hotelanalyst · Accor sales – values head lower – Finnish sales – MWB and JJW report – good year for Wyndham and Choice – IHG share doldrums – ALIS conference report –

hotelanalyst

The intelligence source for thehotel investment community

www.hotelanalyst.co.uk

The 75 basis point cut in US interest rates on January 22 was a dramatic signal of how the US economy is on the brink of a major recession.

Pessimists argued that either the Fed has

been panicked into an overcooked loosening of

monetary policy that will lead to a deeper recession

later or else it is a too late reaction to an already

crashing economy.

Even optimists, who view the intervention

as welcome and timely, must now accept that

economic risks are now very much on the

downside. Hopes that the credit crunch was an

isolated issue for the banking sector have clearly

been confounded.

The fact that the Federal Reserve slashed its

benchmark rate to 3.5% via the first unscheduled

announcement since 2001 (cutting to 3.0% a

week later) and that it is the biggest change in

rates in one go for almost 26 years demonstrates

the panic in the financial markets.

In the week leading up to the rate cut, your

correspondent heard for the first time the CEO of a

major hotel operator brag about how his company

was well situated for the recession. The key point

is that he was not putting a case for when or if a

recession was coming but that in his view we are

entering one. For him, from being a possibility last

year, recession is now a reality.

Economists now view a major recession in

the US as likely and that there will be a similar

downturn in the UK. The outlook for continental

Europe is less bleak and Asia Pacific is also viewed

more positively.

This is, on the face of it, good news for global

hotel operators. But in reality, no hotel group has

a truly balanced hotel portfolio. Probably best

•IHGsharepricebounce after its results shows the confusion in the stock market p7

•Marriottlowersexpectations: smaller growth for 2008 predicted p8

•Americangloom:ALISconferencereportfromLosAngelestakesthe Transatlantic temperature p10

•Otus&Cohighlightsthe collapse in supply growth of European chains p12-14

Interestratecutindicatesthreatlevelsituated of the majors is Accor, with the bulk of its

profits generated in mainland Europe.

In any case, as the volatility of share prices in

Asia showed, no region is immune to a downturn

in the US, still the world’s biggest economy.

It is not just about geography. InterContinental’s

massive sell down of property leaves the bulk of

its profits being generated from more stable fee

incomes, as with Marriott.

The other majors have also all been exiting

property, leaving them less cyclically exposed.

Where leases have been retained they are

increasingly turnover linked, meaning operators

are significantly less geared to the downturn.

What is surprising is how stock market investors

have not discriminated in favour of operators

who own less property. Some of the quasi-

property stocks such as Millennium & Copthorne

have suffered less than fee-income focused

InterContinental.

It seems unlikely that the hotel sector is heading

for a meltdown on the scale seen in 2001 through

to 2003. The economic downturn was amplified

but the geopolitical shock of 9-11 and by the huge

surge in room supply at the end of the 1990s.

There is every chance that the economic picture

this time around will be worse but hotels, for a

change, will not suffer disproportionately. There

remains the prospect of at least two or three years

of reasonable revpar growth, albeit that the rate

of growth has slowed markedly.

In real terms, adjusting for retail price inflation,

revpar has barely reached its previous peak in the

US and the UK. In continental Europe, it is still

significantly below. Analysts at Citigroup estimate

that on average revpar in Europe is around 10%

down on the 2000 peak, although the variance is

large with Paris at about the same level of its peak

but Frankfurt still off by 26%.

Hotel Analyst newsletter is sponsored by

international executive search consultants

Madison Mayfair. For more information visit

www.madisonmayfair.com

Volume 4 Issue 2 – March/April 2008

Contents

News review 3-11

Accor sales – values head lower –

Finnish sales – MWB and JJW report –

good year for Wyndham and Choice –

IHG share doldrums – ALIS conference

report – radical change at Hyatt

Analysis 12-14

Otus & Co on slow chain growth in

Europe

Sector stats 15

Moscow outperforms, London margins

up say TRI

Personal view 18

Owners and operators and the battle of

the competing brands

The Insider 20

Hotels without windows – French

culture tax - love hotel float

www.hotelanalyst.co.ukVolume 4 Issue 2 – Mar/Apr 2008

All enquiriest +44 (0)20 8870 6388

Editor Andrew Sangstere [email protected]

Production Chris Bowne [email protected]

Marketing Sarah Sangstere [email protected]

Subscriptions Debbie Ushere [email protected]

Art Direction T Square Designe [email protected]

Design Lynda Sangstere [email protected]

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Hotel Analyst is published by

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Debt difficulties slows dealsCommentaryby AndrewSangster

But while many banks are effectively out of the

market and more interested in trimming loans

than making new ones, others remain in business,

albeit being pickier and charging more.

Relationship banking, a term readily bandied

about for the last few years with little resonance, is

now beginning to mean something. Hotel owners

seeking finance are now discovering how good

their own relationships with debt providers are.

Would-be borrowers have several hoops to

jump: they need to be known to the bank; the

lot size needs to be below about $500m; they

need to put in more equity (25% to 30% seems

a minimum); and they need to pay more (margins

are up at least 50 basis points).

A well known debt financier told Hotel Analyst

in mid January that while just six months ago

providing a margin of 1.25% would have delighted

a debt provider, today the floor is 1.75% and all

but the surest of bets will be charged more.

This is no time to be an opportunity fund looking

for a quick turn. There are, however, opportunities

for private equity players taking a longer view.

There is also plenty of cash: according to

London-based Private Equity Intelligence, last year

saw at least $79bn raised for real estate funds,

once the full data is in this total is likely to exceed

the $85bn raised in 2006.

While the credit crunch slowed fundraising,

it was not a dramatic slump. The first half saw

$44.2bn raised while the second half saw $34.5bn

raised. And Prequin believes that the signs for

2008 remain encouraging with some 266 funds

on the road with 72 funds reaching interim closes

with targets of $47bn.

For hotels, this money is finding its way into

deals such as the purchase of the 348-room

Munich Marriott by JER Partners which was

announced in early January.

Private money has also seen other deals

crunched over the past few months. CB Richard

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

hotelanalystEllis Hotels announced in mid January it had

sold Club Med’s Kamerina resort on Sicily to the

Ability Group for Eu62.5m on behalf of Heron

International. The agent had earlier sold Ability

the Cambridge Garden House, a property that

was part of the Queens Moat House portfolio

bought by Westmont. Ability owns the Hilton at

Liverpool and the former Tulip Inn in Glasgow that

is becoming a Premier Inn.

This latter deal typifies the current state of the

market. A £400m transaction involving a wider

Moat House portfolio of 19 properties remains

stuck in the works despite there being a willing

buyer, aAim, and a willing seller, again Goldman

Sachs’ Westmont. The portfolio deal is understood

to have stalled thanks to last minute jitters by a

debt provider.

Other notable single asset deals that have

been recently tucked away include the Park Inn at

Heathrow and the Victoria & Albert in Manchester,

both bought from the Royal Bank of Scotland by

Yianis, the owner of the Four Seasons and Marriott

at Canary Wharf.

The Park Inn is an 881-room property leased

to Rezidor on a turnover and base rent linked to

RPI. When it was part of the proposed float of

Vector in the early summer, the valuation put on

it was almost £158m (net of purchaser’s costs). Six

months later it fetched a price which is thought to

have been some 10% lower.

By contrast, the 148-room V&A, which is a

hybrid management contract type agreement

with Marriott under which the owner retains

responsibility for maintaining the structure and

shares in the operating risk via a rent linked to

EBITDA, fetched close to the £25m valuation put

on it in Vector.

There is a clear contrast here between the two

agreements, a factor that seems to have proved

more important than location, with the V&A in the

provinces proving more resilient in value than the

Heathrow-located Park Inn.

But most resilient of all appear to be luxury

properties in gateway locations. The Waldorf,

which was bought just before Christmas by

private hotel owner and operator Gulshan Bhatia,

is understood to have fetched more than it would

have under the Vector float when it was valued at

just over £159m net of purchaser’s costs.

Derek Gammage, managing director of CBRE

Hotels EMEA, which has been marketing the RBS

portfolio, said that for five-star assets in prime city

locations the credit crunch has had no discernable

impact on pricing.

“Even lower down the food chain, the pick-up

in underlying trade is often enough to absorb the

yield drops,” he added.

The mid January announcement ofa$9.83bnlossatCitigroup,theworld’sbiggestbank,isastarkillustration of the depth of the credit crunch.Itcreatestheviewthatthisyear will be one of stagnation.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 4 Issue 2 3

News

The buyer, a real estate consortium comprising

insurance giant AXA and investment fund

Caisse des Depots et Consignations, is also

partnering with Accor to develop hotels.The deal

encompasses 8,200 rooms under brands including

Novotel, Mercure, Ibis, Etap and new conversion

concept All Seasons. The deal value includes a

Eu52m renovation programme.

The properties are on 12-year renewable leases,

renewable six times giving Accor occupancy for

84 years. Rents are based on 16% of turnover

with no minimum. The current rent is Eu29.6m,

net of Eu3.7m insurance costs, property tax

and maintenance capex which are all now the

responsibility of the owner.

According to analysts at investment bank Jeffries

the implied yield is 5.7% which they described as

an “excellent price”.

The transaction is part of the Eu1.9bn of

disposals that Accor promised in September 2007

as part of its move to reduce asset intensity and

earnings volatility. The deal will reduce Accor’s net

debt by around Eu350m in 2008 and add Eu5m to

profits before tax.

Meanwhile Colony Capital, which already

holds 10.7% of Accor’s shares, is buying a further

Eu500m worth via a deal with an unnamed bank.

The bank was left holding the shares until the end

of January, as Colony was barred from buying

further into Accor through a lock-out agreement

until that point.

AccorshrugsoffthecrunchColony is to pick up any gains on the shares and

likewise meet any loss. Accor’s share price slumped

to a 14-month low just before Christmas.

This has not caused too much gloom in Accor’s

Paris headquarters and CEO Gilles Pelisson was

talking up the group’s prospects at the start of

this year, even mooting that a dollar acquisition

was possible.

ButdespitetheserobustfiguresAccorisstillsufferingfromnegativeinvestorsentiment

The main focus for 2007 was disposals and this

trend is set to continue into 2008. During last year

Accor sold its US economy chain in a deal that closed

in September for $1.3bn. In Europe it also sold 91

hotels to Moor Park and 30 to Land Securities.

Meanwhile, Accor’s revenues were up 6.9% on

a like-for-like basis in the final quarter of last year,

a result that caused the company to upgrade its

operating profit before tax estimates for the full-

year to slightly above Eu900m.

But despite these robust figures Accor and its

peers among the big listed hotel operators are still

suffering from negative investor sentiment.

Sales growth in the hotels division for the

full year was 5.8%, lfl, with the only weak spot

economy hotels in the US where lfl sales were up

just 1.5%. Revpar was strongest in upscale and

midscale with a 10.0% hike. Revpar for economy

hotels in Europe was 6.1%.

The momentum is positive in Europe with the

first half showing lfl sales growth of 5.4%, Q3

6.7% and Q4 7.9%. The three big territories of

France, Germany and the UK were all strong with

even Germany which had the challenge of beating

the World Cup uplift in 2006 still showing growth.

With its services division also growing strongly,

Accor forecast that profits would exceed Eu900m

in 2007 against a previous range of Eu870m to

Eu890m.

The Rugby World Cup in France delivered a 0.3

point increase in lfl sales across Accor’s hotels. It

calculated that upscale and midscale benefited by

0.5 points and economy hotels by 0.1 points.

By contrast, the absence of the soccer world cup

in Germany took 1.8 points from lfl sales, hitting

economy and more upscale hotels roughly equally.

The impact of these better than expected

numbers on Accor’s share price is unlikely to radically

alter market sentiment towards the stock. From a

high reached in April last year of Eu73.70, the share

price has drifted below Eu50 in early 2008.

Although 75% of Accor’s hotel revenue is

generated in Europe, stock market investors seem

to be marking down Accor alongside its peers.

Even harder hit, though, has been

InterContinental. While IHG generates most of

its profit in the US, about 80% comes from fee

income rather than direct ownership.

This means IHG has a comparatively resilient

business model when compared to hotel operators

that own much more of their real estate.

It appears, however, that investors are still not

discriminating between companies on this basis

and appear to be giving hotel operators little

credit for the massive restructurings that have

taken place over the last few years.

