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Spring 2011
HOSPITALITY MATTERSCURRENT TOPICS IN THE HOTEL INDUSTRY
CMS Cameron McKenna
2 | WELCOME HOSPITALITY MATTERS
Page 4
HOTELS V ONLINE TRAVEL AGENTS:
WHOSE SIDE ARE YOU ON?
Page 8
LEASE PAYMENTS BROUGHT TO
ACCOUNT: THE PROPOSED
CHANGES TO IAS17
Page 10
Page 13 Page 14Page 12
FINANCE UPDATE
Hospitality Matters is prepared by the Hotels & Leisure group of CMS Cameron McKenna.
It should not be treated as a comprehensive review of all developments in this area of law or of the
topics it covers. Also, while we aim for it to be as up-to-date as possible, some recent developments
may miss our printing deadline.
This newsletter is intended for clients and professional contacts of CMS Cameron McKenna.
It is not an exhaustive review of recent developments and must not be relied upon as giving defi nitive
advice. The newsletter is intended to simplify and summarise the issues which it covers.
HOTEL HOT TOPICS
UPCOMING EVENTS RECENT TRANSACTIONS
AND CREDENTIALS
Contents
3
Welcome
Thomas Page
Head of Hotels & Leisure group
T +44 (0)20 7367 3046
Welcome to the fi rst edition of Hospitality Matters, our
new bulletin for the hotel industry. If this is well-received,
we will produce a new bulletin every six months going
forward to keep you up-to-date with current thinking,
legal changes and our opinion on the hottest topics that
are affecting the hotel investment market. We also include
information on forthcoming industry events across Europe
to make sure you don’t miss out.
If you were at IHIF in Berlin recently, you will have your own views on the outlook for the
industry based on what you heard, either from the stage or from your peers in the many
social events. Our overall impression from that event is that optimism has substantially
improved from 12 months ago, but there is still a dearth of deals and opportunities.
While most people like to blame the lack of debt fi nancing, I suspect that this is to some
extent a mask for the fact that many investors are struggling to fi nd deals with suffi cient
returns to justify the investment. In our experience, well-prepared deals with good
fundamentals are able to access sensible levels of debt fi nancing. The problem is not so
much lack of debt fi nancing as lack of opportunities that justify debt fi nancing.
In markets that have held up well, like London and Paris, sellers still expect very high sale
prices. In badly affected markets, there are cheap bargains to be had, but little visibility of
improved trading to generate growth going forward.
Looking ahead for 2011 and into 2012, we see stress (not necessarily distress) encourage the
smaller owner/operator brands to sell their assets and lease or manage them back to reduce
total debt levels. There are plenty of well-funded buyers out there, but they want bargains
from forced sellers and unfortunately, there are very few of those around. Even where there
is genuine distress, the bank does not want these buyers to pick up a bargain at their
expense. So they are generally holding on to assets rather than forcing a fi re sale.
We continue to expect a steady improvement in the transactional market over the next 12
months, but are resigned to a long and slow recovery. However that is just our view and if
anyone else has a clearer crystal ball than us, we would love to hear your views: we want
this bulletin to stimulate debate!
4 | HOTELS V ONLINE TRAVEL AGENTS HOSPITALITY MATTERS
Hotels v online travel agents: whose side are you on?
Thomas Page
Head of Hotels & Leisure group
T +44 (0)20 7367 3046
John Markham
Senior Associate, EU Competition
T +44 (0)20 7367 3109
In 2010, preliminary estimates from PhoCusWright show OTAs
delivering 46% of all revenue to hotels, with Expedia and its
affi liates being the largest of these with a 44% share of the
OTA market. Research by the Cornell School of Hotel
Administration on a sample of bookings through IHG’s own
website showed that 90% of people booking had previously
visited an OTA prior to booking and 75% had specifi cally
visited Expedia or one of its affi liates.
