the 2010 South

African World Cup, offered affordable flights

during “the thing that is happening right now”.

Whilst the advertisement would not necessarily

hold water under the UK Olympics legislation,

it does serve as an example of creative,

humorous marketing.

• If in doubt – take legal advice! – Make sure

your marketing team is aware of the various

rules, and if you are not sure about a particular

campaign, or need some in-house training,

consult your lawyers!

Ruth Hoy, partner, and Rebecca Kay, solicitor,

are intellectual property lawyers at DLA Piper


ChinaintheirhandsKeithBarr,IHG’sRegionalMDinChina,talkstoKatherineDoggrellabout the group’s aspirations in the country.

Ancient Chinese philosophy is all about balance.

The yin yang symbol, doodled by students since the

60s, illustrates this and, although capitalism has

made its mark on the country, there is still balance

evident in China. This has recently been seen in

the massive volume of money pouring out of the

country towards the West’s credit cards which has,

it seems, been more than matched by the massive

volume of interest in rapid colonisation by the

hotel brands pouring in.

InterContinental Hotels Group is one such group

looking to China to shift the balance of its business,

moving the focus away from its dominant market

of the US and towards China, India and the Middle

East, concentrating on the former.

Talking to analysts and investors at the end

of last year, the company said that of the three

highlighted regions, China was providing a

blueprint for its emerging market growth and

which it expected to overtake the US in 2025 and

become twice the current US size by 2039, with

CEO Andy Cosslett describing the opportunity for

growth as “almost unprecedented”.

The group’s growth forecasts for China see

almost an eightfold increase in its rooms in Greater

China, taking it to 360,000 rooms in the next 20

years. IHG estimated that the country’s total hotel

estate today was 2.3 million rooms, less than

50% of US today, currently mostly mid-scale and

economy. The segmentation is expected to shift,

with luxury, upper upscale and upscale to grow,

midscale to continue and economy to fall off.

The presentation was more an overview of

its long-term hopes than specific targets for

anything past five years. The growth is reliant on

forecasts of increased travel and a shift away from

today’s domestic, business-sector focus to add

leisure travel by both domestic and international

consumers. Keith Barr, COO for Greater China,

said that such were levels of enthusiasm that, in

any year he had the luxury of turning down 100

to 150 projects, because they weren’t the right

partners, locations or fit.

Of the existing market, 20% is currently branded

(against 70% in the US), with IHG expecting this

to grow to 50% by 2030. IHG is currently in a

strong position in the country as the biggest

operator in China today, with a 10% share of all

branded rooms, with STR putting it at 14% and a

32% share of the pipeline.

Driving this enthusiasm are comments such as

those from Taleb Rifai, the head of the UNWTO,

who said at the start of this year that he expected

to see China become the leading country both

in terms of receiving tourists and also of sending

tourists abroad within “five to seven years”.

China has seen rising foreign direct investment,

greater urbanisation, a growing middle class and

the lack of brand penetration and, to the envy of

many in more developed markets, a supportive

government. Tourism, Barr said, has been

identified “as a key driver of economic growth”

which is good news for developers. Efforts by the

government to head off concerns over a property

bubble, which have seen loans restricted to 30%

to 35%, have so far been avoided as most investors

have been cash-rich.

Barr added: “In terms of government policy

for supply growth you’re not competing with a

domestic SOE, you’re aiding employment and

aiding economic growth. In terms of government

support, they have mapped out in economic

development zones where hotels will be – they are

in most of the plans.

IHG has so far expanded almost exclusively

through management contracts, limiting its

capital exposure and allowing it to maintain brand

standards. Profits would expect to move upwards

once the group is comfortable enough that it

can maintain quality to introduce franchising,

however, Barr said that, although the group had

been approached by existing owners to franchise

Holiday Inn Express, it was unwilling to do so

currently, describing ownership in the country as

still “in its infancy”.

IHG’s management contracts in China have as

their base fee 2% of gross revenues, with incentive

fees at 6% to 8% of gross operating profit. Typical

length of contract was 10 to 15 years, with an

average of 14 years. Barr said that he was not

expecting fees to fall as a result of competition,

adding: “In terms of pressure on future profits,

we’ve renewed eight contracts since I’ve been in

China and we’ve either retained or raised fees so I

have no concerns about management fees.”

Analysts at Morgan Stanley estimate that China

could generate 25% of IHG’s EBIT within three to

five years. Currently, the country generates 14%.

The forecast does not look unreasonable given

that existing pipeline should take it to this point.

One of the key issues for the group will be

margins, which IHG said it was anticipating seeing

move towards those more typically seen through

management contracts, with the evolution seeing

a move up to the mid 50% levels by 2015 and

60% plus by 2020, from 23% in 2007 and an

estimated 34% for 2010. Although the group said

that profits have doubled in China since 2004, low

revpar has kept margins down.

Barr told Hotel Analyst: “If you get the basic

infrastructure in place it’s the same for then 50,

100, 150, hotels, you don’t have to change it very

much, which allows us to drive more margins.

Analysis

Keith Barr: “While the absolute revpar may be lower on a global basis, the total revenue contribution from our customers are very high.”


“In China, everyone wants to say ‘well it’s revpar’

but it’s actually about total revenue and total

profit contribution. The managed model versus

franchised. The f&b is a critical component in Asia

and China, it’s 30% to 50% of our revenues. So

you have to look at the total revenue contribution

of the customer. So, you may see a low rate, but a

huge amount of banqueting.

“While the absolute revpar may be lower on a

global basis, the total revenue contribution from

our customers are very high.”

Leslie McGibbon, the group’s senior VP of

global corporate affairs, added: “The rates in the

main cities in China are within 10% of the rates

in the US. In the major cities there isn’t a disparity,

but there is in the secondary and tertiary cities.

Much as there is elsewhere – a room in Leeds is

more expensive than a room in London. It’s just

magnified more because there are so many more

cities in China. It’s the same as any major countries

where you’ve got major cities driving the top line

rate and as you get into the regions they come

down a bit. But they are surprisingly close to the

major cities.”

So far, expansion into the country has been

limited for IHG, which has had no capital

expenditure requirement and no guarantee

exposure – although it said that it was planning to

make an initial incremental investment of $6m this

year. This will change as its plans grow. Cosslett

has acknowledged this, commenting: “We’re

going to be moving costs forward, as you would

expect with growth like this, but there will be

efficiency to compensate.”

In order to take advantage of the growth potential

at the upscale end of the market, the company

said it was looking to add another brand, either

by acquiring one or developing one themselves.

Cosslett pointed to Shanghai, where he said the

group was close to saturation in the market, with

six hotels under the Intercontinental flag. “But we

know that the market can take more and have

owners that are asking for more,” he said.

The group said it had started the process of

looking at new brands and had commitments

to expand new and existing brands from its

current partners.

Cosslett remains uninterested in the other end

of the sector, adding: “We are less interested in

competing in the economy end of the market.

Here, the branding model doesn’t generate

the kind of added value we’re looking for, as

stay decisions are usually made based on price

and because of the typically small unit size, the

economics of this sector only really work if you

own or lease the hotels.”

Looking at the scope for success, Barr said:

“We believe that the risks to IHG are low, given

the government’s track record of growth, the

increasing importance of tourism and the role of

hotels in the development of cities. These combine

with the fact that we are not deploying capital to

mitigate our business risk.

“I don’t think an industry had ever seen this

much supply growth and this much demand

growth. The unspoken story is demand growth

in China, which is going to be the future of the

industry over there. There will be imbalances every

now and then but overall we’re confident.”

The chances of the group’s plans for China being

hit by restrictions in development funding looked

limited, at least in the short term. The company

has seen the ownership profile in the region

mature since its debut 26 years ago, with the

initial phase of overseas investors partnering with

State-Owned Enterprises being replaced to see the

market currently dominated by major SOEs and real

estate developers. Barr added: “We expect to see

dedicated investment funds being created and Reits

formed if government policy allows.”

There are a lot of ‘ifs’ and ‘whens’ in the group’s

hopes for the future and it is hoping that the

knowledge it has picked up expanding its brands and

most recently conducting the worldwide relaunch

of Holiday Inn will allow it to meet its expectations.