At IHG the share price is little more than half its

high of 1420p on June 1, briefly dropping below

650p during January. The main fear is a consumer

slowdown in the US leading to lower revenues.

But IHG is, alongside Marriott and Choice,

among the least exposed of the major operators

to cyclicality.

Accordemonstratedattheendoflast year that the appetite for hotel property remains robust despite the creditcrunch.Itsold57Frenchand Swiss hotels for Eu518m just beforeChristmas.

The hotel will be created as a refurbishment of

the existing property which is owned by the Crown

Estate, part of the UK government. The winning

bid of £130m was not the highest but was chosen

as its proposal was the most sympathetic to the

surrounding area.

The purchase was also heralded by Nakheel

Hotels as its entry into the London market.

Nakheel, the new name for Istithmar Hotels,

part of government owned Dubai World, is a

partner with IHI together with the Libyan Foreign

Investment Company.

On completion of the 283-room property,

management will be handed to Corinthia Hotels

International to run under the Corinthia brand,

which is marketed in the EMEA under the

Wyndham Grand logo.

The purchase was heralded by Nakheel HotelsasitsentryintoLondon

The new hotel will replace the Regent Palace

Hotel which is to close as part of the renewal of

the Regent Street area of London. This property is

currently managed by Travelodge.

WyndhamsetforsecondinLondonWyndham looks set to establish a secondsiteinLondonfollowingtheacquisitionoftheMetropolebyInternationalHotelInvestments,theMalta-listedownerthatisasubsidiaryoftheCorinthiaGroup.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 4 Issue 24

News

Christie & Co remain optimistic on current

conditions. “Despite the credit crunch, high quality

hotel assets are still in scarce supply with many

deals continuing to take place”, said the company

in its annual Business Outlook publication.

There is much truth in what Christie & Co has

to say. But the underlying reality is much grimmer

than this panglossian world view.

Hotels are a tiny sub-sector of the wider

commercial property market. While it is entirely

possible that hotels will prove more resilient than

some sectors, it is unrealistic to suppose they will

survive the current meltdown unscathed.

In mid January, the Investment Property

Databank showed that UK commercial property

suffered its worst month since the index began in

1986. Total returns were down 3.7% just for the

month of December. In the final quarter of 2007,

Values set to fallTheaveragepriceofhotelpropertyin the UK went up by 6.1% in 2007 accordingtobrokersChristie&Co.Thisislessthanhalftherateofincreaseachievedin2006of13.1%.

total returns were down 8.5%.

Hotels are not included in the index, but it

encompasses £51bn of property across retail,

offices and industrial. IPD said that the speed of

the reversal in the index was “unprecedented”.

A burgeoning field in property is derivatives

contracts. These allow investors to put their cash

explicitly where their predictions are. IPD said that

the pricing on the derivatives based on its indices

show another two years of negative returns.

The hotel deals that have been done since the

credit crunch in the summer are either single

assets or small portfolios. Those deals requiring

syndicated debt have collapsed.

The market consensus is that even if the

prevailing gloom surrounding the debt markets

lifts soon, it will still take until the second half of

this year for the backlog of deals to clear.

Some debt providers remain in the market,

others are out. Some that claim to be in the market

are unable to lend unless they can move on some

of their existing portfolio. There is no point doing

that unless better quality loans - ones that are less

risky and are at a bigger margin - come along.

Given the prevailing market conditions, even those

banks which are lending have tightened spreads.

Even with the Bank of England following the

Fed and dropping rates, albeit not so far, the

cheaper interest rates will merely compensate

for the higher margins on loans. In continental

Europe, the situation appears even worse with the

European Central Bank unlikely to move its rates

anywhere near enough to compensate for the

increased borrowing costs.

IPDsaidthatthepricingonthederivativesbasedonitsindicesshowanothertwoyearsofnegativereturns

Established lenders prefer cashflow as the key

measure, rather than loan to value. But just as

LTVs have dropped from 90% to a maximum of

75%, debt service requirements have risen from as

low as 1.0 times to a target of 1.4 times.

The huge spike in property values had been

caused by an overabundance of both equity and

debt. The equity remains available but the rapid

tightening of debt means values are heading one

way: down.

The transaction for the 39-strong portfolio,

which yields about Eu50m in rent, should close in

this quarter with a deadline set of February 29.

In mid January CapMan announced the

establishment of a new Eu835m private equity

real estate fund, CapMan Hotels RE, with which it

will fund the transaction.

To date, 17 Finnish institutions have pumped

Eu292m of equity into the fund with the remainder

comprising senior debt.

“TheCapManRealEstateteamgainsleading positions in hotel properties inFinland”

CapMan Hotels RE is owned 80% by CapMan,

one of the leading alternative asset managers

in the Nordic countries with around Eu3bn in

L&RsellsFinnishchainLondon&RegionalPropertiesunitNorthernEuropeanPropertieshasunloadeditsFinnishportfolioof hotels in an Eu805m deal with NordicfundmanagerCapMan.

total capital. The remaining 20% is owned

by Corintium, which acts as the management

company. The management company has put in

Eu5m into the fund.

Of the hotels, 38 are in Finland and one in

Sweden. Operator Restel leases 25 hotels; Sokotel

leases nine; and Scandic three. The brands

encompass Crowne Plaza, Holiday Inn, Ramada,

Cumulus, Rantasipi, Sokos, Radisson SAS, Holiday

Club and Scandic. The total room count is 6,477.

CapMan CEO Heikki Westerlund said:

“Subsequent to the transaction, the CapMan

Real Estate team gains leading positions in real

estate investment and development of different

commercial, logistics and hotel properties in

Finland.”

NEPR was listed on London’s AIM market in

November 2006 and in Amsterdam in December last

year. It is expected to reinvest its funds in Russia.

In a presentation announcing the deal, CapMan

said that management company Corintium will

receive 20% of the cashflows if the first hurdle rate

of 8% IRR pa is hit. If the IRR reaches 10%, then

Corintium will receive a 30% share of cashflow.

StarmanHotels,thejointventurebetweenStarwoodCapitalandLehmanBrothersthattookouttheownedandleasedLeMeridienportfolioin2005,iscontinuingitssell down its assets.

Starman continues sell-off

It was announced in the third week of January

that JJW Hotels had paid $268m for two hotels

in Portugal.

The properties are the 154-room Dona Filipa

Hotel and the 196-room San Lorenzo. Both are

luxury resorts with associated golf courses situated

on the Algarve.

Last November, the Pan-European Hotel

Acquisition Company, a Dutch company formed

earlier in 2007 to buy hotel property, agreed to

pay Eu49.25m for seven other Le Meridiens.

This portfolio of 1,819 rooms generated an

estimated Eu102m in revenues and is forecast to

achieve an EBITDA of Eu8.0m this year. PEHAC is also

negotiating the purchase of Le Meridien Barcelona.


News

The company is separately seeking to raise

$1.8bn in an IPO on the Bombay Stock Exchange.

The process started during January despite the

turmoil in stock markets around the world.

Emaar MGF is a joint venture between Dubai’s

Emaar, which holds 42% of the shares, and

MGF, West Asia’s largest property developer by

market value, which holds 52%. After the IPO the

respective holdings will be 39% and 48%.

The joint venture already has agreements with

both Whitbread, for Premier Inn, and Accor,

for Formule 1. The company additionally has

relationships with InterContinental, Marriott and

Four Seasons.

The IPO will enable Emaar MGF to push ahead

with rapid expansion of its hospitality, retail and

residential portfolio.

On the hotel side, its agreement with Accor

encompasses 50 hotels in the next five years; for

the 50:50 joint venture with Whitbread it is to

develop 80 Premier Inns over the next 10 years.

The latest deal with Hyatt is for 20 hotels with

about 3,000 rooms over the next 10 years. It is

understood Hyatt has a 26% stake and Emaar

MGF the remaining 74%.

Emaar MGF has also confirmed that it will in the

next 18 to 24 months seek to establish a REIT in

Singapore into which it hopes to fold much of its

property interests.

EmaarMGFteamswithHyattandseeksIPOEmaarMGF,theNewDelhi-headquartered property and hospitalitycompany,hasenteredintoajointventurewithHyatttorolloutitsHyattPlacebrand.

But the industry’s underlying fundamentals

remain sound and investment should still occur at

steady volumes despite the credit crunch.

The brokerage’s publication Hotel Investment

Outlook recorded a total deal volume of almost

$113bn in 2007, up 56% on 2006. But activity

slowed dramatically in the last four months of

2007 as the sub-prime crisis took hold.

Debt market spreads in Europe, which had

fallen to less than 100 basis points, rose quickly to

between 200 and 250 basis point in the four to six

weeks during which the sub-prime crises took hold.

Transaction bull run endsTherecordbreakingfive-yearrunofconsecutivegrowthinglobalhoteltransactionvolumeswillendin2008,predictsJonesLangLaSalleHotels.

In the US, the rise was between 100 and 150 BP.

According to JLL, sellers at first withdrew assets

from sale but, in some cases, are now appreciating

that a price correction has taken place. Other

sellers have decided to hold assets in anticipation

of better pricing clarity.

Despite the caution by banks in lending, debt

was being paid by investors and interest rates

were, by historic standards, low.

JLL forecast that less leveraged buyers such

as REITs would become more competitive and

private equity might become net sellers during

the year ahead. Other buyers set to become more

prominent include Sovereign Wealth Funds and

corporations in India and China.

Yields would rise after contracting to record low

levels, sometimes as much as 200 BP below the

cost of debt.

More than four in five hoteliers surveyed said

they expected the revpar increase in 2008 to be

stronger than in 2007.

Mark Dickens, managing director of HotStats

at TRI, said: “The general high level of confidence

among the UK’s hoteliers is surprising, given that

most indicators are telling us that 2008 will be a much

tougher year for the UK economy than 2007.”

The survey highlights just how far many in

the UK hotel industry have to go in terms of

recalibrating their forecasting techniques.

One problem in hoteliers accepting the future

UK outlook robust say hoteliersThe trading outlook for UK chain hotelsisrobust,accordingtoanopinionsurveybyTRIHospitalityConsulting.

might be the lag in performance. It typically

takes about two quarters for a slowdown in the

economy to feed through into the performance

figures for the hotel sector.

It seems hoteliers are enjoying robust trading

and are continuing to extrapolate forward based

on bumper numbers in 2007 despite clear evidence

that the economy is slowing.

The most realistic of the operators were those

in the larger companies, according to TRI. And like

TRI, these companies are forecasting a significant

drop in revpar during 2008 compared to 2007.

The TRI numbers predict a 3.6% growth in

revpar for the UK as a whole against the 6.6%

achieved in 2007 and 8.4% in 2006. For London,

the figures are 4.8% against 9.6% in 2007 and

15.1% in 2006. In the provinces it is 3.6% against

6.6% in 2007 and 8.4% in 2006.

MWB said all internal EBITDA and cashflow

targets were hit and JJW announced what it

described as a “record breaking profit”.

Trading in MWB’s Malmaison group was similarly

MWBandJJWreportrobustnumbersMaryleboneWarwickBalfourandJJWHotelsjoinedAccorduringJanuary in reporting robust trading numbers for the year 2007.

described as excellent in an update ahead of the

full figures to be unveiled in March. Occupancy for

the year was steady at 79% but rate was up 8%

to £115. The directors said they were confident

that trading in 2008 will be strong.

The total number of operating hotels now stands

at 22 thanks to opening in Liverpool, Reading,

Cheltenham, Cambridge and York. A further four

hotels are under construction at Poole, Newcastle,

Edinburgh and Aberdeen. An existing operating

hotel has been bought in St Andrews and a further

three sites are in advance stages of negotiation

including ones in Chester and Canterbury.

Meanwhile, JJW, which in the summer bought

the Eton Collection of boutique hotels, said it had

achieved $276m in profits in 2007 against $66m

in 2006. It said $1bn had been invested in Europe,

mainly in the UK, Austria, France and Portugal.

This year it plans to invest $1.5bn in hotels in

Europe and the US.


News

At just under 2% of the turnover of the chain,

the investment is the largest commitment made

by a major hotel company in above the line

advertising in the UK.

A big part of the spend is on television

advertising, a medium not used by the chain for

three years. In addition, there will be print, poster

and internet advertising.

