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The attack on the sector’s notoriously under-demolished failing hotels resumed at this year’s International Hotel Investment Forum in Berlin, with calls for sites which were not commercially viable to be closed for the good of those which were.

Banks in particular were accused of using

‘pretend and extend’ policies to keep hotels open,

because of fears over realising losses if they were

sold. It was thought increasingly likely that images

seen in the UK pub market – which saw 39 pubs a

week close last year, according to British Beer and

Pub Association – could and should be replicated

in the hotel sector.

Desmond Taljaard, COO Starwood Capital, said:

“You’re just keeping the vagrant on the street.

This is a sector which lacks Darwinian evolution –

some hotels are more dinosaur than chimpanzee.

The consequences of these hotels surviving are

not good for the industry.

“Clearly there’s not a moral or social responsibility

on the part of the banks, but it’s a big concern to me.

Why would you build a big swanky hotel when the

musty-duvet hotel down the road is kept going?”

Taljaard’s call was echoed by Paul Collins,

director, CBRE Hotels, who has been working

with NAMA (Ireland’s National Asset Management

Agency), and said: “There are some hotels which

just should be sold.”

Taljaard was unable to estimate how much of, for

example, the UK market, should be removed for the

benefit of the remaining hotels. A lack of visibility

of the sector, in particular of those assets held by

the banks, makes it hard for a clear assessment of

which sites could be truly said to be in distress, the

•Whitbread’s frothy deal p4

•Cosslettquits as Solomons moves up p5

•Ownersfinding their voice p12

•HotelsandUK govt strategy p14

•Therouteto recovery p20

•IntoAfricap24

Callsgrowtotakethepainofdistressdefinition for which varied at the conference, from

hotels which had breached loan-to-value covenants

to those unable to service their debts at all.

It was generally agreed at the distress panel that

over-exuberant lending was to blame for the distress

associated with many assets, which may under less

pressured circumstances be viable businesses.

There were calls for owners to be brutal in their

assessment of what a property could realistically

operate as, with some sites thought more suited to

a shift from four-star to budget rather than a less

radical solution such as a brand change. Taljaard

commented: “As regards regional UK, you have

to question how long the four-star can compete...

you’d rather have some of your money back than

none at all.”

Other discussions at the conference looked to

a more hands-off solution to many sites’ distress,

that of riding a recovery in trading back to a higher

valuation. Jeremy Hill, head of hotels at Christie

& Co, said rising trading was one of the essential

components needed to move the sector forwards.

He said: “The losses haven’t been realised yet.

There’s been some short term debt refinancing,

but that just brings the same problem back in a

couple of years unless there’s been some capex or

an improvement in trading.”

Robert Koger, president, Molinaro Koger, added:

“Once investors are convinced that the worst is

over, you will see a lot more aggressive bidding.

The banks that we’re working with are fixed on a

certain price and if they get that they’ll sell. Values

will continue to increase and that’s what will drive

transactions, as opposed to values falling and

banks just cutting and running.”

Jonathan Hubbard, managing director, Jones

Lang LaSalle Hotels, concluded: “For the banks

to get comfortable again they need to see more

transactions. The economic view is quite bullish, u

Volume 7 Issue 1

ContentsNews review 3-11Burgio cut – Trading debt – Whitbread’s frothy deal – Cosslett quits – Deal-flow up – Hennequin’s debut – 2012 rate battle – Wyndham backs brand – IHG recovery – Mid-market malaise – Hyatt, M&C spending – Host, Stategic shopping Analysis 12-15, 19, 20-21Finding their voice – Mood in Dubai – UK Government policy – Turning tides – Road to recoverySector stats 16-18London profitability stable – Double-digit DublinPersonal view 22In to AfricaThe Insider 24Bankers less bullish – A demo too far – Road warriors’ rights

www.hotelanalyst.co.ukVolume 7 Issue 1

All enquiriest +44 (0)20 8870 6388

Editor Andrew Sangstere andrew@hotelanalyst.co.uk

Deputy Editor Katherine Doggrelle katherine@hotelanalyst.co.uk

Marketing Sarah Sangstere sarah@hotelanalyst.co.uk

Subscriptions Anna Drabickae anna@hotelanalyst.co.uk

Art Direction T Square Designe info@tsquaredesign.co.uk

Design Lynda Sangstere l.sangster@langsford.co.uk

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The Great GrindCommentaryby AndrewSangster

We are now exiting the recession and heading

into recovery. But this third period does not

look like the recoveries we have previously seen

following downturns in that it is much shallower

(at least for most Western economies). We should

perhaps dub it the Great Grind.

There are a number of notable characteristics

for the Great Grind. Firstly, it is a period of fiscal

tightening. We have already written at length

about the impact of rising taxes and public

spending cuts on the hotel industry. In particular,

Otus & Co has produced an insightful analysis of

the impact (see Volume 6 Issue 2).

These cuts and tax increases are only now

beginning to bite and thus impact on hotel

demand. In addition – the second characteristic

of the Great Grind – monetary tightening is

also starting. The rate rise in early April by

the European Central Bank to 1.25% from

1% is the most marked move by the major

central banks.

While it seems unlikely that the US or UK

central banks will follow this lead in the next few

months, most expectations are for interest rates

to begin rising by the end of the year or at least

in early 2012. And it seems highly unlikely that

the stimulus provided by quantitative easing will

be extended.

This is a twin pronged attack on consumers.

Real household incomes are now declining,

the first time in 30 years in the case of the UK

according to the Office for National Statistics, and

this is before the full effects of fiscal and monetary

tightening are felt.

There is some good news for the hotel business in

that the Great Recession has seen remarkably little

corporate distress. Most corporates are emerging

with strong balance sheets and an appetite for

growth. Given that it is corporates rather than

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

hotelanalystindividual consumers that are the source for most

hotel demand, this gives some hope.

There is also encouraging signs that the period

of amend and pretend is drawing to an end.

Weak businesses that should have been put out

of their misery have been kept on life support

by banks who were too fragile to take write-

downs on their lending to such enterprises. The

tightening monetary policy will only accelerate

this trend.

PricewaterhouseCoopers, in a document

produced in April for its Portfolio Advisory

Group called “European outlook for non-core

and non-performing loan portfolios”, estimated

that European banks have u1.3 trillion of

non-core loans.

PwC makes the point that dealing with

this overhang will require a massive level of

transactions. And yet so far, there have been few.

In fact, for the vulture funds that have been set up

to swoop, far too few.

The first barrier to deals identified by PwC was

the bid-ask spread. Banks have been unable to sell

at the price buyers are willing to pay because of the

impact of the write-down on their balance sheets.

But PwC also makes the point that the process

takes time due to the complexity of many loan

books. The expectation of PwC is that it will take,

“at least”, another 10 years for the deleveraging

process to complete.

And where is there the most pain? In total

quantum it is that economic powerhouse and

paragon of financial virtue, Germany. A whopping

E225bn at the end of 2010 on PwC figures. Next

up is the not surprising appearance of the UK at

u175bn. Spain and Ireland also have big problems

with u103bn and u109bn respectively.

Of course, all these mega numbers are much

wider than the hotel industry but buried in the

figures are some significant hotel portfolios across

Europe. And the fundamental point is that the list

of reasons for doing a deal is getting longer, while

the list of reasons for not doing a deal is getting

shorter. In particular, rising interest rates will add

significant pressure.

During the period of the Great Grind there is

unlikely to be much opportunity to grow out of

trouble. The latest World Economic Outlook from

the International Monetary Fund is testament to

just how bleak growth prospects are for most

Western economies.

The WEO released in April forecast growth this

year of 1.6% in the Euro area (even Germany was

a below trend 2.5%) and 1.7% in the UK. Next

year it is little better at 1.8% in the Euro area and

2.3% in the UK.

The Great Grind will be a period of difficult deal

doing but the deals will have to get done.

The period leading up the credit crunch is now widely known as the Great Moderation, a period that started in the 1980s and saw a sharp reduction in economic volatility. The collapse that followed in the autumn of 2008 is often referred to as the Great Recession.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 3

News

continued from page 1

but across Europe there are varied dynamics. We

need to have a clear out of the assets that aren’t

bouncing back.”

Several advisory groups used the conference to

launch their latest transactions data, which have

indicated increases in 2010 and likely growth in

this year. The HVS European Hotel Transactions

Report saw a doubling in transaction volumes

last year, forecasting that deal volume would

“gradually pick up” during 2011, with an increase

in distressed sales likely as trading improved and

bank lending increased.

Deloitte supported an increase in transactions,

with Nick van Marken, global head of advisory

– tourism, hospitality & leisure at Deloitte,

adding: “2010 saw global transaction activity

approach c.$25bn in value. Europe saw a strong

upsurge in deals, with a total of c.E6bn in overall

transaction volumes.

Arthur de Haast, global CEO, Jones Lang LaSalle

Hotels, said: “There are definitely distressed

assets out there, but the banks have been taking

a long-term view. It wasn’t a bad strategy – I’m

not sure it was a strategy – but it has worked

out. We still expect debt to be a challenge in

2011. We could get a double-dip in pricing for

secondary markets.”

HA Perspective: With photos of shuttered

pubs appearing frequently in the UK press, some

observers have concluded that the short-term

pain may be replaced by a more sustainable

supply. However, the issues that have led to the

fall in the number of pubs have shared some

characteristics with hotels, but not all.

The key difference is that demand for hotel rooms is

increasing. The issue is mostly one of capital structure,

at least for chain hotels, rather than obsolescence.

Lack of cash to refurbish the properties can push

them into effective obsolescence, particularly if they

are competing with nearby hotels that have enjoyed

adequate capex.

Most of those calling for hotels to be demolished

really mean “sell them to me cheap”. The banks

are showing no signs of playing this game, having

seen how some investors made excessive profits in

the aftermath of the 1990s recession.

Across Europe there is a case for shutting down

hotels in a handful of difficult locations with excess

supply. Ireland is the main culprit. Even Spain is

probably OK outside of the Costas.

His exit puts NH firmly into play with the

possibility of a break-up if no bidder emerges for

the whole group.

Both NH and Burgio have been quiet since the

filing with Spain’s National Securities Market, which

said that his decision was made after having achieved

the objectives set out in the business plan agreed

in 2009 to address the impact of the downturn.

However, rumours persist that Burgio was ousted

by 10% shareholder Caja Madrid, rumours made

stronger by the fact that his replacement is currently

president of SOS Food Corporation, of which Caja

Madrid is the biggest shareholder.

It is thought that Caja Madrid, which is one of

Spain’s oldest savings groups, had been acting

with Group Hesperia, with the pair collectively

representing shareholder who own around 45%

of the group. Hesperia has a rocky history with NH

as far back as 2003, 10 years after Burgio joined,

when the company was eager to merge with NH.

NH rejected the unsolicited bid for a 26.1% stake as

too low, both in price and in terms of the stake size.

The company also said that the deal would raise

its debt and pointed to future recovery as well

as future cost savings, which it expected to buoy

its finances. The board at that time had faith in

Burgio’s long-term strategy, which, over the course

of his leadership, has taken it from under 100 sites,

all in Spain, to over 400 hotels across 24 countries.

Hesperia continued to nag at the group, building

up its stake gradually, until 2009, when the two

merged their hotel management businesses,

building the NH estate without the need for any

additional investment. Hesperia continued to own

or lease its 51 properties and, after a six-year wait,

also claimed a seat on the board.

Burgio’s exit had the support of the Spanish

stock exchange, with shares in NH rising by 7%

after the news, with analysts possibly looking at

the turnaround at SOS Food since Caja Madrid

rescued it.

NH is not in such dire straits, with recovery

gaining traction in its domestic market and, in the

third quarter, seeing rate growth for the first time

in seven quarters. Burgio himself thought that the

group had reached a point at which it could start

to build on its recovery, after instigating the 2009

plan, forecasting “moderate” revpar growth. The

group was also looking to expansion, focusing on

Germany, France and Latin America.

NH has also been pursuing an asset

rationalisation strategy, cancelling a series of low-

performing contracts. However, the group’s asset

disposal plans, which saw it intend to sell E300m

of non-strategic assets last year, was set to spill

over into the first months of this year.

By the end of the third quarter, the group had

raised E183m through the sale of three hotels in

Mexico and St Ermin’s Hotel in London. A further

E60m of sales had been committed at that time,

but, despite the wider defence of the weak

transactions market, this delay may have been the

straw that broke the donkey’s back.

Caja Madrid is keen to raise cash, and as fast

as possible, to aid its position in the country’s

ailing banking sector, under pressure from the

government. The bank leads a group of seven

savings banks under the name Banco Financiero y

de Ahorros, which is planning to list to raise capital

once Spain’s new regulations are clear. These

considerations mean that the group is unlikely to

view NH as a long term hold.

Hesperia has not been the only company to view

NH as a potential takeover target over the years,

with the then Hilton International thought to have

eyed the company, in addition to fellow Spanish

group Sol Melia. For Sol Melia, recent strategy

has seen it sell its Tryp brand, with the company

intending to expand outside the volatile Spanish

market and through low capital intensive means.

HA Perspective: Burgio has been ousted more for

the needs of some of the companies that part own

NH than for the benefit of NH’s wider shareholder

base. Caja Madrid in particular desperately needs

cash and the sale or even break-up of NH will

deliver this.

The new CEO has a track record of stripping out

companies. At SOS Perez Claver sold-off the rice

business at the end of last year, focusing on its core

olive oil operation. The cash raised was distributed

to shareholders and debt was paid down.

Maybe this is the answer for NH which has

struggled with its debt burden and exposure to

high rent leases. But it would be a sad end to what

is currently Spain’s only truly European hotelier.

It is also a worrying precedent for other

indebted hotel groups. Given the problems at

Lloyds Banking Group, the executives at newly-

minted Mint (formerly City Inn) and the Rocco

Forte Collection will not be sleeping easy.

Burgio falls victim to needs of shareholdersGabriele Burgio’s tenure at NH Hoteles came to a sudden end, with the news that he was to leave the group at the start of March, to be replacedbyMarianoPérezClaver.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 14

News

Objections were raised to the price – at 14 times

Ebitda – although Harrison pointed to extensive

expansion plans. The new boss was given an

additional headache by the group’s Premier Inn

business, which saw a slowing rate of sales growth

in the fourth-quarter.

An additional point of concern was that the

deal worked out at around £66,000 a machine,

compared with a cost of £15,000 for a new

machine. The news of the Coffee Nation deal

was more welcome at Deutsche Bank, one of

Whitbread’s brokers, with analyst Geof Collyer

estimating that the Ebitda multiple would drop to

four times by year five of the takeover, as Harrison

planned to take the group from 900 to 3,000 sites

as Costa Express over the next five years.

Harrison’s interest in the coffee business was

also backed by Morgan Stanley analyst Jamie

Rollo, who said: “Whitbread has reported an in-

line quarter for this trading update, with slower

sales growth in hotels (as expected) and at Costa,

but a strong restaurants performance and an

attractive acquisition. Whitbread is one of the

fastest-growing, property-rich and yet cheapest

hotel stocks.”

In keeping with the new CEO’s heritage at

Easyjet, and in line with the group’s increasing use

of a price-based competition strategy, the group

trialled £19 rooms, as a “test of elasticity”, during

the fourth quarter, which has historically been a

weak trading period.

Harrison said: “It was a small test, but was

successful and we’re looking to add that to the

commercial mix going forward, to use for different

customers and at different times of the year.”

Despite the Costa Express launch, expansion

at Premier Inn is continuing. Harrison said that

the group still planned to add 20% of its estate,

reaching 55,000 rooms by February 2014.

At Premier Inn, like-for-like sales growth fell

to 5.1% for the quarter to 17 February, down

from the 8.7% increase in the previous quarter.

Harrison told an analysts call that London had

seen “some softening” in the fourth quarter, with

rates down half a percentage point, but was still

growing, with occupancy up 4%. Performance

in the provinces was unchanged from the third

quarter. Total group sales in the last 11 weeks

were up 12.4%.

