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2013

www.jll.com/hospitality

Hotel Investment Outlook


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Globally, hotel operating fundamentals arepoised to remain strong in 2013, but regional

variances will persist. We forecast global deal

volume of $33 billion, in line with the most

recent three-year average. Hampering

transactional growth, however, are economic

pressures in a number of the worlds matureeconomies. Still, we expect that the global hotel

investment market will be ush with equity

capital that will support transactional activity.

This publication provides a comprehensive

analysis of the global hotel investment market,revealing key drivers of investment, emerging

trends, markets to watch and investment

opportunities in major markets across the globe.

We hope you will nd the report informative.

Mark Wynne-Smith

Global CEO

Jones Lang LaSalles Hotels & Hospitality Group serves as the hospitality industrys global leader in real estate services for luxury, upscale,

select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other

hospitality properties. The rms more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the

globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last ve years,

the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while

also completing approximately 4,000 advisory and valuation assignments. The groups hotels and hospitality specialists provide independent and

expert advice to clients, backed by industry-leading research.

For more news, videos and research from Jones Lang LaSalles Hotels & Hospitality Group, please visit: www.jll.com/hospitality


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Contributors

Table of contents

Arthur de Haast

Chairman

Mark Wynne-Smith

Global CEO

Arthur Adler

CEO, Americas

Jon Hubbard

CEO, Northern Europe

Christoph Hrle

CEO, Continental Europe

Craig Collins

CEO, Australasia

Scott Hetherington

CEO, Asia

David Green-Morgan

Global Capital Markets Research Director

Karen Wales

Executive Vice President, Research, Asia Pacic

Lauro Ferroni

Vice President, Research, Americas

Josef Filser

Associate, Research, EMEA

Global overview ...............................................................2

Americas..........................................................................8

EMEA ............................................................................16

Asia Pacic ....................................................................24

Sources and methodology .............................................32


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Global overview


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January 2013 | Hotel Investment Outlook 3

Highlights

Global hotel transactions reached $31.8 billion in 2012,

a 5% decrease on 2011. For 2013 we are expecting

a slight improvement to $33 billion, despite continued

economic uncertainties, with activity supported by theprimary investment markets of the U.S., U.K., France,

Germany, Japan and Australia.

Private equity players, sovereign wealth funds and family

conglomerates together with REITs are set to dominate

buying activity in 2013. Debt nancing, while improving

considerably in the U.S., will remain constrained across

Europe where renancing challenges will trigger a

number of sales.

Cross-border capital accounted for 30% of global hotelinvestment in 2012, trending above the recent average

and driven by strong outbound capital ows from Asia

and the Middle East. Improving transparency will

continue to aid cross-border decision making.

Prime assets in the worlds largest cities will garner

the most investor interest, improving pricing. Hotels in

secondary markets will see more sluggish interest until

seller expectations reset.

Globally, hotel operating fundamentals are poised to

remain strong in 2013, but regional variances will persist.

Hotel transaction volume forecast snapshot

Source: Jones Lang LaSalle

US$ billions 2012E 2013F Trend

Americas $17.5 $18.5

EMEA $11.0 $11.0

Asia Pacic $3.3 $3.5

Global total $31.8 $33.0


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4 Hotel Investment Outlook | January 2013

Steady deal pace in 2012

Primary markets led a steady pace of deal activity in the hotel

investment arena during 2012. While the year was tougher than

initially hoped, the pace of transactions endured and some signs of

revival continue to feature in the debt markets.

That said, economic headwinds kept a lid on overall global volume

improvement. Specically, growth was tempered by the slowdown in

emerging markets, as well as concerns about the U.S. debt ceiling

and Eurozone woes. Total transactions reached $31.8 billion, a 5%

softening on 2011 levels. While the Americas region held steady

at $17.5 billion, Europe, Middle East and Africa (EMEA) and Asia

Pacic slowed down by 10% and 30%, posting deal volumes of $11

billion and $3.3 billion, respectively.

Continued momentum in 2013

In 2013, we forecast global deal volume of $33 billion, in line with the

most recent three-year average. Hampering transactional growth,

however, are economic pressures in a number of the worlds mature

economies, along with long-term ownership structures in emergingmarkets, particularly in Asia. Still, we expect that the global hotel

investment market will be ush with equity capital that will support

transactional activity.

In the Americas, investment volume is expected to see some upside,

reaching $18.5 billion. In EMEA, new sources of debt and stable

trading fundamentals will maintain deal pace at a projected $11

billion, with investment activity driven by debt restructuring deals.

Hotel real estate in vast parts of Asia remains closely held, which

constrains overall liquidity. The regions volumes are expected to

mark a slight uptick to $3.5 billion in 2013, with activity concentratedin Australia and Japan.

Our forecasts are based on how key drivers of transactions volume

such as cost of capital, industry fundamentals, share prices of listed

investment vehicles and the overall ownership compositionare

expected to perform in 2013.

Economic forecast shows long road ahead

In many regards, global commercial property markets have bucked

wider economic trends. Their capital values, hotel trading fundamentals

and rents are all generally improving against a backdrop of downward

revisions to economic growth. Given the amount of stimulus injected

into the world economy, growth rates for 2013 to 2015 should be well

above the current levels. In fact, it looks as though it will take until

2015 for growth to match 2010 levels. This implies that the changes

occurring are more structural than cyclical, which has a profound

impact on investment strategies moving forward.

Austerity will continue to be a drag on growth with little prospect

of relief in most of the major developed economies. Government

debt as a proportion of GDP is highest in Japan, Italy, France, the

U.S. and the U.K., with a big impact on these countries economicprospects. The bright spot for Europe is that the governments have

started to take action, whereas in the U.S. and Japan, policymakers

continue to stall on decisive action.

Real GDP growth forecast by major region

Source: IHS Global Insight

-1.0% 0.0% 1.0% 3.0% 5.0% 7.0%2.0% 4.0% 6.0%

Australasia

Asia

Sub-Saharan Africa

Middle East and North Africa

Emerging Europe

Eurozone

Latin America

U.S. and Canada

World average

2014F2013F2012

Global hotel transaction volume 1998 - 2013F


0

20

40

60

80

100

120

140

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

Asia Pacific EMEA Americas Global

Volume($Billions)


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Herd mentality and the gap

The hotel market is mirroring wider commercial property markets in

that secure investments are chosen over higher yielding opportunities.

Investors have seen prime assets in top locations trade the best during

various economic cycles and these will therefore continue to be the

most sought-after properties. We expect this to continue as long as

uncertainty is evident, especially in Western Europe, and to a degree

in the U.S., resulting in some herd mentality amongst investors.Secondary markets are a different story, featuring a wide pricing gap

between sellers and buyers. Investors remain cautious about timing

and are reluctant to become overexposed. This will constrain deal

volume in Europe, in particular. The short term appears cautiously

optimistic for U.S. markets, and upside exists if owners/inadvertent

owners such as lenders accept lower pricing. Asias investment

landscape remains tightly held; investors need to be prepared to

consider all markets and hotel asset types if they wish to build scale.

Private equity fronts a strong bench of buyersHotel buyers will remain engaged in 2013, with a strong bench

of buyer groups. Counter-cyclical buyers such as private equity

investors in the U.S. and Europe, along with conglomerates in

Southeast Asia, will lead the pack, seizing opportunities to acquire

rare assets in displaced capital markets. Given their signicant

buying power and risk tolerance in a volatile environment, they are in

position to achieve opportunistic returns.

REITs, who have a lower risk prole, will continue to make headline

acquisitions in 2013, seeking to diversify their portfolios, particularly

in North America and some markets across Europe. In Asia Pacic,the successful listing of two new hotel REITs in Singapore and more

planned for 2013 is likely to result in higher volumes by these groups.

Sovereign wealth funds from Qatar and Abu Dhabi, as well as

emerging capital from China and Indonesia will also scour the globe

for trophy opportunities. To a lesser extent, U.S.-based private equity

funds will make selective bids in targeted regions.

On the sell-side, inadvertent owners such as banks and receiverswill drive a signicant share of product to market. Private equity

rms and institutional investors are also expected to liquidate some

previous acquisitions, either to divest select non-core assets or to

fund life maturities.

Cross-border investments rise

The rise in movement of global capital is driven by opportunistic

purchases of assets which rarely come to market, as well as

investors yearning for diversication of currency, geography, political

policy and economics.