The campaign has been put together by

advertising agency RKCR, the London office of

PremierInnlaunches£9mcampaignMidFebruarysawWhitbreadlauncha£9mmarketingblitztorebranditsPremierInnchain,thebiggesteveradvertisingspendbyahotelier in the UK.

Young & Rubicam, which was hired in the autumn.

The commercials will feature comedian Lenny

Henry, depicted enjoying the “quality, comfort

and value” of Premier Inn.

Other clients of the agency include M&S and

Virgin, demonstrating the company Premier Inn is

aspiring to keep. The slogan “Everything’s premier

but the price”, which was created by the previous

advertising agency, is being retained.

The big challenge for Premier Inn is putting clear

blue water between it and its arch rival Travelodge.

Most consumers currently mix up the two brands

but the dropping of the “Lodge” aspect and

Travelodge’s increasing focus on becoming the

Ryanair of hotels may help bring some clarity.

Travelodge parted company from its marketing

director, Daniel Heale, in mid February, with the

role being taken over by chief operating officer

Guy Hands, who was previously in the post.

During summer 2007, Travelodge upped its own

marketing spend by 20% although this has not

seen it take to the television screens.

Meanwhile, the holder of a stake in Whitbread

worth about 8% is not, as was widely thought last

year, Starwood Capital, but rather Asif Aziz, the

property developer who owns London’s Trocadero

through his Golfrate vehicle.

Ironically, the Trocadero is to be the site of a

500-room Ibis (reduced from 600 rooms in an

attempt to obtain planning permission). And

Golfrate has plans to build another Ibis in a

shopping centre in London suburb Sutton.

Both companies gave an outlook that was muted

for the US but they placed different emphases on

expanding their operations outside of the US.

The hotel operations in Wyndham are usually

obscured by its timeshare business which is the

biggest in the world. But Wyndham said it wants

to grow its hotel operations to account for 35% of

revenues from the current 25%.

And while the proportion of hotels business is

set to increase, the proportion of hotels business

conducted outside of the US is also set for a hike.

The company is targeting that the share of

international rooms in hotels will increase from

12% currently to 22% by 2010. At the same

time the room count worldwide is set to rise from

550,000 to 700,000.

The current pipeline numbers over 105,000

rooms of which 32% is international. The growth

rate of the room count in 2008 is expected to be

in the range 4% to 6%.

Revpar for the full-year came in at 5.3% with

revenues up 10% to $725m. EBITDA was $223m,

up from $208m in 2006.

Wyndham is the world’s largest hotel franchiser

as measured by the number of franchised hotel

rooms with its three big brands being Super

8, Days Inn and Ramada. In total, there were

368 hotels in operation outside of the US as at

September 30 last year, up from just 49 in 2002.

Europe is the biggest region with 212 hotels but

Asia Pacific, and specifically China, has been a big

focus for growth.

In China there are now more than 120 hotels

in operation, a rise of 45% on 2006. The pipeline

projects a growth rate of almost 60% in 2007.

The upscale Wyndham brand, bought in

October 2005, brought a management income

stream into its business. The first Wyndham in

China opens this year.

Wyndham pleased Wall Street with its 2007

figures but pleased it more with its outlook on

2008 which maintained its previous guidance on

profit increases.

In a statement, CEO Stephen Holmes said: “We

continue to believe that our business model solidly

positions us for continued growth, even in what

looks like a tougher economic environment in

2008.”

Over at Choice, the rhetoric was similar: it

emphasised that its franchise model meant it was

much more stable in times of economic turbulence

when compared to managed and particularly

owned hotels.

Choice has been going through a challenging

period, however, with its international operations.

It has two basic models: direct third-party

franchising and master franchising.

The master franchising arrangements in

particular have been suffering hiccups. In the UK,

its agreement with Choice Hotels Europe, now

renamed the Real Hotel Company, was terminated

on January 31.

Real is continuing to franchise 30 hotels under

Choice brands but its main focus is on its new

brand purplehotels which was launched at the

same time as it ended the master franchise deal

with Choice.

Even worse for Choice is that Real is rebranding

11 properties that carried the Sleep Inn logo to

purplehotels. Back in 2006, Real had handed over

the master franchising for continental Europe to

Choice.

The main master franchise markets worldwide

are now Ireland (21 hotels), Scandinavia (151

hotels), Japan (39 hotels), Brazil (48 hotels) and

Central America (13 hotels).

But these arrangements do not, overall, look

particularly robust. In Brazil, for example, what

was Choice Atlantica Hotels is now known as

Atlantica hotels and takes franchises from a range

of brand owners.

Not surprisingly, given these challenges, Choice

talked about “conservative” growth during its

investor day last September. Nonetheless, the

company has the largest global “pure” hotel

franchising business with more than 1,100

properties in 37 countries excluding the US.

It is the US, however, on which Choice is most

clearly focused. It is expecting to add a net 5% to

its total domestic room count this year.

Revpar growth is expected to slow to just 2%

in the first quarter, with the full-year showing 3%,

slightly down on previous guidance of 3.75%.

For the full year, Choice reported revpar up

4.0% and up 4.7% for the final quarter. EBITDA

for the full-year was up 10% to $193.8m. System

growth was 5.2% in the US.

USfranchisersdifferoninternationalambitionTwo giant US hotel franchisers reportedfull-yearresultsFebruary12,matching,inthecaseofWyndhamWorldwide,orbeating,inthecaseofChoiceHotelsInternational,analystestimates.


News

But just as the halving of the share price since

the summer is overdone, it is hard to understand

what the numbers issued on February 19th told

us that warranted the upward surge of 7.3% to

828p on that day.

The results presentation contained the same

information on strategy that IHG has been putting

out since the arrival of Andy Cosslett as CEO in

February 2005. In fact, it is the same strategy that

started becoming apparent back in early 2003

when the focus was clearly placed on reducing

capital intensity.

TherearegoodreasonstobelievethatthenewbusinessmodelofIHGwillproveresilientinanydownturnbutthiswill be tested in six months time rather than now

It was suggested in some quarters that the

stock market reaction to IHG was due to relief in

its number. If so, the market is clearly still failing to

understand the hotel business.

Hotel trading lags the general economy by

roughly two quarters. Given that fears about a

downturn only started this summer and, more

importantly, there are currently few perceptible

impacts in the wider economy of the meltdown in

the financial markets, it seems absurd to suggest

IHG is “shrugging off” economic worries.

There are good reasons to believe that the new

business model of IHG will prove resilient in any

downturn but this will be tested in six months

time rather than now. In the meantime, it is worth

noting where trading is heading right now.

The key indicator is buried in the supplementary

information on current trading. Here, figures are

given for occupancy of the four quarters of 2007.

As the year progresses, the figures turn increasingly

negative. Falling or flat occupancy is usually a

precursor to a wider slowdown in revpar growth

and the trend for the latter was down as the year

progressed, at least in the US and the UK.

The point repeatedly made by Cosslett and

finance director Richard Solomons during the

presentation, however, was that IHG is now

much less vulnerable in the event of a revpar

slowdown.

While slower revpar clearly impacts on existing

business, base management fees and franchise

fees will continue largely unaffected. More

importantly, the growing pipeline means that new

fees will be added enabling IHG to continue to

grow its top line in the teeth of a downturn.

Back in 2003, IHG generated 68% of its EBIT via

managed and franchise business. Last year, 86%

was generated via franchising and management.

And in the US, IHG has little exposure to owned

EBIT. “In our biggest market we are far less exposed

to cyclical swings than most of our competitors,”

said Cosslett.

The importance of the pipeline of new hotels

was emphasised in a slide detailing the source of

growth in gross revenue. Back in 2005, existing

hotels provided 9% growth and new hotels - due

to exits from the system - contributed a negative

1% impact.

In 2006, 2% of growth came from new hotels

and 8% from existing hotels. But by last year,

7% of growth was new hotels and 7% existing

(although the joint venture with ANA in Japan

was four percentage points of the 7% new hotel

growth).

During 2007, IHG opened one hotel a day and

signed two hotels a day. This much faster rate of

signings will see a surge of openings in the years

ahead.

IHG reckons there is a lag of something over

nine quarters between a signing and an opening

with 90% of signings going on to actually open.

High initial signing fees, something like $50,000

to $100,000 for a Holiday Inn, means would-

be franchisees are clearly incentivised to see the

contract through.

And the credit crunch is not, so far, affecting

this pipeline. Incredibly, Cosslett said he was not

aware of a single hotel that has fallen out of the

pipeline as a result of financing issues.

Some 40% of the pipeline is under construction

and 70% has financing. Of the planned

2008 openings, more than 90% are under

construction.

During2007,IHGopenedonehotela day and signed two hotels a day. This much faster rate of signings will see a surge of openings in the years ahead

Net room growth is accelerating. In 2004,

growth was negative. It was just 0.6% in 2005,

3.5% in 2006 and 5.2% in 2007. A record

125,000 rooms were signed last year and almost

53,000 rooms were added to the system.

The rate of growth in room numbers means

IHG can tighten its standards and 24,000 rooms

were taken out of the system last year, giving a

net increase of almost 29,000. Cosslett said he

expects exits to remain at broadly this level going

forward, even with the new Holiday Inn brand

standards being introduced. The total pipeline is

now an industry leading 226,000.

The newest brand in IHG’s portfolio, Indigo, is

set to become an increasingly important part of

the pipeline. There are at present just 11 hotels

open, all in the US, and 63 in the pipeline.

The total pipeline is now an industry leading226,000rooms

No formal targets were given but Indigo is

moving overseas earlier than envisaged by IHG.

A property in Canada is already open, a site in

Mexico is signed and IHG is close to signing for its

first London Indigo, in Paddington.

To boost the roll-out, IHG is committing $100m

of capital. But the company stressed it would

recycle this in the medium term rather than leave

it invested in property.

Recycling of capital is a feature of the wider

portfolio. During 2007, £107m was raised via

disposals and £53m was invested. A total of

£790m was handed back to shareholders in the

year, bringing the total handed back since March

2004 to £3.5bn.

A new InterContinental in New York’s

Times Square has been signed and is due for

opening in 2010. This suggests that the existing

InterContinental in New York, the Barclay, may be

put up for sale. It is one of the four core properties

- the others being in London, Paris and Hong Kong

- worth together a total of £682m.

IHG stressed any sale would only go ahead once

new distribution for the brand in New York was

opened. During 2007, the InterContinental brand

grew to 149 hotels with 62 in the pipeline. Once

the latter are opened, the brand will pass through

the 200 barrier for the first time in its history.

Cosslett commented that luxury rivals lack the

same level of distribution with, on his figures, 106

Four Seasons and 86 Ritz Carltons.

The total property portfolio of IHG on its books

now stands at £1.005bn including 11 hotels other

than the four core properties. These 11, worth

a total of £187m, include five short leasehold

properties which will be converted over time to

management.

Another key property in the 11 is the Atlanta

InterContinental which remains on the market

with IHG claiming interest remains strong despite

the credit crunch.

Global revpar growth in 2007 was 7% enabling

continuing operating profit to grow 19% to

£237m. Global constant currency revpar growth

was 5.4% in January.

IHGsharepricemoveconfusesThe full-year results from InterContinentalHotelsGroupwererobustenoughtocheerinvestorstomaking it the strongest performing sharepriceintheFTSE100index.


News

During its fourth quarter and full-year results

presentation in February the company said that

hitting the lower end of the new range would

leave profits at the individual hotel level flat.

The new guidance is for revpar growth of 3%

to 5%, rather than 5% to 7%. In North America,

it expects revpar in the first quarter to grow in the

range 2% to 4%.

On the conference call discussing the results,

CFO Arne Sorenson stressed how Marriott’s

business model was “proven and effective in

both good and bad economic times”. Aggressive

global growth would deflect some of the possible

impact from a slower US economy, he added.

“Over the long haul we are quite bullish about our

prospects.”

During the year the company added two new

brands to its portfolio, the joint venture with Ian

Schrager called Edition and a resorts concept with

children’s television brand Nickelodeon.

This brings the total number of brands to 19,

the widest portfolio of any major hotelier, boasted

Sorenson.

Editions are already planned for Paris, Madrid,

Costa Rica, Miami, Washington, Chicago,

Scottsdale, and Los Angeles. The ramp up has

been quicker than expected - six months ago it

was expected that just five projects would be

announced by the end of 2007 but instead there

are signed deals for nine with 20 likely to have

been signed by the end of this year.