OTAs under attack
There is no doubt then that OTAs are an integral part of the
industry and vital to any hotel operator’s success. Yet they have
recently come under attack, including being targeted here in the
UK by an Offi ce of Fair Trading (OFT) investigation into potential
price-fi xing, which carries the possibility of heavy fi nes. Yet it was
not complaints by hotel operators that triggered the investigation.
In September 2010, a complaint from skoosh.com, itself an OTA
offering heavily discounted hotel rooms, caused the OFT to open
its investigation. This article looks at the strong bargaining position
of OTAs and assesses the pitfalls of trying to determine whether
illegal price-fi xing is actually taking place in the online hotel
distribution market.
Recessions tend to focus the minds of hotel operators. Squeezed margins across the industry make hoteliers re-examine where their revenue comes from and where their costs are going. In many cases, the hoteliers’ sights have set on the Online Travel Agent (OTA), the long-time saviour and scourge of the hotel industry.
Merchant model
— OTA sells the room to the customer and pays an
agreed net rate (ie after deducting its margin) to
the hotel
Retail model
— OTA takes booking as agent for the hotel and
hotel pays OTA a commission on the gross rate
received from the customer
Expedia and affi liates
— includes Hotels.com, Hotwire.com, Venere.com
and TripAdvisor
Rate parity
— the practice of maintaining a single room rate
across all distribution channels
Last room availability
— allowing OTAs access to all available rooms, not
just a limited allocation
Understanding OTA Jargon
5
Skoosh.com’s complaint
Skoosh.com’s complaint was that other OTAs, including Booking.
com (part of Priceline) were pressuring hotels to withdraw from
skoosh.com because skoosh.com was selling below the ‘rate
parity’ room rate (see ‘Understanding OTA Jargon’ box). Penalties
that OTAs can impose upon hotels for not enforcing rate parity
could include fi nancial penalties, reducing the ranking of the hotel
in search results or even removing it from the website altogether.
Hotels also have a number of general grievances against OTAs:
— ‘last room availability’, where hotels can be forced to sell
rooms at a heavy discount that they could have sold on a
non-discounted basis;
— unfair search rankings, such that those rooms that are
least discounted will appear last in the search rankings for
hotels in any given location; and
— unfair competition where OTAs advertise discounted rates
that are not actually available or outbid hotels for
keywords on search engines to divert search traffi c to the
OTAs’ sites rather than the hotels’ own websites.
The OTAs’ perspective
The OTAs claim that hotels are under no compulsion to sign up
with the OTAs and that if they do not like the terms, they can
withdraw from that website. They also point out that, in most
cases, hotels are able to set the rates at which the hotels appear on
the OTAs’ websites as the OTAs receive a direct feed from the
hotel operators’ own central reservations systems (CRS). As a
result, it is not the OTAs that are setting the price to consumers, it
is the operators.
Understanding the competition law issues
From a legal perspective, this is where the analysis, and
comparison with other more black-and-white industries, begins to
get diffi cult. We also need to understand the difference between
the merchant model and the retail model (see ‘Understanding OTA
Jargon’ box). Under the retail model, the OTA simply acts as agent
and takes a commission – no different from when a travel agent
books you a holiday or an estate agent sells you a house.
Competition law does not affect such agency relationships – there
is no resale. Under the merchant model, the OTA acts more like a
traditional retailer, buying a product from a supplier, adding a
mark-up and re-selling the product at the marked-up price.
Illegal resale price maintenance
If a widget manufacturer selling a widget to a shop were to dictate
the price at which the shop must sell the widget, the arrangement
could be vertical resale price maintenance (ie between retailers and
suppliers), as prohibited by Article 101 of the Treaty on the
Functioning of the European Union (TFEU) and/or Chapter 1 of the
UK Competition Act 1998. This rule is believed to be the focus of
the current OFT investigation, but there are a number of factors
specifi c to the hotel sector which may make it diffi cult for the OFT
to apply the rule in a straightforward fashion:
— It is only the merchant model which appears to fall within
the realms of prohibited resale price maintenance, since
only in that model does the OTA re-sell the product.