Cross-border capital accounted for 30% of global hotel investment

in 2012, trending above the recent average and driven by strong

outbound capital ow from the Middle East and Asia. Sovereign

wealth funds and family conglomerates are the key investment

vehicles which will export capital in 2013. It is expected that cross-

border capital will continue to ow and possibly accelerate in 2013.

Re-emergence of debt and new players

Debt liquidity is still constrained, but should be at its highest level in2013 since 2007, notwithstanding regional variances. Large banks,

traditionally key providers of real estate debt nancing, still dont have

sufcient capacity to lend signicant sources of new money, but are

reducing their exposure to bad loans.

The U.S. debt markets are strongly re-emerging, driven by

commercial mortgage-backed securities (CMBS) lenders, who will

continue to drive pricing, terms and accessibility. Balance sheet

lenders are more selective with regard to asset quality, market and

sponsorship, but are frequently able to provide the oating rate loan

structures typically favoured by hotel owners. In EMEA, debt remains

difcult to secure but there are signs of improvement, and we expect

to see more liquidity in 2013. Across Asia Pacic, debt is not a factor

except in Japan where a high proportion of CMBS loans still need to

be worked out.

Other forms of debt nancing are required to ll the gap, and various

alternative groups, including sovereign wealth funds, insurance

companies and mutual funds, have entered the real estate lending

space by providing senior debt. Longer term, the debt environment in

Europe is likely to more closely resemble that which exists in the U.S.

as regulations make lending more attractive, particularly for insurers.

Over the longer term, the growing inuence of emerging markets is

likely to be felt through increasing savings rates which will nd their

way into the property market, and eventually the hotel market, by

pension fund investors.

Government debt as % of GDP through 2014F


0%

50%

100%

150%

200%

250%

Australia

Brazil

China

France

Germany

India

Italy

Japan

United

Kingdom

U.S.

2012 2013F 2014F


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Hotel operating fundamentals galvanize outlook

Hotel operating fundamentals are generally holding strong, and

in some cases are outperforming expectations, given economic

pressures, which underscores the attractiveness of high quality,

income producing hotel real estate as an asset class.

At the forefront of growth in revenue per available room (RevPAR)

in 2013 are the worlds gateway cities and resource-rich countries.

Markets that will see the most growth in demand and average room

rates are those that are pursued by global travellers, along with thosethat are beneting from demand due to the countries rising middle

class. That said, the pace of growth will be below the bounce-back

years of 2010 and 2011 in many markets.

Real estate market cultivates transparency

Market transparency, measured by availability of data, overall legal

framework and governance of listed vehicles, for instance, has

posted increases globally over the past two years, as surveyed in the

Jones Lang LaSalle Real Estate Transparency Index.

Overall, these worldwide improvements are expected to have apositive effect on transaction volumes and cross-border capital

ows. The destinations of foreign capital are generally highly liquid,

transparent and secure markets. Increased transparency will be a

key driver for the future of the industry as a whole.

Success playbook

As previous cycles provide few clues to what lies ahead in the next

few years, investors look to new indicators to calculate investment

roadmaps. While markets around the world continue to cultivate

transparency and interdependence becomes more prevalent, the

deal arena is increasingly globalised and therefore, a bigger playing

eld. Economic challenges are having a worldwide impact on how

and with whom investors conduct deals. At the same time, the

availability of data and information is expanding, increasing decision-

making capacity.

Unexpected events, such as political unrest and natural disasters,

seem to have become the norm. During this period of uncertainty

and rapidly changing dynamics, greater exibility will continue to be

demanded from investors and all market participants. The ability

to react to change will feature as a success indicator. In the future,

victories will be predicated by players who adopt a culture and

business model that incorporates effective risk assessment, strategic

agility and exible action.

4%

41%

3%

67%11%

25%

26%

22%

5%

77%

2% 16%

9%

100%

34%

61%

100%

North America

Latin America

Europe

Middle East

Africa

Asia

Australasia

Global

1%

Flow of capital around the globe in 2012

Proportion of investment within each region by source of capital

% global investment refers to transactions funded by private equity funds and investmentbanks that raise capital across a number of countries globally.

Absence of arrow co nnecting tw o regions indic ates that no cross-b order investment wastracked in 2012.Percentages of each of the regions add up to 100%. Source: Jones Lang LaSalle

Region Domestic Intra-Regional Off-Shore Global

North America 65% 2% 8% 26%

Latin America 20% 14% 41% 25%

Europe 47% 14% 27% 11%

Middle East 75% 25% 0% 0%

Asia 51% 49% 0% 0%

Australasia 21% 1% 78% 0%


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Global Real Estate Transparency - Composite Index, 2012

*Denotes new market added in 2012.Markets that appear tied have slightly different scores at higher levels of precision.Source: Jones Lang LaSalle, LaSalle Investment Management

TransparencyLevel

2012 CompositeRank

Market 2012 CompositeScore

High

1 United States 1.26

2 United Kingdom 1.333 Australia 1.36

4 Netherlands 1.38

5 New Zealand 1.48

6 Canada 1.56

7 France 1.57

8 Finland 1.57

9 Sweden 1.66

10 Switzerland 1.67

Transparent

11 Hong Kong 1.76

12 Germany 1.80

13 Singapore 1.85

14 Denmark 1.86

15 Ireland 1.9616 Spain 2.06

17 Belgium 2.07

18 Norway 2.08

19 Poland 2.11

20 Italy 2.16

21 South Africa 2.18

22 Austria 2.22

23 Malaysia 2.32

24 Czech Republic 2.34

25 Japan 2.39

26 Hungary 2.53

27 Brazil - Tier 1 2.54

28 Portugal 2.54

Semi

29 Taiwan 2.60

30 Brazil - Tier 2* 2.75

31 Turkey 2.76

32 China - Tier 1 2.83

33 Greece 2.84

34 Israel 2.85

35 Philippines 2.86

36 Slovakia 2.90

37 Russia - Tier 1 2.90

38 Indonesia 2.92

39 Thailand 2.94

40 Romania 2.96

41 South Korea 2.96

42 Puerto Rico* 2.96

43 Mexico 2.97


45 Chile 3.01


47 UAE - Dubai 3.05

48 India - Tier 1 3.07



TransparencyLevel

2012 CompositeRank

Market 2012 CompositeScore

Semi

51 Croatia 3.16

52 UAE - Abu Dhabi 3.2353 Macau 3.27



56 Botswana* 3.36

57 Bulgaria 3.41

58 Argentina 3.42

59 Mauritius* 3.43

60 Cayman Islands* 3.45

61 Ukraine 3.46

62 Slovenia 3.50

63 Bahrain 3.62

64 Saudi Arabia 3.63

65 Kenya* 3.7066 Lebanon 3.75

67 Kuwait 3.76

Low

68 Vietnam 3.76

69 Serbia* 3.78

70 Costa Rica 3.79

71 Bahamas* 3.81

72 Qatar 3.82

73 Jamaica* 3.85

74 Oman 3.85

75 Panama 3.87

76 Morocco 3.88

77 Egypt 3.88

78 Zambia* 3.9379 Peru 3.95

80 Jordan 3.97

81 Uruguay 4.04

82 Colombia 4.05

83 Kazakhstan 4.09

84 Dominican Republic 4.15

85 Honduras* 4.20

86 Guatemala* 4.20

Opaque

87 Venezuela 4.23

88 Mongolia* 4.31

89 Tunisia 4.38

90 Ghana* 4.41

91 Iraq* 4.44

92 Pakistan 4.48

93 Algeria 4.49

94 Belarus 4.52

95 Angola* 4.57

96 Nigeria* 4.58

97 Sudan 4.59

Global Real Estate Transparency Index

Jones Lang LaSalles Global Real Estate Transparency Index is updated every two years and quanties real estate market transparency

across over 97 markets worldwide. The Index aims to help real estate investors, corporate occupiers and retailers understand important

differences when transacting, owning and operating in foreign markets.


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Highlights

Healthy and growing operating fundamentals, anabundance of equity capital and an ever improving

debt market will support a buoyant market for hotel

trades in 2013.

Transactions volume for the year is expected to reach

$18.5 billion, continuing a moderate increase on 2012

levels.