In this Cosslett seems to be betting on a sure thing.

Even shocks such as terrorist attacks have failed to

have anything but a short-term impact on travel,

with the truth looking to be that, once people have

tasted travel, they never look back.

Analysis

InterContinental Nanjing – IHG is planning to launch an additional brand into China


Analysis

IntroductionAs the dust settles on our annual update of the

Otus Hotel Brand Database (“OHBD”), we extract

ourselves from the hotel-by hotel detail, begin the

top-down analysis of the numbers that emerge

and search for patterns in the changes that we

see in hotel supply whether in terms of country

markets, city markets, brands or companies.

2010 saw some significant developments:

the emergence of a new “major” conurbation;

relatively strong supply growth from the global

majors as a group for the first time in five years;

and above all a slowing in net chain supply growth

as befits a continent struggling with economic

woes. But the overwhelming impression – and this

too makes sense in the economic context – is of

chaos: there is no single trend that can be identified

as driving the European hotel market, nor even

necessarily any subset of that market. And this in

turn makes forecasting difficult: where trends are

clear, little insight is required to predict the future,

but in times such as these the crystal ball is cloudy

and one can offer only conditional prognoses.

“If governmental action is successful…”; “In the

event of a double-dip recession…”; “If we have

learnt anything from the past four years…”;

“If the banks see sense…”; “If pigs fly…”;

and so on.

EuropeanHotelChains:Supplygrowthin chaos

The headline numbersAt the end of 2010, OHBD recorded 15,276 chain

hotels in Europe, with a total of 1.9 million rooms,

a net increase of 235 hotels and 43 thousand

rooms over end-2009. Rooms growth, at 2.3%,

was the lowest annual rate that we have recorded

for the decade and less than half the compound

annual growth rate for the decade as a whole.

Net growth of course comprises new-build

hotels and those acquired by the chains on the

one hand, with hotels closing or leaving the chains

on the other.

About 650 hotels were added to the chain

market in 2010, a number that has declined

steadily since 2007 when it was about 900. The

composition of these additions is shown in Chart 1.

The number of unaffiliated hotels joining chains

has remained roughly equal for four years; the

number of new-builds has declined steadily from

381 in 2007 to 308 in 2010. The most dramatic

decline has been in the number of hotels coming

into the market through the emergence of new

chains, down from 203 in 2007 to 130 in 2009

and only 47 in 2010. That last statistic has to be

treated with some caution, as the existence of

new chains is not always immediately apparent,

but the trend is clear – and hardly surprising, given

the economic conditions of the past three years.

On the other side of the scales, the number of

hotels leaving the chain market each year has been

more stable: in 2010, 94 hotels closed and 331

became unaffiliated, almost exactly in line with

the four-year average. With less than one per cent

of chain hotels going out of business each year,

this suggests that despite the difficulties that many

lessees or owners have encountered, operators

have been keen to stay open and banks disinclined

to pull the plug in all but the most desperate cases.

Arguably this is acting against market efficiency:

one might have expected far greater numbers of

failing hotels to close, instead of which we have

seen supply increasing – particularly when we

look only at the new-builds against the closures

– despite the collapse of demand across much of

the continent.

The overall trend reinforces the observation that

we made often that hotel chain supply growth

does not follow the same cyclical pattern as

hotel demand. First, the impact of the continuing

strength in chain supply growth during a recession

when demand weakens is that the decline in

RevPAR and hotel performance is exacerbated. It

also means that as economies begin to recover,

a much higher level of demand is needed to

deliver the same pre-recession room occupancy.

In parallel, during recessions sources of capital for

hotels is scarce so that in the post-recessionary

period, when hotel demand begins to recover

there is a decline in the rate of growth in hotel

chain supply, which is required to re-establish the

supply demand equilibrium.

CountrymarketsNet chain supply growth in 2010 was not of course

uniform across the countries of Europe. The largest

market, Spain, was flat – a net change of 61 rooms

in a total of nearly 400,000. There was however a

huge difference between the costas and the cities:

chain supply in the costas declined by about 2,500

rooms, or one per cent, while that in interior Spain

grew by a similar number of rooms at a rate of

two per cent, continuing the recent trend. The

bulk of demand in the Spanish costas is from

foreign holidaymakers, mostly from Germany, the

United Kingdom and the Nordic region where the

recession and fiscal constraint have limited foreign

holiday demand growth. Moreover, there has been

a move away from hotel-based holidays in favour

of timeshare, self-catering and cruising – and

this is being reflected in the supply pattern. The

worry in Spain is whether the continuing supply

growth in the cities will hamper the continuation

of recovery in occupancy and rate, given the

Paul Slattery and Ian Gamse from Otus & Co examine the changes in hotel supply over the past year

Chart 1: hotels added to European hotel chains 2007-10

(Otus Analytics)

0

200

400

600

800

1000

Newly-affiliated New-build New chain

2007 2008 2009 2010


Analysis

country’s economic weakness and the interior

hotel market’s dependence on domestic demand.

Net growth in Europe’s four largest markets is

shown in Table 2: Germany was well ahead, and

the United Kingdom slightly ahead, of the market,

while France lagged.

Germany–and,inparticular,BerlinThe German chain market is located mainly in

cities, which account for more than seventy per

cent of the total room stock. Net growth in 2010

was entirely in cities, and within the cities entirely

in urban and airport locations. Chief among the

cities is of course Berlin, which this year crossed

the threshold of 30,000 chain rooms and now

qualifies as a “major” conurbation, along with

London and Paris. (Just to put that number in

context, most European countries have less than

thirty thousand chain rooms.)

The chain hotel market in Berlin has more than

doubled in ten years, growing at a compound rate

of more than eight per cent, far faster than Munich

or Frankfurt which are Germany’s next biggest

markets. However, when we look more closely

at the composition of this growth, a modicum of

rationality can be detected.

The new-build chain hotels that opened in

Berlin in 2010 were all at mid-market level or

below. Two were budget hotels: an easyHotel and

an Etap; one was the economy level All Seasons

Berlin Mitte; and there were five new mid-market

hotels, one of them the limited feature Motel One

Berlin Spittelmarkt. That last one is particularly

interesting: there are now six Motel One hotels in

Berlin with a total of 1,600 rooms, five per cent of

the market. The pattern of hotel supply in Berlin is

changing, slowly.

Table 3 shows the shape of Berlin’s chain hotel

market in 2005. Up-market, full feature hotels

formed by far the largest single market segment,

the mid-market hotels were generally feature-rich

and the economy hotels formed only eight per cent

of the room stock. Table 4 shows how the picture

had changed in just five years, as the market grew

from 21,000 to 31,000 rooms. Although up-

market, full feature hotels still formed the largest

single segment, their share had dropped from 35

per cent to 28 per cent; the balance in the mid-

market had shifted towards the limited feature end

of the spectrum; and the economy segment had

grown to be eleven per cent of the market, nearly

doubling in absolute size over the five years.

Supply in Berlin is responding, at least in

part, to the changing pattern of demand. The

increasing provision of rooms at lower market

level and feature set – in other words, at lower

build cost and lower operating cost – shows that

at least some of Berlin’s owners and operators

are doing their sums. The threat that they pose

to the established up- and mid-market, feature-

rich hotels is clear. It also signals a shift in hotel

demand from packaged conference and packaged

leisure demand to transient demand. Perhaps

this is evidence of a trend in Germany towards a

more diverse economy matched by a more diverse

hotel business.

And, finally…No review of the year would be complete without

a look at how the global majors performed. And

for once, the answer is “relatively well”. The global

majors as a group outperformed the market in

2010 for the first time in five years, growing at

a rate of 3.6 per cent – and that is before taking

account of Marriott’s agreement with AC Hotels

or Wyndham’s acquisition of Tryp, neither of

which had been fully implemented by the end of

2010. Within that net growth, there were 19,000

rooms in 125 new-build hotels; 5,300 rooms in

53 newly-affiliated hotels; and 7,300 rooms in 60

hotels that had previously been branded by non-

global chains.