The CEO pointed to falling consumer confidence

as a possible explanation. He said: “Comparatives

are distorted by the winter weather patterns. The

rise in VAT is pretty recent. The rising oil price is

beginning to feed through to the forecourt. From

a consumer perspective there’s more negative

than positive news.

“Our businesses have traded well during the

tough recessionary period and we’re confident

that we will continue to deliver a good relative

performance. We are expecting a continuation of

the difficult consumer environment that we saw

last year.”

The group said, however, that its balance

sheet was “strong and remains underpinned by a

significant freehold asset base” and it anticipated

“that the outturn for the year will be in line u

Whitbread’sHarrisontakeshitoncoffeeAndyHarrison,Whitbread’snewCEO,sawhisfirstboldactinhisnewroletake5%offthecompany’sshareprice,astheCityreactedbadlytothecompany’s £59.5m purchase of self-servicecoffeegroupCoffeeNation.

In Europe, however, despite similar levels of

distress, there has been hardly any transactions

taking place. Lenders are adopting different

approaches according to the territory with the

same bank choosing to exit a distress situation at

a loss in the US while hanging on in Europe.

The most recent US deal involves the Mark in

New York. Dune Real Estate Partners is reported

to have acquired the $300m mortgage on the

Mark for $190m, giving it control of the property.

Dune will work with developer Alexico Group to

continue repositioning the hotel property. Alexico

has spent around $200m renovating the Mark, but

ran into difficulties over stalled sales of residential

units it had developed on the site.

Blackstone Group and Square Mile Capital are

reported to have agreed to buy mortgages worth

around $385m linked to 45 hotels, from the US

Federal Deposit Insurance Corporation. The pair will

pay about 80 cents on the dollar for the portfolio,

through a joint venture, according to The Wall

Street Journal, which was felt to be a relatively high

price compared with deals involving distressed debt

backed by hotels done earlier in the downturn,

indicating increasing optimism in the sector.

Both that deal and that to take control of the

Mark involved banks under pressure – the failed

Silverton bank in the US and Anglo Irish Bank,

respectively – and have seen the debt acquired

at a discount, indicating that the merry-go-round

of pain is finding a home, in this case with the

previous lender. AIB financed several Alexico

projects during the boom, but last year sold loans

for the group’s Alex Hotel and Flatotel.

This is not the first such deal for Blackstone,

which, at the end of last year took ownership

of 14 hotels it had previously sold to Columbia

Sussex five years ago, through acquiring the junior

debt on the sites.

For the new owners of the debt, it is not the

detached process of dealing debt that helped to

set up the position the wider financial market finds

itself in, one which those with cash are able to take

advantage of. The new owners are faced with real

assets which must be made to work and assessed

for flaws underlying what may just be over-leverage

as a product of the cycle’s frothy peak.

The Irish Times reports that, at the Mark, AIB is

being sued by Alexico, which claims that the bank

breached a series of agreements relating to $500m

of loans that it made to redevelop the Mark, Alex

and Flatotel. The developer has argued that the bank

should not sell on the loans and it is not known if the

deal with Dune will see this case dropped.

HA Perspective: The different approach adopted in

the US compared to Europe is at first sight puzzling.

Taking a write-down in the US hurts the balance

sheet of banks just as much as it does in Europe.

But there are complexities. The bankruptcy

process in many European jurisdictions is far from

clear cut and political pressure can be a significant

deterrent. Banks, having been bailed out either

directly or indirectly by governments, are reluctant

to be seen shutting down businesses.

Just as importantly, the European business

culture does not so readily accept failure as the

US. A failed business venture in Europe often

taints those who originally backed it rather than

being seen as an unfortunate and occasional side

effect of taking risk.

Distressed loans in Europe will have to be sorted

out eventually. It seems that the preference is to

do things quietly.

Passing the debt parcelDebt is continuing to be the critical factor for distress situations in the USandhasledtoanumberofsingleasset and portfolio hotel deals being struck in the past couple of years.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 5

News

with market expectations, demonstrating strong

profit growth”.

UK-specific concerns, such as the VAT rise,

caused Panmure Gordon to reiterate its ‘hold’

rating, with analyst Simon French commenting

in a note: “Whilst not expensive relative to its

hotel peers, Whitbread has almost 100% profit

exposure to the UK consumer and, on this basis,

is trading at a material premium to other freehold

backed, UK-focused leisure companies such as

Mitchells & Butlers.”

There was no mention in the group’s results as to

whether the soon-to-be-rebranded Coffee Nation

machines were likely to pop up in Premier Inn sites

– the company is focusing on high-traffic areas

such as hospitals, universities and train stations –

but the new CEO’s rapid expansion means there

should be no difficulty finding one.

Reassuringly for Harrison, despite falling like-for-

like sales at Costa, the wider coffee market looks

strong. Mintel said that there had been steady

growth over the past five years in the number

of coffee shop customers taking their purchases

away and Harrison said: “There are 6bn cups of

coffee sold through traditional vending machines.

That tells us there’s a huge customer demand for

speed and convenience”. His hope is that with

his company controlling the only machines that

currently use ground beans and fresh milk, he can

lure these users his way.

HA Perspective: Former CEO Alan Parker told the

International Hotel Investment Forum that Coffee

Nation was one of a number of companies that

had been identified as possible takeover targets

during his time at the helm.

However, the glory or opprobrium for this deal

will fall on the head of his replacement, Harrison.

The deal itself is not of great consequence for

Whitbread’s future, given that it represents just

a fraction of the investment Whitbread makes

annually into its hotel business.

Perhaps the share price drop was led by fears

that Whitbread will start overpaying to deliver

growth. Harrison needs to move swiftly to confound

such worries.

continued from page 4

IHG will now be headed up by Richard Solomons,

CFO and head of commercial development,

who has been a board member since 2003,

having joined in 1992. In contrast to Cosslett’s

background in marketing, Solomons’ CV includes

seven years as an investment banker prior to a

series of financial roles, experience which IHG will

now look to as it cements its recovery.

There has been no talk of a rift in the board

room and, when Cosslett told a conference call

that he had been overseas for up to 60% of

his time in the role, this was accepted as strong

cause by the sector, with analyst Nigel Parson of

Evolution Securities, commenting: “The market

will be disappointed ... but he has a good sense of

timing and is probably sick of living in an aeroplane

or hotel room... Solomons is very capable and will

ensure no change in strategy”.

Cosslett is also not moving to take on another

position, telling analysts: “I don’t have any

immediate plans... I’ve been globetrotting pretty

much non-stop for the last 24 years so it seems

like a good idea to stop doing that for a while and

let my brain settle.”

Cosslett’s departure was textbook, according

to data supplied by Chris Mumford, managing

director at HVS Executive Search. The group

compiles information on the 50 biggest hotel

companies and their executives and confirmed

that, at 55 years old Cosslett was three years

above the average age for CEOs to leave but, at

six years, was dead on the average CEO tenure.

Cosslett’s appointment was part of a trend

for leaders in the sector who had brand, but not

hotel experience, which began with Starwood

Hotels and Resorts’ appointment of Steve Heyer

from Coca-Cola in 2004. While that didn’t work

out too well for Starwood – Heyer left less than

three years later with the group citing “issues with

regard to his management style” – it didn’t stop

them hiring outside the sector in the form of Frits

van Paasschen, former CEO at Coors.

While Cosslett’s exit was more amicable than

some recent changes at the top in the hotel sector,

Mumford pointed out that, at both Accor and NH

Hoteles, the new CEOs had previously been non-

executive directors at the companies they were

now leading, a theme continued at IHG and, as

this went to press, Morgans Hotel Group.

The appointment of Solomons from within may

have been in keeping with current sector thinking,

but it is not known if he had any competition from

other IHG executives for the position. Observers

will note that he had, however, a dry run in the

role when he lead the group’s conference calls for

its third-quarter results last year.

One investor, talking to Hotel Analyst after the

announcement, described Solomons as a safe

pair of hands and a true hotelier, who would use

his financial acumen to steer the group forwards

in its recovery, now that the departing brand-

man had strengthened the group’s brands and

asset-light strategy.

For any aspiring future IHG CEOs thinking about

what undergraduate degree to do, heading to the

University of Manchester looks to be a good bet

– both Cosslett and Solomons earned their BAs

in economics from that seat of learning, although

with around five years between them were unable

to have made any succession plans in the uni bar.

It is felt by some observers that Cosslett would

have left the group earlier, had it not been for

the downturn, but stayed on to see the company

through to recovery. The question now is what

Solomons will do with his hand on the tiller now

that the route ahead is less stormy. Not a great

deal differently, seems to be the consensus, but,

after close to 20 years at IHG, he must have some

ideas of his own.

HA Perspective: Cosslett’s departure was a

shock and the City reacted as it always does to

unexpected and sudden news, badly. But after a

few days the fretting abated and stock market

investors renewed their faith in IHG.

To describe Solomons as a hotelier would be a

stretch for those of the old school given that he

has not had the hands-on operational experience

usually associated with executives lauded with the

term. But this is not necessarily a bad thing.

Solomons has been part of the cultural shift

at IHG that has seen it move from being a purely

guest focused company to one that understands

its customers are also the owners of its hotels.

IHG has already signaled that it is prepared to

dispose of all of its real estate, including its four

flagship InterContinentals in London, New York,

Hong Kong and Paris. This, and the ongoing work

refreshing the Crowne Plaza brand, is likely to

keep Solomons busy for the next few years.

Unlike his fellow newly installed CEOs at

Accor and NH he does not face the pressure to

change the pace or style of the leadership of his

predecessor.

IHGlookstosteadyhandasCosslettquitsTheresignationofAndyCosslett asCEOofInterContinentalHotelsGroupcameasashocktotheCity,but the impact soon passed, as the company’s shares regained the moderatelossessufferedaftertheannouncement within a few days.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 16

News

After predecessor Gilles Pélisson’s departure

over “strategic divergences” Hennequin showed

that his strategy was in line with the rest of

the board as he revealed an acceleration of the

company’s expansion and asset sales.

“Our objective will be to accelerate the execution

of our strategy,” he told analysts, with franchising

key to the group’s expansion. He added: “We want

to turn Accor into a global leader in franchises,

notably in Europe”. The group’s growth plan

calls for the addition of 101,000 rooms by 2014,

42% of which will be in Asia-Pacific and 32%

in Europe, 75% of which will be management

contracts and franchises.

The second part of the group’s strategy will see a

speeding up of its asset disposals, which is helping

it pay down debt. Accor has already completed

almost one third of the E2bn asset disposal plan

in place for 2010 to 2013 and has increased its

target for sales to E1.2bn by the end of 2012, up

from E800m previously.

The latest hotel to be identified for sale is the

480-room Hotel Novotel north of Times Square in

New York, with one of the sale conditions being

for the buyer to keep Accor on at the site under a

management contract.

Accor, which owns the Sofitel Luxury Hotels

and Motel 6 brands, among others, aims to u

AccorCEO’sdebutlackssurprisesWithGabrieleBurgio’sreplacementstillunpackinghisdesk,Accor’snewCEODenisHennequinwaseagertoprove to his shareholders that he was ready to hit the ground running at hisfirstresultspresentation.

Dealing with debtAfteraquietyearduringwhichahandful of trophy assets were fought over by a handful of high-net-worth individuals, institutional investors and hotel investment companies, a slew of forecasts released during the International Hotel Investment Forum suggests that 2011 will see an increase in activity.

Single asset deals in strong markets such as

London were the preferred flavour last year, with

a limited number of hotels coming to market

as banks preferred to ‘pretend and extend’. But

this postponement of reality cannot continue

indefinitely and when the banks bring assets to

market it is those investors who have taken canny

positions around the debt structure who will be

in the driving seat.

Deloitte, looking at the European hotel market,

has forecast “potentially” a 25% to 50% increase

in deal activity in the region, with a return of

portfolio deals, although said that risks remained

on the downside. HVS too, in its ‘2010 Europe

Hotel Transactions’ report, has pointed to a

gradual increase in banks selling distressed assets

would see deal volume “gradually pick up”, aided

in part by “genuine depth to the amount of equity

chasing deals”.

According to Ernst & Young’s Global Hospitality

Insights, the improvement in operating performance

in 2010 and the positive outlook over the next

several years has sparked a resurgence of investor

interest, which was likely to see an increase in

volume, globally, of 30% to 40%, to reach $30bn.

This would represent a return to 2004 levels, off the

$120bn transacted at the peak in 2007.

With the flood of distress never materialising,

many investors stayed away from the sector (and

property generally). However, with improvements

in trading fundamentals pulling up values and

causing analysts to call the bottom of the market,

an increase in investment has been provoked.

Low leveraged players are likely to remain the

main investors in the sector, with Ernst & Young

confirming that REITs were the most active hotel

buyers in the US, representing approximately

46.0% of the hotel transactions, as they took

advantage of the relatively lower cost of their capital

requirements. By comparison, REITs accounted for

only 16.0% of hotel acquisitions in 2009.

This year is expected to see an increase in the

number of bank-owned assets coming to market,

a state which is coming to pass with a further deal

by Royal Bank of Scotland, selling the Brighton

Hilton Metropole for £39.25m.

For the less cash-rich, one route into the sector

has been acquiring distressed debt. According

to Fitch Ratings, $22bn of the $48bn in hotel

commercial mortgage-backed security loans

mature over the next three years, with most

maturities occurring in 2011 and 2012, while this

year is expected to see financing arrangements on

many of the leveraged transactions seen in the

EMEA market coming up for renewal.

The most recent debt-triggered deal to be done

was Ashford Hospitality Trust’s acquisition of the

28-hotel US-based Highland Hospitality portfolio

for $1.28bn, through a new joint venture formed

with an unnamed institutional partner, thought to

be Prudential Financial. Ashford invested $150m

and took on $786m of debt in the hotels, giving it

71.74% of the joint venture.

Ashford described the acquisition and

restructuring, which includes hotels operated

under the Hyatt and Ritz-Carlton brands, as a

“consensual foreclosure”, a term the sector is

likely to become very familiar with.

Under the terms of the deal, Ashford is investing

$150m cash and assuming $786m of debt, with

senior lenders providing $530m of three-year

financing with two one-year extensions on 25 of

the hotels. The venture assumed first mortgages

of $146m on three hotels, with those loans

maturing in about two years. Unnamed lenders

are providing $419m of high-interest mezzanine

financing for the estate.

CEO Monty Bennett said that it would be “hard

to match the many benefits of this investment. We

believe there is a substantial opportunity to improve

the hotels’ performance with an aggressive asset

management strategy”.

The REIT, which focuses on upper-upscale and

upscale hotels and also looks at mid-scale and

luxury sites, favours direct investment but, in

keeping with the current state of the market, also

considers mezzanine financing, first mortgages,

and the purchase of its own debt at a discount.

The deal was thought to have been good news

in particular for Blackstone Group, who, according

to Bloomberg, earned about $260m on distressed

junior loans after paying around $60m for $320m

of Highland mezzanine debt, which is now thought

to be worth about its face value.

HA Perspective: Even though it is increasing,

deal flow is likely to remain subdued compared to

the go-go years of 2005-2007.

While debt is coming back, it is a long way short of

presenting an opportunity to rescue overleveraged

acquisitions made during the boom period.

Difficult and protracted negotiations are likely to

be needed for deals to happen. The days of term

sheets be faxed through by compliant lenders are

long gone.

But deals are being done and more will be

done. Debt, in one form or another, will remain

the determining factor.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 7

News

sell the Novotel, at 226 W. 52nd St., as part of

its strategy to shed real estate and instead focus

on managing and branding hotels. A buyer of the

Times Square property will be required to keep

Accor as the hotel’s long-term manager, an Accor

spokeswoman said.