Our transaction volume forecast is based on the expectedperformance of key deal drivers in 2013. Among the

factors which have shown high correlations to deal ow

are availability and cost of capital, industry supply and

demand fundamentals, REITs stock prices, the size

and number of assets being brought to market andthe overall hotel ownership composition, all of which

notwithstanding some riskare moving in favor of an

attractive environment for buying and selling.

Private equity funds unleashed some $7 billion of capitalin 2012 for hotel investments making them the largest net

buyers. We expect this trend to continue in 2013. Together

with REITs, we expect private equity buyers to comprise

as much as 70% of total acquisition volume across the

Americas.


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Positive momentum bucks volatility hangover

Hotel real estate investors unlocked capital and aggressively bid on

hotel assets throughout 2012, with hotel investment volume holding

steady at $17.5 billion in the Americas. Transactions pace cruised

at a stable momentum throughout the year, driven by private equityfunds and real estate investment trusts (REITs). Debt returned to the

market in a meaningful way, and is showing indications that it will

continue its strong recovery.

In addition to the sale of hotel assets, performing and non-

performing hotel debt also traded at substantial levels which, if fully

quantiable, would show even greater total lodging transaction

volume for the year.

Macro-economic pressures persist, and the Eurozone crisis and debt

ceiling debate in the U.S. have kept a lid on higher economic growth,

but as the future comes more into focus, economic growth will be

poised to accelerate. This will further underpin fundamentals in the

hotel real estate market.

Healthy and growing operating fundamentals, an abundance of

equity capital and an ever improving debt market will support a

buoyant market for hotel trades in 2013. Transactions volume for

the year is expected to reach $18.5 billion, continuing a moderate

increase on 2012 levels. This gure refers to asset sales and does

not include note and loan sales, deed-in- lieu transfers, and the like.

Our transaction volume forecast is based on the expected

performance of key deal drivers in 2013. Among the factors which

have shown high correlations to deal ow are availability and

cost of capital, industry supply and demand fundamentals, REITs

stock prices, the size and number of assets being brought to

market and the overall hotel ownership composition, all of which

notwithstanding some riskare moving in favor of an attractive

environment for buying and selling. The U.S. will retain its posit ion as

the most liquid hotel investment market in the world.

Fundamentals continue with vigour in 2013

We expect hotel operating fundamentals to maintain healthy growth

in the U.S. in 2013, with revenue per available room (RevPAR) gains

ranging from 6% to 7%. In the absence of any major demand shocks,

corporate and group business is expected to continue to improve,and leisure travel will continue to rise in 2013.

Among the markets which will lead the growth are San Francisco,

Los Angeles, Houston, Chicago, New York and Hawaii. Washington,

D.C., where growth stagnated in 2012, should see a lift in 2013 due

to the presidential inauguration and more travel to the city as public

and private sector groups strengthen ties with the administration.

Also underpinning the markets performance is the fact that supply

increases will (again) be below the long-term average in 2013. Over

the past 20 years, periods of below-average supply growth have

coincided with above-average RevPAR growth and we expect this

to feature as a trend in 2013 as well. Demand growth is expected to

outstrip supply increases which will give a lift to occupancy rates and

spur pricing power.

Americas hotel development pipeline through 2014F

Source: Smith Travel Research, Jones Lang LaSalle

2011 base stock 2012 additions 2013 additions 2014 additions

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Chicago

LosAngeles

Miami

NewYork

SanFrancisco

WashingtonD.C.

Toronto

Vancouver

MexicoCity

RiodeJaneiro

SaoPaulo

Numberofrooms(urba

narea)

Americas hotel transaction volume 1998 - 2013F


Single asset transactions Portfol io transactions

0

10

20

30

40

50

60

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

Volume($Billions)


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Private equity buyers lead the pack

Private equity funds unleashed some $7 billion of capital in 2012 for

hotel investments making them the largest net buyers. We expect

this trend to continue in 2013. Together with REITs, we expect private

equity buyers to comprise as much as 70% of total acquisitionvolume across the Americas.

Private equity players will become increasingly active in both primary

and secondary U.S. markets, beneting from increasing debt levels.

We estimate that private equity funds have a buying capacitywith

leverageof up to $45 billion for hotels over the next several years.

Private equity investors will both target single assets and several

needle-moving large select service portfolios (up to 100+ hotels), as

well as merger and acquisitions plays.

REITs, on the other hand, have a penchant for branded institutional

quality assets with in-place cash ow in the countrys 15 largest

urban centres. REITs will largely target single-asset acquisitions or

small portfolios with up to four to ve hotels.

The exact force of REITs will depend on their share prices and ability

to raise capital. While REITs have been on an acquisitions run again

since mid-2012 as their stock valuations increased, they do face risk

in 2013, and had generally lowered guidance during late 2012.

Debt swells to a six-year high

Another driving force which will shape the hotel investment market in

2013 is the strong re-emergence of hotel nancing. Driven primarily

by commercial mortgage-backed securities (CMBS) but including a

diverse group of lenders such as domestic and off-shore commercialbanks, insurance companies, debt funds and mortgage REITs, we

expect debt liquidity to be at the highest level since 2007.

Balance sheet lenders are more selective with regard to asset

quality, market and sponsorship, but are frequently able to provide

the oating rate loan structures typically favoured by hotel owners.

The formidable return of the CMBS market in 2012 had the twofold

effect of dramatically improving pricing and terms for borrowers,

while also drawing other lenders into the hospitality space.

While debt liquidity is nowhere near the previous peak and lenders

continue to be selective, early indications are that hotels will remain

a targeted asset class for lenders as they offer high yield relative to

other real estate and xed income classes in terms of risk prole.

Two types of sellers

In 2013, sellers will be motivated by different factors. At the one end

of the spectrum, owners of high-quality, performing assets in gateway

markets will face signicant buyer interest from private equity funds,

REITs, and in the case of gateway markets, off-shore investors.

This competitive bidding, driven in part by the scarcity of this typeof product on the market, will push up capital values and drive down

yields, resulting in favourable opportunities for sellers. Quality assets

with in-place cash ow will be best posit ioned to transact in 2013 and

we expect the average asset price of single assets to tick up during

the course of the year.

Americas 2012 buyer seller net shift analysis

^Net shift = the difference between the respective groups market share as a buyer and its market shareas a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net sellerduring 2012Source: Jones Lang LaSalle

-30% -20% -10% 0% 10% 20% 30%

Receiver

REITs (public and private)

Investment fund/Private equity

Institutional investor

Hotel operator

HNWI

Developer/Property company

Corporates

Net shift^

Americas average single-asset deal size 1998 - 2013F


0

10

20

30

40

50

60

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

US$(Millions)


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On the other end of the spectrum are the sellers who continue to be

pressured to sell due to debt service repayment issues or looming

loan maturities. Owners may also be moved to sell in cases where

they are unwilling or unable to invest capital for needed property

improvements. In addition, lenders are taking a more aggressivestance with troubled loans, showing a greater willingness to foreclose

as well as sell notes and real estate owned proper ties.

Pricing of assets in secondary and tertiary markets that are subject

to brand and management encumbrances will be under pressure in

2013 and these assets will face a smaller audience of buyers. Resor t

assets could become an interesting play in 2013 as group meeting

business continues to improve and leisure travel remains strong.

Further, resort development will continue to be sparse, providing

signicant runway for demand increases to result in improved

operating performance.

Pricing for these types of assets will be well below the levels which

the higher quality prime assets will garner. Nonetheless, they often

present solid opportunities and strong current returns that will appeal

to a segment of the market that is chasing current yield.

2013: The great deleveraging?

The U.S. market continues to face a signicant amount of CMBS

loan maturities over the next several years. The unpaid balance of

hotel CMBS loans with initial maturity dates through 2013 totals $19

billion, according to Morningstar, LLC. While asset values and thedebt markets have rebounded sufciently to bail out some troubled

borrowers, many owners are still seeking ways to delay near-term

maturities in hopes of further recovery.

However, lenders, and in particular subordinate lenders, have shown

increased willingness to foreclose on loans in default, or to sell their

positions to others poised to exercise rights and remedies. This has

resulted in fewer extensions and more situations where borrowers

are trying to delay foreclosure actions by negotiating in the courts or

promising to repay the loans if given a bit of breathing room.