ThegrowthofMarriotthasbeendrivenwithoutheavycapitalcommitmentinthe long-term but the amount of cash requiredtodelivernewhotelsisstillsubstantial

Schrager is leading the effort on concept,

design, marketing, branding and f&b while

Marriott is overseeing the development process

and will operate the hotels. It is expected that

there will be 100 Editions within 10 years.

The growth of Marriott has been driven without

heavy capital commitment in the long-term but

the amount of cash required to deliver new hotels

is still substantial. Last year, $1.5bn of capital was

recycled from previous investments through the

sale of 13 hotels and the interests in five joint

ventures. Even with further reinvestment, Marriott

still threw off enough cash to buy back $1.8bn

worth of shares. In the last four years the company

has repurchased $6bn worth of stock.

A key attraction of the business model is the

high return on invested capital. The pre-tax return

in 2007 topped 25%, more than double where it

was four years ago.

Whilethehistoricnumbersaregood,it is the outlook that is preoccupying Wall Street

The proportion of managed hotels generating

incentive fees in 2007 rose to 67%, up from 62%

in 2006. The profit margin at individual hotels in

North America was up 160 basis points in 2007 on

2006, reaching an almost record level.

This helped drive EBITDA up 11% for the year

to reach $1.6bn. Fee income was 17% up to hit

$1.4bn. Incentive fees reached an all-time record

high of $369m of which 36% came from outside

of North America.

Revpar in constant dollar terms was up 6.5% or

up 7.6% allowing for currency impact. During the

year, 31,000 rooms were opened, including 7,800

outside of the US.

Outside of North America, revpar in the year

was up 15.5% or 8.5% in constant dollars. In

North America, the increase was 6.2% for the

same company operated comparable hotels.

While the historic numbers are good, it is the

outlook that is preoccupying Wall Street. “As

bullish as we are in the medium and long term,

we are looking at the immediate future with some

caution,” said Sorenson.

Business outside of North America was put

forward as a key bolster. International revpar in

January was up 10% and everywhere outside

North America, with the exception of the UK, had

positive occupancy and rate growth.

Group bookings are currently “very comforting”

and are up 9.5%. Sorenson said that 70% of

group business was already on the books and

cancellations were currently lower than in 2006.

However, transient demand was weak in December

and January.

“We are prepared if the environment turns less

friendly,” said Sorenson. He said that each point

of revpar impacts profit at Marriott by about

$25m. Overall, he hinted that tougher market

conditions would prove beneficial to Marriott in

the longer term: “Smoother seas do not make

skilful sailors.”

Once revpar falls to between 3.5% and 3.0%

then it was difficult to improve profit at the

individual hotel level. But the growth in the total

number of hotels in Marriott’s system would

counterweight this.

Sorenson said that between 4% and 5% unit

growth for Marriott was “in the bag” for 2008.

This total fee revenue growth meant Marriott’s

margins could continue to improve even with

revpar below 3%.

The credit crunch had so far had little impact

on the pipeline. Out of the 800 hotels and roughly

125,000 rooms signed, about 60% were limited

service hotels in the US, 20% in Asia and the

Middle East and just 20% full service hotels in

the US, Europe and Latin America where there

might be an impact from tighter conditions. Even

of the full service hotels, some 80% were already

financed and under construction.

The credit crunch has so far had little impact on the pipeline

“We don’t see an impact in 2008 and early

2009,” said Sorenson. The debt markets will

constrain US openings for the US in late 2009 and

beyond, he admitted, but said this might be offset

by the opportunity to convert hotels to Marriott

brands. “Some of the debt needs are being met by

balance sheet lenders,” he said. “But we expect to

see some drop-off.”

For Marriott, the credit crunch was an

opportunity to step up its service level to owners

and franchisees, providing high value for high fees.

“We want to accelerate our lead in this space,”

said Sorenson.

In terms of opportunities to acquire assets,

Sorenson was cautious although he said that the

debt markets were less relevant to Marriott in the

short-term in terms of its decision to buy.

The company does, however, need prices at

which it could turn around assets and obtain

multi-year contracts. The key to any deal was this

likelihood of extracting all of Marriott’s capital.

Sorenson commented that although there

had been a massive lurch [downwards] on public

valuations of real estate, individual hotel properties

had so far not seen yields increase much.

ForMarriott,thecreditcrunchwasanopportunitytostepupitsserviceleveltoownersandfranchisees,providinghighvalueforhighfees

MarriottcutsrevparguidanceMarriottInternationalhasslasheditsguidanceforrevpargrowthin2008 by two points at the top and bottom of the range.


News

But so far stock market investors are refusing

to recognise the changes made to Starwood’s

business model (or that of other similar hoteliers)

since the last business cycle.

Speaking during Starwood’s conference call to

discuss its fourth quarter results at the beginnning

of February, CEO Frits van Paasschen said he

believed the company should be valued differently

due to where it now derives its earnings.

Just 20% of Starwood’s operating profit now

comes from owned hotels in the US with owned

hotels overseas and fee income having become

significantly more important since the last cycle.

“There are no clear signs that economic

conditions are adversely affecting our business,”

said van Paasschen. But the company downgraded

its forecasts for 2008, putting in a wide range from

0% to 7% growth in EBITDA from owned hotels

in the US with worldwide revpar in the range 4%

to 7%.

The impact on the bottom line was given in

the range of $1.23bn to $1.3bn, demonstrating

that even in a situation of low revpar growth,

the company would still deliver good profits. For

the full year 2007, adjusted EBITDA (which takes

into account the sale of 56 hotels in the year) was

$1.356bn.

“There are no clear signs that economic conditionsareadverselyaffectingourbusiness”

The 7.7% stake by Zell, held through his Equity

Group Investments vehicle, was built up a year

after selling his Equity Office Properties Trust

to Blackstone for $39bn. He paid an average of

about $50 per share. Some commentators saw

the emergence of Zell as a buyer in the property

market as calling the turning point of the current

slide. His exit of offices timed the peak of the cycle

almost to perfection.

For Starwood’s board, Zell’s purchase reinforced

their belief that buying back shares was a good

use of the company’s capital. In the last quarter of

2007, $560m worth was bought.

The purchase by “one of the greatest value

investors of our time” underlined the “compelling

value” of Starwood’s shares, said van Paasschen,

during a conference call with analysts.

The move by Zell also highlights the arbitrage

opportunities between the value of Starwood’s

owned real estate and its stock price, said van

Paasschen.

“We don’t see ourselves as efficient owners of

real estate. It is a great opportunity to sell assets

and buy back stock,” he said.

The company was actively looking at

opportunities to add management agreements

and franchises and rebalance the portfolio. “We

would make an acquisition like Le Meridien if we

could,” he added.

But if Starwood could not obtain prices where it had before then it would pull back from selling

Any purchases of companies would have to

be of a “meaningful” size and pointedly, the

company retracted its previous assertion that deals

above $1bn would not be done. Western Europe

was seen as the most likely place in which to make

purchases with North America also a possibility.

“The charm and challenge in Western Europe

is that you don’t have the creative destruction in

the same way as it happens elsewhere,” said van

Paasschen.

“We won’t buy hotels to hold. We will buy with

an exit strategy, securing a great price and a great

contract,” he added.

In terms of disposals, a key for Starwood was

finding the right partners. The impact of the credit

crunch might impact on sales but some were still

likely to go ahead.

But if the company could not obtain prices

where it had before [the credit crunch], then it

would pull back from selling, said van Paasschen.

CFO Vasant Prabhu said that the market for

Starwood’s assets outside of the US remained

good but he admitted that there was a liquidity

issue for hotels needing repositioning in the US.

Hotels that had stabilised trading could still find

buyers, however.

The sale of three hotels in Italy, the Westin

Excelsior and the Hotel des Bains, both in Venice

Lido, and the Villa Cipriani in Asolo was announced

in late January. Buyer EST Capital, a manager of

closed end property funds, is paying Eu156m.

The fact that hotel deals are still possible in the

US is highlighted by the rumours that the Sheraton

in Manhattan is close to being sold for $560m

(although Starwood would not comment).

There were five key pillars to creating

shareholder value outlined by van Paasschen

during the earnings conference call.

Firstly, the company should the create world class

brands, particularly in luxury and upper upscale

that targeted a specific guest. The example of W

was given as a brand that offers better economics

than its rivals.

Secondly, Starwood had to remain operationally

driven, delivering on brand promises but also

controlling expenses. The 150 basis point increase

in margins worldwide in the final quarter of 2007

was given as an example of how this can be

done.

Growth was the third pillar which would be

done by expanding the pipeline and increasing

penetration. In the US this was already being

done, said van Paasschen. This year the company

expects to open 80 to 100 hotels with 20,000

rooms. About 200 management and franchise

agreements are expected to be signed.

“Delivering growth requires us to be smart on

how we deploy our resources. The best economies

of scale have yet to come,” said van Paasschen.

The building of great teams was mentioned as

the fourth pillar. This was essential to meet the

needs of the new hotels coming on stream.

In addition, Starwood was seeking to add to

its senior leadership team. A key is replacing Rip

Gellein, the president of the global development

group at the company. The candidate would need

to have significant deal experience and add instant

credibility and knowledge of the hotel industry,

said van Paasschen.

Finally, van Paasschen said that Starwood was

committed to delivering superior shareholder

returns. This would be achieved by investing

in high growth areas that do not tie up the

company’s capital and by managing expenses

through discipline and prioritising activities.

“Our view is that there are not many businesses

as compelling as managing and franchising

hotels,” said van Paasschen. He added that the

capital requirements were minimal; and there was

great potential for growth and to deliver earnings

over the long run.

Looking ahead into the short run and the

prospects of a recession in the US, van Paasschen

said he was committed to the guidance given for

the year ahead. He added: “Starwood has never

been better positioned to weather US economic

uncertainty through our reduced reliance on

owned hotels and our global footprint.”

“Ourviewisthattherearenotmanybusinesses as compelling as managing andfranchisinghotels”

In the fourth quarter, worldwide and system

wide revpar on a same store basis was up 13.3%.

Outside of the US, it was up 21% thanks partly

to the decline in the dollar. EBITDA guidance of

$340m was beaten by $21m. “It was one of the

best quarters ever,” said van Paasschen.

StarwoodeyedbystarinvestorThe swoop on Starwood’s shares by billionairepropertydeveloperSamZell has underpinned the company’s argument that its share price currentlyundervaluesthecompany.


News

Downturn expected for USRecessionwasawordonmostlipsatthisyear’sALISconferenceinLosAngelesattheendofJanuary,butthe consensus among the hoteliers inthealmost3,000delegates(arecordnumber)wasthatevenifitcomes,thehotelsectorwouldbeabletoshrugitoff.

ClimatechangeneedspoliticalactionPoliticiansneedtosettherightsignals to help business act on climatechange,accordingtoEmmaDuncan,deputyeditorof the Economist and a leading commentator on the subject.

The financiers, however, were much gloomier.

This difference of opinion might well reflect the

separation in performance of the two industries

but ultimately it is clear that hotels will suffer as

financing costs rise and at least an element of

demand deteriorates.

Steve Bollenbach, the former CEO of Hilton

who was a recipient of a lifetime achievement

award at the event, said: “I believe we are in for

some difficult times.”

He estimated the duration at 18 to 24 months.

“The deal business will be shut down for a while,”

he added, pointing out that the window was now

closed on multi-billion transactions.

Chris Nassetta, Bollenbach’s successor as CEO

of Hilton, said: “We will see some waning in the

next couple of quarters.” But he added: “We are

coming into a place in this cycle better than the

last couple [of cycles].”

While the winds facing the industry would not

be hurricane force, Nassetta believed that the

situation in the capital markets was set to become

worse before it became better and that it would

take at least two or three quarters before the

backlog of debt is cleared.

And despite the financing problems there was

an “amazingly limited” impact on the pipeline of

new hotels. Around the world big projects were

still being done, although he admitted this may

change if the contagion spreads.

Laurence Geller, CEO of REIT Strategic Hotels,

said that this cycle was of a different dimension

to previous ones. “The fragile environment gives

operators a complex challenge,” he said.

The split in corporate business between finance

and non-finance was cited by Geller as one

example. He predicted: “Fortunes will be made in

the next 18 months, absolute fortunes.”