At the full-year results, the group said that net

debt had fallen E234m to E730m, compared to

E964m at its interims. In a note, Morgan Stanley

said that the figure was beneath its estimates of

E902m. The figure is expected to fall to close to

zero by the end of the year. The group ended the

year with total debt/Ebitda of 2.1 times, compared

to 3.9 times at the end of 2009.

Guillaume Rascoussier, an analyst at Oddo & Cie,

said in a note: “Hennequin’s experience is exactly

what Accor needs to turn the group into a cash

cow. He is better positioned than his predecessor

to manage Accor’s move from leased to franchise

hotels. The biggest change needs to be made

inside the company, which isn’t experienced in

promoting and attracting franchisees.”

However, there had been expectations of the

group returning cash as a result of the sale of the

company’s Lucien Barriere sale, with Rascoussier

describing this as “short-term disappointment”.

Operationally, the group has seen its position

strengthen, with hotels revenue up by 7.4% like-

for-like, to E5.69bn, helped by sustained growth

that gained momentum in the second half in

Europe. The results also reflected improvements in

the emerging markets of Asia and Latin America.

FD Sophie Stabile said that the company expected

the hotel sector recovery to continue this year,

driven in the main from rising occupancy and with

some improvement expected in room rates. She

added that, in regions where the turnaround had

been slower, such as Italy, Spain, the Middle East

and Africa, trading would likely remain “difficult”.

In the upscale and midscale segment, revenue

increased 10.1%, and the growth was 11.1% in

economy hotels, excluding the US, where Motel

6’s revenue rose 3.8% led by an increase in revpar.

The company said that average room rates were

improving in upscale and midscale hotels and

“gradually stabilising” at economy level, with

“strong growth” in emerging markets.

Despite Motel 6 continuing to underperform,

Hennequin refused to be drawn on whether the

group would sell the brand, and, although he

acknowledged that the company faced criticism

for its extensive brand stable, he commented that it

was too soon to consider selling any of its flags. He

added that the group would look mostly to organic

growth, but would not rule out acquisitions.

In announcing the group’s strategy under his

captaincy, Hennequin, who has also recently presided

over changes to the executive committee – described

by him as leaner and more efficient – used words

such as “accelerate” and “dynamic” to emphasis

the contrast in urgency with his predecessor.

HA Perspective: How much of an impact

Hennequin will have on Accor remains to be

seen. He is at least making the right noises from

the point of view of the shareholders behind the

ejection of Pelisson.

However, the strategy does not represent a sea-

change for Accor. While, at the presentation he

seemed to have a strong grasp of the group and its

business, observers are looking to see if he can make

the changes to the group’s mindset at ground level.

The challenge is not so much about changing

the approach of the troops in the front line – in

this case the hotel developers out there selling

franchises – but whether there is a realistic

opportunity to achieve the objectives being set.

Changing the structure and attitude of the

workforce is clearly something within Hennequin’s

control. And given his track record, it would be

unwise to bet against him succeeding.

But creating a suddenly dynamic demand for

franchising within Europe is another matter entirely.

Other major hoteliers believe it can be done – IHG

and Hilton are among the most aggressive.

If it does happen, then the industry is about

to undergo a radical period of transformation.

continued from page 6

The sector has had a mixed relationship with the

event since 2005, when London beat Paris to the

right to host. The global profile that the coverage

will give the capital has been welcomed, but there

have been concerns that non-sporting guests will

be deterred and that the increase in hotel supply

will have an impact on rates.

Liz Hall, head of hotels research at

PricewaterhouseCoopers, said: “Q3 2012 could

make many hoteliers’ dreams come true with

Farnborough Airshow, the Olympics and Paralympic

Games all in the same quarter. But outside this

crucial quarter, we remain concerned that reduced

demand and above average room supply will take

its toll on London trading. Hotels planning a bout

of price gouging during the Olympics will only

worsen any Olympic hangover.

“But it is what happens once the Games are

over that really matters, particularly for London

with its significant amounts of new supply coming

on in 2011 and the first half of 2012.”

The comments were made shortly before the

European Tour Operators Association complained

that high hotel rates and issues getting visas were

leading to a decline in tourists to the UK in the

run-up to next year’s London Olympics. The group

said London 2012 organisers had secured 40% of

hotel rooms at below market rates and now hotels

were seeking to recoup their losses by increasing

rates and tightening terms for the remainder of

their rooms, with executive director Tom Jenkins

commenting: “An industry stands in jeopardy

through overhyped fantasies of bonanza”.

The ETOA was joined by UKinbound, which

accused some London hotels of being “gripped by

a frenzy of greed” ahead of the 2012 Olympics, all

of which led to Johnson commenting: “We mustn’t

be seen as sharks through the actions of the short-

sighted Arthur Daleys out there who want to cash in

on the Games. Their actions could ruin the excellent

work put in by the rest of the tourist sector, with

repercussions for decades to come.

With every hotel currently being developed in

London seemingly due to open just in time for the

Games, the luxury segment is a key focus – PwC

estimates that there could be a 27% increase in

luxury rooms in London by 2012 with around 2,400

rooms in 18 hotels reported under construction or

planned in London.

Fears over hotels profiteering, triggered by the

events in Athens in 2004 which saw many rooms

left empty, caused the organising committee to

block-book 40,000 hotel rooms for Olympic officials,

international federations, foreign media and others

at rates agreed before London won the bid.

For the other rooms, Visit Britain has said it hoped

that hoteliers and other hospitality businesses

would sign up to an industry-led “fair pricing u

London count down courts controversyAstheLondon2012Olympicorganisers gave a hefty kick to the countdown clock when it stopped 499 days ahead of schedule, the city’s Mayor, Boris Johnson, put his own boot in to the hotel sector amid reportsofprofiteeringfromthecapital’s properties.

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News

and practice charter” under which they would

voluntarily agree to offer fair and reasonable prices

between 1 June and 30 September next year.

Visit Britain has not set down what it believes

to be “fair” or set a ceiling, and, with so many

new hotels coming on stream, eager to recoup

development costs using the Games as a boost,

there is no great incentive to hotels to take one

for the team, as such. One of London’s current

attractions is its comparative cheapness, which,

as long as the government maintains its policy of

keeping the pound low, will continue.

The British Hospitality Association was due to

meet with the London 2012 organising committee

over concerns that hotels were being resold at

inflated prices.

Hotels have complained that rooms which

were part of the 56,000 allocation agreed at a

predetermined “fair price” based on the average

room rate between 2007 and 2010 were being

resold as part of ticket-and-accommodation

packages by Thomas Cook, the “official provider

of short breaks” for London 2012.

For those for whom the pound is their home

currency, there are other options available:

camping is set to be set up at sites in and around

the capital which will also come with bars, big

screens and other festive paraphernalia.

HA Perspective: Building hotels for events has

always been a recipe for losing money. Luckily

for those foolish enough to do it in London, the

combination of the UK capital’s size and resilient

demand means most of the extra supply will be fairly

easily absorbed without the bumps seen in cities like

Barcelona, Sydney and most recently Beijing.

The one possible exception is luxury hotels. In

this segment, the weaker players are going to have

to trade down to find enough custom, potentially

doing long-term damage to their status as luxury

hotels as high paying guests suffer tour groups

and similar traipsing past.

Meanwhile, the hotel industry has a potential

media storm on its hands unless it yield manages

carefully. It was willing to sign-up to a formula

that effectively restricted its ability to maximise

profits in order to win the bid. It now needs to

apply a similar moderating approach to those

60% of rooms which fall outside of the reasonable

pricing policy struck with London’s Olympic

organisers Locog.

If it does not, the public relations damage will

far outweigh the relatively modest profit uplift to

be extracted during the few weeks of the Games.

In the past year the group has bolstered its

stable with, amongst others, the Tryp brand, which

it acquired from Sol Melia, in addition to signing

deals to licence the Planet Hollywood brand and

franchise the Dream and Night brands.

The group said that it would continue to

grow its system, under Wyndham Hotel Group,

and increase revenues through brand affiliations

which, CEO Stephen Holmes said, would allow it

to increase its overall presence “with little or no

capital investments”.

In a conference call, Holmes said that the

acquisition of the James Villa Holiday brand in

November had given it “geographic and product

expansion, growth opportunities in Europe”

providing scale in Spain and Portugal and good

representation in Greece.

While Wyndham spent much of 2010 looking

outside its existing stable to strengthen the range

of brands that it would be able to offer owners

in the future, Holmes said that the group was

also keen to grow its Wyndham Hotels and

Resort brand.

Wyndham brand openings were up over

60% in 2010, with 2,000 rooms added in the

fourth quarter, in locations including Orlando

and Chicago, as well as international openings,

including Mexico, Panama and Australia.

Holmes was confident of growth in the current

year, commenting that the outlook in the hotel

owner community had “significantly improved”,

adding that the company expected asset trading

“to increase in 2011 as the credit markets

continue to improve”. Revpar growth that the

company had seen in the US was also expected to

gain momentum globally.

Revenues at the hotel group were up 9%, Ebitda

increased 25% and margins improved over 300

basis points. In the US, revpar improved 8%, with

the majority coming from occupancy gain. With

other operators in the hotel market seeing rate

increases, Wyndham said that it was looking to

2012 to see growth in rate. In constant currency,

revpar in China and the UK grew 18% and 13%,

respectively. The UK, China and UK represent 84%

of the group’s total system, which is set to change

as the group looks to expand its brands overseas,

both organically and through acquisitions.

Excluding the Tryp acquisition, the group opened

over 54,000 rooms in 2010 and terminated

approximately 52,000, half of which it attributed

to financial difficulties amongst franchisees. CFO

Tom Conforti said that the group expected “these

types of terminations to moderate over time as

the economy continues to recover. In general,

retaining our strong franchisees remains a key

priority for our lodging business”.

In addition to the company’s hotel business,

the 6.9% increase in fourth-quarter earnings

was attributed to the group’s timeshare business,

Wyndham Vacation Ownership, which ended the

year with adjusted Ebitda of 32% above 2009.

vacation ownership interest sales rose 9% after

falling 21% a year earlier, with the increase was

attributed to 13% growth in tour flow.

Holmes commented: “While credit markets

for timeshare developers are still in the recovery

process, sentiment among developers … was

markedly positive.”

During the year Wyndham generated $600m

of free cash flow, which it spent on dividends,

buybacks, and acquisitions. The group said that it

would continue to strengthen its financial position,

with Holmes adding that the group would look

to “continue to deploy free cash flow to create

more value for our shareholders in 2011 through

acquisitions, share repurchases and dividends”.

Despite the Q4 increase, the markets were

disappointed that the recovery was not as strong

as that reported by Starwood Hotels & Resorts in

the previous week and the group saw its share

price drop by 2% after the announcement.

Fred Lowrance, analyst with Avondale Partners,

described the group as the most acquisitive of the

hotel groups, excluding Reits and commented:

“They will perform just fine considering their bias

towards mid- to lower-tier hotels and their focus

on leisure travellers”.

HA Perspective: It is easy to forget that

Wyndham is a timeshare company with a hotel

franchise business attached given the scale of the

company’s hotel franchise operation, the biggest

in the world on some measures.

The timeshare focus, which sees Wyndham u

WyndhamtopursuebrandgrowthWyndhamWorldwide,whichreported a 10% increase in revpar in thefourthquarter,saidthatitwouldcontinue to pursue its strategy of expanding its brand presence.

continued from page 7

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News

make money out of both selling timeshare and

via its exchange programme formerly called

RCI, means Wyndham is skewed to the leisure

market. This is a challenge given the fastest

recovery right now is in corporate travel rather

than leisure.

With timeshare related sales at 80% of total

revenue, it is interesting that the company has

moved to re-label itself under a hotel brand rather

than anything to do with timeshare or even the

more euphemistic vacation ownership.

This naming decision should at least give the

hotel company reassurance that it is fully joined

to the greater whole. More worrying though is

the lack of capital commitment to grow this same

hotel business.

Rather than buying up brands, Wyndham ought

to be focused on cleaning up its existing portfolio.

This is a longer term, less immediately rewarding,

exercise. But ultimately it is where there is the

opportunity to build the greatest value.

continued from page 8

Speaking at the company’s final quarter results

presentation, outgoing CEO Andy Cosslett said

that the forecasts for a 3% decline in US revpar

in 2010 have in reality turned into a growth of

more than 8%.

In addition to revpar growth, another of the

three drivers of profits, rooms, also saw progress

with more rooms signed in Europe and Asia in 2010

than in 2009 (the final driver is royalty rates).

There has been a phenomenal recovery in the

US with a 7.7% increase in total room nights sold,

the largest ever according to Cosslett.

The trading outlook is also good with revpar

forecast to grow by between 6.1% and 9.0%

in the US. As well as economic recovery, the

situation is helped by slowing supply growth and

a strengthening of the mid market.

Cosslett said that the differential between mid

scale and more upscale properties was “steadily

being restored” and that this “favours the midscale

in particular”.

Total pipeline is expected to grow only modestly

this year due to continuing system exits following

the Holiday Inn upgrade but it is expected that

future years will see growth in the 3% to 5%

range as there will be fewer exits.

Operating profit before exceptional items grew

22%, perhaps a fairly modest result given the

exceptional operating performance improvement.

But profitability typically results from rate increases

and only Asia Pacific has been enjoying better

rates during 2010.

In fact, Asia Pacific saw revpar growth back in

December 2009 and significant rate improvement

from the middle of 2010. Revpar in the region is

now close to peak levels. Globally, revpar is $9 or

14% behind the peak for the group as a whole.

Also holding back profitability growth has been

the volume of exits in the system due to the Holiday

Inn upgrade programme. This will close by the end

of this year with 46,000 rooms still to exit or relaunch

(so far 370,000 rooms have been relaunched). Even

so, franchise fees grew 6% in 2010.

On the management side, 70% of the growth

came in Asia. Fees were up from $333m to $263m

year-on-year although still below 2008’s level

of $339m.

For the owned and leased hotels, which number

15 worth $1.5bn (although four properties account

for 80%), margins improved three percentage

points although this is still four percentage points

below 2008.

The sharp improvement in trading increased

costs as the company paid out for performance

related bonuses to its staff. People are about half

of the group’s regional and central costs.

IHG struck a different tone to that in past

presentations by saying that now it had successfully

paid down debt priorities had changed and now it

would invest for growth.

A key target was China where it is looking to

acquire brands. It is seeking something in the

luxury or upper upscale space just below the

InterContinental brand which it said was “sold

out” in territories such as Shanghai.

Also on the agenda were “halo hotels”,

properties such as the San Diego Indigo that would

have a wider impact on a market. It was unlikely

that this would be in China but rather countries

such as India where IHG had less distribution.

The total number of such investments would

remain small, perhaps two or three InterContinentals

and between four and six Crowne Plaza properties.

“A few iconic properties can make a big difference,”

said CFO Richard Solomons.

Also on the growth agenda were new segments.

Resorts were mentioned with a key driver being

the need to offer somewhere for customers to

redeem their loyalty points.

“We’re not about to buy and build a $500m resort.

We will risk weight where we invest,” said Solomons.

Other key areas for investment include in brands and

in technology and systems infrastructure.

Since 2007 IHG has put in $200m of investment,

typically sliver equity. This compares to more

than $400m in capital released.

“There will be occasions where the use of cash will

accelerate development but this will represent a small

proportion of the total number of hotels signed,”

said Solomons. And the preference will always be

to have a selling horizon and for the investment to

deliver a return above the cost of capital.

The closing of the Holiday Inn upgrade

programme had enabled IHG to move on to its

Crowne Plaza offer. This was described as the

fourth largest upscale brand with 388 hotels and

a value placed on it of $3.5bn. It is also the third

largest brand in the global industry pipeline (the

top two are Holiday Inn and Express).

The IHG pipeline stands at 204,000 rooms,

roughly 18% of the global branded pipeline

according to IHG’s estimates from STR figures. It

put Hilton’s share at 13%, Marriott’s at 10% and

Starwood’s at 3%.