Given that the global majors form roughly

one-third of the European chain market, they

took a disproportionately large share of the

new-build rooms – around 45 per cent – and

a disproportionately small share of the newly

affiliated hotels – around twenty per cent. They

also took only around twenty per cent of the

rooms that switched brands. Is it possible that

a global flag is still helpful when raising finance

for a development – yet when owners of existing

hotels review performance they are less likely to be

convinced by the claims of the majors?

Paul Slattery, Otus & Co Advisory Ltd

[email protected]

Ian Gamse, Otus & Co Advisory Ltd

[email protected]

Table 2: net rooms growth, 2009-10

Chain rooms 2009 2010 Growth % change

Spain 392,366 392,427 61 0.0%

United Kingdom 308,742 316,894 8,152 2.6%

France 274,184 278,863 4,679 1.7%

Germany 217,002 223,944 6,942 3.2%

Source: Otus Analytics

Table 3: Market level and hotel configuration, Berlin 2005 chain hotels

Luxury Up-market Mid-market Economy Budget Total

Extended feature – 1% – – – 1%

Full feature 5% 35% 22% 0% – 62%

Basic feature – 2% 18% 0% – 20%

Limited feature – – 8% 7% – 15%

Rooms only – – 1% 0% 2% 2%

Total 5% 38% 47% 8% 2%


Table 4: Market level and hotel configuration, Berlin 2010 chain hotels

Berlin 2010 Luxury Up-market Mid-market Economy Budget Total

Extended feature – – 1% – – 1%

Full feature 5% 28% 21% – – 53%

Basic feature – 2% 17% 3% – 21%

Limited feature – 0% 13% 7% – 21%

Rooms only – – 1% 1% 2% 4%

Total 5% 30% 53% 11% 2%



Analysis

CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Portfolio of 49 Accor Hotels France, Belgium & Germany

Various Unknown Sale & Leaseback

December 378,400,000 378,400,000 Unknown Accor Predica and Foncière des Murs

Includes €47.6million refurb programme, of which buyer will fund €33million.

Bedford Lodge Newmarket UK Upmarket 55 Freehold December Undisclosed Undisclosed Undisclosed Private consortium of investors Review Hotels Ltd Planning consent to add 21 bedrooms and spa treatment rooms

Courtyard by Marriott Saint-Denis, Paris France Mid-market 150 Unknown December Undisclosed Undisclosed Undisclosed Affliliate of Marriott Algonquin and Very SAS Opened mid-2009. Marriott will continue to manage.Grosvenor House Hotel London UK Luxury 494 Leased to

MarriottDecember 470,000,000 545,000,000 1,103,000 RBS Sahara India Pariwar

Crillon Hotel Paris France Luxury 147 Freehold December 250,000,000 250,000,000 1,701,000 Starwood Capital Member of the Saudi Royal Family

Planned refurbishment at €100million

Le Richemond Hotel Geneva Switzerland Luxury 109 Unknown December Undisclosed Undisclosed Undisclosed Rocco Forte and Family Ltd Private investment company Rocco Forte will continue to manage the hotel.The Howard and Channings Hotels

Edinburgh UK Upper Upscale/Upscale

18 + 41 Freehold January 2011 Undisclosed Undisclosed Undisclosed Town House Company Palm Holdings Sold off asking prices of £5.5million and £3.5million respectively.

Forestdale Hotels (18 hotels in total)

Various UK Mid-market 1,190 Freehold January 2011 Undisclosed Undisclosed Undisclosed Forestdale Hotels Akkeron Hotels

Portfolio of 4 Hilton Hotels Various UK Upscale 921 Freehold January 2011 Undisclosed Undisclosed Undisclosed RBS Marcus Cooper Property Group

Portfolio comprises Hilton Warwick/Stratford-on-Avon, Hilton Brighton Metropole in East Sussex, Hilton St Anne’s Manor in Bracknell and Hilton Manchester Airport. Sale price reported as around £100 million

Hilton Hotel Valencia Spain Upper Upscale 304 Unknown January 2011 Undisclosed Undisclosed Undisclosed Adminstrators Continental Property Investment

Has been reflagged as a Sol Melia Hotel. Built in 2007 at a reported cost of €110 million.

Mercure Paris Porte de Versailles Paris France Mid-market 388 Leased to Accor

January 2011 41,500,000 41,500,000 107,000 Foncière des Murs Foncière LFPI Hotel is subject to a lease to Accor with a variable rent.

Novotel Hanover Germany Mid-market 206 Leased to Accor

January 2011 Undisclosed Undisclosed Undisclosed Ebertz and Partner Invesco Real Estate

Steigenberger Hotel Berlin Brandenburg Airport

Germany Upscale 322 Leased to Steigenberger

January 2011 59,500,000 59,500,000 185,000 ECE Projektmanagement Acron Hotel is under development, due to open in June 2012

Two IHG branded hotels Stratford London Mid-market 188 + 162 Long Leasehold

January 2011 50,000,000 58,000,000 166,000 Westfield Stratford City Cycas Hotel Partners and Patron Capital

Turnkey deal, hotels opening in 2012 as Holiday Inn London-Stratford City and the Staybridge Suites London-Stratford City.

Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Courtyard by Marriott Hotel Gatwick Airport UK Mid-market 218 Unknown 27,000,000 31,300,000 144,000 Kew Green Hotels Opened in April 2009Louvre Hotels Various Various Various Unknown Unknown Undisclosed Undisclosed Undisclosed Starwood Capital Reported that either an outright sale or a stock market listing

is being considered.Mint Hotels Various UK Upmarket Unknown Unknown 550,000,000 638,000,000 Undisclosed Mint Hotels (formerly City Inn)

Raising a glass to UK hotelsQ1 of 2011 seems a good point in this economic cycle to take a peep over the parapet and to assess the health of the UK hotel property market.Isthebottlehalffull or half empty?

A clue to the overall trend is contained in the

study of some 600 hotel and hospitality sales

completed by Colliers International over the last

four years.

If your glass is half full, you will seize upon

evidence of the 40% increase in activity during

2010 compared with the previous year. It is true of

course that the bar was set at a very low level in

2009, which is an argument for those whose glass

is half empty.

Behind those statistics, some commentators still

paint a picture of a stagnant or fragile market.

Yet a recent poll of hundreds of active buyers

registered with Colliers International reveals a

growing frustration at the very limited supply

of new hotel property for sale. Many of those

questioned have cash to invest, but cannot find

Colliers’ Chris Moore and Karen Callahan look at reasons to be cheerful in 2011


Analysis

CompleteddealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Portfolio of 49 Accor Hotels France, Belgium & Germany

Various Unknown Sale & Leaseback

December 378,400,000 378,400,000 Unknown Accor Predica and Foncière des Murs

Includes €47.6million refurb programme, of which buyer will fund €33million.

Bedford Lodge Newmarket UK Upmarket 55 Freehold December Undisclosed Undisclosed Undisclosed Private consortium of investors Review Hotels Ltd Planning consent to add 21 bedrooms and spa treatment rooms

Courtyard by Marriott Saint-Denis, Paris France Mid-market 150 Unknown December Undisclosed Undisclosed Undisclosed Affliliate of Marriott Algonquin and Very SAS Opened mid-2009. Marriott will continue to manage.Grosvenor House Hotel London UK Luxury 494 Leased to

MarriottDecember 470,000,000 545,000,000 1,103,000 RBS Sahara India Pariwar

Crillon Hotel Paris France Luxury 147 Freehold December 250,000,000 250,000,000 1,701,000 Starwood Capital Member of the Saudi Royal Family

Planned refurbishment at €100million

Le Richemond Hotel Geneva Switzerland Luxury 109 Unknown December Undisclosed Undisclosed Undisclosed Rocco Forte and Family Ltd Private investment company Rocco Forte will continue to manage the hotel.The Howard and Channings Hotels

Edinburgh UK Upper Upscale/Upscale

18 + 41 Freehold January 2011 Undisclosed Undisclosed Undisclosed Town House Company Palm Holdings Sold off asking prices of £5.5million and £3.5million respectively.