Mark Hoplamazian, CEO of Hyatt, said there

was a split consciousness. Things were not looking

too bad trading wise but “opening the newspaper

looks terrible”. The dichotomy can be partly

explained by the way the hotel industry lags the

economic cycle, he said.

There were early indications that group business

was cutting back, he warned. But Jay Rasulo,

chairman of Walt Disney Parks and Resorts, said that

the leisure business would be the last hold out.

Roy Lapidus, a managing director of Goldman

Sachs, said he had heard a lot more talk about

recession in January. “People are sitting on

the sidelines and it is not just because of debt

issues.”

Mike Quinn, a managing director at Morgan

Stanley, described the global equity market as

cold. “In the US it is ice cold, driven by the debt

markets. In Europe it has cooled and in Asia luke-

warm. Time will tell if the markets maintain their

current stance.”

The transaction market was also ice cold, said

Jonathan Grunzweig, principal at Colony Capital.

“There is a gap between sellers and buyers and

nobody needs to pull the trigger,” he said.

The consultants at the conference concurred

with the CEOs. Mark Lomanno, president of Smith

Travel Research, said that the industry in the US

had been in a worse spot than it is currently in six

months ago. He predicted revpar this year would

grow 4.4%.

Mark Woodworth, president of PKF Hospitality

Research, said: “We think we are in a healthy

correction mode. Once we’re past 2008, we will

have more normal times in the industry.”

The last two downturns had seen big increases

in supply but this time around demand can kick

back in during 2009, he predicted. He did believe,

however, that capitalisation rates (yields) would

expand from their historic lows of the last couple

of years, growing fom 7.5% in 2007 to 8.2% in

2008, 8.9% in 2009 and 9.1% in 2010.

The most cogent bear case about the economy

came from Gene Sperling, the former White House

National Economic Advisor. Sperling, who was in

office during Bill Clinton’s administration, argued

that the residential housing slump would be a key

cause of the downturn.

The last decade had been a period of income

stagnation for the typical American family. But

between 1996 and 2005, the average family

home had increased in inflation adjusted value by

86%. Families had responded by using this capital

increase to keep spending to the extent that

private saving was at its lowest since the Great

Depression in the 1930s.

“Our growth is enormously dependent on

house prices remaining strong but we are seeing

home prices decline,” he said. And he predicted

that there was pressure for further drops and “no

picture of house prices turning quickly”.

To amplify this picture of how dependent the US

economy was on house prices, he said mortgage

equity withdrawal was 1% of GDP in 1996 but

had reached 8% in 2006.

“How bad will it be? We haven’t had a terrible

quarter yet for consumer spending but it’s hard to

see it not coming,” he said.

The likely downturn in consumer spending was

most likely to start in February to April, a period

when a large number of mortgages will be reset.

More optimistically he said that the US

Government was acting with “stunning speed”

in getting together an economic stimulus

package. This would break the psychology of

the downturn he forecast, although he warned

it was not a cure all.

And she warned the delegates at ALIS that

all leading candidates in the current race for the

White House - Hillary Clinton, Barack Obama and

John McCain - all supported a bill in Congress to

pass legislation on carbon cutting that emulated

European initiatives.

The European model was known as “cap and

trade” and while the issuing of permits had been

“messed up” by Europe, the second phase was

starting which would see more accurate pricing of

carbon emissions.

In terms of impact, it had already led to a 10%

to 15% increase in electricity bills in Europe, said

Duncan.

For the hotel industry, this means that carbon

has to be taken seriously. She pointed to the

stance of HSBC bank, the world’s biggest, that has

a travel policy favouring greener airlines and was

thinking of introducing a similar approach to the

hotels it books.

She advised that the most useful thing the hotel

industry could do collectively was to talk about

green issues and publish best practice. But she

admitted: “Like any investment, green is a punt.”


News

LackofclaritystillmarksdebtmarketsThe current turmoil in the credit markets started in the US and it might be reasonable to suppose that the US will be the first market to show a way out.

Privategiantslook to changeTwoprivatelyheldUShospitalitygiants,HyattandCarlson,venturedinto 2008 promising radical change.

Hyatt is tipped to be sold, possibly via a flotation

although many think a private deal is now most

likely, and Carlson has announced that from

March it will be led for the first time in its history

by a non-family member.

The late December sale of industrial

conglomerate Marmon Holdings to Warren

Buffett’s Berkshire Hathway is thought to point

the way forward for Hyatt which, like Marmon, is

owned by the Pritzker family.

The $4.5bn Marmon deal which gives Buffett

a 60% stake was struck privately and announced

on Christmas day. The transaction was reportedly

agreed in just 10 days.

Last August, a $1bn stake in Hyatt was sold

to Madrone Capital, the private equity fund

controlled by the Walton family, heirs to the Wal-

Mart fortune, and Goldman Sachs.

Both Madrone and Goldman Sachs now have

seats on the Hyatt board after sinking $500m

each into the company. Although specific details

about the structure of the deal were not disclosed

(including what size stake the investment

delivered), Tom Pritzker, chairman of Global Hyatt,

said in a statement at the time: “The addition

of these sophisticated investors with long-term

horizons will allow us to further our restructuring

efforts without affecting Global Hyatt’s financial

capacity to grow and execute on our business

plan”.

The sale of the Park Hyatt Sydney, announced

in early January, for Aus$202m ($174m), will

give Hyatt hope that there is still appetite for the

hotels it owns. The Sydney property was owned

by Australian fund manager MFS and has been

bought by an unnamed Japanese company.

The price of the hotel is a record for the country.

MFS has managed the property investment on

behalf of 2,400 individuals via its PH Sydney Hotel

Trust since September 2005.

Over at Carlson, the 48-year old Hubert Joly

becomes its new president and CEO on March 1.

To date he was the Paris-based CEO of Carlson

Wagonlit Travel, the Carlson-owned travel

agency.

Joly, born and raised in France, is only the fourth

CEO in Carlson’s 70-year history. He succeeds

Marylin Carlson Nelson who will continue as

chairman of the board. Joly joined CWT in 2004

from media company Vivendi Universal.

But at this year’s Americas Lodging Investment

Summit, held in Los Angeles at the end of January,

discussions of conditions for financing hotels were

marked more by their opacity than clarity.

The debt lenders panel, which featured

representatives from Royal Bank of Scotland,

Calyon, WestLB, Countrywide (which is about to

be absorbed into Bank of America) and Capmark,

all declared themselves open for business but

admitted little was being done.

Warren de Haan, a managing director at

Countrywide, was probably the most open when

he said that the volume of business was down

90% compared with where it was in the summer.

And he further warned that even this pace was

set to slow.

“The meltdown in the credit markets means that

until we see clearly we won’t see any origination

of loans,” he said. “Things are going to get worse

and valuations are going to be impacted across all

product types. The question is how much?”

Bruce Lowrey, a senior vp at Capmark, said:

“Clearly there are a lot fewer sources of debt

capital in the hotel sector. This is where we were

in 2004.”

And he warned: “There is a strong chance that

things will get worse before they get better.”

Some potential problems include bond insurers

such as AMBAC and MBIA who are facing the loss

of billions of dollars as a result of the sub-prime

mortgage disaster.

“Capital is being sucked out of our industry to

correct problems elsewhere. The fundamentals are

good in our industry, it’s a problem with liquidity

that’s far broader,” said Lowrey.

None of the panellists were prepared to forecast

when the current debt woes might subside. But

Wayne Brandt, a managing director at RBS

Greenwich Capital, said that credit has to regress

to its long term mean. He said that the mean

level for pricing and availability of credit is roughly

where it was in 2002.

“These are long credit cycles. It will take 24 to

36 months to get back to the mean,” said Brandt.

The current lending market was below the mean

and, according to Lowrey, too conservative.

The huge securitised debt backlog, which was

estimated at $350bn (across all sectors, not just

hotels), is only very slowly being sold down by

banks. Brandt said banks could not afford a fire

sale on this debt which would be likely to see

them get just 90 cents on the dollar.

The gap that has opened up between

what lenders are prepared to offer in terms of

percentage of the valuation and the amount

of equity being put into deals is being filled by

mezzanine providers.

But there remained a problem for finding

senior debt for even this smaller share, agreed the

panellists. And there was a problem in that lenders

did not trust the valuations to be a true valuation,

repeated de Haan.

The deal, which was struck at up to £30m

according to reports, sees Hand Picked, which is

run by Julia Hands, wife of private equity group

Terra Firma’s Guy Hands, increase its portfolio to

17 properties.

The three hotels just sold were originally part

of a package of 37 acquired by Orb Estates for

almost £600m in 2002.

Orb ran into problems, however, that included

an investigation by the Serious Fraud Office. This

led to them being sold to property entrepreneur

Andy Ruhan’s Atlantic Hotels a year later.

Atlantic was restructured at the end of 2004 to

see Morgan Stanley, Thistle and Atlantic becoming

one third owners each of a portfolio of 31

properties (one had been sold) with Bridgehouse

Capital, the private equity firm run by Ruhan and

the backer of Bridgehouse Hotels, buying five

others outright (including the three just sold).

The remaining Thistle-managed properties

were sold in March last year to CIT, advisers to

investment vehicle Curzon Hotel Properties, for

£400m. These hotels, then numbering 28, still had

in force 30 year management agreements struck in

2002. However, CIT went on to sell eight of these

hotels on an unencumbered basis to Menzies,

owned by Robert Tchenguiz’s private equity firm

R20, for £54m.

HandPickedmovesonThistleHandPickedHotelshasboughtthreeformerThistleHotelsfromBridgehouseHotelsGroup,tidyingup a messy disposal process that had been going on since 2002.


Analysis

IntroductionAs we take stock of the European chain hotel

market at the end of what turned out to be a

turbulent year, it’s easy to forget the prevailing

sentiments of 12 months ago. We would have

expected then to be writing now of another year

of strong growth, with seemingly ever-increasing

amounts of cash being pumped into the European

hotel market resulting in a continued expansion

of supply.

And we would have expected the main

beneficiaries of that expansion to be the existing

chains – the global majors, the strong regional

players and even the national brands.

Yet the picture that emerges from our

preliminary comparison of the state of supply on

31st December 2006 and that at the end of 2007

is very different. In this article, we will focus on the

companies and chains that were on the radar in

2006; our next piece will look at the new chains

that have emerged during the year.

TheoverallmarketAt end-2006, the Otus Hotel Brand Database

(“OHBD”) listed about 12,500 hotels in the 52

countries of Europe, with roughly 1.5m rooms. At

end-2007, the brands that made up those rooms

had managed a net gain of only 60 hotels – less

than 0.5%, though the hotels being added tended

to be larger than the average so the room stock

increased by about 21,000 or 1.4%.

Of course, these simple statistics do not tell the

whole story and we must dig a little deeper to get

a clearer picture of what has been happening.

HotelchainportfoliosinEurope2007:sluggishgrowthanddecliningcapitalavailability

Paul Slattery and Ian Gamse from Otus & Co look at the collapse in the supply growth of European hotel chains

MarketlevelOur regular readers will know that we apply a

consistent classification system to all hotels so that

we can make valid cross-national comparisons.

The first leg of our hotel taxonomy is market level,

an assessment of the level of investment that has

gone in to each room of a hotel. We judge this by

a number of means – room size, type and quality

of fittings and so on – and also use a number of

global brands as benchmarks for each of our five

market level categories against which we can

judge less familiar brands.

At end-2006, the market-level breakdown of

the European chain hotels looked like this:

End-2006

Hotels Rooms Average size Percentage

Deluxe 226 33,171 147 2%

Up-market 2,289 424,430 185 27%

Mid-market 4,971 696,787 140 45%

Economy 3,731 308,508 83 20%

Budget 1,337 92,005 69 6%

Total 12,554 1,554,901 124

2006 Hotel supply


Resort 788 180,992 230 12%

Full feature 3,148 561,200 178 36%

Basic feature 3,930 476,235 121 31%

Ltd feature 2,242 179,433 80 12%

Room only 2,446 157,041 64 10%

Total 12,554 1,554,901 124

2007 Hotel supply


Resort 821 186,297 227 12%

Full feature 3,147 560,798 178 36%

Basic feature 3,931 484,649 123 31%

Ltd feature 2,203 182,540 83 12%

Room only 2,512 161,627 64 10%

Total 12,614 1,575,911 125

Change 06-07


Resort 33 5,305 161 3%

Full feature -1 -402 0%

Basic feature 1 8,414 2%

Ltd feature -39 3,107 80 2%

Room only 66 4,586 69 3%

Total 60 21,010 350 1%

12 months later, the picture was:


Deluxe 241 35,064 145 2%

Up-market 2,299 427,588 186 27%

Mid-market 5,007 704,968 141 45%

Economy 3,767 318,599 85 20%

Budget 1,300 89,692 69 6%

Total 12,614 1,575,911 125

And the change between the two years:


Deluxe 15 1,893 126 6%

Up-market 10 3,158 316 1%

Mid-market 36 8,181 227 1%

Economy 36 10,091 280 3%

Budget -37 -2,313 63 -3%

Total 60 21,010 350 1%

(The percentage column shows the growth achieved by each segment.)