— In real terms, for all concerned, both models are
comparable. In both models, hotels tend to determine
pricing offered by OTAs to consumers, who are unlikely to
know how OTAs are remunerated. It is hotels rather than
OTAs that actually deliver the service to the consumer.
6 | HOTELS V ONLINE TRAVEL AGENTS HOSPITALITY MATTERS
— And, turning to the underlying purpose of competition
law, it is diffi cult to see how consumers are signifi cantly
affected. Rate parity affects the rooms of one particular
hotel, not of competing hotels. Hotels operate in a very
competitive environment and cannot maintain artifi cially
high prices. It would be a surprise if the OFT found any
evidence of pricing collusion between operators.
— So if there is no difference to consumers between the
retail and merchant models and no other form of
price-fi xing, is it logical that one model can be prohibited
by competition law and the other not? The application of
the competition rules to arrangements which are or
resemble a form of agency is notoriously complex and one
the OFT will fi nd challenging in this sector.
— Nothing in the OFT’s announcement or in press coverage
has suggested that the investigation is about the abuse of
a dominant market position. However, the market shares
of the largest OTAs account for almost all the online
market and the OFT’s attention could well turn to the
strong negotiating position these OTAs have in dealing
with hotels and also the advantageous position the larger
OTAs arguably have as compared to smaller OTAs. This
could further complicate the OFT’s investigation.
How is the hotel industry responding?
OTAs have exploited their strong bargaining position and
purchasing power to move the industry from a retail model to a
merchant model and negotiate high margins, in the same way
that other online retailers like Wal-Mart have done with
consumer goods.
The operators are now trying to fi ght back by increased marketing
through direct online sales and less dependency on OTAs. But this
is much easier for larger operators than smaller chains and
independent hotels. The hospitality industry representative body,
HOTREC, has recently published its ‘Benchmarks of fair practices
for Online Travel Agents’ that sets out its 20 points on how OTAs
can operate fairly and competitively for the benefi t of hotels,
intermediaries and consumers, to encourage fairer behaviour.
But as powerful as the OTAs have become, they are still entirely
dependent upon the operators for product. Withdrawal of a
large operator’s room stock will cost an OTA millions of dollars
in lost revenue. Savvy operators, such as IHG and Choice, have
been willing to use their own negotiating strength and actually
withdraw product from the OTAs until sensible terms can
be agreed.
Benefi tting from OTA online marketing spend
It is easy to think that the OTAs are making super margins at the
hotel industry’s expense, but the larger OTAs have got to where
they are by intense marketing. Leaked Google documents in 2010
showed that Expedia and Hotels.com together spent over $9.2
million in just one month on Google advertising alone. The hotel
industry has benefi tted from this massive online marketing spend.
However, the ubiquity of Expedia means that all hotels and
operators have to be on it to compete and the benefi t of that
marketing spend for one hotel over its competitor is lost. It is
possible that the marketing spend has increased revenues for the
whole hotel industry and improved consumer information and
choice, but this is almost impossible to measure.
7
CMS Comment
Hotels have become addicted to OTAs in the sense that they are dependent upon them
for their occupancy “fi x”. Cold turkey withdrawal is painful and hotels instead are
attempting to wean themselves off slowly. It is no surprise that OTAs have exploited this
bargaining power to increase their margins and fund their large online marketing
budgets to capture ever greater market share.
Hotel operators have perhaps been guilty in the past of being slightly naïve in allowing
the larger OTAs to dictate terms and move the industry from a retail model to a
merchant model. They will need to work hard to correct the balance of power and may
need to exploit their own negotiating power by threatening to withdraw or actually
withdrawing hotels from the OTAs. But playing a game of bluff when both sides could
lose millions is a risky game and not for the faint-hearted.
We believe that the OFT should not fi nd rate parity by itself to be in breach of
competition law, especially where the hotel is responsible for setting rates seen by
consumers.