Forestdale Hotels (18 hotels in total)

Various UK Mid-market 1,190 Freehold January 2011 Undisclosed Undisclosed Undisclosed Forestdale Hotels Akkeron Hotels

Portfolio of 4 Hilton Hotels Various UK Upscale 921 Freehold January 2011 Undisclosed Undisclosed Undisclosed RBS Marcus Cooper Property Group

Portfolio comprises Hilton Warwick/Stratford-on-Avon, Hilton Brighton Metropole in East Sussex, Hilton St Anne’s Manor in Bracknell and Hilton Manchester Airport. Sale price reported as around £100 million

Hilton Hotel Valencia Spain Upper Upscale 304 Unknown January 2011 Undisclosed Undisclosed Undisclosed Adminstrators Continental Property Investment

Has been reflagged as a Sol Melia Hotel. Built in 2007 at a reported cost of €110 million.

Mercure Paris Porte de Versailles Paris France Mid-market 388 Leased to Accor

January 2011 41,500,000 41,500,000 107,000 Foncière des Murs Foncière LFPI Hotel is subject to a lease to Accor with a variable rent.

Novotel Hanover Germany Mid-market 206 Leased to Accor

January 2011 Undisclosed Undisclosed Undisclosed Ebertz and Partner Invesco Real Estate

Steigenberger Hotel Berlin Brandenburg Airport

Germany Upscale 322 Leased to Steigenberger

January 2011 59,500,000 59,500,000 185,000 ECE Projektmanagement Acron Hotel is under development, due to open in June 2012

Two IHG branded hotels Stratford London Mid-market 188 + 162 Long Leasehold

January 2011 50,000,000 58,000,000 166,000 Westfield Stratford City Cycas Hotel Partners and Patron Capital

Turnkey deal, hotels opening in 2012 as Holiday Inn London-Stratford City and the Staybridge Suites London-Stratford City.

Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments

Courtyard by Marriott Hotel Gatwick Airport UK Mid-market 218 Unknown 27,000,000 31,300,000 144,000 Kew Green Hotels Opened in April 2009Louvre Hotels Various Various Various Unknown Unknown Undisclosed Undisclosed Undisclosed Starwood Capital Reported that either an outright sale or a stock market listing

is being considered.Mint Hotels Various UK Upmarket Unknown Unknown 550,000,000 638,000,000 Undisclosed Mint Hotels (formerly City Inn)

what they are looking for.

That shortage of supply was evident in the

recent sale of the Bedford Lodge Hotel at

Newmarket from a £12.5m guide price. Only 30

carefully selected buyers were approached yet the

hotel sold within the required timetable following

very competitive negotiations.

If your glass is half empty, you might assume

that most deals completed last year were sales

forced by receivers or administrators. Not true –

only a quarter of the sales completed last year by

Colliers were under instructions from an LPA or

Administrative Receiver.

That is a statistic which shows that a willing

seller and willing buyer are not necessarily extinct,

and one which also underlines the comparatively

small volume of hotel businesses that have so

far been sold under forced conditions. That said,

some buyers expect an increase in the number of

distressed hotel assets coming to market in the

next few months.

At the recent Henry Stewart Conference in

London, Colliers presented their view that the

very term ‘distressed’ may well mislead buyers

into under -estimating the likely demand for and

value of such properties, causing them to lose

out as a result.

As an example, the recent Colliers sale of the

20 bedroom Bosco Hotel at Surbiton, for an

administrative receiver was completed in just four

months, with plenty of interest and four offers

above the guide price. Another indication of

demand for hotels exceeding supply – and several

glasses being at least half full!

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 = €1.1600.

Chris Moore is head of hotels at Colliers

International Hotels

[email protected]

Karen Callahan is a director of Colliers

International Hotels

[email protected]


Analysis

During this economic upturn, recruitment of top talent

has become more precise, a carefully-considered

process within new budgetary constraints.

While trading has not taken off as rapidly as was

expected in 2011, it is definitely on the upswing

and superior, talented candidates are all the more

critical to our clients. You may believe that due

to the redundancies of 2009 that the candidate

market would be flooded but, it is the opposite.

Candidates are becoming more discerning of what

they will accept to change employers since security

and stability is the most sought after commodity.

Coming in many shapes and sizes, hotel

companies range from the international chain

groups to the management “owner/operator”

companies to the independently-owned hotels

with distribution affiliations. What our industry

and all companies share is the need to attract the

top quality candidates and engage them to stay

and contribute long term to your success.

In our experience, there are seven categories in

which all employers compete in order to attract

and retain great talent:

1. Fair Compensation

2. Organisational Stability

3. Career Progression Opportunities

4. Skill Set Learning & Development

5. Respect

6. Quality of the Manager and that relationship

7. Colleagues and the Workplace Environment

While compensation package attractiveness

and organisational stability will attract a candidate

to exploring a role with your group, it is the quality

of the relationship with the manager as well as

the “ambiance” of work with colleagues that will

be the key drivers in the retention of that new

employee, as well as their engagement in the

company’s direction.

One of the much repeated questions from

candidates is “what are my career prospects

within this group and will the company commit to

developing my skills?”

If your group’s reputation is one to preach and

deliver on fast tracking of up-and-coming executives

and promote from within, this will attract new

talent and also retain your key players.

If you can demonstrate during the interview

process the types of learning and development

programmes that will be part of the prospective

candidate’s induction and forward development,

this will be a powerful tool in attracting the most

serious candidates who a likely to have their own

five year plan. The higher the quality of your

ongoing development programmes, the more

attractive your group becomes. These employees

become your best referral engine to attract other

new, talented candidates as they are engaged in

the belief that this group is an employer of choice.

Respect during the recruitment process and after

employment begins is a tricky thing to get right.

While most companies will believe that they

are respectful of both their candidates and their

employees, one of the most apparent attributes

of an attractive employer is how candidates are

treated during the interview process. And one

of the most publicised when it fails. As many

people are implicated in the process, it is easy for

the process to break down and for employer’s

reputations to suffer.

There are three reasons candidates develop

doubts about a potential employer, and none

of them have to do with money. All are due to

inadvertent lack of respect, potentially from just

one person within the company:

1. Length of time it takes to recognise their

application and give feedback, if at all. Lack of

timely communication.

2. Lack of consideration during the interview

process (being kept waiting long lengths of time,

not offered a drink, no clear timelines for next

steps, each interviewer is on a “different page”,

no constructive answers, lack of feedback)

3. Absence of understanding about personal

requirements (family relocation, adjusting to

new environments)

Lack of basic respect both in the interview process

and within the workplace is the worst publicity a

company can get, as this is when a candidate will

say “no thanks” and an employee will begin to

explore alternatives. They lose engagement and

no longer “believe”. Then share the experience

around the industry with other colleagues.

Recruiters assist in delivering this communication

but cannot invent it if the employer doesn’t

co-operate with the same respect to the recruiter.

Retaining great people requires a company

with culture values to demonstrate respect for

the employee so they feel esteemed. When one is

valued, considered and recognised, the employee

will remain loyal to the company regardless of

salary, benefits or monetary bonuses.

How capable is a company of delivering these

key seven categories and how capable are their

competitors at delivering the same? Are the

company’s values in line with the workplace

realities or are they just air? How does one avoid

dilution of the employer brand and avoid attrition

of new hires?

Current employee satisfaction with their

new hire package, respect and status within

the company and belief in the promise of their

development will result in a committed, engaged

employee who would suggest their company as

the best employer and the place to work and

would recommend joining to a friend.

Recruiting in the upturn has required many

companies to review their compensation package

strategies to fit the difficult trading period we’re in.

Interestingly, while base annual salaries have been

modestly lowered, incentives have had to become

more achievable. Candidates have been accepting

of these changes as necessary and inevitable since

the downturn and have placed new importance

on benefits rather than salary.

In order of importance from one down, here

are the compensation items most critical to a new

employee with a family on an expatriate contract:

1. School fees for children

2. Properly valued accommodation allowances for

security of families

3. International medical insurance for family

4. Full relocation assistance

5. Car or transportation allowance

6. Return flights to point of origin for family once

yearly

7. Base annual salary

8. Bonus plan

In the last 18 months, most candidates will be

flexible on the salary to a point, as long as the family

does not suffer for the relocation. Our experience

tells us that candidates will reject offers if their family

packages are not fully offered. Companies that do not

recognise or respect the security of the candidate’s

family for an expatriate role, will find that it is difficult

to gain their engagement or commitment.