HA Perspective: It seems strange that IHG is seeking

another luxury brand in Asia while creating another

midscale brand in the US. Logic would suggest that

the opportunity for midscale was strongest in Asia

given the demographic in that country.

It is perhaps similarly surprising that it is Holiday

Inn core brand rather than Express that has made

the running in Asia. Express has just 30 sites in the

region against 1,700 in the US.

If Asian development follows the pattern of

the US then there is gobsmacking potential for

Express. IHG has a new partner in ICBC for its

China joint venture for Express and has signed a

20 hotel deal with Duet in India.

But the course of Asian development is unlikely

to be as smooth as might be hoped. Even if it does

prove bumpy, IHG and other hoteliers still have

plenty of cause for optimism.

As Cosslett said during the conference call, a

key feature of the hotel industry is the headroom

there is for organic growth given the tiny market

shares of existing players.

His challenge will be in deciding how much he

is willing to pay to speed-up that organic growth

through acquisition.

IHG lauds sharpest ever recoveryIt is the sharpest recovery in the hotel industry’s history, according toInterContinentalHotelsGroup.

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News

Both companies took the opportunity to discuss

their intentions to expand, although a lack of

available properties was likely to limit these

ambitions to growth through management and

franchise contracts rather than ownership, despite

the groups’ strong cash positions.

Hyatt has previously spoken of its intention to

use its balance sheet – the group had cash or cash

equivalents of $1.1bn at the end of the quarter –

to grow its estate, but did not acquire anything

during the period.

The company has forecast capital expenditure

of up to $400m this year – against $310m last

year – with the latter part of 2011 seeing further

renovations in addition to five sites currently being

refurbished, which are being improved with a view

to future divestment. In a note Citigroup said that

it expected these renovations to have an impact

for most of 2011, but believed that the company

was poised for outsized growth in 2012.

Commenting on the group’s results, president

and CEO Mark Hoplamazian said that the company

would continue to “pursue many opportunities

for expansion with existing and new owners”,

adding that many of the group’s owners were now

multi-site owners. However, in a conference call

Hoplamazian did not have any further news on

hotels that the group might acquire itself.

During 2010 the group sold six hotels, four of

which were in the final quarter. During the period

the company executed sale-and-franchise back

deals for the Hyatt Lisle, Hyatt Deerfield and Hyatt

Rosemont in the Chicago area, for $51m and a

$59m sale-and-manage-back for the Grand Hyatt

Tampa Bay.

Expansion for the group is currently through

management or franchise contracts, with a current

pipeline of 140 hotels, up 15% on the same period

in the previous year, approximately 70% of which

were located outside North America, including

eight countries in which the group does not have

a presence, with 50% of the total signed pipeline

in China and India. u

Hyatt,M&CeagertobuyHyattHotelsCorporationandMillennium&Copthornebothreportedanincreaseinprofits intheirrespectivefourth-quarterresults, buoyed in large part by their exposure to major global cities.

As Akkeron Hotels was acquiring 10 sites from

the administrators of Butterfly Hotels and Crowne

Hotels, Whitehall Real Estate, a Goldman Sachs

fund, failed in attempts to agree a debt restructuring

deal on 14 Queens Moat House hotels.

The news that KPMG had been appointed to

look at loan enforcement options marked another

rung downwards on the ladder for QMH, which

was one of the highest profile collapses in Europe

of the 1990s recession.

There is £107m of debt secured against the

hotels, which trade under Crowne Plaza and

Holiday Inn brands and are part of a portfolio

of 28 hotels purchased by Whitehall Real Estate

in 2005. This debt has been extended once, in

February 2010.

Debt servicer Capital Asset Services (Ireland) said

that talks over the loan, which is due to mature on

23 February, were no longer being pursued. The

group said that it estimated that, should it pursue

loan enforcement, it would take between six

months and a year to recover the money. However,

it also said that a sale would pay the loan in full,

with the estate thought to have been valued at

around £230m.

At its peak, QMH was formed of around 190

hotels, in 11 countries. However, after a scandal

around dubious accounting practices, an asset

write-down and the firing of its board in 1993, it

underwent a major restructuring in 1994, over 18

months after its shares were suspended. The move

saw £1.2bn of debt rescheduled, £200m of which

was converted to equity.

The move failed to end the story for QMH, which

was in breach of its banking covenants in October

2003 and failed to publish its full-year accounts.

It was at this point that Goldman Sachs stepped

in, in a deal which saw Westmont Hospitality take

over management of the hotels, which at that

point numbered 80, in the UK, the Netherlands

and Germany.

Following the sacking of three directors and the

chairman in 1993 – a High Court judge ruled found

them guilty of preparing ‘seriously misleading’

accounts; making false representations to the stock

market, concealing ‘dubious’ deals and entering

into ‘wholly artificial’ transactions – Andrew

Coppell was bought in as CEO, a role he stayed

in for a decade. Coppell has most recently bought

his restructuring skills to bear at Alternative Hotel

Group – itself now subject to sale rumours – in its

£650m debt-for-equity swap with Lloyds Banking

Group in March last year.

One company which could show an interest in

the portfolio, should it come to market, is Akkeron,

which continued to show a taste for pressured mid-

market hotels with its deal to buy 10 sites from

Butterfly Hotels and Crowne Hotels. The deal saw

it increase its estate to 36, many of which are, like

the QMH portfolio, under the Holiday Inn Express

brand. Matthew Welbourn, MD, described Butterfly

as “an unfortunate victim of the recession”.

Akkeron has been active over the past few

months, acquiring the 18-strong Forestdale Hotels

in December. The group entered the regional UK

market in 2009 with the purchase of eight Folio

hotels from Mulbourn Hotels.

Welbourn added that the Butterfly acquisition

provided “the initial phase of the third leg of

our mid-scale business, bringing to the group a

portfolio of hotels that trade under international

brands”. The group has aspirations towards a

150-strong portfolio, operating outside London in

the UK provinces, comprising a blend of ownership,

leases and management contracts.

For Welbourn, acquiring the remains of QMH

would have a special resonance. Prior to joining

Akkeron, he was operations director at the group

from the restructuring in 1994, to 2006. Twelve

years in which he will have learned many lessons

about the UK provincial market.

HA Perspective: It is wrong to equate mid

market with disaster but that is precisely how the

segment finds itself labelled in many quarters.

This is not so much a function of being squeezed

between economy hotels from below and upscale

from above but from the fact that so many properties

are under invested, over leveraged or both.

That said, the way out for many mid market

hotels is still far from clear. Simply refinancing

and shuffling around a few badges over the top

of the properties is unlikely to result in a radical

transformation of the underlying business.

Perhaps the likes of Akkeron have a master plan

to revolutionise the segment. If there is one, it has

yet to be made clearly visible.

UKmid-marketunderfurtherpressureTheUK’sbeleagueredmid-marketcontinued to make the news, as strength in the budget sector and a recovery in corporate travel put pressure on the provincial hotels in the middle.

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News

Host, which is to acquire the 1,625 room

Manchester Grand Hyatt San Diego for $570m,

also reported a 6.2% increase in fourth-quarter

revpar. Strategic, meanwhile, has made an

acquisition despite its high levels of debt and has

in fact cut its overall debt ratio through its most-

recent deal.

Strategic is to buy two Four Seasons hotels from

The Woodbridge Company, neither of which are

carrying any debt, paid for by issuing 15.2 million

shares, valued at $95m to Woodbridge. It will also

then sell another eight million shares to Woodbridge

for $50m. In the act of making the group larger, it

has made its debt proportionally smaller.

Jeff Donnelly, Wells Fargo Securities analyst, was

quoted in the Wall Street Journal as calculating

that, in addition to plans by Strategic to pay debt

incurred restructuring the Hotel Del Coronado, its

debt-to-value ratio would fall to 59% from 65%.

Strategic has asset managed the two hotels on

behalf of Woodbridge for the past two years.

The deal makes Woodbridge the group’s

largest shareholder, with 13.2%. Laurence

Geller, CEO, said: “This ... adds two high-quality,

unencumbered assets to our portfolio, deepens

our ownership within the Four Seasons brand,

and will welcome a sophisticated and successful

investor into our stock.”

Host and Strategic make buysThe exit from Europe for Strategic continued

with the sale of the leasehold interest in the

Pairs Marriott Champs Elysees for E26.5m to

an undisclosed buyer. Strategic also expects to

receive a further E13.2m related to the release of

a leasehold guarantee and other adjustments.

Host’s deal was more traditional, and followed

a year in which it closed approximately $500m in

acquisitions by purchasing the W New York Union

Square, Westin Chicago River North, the Meridien

Piccadilly in London and the JW Marriott Hotel

Rio de Janeiro, and announced acquisitions in

New York, New Zealand and San Diego totalling

more than an incremental $1bn, which CEO and

president Ed Walter described as “some exciting

transactions” at the group’s earnings call.

“History has demonstrated that early cycle

acquisitions tend to add the best value, and we

are acting on that premise,” he added. “We have

a strong pipeline of acquisition opportunities and

expect that we will purchase additional hotels

during 2011.” During the quarter, the group raised

approximately $248m under its continuous equity

offering programme to fund future acquisitions.

The group ended the quarter with over $1.1bn

in cash and cash equivalents and, after closing

on all of the acquisitions, will have an excess of

$200m in cash and $542m of available capacity

on its credit facility. Host also announced a strong

quarter’s trading, with revenue rising to $1.49bn

from $1.33bn a year earlier and a net loss of $6m,

compared with a loss of $72m last year.

Strategic sold its Prague hotel at the end of

last year in an effort to cut its exposure to Europe

and Host too has aspirations to sell properties,

however, Walter said that the difficulties in

buyers raising debt had meant it had not sold any

sites. It anticipated the market improving as the

year progressed.

HA Perspective: The turnaround at Strategic is

extraordinary. At the depths of the recession most

bets would have been placed on the company

going bust but it has come roaring back to health.

While the U-turn in Europe does not look very

strategic it has at least been executed well. And

there seems no compelling reason why Europe is

a market that does not work in general, even if

specifically for Strategic it no longer makes sense.

Certainly Host’s joint venture in Europe is

blooming. Revpar in 2010 was up 8.5% in

constant Euros and an increase of between 5%

and 7% is expected this year.

The market for luxury and upper upscale hotels

was always going to show the sharpest recovery

given that it was the hardest hit in the downturn.

Nonetheless, the pace of recovery is impressive and

tax advantaged REITs are set to be big beneficiaries

of the low leverage future.

Alongside this is the shifting of sands in favour

of owners at the expense of operators. A clear

example of this is a titbit that came out of the Host

conference call which saw the company confirm

that it had received key money from Starwood for

the forthcoming New York Westin.

All told, for well capitalised owners of upscale

and luxury hotels, the recovery is shaping up nicely,

particularly if you can factor in tax advantages too.

Host Hotels & Resorts and Strategic Hotels & Resorts have both announcedacquisitions,astheREITmodel looks increasingly strong.

Like Hyatt, M&C is pursuing a renovations

programme, with work underway at the Millennium

Seoul Hilton and The Grand Hyatt Taipei and plans

for refurbishment of The Millennium UN Plaza,

although no figures were given for the likely cost

of these works.

Its only deal during the fourth quarter was

to increase its equity ownership in the Grand

Millennium Beijing Hotel, from 30.0% to 70.0%.

M&C CEO Richard Hartman, whose replacement is

due to be announced at the end of the first quarter,

said that the group looked at many projects that

were coming onto the market, but that most were

“either too expensive or in locations we are not

interested in”.

The group’s worldwide pipeline consists of 25

hotels, which it said were “mainly” management

contracts. During the full year the group cut net

debt from £202.5m to £165.7m and saw gearing

fall from 11.6% to 8.5%.

Analysts at Morgan Stanley had expected to see

further sales since the announcement of sale of

land in Kuala Lumpur in September. In a note, the

group said that, while M&C continued “to advance

its asset management strategy … we think the

market may be disappointed not to see disposals”.

The transactions market is loosening up, but

for those who do not wish to compete with the

cash-rich Reits or high net worth individuals, the

pickings are still limited. Both Hyatt and M&C

are considering purchasing sites, but, as they are

looking to build their management businesses,

must rely on finding owners eager to work with

them to build their portfolios until either sellers

become less ambitious, or more hotels come to

the market, neither of which looks imminent.

To garner support for acquisitions from

shareholders, both groups must also show that

performance is continuing to move upwards.

Hyatt gave no guidance on revpar growth, other

than to warn on the impact of renovations, but

did point to corporate rate growth in the mid-to-

high single digits.

At M&C, the group reported fourth-quarter

revpar up 11% on a constant currency basis, but

commented at its results that like-for-like revpar

was up by 4.5% for the first five weeks of the

year, at what is a weak trading season. The group

said: “Though conditions appear more favourable

than this time last year, there are uncertainties that

have yet to be dealt with in the world economy,

including re-capitalisation of banks, the changing

economic balance between East and West and the

evident fiscal strains within the Eurozone.”

continued from page 10

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Finding their voiceKatherineDoggrelltalkstoDrEdwardWojakovskiofTheTonstateGroup as owners become more vocal

According to current socio-political thinking, the

success of the US can be attributed to its attitude

towards property ownership. Early settlers divvied-

up the land and the nascent American dream

meant that even the poorest immigrant could earn

property. With land came votes and so a nation

was enfranchised. Don’t mention the slaves.

Ownership of property meant power, a state of

play which has remained true, with power linked not

just to the vote, but also financial dominance. True

everywhere, it seems, apart from the hotel sector.

For, despite owning the asset, the feeling amongst

many owners is that the power base is with the

brand operating the property and not with them.

The downturn started to see this balance shift, as

development finance plunged and brands needed

to make themselves more attractive in the form of

strategies such as key money, or guarantees, as

has been previously discussed in this publication.

However, the owners themselves have largely

been quiet, with the brands making it known that

they are willing to negotiate on terms in order

to maintain their pipelines. Perhaps as the result

of years of being the silent partner, apart from

sporadic outbursts, they have been mute.

But as Andy Cosslett, outgoing CEO of

InterContinental Hotels Group, can attest, owners

were a lot more vocal at this year’s International

Hotel Investment Forum in Berlin. Cosslett was on

a panel with Pandox CEO Anders Nissen and Ian

Livingstone, international managing director of

London & Regional, both of whom expressed their

dissatisfaction with the status quo.

Cosslett admitted that the sector had a way to

go before hotel brands were as efficient as brands

operating in other markets. He said: “In any industry

the great brands are also the most efficient. But in

this industry they don’t make the best use of their

scale. We should be able to bring all that scale to

bear. It’s a bit of a Holy Grail, but the next 15 to 20

years will see us make the best use of that.”

He came under attack from his fellow panelists,

both owners, with Nissen replying: “I like that

vision a lot. I don’t see it.” Livingstone added:

“If you’re that certain of your abilities you would

have much more frequent performance tests.

Twenty five years is a long time to go without the

possibility of divorce.”

As identified by Livingstone, the leading issue

raised by owners was the feeling that contracts

favoured the brands. Speaking on the distress

panel, Desmond Taljaard, COO Starwood Capital,

said: “The operators have been the slowest of the

snails to react. There are some serious question

marks. The operators have burned their bridges in

some cases and we’ve got longer memories than

they give us credit for – I don’t believe you’ll get

NDAs [non-disturbance agreements] for the next

10 years to come.”

Paul Collins, director, CBRE Hotels, agreed with

him, adding: “Interests haven’t aligned, the higher

you go up, the brands are inflexible.” Earlier at the

conference, Majid Mangalji, founder and president,

Westmont Hospitality, drew attention to the potential

negative effect on property, commenting: “It tends

to have a small negative impact on valuation if it has

a long-term management contract.”

Also speaking at the event, Nick Skea-Strachan,

senior associate, hotels, Berwin Leighton Paisner,

called for contracts to be less simplistic, allowing

for owners to identify the revenues achieved by

the brand and those generated by themselves. He

said: “The idea of being a much more incremental

relationship is good. When it’s just doubling up

fees I don’t know if it’s worth it to take a brand.”