The OFT has stated that it will provide a preliminary update very soon and we will report
the fi ndings in future issues and Law-Now articles.
8 | LEASE PAYMENTS BROUGHT TO ACCOUNT HOSPITALITY MATTERS
Lease payments brought to account: the proposed changes to IAS17
This article focuses on the impact to hotel tenants as they are
more heavily affected than landlords, although the issues are
not unique to the hotel industry and will equally affect
supermarkets, retailers, restaurants and leisure operators.
What is a lease?
IAS17 in its current form defi nes a ‘lease’ as ‘an agreement
whereby the lessor conveys to the lessee in return for a
payment or series of payments the right to use an asset for an
agreed period of time’. Should you be wondering, there is
nothing wrong with that defi nition. The problem was that it
was thought necessary further to distinguish between leases
that had the effect of passing economic ownership of the
underlying asset to the tenant, and those where economic
ownership was retained by the landlord. Thus, the treatment
of a lease currently depends on its categorisation.
There are two options: it is either an ‘operating lease’ or a
‘fi nance lease’ (referred to as a ‘capital lease’ in US GAAP
terminology). The distinction is signifi cant. Under current
IAS17, operating lease liabilities are reported off balance
sheet. Lease payments are recognised as an operating
expense and accounted for on a straight-line basis over the
lease period as a charge to the profi t and loss account.
Finance leases, by contrast, are on balance sheet because the
underlying asset is effectively owned by the tenant: the value
of the fi nance lease appearing as an asset and the present
value of future lease payments as a liability on the other side
of the balance sheet.
What changes does the ED propose?
Proponents for change highlighted two problems: imprecision
and subjectivity of the distinction between the two categories of
lease (for example, how do you categorise a long lease retaining a
relatively modest rent?); and lack of transparency of operating
leases as lease commitments do not appear on balance sheet.
The proposals in the ED will remove the distinction between
fi nance leases and operating leases and will remove the
off-balance sheet reporting permitted by IAS17. Under the
proposals, all leases are to be capitalised and accounted for on
balance sheet: as an asset (representing the value of the
tenant’s right to use the leased asset amortised over the lease
term); and as a liability (representing the obligation to make
lease payments based on the present value of all those
payments over the whole term of the lease).
Logically, you might think the net effect would be neutral, or
near neutral, as there would be corresponding entries on either
side of the tenant’s balance sheet. That is not necessarily so.
There is another signifi cant change proposed requiring you to
use the longest possible lease term that is on balance - that is
to say, more than 50% - likely to occur. Thus, under the new
system, it is more likely break clauses would be disregarded and
options to extend would be recognised. A long lease period,
coupled with a high assumed rate of interest on the lease
payments will result in lease expenses over the earlier years of
the lease signifi cantly exceeding what would be the equivalent
reported rent under IAS17.
Critics of the current rules might also fi nd fault with the new
proposals. For all the emphasis on increased transparency,
some might argue the proposals could have the opposite effect
- there are signifi cant areas of discretion, such as the length of
the lease term accounted for and estimates for contingent
rents - or at the very least the complexity of the proposals will
obscure comparability.
Some might also make the point that capitalisation of many
leases on a right of use basis is fi ctitious: benefi ts derived by
the tenant will depend on the precise terms agreed with the
landlord (some of which may be entirely subjective), and many
tenants in reality have a temporary interest in their lease (at
Operators of leased hotels and their landlords will be signifi cantly affected by proposed changes to the rules defi ning the accounting treatment for leases. Last summer the International Accounting Standards Board and the (US) Financial Accounting Standards Board published an exposure draft (ED) containing their joint proposal to amend IAS17 and the corresponding guidance to US GAAP.
James Miller
Partner, Real Estate
T +44 (0)20 7367 2442
Mark Nichols
Partner, Tax
T +44 (0)20 7367 2051
9
least no longer than their current business plan). There could
be ‘accounting shocks’ for tenants.