For a new employee who travels single on an

expatriate contract, the same items are reversed

in importance in the decision to accept a role.

Although compensation is not the driver to retain

top talent, it is a form of recognition.

In conclusion, recruitment during the upturn is

no different than during normal times. If a company

excels at delivering these seven key values, great

word-of-mouth endorsement will result from their

own employees to new candidates.

Corinne Winter-Rousset, divisional director

EMEA & The Americas, Portfolio

[email protected]

Recruiting during a downturnCorinne Winter-Rousset from Portfolio looks at the issues of hiring while money is tight


LondonhotelsleadEurope

Although at E211.56 hotels in London did not

achieve the highest Trevpar in the sample, that

accolade went to Zurich at E215.12, thanks to a

12.1% increase profitability, London finished the

year approximately 47% ahead of the second

best performing city in the sample (Zurich), which

achieved a year-end Goppar of E71.51.

As has been a recurrent theme throughout the

year, London’s staggering profitability conversion

Europeanchainhotels–performancereport

Source: TRI Hospitality Consulting

rate at 49.7% of total revenue, may be attributed

to a strong revenue performance, but more

crucially the astute management of costs and in

particular payroll levels.

Whilst profitability levels in cities such as Paris

and Vienna during 2010 have been damaged

by payroll levels close to 40% of total revenue,

London hoteliers benefit from a payroll cost of just

23.1% of total revenue.

Despite achieving one of the lowest recorded

occupancy levels of the year in December (76.5%)

due to heavy snow, sub-zero temperatures and

travel disruption, according to the latest HotStats

survey, four and five-star London hotels finished

the year at a remarkable average room occupancy

of 84.6%, following an increase of 0.9 percentage

points from 2009.

“Whilst several cities in Europe are still

suffering the after-effects of the global economic

The month of December 2010 Twelve months to December 2010

Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR

58.4 151.75 88.63 35.7 41.54 Amsterdam 75.8 165.91 125.81 31.5 68.58

45.1 109.01 49.20 50.1 4.30 Barcelona 65.1 129.07 84.01 34.0 36.22

59.4 113.11 67.21 31.3 34.27 Berlin 71.3 116.45 83.02 29.1 47.06

47.4 82.61 39.15 39.6 5.62 Budapest 64.1 89.01 57.03 31.1 25.14

59.0 99.50 58.68 33.3 27.26 Frankfurt 62.9 117.01 73.57 31.7 36.68

76.5 177.16 135.60 24.3 108.83 London 84.6 175.75 148.59 23.2 105.07

69.0 173.72 119.82 44.0 47.51 Paris 76.7 184.48 141.44 39.3 66.04

58.0 80.74 46.79 25.0 23.13 Prague 65.7 87.31 57.39 26.3 31.23

74.7 136.56 102.04 33.9 59.74 Vienna 71.8 126.97 91.12 39.4 38.88

73.7 151.14 111.39 35.1 63.52 Zurich 77.2 162.34 125.38 33.4 71.51

The month of December 2009 Twelve months to December 2009

Occ% ARR RevPAR Payroll % GOP PAR Occ% ARR RevPAR Payroll % GOP PAR

57.4 139.11 79.78 34.8 34.71 Amsterdam 69.2 153.67 106.30 33.8 50.73

37.4 106.19 39.75 54.9 2.20 Barcelona 57.9 131.85 76.30 35.4 29.81

63.7 96.44 61.45 31.0 32.42 Berlin 70.2 106.26 74.57 29.9 41.81

47.6 78.35 37.27 36.5 10.39 Budapest 58.8 94.61 55.65 30.6 24.38

52.3 91.60 47.92 37.1 21.92 Frankfurt 54.9 110.98 60.90 34.6 27.43

78.3 165.43 129.47 23.4 104.09 London 83.7 159.88 133.81 23.9 93.69

70.7 168.68 119.18 39.8 57.61 Paris 73.6 175.91 129.55 38.8 59.17

54.5 83.52 45.53 17.1 28.48 Prague 61.9 93.68 57.98 25.0 34.35

77.5 121.01 93.82 32.6 54.95 Vienna 67.9 130.23 88.42 38.3 37.17

68.0 144.15 98.01 34.3 50.39 Zurich 71.4 160.84 114.87 34.5 59.93

Movement for the month of December Movement for the twelve months to December

Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change

1.1 9.1% 11.1% -0.8 19.7% Amsterdam 6.7 8.0% 18.4% 2.3 35.2%

7.7 2.7% 23.8% 4.8 95.5% Barcelona 7.2 -2.1% 10.1% 1.4 21.5%

-4.3 17.3% 9.4% -0.4 5.7% Berlin 1.1 9.6% 11.3% 0.8 12.6%

-0.2 5.4% 5.0% -3.1 -45.9% Budapest 5.3 -5.9% 2.5% -0.5 3.1%

6.7 8.6% 22.5% 3.8 24.4% Frankfurt 8.0 5.4% 20.8% 3.0 33.7%

-1.7 7.1% 4.7% -0.9 4.6% London 0.9 9.9% 11.0% 0.7 12.1%

-1.7 3.0% 0.5% -4.3 -17.5% Paris 3.0 4.9% 9.2% -0.6 11.6%

3.4 -3.3% 2.8% -7.9 -18.8% Prague 3.8 -6.8% -1.0% -1.3 -9.1%

-2.8 12.9% 8.8% -1.4 8.7% Vienna 3.9 -2.5% 3.1% -1.2 4.6%

5.7 4.8% 13.7% -0.7 26.1% Zurich 5.8 0.9% 9.1% 1.1 19.3%

downturn, most have only begun to return to

profitability growth within recent months. In

contrast, discounting the losses in April due to the

Icelandic ash cloud, December 2010 was the 14th

consecutive month in which London hoteliers

have recorded a growth in profitability. In addition

to London consolidating its status as a top

international tourist destination in 2010, the city

once again emerged as a global hub for business

and secured its position as the top performing

hotel market in Europe” said Jonathan Langston,

managing director, TRI Hospitality Consulting.

Following the 35.8% decline in profitability

levels in 2009, trading remains tough in the Czech

capital in 2010, as Goppar declined by a further

9.1%, according to the latest HotStats survey.

Although average room occupancy has increased

by 3.8 percentage points during the year, achieved

average room rate remains a challenge.

The cold weather in the UK towards the end of the year was not enough to diminish headline performance levels as its capital achieved a GopparofE105.07, according tothelatestHotStatssurveyfromTRIHospitalityConsulting.

Sector stats

The month of December 2010

The 12 months to December 2010


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 December 2010 London 76.4% £126.63 £96.71 46.2% 5.7% 12.9% 20.5% 14.6% £144.76 £128.48 £79.43 £138.25 £91.32 £3,129 £1,269 £207 £4,605 68.0% 27.6% 4.5% 100.0% 49.9% £2,300

December 2010 Provincial 57.2% £67.06 £38.37 44.4% 12.7% 7.1% 28.7% 7.1% £70.02 £68.69 £48.99 £69.16 £54.63 £1,208 £1,327 £289 £2,825 42.8% 47.0% 10.2% 100.0% 29.9% £844

December 2010 All 64.4% £93.54 £60.24 45.2% 9.6% 9.7% 25.0% 10.5% £104.00 £84.60 £67.02 £94.27 £77.46 £1,916 £1,306 £259 £3,481 55.0% 37.5% 7.4% 100.0% 39.7% £1,381

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change December 2010 London (0.0) 8.8% 8.7% 2.1 0.4 (0.7) (2.9) 1.1 7.5% 5.0% 2.6% 14.7% 4.8% 8.7% -1.4% 10.5% 5.8% 1.8 (2.0) 0.2 – 0.2 6.2%