It was felt that the market was, partially as a result

of the downturn, becoming more sophisticated in

its decision-making process about when and how

to take on brands. Ted Teng, president and CEO,

The Leading Hotels of the World, drew attention

to their use by short-term investors such as private

equity groups, adding: “If your exit horizon is

three to five years, you don’t have time to build

a brand, but if your investment period is three to

five generations, why would you want to pay rent

for 100 years?”

Back in London, Dr Edward Wojakovski, group

CEO and executive chairman of The Tonstate

Group, is an owner who plays the long game,

describing the group’s strategy as “generational

investment”. Part of this ownership, he said,

involved adhering to the view that hotels were

“not simply a commodity”. Treating them as such

during the boom around 2007 had led to many of

the failing hotels in the UK, where operation was

not taken account of properly, part of which was

failure to properly address investment in the sites.

He commented: “Capex is the equivalent of

exercise in human beings – it keeps you healthy,

fresh and hopefully attractive. You get guests

willing to pay for the product, but projects must

be planned, not just done as a whim.”

The company’s holdings included the Staple Inn

on Chancery Lane, the London Hilton Metropole,

Birmingham Hilton Metropole and the Cardiff

Hilton and, for Wojakovski, the relationship

between brand and owner is more sophisticated

than it may appear. He said: “It is like a marriage

contract. One needs to see them as a framework

for guidance. … you make adjustments, any

operating company will change with time as you

will be dealing with different people.

“The relationship needs to be adjusted all the

time. People never get divorced over the big

things, they get divorced over the small things.

There needs to be an alignment of interests.”

Wojakovski agreed that operators were

“under much more scrutiny”, with more “hybrid

arrangements – there are a “lot of dresses to this

lady” – in the form of some ownership, equity

stakes and guarantees.

The power base has been further split during the

downturn by the rise of asset managers, which,

Wojakovski said, “are like a good PA or other

professional – you have to know how to use them

well”. There is the risk that, with a lot of them in the

downturn themselves former operators – the game-

keeper turned poacher – there could be issues over

relationships. He said: “The asset manager needs the

help of all the parties to be effective. If the parties

do not co-operate, it will never work. If the operator

sees them as the long arm of the owner they can

become very defensive and if the owner sees them

as their stick that also doesn’t work. The two parties

need to know how to use an asset manager. It is like

a Stradivarius violin – it would be very different if I

played it, or if Itzhak Perlman plays it.

“A very good asset manager, working with the co-

operation and guidance of a professional Owner, will

achieve more for the parties than the two alone.”

Relationships are also seen as key to long-term

strength in banking, with Wojakovski adding:

“It’s not enough just to take the money. You

Analysis

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are a partner with the banker, and the bank is

your partner, and there must be cooperation

and maintenance of the flow of expectation and

information. Half-crippled banks take advantage of

the disability badge even if they are not deserving

of it, and some clients doe the same. There must

be a return to relationship driven, long-term, old-

fashioned banking. It needs deep understanding

so that banks can accommodate clients in the

short, medium and long-term.”

Looking forward, Wojakovski is eager to

continue owning in the sector. He commented

that, although “markets are never the same”

there would always be high prices paid for certain

assets. “At the high end there is ego and prestige

attached to it, the same as in the art world. It

depends on the objective of the buyer. If you can

afford to pay more ...it depends how much longer

you have to wait but good assets always provide

good growth and protection of capital.

“You need to be happy [with the price] at the

specific moment you do the deal. One should

think about whether one feels comfortable and

can afford it.”

Wojakovski’s decision as an owner to take the

long view marks him out as different from many

owners who, unlike him, entered the sector at

the top of the market, looking to make quick

money and then make an exit. But the issues

when bringing in a brand remain the same, and

both sides are looking to make the same money

they saw at the peak, often by attempting to

recoup that from each other when the customer

sleeping in the room is unwilling to pay higher

rates. Flexibility is important, to ensure that the

relationship between the two has not broken

down by the time that the recovery is firm and

bickering at conferences, while entertaining for

journalists, does not sour deals.

Wojakovski concluded: “The operation has been

done but the patient needs to recover. The patient

also needs to look after themselves. An economy

where everything is good is not an economy. It’s an

artificial environment. A business which does not

have pain? It’s not natural. In a real environment

you must adapt. That’s what makes it interesting

and, in essence, profitable”

Analysis

Hilton Birmingham, London Hilton Metropole

and Hilton Cardiff, part of The Tonstate

Group’s portfolio

The shock of the economic collapse in Dubai that

undermined the Emirates plans was a harsh lesson

learned for many. The emirate was well known for

its sheer will to prove to the world that it would

be a world class tourism destination as well as a

financial centre for the Middle East.

Despite the economic implosion, in speaking

to our network of expats living in Dubai, they

see evidence that some sustainable plans are

beginning to be put in place so the emirate can

create a path for continued, realistic growth.

A great number of investors are committing

heavily in Qatar, Abu Dhabi, Saudi Arabia, Jordan

and other Middle East destinations, but have

slowed their commitments to Dubai. Officials

responsible for granting permission to build hotels

sometimes approve without much planning or

studying of existing inventory, growth rates or

future demand.

So what does this mean for those expats

wanting to live and work in Dubai? The expat life

is good for those with jobs and a positive air still

floats in Dubai regardless of a lack of long term

planning, especially within hospitality.

With many projects having been halted or

shut down over the last two years, the expat’s

perspective of where the future lies is still a grey

area but these are a hardy crowd.

Likened to pioneers in the Wild West about ten

years ago, the expats who have invested their time

and that of their families are the ultimate optimists.

You have to respect and admire the tenacity

of those in power in this emirate to accept the

economic crash that happened, downscale, go

back to the drawing board, and relaunch the

development of Dubai slowly but surely.

There are fewer senior jobs available than there

were just several years ago due to the real estate

economy and its downturn. Despite this, we note

a clear desire for those expats who were made

redundant and who are still living in Dubai to find

new responsibilities allowing them to remain there.

The lifestyle is still good and as long as you do

not fall behind on finance payments, which can

see you jailed for non-payment, and respect the

expected codes of behaviour as well as show

respect for the country you’re in, expats are

generally able to have a happy and fairly care-free

existence in Dubai.

For several of our candidates, the worst thing in

Dubai is having to leave. No matter how restrictive

the local culture may seem from the outside due

to media coverage of certain westerners and their

bad behaviour, most expats have never had it so

good and there is plenty of optimism.

When the economic bubble burst, life changed

for foreign nationals both within their quality of

life and working conditions. Still an emirate with

affluence and excess, the exorbitant compensation

packages of yesterday have been tempered, which

can be viewed as a good thing, making investment

in people attractive.

Today’s expat can expect a much more modest

offering while coming to terms with the slow

decision making processes. Out of control

compensation then prices the candidate right

out of the market for the rest of the world,

making it impossible to be rehired if one holds to

those expectations.

Time is not always relevant in the process and

time-keeping is not a strength in the emirates. Being

reasonable in our expectations, hard work, respect

for the local laws and way of life and patience make

for a harmonious existence in Dubai.

Corinne Winter-Rousset, divisional director

EMEA and the Americas, Portfolio

Corinne.Winter-Rousset@portfoliointl.com

SustainabilityandexpatsintheMiddleEastPortfolio’s Corinne Winter-Rousset reports on the mood in Dubai following the economic collapse

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Analysis

IntroductionFor Hotel Analyst readers we have already discussed the extent to which hotel chain recovery in the UK will be impacted by chain supply growth and the fiscal tightening proposed by the UK government (v6i2, v6i3 and v6i5).We noted that the 15% rate of chain room supply growth over the period of the credit crunch and recession would constrain the rate of recovery in hotel chain performance. We argued that the recovery in hotel demand would be impacted further by the 25% reduction in public sector budgets and the increase in VAT to 20%.

On 23rd March 2011 the Chancellor of the Exchequer delivered the UK budget. National budgets are a macroeconomic fest and macro economists do not normally soil their hands with the dynamics of industries and businesses. However, this budget was different because it had to address not only the question of overall economic growth, but also the segments of the economy that would deliver the growth and the economic policies that would create the context for the growth to be achieved. In this note we will discuss the government’s economic growth strategy and the impact it will have on the recovery of the hotel business.

2011 budget overviewThe strained fiscal position in the UK and the measures already announced to recover a sustainable position within four years meant that the 2011 budget could only be neutral.

Before the budget was announced, The Office for Budget Responsibility, the body constituted to make independent assessments of the public finances and the economy, reduced its estimate for economic growth in 2011 from 2.1% to 1.7%. It reduced its estimate for 2012 from 2.6% to 2.5% and for 2013 to 2.9%, which further illustrates

TheUKgovernmenteconomic growth strategies and hotel chains

the challenges for the economy and in our case the hotel business. Inflation in the current year is expected to be in the 4% to 5% range, reducing to 2.5% in 2012 and to 2% in 2013.

Unemployment is expected to peak at 8.3% in the middle of 2011 as the reduction in the public sector workforce begins to bite before economic growth can be achieved. Currently, it is estimated that over the next four years the public sector workforce will be reduced by 400,000. Unemployment in 2012 is expected to reach 8.1%, worse than the previous forecast of 7.7%.

After the budget announcement and the proposed growth strategy, the OBR declined the opportunity to lift its estimates, which is explicit evidence that on top of the growth in hotel chain rooms supply and the public sector budget cuts, the macro economic forecasts will constrain the rate of post recession recovery in the hotel business.

ThePlanforEconomicGrowthThe assumption underlining The Plan for Growth by HM Treasury and the Department of Business Innovation and Skills http://cdn.hmtreasury.gov.uk/2011budget_growth is that the government has not only cut the public sector budget by 25%, but also that it has no money to invest. Any investment by the government in the promotion of one economic segment will reduce its promotion of other segments. Thus, the Plan for Growth is long on rhetoric about the various economic segments, but short on committed funds. The one exception is the industrial segment, which received most of the tangible support and cash at the expense of other segments. The long list of promotions for the industrial segment included the following:• Theestablishmentofatleast24newuniversity

technical colleges by 2014 focussed on training in skills mostly for the industrial segment

• The launch of a high value manufacturingtechnical innovation centre

• Theestablishmentofninenewuniversitycentresfor innovative manufacture by 2012

• The extension of the range and eligibility ofproducts offered by the Export Credit Guarantee Department

• TheincreaseintherateofsmallcompaniesR&Dtax relief to 200% in 2011 and 225% in 2012

• Thecreationof21newEnterpriseZones• £3billioncapitalforthegreeninvestmentbank

for investment in green energy• £250 million committed to first-time home

buyers, which will boost the construction industry

• £200 million for the construction of railinfrastructure

• £100milliontofillpotholesinroads• £100millionfornewuniversitysciencefacilities• £75 million support to smaller manufacturers

for training and apprenticeships• £10millionfundingtoacceleratedevelopment

of the International Space Innovation Centre.

The long list of promotions has been offset by the £2 billion tax imposed on North Sea oil to reduce pump prices by 1p per litre.

In contrast, the treatment of the other segments was long on platitudes, short on substance and absent of cash. The government held its nerve at the macroeconomic level with bold moves to re-establish equilibrium within four years. It is concerned at the reliance of the regions outside of London and the South East on the public sector to provide employment. It is further aware that these regions will experience most of the reduction in public sector employment over the next four years and only the private sector will be able to create new jobs to reduce the unemployment. However, its solution of promoting the industrial segment at the expense of all others is cockeyed for two reasons.

First, in the industrial segment, the past century of British economic history has been characterised by growth in industrial productivity reducing the labour force required to deliver the output, but insufficient to stem the loss of export markets and the decline in domestic demand for UK manufactures. The economic, social and logical reasons why manufacturing share of employment in the UK has declined from 37% in 1951 to 10% in 2011 are rational and compelling to the extent that there is no good reason to believe that the proposed policies will reverse this very long-term trend. The Plan for Growth in the industrial segment at the expense of the service businesses is designed to shift the structural balance of the UK economy backwards.

Second, over the past sixty years, the default policy solution to the rise in structural unemployment from the decline in the industrial segment and the growth in the number of women in the workforce has been to create jobs in the public sector, but that route is no longer available. The new government policy is to seek to create more industrial jobs.

This is a high risk strategy. We have been unable to find any example of an economy that has resolved high progressive structural unemployment and growth challenges by reverting to more basic economic activities. It is loading all of its support on to the declining industrial segment and adopting a laissez faire approach to the service businesses which, after the public sector, accounts for the bulk of employment and GDP. Ministers have been persuaded by the extensive lobbying of the industrial segment for support, which has increased the risk of recovery reflected by the poor and declining macroeconomic forecasts from the OBR.

The last example of policy to halt the natural trend in economic development towards service businesses in the UK was the introduction by the Labour government in 1966 of Selective Employment Tax. SET was a 7% levy on all service businesses to limit their growth in demand and employment and to promote employment in

Paul Slattery and Ian Gamse from Otus & Co look at the impact of government policy on the sector

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Analysis

the declining industrial segment. The tax failed. The industrial segment continued its decline and in spite of the impediments service businesses continued to grow.

The implications for hotel chains of the budget and plan for growthThe rate of recovery in the UK hotel business has suffered from the self-inflicted 15% growth in hotel chain room stock over the recessionary years as the table above illustrates.

We have assumed that room stock in 2011 will grow by only 1% adding 4,000 rooms and that in 2012 only 3,000 rooms will be added as a result of the decline in debt availability and the tentativeness of developers and chains to continue to add rooms in the face of only marginal growth in demand.

All of the demand constraints on the rate of recovery have been as a result of government policy. Domestic business demand recovery in chain hotels is being impacted most severely by the 25% reduction in public sector budgets over the next four years. The impact is only beginning to be felt in 2011. We estimate that the public sector at its peak generated 25% of domestic business demand into chain hotels and that the reductions in the budgets and the restrictions that are being placed on travel by civil servants and other professionals in the public sector as well as by executives from professional and business service companies acting on public service contracts will reduce domestic business demand into chain hotels by two million room nights in the current year.

The industrial segment is a low yielding generator of business demand. Most hotel demand from the industrial segment is from sales and marketing executives. In contrast, service businesses are a high yielding generator of business demand into chain hotels because a much wider range and a higher proportion of executives from service businesses use hotels. Moreover, service businesses use hotels for conferences and meetings more frequently and in higher volume than the industrial segment. The emphasis in the Plan for Growth on exporting manufactured goods will generate some more demand by industrial business travellers, but it will be in hotels outside of the UK rather than inside.

As a result, we estimate that the shift to the industrial segment will add no more than 100,000 room nights sold by hotel chains. Thus, our estimate of no growth in domestic business

room nights in chain hotels in the UK in 2011 assumes a 5% growth in demand from service businesses, which is a sharp recovery that may be too ambitious a target.

We expect domestic leisure demand in chain hotels in the UK to fall by 1% in the current year for the following reasons:• TheincreaseinVATto20%• The4%to5%rateofinflationforthecurrent

year• Thegrowth inunemployment fromthepublic

sector and the slow rate of economic recovery will limit spending on short breaks in hotels

• The postponement of Air Passenger Dutycoupled with lower VAT rates in many continental European countries will encourage more leisure travellers to travel outside of the UK.We estimate no more than 1% growth in

foreign business demand into chain hotels in the UK adding 100,000 room nights because of the projected slow economic recovery in most western European economies as well as the UK. The small size of the industrial segment also limits the level of foreign investment in the UK thus constraining the rate of growth in foreign business demand.

We expect only marginal growth in 2011 in foreign leisure demand into chain hotels in the UK. The £100 million fund, three quarters of which is funded by hospitality and tourism companies following the halving of the Government’s contribution to £25 million over the past three years, will be a positive influence. However, the low value of Sterling relative to the Euro has been offset by the increase in VAT, while the growth in unemployment and slow economic growth throughout Western Europe will limit the level of demand.