There is no suggestion of implementing a system of
grandfathering of the new rules. This could put occupiers
with large portfolios in diffi culty because signifi cantly
increased liabilities on their balance sheets might breach
existing banking covenants.
Are there any tax impacts?
For the UK, while the Finance Bill 2011 contains wording
designed to leave the UK tax law on fi nance/operating leases
to continue as if there is no change in IAS (or eventually UK
GAAP), tenants will need to consider their deferred tax
position carefully. This will apply both to the difference
between accounting and tax treatment and when, for a
period, at least, UK GAAP may still apply to individual
subsidiary accounts while IAS applies at group level.
What are the implications for the hotel sector?
IAS17 covers all leased assets, not just real estate. Hotel
operators with signifi cant real estate and other asset lease
liabilities that were previously off balance sheet will see those
liabilities brought onto their balance sheet. This may be felt
more by the hotel sector, because (in relative terms) hotel leases
are longer, have signifi cant rents and options to extend are
common place. Many hotel operators are listed companies and
as a result will be required to conform to the new standards.
For these reasons, the position of hotel companies is not
dissimilar to that of large supermarket retailers, who in the UK
have been vociferous in making known their discomfort to the
new proposals. In any event, UK GAAP may well follow suit
albeit not until 2013 at the earliest.
CMS Comment:
We believe that the principle of recognising lease liabilities on the balance sheets is correct. But the proposals to
treat operational leases more like existing fi nance leases in the way the asset is depreciated and the liabilities
calculated seem to cause more anomalies than they fi x and reduce rather than increase transparency. These
criticisms should be addressed before fi nal implementation.
Anecdotally, we have heard of lease deals that have been aborted or restructured as a result of the proposals.*
Speakers for the wider property industry have warned that the proposals might lead to tenants demanding shorter
lease terms. But that is unlikely to be the case with hotel companies. Others have suggested larger occupiers might
now be incentivised seriously to look at outright ownership – whatever happened to ‘asset light‘? We believe that
only listed operators with analysts studying their balance sheets will change their behaviour. These proposals will
almost certainly result in them continuing to push towards management contracts rather than leases.
Unlisted companies will only be concerned to the extent that the changes affect their credit rating and ability to
borrow money. But the lending banks have already moved their focus to cashfl ow and debt serviceability rather
than gearing ratios in making their lending decisions, and these proposals do not affect cashfl ow. Leases will never
go away in the hotel sector but perhaps an innovative hotel operator will re-structure them in a way that mitigates
their fi nancial impact.
* Property Week reported, 18th February 2011, that a letting to Royal & Sun Alliance had aborted because of these
accounting changes.
10 | HOTEL HOT TOPICS HOSPITALITY MATTERS
Hotel hot topics
Carbon Reduction Energy
Effi ciency Scheme
Since the coalition government changed the Carbon Reduction
Energy Effi ciency Scheme (CRC) in its spending review by
delaying the fi rst sale of allowances and scrapping recycling
payments, and the consultation on further changes which
closed in December 2010, the government has undertaken a
further consultation. This latest consultation was to look at
ways of simplifying CRC. The key areas of organisational rules
for participants, the qualifi cation criteria and the timeline for
buying and selling allowances were highlighted as needing
attention. Other areas of discussion were welcomed. Current
regulations still need to be complied with. Hotel operators may
be particularly interested in whether franchises are to be
treated any differently and whether groups will be more easily
split up for CRC purposes.
tiny.cc/lawnow-crc
Please see below a summary round up of current legal issues that we are seeing affecting the hotels
sector. Further information on these issues can be found at our Law-Now website through the
hyperlinks set out below or please do not hesitate to contact the team members set out below.