December 2010 Provincial (1.5) 1.0% -1.5% 0.1 (0.0) (0.2) (0.7) 0.7 1.2% -0.8% -1.9% 1.5% 6.3% -2.6% -8.2% -0.8% -5.1% 1.1 (1.6) 0.5 – (1.5) -9.6%

December 2010 All (0.9) 6.1% 4.7% 1.0 0.1 (0.3) (1.7) 0.9 6.5% 2.9% 1.3% 7.0% 5.3% 3.9% -5.9% 2.3% -0.1% 2.1 (2.3) 0.2 – (0.2) -0.5%


Last year December 2009 London 76.4% £116.43 £88.95 44.1% 5.3% 13.6% 23.4% 13.6% £134.63 £122.38 £77.42 £120.50 £87.12 £2,878 £1,286 £187 £4,352 66.1% 29.6% 4.3% 100.0% 49.8% £2,165


December 2009 All 65.3% £88.19 £57.56 44.2% 9.5% 10.0% 26.8% 9.5% £97.66 £82.23 £66.18 £88.06 £73.57 £1,844 £1,387 £253 £3,485 52.9% 39.8% 7.3% 100.0% 39.8% £1,388



Current year YTD London 82.2% £124.17 £102.12 46.4% 6.1% 13.5% 21.1% 12.9% £141.98 £131.64 £80.08 £129.91 £90.22 £37,238 £12,552 £2,274 £52,064 71.5% 24.1% 4.4% 100.0% 47.8% £24,894

YTD Provincial 69.5% £68.23 £47.45 47.0% 11.6% 9.3% 26.0% 6.1% £70.97 £77.82 £48.63 £69.48 £53.46 £17,324 £12,605 £3,653 £33,582 51.6% 37.5% 10.9% 100.0% 30.6% £10,284

YTD All 74.2% £91.06 £67.58 46.8% 9.4% 11.0% 24.0% 8.9% £99.72 £92.19 £64.35 £91.12 £75.32 £24,664 £12,586 £3,145 £40,394 61.1% 31.2% 7.8% 100.0% 38.8% £15,669


Year on year change YTD London 2.0 8.9% 11.6% 1.9 0.4 0.9 (3.3) 0.1 7.7% 8.6% 8.4% 15.3% -0.8% 11.6% 2.6% 0.4% 8.8% 1.8 (1.4) (0.4) – 2.1 13.9%

YTD Provincial 1.6 -0.9% 1.5% 0.1 0.1 1.2 (1.9) 0.5 -1.7% -2.1% -3.8% 3.3% -0.7% 1.3% -2.1% -1.1% -0.3% 0.8 (0.7) (0.1) – (0.4) -1.5%

YTD All 1.8 4.3% 6.9% 0.9 0.2 1.1 (2.5) 0.3 4.2% 2.3% 2.8% 8.1% -1.6% 6.8% -0.4% -0.7% 3.8% 1.7 (1.3) (0.4) – 1.1 6.9%


Last year YTD London 80.3% £114.05 £91.53 44.5% 5.7% 12.6% 24.4% 12.8% £131.82 £121.25 £73.87 £112.70 £90.99 £33,370 £12,232 £2,264 £47,866 69.7% 25.6% 4.7% 100.0% 45.7% £21,860

YTD Provincial 67.9% £68.86 £46.76 46.9% 11.5% 8.1% 27.9% 5.6% £72.17 £79.48 £50.55 £67.24 £53.85 £17,095 £12,879 £3,692 £33,667 50.8% 38.3% 11.0% 100.0% 31.0% £10,444

YTD All 72.5% £87.28 £63.24 45.9% 9.1% 9.9% 26.5% 8.5% £95.74 £90.07 £62.60 £84.32 £76.55 £23,094 £12,641 £3,166 £38,900 59.4% 32.5% 8.1% 100.0% 37.7% £14,652

LondondominatesUKin2010

said Jonathan Langston, managing director,

TRI Hospitality Consulting.

The falling profitability in the provinces occurred

even though Revpar showed a modest increase

of 1.5%. London Revpar increased by 11.6%.

Average room rate in London was up 8.9% but it

fell 0.9% in the provinces.

“It is important to delve deeper into the

statistics to understand what is really going on.

Even though Revpar rose in the provinces, falling

rate and rising costs led to falling profitability,”

added Langston.

Despite being blanketed in snow and suffering

sub-zero temperatures during the ‘coldest

December since records began’, hoteliers in the

capital recorded an eighth consecutive month

of profitability growth. Goppar for the month

increased by 6.2% to £71.08 from £66.92 during

the same period in 2009, which is primarily

attributed to a 5.8% increase in Trevpar to

£142.33. A result which is only slightly below the

overall level achieved in the market during 2010,

at £142.78.

However, headline performance levels across

the city were mixed and whilst hotels in central

locations, such as the West End and Westminster,

were impacted by visitors to London being

discouraged by the ongoing student protests,

tube strikes, poor weather conditions and travel

disruption, the overall London market was

buoyed by hotels located in proximity to major

transport hubs.

At Heathrow, hotels served as a haven for

thousands of stranded passengers whose flights

were cancelled due to heavy snow and thick ice

on the runway, which made flying conditions

impossible. The unexpected boost in volume

caused a spike in Goppar more than 22% above

The full year 2010 shows strong profitgrowthinLondonbutstagnation in the provinces.

London hotels showed a double-digit increase in

profits, according to the 2010 figures in the latest

HotStats survey from TRI Hospitality Consulting.

The performance in the provinces, however,

was less robust with Goppar dropping by 1.4%.

This compares to the 13.9% rise in London.

“Although the provincial hotel performance is

subdued, it is still creditable given the underlying

economic conditions in the last year. In contrast,

the London performance is astonishing and

surpassed 2008 levels, which bodes well for

the next 12 months, particularly as the city still

has growth associated with the Royal Wedding

and Olympic Games to look forward to,”


Sector stats



Current year December 2010 London 76.4% £126.63 £96.71 46.2% 5.7% 12.9% 20.5% 14.6% £144.76 £128.48 £79.43 £138.25 £91.32 £3,129 £1,269 £207 £4,605 68.0% 27.6% 4.5% 100.0% 49.9% £2,300


December 2010 All 64.4% £93.54 £60.24 45.2% 9.6% 9.7% 25.0% 10.5% £104.00 £84.60 £67.02 £94.27 £77.46 £1,916 £1,306 £259 £3,481 55.0% 37.5% 7.4% 100.0% 39.7% £1,381


Year on year change December 2010 London (0.0) 8.8% 8.7% 2.1 0.4 (0.7) (2.9) 1.1 7.5% 5.0% 2.6% 14.7% 4.8% 8.7% -1.4% 10.5% 5.8% 1.8 (2.0) 0.2 – 0.2 6.2%

December 2010 Provincial (1.5) 1.0% -1.5% 0.1 (0.0) (0.2) (0.7) 0.7 1.2% -0.8% -1.9% 1.5% 6.3% -2.6% -8.2% -0.8% -5.1% 1.1 (1.6) 0.5 – (1.5) -9.6%

December 2010 All (0.9) 6.1% 4.7% 1.0 0.1 (0.3) (1.7) 0.9 6.5% 2.9% 1.3% 7.0% 5.3% 3.9% -5.9% 2.3% -0.1% 2.1 (2.3) 0.2 – (0.2) -0.5%


Last year December 2009 London 76.4% £116.43 £88.95 44.1% 5.3% 13.6% 23.4% 13.6% £134.63 £122.38 £77.42 £120.50 £87.12 £2,878 £1,286 £187 £4,352 66.1% 29.6% 4.3% 100.0% 49.8% £2,165


December 2009 All 65.3% £88.19 £57.56 44.2% 9.5% 10.0% 26.8% 9.5% £97.66 £82.23 £66.18 £88.06 £73.57 £1,844 £1,387 £253 £3,485 52.9% 39.8% 7.3% 100.0% 39.8% £1,388



Current year YTD London 82.2% £124.17 £102.12 46.4% 6.1% 13.5% 21.1% 12.9% £141.98 £131.64 £80.08 £129.91 £90.22 £37,238 £12,552 £2,274 £52,064 71.5% 24.1% 4.4% 100.0% 47.8% £24,894