We expect a greater growth in foreign leisure demand into chain hotels in the UK in 2012 due to the Olympics impact and the efforts to attract long-haul visitors particularly from Asia.

For hotel chains in 2012 to regain their 2006 peak room occupancy of 70% would require 11 million more room nights to be sold than our current estimate for the Olympic year, a shortfall of 16%. With the current supply and demand context this looks like a pipedream.

Conclusions The five years since the start of the credit crunch and recession have changed the room supply context of the UK, not only have hotel chains

increased room stock by 15% with the addition of 42,440 rooms, but also chain concentration has grown to 62%.

A feature of the recession has been that there have been fewer than expected redundant hotels removed from the market. We estimate that redundant hotels account for 10% of total hotel room stock, around 50,000 rooms. Most of these are independent, old, small hotels under-invested in for decades, based in smaller provincial locations and significantly mortgaged.

Not all of the “at risk” hotels are independents. There are 47 small brands with an average of 270 rooms per brand whose portfolios are provincial and whose hotels are small, old, mid-market and up market, full feature hotels that have lost much of the local demand for their restaurant, bar and health club. They have also suffered heavily from the structural decline in conference and meetings demand in the provinces. Many of these hotels will require considerable creativity to survive and achieve growth.

In terms of demand, the only option in the hands of hotel chains to increase demand over our estimates is to attract a higher volume of foreign leisure demand. The commitment of hospitality and tourism companies to invest in the fund to generate foreign visitors is commendable and unmatched in other segments. It is also timely since in a period when economic growth is problematic, increasing foreign earnings is crucial. However, the government has enacted contradictory policies that will limit the growth of foreign income to the economy as a whole. The increase in government support for manufacturers to export has the potential to be cancelled out by the Brown and Cameron governments halving of their investment in generating foreign visitor demand into the UK. Simultaneously, the rise in VAT and the postponement of the APD is driving more British holiday makers to the Costas, which will encourage UK spending into other economies.

When it is difficult to reduce supply and increase demand, the one option left to improve the performance of hotel chains is to consolidate, which will open a new phase in the economic ascent of the hotel business in the coming years.

Paul Slattery, Otus & Co Advisory Ltd paulslattery@otusco.comIan Gamse, Otus & Co Advisory Ltd iangamse@otusco.com

British hotel supply and demand performance 2006-2012

Chain Chain Chain Chain Chain Chain Chain hotels hotels Change hotels Change hotels Change hotels Change hotels Change hotels Change 2006 2007 % 2008 % 2009 % 2010 % 2011E % 2012E %

Rooms 274,540 282,820 3% 297,560 5% 308,740 4% 316,890 3% 320,890 1% 323,890 1%

Room nights available m 100 103 3% 109 6% 113 3% 116 3% 117 1% 119 1%

Domestic business room nights sold m 32 33 2% 33 0% 31 -5% 32 2.3% 32 0.0% 32 0.3%

Domestic leisure room nights sold m 9 9 1% 9 2% 9 -4% 9 2.2% 9 -1.1% 9 1.1%

Foreign business room nights sold m 11 11 3% 12 3% 11 -5% 11 3.6% 12 0.9% 12 0.9%

Foreign leisure room nights sold m 18 18 3% 19 2% 18 -5% 19 3.4% 19 0.5% 19 3.2%

Total room nights sold m 70 71 2% 72 1% 69 -5% 71 2.8% 71 0.1% 72 1.3%

Room occupancy % 70% 69% 66% 61% 61% 61% 61%

Room nights sold m 70 71 2% 72 1% 69 -5% 71 3% 71 0% 72 1%

Source: Otus Analytics

The month of February 2011

The 2 months to February 2011

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Sector stats

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year February 2011 London 74.5% £122.60 £91.39 50.9% 6.1% 9.5% 21.0% 12.4% £137.05 £146.53 £79.27 £121.14 £85.64 £2,559 £901 £146 £3,606 71.0% 25.0% 4.1% 100.0% 42.2% £1,520

February 2011 Provincial 65.9% £67.25 £44.32 50.7% 11.0% 4.5% 27.2% 6.5% £69.95 £75.95 £48.56 £66.05 £48.78 £1,255 £859 £211 £2,325 54.0% 36.9% 9.1% 100.0% 23.3% £543

February 2011 All 69.0% £88.72 £61.22 50.8% 9.1% 6.4% 24.8% 8.8% £96.02 £94.30 £66.17 £84.16 £68.92 £1,727 £874 £187 £2,788 61.9% 31.4% 6.7% 100.0% 32.1% £896

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

Year on year change February 2011 London (3.0) 7.4% 3.3% 1.6 0.1 (0.3) (1.0) (0.5) 8.2% 15.8% 3.3% 4.3% 2.7% 3.3% -0.9% -15.7% 1.3% 1.4 (0.5) (0.8) – (0.4) 0.4%

February 2011 Provincial (0.3) 1.2% 0.8% 0.3 (0.1) (0.7) (0.2) 0.7 2.6% -0.6% -6.8% 1.6% -5.2% 0.8% -1.7% -20.2% -2.4% 1.7 0.3 (2.0) – (2.7) -12.5%

February 2011 All (1.2) 4.0% 2.1% 0.9 0.0 (0.6) (0.5) 0.2 5.5% 5.3% 0.8% 1.8% -2.1% 2.1% -1.4% -19.0% -0.7% 1.7 (0.2) (1.5) – (1.5) -5.0%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year February 2010 London 77.6% £114.10 £88.49 49.3% 6.0% 9.8% 22.0% 12.9% £126.66 £126.53 £76.71 £116.13 £83.42 £2,478 £909 £173 £3,560 69.6% 25.5% 4.9% 100.0% 42.5% £1,514

February 2010 Provincial 66.2% £66.43 £43.96 50.4% 11.1% 5.2% 27.4% 5.8% £68.19 £76.40 £52.13 £65.04 £51.47 £1,245 £874 £264 £2,383 52.3% 36.7% 11.1% 100.0% 26.0% £620

February 2010 All 70.3% £85.32 £59.94 49.9% 9.1% 7.0% 25.3% 8.6% £91.04 £89.52 £65.68 £82.68 £70.39 £1,691 £887 £231 £2,809 60.2% 31.6% 8.2% 100.0% 33.6% £944

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year YTD London 70.9% £119.54 £84.73 49.0% 6.7% 10.2% 21.3% 12.8% £134.36 £141.61 £75.00 £118.58 £87.08 £4,906 £1,708 £310 £6,923 70.9% 24.7% 4.5% 100.0% 40.1% £2,778

YTD Provincial 59.7% £66.29 £39.56 51.3% 11.6% 4.4% 26.3% 6.3% £68.71 £74.28 £48.27 £64.94 £49.73 £2,320 £1,613 £422 £4,356 53.3% 37.0% 9.7% 100.0% 19.4% £845

YTD All 63.7% £87.55 £55.76 50.4% 9.6% 6.7% 24.3% 8.9% £94.18 £92.88 £64.46 £83.71 £71.14 £3,255 £1,647 £382 £5,284 61.6% 31.2% 7.2% 100.0% 29.2% £1,544

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

Year on year change YTD London (3.5) 8.2% 3.1% 1.7 0.3 (0.5) (1.1) (0.4) 8.0% 16.0% 1.4% 6.8% 4.7% 3.2% -1.4% -7.2% 1.5% 1.1 (0.7) (0.4) – (0.6) 0.0%

YTD Provincial 0.1 1.6% 1.7% 0.7 (0.0) (0.4) (0.7) 0.5 2.3% -0.7% -4.8% 3.2% -4.2% 1.8% -0.2% -16.3% -1.0% 1.5 0.3 (1.8) – (1.8) -9.4%

YTD All (1.2) 4.4% 2.5% 1.1 0.2 (0.5) (0.8) 0.0 4.9% 5.7% -0.5% 3.9% 0.1% 2.6% -0.6% -13.8% 0.2% 1.4 (0.3) (1.2) – (1.1) -3.5%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year YTD London 74.3% £110.51 £82.15 47.3% 6.4% 10.7% 22.4% 13.2% £124.36 £122.07 £73.94 £111.01 £83.20 £4,755 £1,731 £334 £6,820 69.7% 25.4% 4.9% 100.0% 40.7% £2,777

YTD Provincial 59.6% £65.23 £38.88 50.7% 11.6% 4.9% 27.0% 5.9% £67.18 £74.78 £50.73 £62.93 £51.93 £2,278 £1,616 £505 £4,399 51.8% 36.7% 11.5% 100.0% 21.2% £933

YTD All 64.9% £83.85 £54.41 49.3% 9.5% 7.2% 25.1% 8.9% £89.74 £87.90 £64.78 £80.57 £71.04 £3,174 £1,658 £443 £5,275 60.2% 31.4% 8.4% 100.0% 30.3% £1,600

ProfitabilitystableforLondondespiteoccupancy declines

Whilst the business mix remained broadly similar

this month against the same period last year,

London hoteliers were able to increase achieved

average room rate levels across all sectors, with

the standout increase made in the conference

sector, with a growth of 15.8% to £146.53 from

£126.53. Furthermore, in contrast to the same

period last year, when corporate rates declined

by 0.4%, this month London hoteliers were able

to increase the average rate in this sector by 6%

to £131.36.

Although the decline in room occupancy levels

at London hotels appears to illustrate a drop in the

number of visitors to the capital, it is more likely

that hoteliers have successfully managed volume in

order to leverage rate and achieve revpar growth.

Major events such as London Fashion Week will

have helped by continuing to drive demand for

accommodation in the capital. This month, the real

success for London hoteliers has been to maintain

profitability levels against the high watermark

achieved in February 2010, when goppar soared

by 12.4% during the capital’s resurgence.

“It was always going to be hard for London

hoteliers to equal the strong performance of

2010 and the year has begun with consecutive

months of volume decline. That said, profitability

levels during February have once again remained

Despite a three percentage point decline in room occupancy, profitabilitylevelsremainedstablefor London hoteliers in February, according to the latest HotStats survey fromTRIHospitalityConsulting.

The 0.4% increase in goppar to £54.30 was

driven by a 7.4% increase in achieved average

room rate to £122.60. As a result of the movement

in room occupancy and average room rate, revpar

at London hotels grew by 3.3% to £91.39.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 17

Sector stats

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year February 2011 London 74.5% £122.60 £91.39 50.9% 6.1% 9.5% 21.0% 12.4% £137.05 £146.53 £79.27 £121.14 £85.64 £2,559 £901 £146 £3,606 71.0% 25.0% 4.1% 100.0% 42.2% £1,520

February 2011 Provincial 65.9% £67.25 £44.32 50.7% 11.0% 4.5% 27.2% 6.5% £69.95 £75.95 £48.56 £66.05 £48.78 £1,255 £859 £211 £2,325 54.0% 36.9% 9.1% 100.0% 23.3% £543

February 2011 All 69.0% £88.72 £61.22 50.8% 9.1% 6.4% 24.8% 8.8% £96.02 £94.30 £66.17 £84.16 £68.92 £1,727 £874 £187 £2,788 61.9% 31.4% 6.7% 100.0% 32.1% £896

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

Year on year change February 2011 London (3.0) 7.4% 3.3% 1.6 0.1 (0.3) (1.0) (0.5) 8.2% 15.8% 3.3% 4.3% 2.7% 3.3% -0.9% -15.7% 1.3% 1.4 (0.5) (0.8) – (0.4) 0.4%

February 2011 Provincial (0.3) 1.2% 0.8% 0.3 (0.1) (0.7) (0.2) 0.7 2.6% -0.6% -6.8% 1.6% -5.2% 0.8% -1.7% -20.2% -2.4% 1.7 0.3 (2.0) – (2.7) -12.5%

February 2011 All (1.2) 4.0% 2.1% 0.9 0.0 (0.6) (0.5) 0.2 5.5% 5.3% 0.8% 1.8% -2.1% 2.1% -1.4% -19.0% -0.7% 1.7 (0.2) (1.5) – (1.5) -5.0%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year February 2010 London 77.6% £114.10 £88.49 49.3% 6.0% 9.8% 22.0% 12.9% £126.66 £126.53 £76.71 £116.13 £83.42 £2,478 £909 £173 £3,560 69.6% 25.5% 4.9% 100.0% 42.5% £1,514

February 2010 Provincial 66.2% £66.43 £43.96 50.4% 11.1% 5.2% 27.4% 5.8% £68.19 £76.40 £52.13 £65.04 £51.47 £1,245 £874 £264 £2,383 52.3% 36.7% 11.1% 100.0% 26.0% £620

February 2010 All 70.3% £85.32 £59.94 49.9% 9.1% 7.0% 25.3% 8.6% £91.04 £89.52 £65.68 £82.68 £70.39 £1,691 £887 £231 £2,809 60.2% 31.6% 8.2% 100.0% 33.6% £944

Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Current year YTD London 70.9% £119.54 £84.73 49.0% 6.7% 10.2% 21.3% 12.8% £134.36 £141.61 £75.00 £118.58 £87.08 £4,906 £1,708 £310 £6,923 70.9% 24.7% 4.5% 100.0% 40.1% £2,778

YTD Provincial 59.7% £66.29 £39.56 51.3% 11.6% 4.4% 26.3% 6.3% £68.71 £74.28 £48.27 £64.94 £49.73 £2,320 £1,613 £422 £4,356 53.3% 37.0% 9.7% 100.0% 19.4% £845

YTD All 63.7% £87.55 £55.76 50.4% 9.6% 6.7% 24.3% 8.9% £94.18 £92.88 £64.46 £83.71 £71.14 £3,255 £1,647 £382 £5,284 61.6% 31.2% 7.2% 100.0% 29.2% £1,544

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

Year on year change YTD London (3.5) 8.2% 3.1% 1.7 0.3 (0.5) (1.1) (0.4) 8.0% 16.0% 1.4% 6.8% 4.7% 3.2% -1.4% -7.2% 1.5% 1.1 (0.7) (0.4) – (0.6) 0.0%

YTD Provincial 0.1 1.6% 1.7% 0.7 (0.0) (0.4) (0.7) 0.5 2.3% -0.7% -4.8% 3.2% -4.2% 1.8% -0.2% -16.3% -1.0% 1.5 0.3 (1.8) – (1.8) -9.4%

YTD All (1.2) 4.4% 2.5% 1.1 0.2 (0.5) (0.8) 0.0 4.9% 5.7% -0.5% 3.9% 0.1% 2.6% -0.6% -13.8% 0.2% 1.4 (0.3) (1.2) – (1.1) -3.5%

Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar

Last year YTD London 74.3% £110.51 £82.15 47.3% 6.4% 10.7% 22.4% 13.2% £124.36 £122.07 £73.94 £111.01 £83.20 £4,755 £1,731 £334 £6,820 69.7% 25.4% 4.9% 100.0% 40.7% £2,777

YTD Provincial 59.6% £65.23 £38.88 50.7% 11.6% 4.9% 27.0% 5.9% £67.18 £74.78 £50.73 £62.93 £51.93 £2,278 £1,616 £505 £4,399 51.8% 36.7% 11.5% 100.0% 21.2% £933

YTD All 64.9% £83.85 £54.41 49.3% 9.5% 7.2% 25.1% 8.9% £89.74 £87.90 £64.78 £80.57 £71.04 £3,174 £1,658 £443 £5,275 60.2% 31.4% 8.4% 100.0% 30.3% £1,600

stable thanks to astute yield management,”

said Jonathan Langston, managing director, TRI

Hospitality Consulting.

Although Provincial hoteliers achieved a growth

in revpar levels of 0.8%, a decline in trevpar and

an increase in payroll levels meant that goppar

declined by more than 12% this month, according

to the latest HotStats survey.

This represents the greatest margin of profitability

decline for provincial hoteliers since poor weather

severely impacted headline performance levels

across the UK in January 2010, causing goppar

levels to plummet by approximately 19%.