Consequently, particularly for hotel assets, 2013 could very well mark

the beginning of the long-awaited great deleveraginga period

with signicant call to action in terms of hotel loans. Following years

of extensions, exibility and workouts, the debt will eventually have

to get dealt with, and it will be through sales and recapitalizations,

which will represent an unprecedented reshufing of loans and

capital in the market.

Off-shore demandMiddle Eastern and Asian investors will continue to actively pursue

opportunities in the countrys gateway markets. The U.S. saw

$800 million in inbound capital from these two investment groups,

and we expect the incoming volume to increase to approximately

$1 billion in 2013.

The most active Middle Eastern investors in the U.S. are those from

Abu Dhabi, Qatar and Kuwait. From Asia, the key investors are

those from China and Southeast Asia, though conglomerates from

India have their eye on several U.S. assets as well. Collectively,

these investors motivation is political, economic and currencydiversication, and the fact that hotel assets typically act as a

hedge against ination, as rate growth outpaces ination. European

investors, on the other hand, are expected to be quiet as they sor t

out economic difculty at home.

Canadas hotel transaction activity has not recovered to the same

degree as it has in the U.S., though Toronto saw several large

transactions in 2012. While Canada benets from a relatively healthy

demand outlook, investors in the market have retained a domestic

focus. Sellers of Canadian assets have not attracted bids from U.S.

REITs and face a narrower buying audience. The relatively limited

stock of hotels available for sale will continue to hamper a large

uptick of deal volume in 2013.

Hotel market cycle 2013 North America


RevPAR

growthslowing

RevPAR

falling

RevPARrising

RevPARdeclineslowing

Vancouver

Chicago

Washington, D.C.

Los Angeles

Toronto

New York

San Francisco

Miami


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Mexico moves to bright spot

With its emerging middle class driving an economic rebound, Mexicos

gross domestic product is expected to grow by 4% annually over the

next several years. Overall, the countrys lodging market and tourism

infrastructure is the most sophisticated in all of Latin America in termsof the proportion of international-grade hotel stock. The countrys key

hotel markets are performing well and visitor levels in Cancun, Los

Cabos and Mexico City are exceeding previous peak levels.

The countrys narco-violence marks a stark contrast to its otherwise

healthy fundamentals. As a result, the country will struggle to keep

optimism in check. The key international tourist destinations have

largely been spared negative headlines in the last year, which bodes

well for the future.

Mexicos hotel transactions market had been dened by illiquidity

as of late, though deal ow picked up to approximately $400 million

in 2012, driven by several single asset transactions. Signs point

to an ongoing pick-up in transactional activity in Mexico. The year

2013 should bring several more sales of prime assets, along with

forced sales. Prime assets will garner strong investor interest;

struggling assets will face a limited buyer audience, unless they are

unencumbered by brand and management.

Buyers will be comprised of opportunistic investors and hotel

brands making strategic plays in order to enter cer tain markets.

That said, the number of active investors will remain below previous

peak levels. Though the transactions environment will see someimprovement, the primary growth opportunity for investors lies in the

expansion of the countrys network of branded limited service hotels

to service the countrys middle class.

Caribbean Islands: more deal ow

The Caribbean will experience an improvement in demand

fundamentals in 2013 barring signicant economic deterioration

in the regions key source markets. Markets with above-average

fundamentals include the Dominican Republic, Jamaica, the CaymanIslands and Aruba. The regions hotel operations remain susceptible

to changes to airlift, hurricanes, and high energy costs. The all-

inclusive sector has led the recovery, and we expect the luxury

market to show more signs of regaining in 2013.

With the bulk of large resorts in the Caribbean having been nanced

by high levels of debt and many featuring a struggling residential

component, any sales activity will be driven by owners who are

forced to sell due to default, etc. Other assets which may transact

are stalled development projects.

In 2013, we expect to see several more existing large resorts,

particularly in the upscale and luxury sectors, changing ownership/

control via debt restructuring. The buyer audience for distressed

resorts will be limited to rescue capital. Performing assets, on the

other hand, are less likely to trade in 2013 because pricing remains

below potential.

Inter-regional capital dominates Central America

Like the Caribbean, Costa Rican resort markets experienced

a wave of development during the past seven years with many

properties encompassing residential units. Given its stable political

environment, healthy economic fundamentals and the newly

expanded Liberia airport, Costa Rica will again be on the radar of

investors and we expect several projects to be revitalized in the

medium term.

However, this rests on equity injections, a re-tooling of joint ventures

and conrmation that Costa Ricas source markets remain on a solid

path to economic recovery. Within Central America, Costa Rica is

the only market which is likely to attract U.S. investor interest.

Panama, on the other hand, is in the domain of intra-regionalinvestors, such as capital sources from Colombia and Venezuela.

Demand sources for Panama differ as well; hotel development has

largely been concentrated in Panama City and as such caters to

urban, and not resort demand. Investor interest will remain tempered

in 2013, though the Panama Canal, which is undergoing expansion,

represents future upside.

Policy interest rates for major Americas economies


0%

5%

10%

15%

2008 2009 2010 2011 2012E 2013F 2014F

Policyinterestra

te

Canada United States Mexico Brazil


16/36


South Americas dramatic transformation

With the underwhelming pace of economic recovery across many

of the worlds mature economies, conditions in South America offer

a bright spot, with its economic growth rate to represent double that

of the U.S. over the next few years. Investors focus will continue

to be on new development, which is accompanied by large-scale

opportunity in Brazil.

Notwithstanding various degrees of risk, surging home-grown

demand is dramatically boosting the performance of the lodging

industry across the region, creating an attractive environment for

growth. But despite initiatives announced by the government of Brazil

to make available some subsidised nancing in connection with the

2014 FIFA World Cup, the nancing environment in South America

remains restricted and expensive.

Just 15% of room supply in Brazil is afliated with an international

hotel brand and the country still lags with respect to the product

differentiation seen in mature lodging markets. Over the medium

term, Brazil will attract an increasing level of brand differentiation to

serve different demographic groups, particularly the emerging middleclass. While numerous hotel companies and private equity funds

explore large-scale market entry/expansion strategies, there are few

forerunners. Those who nd success will likely make headway in 2013.

South Americas hotel transaction market is still relatively

undeveloped, though it too is expected to continue to open up over

the medium term. The full service hotels that transacted in So

Paulo and Rio de Janeiro over the past several years will help set the

market in 2013 and beyond, though only a limited number of assets

will come to market, due to its domination by long-term holders both

domestic and intra-regional.

The next largest South American growth economies, Colombia, Chile

and Peru, are increasingly on the radar of intra-regional investors

who are seeking to acquire hotels on a selective basis, driven by their

strategy of earning greater returns in hotels than in other asset types.

Argentina, on the other hand, is sorting through economic and political

challenges and investment decisions have been placed on hold.

Hotel market cycle 2013 Latin America


RevPARgrowthslowing

RevPARfalling

RevPARrising


Buenos Aires

Caribbean

So Paulo

Rio de Janeiro

Mexico City

Bogot

Real GDP growth (annual %)


2008 2009 2010 2011 2012E 2013F 2014F

North America

Canada 1.1 -2.8 3.2 2.6 2.1 1.9 2.5

Mexico 1.2 -6.0 5.5 3.9 4.0 3.5 4.9

United States -0.3 -3.1 2.4 1.8 2.1 1.9 2.8

South America

Argentina 6.8 0.9 9.2 8.9 1.5 2.0 2.7

Brazil 5.2 -0.3 7.5 2.7 1.5 3.8 4.7

Chile 3.4 -1.7 5.2 6.0 4.9 4.5 4.7

Colombia 3.5 1.7 4.0 5.9 4.6 4.3 4.4

Peru 9.8 0.9 8.8 6.9 6.0 6.0 4.9

Exchange rates (local / USD period average)


2008 2009 2010 2011 2012E 2013F 2014F

North America

Canada 1.2 1.1 1.0 1.0 1.0 1.0 1.1

Mexico 13.5 13.1 12.4 14.0 12.9 12.8 12.5

South America

Argentina 3.4 3.8 4.0 4.3 4.8 5.2 5.5

Brazil 2.3 1.7 1.7 1.9 2.1 2.1 2.1

Chile 629.1 506.4 468.4 521.5 480.6 510.3 459.1

Colombia 2,198.1 2,044.2 1,989.9 1,942.7 1,825.9 1,818.8 1,831.4

Peru 3.1 2.9 2.8 2.7 2.6 2.6 2.6


17/36


Colombia is witnessing a considerable amount of development

by local investors, with little direct activity from the U.S. The

countrys stable economy, large population, greatly improved

business environment and government tax incentives have led to

a considerable amount of new supply. Investors have grown morecautious about a potential temporary oversupply, but the longer-term

outlook looks bright as demand continues to grow.