Contact
Claire Saffer - Associate, Real Estate
T +44 (0)20 7367 2374, E [email protected]
Contact
Mark Heighton - Head of Real Estate
T +44 (0)20 7367 2177, E [email protected]
Contact
Anthony Fincham - Partner, Employment
T +44 (0)20 7367 2783, E anthony.fi [email protected]
Contact
Tom Cloke - Associate, Employment
T +44 (0)20 7367 3150, E [email protected]
Default retirement age
As part of the Government’s overhaul of discrimination
legislation, the default retirement age is to be abolished. This
means that age and retirement issues will need to be dealt
with differently after 6 April 2011, when retirement will no
longer be a statutory fair reason for dismissal. Employers will
have to objectively justify any dismissal which is for a reason
related to age, which will involve proving that the dismissal
was a proportionate means of achieving a legitimate aim.
Given that the hotel industry is traditionally staffed by younger
workers, employers will need to take particular care over
recruitment. Job applicants of any age (even over 65) will
have to be evaluated equally regardless of age, unless any
difference in treatment can be objectively justifi ed.
tiny.cc/lawnow-dra
The Community Infrastructure Levy
The Community Infrastructure Levy (CIL) allows local
authorities in England and Wales to charge a levy on new
developments to fund infrastructure in their area. Each local
planning authority may adopt a charging schedule of rates.
As yet none appear to have been adapted, and a schedule
must be published in draft, consulted upon, put to an
examination in public and further adapted before it can be
adopted. While there are some exemptions from CIL, relief is
only available in exceptional circumstances. Whether or not
CIL will affect your development, it is unlikely to do so in the
short term as its introduction is likely to take place in a
gradual fashion.
tiny.cc/lawnow-cil
Equality Act 2010
Given the often diverse workforces and a high turnover of
staff within the hotels industry, discrimination issues are
prevalent. Pursuant to the Equality Act 2010 workers now
have greater protection and, in particular, it is unlawful under
the Equality Act to discriminate on the basis of association or
perception (e.g. treating an employee less favourably because
of their association with a disabled person, or because they
are perceived to have particular religious beliefs). One of the
purposes of the Equality Act is to harmonise and strengthen
protection against discrimination in the workplace, replacing
almost all previous discrimination legislation.
tiny.cc/lawnow-eq1
tiny.cc/lawnow-eq2
11
Contacts
Omar Qureshi - Partner, Dispute Resolution
T +44 (0)20 7367 2573, E [email protected]
Joe Smith - Associate, Dispute Resolution
T +44 (0)20 7367 3158, E [email protected]
Contact
Harpreet Bhatti - Associate, Tax
T +44 (0)20 7367 2402, E [email protected]
Contact
Harpreet Bhatti - Associate, Tax
T +44 (0)20 7367 2402, E [email protected]
Bribery Act 2010
On 30 March 2011 the Ministry of Justice published its
guidance for corporates on putting in place ‘adequate
procedures’ to prevent bribery, as required under the Bribery
Act 2010 (the Guidance). This follows a consultation last year,
and the Government’s announcement that the
implementation of the Act would be delayed until three
months after the Guidance is published, to give corporates
time to consider its implications and take any further steps
required to design and implement compliance programmes.
The Directors of the Serious Fraud Offi ce (SFO) and
Department for Public Prosecutions (DPP) have also published
joint guidance on prosecutorial decision-making under the Act
(the Prosecution Guidance) to coincide with the Guidance.
The Bribery Act 2010 (the Act) will now come into force on 1
July 2011.
tiny.cc/lawnow-bribery
The Business Premises Renovation
Allowance Scheme
In the Budget, George Osborne announced that Business
Premises Renovation Allowance (BPRA), a capital allowances
scheme for the conversion or renovation of unused buildings
in disadvantaged areas, is being extended for a further fi ve
years from its original expiry date of 11 April 2012. BPRA is
now available in respect of capital expenditure incurred on or
after 11 April 2007 but before 11 April 2017. BPRA is a
scheme to incentivise businesses to bring derelict or unused
properties back into business use. Broadly, under the scheme
the initial allowance is equal to 100% of the qualifying
expenditure incurred in the fi rst year and if not claimed in full
or at all in the fi rst year, writing down allowances can be
claimed at the annual rate of 25% on a straight line basis.