February has proven to be a challenging period of

trading in recent years and this month represents

the fourth year in a row in which overall provincial

profitability levels have fallen.

Whilst London hoteliers enjoyed rate

increases across all sectors, the 1.3% increase

in achieved average room rate in the Provinces

was primarily fuelled by a return to growth in

the corporate (+2.5%) and leisure (+1.6%)

sectors. Notwithstanding the overall growth in

average room rate, filling beds remains a priority

for provincial hoteliers, exemplified by the soft

achieved rate in the tours/group sector, which

declined by 6.8% to just £48.56 per room sold.

Despite a growth in rooms revenue of 0.8%

to £44.32, a decrease in discretionary spend

at provincial hotels, which included a decline in

leisure revenue per available room of more than

30%, a 1% decline in food and beverage revpar

and further declines in meeting room revenue

(-13%), resulted in a 2.4% drop in trevpar

to £82.08.

“Having fought back from the decline in revpar

levels since the onset of the current economic

downturn, provincial hoteliers are facing a new

challenge in 2011 as total revenue levels are

impacted by a reduction in discretionary spend

and payrolls levels remain high to accommodate

the recovery in volume,” added Langston.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 118

Dublin delivers double-digit growth

The upmarket hotels in the Dublin sample for

the survey increased revpar by a third and trevpar

by 16.4%. Driving these strong figures were a

significant uplift in occupancy performance (9

percentage points) and strong average room rate

growth (14.4%). The uplift in revpar performance

resulted in goppar performance of E30.20, up

40.4% on February 2010 performance.

“The continued increase in the Dublin market

performance is remarkable, particularly when

considering the negative headlines on the Irish

Europeanchainhotels–performancereport

Source: TRI Hospitality Consulting

economy and significant increase in hotel supply

severely affecting hotel performance over the past

two years.

Whilst no one can say for certain that there

will be a sustained improvement in hotel revenue

and profit performance in 2011, a double-

month growth will give hoteliers some hope for

the future,” said Jonathan Langston, managing

director, TRI Hospitality Consulting.

Whilst revpar and trevpar performance had

increased in eight of the 10 cities surveyed in

the latest HotStats survey, only five city markets

had achieved an increase in goppar performance

in February.

Amsterdam, Budapest, Dublin, Dusseldorf, and

Zurich experienced double digit growth in goppar

performance. Zurich was the star performer

as hotels increased revpar, trevpar and goppar

performance by 25.3%, 32.3% and 86.5%

The month of February 2011 Twelve months to February 2011

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

60.4 156.59 94.59 42.3 31.26 Amsterdam 76.0 167.60 127.43 31.4 69.77

58.3 147.57 85.99 35.0 33.42 Barcelona 65.6 119.43 78.35 35.1 33.74

62.2 136.20 84.75 34.8 36.01 Berlin 71.0 127.71 90.64 29.5 51.01

52.4 79.78 41.77 40.3 5.80 Budapest 64.3 88.98 57.24 30.9 25.10

67.2 129.40 86.95 44.0 30.20 Dublin 72.9 123.00 89.69 40.7 39.58

70.3 145.89 102.60 26.3 62.17 Dusseldorf 63.6 120.47 76.59 28.4 42.39

74.8 168.12 125.78 26.7 76.94 London 81.6 172.01 140.35 23.9 95.26

63.5 177.97 112.93 51.4 22.02 Paris 76.4 200.24 153.01 38.9 72.64

53.8 150.02 80.63 55.3 -3.54 Rome 70.3 183.40 129.01 40.6 45.40

76.7 172.60 132.34 39.8 65.26 Zurich 79.4 169.14 134.29 35.7 75.28

The month of February 2010 Twelve months to February 2010

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

61.7 141.50 87.29 42.6 28.41 Amsterdam 70.1 152.88 107.10 33.7 51.53

59.2 144.09 85.36 33.0 40.40 Barcelona 62.1 117.85 73.23 35.6 30.54

63.8 132.96 84.76 32.8 41.19 Berlin 70.4 116.90 82.25 29.9 46.92

49.5 79.49 39.38 42.0 4.91 Budapest 59.4 93.07 55.23 30.7 23.96

57.8 113.14 65.35 47.5 21.51 Dublin 66.2 133.90 88.63 42.4 37.58

68.1 109.61 74.69 30.8 39.22 Dusseldorf 59.4 103.41 61.42 31.0 30.21

79.0 154.73 122.18 26.3 76.94 London 81.9 154.82 126.73 24.5 85.40

60.5 177.77 107.49 51.5 22.63 Paris 73.6 189.01 139.12 38.7 65.33

51.4 161.45 83.01 54.6 4.22 Rome 66.4 182.50 121.20 38.8 41.66

63.6 166.12 105.62 44.7 35.00 Zurich 73.8 167.56 123.68 36.3 66.21

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

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

-1.3 10.7% 8.4% 0.3 10.0% Amsterdam 6.0 9.6% 19.0% 2.3 35.4%

-1.0 2.4% 0.7% -2.0 -17.3% Barcelona 3.5 1.3% 7.0% 0.5 10.5%

-1.5 2.4% 0.0% -2.0 -12.6% Berlin 0.6 9.2% 10.2% 0.4 8.7%

2.8 0.4% 6.1% 1.7 18.1% Budapest 5.0 -4.4% 3.6% -0.2 4.8%

9.4 14.4% 33.1% 3.4 40.4% Dublin 6.7 -8.1% 1.2% 1.8 5.3%

2.2 33.1% 37.4% 4.5 58.5% Dusseldorf 4.2 16.5% 24.7% 2.6 40.3%

-4.1 8.7% 2.9% -0.4 0.0% London -0.3 11.1% 10.7% 0.6 11.5%

3.0 0.1% 5.1% 0.2 -2.7% Paris 2.8 5.9% 10.0% -0.2 11.2%

2.3 -7.1% -2.9% -0.7 -183.9% Rome 3.9 0.5% 6.4% -1.8 9.0%

13.1 3.9% 25.3% 4.9 86.5% Zurich 5.6 0.9% 8.6% 0.7 13.7%

respectively. Occupancy performance increased

by an astonishing 13.1 percentage points as

Switzerland’s commercial hub experienced a strong

pick-up in commercial demand in February 2011.

Whilst revpar performance increased in London,

Berlin and Paris, an increase in operating costs

had resulted in stagnant goppar performance in

London and a decline in Paris and Rome when

compared to February 2010 performance.

Data from the latest HotStats survey also

highlighted a decrease in trevpar performance

in Barcelona and Rome, by 4.6% and 2.5%

respectively, resulting in significant reduction in

goppar performance.

In the majority of the markets examined

throughout Europe, a decline in non-rooms

revenue performance had occurred in February

which reflects the current trend of a reduction in

consumer confidence in Western Europe.

Dublinhotelsshrugged-offtheeconomic woes of Ireland during February and recorded an astonishing growthinprofitsofmorethan40%,according to the latest HotStats survey fromTRIHospitalityConsulting.

Sector stats

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 19

Analysis

InQ12011DLAPiperconducteditsannualHospitalityOutlookSurveys,oneinEuropeandoneintheUS,tounderstandhowthemarket has changed in the last year. KarenFriebeandSandraKellman,Co-ChairsofDLAPiper’sGlobalHospitality & Leisure Sector Group below provide a short comparison ofthefindings.

TheOutlookisBullishIn line with general market sentiment, the outlook

is positive in both surveys. Looking back at past

surveys, the three year trend is broadly the same,

with a marked increase in bullish sentiment from

last year. There is greater optimism in the US, with

sentiment rising from 5% in 2009 to 88% in 2011,

compared to a more conservative rise in Europe,

from 5% to 67%. The US quoted the increase

in the number of assets changing hands in 2010

as a key reason for their optimism, whereas the

European respondents noted the change is largely

down to an increase in operating performance as

well as an increase in business travel.

The bullish US sentiment is further reflected by

the positive sentiment in response to the question

of whether asset values would rise in 2011. 82%

of respondents thought that values would rise,

in sharp contrast to Europe, where only 36%

TurningtidesDLA Piper’s Karen Friebe and Sandra Kellman look ahead at the new financial year

thought they would rise, and 58% expected there

to be no significant change. This in itself is positive,

with European respondents expecting the market

and the industry to enter a period of stability,

making it a good investment option for more

cautious investors.

InvestmentOpportunitiesTrends in both surveys remain similar to previous

years, but again there is a notable difference

between the two continents. When asked which

sector of the industry was the preferred option

for investment, the economy/budget sector

remained the preferred choice in Europe due to

the consistent returns over the past years, while in

the US the mid and upscale sectors continued to

be most attractive as they are not as overbuilt.

The rising dragonUnsurprisingly the countries of focus for outbound

investment do vary between the two surveys, with

Germany and Russia standing out as attractive

investment prospects across Europe and Brazil

being particularly attractive to US investors. The

country common to both surveys is China, which

demonstrates the confidence in the Chinese

economy that is also seen in other sectors.

China proved the common theme for both

markets for inbound investment too, although

there is greater expectation of Chinese investment

into the US (65%), than Europe (42%). The

prominence of China in driving investment comes

as no surprise. The expansion of the Chinese

economy is expected to have a profound impact

on the number of business and leisure travellers

entering the European and US markets – a key

driver for growth.

LendingThe US survey shows an increase in activity from

investment banks, up from 2009. Respondents

now expect them to be the most active lenders

in 2011, followed closely by commercial banks,

something which can again be attributed to the

positive outlook for the US market as a whole.

While Europe expects investment banks to

be more active in 2011 (33%, up from 8% in

2009) there is more expectation that commercial

banks will be the sector’s most active lenders.

Pension funds have also seen a marked increase

(29%, up from 8% in 2009), a sharp contrast to

the US where they have stayed at 5-6% for the

past two years.

There is, in general, far more variety in the

responses received from Europe than in the US,

likely down to the fact that over the past few

years traditional funders have retreated to their

home markets.

As reflected by the predictions for asset values,

Europe is considered to be entering a period of

stability, making it attractive to conservative

lending entities such as pension funds. In contrast,

the US hospitality industry is expecting to enter a

period of growth, and thus there is the anticipation

that entities such as hedge funds will be more

active lenders.

Social media revolutionWhilst the US is leading the way in the social media

revolution (70% of US respondents, as opposed to

45% of UK, are embracing this as a promotional

tool), both sets of survey results provide some

interesting insights of how organisations in the

hotel sector are increasingly interacting with

guests online, the growing prominence of sites

such as Trip Advisor being of particular interest.

Companies are becoming more aware of the

importance of social media as a tool for reaching

their clients and engaging with them. However

if you are keen to join this trend you need to be

aware of the rules of the game you are getting

into and the potential impact on your brand, as

the standard terms and conditions of most social

media sites require you to give a very wide licence

of your intellectual property rights.

Andfinally…The results of both surveys provide an interesting

indication of how the market is adapting to the

post credit crunch economy. We can all see that

the market has changed and organisations have

had to deal with that – whether by reassessing

their approach to investments and joint ventures,

or by taking a look at their operations and making

the necessary changes to streamline the business.

Going back to basics and sharpening your tools

have definitely been the winning strategies over

the last couple of years. Only time will tell if our

respondents’ predictions for this year come to

pass, but it’s positive to see the general belief that

the tide is turning.

Copies of the full surveys can be found at

www.dlapiper.com

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 120

Analysis

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

Portfolio of ten limited service & three-star hotels

Various UK Limited Service/Mid-market

Unknown Various February Unknown Unknown Unknown Butterfly Hotel Ltd Akkeron Includes a mix of Holiday Inn Express, Ramada, and Best Western Hotels

Hilton Hotel Barcelona Spain Upper upscale 289 Unknown February 40,000,000 40,000,000 138,000 Morgan Stanley Westmont Hospitality The hotel will be operated by the Westmont Hospitality chain from April 2011

Hyatt Regency Hotel Mainz Germany Upper upscale 268 Unknown February Unknown Unknown Unknown Mainzer Aufbaugesellschaft (MAG)

Azure Property Group

Portfolio of 5 NH Hotels Various Germany & Austria Mid-Market 1,153 Leased to NH Hotels

March 170,000,000 170,000,000 147,000 NH Hotels Invesco Real Estate Sale and leaseback transaction. The portfolio is long-let on 25-year hybrid leases to NH Hotels

Sir Christopher Wren's House Hotel and Spa

Windsor UK Luxury 96 Unknown March Unknown Unknown Unknown Sir Christopher Wren's House Limited

Savora Hotels

Hilton Brighton Metropole Brighton UK Upscale 340 Leased to Hilton

March 39,300,000 45,000,000 132,000 Royal Bank of Scotland Topland A 20 year operating lease from 2001 to Hilton

Cadogan Hotel London UK Luxury 65 Leasehold March 15,500,000 18,000,000 277,000 Trinity Hotel Investors Cadogan Estate Long lease with 28 years unexpired. The Cadogan Estate already owns the freehold

2 Beetham Hotels Manchester & Liverpool

UK Upscale 473 Unknown March Unknown Unknown Unknown Beetham Organisation Loucas Louca Radisson Blu Hotel Liverpool and Hilton Manchester Deansgate bought out of administration

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

The Cavendish Hotel London UK Upscale 230 Unknown February 240,000,000 274,000,000 1,191,000 Barclay Brothers Marriott Champs-Elysées Paris France Luxury 192 Leasehold February 39,700,000 39,700,000 207,000 Strategic Hotels and Resorts Undisclosed The sales of the leasehold interest to expected to be

completed by 30 April 2011Portfolio of Hotels Various Kenya Various Unknown Unknown February Unknown Unknown Unknown Kenya Tourist Development Corp Portfolio includes Hilton Nairobi, InterContinental Nairobi,

Fairmont The Ark Nairobi and TPS SerenaW Hotel Leicester Square London UK Luxury 192 Unknown March 200,000,000 228,000,000 1,188,000 McAleer & Rushe Portfolio of 15 Hotasa Hotels Various Spain Midscale Unknown Unknown March Unknown Unknown Unknown Neuva Rumasa The Hotels are available on a portfolio, sub-group or

individual basis

The road to recovery TimingwillbeeverythingEveryone agrees that the best returns on investment

depend as much on the moment the investment

is done as on the bottom end of the profit and

loss statement whether these cash-flows are

generated from the adequacy of the hotel in its

market, general upturn of the market conditions

and/or the restructuring of an underperforming

asset. Are we now in the eye of the perfect storm,

have we missed the window or are there more

opportunities heading our way?

The industry’s fundamentals are moving in the

right direction and statistics nearly everywhere

indicate increased occupancy and rates. But the

picture is not the same across all markets. Whilst

investors active in the mature hotel markets such

as Western Europe are focussed primarily on

acquisitions and/or restructuring of assets, other

parts of the world are still at the infancy of a well-

rounded hotel market, with much potential for

land acquisition and development.