Chile has long enjoyed macroeconomic stability, an open business

environment and consequently, relatively sophisticated capital markets.

Peru has also followed pro-growth policies that have resulted in the

country posting the highest sustained economic growth rates in all

of South America. This, together with Perus rich cultural heritage

has increased its commercial and tourism appeal; thus hotel demand

should continue its upswing in 2013. Lima has seen a lesser degree

of institutional-grade hotel development. The market still lacks thedepth of international hotel brands seen in other South American

capitals and the market will be receptive to new development.


18/36

EMEA


19/36


Highlights

Despite the economic challenges in Europe, hotelinvestment volumes in EMEA in 2013 are anticipated to

hold up and are forecasted at roughly $11 billion.

Although the economic situation in Europe willremain complex, several indicators give cause for

optimism and could lead to an improvement in investor

condence in 2013.

Positive signs include the emergence of new sourcesof debt in the form of debt funds and alternative lenders

such as insurance companies which are entering the hotel

arena. The hotel investment market will also benet from

a narrowing pricing gap for secondary assets between

buyers and sellers.

Sellers pricing expectations have already become morerealistic, especially in provincial U.K. and Ireland where

prices have been adjusted and we expect other European

markets to follow suit.

Operating results are also holding up comparatively well

and some gateway markets are likely to see a further rise

in RevPAR due to the continued growth in global travel

and tourism.


20/36


Transaction activity moderated in 2012

In 2012, the hotel investment market in Europe, Middle East and

Africa (EMEA) moderated as transaction volumes slowed by 10%

year on year to $11 billion. Investor sentiment was negatively affected

by the ongoing uncertainty surrounding the sovereign debt crisis, thecontinuing limited availability of debt and high costs of nancing new

acquisitions. Closing deals in 2012 was very difcult.

Transaction activity was concentrated on the key gateway markets in

Europe that had weathered the economic headwinds surprisingly well.

Highly diversied markets such as London, Paris, Amsterdam, and

key German cities, posted robust trading fundamentals and witnessed

aggressive pricing for quality properties in the prime locations.

Assets in secondary locations evoked limited interest due to lower

growth in trading fundamentals and investors perception of higher

risk. Investors remained uncertain of future trading in these markets,

which are more heavily reliant on fragile domestic and corporate

markets. Pricing for regional assets was therefore more opportunistic

and a number of assets sold signicantly below their guide price.

Hotels in stable secondary cities in Germany were an exception.These assets, often sold under long term leases or with vacant

possession, attracted a lot attention and were predominantly sold to

high net worth individuals (HNWIs) and institutional investors.

The majority of transaction activity occurred in Western and Northern

Europe with nearly no activity in Central and Eastern Europe (CEE).

There was virtually no debt availability for hotel acquisitions in this

emerging region and the economic and political outlook in some of

the countries remains uncertain. Nonetheless, Poland, one of the

most stable economies in Europe, received signicant buyer interest

especially for good quality product in Warsaw.

Despite the economic challenges in Europe, hotel investment

volumes in EMEA in 2013 are anticipated to hold up and are forecasted

at roughly $11 billion. Although the economic situation in Europe

will remain complex, several indicators give cause for optimism and

could lead to an improvement in investor condence in 2013.

Positive signs include the emergence of new sources of debt in

the form of debt funds and alternative lenders such as insurance

companies which are entering the hotel arena. The hotel investment

market will also benet from a narrowing pricing gap for secondaryassets between buyers and sellers. Sellers pricing expectations

have already become more realistic, especially in provincial U.K.

and Ireland where prices have been adjusted and we expect other

European markets to follow suit. Operating results are also holding

up comparatively well and some gateway markets are likely to see a

further rise in RevPAR due to the continued growth in global travel

and tourism.

New debt funds and insurance companies on the scene

In 2013, we anticipate an improvement in the debt markets as newalternative lenders such as insurance companies and pension funds

start to ll the funding gap left by the retreat of more traditional

lending banks. These investors have struggled to get decent returns

from government bonds and are increasing their allocation to higher

yielding real estate investments.

Furthermore, a number of debt funds have been raised. StarFin by

Starwood Capital, for example, aims to take advantage of nancing

opportunities by providing investors with debt capital to help

renance existing loans. GE Capital Real Estate Europe has also

targeted to build a $5 billion U.K. loan portfolio within the next four tove years.

EMEA average single-asset deal size 1998 - 2013F


0

10

20

30

40

50

60

70

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

$US(Millions)

EMEA hotel transaction volumes 1998 - 2013F



0

10

5

20

15

25

30

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

Volume($Billions)


21/36


In addition, mezzanine lenders will help plug the nancing gap

and we have witnessed increasing activity from lenders such as

Blackstone, Starwood Capital and Duet, encouraged by higher

returns on their debt provisions than senior lenders. Bank lending is

also predicted to improve and a few banks have reopened their creditlines in the second half of 2012.

This improving picture is likely to be the rst stage in a return to more

normalized debt markets, which in time will help refocus transactional

activity, although these alternative sources of debt are typically more

expensive than traditional banks.

Trading fundamentals to remain stable in 2013

The consensus in the investment community is that trading

fundamentals in EMEA will remain stable with further growth in

revenue per available room (RevPAR) expected for key gateway

cities in Northern and Western Europe and the Middle East.

In Europe, operating results are anticipated to remain robust in key

cities such as Munich, Paris, Vienna, and Barcelona. These markets

will disproportionally benet from the continued expansion of inbound

tourism from BRIC countries (Brazil, Russia, India and China) and

markets in Asia and South America. An exception will be hotels in

London where an Olympic hangover and a signicant increase in

supply will likely result in a attening or contraction in RevPAR in

2013.

Hotels in Southern Europe that are more heavily reliant on domestic

or corporate demand and, therefore, more dependent on their local

economies, will continue to struggle in the short term. Economies in

Southern Europe are forecast to remain in recession and Tourism

Economics predicts a decline in international arrivals in this region in

2013. Some of these hotels could, therefore, very well experience a

stagnation or a decline in average room rates and occupancy levels

when compared to 2012.



2008 2009 2010 2011 2012E 2013F 2014F

Western Europe

France -0.2 -3.1 1.6 1.7 0.1 0.0 0.5

Germany 0.8 -5.1 4.0 3.1 1.0 0.9 1.1

Italy -1.2 -5.5 1.8 0.6 -2.0 -1.2 -0.4

Netherlands 1.8 -3.7 1.6 1.1 -1.0 -0.4 0.5

Spain 0.9 -3.7 -0.3 0.4 -1.3 -1.5 -0.7

U.K. -1.0 -4.0 1.8 0.9 -0.1 1.1 1.5

Central & Eastern Europe

CzechRepublic

2.9 -4.4 2.3 1.9 -1.0 0.3 1.8

Hungary 0.7 -6.7 1.3 1.6 -1.5 -0.6 1.4

Poland 5.1 1.6 3.9 4.3 1.8 1.0 2.8

Romania 7.3 -7.1 -1.3 2.5 0.5 1.2 2.7

Russia 5.2 -7.8 4.3 4.3 3.6 3.4 4.0

Turkey 0.7 -4.8 9.2 8.5 2.5 4.0 3.9

MENA

Morocco 5.6 4.8 3.6 5.0 2.5 3.9 4.6

Oman 13.1 3.9 5.0 5.0 4.4 4.0 4.3

Qatar 25.4 8.6 16.7 14.8 4.5 4.3 4.7

UAE 3.2 -4.8 1.3 4.2 4.2 2.0 2.7

Exchange rates (local / USD period average)