YTD Provincial 69.5% £68.23 £47.45 47.0% 11.6% 9.3% 26.0% 6.1% £70.97 £77.82 £48.63 £69.48 £53.46 £17,324 £12,605 £3,653 £33,582 51.6% 37.5% 10.9% 100.0% 30.6% £10,284

YTD All 74.2% £91.06 £67.58 46.8% 9.4% 11.0% 24.0% 8.9% £99.72 £92.19 £64.35 £91.12 £75.32 £24,664 £12,586 £3,145 £40,394 61.1% 31.2% 7.8% 100.0% 38.8% £15,669


Year on year change YTD London 2.0 8.9% 11.6% 1.9 0.4 0.9 (3.3) 0.1 7.7% 8.6% 8.4% 15.3% -0.8% 11.6% 2.6% 0.4% 8.8% 1.8 (1.4) (0.4) – 2.1 13.9%

YTD Provincial 1.6 -0.9% 1.5% 0.1 0.1 1.2 (1.9) 0.5 -1.7% -2.1% -3.8% 3.3% -0.7% 1.3% -2.1% -1.1% -0.3% 0.8 (0.7) (0.1) – (0.4) -1.5%

YTD All 1.8 4.3% 6.9% 0.9 0.2 1.1 (2.5) 0.3 4.2% 2.3% 2.8% 8.1% -1.6% 6.8% -0.4% -0.7% 3.8% 1.7 (1.3) (0.4) – 1.1 6.9%


Last year YTD London 80.3% £114.05 £91.53 44.5% 5.7% 12.6% 24.4% 12.8% £131.82 £121.25 £73.87 £112.70 £90.99 £33,370 £12,232 £2,264 £47,866 69.7% 25.6% 4.7% 100.0% 45.7% £21,860

YTD Provincial 67.9% £68.86 £46.76 46.9% 11.5% 8.1% 27.9% 5.6% £72.17 £79.48 £50.55 £67.24 £53.85 £17,095 £12,879 £3,692 £33,667 50.8% 38.3% 11.0% 100.0% 31.0% £10,444

YTD All 72.5% £87.28 £63.24 45.9% 9.1% 9.9% 26.5% 8.5% £95.74 £90.07 £62.60 £84.32 £76.55 £23,094 £12,641 £3,166 £38,900 59.4% 32.5% 8.1% 100.0% 37.7% £14,652

the same period in 2009 as Revpar levels at

hotels located in proximity to the world’s busiest

international airport increased by 31.3%, which

undoubtedly buoyed the overall performance in

the capital.

During an icy month, the only slip in the London

hotel market was in staffing, as payroll levels

increased by one percentage points to 25.1% of

total revenue

As the harsh wintry weather disrupted the entire

UK transport network and brought commerce to

a grinding halt, provincial hoteliers were reminded

of the poor trading of January 2010. This month,

year-on-year profitability levels at provincial

hotels dropped by 8.6%, according to the latest

HotStats survey.

Despite a 1% growth in achieved average room

rate to £67.06, a drop in volume as well as a

decrease in food and beverage revenues, resulted

in a provincial Trevpar decline of more than four

per cent to £89.70.

Last year, the Christmas period allowed

hoteliers to achieve above average Trevpar levels

fuelled by corporate and social Christmas events.

However, whilst temperatures in some provincial

locations dropped to minus 19.6 degrees

Celsius, functions were postponed or cancelled

throughout the month.

TRI’s HotStats survey revealed the impact of the

poor weather on food and beverage revenues at

provincial hotels during December 2010, as this

measure declined by an average of 6.7% across

the market to £38.85 per available room at three

and four-star hotels.

The drop in Trevpar meant that payroll levels

soared to 31.9% from 29.2% of total revenue

during the same period in 2009 as hoteliers took

on extra staff to accommodate the busy Christmas

period and subsequently hoteliers were vulnerable

to events being cancelled.

Edinburgh was one location which was hit worst

during the lead up to Hogmanay. In addition to

the loss of food and beverage trade, international

arrivals to join the festivities were significantly

reduced by the closure of the airport and hotels in

the city were left helpless. As a result of a 10.2%

decline in rooms revenue and an 18.1% decline in

food and beverage revenue, Goppar at full-service

hotels dropped by 26.5% in the Scottish capital

to £20.12.

“For provincial hoteliers the year didn’t

start well and hasn’t ended well and has been

extremely tough in between. That said, headline

performance levels have remained reasonably

static and Goppar declined by just 1.4%. The next

12 months will undoubtedly be challenging for

provincial hoteliers,” added Langston.


Personal view

The hotel sector is all about sharing. Twin

rooms, strangers’ elbows at breakfast, making

new friends in the communal bathrooms at the

lower end of the market. The one area where

the bonhomie is less evident is when it comes to

development risk.

The boom of the mid-2000s put the big

brands in a dominant position when it came to

negotiations, with the flood of easily-available

cash limiting the bargaining power of the banks

and owners often forced to dance to the brands’

tunes to secure their valuable flags.

However, in this age of austerity, limited finance

has meant a shift in the balance of power and a

new era marking a return to an old era has been

called for by Internos Real Investors. The group is

looking to operators to shoulder some of the risk

after the lavish years which followed the bricks

and brains split and saw management contracts

move into favour and an equal share of exposure

fall out.

The call is a familiar one to anyone attending

any conferences featuring bankers in any volume

since the start of the downturn. They are eager to

see skin in the game in the form of guarantees,

loans, or even equity stakes taken by brands

looking to hoist their flags at a rapid rate.

According to Internos’ Schäfer-Surén, partner

and head of Internos’ hotel and leisure division:

“The trend for hotel groups to disengage from

the capital side of the business was neither

welcome nor healthy, for it led to an abdication

of accountability and loss of expertise and control.

For hotel groups to grow there needs to be a

greater alignment.”

He further told Hotel Analyst: “It used to be

commonplace that the banks were asking for the

hotel operator to provide a loan or guarantee or

take a stake. They would say: ‘If you want our

money, put some money on the table’. Then came

the covenant-light loans.

“In today’s world where capital is constrained,

it’s more difficult to grow and convince people

ShareandsharealikeHotel Analyst deputy editor Katherine Doggrell asks if the sector needs to spread some risk

to grow with you if you don’t put something

up yourself, whether cash, providing a loan, or

making your fees relate to your results.

“It’s very difficult to champion an industry

that you don’t want to invest in. It’s a bit of a

contradiction: ‘Let’s grow quickly, but with your

money, not mine’.”

In a paper released by the group, Internos

has predicted an end to asset-light as investors

demand more capital commitment, in line with

the thinking prevalent before the big property sell-

off in the years following the Millennium.

Looking back over the evolution of the hotel

sector, Schäfer-Surén said: “When you put it into

historic perspective, Holiday Inn started branding

in the 1950s and 60s and they came up with the

idea of management contracts and franchising,

because it was a capital intensive business.

However, initially they owned them.

“Since then the industry has grown with

investment partners providing some of the capital,

be it equity or debt. Traditionally hotel chains

had leases or real interests in key destinations,

the anchoring blocks of the chains. In high risk

countries you didn’t want to take the risk, so you

gave them the benefit of the brand in exchange

for fees.

“Asset-light doesn’t work in today’s world. The

big chains are not known for their cost control.

They all talk about how they have the highest

revpar, well what I care about its profit par. As

an investment manager I want the best return

on investment.”

Taking a greater cut of the risk is likely to be

of less interest to the listed players, Schäfer-Surén

conceded, where, despite having greater to access

to capital because through listing, the short-term

results’ focus and new accounting rules like IAS17

of the market does not suit the investment.

But he sees an evolution towards innovative

forms of leases and management contracts

allowing operators to commit yet in a more

acceptable way to listed hotel groups under future

reporting and accounting requirements.

The call for greater responsibility has been

heeded, if only out of necessity. The global brands

need an extensive worldwide pipeline to drive

future fees and prove their allure to owners.

When this pipeline tails off, owners become less

convinced of the brand’s power and the business

is threatened. As banks have limited their lending,

with lower loan-to-values and a reduction in total

lending in general, competition has increased

amongst the brands for the few developments

coming to fruition.