Net numeric growth, such as it was, was

concentrated in the economy and mid-market

segments, while the budget segment actually

shrank. Meanwhile, it was the deluxe segment,

small as it is in terms of the overall market, which

grew most strongly in percentage terms while the

upmarket and mid-market stagnated.

HotelconfigurationThe second key element to our hotel classification

system is hotel configuration, a measure of the non-

rooms features of the hotel and their importance

in demand and revenue generation. Again, we

start by looking at the end-2006 picture:

Then at end-2007:

Strikingly, the percentage segmentation of the

market has not changed significantly. It is only

when we look at the changes in detail that any

patterns emerge:

Strongest growth, in percentage terms, was at the

two extremes of the scale: room-only hotels and

“resorts”, hotels which have the full complement

of non-rooms business and leisure facilities. In

between, the full feature segment scarcely moved

while the basic- and limited-feature segments lost

small hotels while gaining larger ones, resulting in

a net decrease in the number of limited-feature

hotels but an increase in room stock.

This begs the question of what the net change

figures presented so far mean in terms of actual

gains and losses; we will return to that question

towards the end of this note.

*

*

*

*

*

*


Analysis

Countries (ranked by size)

Rooms 2006 Rooms 2007 Change % change

Spain 328,687 327,175 -1,512 0%

UK 261,931 267,790 5,859 2%

France 255,556 257,006 1,450 1%

Germany 183,148 186,055 2,907 2%

Italy 69,993 72,182 2,189 3%

Countries


Spain 328,687 327,175 -1,512 0%

Greece 40,268 39,069 -1,199 -3%

Malta 4,406 3,336 -1,070 -24%

Bulgaria 9,953 9,132 -821 -8%

Hungary 19,256 18,625 -631 -3%

Conurbation types


Urban 528,116 543,527 15,411 3%

Suburban 195,294 200,276 4,982 3%

Airport 49,180 52,426 3,246 7%

Town 387,856 389,794 1,938 0%

Village 394,455 389,726 -4,729 -1%

Cities


London 67,070 69,010 1,940 3%

Madrid 21,953 23,642 1,689 8%

Istanbul 6,114 7,529 1,415 23%

Moscow 5,157 6,066 909 18%

Vienna 13,057 13,913 856 7%

Cities


Istanbul 6,114 7,529 1,415 23%

Moscow 5,157 6,066 909 18%

Valencia 5,859 6,711 852 15%

Dusseldorf 7,336 7,992 656 9%

Madrid 21,953 23,642 1,689 8%

Manchester 8,385 9,017 632 8%

Vienna 13,057 13,913 856 7%

Countries


Spain 110,373 114,025 3,652 3% interior

Spain 218,314 213,150 -5,164 -2% Costas

Countries (ranked by absolute growth)


UK 261,931 267,790 5,859 2%

Germany 183,148 186,055 2,907 2%

Russia 12,280 14,991 2,711 22%

Italy 69,993 72,182 2,189 3%

Croatia 9,734 11,310 1,576 16%

Countries (ranked by percentage growth)


Azerbaijan 629 918 289 46%

Ukraine 625 859 234 37%

Khazakstan 1,346 1,755 409 30%

Russia 12,280 14,991 2,711 22%

Monaco 1,157 1,375 218 19%

Croatia 9,734 11,310 1,576 16%

Romania 4,603 5,272 669 15%

Serbia & 1,109 1,249 140 13% Montenegro

LocationThe “European” market is of course no such thing:

it is a collection of more than 50 national markets

each of which relates to each of the others in

different ways, if at all. So we should look at the

countries that constitute the European market and

see how they fared.

First, the largest country markets:

Growth in these markets was roughly in line

with Europe as a whole, though the Spanish

market shrank and France under-performed. The

United Kingdom performed strongly and, indeed,

produced the largest numeric growth of all:

But the tigers, in percentage terms, were, as one

might expect, to the east:

Outside Russia and Croatia, of course, this seeming

strength is spurious: a tiny market bolstered by the

opening of one or two hotels. And the total number

of chain rooms in Russia remains tiny compared to

the size of the country and population. (It remains

the case that the global brands are confined

almost entirely to Moscow and St. Petersburg,

cities which have to be considered quite separately

from the rest of the country.)

And where were the losers?

Numerically, the biggest losses were in the classic

package tour destinations. Indeed, if we split

Spain into the Costas and the interior, the pattern

is even clearer:

While the beach hotel supply shrank, Spain’s

internal dynamic produced growth ahead of the

market.

CitiesAmong the European hotel market’s important

cities, the strongest absolute growth was in

London:

While in percentage terms Istanbul topped the list:

Madrid, Moscow and Vienna performed strongly

in any terms, while Manchester continues to

develop.

In examining general trends in the market, it’s

more useful to look not at individual cities but

at the types of locations where hotel supply is

growing. We classify hotel locations first in terms

of population: a “city” has a population of more

than 100,000, a “village” less than 10,000, while

a “town” is anything in between. Within cities we

then classify locations as “urban”, “suburban” or

“airport”. The year’s changes on this basis look

like this:

What is absolutely clear from this is that across

Europe the chain hotel market is growing in

centres of population and shrinking elsewhere.

*

*

*

*

*

*

*

*


Analysis

Changes 2006-7

Hotels Rooms Average size

Brand changes 518 65,790 127

New hotels 344 45,185 131

Newly-affiliated 276 24,598 89

Closed 146 15,524 106

Lost flags 413 32,972 80

InsandOutsFinally, let’s consider how that net growth of 60

hotels is made up. For the first time this year we

are presenting data on movement in and out of

the affiliated market and between brands:

This table gives a very different picture of the

dynamics of the market. Although the net effect

of last year’s activity was small, there was plenty

of movement, with 620 hotels and more than

70,000 rooms joining the affiliated market - and

more than 550 dropping out. In addition, more

than 500 hotels moved between brands (though

some of those were internal re-arrangements).

Observing this activity over the year we might

have got the impression of healthy growth; but

the worrying fact remains that the companies

and chains that we have been tracking since the

beginning of the year added just 60 hotels and

21,000 rooms. The good news is that the new

hotels – and even the newly-affiliated hotels – are

larger than the ones that they are replacing.

Unanswered questionsWhat initially looked like an unspectacular year

for the European chain hotel market turns out

on closer inspection to be a very interesting one.

While the top-level numbers show little change,

there has been plenty of activity and some of the

trends are clear: traditional tourist destinations are

losing out while the city market grows and older,

smaller stock is being replaced by newer and

larger hotels.

We leave for another article some unanswered

questions, particularly about the way in which the

different brands – global, regional and local – are

performing and about the continued emergence

of new brands.

ConclusionsIn the analysis of the hotel business, demand, like

profit, is a matter of opinion. However, supply, like

cash, is a matter of fact.

Nowhere is this more evident than in the

contrasting bullish data published on RevPAR

growth throughout Europe in 2007 and the actual

collapse in the rate of hotel chain supply growth

from an average of 7% per year between 2000

and 2006 to less than 2% in 2007.

The RevPAR growth for the chains was achieved

more by the reduction in the rate of growth in

supply than it was by real growth in demand. This

is not a common phenomenon. Typically, demand

slows before exuberant developments stop.

There are four general observations to be made

about the collapse in hotel chain supply growth in

2007. First, the credit crunch cannot be blamed.

It only emerged in the second half of the year

and it was not until Q4 that it materially slowed

transactions, which in any case would not have

started trading until 2008. The slowdown in

portfolio growth occurred throughout the year.

Secondly, the balance sheet re-structuring of

the past seven years was expected to make the

major chains more able to grow their portfolios

at a faster rate by signing more franchises and

management contracts. This has not happened.

Thirdly, over the past three years, particularly

in the major chains, there has been a significant

growth in the number of developers hired to

accelerate portfolio growth. Thus far, they have

failed to achieve their goals and the economic

and capital markets outlook do not provide

encouraging prospects for portfolio growth in

2008.

Fourthly, the flurry of activity by larger asset

buyers over the past five years now looks to have

been a damp squib. In the main, they acquired

existing hotels managed by or franchised to the

major chains. Few have made more than one

hotel portfolio acquisition and they have not been

interested in building new hotels. Large capital

was also not available to fund consolidation

among hotel chains in Europe. In 2007, the largest

acquisition, the NH acquisition of Jolly Hotels,

valued the target at €669m, of which NH already

owned 21%. As we look forward to 2008 from

a more uncertain economic and capital market

background than we did a year ago, all that we

are currently prepared to predict is that the year

will be an interesting one for more reasons than

many in the business might expect.

Paul Slattery, Otus & Co. Advisory Ltd.

[email protected]

Ian Gamse, Otus & Co. Advisory Ltd.

[email protected]

* All tables source Otus & Co. Advisory Ltd.

*

Moscow–themostprofitablehotelmarketinEurope

Each room in the Moscow hotels in the sample

generated, on average, Eu140.01 of profit per day

during 2007. This was significantly more than the

Eu117.77 per room in London, the second most

profitable city in the survey.

However Moscow’s room sales performance

only put it in fourth place with average daily

revenue per available room of Eu137.86.

“Moscow makes by far the most money for

Europeanchainhotels–performancereport

Source: TRI Hospitality Consulting

hoteliers and yet, on sales alone, it appears to be

doing worse than Paris, London and Amsterdam.

Relying on room revpar figures alone means

hoteliers, investors and developers would have

only a partial – and distorted – picture of true

performance,” said David Bailey, deputy managing

director, TRI Hospitality Consulting.

The revpar figures are also misleading when it

comes to the relative merits of Paris and London.

Paris put in the best room sales performance in 2007

with average daily revpar of Eu174.88 compared

to London in second place with Eu166.26. But

profitability in Paris was lower, at Eu96.09 compared

to the Eu117.77 achieved in London.

Moscow had the lowest average occupancy of

the year at 67.7%, while Budapest filled second

lowest place with occupancy of just under 70%.

London was in top place with occupancy of 84%.