2008 2009 2010 2011 2012E 2013F 2014F

Western Europe

Eurozone 0.7 0.7 0.8 0.7 0.8 0.8 0.8

Sweden 6.6 7.7 7.2 6.5 6.8 6.6 7.1

Switzerland 1.1 1.1 1.0 0.9 0.9 0.9 1.0

U.K. 0.5 0.6 0.6 0.6 0.6 0.6 0.6

Central & Eastern Europe

CzechRepublic

17.1 19.1 19.1 17.7 19.6 19.2 20.2

Hungary 172.1 202.3 207.9 201.1 224.9 230.5 256.7

Poland 2.4 3.1 3.0 3.0 3.3 3.2 3.3

Romania 2.5 3.0 3.2 3.0 3.5 3.3 3.3

Russia 24.9 31.7 30.4 29.4 31.1 31.0 29.9

Turkey 1.3 1.6 1.5 1.7 1.8 1.8 1.9

MENA

Morocco 7.8 8.1 8.4 8.1 8.6 8.8 9.2

Oman 0.4 0.4 0.4 0.4 0.4 0.4 0.4

Qatar 3.6 3.6 3.6 3.6 3.6 3.6 3.6

Saudi Arabia 3.8 3.8 3.8 3.8 3.8 3.8 3.8

Hotel market cycle 2013 - Europe


RevPARgrowthslowing

RevPARfalling

RevPARrising


Budapest

Prague

Dublin

Moscow

St. Petersburg

Copenhagen, Warsaw, Krakow

Vienna

Munich, Paris

Dusseldorf

Istanbul

Berlin, Hamburg,Amsterdam, Regional U.K., London

Barcelona,Frankfurt

Madrid

Rome

Milan

Heathrow

Cologne

Brussels, Geneva, Zurich, Gatwick

Lisbon


22/36


Hotel demand had recovered impressively in the Middle East

since the Arab Spring, led by hotels in Dubai which recorded high

occupancy levels, with RevPAR moving towards its peak of 2008.

For 2013, we expect a further improvement in trading performance

in the UAE on the back of continued growth in international arrivals.Dubai, the safe haven of the region, is expected to achieve a fur ther

growth in RevPAR whereas hotels in Abu Dhabi will continue to

recover from an oversupply situation.

Saudi Arabia will also achieve improved performance linked to new

infrastructure projects dr iven by public spending policy. We anticipate

performance to remain constrained in Bahrain due to the ongoing

local tensions.

Trading performance in North Africa will further stabilise in 2013

as tourists return to countries such as Egypt, Morocco and

Tunisia. Occupancy in Cairo will further recover, although room

rates are likely to remain at low levels due to very competitive

market conditions. Dynamic growth in trading performance is also

anticipated for sub-Saharan Africa, especially for growing tourist

destinations such as Tanzania and Kenya.

Asian and Middle Eastern investors to drive cross-

border deals

In 2012, Middle Eastern investors were one of the most active buyers

of hotel real estate, acquiring assets with a total value of $1.7 billion

or about 15% of total investment volumes in EMEA. In 2013, weexpect Middle Eastern investors predominantly from the United Arab

Emirates (UAE) and Qatar to remain one of the most active buyers

of European hotel real estate. These cash rich investors, primarily

HNWIs and sovereign wealth funds, will remain keen to diversify

into upscale assets in core markets and are likely to place in excess

of $100 million in equity in each of a number of major deals. These

investments often reect non-economic factors such as pride or

prestige of ownership and are more focused on long term capital

preservation than short term cash ow.

Asian investors, although coming from a lower base, have also beenactive, and we expect hotel operators and developers, particularly

from Singapore and Malaysia, to continue purchasing upscale hotels

in key European markets. We also anticipate Chinese investors to

increase their cross-border investments into Europe as they switch

their attention from domestic investments to strategic assets in

advanced economies.

U.K. to remain the most liquid market

The U.K. is anticipated to remain the most liquid market in EMEA,

driven by buoyant investment activity in London, which remains a targetfor risk-averse overseas investors wishing to avoid Euro exposure.

The London hotel market has proven to be resilient with average

occupancy levels predicted to stay close to 80%. Demand for

upscale properties will remain strong and keep prices at record levels

with yields for these type of assets within a range of 2% and 5%.

In regional U.K., investment activity will be driven by a combination

of a large amount of product being offered for sale and a narrowing

price expectation gap between buyers and sellers. Many of these

properties will come from distressed situations, and for the right

buyer, will deliver a healthy yield.

France is likely to achieve second place in terms of investment volume in

2013. Single asset transactions will be driven by Paris, which similar to

London, attracts a large number of overseas investors. A combination of

limited supply for sale and high demand will result in aggressive pricing.

In regional France, we anticipate some activity, mainly in the budget

segment, as hotel operators continue to pursue an asset light strategy.

These assets, likely to be trading as part of a portfolio, will come on the

radar of institutional investors seeking more stable returns and also will

attract the attention of some private equity investors looking to own and

operate properties in secondary markets under franchise agreements.

Hotel market cycle 2013 - MENA


RevPARgrowthslowing

RevPARfalling

RevPARrising


Muscat

Cape Town

Dubai

Johannesburg

Jeddah, Amman

Kuwait

Cairo, Manama

Beirut

Riyadh

Doha

Abu Dhabi


23/36


In 2013, many investors will look to Germany, which is expected to

offer some of the most attractive risk-adjusted returns. In addition,

the hotel market benets from a buoyant tourism sector and solid

economic fundamentals.

Hotels are often still subject to long-term leases, which provide

stable cash ows and will, therefore, continue to appeal to

institutional investors such as Deka Immobilien, Union Investment

and Invesco Real Estate. A positive buy sentiment from this

investor group was moreover reected in European real estate fund

manager Internos capability of raising a sum of 75 million from

four German institutional investors for its Hotel Real Estate Fund

in July 2012. Hotels in key markets such as Munich, Frankfurt,

Hamburg and Berlin will also experience signicant buyer interest

from private individuals and family ofces, which are aiming for

long and secure investments.

Southern Europes investor sentiment weakens

In Spain, transaction activity will likely remain weak as investors

face higher risks and a deepening recession in 2013. We therefore

expect many investors to follow a wait and see approach and focus

on key tourist destinations with strong trading fundamentals such as

Barcelona, a high desire for entry such as Madrid, or key seaside

resort destinations. Some activity can be expected from Spanish

banks, which are under growing scrutiny from the E.U. to start

deleveraging and could, therefore, accelerate their plans to sell hotel

loans and assets.

We can also expect some activity coming from Spains bad bank,

SAREB, which was set up in December 2012 and will take over

toxic real estate (including hotel assets) at signicant discounts

from the troubled banking sector. Assets and loans that SAREB

will start ofoading in the coming years will offer attractive returns

and upside potential and, therefore, capture the interest of more

opportunistic investors.

In Italy, we anticipate sustained hotel investment activity despite

a struggling corporate and domestic tourism sector which will put

pressure on trading performance. It is likely that investment activity

will be driven by luxury/trophy hotels in high barr ier to entry business

and leisure destinations such as Rome and Milan. While the Italianhotel investment market remains primarily in the hands of domestic

buyers, we expect capital ows from the Middle East directed

towards trophy assets in core markets.

In Central and Eastern Europe, we predict investment activity to be

strongly correlated with the amount of debt availability. Although

lending activity is expected to improve, it will remain challenging to

nance transactions in this region and therefore hotel investment

volumes could very well remain subdued. However, we can expect

some activity from equity rich investors as well as opportunistic

investors, although with a clear focus on prime assets.

Nonetheless, we anticipate a potential uptick in hotel investment

activity in Poland due to the countrys economic stability, buoyant

hotel market and high yields for new hotel acquisitions relative to

most mature markets. Some transaction activity is also expected

in Prague, where hotels have recorded a signicant improvement

in trading performance and investor interest, particularly from local

private equity companies.

In Russia, hotel investment activity will be conned primarily to Moscow.

The market is still dominated by domestic investors who will invest in

high quality products in central locations with a focus on three to four-

star properties, with yields typically ranging between 9% and 11%.

Policy interest rates - Western Europe


Eurozone Sweden U.K.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2008 2009 2010 2011 2012E 2013F 2014F

Policyinterestrates

Policy interest rates - Eastern Europe


Czech Republic Hungary Poland Russia

0%

2%

4%

6%

8%

10%

12%

14%

2008 2009 2010 2011 2012E 2013F 2014F

Policyinterestrates


24/36


Tempered deal activity in the Middle East and Africa

Similar to previous years, we expect no signicant investment activity

in the Middle East and Africa as investors prefer to build rather than

acquire existing hotels. The investment market in the Middle East

will remain very opaque with most buyers being local developmentcompanies or HNWIs. Dubai will be an exception with evidence of some

investor interest outside the Gulf Cooperation Council (GCC) countries.