BPRA is currently very popular, particularly in the hotel sector
with LLPs being established to convert buildings into hotels
and individual investors investing in the LLP.
tiny.cc/lawnow-bpra
Reclaim VAT on ‘no shows’.
HMRC have recently changed their practice on VAT reclaims
on ‘no show’ reservations. Hotels are required to account for
VAT on deposits when received. Prior to the recent change, if
the customer cancelled their reservation or did not show up
the hotel was not entitled to reclaim the VAT paid in respect
of the deposit. HMRC now accept that a deposit retained if a
reservation is cancelled represents a compensation sum rather
than sales income. Therefore this sum is outside the scope of
VAT. The change also applies to reservations where a deposit
has been paid but the guest does not stay for the full duration
of the stay. Hotels will need to change their practice going
forward and may also be able to reclaim VAT on deposits
withheld over the past four years.
12 | FINANCE UPDATE HOSPITALITY MATTERS
Finance update
Ian McGarr
Partner, Banking
T +44 (0)20 7367 2422
On the whole, certainly, lenders are approaching new lending
and refi nancing conservatively: requiring prime or top
secondary hotels as security; requiring experienced and good
quality management teams that have a track record in the
hotel sector (and usually an existing relationship with the
relevant lender); restricting and imposing lower loan-to-value
covenants and tighter interest cover ratios. Likewise, lenders
are considering borrowing structures, and the extent and
nature of security available, from a more cautious perspective.
Whilst the Property Banking Forum’s Lending Intentions
Survey recently circulated in March has set a more optimistic
scene, reporting that the amount of senior debt available for
UK commercial real estate this year has increased signifi cantly
(at 30 – 50 % more than reported last year), a large
proportion of this available debt will be required to refi nance,
and “amend and extend” existing loans. A typical package of
changes for lenders working with their borrowers includes:
amending the facility agreement to extend the term,
increasing the facility if further capital expenditure is
necessary or agreed, relaxing the fi nancial covenants in return
for an equity injection, further security and possibly a
repricing of the facilities to refl ect current market terms, or a
profi t share arrangement.
All deals are being considered against the backdrop of the
new regulations of Basel III. Lenders are preparing themselves
for the regime in re-assessing their loan books, and
considering the allocation of debt and the kind of loans they
can support. Ultimately under the new regime it will be more
expensive for banks to lend longer term and on riskier
security, and whilst the new rules do not come into effect
until 2019, the lenders are already required to review their
targets, the costings of the loans and strategies for
rearranging the allocation of assets in their books.
What is clear is that credit is currently tightly restricted to
specifi c deals, with lenders now quite stringent about the size
of the loan, asset type and quality, and their preferred
borrowers. As to the size of loans, the BPF’s survey reported
that most lenders will provide a maximum of £50 million for
one transaction, a few will stretch to £100m, with fi nancing in
excess of this needing club deals. On the whole, lenders prefer
corporates with good covenant than pure asset backed deals,
and will require comprehensive due diligence and analysis of
the operational business plans and the hotel management
agreements. Likewise, lenders are looking harder at the
non-disturbance agreements that are being signed and
negotiating harder with the operators. Outside of the specifi c
projects and assets, lenders are looking to benefi t from the
bigger relationship with a borrower and its group, and stable
repeat business rather than one off fl ashier deals.
Despite all of the above most, if not all, lenders operating in
the hotel sector will confi rm (as many of them did at IHIF in
Berlin) that they are “open for business” and for the right deals
this is certainly true.
The hotels industry, as with other real estate sectors, is continuing to face fi nancing challenges in 2011.