The month of December 2007 The 12 months to December 2007

Occ % ARR RevPAR Payroll % IBFC PAR Occ % ARR RevPAR Payroll % IBFC PAR

70.50 156.26 110.17 33.46 58.00 Amsterdam 82.90 168.91 140.03 29.19 83.01

59.69 138.18 82.48 33.17 37.41 Berlin 71.38 141.37 100.91 30.65 55.33

54.56 88.65 48.37 35.69 16.61 Budapest 69.80 106.18 74.11 31.27 36.50

58.49 107.01 62.59 30.96 34.31 Hamburg 70.38 106.97 75.28 30.61 41.36

74.89 197.62 148.00 26.25 108.97 London 84.04 197.83 166.26 24.63 117.77

60.54 198.65 120.25 26.54 125.62 Moscow 67.69 203.68 137.86 20.25 140.01

70.19 110.05 77.24 32.33 43.61 Munich 77.12 122.93 94.81 29.82 54.27

75.75 198.26 150.19 39.60 75.39 Paris 81.23 215.30 174.88 36.15 96.09

73.22 92.21 67.52 26.28 45.25 Prague 73.88 123.14 90.97 22.80 65.48

80.02 161.28 129.05 32.46 80.14 Vienna 75.89 153.62 116.58 39.42 55.70

The month of December 2006 The 12 month to December 2006

Occ% ARR RevPAR Payroll % IBFC PAR Occ% ARR RevPAR Payroll % IBFC PAR

68.43 145.67 99.68 36.02 48.77 Amsterdam 82.60 158.87 131.22 30.69 75.01

62.26 128.77 80.18 31.70 31.53 Berlin 69.87 141.81 99.09 30.61 53.70

49.20 86.60 42.61 38.25 4.06 Budapest 69.22 106.42 73.67 27.51 42.97

61.50 106.14 65.28 30.30 37.60 Hamburg 72.56 109.33 79.33 30.29 44.40

75.12 180.96 135.93 27.09 100.97 London 83.93 179.45 150.62 25.85 102.91

63.93 157.59 100.76 18.74 128.14 Moscow 67.48 159.83 107.86 18.44 119.83

67.62 103.01 69.66 31.54 36.00 Munich 73.49 118.01 86.72 28.92 47.19

71.12 184.69 131.35 47.01 44.24 Paris 76.40 198.93 151.98 38.91 75.29

68.61 104.04 71.38 21.69 49.10 Prague 75.54 127.48 96.30 21.38 70.22

82.19 155.03 127.41 33.79 79.93 Vienna 75.87 139.62 105.93 40.87 48.00

Movement for the month of December Movement for the 12 month to December

Occ Change ARR Change RevPAR Change Payroll Change IBFC PAR Change Occ Change ARR Change RevPAR Change Payroll Change IBFC PAR Change

2.1 7.3% 10.5% -2.6 18.9% Amsterdam 0.3 6.3% 6.7% -1.5 10.7%

-2.6 7.3% 2.9% 1.5 18.6% Berlin 1.5 -0.3% 1.8% 0.0 3.0%

5.4 2.4% 13.5% -2.6 309.1% Budapest 0.6 -0.2% 0.6% 3.8 -15.1%

-3.0 0.8% -4.1% 0.7 -8.8% Hamburg -2.2 -2.2% -5.1% 0.3 -6.8%

-0.2 9.2% 8.9% -0.8 7.9% London 0.1 10.2% 10.4% -1.2 14.4%

-3.4 26.1% 19.3% 7.8 -2.0% Moscow 0.2 27.4% 27.8% 1.8 16.8%

2.6 6.8% 10.9% 0.8 21.1% Munich 3.6 4.2% 9.3% 0.9 15.0%

4.6 7.3% 14.3% -7.4 70.4% Paris 4.8 8.2% 15.1% -2.8 27.6%

4.6 -11.4% -5.4% 4.6 -7.8% Prague -1.7 -3.4% -5.5% 1.4 -6.8%

-2.2 4.0% 1.3% -1.3 0.3% Vienna 0.0 10.0% 10.1% -1.5 16.0%


Sector stats

“The distinct lack of leisure guests in the

Russian capital means that we don’t expect

average occupancy to exceed 70% in 2008 either.

But hoteliers will continue to push rates upwards

because of the extremely strong corporate demand

for a limited number of branded hotels. Travel

procedures and costs would need to become

more tourist-friendly to attract a higher volume of

leisure guests,” said Bailey.

In December the extraordinary 309.1% increase

in Budapest’s profit performance was caused

by some hotels in the sample being closed for

refurbishment during the same month a year

earlier. But this freak increase had no effect on the

full-year figures which showed Budapest had the

lowest profit in the survey with IBFC at Eu36.50

per available room.

ChainhotelsinMoscowwerethemostprofitableinEuropein2007,despitehavingthelowestoccupancy,according to the full-year figures fromTRIHospitalityConsulting’sEuropeanHotStatsservice.

The month of December 2007

The 12 months to December 2007


Sector stats

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

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

Current Year 200712 London 75.1% £113.78 £85.45 44.4% 7.6% 14.9% 20.8% 12.3% £141.91 £118.83 £69.04 £108.70 £71.94 £2,765 £1,390 £184 £4,338 63.7% 32.0% 4.2% 100.0% 45.5% £1,974

200712 Provincial 61.7% £69.82 £43.09 42.4% 17.4% 7.3% 27.6% 5.3% £74.45 £75.57 £47.61 £69.01 £48.62 £1,372 £1,672 £308 £3,352 40.9% 49.9% 9.2% 100.0% 29.9% £1,003

200712 All 66.6% £88.05 £58.68 43.3% 13.3% 10.4% 24.8% 8.2% £103.17 £85.79 £60.30 £82.84 £63.09 £1,880 £1,569 £263 £3,711 50.6% 42.3% 7.1% 100.0% 36.5% £1,356

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

Year on Year Change 200712 London 0.4 9.1% 9.6% (2.1) 1.2 (3.6) 5.7 (1.1) 7.9% 9.3% 4.4% 12.3% 3.5% 7.6% 5.4% 44.5% 8.0% (0.3) (0.8) 1.1 - (0.4) 7.2%

200712 Provincial 0.1 4.4% 4.6% (3.3) 0.5 (0.4) 4.5 (1.2) 2.8% 6.2% 3.1% 6.4% 0.2% 4.0% 0.2% 2.5% 1.9% 0.8 (0.9) 0.1 - (1.2) -2.0%

200712 All 0.3 7.2% 7.6% (2.8) 0.7 (1.7) 5.0 (1.1) 6.6% 8.7% 2.8% 10.8% 3.7% 6.5% 1.6% 10.1% 4.6% 0.9 (1.2) 0.4 - (0.5) 3.1%


Last Year 200612 London 74.7% £104.28 £77.93 46.5% 6.4% 18.6% 15.1% 13.4% £131.49 £108.68 £66.12 £96.81 £69.51 £2,570 £1,318 £127 £4,015 64.0% 32.8% 3.2% 100.0% 45.9% £1,841

200612 Provincial 61.6% £66.85 £41.19 45.8% 16.9% 7.7% 23.1% 6.5% £72.40 £71.14 £46.17 £64.85 £48.54 £1,320 £1,670 £300 £3,290 40.1% 50.8% 9.1% 100.0% 31.1% £1,023

200612 All 66.4% £82.16 £54.53 46.1% 12.6% 12.1% 19.8% 9.3% £96.79 £78.95 £58.63 £74.80 £60.83 £1,765 £1,544 £239 £3,548 49.8% 43.5% 6.7% 100.0% 37.1% £1,315



Current Year YTD London 82.7% £112.81 £93.27 47.0% 7.5% 15.6% 18.3% 11.5% £139.79 £123.41 £70.32 £104.90 £73.66 £34,539 £13,165 £2,248 £49,953 69.1% 26.4% 4.5% 100.0% 47.5% £23,715

YTD Provincial 71.3% £72.28 £51.57 47.9% 16.8% 8.6% 21.9% 4.8% £76.43 £82.01 £50.88 £69.16 £49.86 £19,604 £14,961 £4,013 £38,577 50.8% 38.8% 10.4% 100.0% 32.5% £12,554

YTD All 75.4% £88.20 £66.51 47.6% 13.2% 11.4% 20.5% 7.4% £100.91 £91.25 £61.33 £81.68 £64.36 £25,045 £14,306 £3,370 £42,722 58.6% 33.5% 7.9% 100.0% 38.9% £16,620


Year on Year Change YTD London (0.0) 10.2% 10.1% (1.7) 0.6 (1.9) 4.5 (1.5) 11.2% 6.6% 9.3% 15.9% 4.5% 12.3% 6.8% 9.1% 10.7% 1.0 (1.0) (0.1) - 1.8 15.1%

YTD Provincial (0.1) 4.2% 4.1% (1.4) 1.4 (0.6) 2.3 (1.8) 3.8% 2.9% 4.8% 7.7% 2.2% 9.1% 5.4% 6.1% 7.3% 0.8 (0.7) (0.1) - (0.0) 7.2%

YTD All (0.1) 7.2% 7.1% (1.5) 1.1 (1.1) 3.2 (1.7) 7.3% 3.8% 7.0% 12.6% 5.4% 11.2% 5.7% 6.3% 8.9% 1.2 (1.0) (0.2) - 1.0 11.7%


Last Year YTD London 82.7% £102.41 £84.70 48.7% 6.9% 17.5% 13.9% 13.0% £125.77 £115.77 £64.33 £90.53 £70.49 £30,755 £12,328 £2,061 £45,144 68.1% 27.3% 4.6% 100.0% 45.7% £20,609

YTD Provincial 71.5% £69.35 £49.56 49.4% 15.4% 9.2% 19.5% 6.5% £73.61 £79.74 £48.54 £64.20 £48.78 £17,970 £14,194 £3,783 £35,946 50.0% 39.5% 10.5% 100.0% 32.6% £11,713

YTD All 75.5% £82.28 £62.10 49.1% 12.1% 12.5% 17.3% 9.1% £94.04 £87.92 £57.29 £72.55 £61.03 £22,528 £13,529 £3,169 £39,225 57.4% 34.5% 8.1% 100.0% 37.9% £14,884

Income before fixed charges (also known as gross

operating profit) increased by 7.6% to £44.14 per

available room, compared to a 7.1% increase in

room revpar to £66.51.

The overall picture of strong profit growth in the

UK was predominantly due to the London hotels in

the sample that, on average, enjoyed an upswing

in profit of 12.8% to £64.04 per available room.

With no change in occupancy, it was a 10.2%

increase in average room rate to £112.81,

and a firm grip on payroll costs, that enabled

London hoteliers to turn in a very healthy profit

performance in 2007.

“The capital’s magnetism as a corporate

and leisure destination and its extremely high

occupancies meant there was minimal scope for

hoteliers to increase volume in 2007. This put a

great emphasis on rate growth. Indeed, the fact

that demand for quality, branded accommodation

Londonhotelsenjoydouble-digit profit growthThe profitability of chain hotels in the UK increased at a slightly higher ratethansalesduring2007,accordingtothefull-yearfiguresfromTRIHospitality’smonthlyHotStatssurvey.


Sector stats



Current Year 200712 London 75.1% £113.78 £85.45 44.4% 7.6% 14.9% 20.8% 12.3% £141.91 £118.83 £69.04 £108.70 £71.94 £2,765 £1,390 £184 £4,338 63.7% 32.0% 4.2% 100.0% 45.5% £1,974

200712 Provincial 61.7% £69.82 £43.09 42.4% 17.4% 7.3% 27.6% 5.3% £74.45 £75.57 £47.61 £69.01 £48.62 £1,372 £1,672 £308 £3,352 40.9% 49.9% 9.2% 100.0% 29.9% £1,003

200712 All 66.6% £88.05 £58.68 43.3% 13.3% 10.4% 24.8% 8.2% £103.17 £85.79 £60.30 £82.84 £63.09 £1,880 £1,569 £263 £3,711 50.6% 42.3% 7.1% 100.0% 36.5% £1,356


Year on Year Change 200712 London 0.4 9.1% 9.6% (2.1) 1.2 (3.6) 5.7 (1.1) 7.9% 9.3% 4.4% 12.3% 3.5% 7.6% 5.4% 44.5% 8.0% (0.3) (0.8) 1.1 - (0.4) 7.2%

200712 Provincial 0.1 4.4% 4.6% (3.3) 0.5 (0.4) 4.5 (1.2) 2.8% 6.2% 3.1% 6.4% 0.2% 4.0% 0.2% 2.5% 1.9% 0.8 (0.9) 0.1 - (1.2) -2.0%

200712 All 0.3 7.2% 7.6% (2.8) 0.7 (1.7) 5.0 (1.1) 6.6% 8.7% 2.8% 10.8% 3.7% 6.5% 1.6% 10.1% 4.6% 0.9 (1.2) 0.4 - (0.5) 3.1%


Last Year 200612 London 74.7% £104.28 £77.93 46.5% 6.4% 18.6% 15.1% 13.4% £131.49 £108.68 £66.12 £96.81 £69.51 £2,570 £1,318 £127 £4,015 64.0% 32.8% 3.2% 100.0% 45.9% £1,841

200612 Provincial 61.6% £66.85 £41.19 45.8% 16.9% 7.7% 23.1% 6.5% £72.40 £71.14 £46.17 £64.85 £48.54 £1,320 £1,670 £300 £3,290 40.1% 50.8% 9.1% 100.0% 31.1% £1,023

200612 All 66.4% £82.16 £54.53 46.1% 12.6% 12.1% 19.8% 9.3% £96.79 £78.95 £58.63 £74.80 £60.83 £1,765 £1,544 £239 £3,548 49.8% 43.5% 6.7% 100.0% 37.1% £1,315



Current Year YTD London 82.7% £112.81 £93.27 47.0% 7.5% 15.6% 18.3% 11.5% £139.79 £123.41 £70.32 £104.90 £73.66 £34,539 £13,165 £2,248 £49,953 69.1% 26.4% 4.5% 100.0% 47.5% £23,715