In Africa, some activity is expected in Morocco, the most mature

hotel market in North Africa. Domestic investors, primarily local

funds and HNWIs, could acquire hotels in key cities such as

Casablanca or Marrakesh, although will likely avoid more volatile

seaside resort destinations.

Sub Saharan Africa: development hot spot

Hotel development activity in Europe will remain restrained in 2013 in

light of continued funding difculties for new projects. Exceptions are

in strong markets such as London that still have a signicant amount

of hotels in the development pipeline although a large number ofthese projects are conversions or par t of mixed use development

schemes. New and popular lifestyle/boutique brands such as Motel

One, Citizen M, Indigo and Aloft are also increasing their presence in

core markets.

EMEA hotel development pipeline through 2014F


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Numberofrooms


EMEA 2012 buyer seller net shift analysis


-15% -10% -5% 0% 5% 10% 15%

Sovereign wealth fund

Receiver

REIT



Hotel operator

HNWI


Corporates

Net shift^


25/36


In the Middle East, development activity will pace ahead with nancing

often provided by public funds. The region is expected to open 150 new

hotels in 2013 with the majority opening in Saudi Arabia and the United

Arab Emirates. Nonetheless, development activity has started to slow

down in Dubai as the market is nearing maturity.One of the development hot spots is expected to be Sub Saharan

Africa, which has politically stabilized in some regions and started

to restore investor condence. Many of these emerging economies,

such as Ghana and Nigeria, are seeing strong economic growth due

to an abundance of natural resources and the benet from growing

levels of direct foreign investments from the U.S., Europe and China.

We believe that these countries will offer much growth potential

especially in terms of business tourism and, therefore, will attract

a growing amount of international hotel operators that would like to

expand into these emerging markets. Development activity will besupported by improved accessibility to nancing due to the recent

creation of African hotel funds with capital provided by African and

international investors. However, risks remain very high and strong

relationships with local development companies and governmental

institutions are critical when entering these markets.


26/36

Asia Pacic


27/36


Highlights

Asia Pacic transaction volumes are projected to record

a slight uptick in 2013 to reach $3.5 billion with the lions

share of deals in Australia and Japan. The gap between

buyer and seller pricing expectations which emerged in2012 will continue to feature in 2013.

Inter-regional capital will remain active in Asia Pacics

hotel investment market in 2013. The successful listing of

two new hotel REITs in 2012 and more planned for 2013 is

likely to result in higher volumes by these groups, for whom

diversication is crucial. REITs have been willing to consider

assets in secondary locations to ensure overall viability.

Australia remains a target for cross-border capital

with interest from Asian groups in prime hotels stillexceptionally strong and selective interest from new

capital sources such as the Middle East and China.

As operating companies digest an oversupply of luxury

rooms in major cities in China, the mid-market will be an

exciting space to watch over the next ve years.

Investment benchmarks are being established in India.

The dynamics in 2013 will favour both buyers and

developers with a slowdown in development activity

and more opportunities to acquire.

Transaction volumes in Japan are expected to improve

with trading performance returning to pre-quake levels.

The market offers signicant leverage opportunities with

interest rates at near zero and lenders more willing to

originate non-recourse loans.

Thailand has emerged as one of the regions hotel

investment hot spots with more deals expected in Phuket

and Bangkok in 2013. The introduction of a new REITlaw is also expected to increase liquidity in the hotel and

property investment market.


28/36


Volumes fall short

Hotel trade activity slowed in 2012, reducing 30% to $3.3 billion,

as investor valour gave way to opportunistic play. Australia

dominated deal ow, whereas bank inaction in Japan and a

noticeable absence of sales in Asias key gateways were the majorcontributors to lower than anticipated transaction volumes against

a backdrop of investor conservatism.

For 2013, Asia Pacic hotel transaction volumes are projected to

reach $3.5 billion, slightly above the 2012 volume but below the

short-run average of $4.1 billion. Australia and Japan will see the

lions share of investment dollars, but with pockets of activity across

the rest of the region. Availability of stock in the key gateways

and the willingness of sellers to close deals through transparent

processes in emerging markets will dictate the overall investment

landscape in 2013.

The gap between buyer and seller pricing expectations, which

emerged in 2012 after the strong appreciation of assets over the past

four years, will also remain a feature in 2013. While the long-term

fundamentals for Asia Pacic hotel markets remain strong wealthier

travelling middle class, improved connectivity, rapid urbanisation,

rising education, high savings rate and lower taxes there has

been a subtle softening in trading performance across the region,

tempering investor enthusiasm.

With such low levels of established product available for sale,

investors continue to consider development in order to achieve

sufcient scale across the region. Asia remains the global hotel

development hot spot with supply increases projected to average

5.5% per annum across 23 major markets over the next two years

although commencements have slowed in India, South East Asiaand China as cities suffer indigestion following signicant new hotel

openings in recent years.

Development in the regions two most liquid hotel investment markets

Australia and Japan continues to be held back by the cost versus

value equation. Therefore, low levels of new supply will continue to

be an attractive driver for global investment capital.

Borders blur as capital moves across the map

Intra-regional capital will remain active in Asia Pacics hotelinvestment market in 2013, accounting for an estimated 70% of

the total transaction volume and underpinned by some large-scale

deals in Australia and Japan. In order to be successful in the worlds

growth engine, investors need to be prepared to do deals where

assets are offered. In 2012, this resulted in higher transaction volumes

in the Indian Ocean and Thailand, but in 2013 we also expect

investment in Indochina, Indonesia and India to come to the fore.

Investment will continue to be opportunistic rather than strategic, with

investors targeting markets which represent value or where there is

a positive growth story. Investors are looking at the expansion of LowCost Carrier (LCCs) networks and where tourism infrastructure is

being developed. These markets are the focus for their ags and for

capital growth.

However, with only 70 transactions occurring on average each year

over the past decade, visibility of investment metrics is generally low

and the extent of liquidity a concern, particularly for institutional and

global capital. The exceptions are Australia and Japan. Domestic and

regional capital is likely to dominate where real estate transparency

remains opaque.

Asia Pacic hotel development pipeline through 2014F

*Branded hotel stock onlySource: Jones Lang LaSalle


0

20,000

40,000

60,000

80,000

100,000

120,000

Sydney

Melbourne

Auckland

Beijing*

Shanghai*

HongKong

Mumbai*

NewDelhi*

Jakarta

Bali

Tokyo

Osaka

Singapore

Bangkok

Phuket

HoChiMinhCity

Numberofrooms

Asia Pacic hotel transaction volume 1998 to 2013F



0

3

6

9

12

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

Volume($Billions)


29/36


Two new hotel REITs and more to come

With the listing of two new hotel REITs in Singapore in 2012 and

more in the making, cross-border investment and expanding liquidity

will characterise the region over the coming years.

Diversication is a key component for REITs, limiting exposure to any

one segment or geography. While such structures can be prohibitive

for the acquisition of larger hotel real estate, REITs have been willing

to consider assets in secondary locations in Japan and Australia to

ensure overall viability, while also being yield accretive, and given the

limited number of investment opportunities available in Asia.

Notwithstanding, REITs are generally more risk averse as they are

marked to market daily and therefore subject to changes in sentiment

in accordance with the external environment. While the global

economy remains under pressure, movements in the political arena,

which impacted in 2012, have now been resolved with the Chineseand U.S. presidential elections both held in November 2012.

REITs now exist in many countries across the region and are

permitted to invest offshore in Australia, Hong Kong, Malaysia,

Singapore and South Korea, and to a lesser degree in Taiwan and

the Philippines. The imminent passing of REIT legislation in Thailand

will also allow offshore investment. Therefore, regional REITs are

likely to remain net buyers of Asia Pacic hotel real estate over the

next few years.

We do not expect to see a major shif t in the buyer prole in 2013.

Investment will continue to be dominated by the aforementionedREITs, as well as Asian family companies, owner operators and

possibly the re-emergence of opportunity funds in Japan.