13
Upcoming events
China Hotel Investment Conference
20-22 April 2011, InterContinental Shanghai Puxi
Arabian Hotel Investment Conference
30 April - 2 May 2011, Madinat Jumeirah, Dubai
The Hotel Show
17-19 May 2011, Dubai World Trade Centre
UK Hotel Values Now, Henry Stewart Briefi ng
23 May, 2011, Radisson Blu Portman Hotel, London
NYU International Hospitality Industry Investment Conference
5-7 June 2011, New York Marriott Marquis
CMS Cameron McKenna Charity quiz
June 2011, London
Hotel Investment Conference Europe (Hot.E)
6-8 September 2011, Park Plaza Riverbank, London
Hotel Funding and Investment, Henry Stewart Briefi ng
September 2011, London
Russia & CIS Hotel Investment Conference
17-19 October 2011, Radisson Royal Hotel, Moscow
CMS Hotels Briefi ng 2011
October 2011, CMS, London
International Hotel Conference 2011
26-28 October 2011, Rome Cavalieri Hotel
Deloitte European Hotel Investment Conference
15 &16 November 2011, Dorchester Hotel, London
NGN Events
19 May 2011, 7 July 2011, 8 September 2011, 27 October 2011,
15 December 2011, London
Accor
Sale and leaseback of fi ve Novotel
and Mercure hotels in France,
Germany, Italy and Slovakia to
Invesco Hotel Fund by Accor
Value €154m
CMS acted for Accor as seller
and tenant
Hilton
Acquisition of three UK Hilton
hotels from The Royal Bank of
Scotland by a consortium of
private investors
Value not disclosed
CMS acted for the buyers
Citizen M
Development and fi nancing of
CitizenM Glasgow hotel opened in
September 2010 and two other
ongoing projects in London
CMS acted for CitizenM as
developer and operator
Accor
Sale and leaseback of seven Accor
hotels in Germany to Predica and
Foncière des Murs by Accor as
part of a larger portfolio
Portfolio value €378m
CMS acted for Accor as seller
and tenant
Hilton
Acquisition of Hilton Leicester
hotel from The Royal Bank of
Scotland by a private investor
Value not disclosed
CMS acted for the buyer
Park Inn
Financing the acquisition of the
Park Inn, Russell Square, London
(previously known as The
Bonnington) by Southampton
Row LLP
Value £48m
CMS acted for Lloyds Banking
Group as lender
Travelodge
Acquisition of a portfolio of 52
hotels and pubs from Mitchells &
Butlers and lease and re-badging
of all hotels to Travelodge
Value €91m
CMS acted for PruPIM as buyer
and landlord
Premier Inn
PruPIM acquired Premier Inn
Gatwick Airport using forward
funding
Value £90m
CMS acted for PruPIM as
buyer, landlord and funder
Radisson Blu/Park Inn
Management agreements with
Rezidor for ten Reval hotels to be
converted to Radisson Blu and
Park Inn hotels in the Baltic States
and Russia
CMS acted for Linstow as
owner of Reval hotels
14 | RECENT TRANSACTIONS HOSPITALITY MATTERS
Recent transactions and credentials
15
Our experience and quality is recognised by our awards
Nominated as Advisor of the Year
Hotel Report Awards 2008, 2009 & 2010
Number 1 by volume for hotel & leisure M&A transactions in Europe 2008-2010
Mergermarket
Top ranked for Hotels & Leisure for seven years (since 2004)
Legal 500
Mid-Market Legal Advisor of the Year 2009
FT/Mergermarket M&A Awards
Mid-Market Lender Adviser of the Year 2010 and 2011
Acquisitions Monthly Awards
Law Firm of the Year 2010, CEE
PLC Which Lawyer?
Client Service award 2010
MPF European Practice Management
Mergermarket European leisure M&A deals 2008-2010
Rank House No. of deals
1 CMS 30
2 Freshfi elds Bruckhaus Deringer 20
3 DLA Piper 18
4 Slaughter & May 18
5 Travers Smith 13
Mergermarket European leisure M&A deals 2008-2010
© C
MS
Cam
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cKen
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LLP
2011
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