In Europe, two elements will influence the

behaviour of investors in the short to medium

term: valuations and timing. As business levels

recover and hoteliers dare to start increasing rates,

bottom line profits will increase exponentially once

fixed costs are covered. We note however that

before reaching the levels achieved in 2007 there

will be a long hill to climb to match these numbers

in real terms. More difficult still, for development

financing, investors and banks won’t be rushing

back in until they are sure there is an immediate

uplift in value over and above land acquisition and

development costs. But as time goes by and the

market stabilises, yields will begin to compress

making way for new development in markets

which can sustain an increase in supply. Of course,

there are exceptions and the nature of each

Colliers’ Alexandra Dumoulin and Karen Callahan look at the route ahead

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 21

Analysis

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

Portfolio of ten limited service & three-star hotels

Various UK Limited Service/Mid-market

Unknown Various February Unknown Unknown Unknown Butterfly Hotel Ltd Akkeron Includes a mix of Holiday Inn Express, Ramada, and Best Western Hotels

Hilton Hotel Barcelona Spain Upper upscale 289 Unknown February 40,000,000 40,000,000 138,000 Morgan Stanley Westmont Hospitality The hotel will be operated by the Westmont Hospitality chain from April 2011

Hyatt Regency Hotel Mainz Germany Upper upscale 268 Unknown February Unknown Unknown Unknown Mainzer Aufbaugesellschaft (MAG)

Azure Property Group

Portfolio of 5 NH Hotels Various Germany & Austria Mid-Market 1,153 Leased to NH Hotels

March 170,000,000 170,000,000 147,000 NH Hotels Invesco Real Estate Sale and leaseback transaction. The portfolio is long-let on 25-year hybrid leases to NH Hotels

Sir Christopher Wren's House Hotel and Spa

Windsor UK Luxury 96 Unknown March Unknown Unknown Unknown Sir Christopher Wren's House Limited

Savora Hotels

Hilton Brighton Metropole Brighton UK Upscale 340 Leased to Hilton

March 39,300,000 45,000,000 132,000 Royal Bank of Scotland Topland A 20 year operating lease from 2001 to Hilton

Cadogan Hotel London UK Luxury 65 Leasehold March 15,500,000 18,000,000 277,000 Trinity Hotel Investors Cadogan Estate Long lease with 28 years unexpired. The Cadogan Estate already owns the freehold

2 Beetham Hotels Manchester & Liverpool

UK Upscale 473 Unknown March Unknown Unknown Unknown Beetham Organisation Loucas Louca Radisson Blu Hotel Liverpool and Hilton Manchester Deansgate bought out of administration

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

The Cavendish Hotel London UK Upscale 230 Unknown February 240,000,000 274,000,000 1,191,000 Barclay Brothers Marriott Champs-Elysées Paris France Luxury 192 Leasehold February 39,700,000 39,700,000 207,000 Strategic Hotels and Resorts Undisclosed The sales of the leasehold interest to expected to be

completed by 30 April 2011Portfolio of Hotels Various Kenya Various Unknown Unknown February Unknown Unknown Unknown Kenya Tourist Development Corp Portfolio includes Hilton Nairobi, InterContinental Nairobi,

Fairmont The Ark Nairobi and TPS SerenaW Hotel Leicester Square London UK Luxury 192 Unknown March 200,000,000 228,000,000 1,188,000 McAleer & Rushe Portfolio of 15 Hotasa Hotels Various Spain Midscale Unknown Unknown March Unknown Unknown Unknown Neuva Rumasa The Hotels are available on a portfolio, sub-group or

individual basis

project, location and specificities of the market will

influence the out-come of any decision making.

Transaction volumes are increasing with the

underlying value of the asset going up and vendors

are increasingly reaching the point at which they see

benefits in selling. While many anticipated a sale

frenzy of distressed assets, the reality is that banks

and owners have and continue to hold back as much

as possible from writing these properties off their

books too quickly. We therefore expect to see more

and more assets coming on the market as a result

of improving values. Hopefully, in order to avoid a

negative chain reaction, these properties will flow

progressively on a market where a lot of investors

have been patiently waiting in the side-lines to make

a profit on assets in a market up-swing.

While money appears to be less tight, the

number of active hotel lenders has only marginally

increased and evidence shows that banks are still

extremely cautious who they lend to, the type and

prospects of the hotel, as well as applying stricter

underwriting standards. A borrower with a good

track record and experience in the hospitality

business as well as capital, an asset that has good

historical cashflows or good prospects of recovery

in the market and a reputable brand will all

determine the likelihood to obtaining finance.

The end of 2010 and the beginning of 2011

have shown clear signs that there is light at the

end of the tunnel. For a time at least, the hotel

sector will look quite different in terms of lending

terms and conditions and in terms of investment

focus, however, there is always a risk of amnesia

setting in as the euphoria of dealing once again

inflates the market. But hopefully and for the good

of the industry, caution and long term equilibrium

will be on our mind to prevent such a large bubble

bursting again.

This table features individual asset and

portfolio transactions in excess of €5m in the

EMEA region. The exchange rate used on the

table was £1 = €1.1400.

Alexandra Dumoulin is a senior consultant

at Colliers International Hotels

alexandra.dumoulin@colliers.com

Karen Callahan is a director of Colliers

International Hotels

karen.callahan@colliers.com

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Personal view

Now that the West’s ‘we love him, we love him

not’ affair with Muammer Gaddafi has settled on

‘not’, those who have done business in and with

Libya are in a difficult position.

While the pundits try and second-guess how long

the country will be subject to the Nato-imposed

no-fly zone and the different permutations for

power, depending on whether Gaddafi remains or

not, the region continues to wobble, while protests

in Yemen and Syria continue to gather pace.

Libya has, for the past few years, been a key

focus for development in that area of the world.

Described by travel agents as where the Sahara

meets the Mediterranean, it is rich in ancient

Greek and Roman ruins, with five UNESCO

World Heritage Sites, as well as desert oases and

extensive coastline.

Despite the volatile nature of getting visas to

the country – even the diplomatic Swiss found

themselves on Gaddafi’s bad side when they

arrested his son – developers, operators and

consultants have favoured the country. That is

now over for the foreseeable future and, mere

weeks after the change in regime in Egypt, the

risks of investing in such volatile regions are being

illustrated across global news networks.

At the panel discussing development in Libya

held at the International Hotel Investment Forum

in Berlin in March, it was felt that short-term

disruption was almost a small price to pay for

what could be long-term stability and the chance

for a more open trading environment.

Talking to the press, Eric Danziger, president

and CEO of Wyndham Hotel Group, typified such

feelings, commenting: “The US had a revolution

200 years ago and some countries are born from

change and over the long term things might

happen. Some countries like Egypt may end up

being greater, better business opportunities over

the long term because of what has gone on.”

There have been benefits for some more

established regions. The Spanish hotel market

is seeing a recovery in inbound tourist numbers,

IntoAfricaHotel Analyst deputy editor Katherine Doggrell looks at the impact of political unrest on global expansion

aided by general growth as the global economy

recovers, but also picking up business as travellers

are unable to visit many countries in North Africa.

After two years of falling arrivals, Spain saw

a year-on-year increase of 4.7% in January, with

2.66 million visitors, according to Frontur, an

institute that surveys tourism. This looks set to be

accelerated by the diversion of tourists away from

troubled regions.

Simón Pedro Barceló, president of Barceló

Hotels, told the New York Times: “The events

in North Africa will accelerate a recovery that

was already underway thanks to price cuts. The

impact has so far been most clearly seen in the

Canary Islands, but I certainly expect it to spread

to coastal Spain and the Balearic Islands over the

coming months.”

Sebastián Escarrer, vice chairman of Sol Meliá,

said that diverted travel from North Africa amounts

to “fresh air for us, but certainly no reason to get

complacent or believe that nothing more needs to

be done to reposition our tourism product”. He

added that when Egypt, for example, returned to

compete for consumers, it was likely to do it with

aggressive pricing.

However, while Spain’s streets are unlikely to

see the riots that have affected other countries,

it is not immune to political upset. Airport

workers in the country had announced 19 strike

days timed to coincide with the peak periods of

Easter and summer, with strikes starting on April

20 and continuing into May, June and July. They

were called off at the end of March, but remain

a threat, coming after the Spanish government

had to declare a state of emergency for the

first time in the country’s 33-year democracy to

halt a wildcat strike by air traffic controllers just

before Christmas.

In spite of this, faith in the country has been

reiterated as Marriott International announced

that four AC hotels would join its Autograph

Collection and Hilton Worldwide added a Waldorf

Astoria. For the existing domestic operators,

growth in trading has seen increased optimism

following a difficult period.

Although this growth in Spain has been good

news for the expansion of the brands in the

developed European territory, it is the developing

markets that the operators must focus on to

maintain their pipelines.

For those already investing Libya, a cautionary

tale comes in the form of IHI. Libya’s involvement

with the group goes back to the early 1970s when

the Libya Foreign Investing Company created

Corinthia Hotels as a 50/50 joint venture with the

Pisani family of Malta.

In 2001, the group’s hotel assets were floated

on the Maltese stock exchange, with LIA taking a

35% stake, the Pisani family 35%, and Isthithmar

a 22% holding, the remaining 8% being held

by smaller investors. This ownership structure

has, the group said, been replicated at the

Corinthia London, which is described as an IHI-led

investment project.

Under an order issued by the European Union,

LFICO was one of five entities against whom the

EU imposed “restrictive measures” because the

entities were under control of Gaddafi and his

family, and were a potential source of funding for

his regime.

IHI has said: “The asset-freezing orders

announced by national governments and the

EU are having no effect on any hotels in IHI. It is

business as usual.”

A source close to the situation told Hotel Analyst

that the group viewed the actions of the LIA as

investing Libya’s oil money on behalf of the Libyan

people, rather than the Gaddafi family.

Under the terms of the orders, LFICO cannot

sell the assets or receive income or returns from

them. However, operationally, there is no impact

and the fit-out of the Corinthia London and its

opening will go ahead. IHI’s spokesman said that it

had sought and obtained clarification from the UK

government that it could trade as normal.

Similarly, at CHI, the hotel management

company in which Wyndham Hotel Group is

a 30% joint venture partner with IHI, there has

been no change to the day-to-day operations of

the group.

IHI is playing the long game, with an anonymous

source pointing out that the LIA had held the

stake for the past 30-odd years. IHI was, they

added, eager to see the will of the people of Libya

adhered to.

While the future for Libya looks uncertain,

those wishing to pursue expansion are looking to

Africa, with Hilton Worldwide and Rezidor Hotel

Group amongst those looking to the continent.

Hilton currently has hotels in Sandton and Durban

in South Africa, is looking for opportunities

countrywide. And Rezidor is planning to open

eight new hotels throughout sub-Saharan Africa.

With favour moving as quickly as waves of

protest, those wishing to open hotels are caught

between the low-risk, but restricted options in

developed markets and the high-risk, but open

emerging markets. After the heady rush into

countries such as Libya, levels of caution are likely

to be raised, as are demands from those putting up

the cash and the flags. However, growth demands

that these territories be explored, but with a clear

understanding of both the risk and reward.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 1 23

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The Insider

Featured businessesAccor 5, 6, 7Akkeron Hotels 10, 21Alexico Group 4Ashford Hospitality Trust 6Azure Property Group 21Barcelo Hotels 22Barclay Brothers 21Beetham Organisation 21Berwin Leighton Paisner 12Blackstone Group 4British Hospitality Association 8Butterfly Hotels 10, 21Cadogan Estate 21Caja Madrid 3Capital Asset Services 10CBRE Hotels 1, 12CHI 22Christie & Co 1Colliers International Hotels 20, 21Deloitte 6Deutsche Bank 4DLA Piper 19Dune Real Estate Partners 4Ernst & Young 6Evolution Securities 5Folio Hotels 10Forestdale Hotels 10Four Seasons 11Group Hesperia 3Host Hotels & Resorts 11HVS 3HVS Executive Search 5Hyatt Hotels Corporation 10, 11Hyatt International 24IHI 22InterContinental Hotels Group 5, 9, 12Invesco Real Estate 21Jones Lang LaSalle Hotels 1, 3Kenya Tourist Development Corp 21KPMG 10London & Regional 12Loucas Louca 21Mainzer Aufbaugesellschaft 21Marriott International 22McAleer & Rushe 21Millennium & Copthorne 10, 11Molinaro Koger 1Morgan Stanley 4, 21Morgans Hotel Group 5Mulbourn Hotels 10NH Hoteles 3, 21, 22Nueva Rumasa 21Otus & Co 14, 15Portfolio 13PricewaterhouseCoopers 2, 7Queens Moat Houses 10Royal Bank of Scotland 6, 21Savora Hotels 21Sol Melia 8, 22Square Mile Capital 4Starwood Capital 1, 12Starwood Hotels & Resorts 5Strategic Hotels & Resorts 11, 21The Tonstate Group 12, 13The Woodbridge Company 11Topland 21Travelport 24TRI Hospitality Consulting 16, 17, 18Trinity Hotel Investors 21Westmont Hospitality 12Whitbread 4Whitehall Real Estate 10Wyndham Worldwide 8

hotelanalyst

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Bankers less bullish over bears

Ademotoofar

The International Hotel Investment Forum in Berlin

has, over the years, has been known to drive news

both on and off the official programme, whether

it is delegates taking a dip in the decorative pool

at the Marlene Bar, or controversy over the use of

ringers at the table football contest.

But these are sobering times. The table

football tournament is no more and the pool is

hidden under a pop-up bar. However, you can’t

keep a good conferencer down and, like the

child who makes a toy out of a stick and a tin

can, there is always entertainment to be had,

even in a downturn.

Reports came into our Marlene eeyrie that one

delegate, driven to speak out against the bankers –

possibly by their Chorus-Line style repetition of the

phrase ‘we’re still lending’ – accused one of usury.

Except they didn’t, they accused them of ‘ursury’.

According to our ursury correspondent –

identity concealed for what will become frankly

obvious reasons – this is less to do with excessive

interest charges and more to do with having carnal

knowledge of bears. Appropriate for the location

– the bear is the symbol of Berlin – but a little

mysterious in relation to bankers. They should, if

anything, be courting the bull.

Our ursury correspondent – who spends a lot of

their free time around salmon leaps, rather like bears

do… – was unable to confirm which, out of brown

bears or black bears one runs from and which one

lies still, plays dead and presumably, thinks of the

upturn when hearing approaching.

With Cairo’s Tahrir Square now empty and Egypt

waiting for its next move towards democracy under

its ruling military council, the city is set to lose its

Grand Hyatt hotel as the result of demonstrations,

this time precipitated by its staff.

Hyatt International (Europe Africa Middle

East) cited “unresolved contractual disputes”

with the hotel’s owner, Saudi Egyptian Touristic

Development Company for the move at the hotel,

which it has managed since 2003.

Hyatt International is looking for further

development opportunities in the country, in

addition to two hotels already open. The country

is still feeling the pain after the numbers of visitors

fell as a result of the pro-democracy protests, with

revenues from tourism down an estimated 75%,

according to the Ministry. It is hoped, however,

that Tahrir Square itself could become a tourist

attraction and help fortunes recover.

According the Egyptian Hotel Association, Hyatt

International made its decision following several

weeks of strikes by the hotel staff, who took to

the street in front of the property, chanting and

staging sit-ins. The workers’ list of demands

included salary adjustments, profit shares, and

contractual job security for all those who had been

working on a month-to-month basis.

It is reported in the local Egyptian press that

the owner’s response was to consider shutting the

hotel, but the Ministry of Tourism contacted the

country’s armed forces and they agreed to forbid

the owner from shutting down the hotel and

adding to the country’s unemployment problem.

The plan in that event being that the Ministry

would run the hotel in the event of its closing, the

kind of hands-on approach that many countries

would welcome from their own ministries, if only

to allow them to appreciate the issues involved.

RoadwarriorsfightforrightsAs anyone who has tried to keep the attention

of delegates on the final day of a conference will

attest, the business community likes its mobile

technology. There in body, but not always in spirit,

the jaded attendee is often to be found catching

up with their correspondence, relevant sector

news and Facebook.

The latest study from Travelport reports that

business travellers are driving the use of mobile

technology, with 56% of them using it to search

for and book hotels.

The study found that 80% those polled would

like to see mobile applications offering suggested

restaurants and bars around the hotel location,

while 71% ranked wifi as one of the most

important technology solutions that should be

included as standard in hotel rooms – 82% of

travellers expecting this service to be in all rooms

within five years.

It’s not all good news for the road warrior. At

the recent Berlin conference, one speaker who

broke through the third-day Blackberry barrier

was David Rowan of Wired magazine. Amongst

his suggestions was the idea that guests’ activity

be monitored so that, should they visit again, their

preferences would be readily available.

So, for example, if they had enjoyed a game of

golf, then they should be offered the chance to book

another, hire clubs and so on. All very convenient,

unless the next time you visit is with your boss and

the last time you were meant to be hard at work

keeping up with your correspondence.