Asia Pacic cross-border capital 1998 to 2013F


Asia Australasia Proportion of Asia Pacific total volume

0

3

6

9

12

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

Volume($Billions)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Totalproportionofcross-borderinvestment

Asia Pacic 2012 buyer and seller net shift analysis


-50% -40% -30% -20% -10% 0% 10% 20% 30%

Other

Sovereign Wealth Fund

Receiver

REIT



Hotel operator

HNWI


Corporates

Net shift^



2008 2009 2010 2011 2012E 2013F 2014F

North Asia and India

China PRC 9.6% 9.2% 10.5% 9.3% 7.6% 7.8% 8.3%

Hong Kong 2.1% -2.5% 6.8% 4.9% 1.8% 3.7% 4.6%

India 4.9% 7.1% 9.6% 6.9% 5.1% 5.8% 6.9%

Japan -1.1% -5.5% 4.6% -0.7% 1.7% 0.3% 2.0%

South Korea 2.3% 0.3% 6.3% 3.6% 2.1% 2.0% 3.6%

Taiwan 0.7% -1.8% 10.7% 4.0% 1.2% 3.3% 4.4%

South East Asia

Indonesia 6.0% 4.6% 6.2% 6.5% 6.2% 6.1% 6.1%

Malaysia 4.8% -1.5% 7.2% 5.1% 4.8% 4.3% 4.8%

Philippines 4.2% 1.1% 7.6% 3.7% 4.9% 4.7% 4.9%

Singapore 1.7% -1.0% 14.8% 4.9% 2.0% 2.9% 4.0%

Thailand 2.5% -2.3% 7.8% 0.1% 5.4% 3.6% 4.5%

Vietnam 6.2% 5.3% 6.9% 5.9% 5.1% 5.3% 5.9%

Pacic

Australia 2.5% 1.4% 2.5% 2.1% 3.4% 2.3% 2.9%

New Zealand -0.6% -0.2% 0.9% 0.5% 1.8% 2.7% 2.8%

Fiji 1.0% -1.3% -0.2% 2.0% 1.2% 1.7% 1.9%


30/36


Pockets of bank-driven sales

As in 2012, sellers in 2013 will primarily include investment funds,

institutions, and corporate companies who are restructuring their

portfolios to free up equity to make strategic investments elsewhere.

Asia Pacic hotel real estate is predominantly owned by large Asianfamily companies, many of whom are inter-generational investors

with assets held over the very long term (30-50 years). These

investors are well-capitalised.

Japan, and to a lesser extent Thailand and India, are the markets

where bank action is likely to be a factor. In Japan the extent of

CMBS, to be renanced in the next 12-18 months, will likely result in

more asset disposals. Corporates are also selling non-core assets

as debt terms on major assets come up for renewal. Having been

extended in 2011, the loan moratorium act will expire in 2013. Under

this act, Japanese nancial service agencies protected small andmid-sized companies who were struggling to renance corporate

loans. The challenge for owners will be renancing at the 2006-07

values which are on their books.

In Thailand (Bangkok) and India, trading has come under pressure

from the weight of new supply. This is resulting in a greater focus on

non-performing or underperforming loans, thereby motivating asset

sales. On the whole, however, structured receivership sales will

remain limited across the region.

Pricing gap amps challenges

The pricing gap between buyers and sellers has widened with

some sellers reticent to accept the changed outlook. Growth rates

have softened, yet some markets in Southeast Asia and Australia

are trading above previous peaks, making the extent to which to

underwrite further growth unclear.

In Japan, trading performance has recovered much better than

anticipated in the wake of the 2011 earthquake. With interest rates at

near zero and lenders more willing to originate non-recourse loans

to hotels, the market offers signicant leverage opportunities, driving

down yields and pushing prices up. Transaction evidence remainslimited however with sales in 2012 primarily undertaken by Japanese

corporates and REITs and with few sales in excess of $50 million.

The dynamic trading environment and lack of liquidity in emerging

markets also presents challenges for potential investors. Hotel

valuations in China remain low with cash ows under pressure given

the oversupply in many markets. Yields are also given little regard as

Chinese real estate is typically evaluated on a cost per square meter

basis and these two metrics continue to diverge.

The environment in India is more positive. With a few deals

completing in 2012 and the expectation of more to come in 2013,investment benchmarks are being established. This includes

both trading assets and those which are in the latter stages of

development, as well as land cited for hotel development. This will

provide greater clarity for investors to evaluate pricing and explore

opportunities through a formal process. Improved transparency and

visibility of the market will also result in higher capital inows, thereby

providing a free kick in terms of capital growth.

Asia Pacic average single asset deal size 1998 to 2013F


0

10

20

30

40

50

60

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013F

US$(Millions)

Exchange rates (local / USD, period average)


2008 2009 2010 2011 2012E 2013F 2014F

North Asia and India

China PRC 6.8 6.8 6.6 6.3 6.3 6.3 6.1

Hong Kong 7.8 7.8 7.8 7.8 7.8 7.8 7.8

India 48.5 46.7 44.8 53.3 53.9 52.4 51.5

Japan 90.8 92.1 81.5 77.7 78.2 77.7 75.0

South Korea 1,259.5 1,164.5 1,134.8 1,153.3 1,102.8 1,005.4 980.4

Taiwan 32.9 32.0 30.4 30.3 29.2 28.8 28.2

South East Asia

Indonesia 10,950 9,400 8,991 9,068 9,577 9,833 9,626

Malaysia 3.5 3.4 3.1 3.2 3.1 3.0 3.0Philippines 47.5 46.4 43.9 43.9 41.2 41.1 41.0

Singapore 1.4 1.4 1.3 1.3 1.2 1.2 1.2

Thailand 34.9 33.3 30.2 31.7 30.7 31.5 30.4

Vietnam 16,977 17,941 19,503 20,828 20,870 21,662 22,639

Pacic

Australia 1.4 1.1 1.0 1.0 1.0 1.0 1.0

New Zealand 1.7 1.4 1.3 1.3 1.2 1.3 1.3

Fiji 1.8 1.9 1.8 1.8 1.8 1.9 1.9


31/36


Australian investment pace moderates

2012 provides a good barometer for the Australian hotel investment

landscape in 2013. Transaction volumes are projected to reach

AU$1.0 billion, reecting a slight moderation compared to 2012 when

volumes recorded the third highest annual total on record. Similarly, anumber of large transactions will underpin overall volumes. However,

the number of sales will rank below historic norms with low levels of

liquidity in regional centres and key leisure markets.

Whilst Australia has had the complete focus of many active buyer

groups over the past couple of years, increasingly assets will need

to compete on a global scale as the great deleveraging gains pace.

For now, Australia remains a target for cross-border capital with

interest from Asian groups in prime hotels st ill exceptionally strong

and selective interest from new capital sources like the Middle

East and China. Regional REIT players will also continue to make

acquisitions whilst balancing portfolios. Many offshore groups have

the added bonus of relationship banking or corporate nance, which

means they are not held back by the conservative debt facilities and

lengthy approval processes, boosting buying power.

Chinas development slows

Chinas most uncertain leadership transition in decades has

impacted the overall pace of hotel investment activity across China

as opinion has become splintered about the direction and speed of

the regions economic powerhouse.

The incumbent government was largely inactive during the second

half of the year and is expected to remain so until March 2013 as

the new government transitions into power and policies are moved

forward. Whilst some developments have progressed, it has been

at a lower speed than in recent years, as access to debt and equity

capital has become more challenging. This has enabled the private

equity and real estate funds to become active again, primarily by

offering preferred equity and mezzanine nancing. On the whole,

foreign investment remains very subdued with limited direct hotel

investment, even on a speculative basis.

As operating companies digest an oversupply of luxury rooms

in major cities while trying to emulate the success of the budget

sector, Chinas mid-market will be the most exciting space over the

next ve years. The mid-segment is currently under-represented

from a brand and investment-grade product perspective, however,

rising incomes and a wealthier travelling middle class all point to

signicant opportunity.

Operators are also increasingly looking to Tier 4 and 5 cities for new

opportunities as they look to familiarise brand-conscious Chinese

consumers with their stable of high-end hotels, even if rates aredepressed and the management fees are low. Examples of Tier 4

and 5 cities where international brands have been developed include

Anshan in Liaoning province and Dali in Yunnan province.

Policy interest rates Australia and New Zealand


Australia New Zealand

0%

2%

4%

6%

2008 2009 2010 2011 2012E 2013F 2014F

Policyinterestrate

Hotel market cycle 2013 Australia and New Zealand


Documents

Hotel Investment Outlook 2013 Par JLL - Www.metrecarre.ma