As previously reported in Hotel Analyst, Hilton

Worldwide has said that it will offer mezzanine

finance. It is likely that the financing will be

offered only in the short term, and only in secure,

but hard to access markets with high barriers to

entry, such Europe, however, it shows willingness

to be flexible in its expansion strategy. Accor too

has said that it would deploy company cash to

protect guarantees.

Taking its investment strategy one stage further

recently has been Marriott International, which

used its own money to buy the Berners Hotel in

London, reportedly for around £60m. The hotel

will be renovated in partnership with Ian Schrager

over the next 18 to 24 months to become The

London Edition. For Marriott, the expansion

of its new Edition brand is a priority, to help it

gain traction. Once the renovation is complete,

it is thought Marriott could have spent closer

to £100m.

While the acquisition of the Berners marked a

large investment for Marriott, it is unlikely that

the company will hold onto the asset for long,

pursuing what it describes as “capital recycling”.

As with the other operators, strategic locations

such as London, with its very limited supply,

will attract a more liberal attitude to their cash

involvement with a site. For hotels which have

less importance to the flags’ expansion plans, it

is more likely to be business as usual. For them,

options such as joining a marketing consortium,

have become more popular.

The downturn has led to a more equal share

of the risk, after years of complaints from owners

and lenders, on better terms. The business model

for operators has not changed, however, and they

remain focused on fees and moving further away

from asset ownership. In the short term they may

be open to easing the way to aid an important

development by picking up a stake, but in the long

term they continue to look towards their exit.

What remains to be seen is what happens as

the market continues to improve. Forecasts for

transaction volumes this year have pointed to a

combination of ongoing improvements in trading

fundamentals, with an increased quantity of equity

also easing the market. With access to money

becoming less of an issue, it is likely that operators

will see less of a need to invest themselves. While

a return to the boom years will not happen

immediately, if it happens at all, the current shift

in power looks like a passing phase.

What could delay a swing from democracy

to dictatorship is a rise in interest rates, which

is slowly, but surely, dawning over the horizon,

as inflation threatens, particularly in the US and

Europe. The much-vaunted wave of refinancings

is also expected to restrict finance for new

development, meaning that the new stats quo

could be maintained for the foreseeable at least.


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The Insider

Featured businessesAareal Bank 10Accor 4, 16, 17Acron 17Akkeron Hotels 3Barcelo Hotels & Resorts 5Barclays Corporate 10Benson Elliott Capital Management 3BNL BNP Paribas 10Christie & Co 1, 5Colliers International 2, 16, 17Credit Agricole CIB 10Cycas Hotel Partners 17DLA Piper 11Dubai International Capital 7Ebertz & Partners 17ECE Projektmanagement 17Emaar-MGF 6Fonciere Des Muirs 17Forestdale Hotels 3, 16, 17Groupe du Louvre 9HBoS 6Hilton Worldwide 5, 8HN Hoteles 5HSBC 3InterContinental Hotels Group 12, 13, 16, 24Internos Real Investors 22Invesco Real Estate 17, 22Jarvis Hotels 3Jones Lang LaSalle Hotels 1Kew Green Hotels 17Kwikchex 9Le Meridien 8Lloyds Banking Group 3, 6Marcus Cooper Property Group 17Marriott International 8, 17 , 24Menzies Group 3Mint Hotels 3, 6Morgan Stanley 12Orient-Express Hotels 10Otus & Co 14, 15Palm Holdings 17Park Paza Hotels 4, 5Patron Capital 17Portfolio 18Predica 17Review Hotels 17Royal Bank of Scotland 3Sahara India Pariwar 8, 17Sol Melia Hotels & Resorts 5Starwood Capital 17Starwood Hotels & Resorts 8The Rocco Forte Collection 8, 17 Town House Company 17Travelodge 6, 7TRI Hospitality Consulting 19, 20, 21TripAdvisor 9Trowers & Hamlins 3Westfield Stratford City 17Whitbread 6

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Marriott cleans up in rooms

‘Disputes’seelossof3InterContinentals

‘You can lead a horse to water, but you cannot

make him drink’, the adage goes but, for the hotel

sector, the truth is the opposite. Lock the horse in

a room and he’ll hit the minibar, paying over the

odds for Cokes and macadamia nuts before, giddy

on decadence, he (or she) might treat themselves

to a spot of adult viewing. Even more so if the

horse is a road warrior stuck in an anonymous

hotel in an unfamiliar town.

All of which is excellent news for hotels’

revenues. While specific figures on how much

income is garnered from informative films about

photocopier repair man are hard to come by, a

2007 study by adult industry site XBIZ put it at

over $500m across the hotel sector.

What has become clear is that this revenue has

been falling in recent years, sadly not because guests

have been taking advantage of more wholesome

entertainment in the spas, destination restaurants

and even screening rooms popping up in hotels,

but because they have been bringing their own

viewing on their laptops, mobiles and iPads.

As a result, Marriott International has

announced that, due to changing technology, the

group would be shifting its in-room entertainment

offering to an internet-based video-on-demand

system, but one which would not include adult

entertainment. Customers will see this first in new

hotels, with the estate expected to be clean of

such diversions by 2013.

The other driver for this decision has been

lobbying, predominantly in the US, by consumer

groups attempting to have such mature viewing

banned, citing the possibility that children would

see it or be able to purchase it. Marriott was quick

to point out that it had strict procedures in place

to prevent this happening.

For those over-18, it is now a case of BYO.

This year’s annual International Hotel Investment

Forum, due to be hosted at the InterContinental

Berlin next month, could be the last to be held

under the flag, as the hotel looks set to leave

InterContinental Hotel Group’s system from

1 April.

The hotel is one of three InterContinental hotels

which the company manages in Germany for

Neue Dorint – the other two being in Cologne

and Düsseldorf. Both parties have been reluctant

to outline the issues between the two which have

led to the decision, complaining of “disputes”

over the hotels’ operation.

Neue Dorint, which leases the hotels from the

property owners, said that “for some time” there

had been legal disputes between itself and IHG.

The group added that it was currently negotiating

“intensively with renowned internationally

operational hotel groups with regard to the locations

concerned” and was considering operating them

under its Dorint Hotels & Resorts brand.

Jennifer Fox, IHG’s COO for continental Europe,

said: “We’ve been in dispute with Neue Dorint

since November 2009. Unless we can resolve

this dispute, we’ll terminate our management

agreements on the InterContinental Berlin, the

InterContinental Cologne and the InterContinental

Dusseldorf. Despite our best efforts to resolve the

issues, we can no longer continue to work with

Neue Dorint as our business partner.”

McKillen stays off the rubbish heapFans of 80s TV will remember Fraggle Rock,

which featured a group of fluffy-haired creatures

who, from time to time, were advised by Marjory

the Trash Heap, a creature formed solely out of

rubbish. Marjory had some magical abilities to go

with her advisory capacity and it does not take a

huge leap to see some correlation between her

and NAMA, Ireland’s toxic loan agency.

However, the Fraggles are revolting, led by

Paddy McKillen, who has won his test case to stop

E2.1bn of loans being transferred to the agency.

The challenge was upheld because the decision to

transfer the loans in December 2009 was made

prior to the formation of the agency and therefore

unanimously deemed not to be valid, by seven of

the country’s top judges.

What will happen now is not clear – NAMA may

simply move to take the loans now that it is fully

established, although McKillen has maintained

that they were being serviced and had no place

in the agency, an issue which the court has yet

to address.

Having won this battle, McKillen’s next concern

will be the growing interest around the distinctly

un-rubbish Maybourne Hotel Group. He has said

that he has no plans to sell his 37% stake, despite

fellow Irish investor Derek Quinlan reported

to be in talks with the Barclay brothers over his

35% holding.

NAMA may yet have a role to play in McKillen’s

life, even if it steers clear of the contested loans.

Quinlan was less successful in keeping his loans

out of NAMA and, should he wish to sell to the

Barclays, the agency will have a say.

volume 6 issue 6 hotelanalyst · thought that banks will proceed with caution, taking care not to...

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