YTD Provincial 71.3% £72.28 £51.57 47.9% 16.8% 8.6% 21.9% 4.8% £76.43 £82.01 £50.88 £69.16 £49.86 £19,604 £14,961 £4,013 £38,577 50.8% 38.8% 10.4% 100.0% 32.5% £12,554

YTD All 75.4% £88.20 £66.51 47.6% 13.2% 11.4% 20.5% 7.4% £100.91 £91.25 £61.33 £81.68 £64.36 £25,045 £14,306 £3,370 £42,722 58.6% 33.5% 7.9% 100.0% 38.9% £16,620


Year on Year Change YTD London (0.0) 10.2% 10.1% (1.7) 0.6 (1.9) 4.5 (1.5) 11.2% 6.6% 9.3% 15.9% 4.5% 12.3% 6.8% 9.1% 10.7% 1.0 (1.0) (0.1) - 1.8 15.1%

YTD Provincial (0.1) 4.2% 4.1% (1.4) 1.4 (0.6) 2.3 (1.8) 3.8% 2.9% 4.8% 7.7% 2.2% 9.1% 5.4% 6.1% 7.3% 0.8 (0.7) (0.1) - (0.0) 7.2%

YTD All (0.1) 7.2% 7.1% (1.5) 1.1 (1.1) 3.2 (1.7) 7.3% 3.8% 7.0% 12.6% 5.4% 11.2% 5.7% 6.3% 8.9% 1.2 (1.0) (0.2) - 1.0 11.7%


Last Year YTD London 82.7% £102.41 £84.70 48.7% 6.9% 17.5% 13.9% 13.0% £125.77 £115.77 £64.33 £90.53 £70.49 £30,755 £12,328 £2,061 £45,144 68.1% 27.3% 4.6% 100.0% 45.7% £20,609

YTD Provincial 71.5% £69.35 £49.56 49.4% 15.4% 9.2% 19.5% 6.5% £73.61 £79.74 £48.54 £64.20 £48.78 £17,970 £14,194 £3,783 £35,946 50.0% 39.5% 10.5% 100.0% 32.6% £11,713

YTD All 75.5% £82.28 £62.10 49.1% 12.1% 12.5% 17.3% 9.1% £94.04 £87.92 £57.29 £72.55 £61.03 £22,528 £13,529 £3,169 £39,225 57.4% 34.5% 8.1% 100.0% 37.9% £14,884

continued to exceed supply enabled London

hoteliers to put in a sparkling rate performance

in 2007, and boost their profits accordingly,”

said Jonathan Langston, managing director, TRI

Hospitality Consulting.

At chain hotels in the rest of the UK (referred

to as the provinces), profit increased by 2.2% to

£33.02 per available room during the full year.

Room revpar and total revpar increased at 4.1%

and 7.3% respectively. Further profit growth was

hampered by payroll costs edging up to 31.6% of

total revenue.

TRI’s sample of more than 450-full service hotels

across the country shows that in terms of profit

growth, Aberdeen was the stand out performer

of last year with IBFC up by 22% to £42.93 per

available room. Edinburgh also had a good year

with IBFC up by eight per cent to £42.76.

“2008 looks set to be another good year for

Aberdeen hoteliers since it is not until 2009 that

a large swathe of new bedrooms will open and

fundamentally alter the supply-demand dynamics

of the city’s hotel market,” said Langston.

From Monday to Thursday, demand in Aberdeen

from the oil and gas industries has been far in

excess of its branded hotel supply, encouraging

some hoteliers to push their rates as high as £250.

“Apart from the shining examples north of

the border, most provincial hotel markets put in

a steady performance in 2007. This year in large

UK city centres, we expect business demand

to stay relatively buoyant, especially given that

it continues to outstrip supply in certain key

commercial markets. The main concern in 2008 is

likely to be a drop in consumer-spending. Finding

ways to maintain or increase leisure demand could

be a significant challenge for UK chain hoteliers

this year,” said Langston.

In the 12 months to the end of November 2007

overseas visitors to the UK increased by one per

cent, according to the latest figures from National

Statistics.

Visitors from North America fell by four per

cent, visitors from Europe were up by three per

cent and visitors from ‘other countries’ increased

by one per cent. Thanks largely to growth in Asia,

there were more visitors from ‘other countries’

than from North America during the 12 month

period. Spending by overseas tourists increased by

one per cent to £16.2bn.

At BAA’s seven UK airports, including Heathrow

and Gatwick, total passenger traffic for the full

year of 2007 increased by 1.6%, taking the total

to just under 150 million passengers.


The owner of the Ritz-Carlton Bali successfully

sued Marriott International for effectively breaching

the radius restrictions on the management

agreement by opening a “Bulgari” hotel nearby. The

owner was awarded US$383,000 in compensatory

damages and US$10m in punitive damages.

Probably this isn’t the end of the story and

Marriott is expected to appeal, but the case

highlights a major area of concern for hotel

owners – the creation or absorption of brands by

the existing operator, which then compete with

hotels they already operate.

Until recently, the main concern was focused on

mergers such as the bringing-together of Westin,

Sheraton and Meridien under the Starwood

umbrella, Hilton’s purchase of Doubletree or

Marriott’s acquisition of Renaissance.

Ownersfacenewdangers,ashotelmanagement companies launch new “boutique”brands,probablymorecutting edge than their existing brands and likely to compete directly with them

Today, owners face new dangers, as hotel

management companies launch new “boutique”

brands, probably more cutting edge than their

existing brands and likely to compete directly

with them. One can think of internally-developed

brands such as indigo or aloft; and partnership

marques such as Bulgari and Missoni.

• Ineitherofthesecircumstances,ownersmight

have a number of concerns:

• Is the parent group’s distribution network

powerful enough to support several branded

Simon Allison on how boutique brands could be a source of owner-operator disputes

Abrandnewbattleground

Apotentialnew“landmark”casein a whole series of owner/operator disputesreachedaverdictattheendof January.

Personal view

hotels in the same city (and hotels which

effectively compete with each other)?

• Howwill thebrandseventuallybepositioned.

Will the flag on my hotel BE downgraded or

even, in a worst-case scenario, discontinued?

• Willmyhotel/brandgetafairshareofmarketing

dollars?

• Will I lose out as members of the loyalty

programme attached to my hotel can now

stay somewhere else in town and get the same

benefits?

• Willconfidentialinformationregardinghowmy

hotel is run, including its financial results, flow

to one of its rivals?

• What if the operator makes higher fees from

filling the other hotel or, worse, owns a share in

it?

The last point seems to be less of a concern

these days. Most operators have divested vast

swathes of real estate and are far too concerned

to grow their pipeline of contracts to be willing to

allow a taint of bias in their booking systems or

charges to impact on their growth story.

Moreusefulforanowneristohavealow-costdivorcemechanismwherebyit can terminate the contract if the operator’s adoption of a competing brandisreasonablylikelytohave(orhas in fact had) an impact

Yet it is that very growth story which is causing

the latest problem. The gradual consolidation

of the industry means that many large hotel

management groups now span the gamut of

operations from budget right up to luxury and

boutique.

Moreover, each new segment they add

provides the temptation to roll it out into as many

destinations as possible.

Owners have traditionally attempted to call a

halt to this process by putting radius restrictions

on operators so that they can’t have too many

hotels under the same brand in a single market.

However, as the management groups get larger

and their product range more diverse, this gets

more difficult to achieve.

Owners can try, of course, to put a blanket ban

on any other brands that an operator manages or

franchises – whether they are under its umbrella

now, or are acquired or created in the future.

But you can see where the problem arises – for

Accor (as an example) to accept a restriction on

Formule 1 in a city where it is building a Sofitel, is

probably going to result in too large a loss of potential

opportunities and make the owner asking for such a

restriction a relatively unattractive partner.

This might lead to a net payment to the owner,oranetpaymenttotheoperator,but it would definitely make operators think again before adding new slices to the branded pie

A middle ground is, of course, to limit only

“competing” properties – with the obvious

caveat that somebody else will have to decide

what constitutes “competing”; probably a hotel

consultant.

A step further is for the owner to insist on being

able to take a retrospective look at the situation

a couple of years after the merger or new brand

start-up and to terminate the contract if there has

been a negative impact – difficult for an operator

to gainsay, but also difficult to prove.

Perhaps more useful for an owner is to have

a low-cost divorce mechanism whereby it can

terminate the contract if the operator’s adoption

of a competing brand is reasonably likely to have

(or has in fact had) an impact.

Competition can be pre-defined as being within

the same price range and targeting the same

clientele type (i.e business, conference, leisure etc).

The fairest way for this to work would be for (i)

the operator to get some level of compensation,

which is nonetheless far less than for a no fault

termination by the owner; but (ii) for this to be

offset by the disruption caused to the owner for

having to change the brand.

This might lead to a net payment to the owner,

or a net payment to the operator, but it would

definitely make operators think again before

adding new slices to the branded pie.

• I wanted to note that my last HA article was

submitted with the headline “Was asset light a

lightweight strategy after all?” – a valid question

in my opinion, but not a firm conclusion.

However, the article went out as “Asset light was

a lightweight strategy”, a damning statement that

could be insulting to the CEOs of most major hotel

groups in the world. That was not intended, at

least by me.

• Simon Allison is managing director of finance at

Six Senses Resorts & Spas and director of HOFTEL,

the Hotel Owners and Franchisees Transatlantic and

European League (www.hoftel.com).


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The Insider

Featured businessesaAim 2Ability Group 2Accor 1,3,5,18Atlantic Hotels 11AXA 3Bank of America 11Barcelo 4,20Berkshire Hathway 11Blackstone 9Bridgehouse Capital 11 Bridgehouse Hotels 11Caisse des Depots et Consignations 3Calyon 11CapMan 4Capmark 11Carlson 11CB Richard Ellis Hotels 2Choice 3,6 Christie & Co 4,20Citigroup 1,2Club Med 2Colony Capital 3,10Corinthia Group 3Corintium 4Countrywide 11Crown Estate 3Curzon Hotel Properties 11Dawnay, Day 20Demipower 20Dubai World 3easyHotel 20Emaar 5Equity Group Investments 9EST Capital 9Four Seasons 2,5,7Goldman Sachs 2,10,11Golfrate 6Global Hyatt 11Gulshan Bhatia 2Hand Picked Hotels 11 Heron International 2Hilton 2,10,18HOFTEL 18HSBC 10Hyatt 5,10,11InterContinental 1,3,5,7International Hotel Investments 3Investment Property Databank 4Japan Leisure Hotels 20Jeffries 3JER Partners 2JJW Hotels 4,5Jones Lang LaSalle Hotels 5Land Securities 3Lehman Brothers 4Le Meridien 4,9,18Libyan Foreign Investment Company 3London & Regional Properties 4Losan 20Madrone Capital 11Malmaison 5Marmon Holdings 11Marriott 1,2,3,5,8,18Martinsa Fadesa 20Marylebone Warwick Balfour 5Menzies 11MFS 11MGF 5 Millennium & Copthorne 1Moor Park 3Morgan Stanley 10,11 Nakheel Hotels 3New Perspective 20nitenite 20Northern European Properties 4Orb Estates 11Otus 12,14Pan-European Hotel Acquisition Company 4PKF Hospitality Research 10Premier Inn 2,5,6Private Equity Intelligence 2R20 11RBS Greenwich Capital 11Real Hotel Company 6Restel 4Rezidor 2Royal Bank of Scotland 2,11Scandic 4Shore Capital 20Six Senses 18Smith Travel Research 10Sokotel 4Starman Hotels 4Starwood 9,18Starwood Capital 4,6Strategic Hotels 10Terra Firma 11Thistle Hotels 11Travelodge 3,6TRI Hospitality Consulting 5,15,16,17Vector 2Virgin 11Walt Disney Parks and Resorts 10WestLB 11Westmont 2Whitbread 5,6Wyndham 3,6Yianis 2Yotel 20

hotelanalyst

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Windowless hotels start wowing

Tough politics with tough economics

Lovehotelfloattoneddown

Barcelo starts consolidation process

ThefledglingbudgetbrandofSteliosHaji-Ioannou,easyHotel,hassoldthe freehold of the hotel that was its launchprototypetoexistingeasyHotelfranchisee Demipower.

The tiny deal, at little more than £3m for the

West London property, is not significant in its own

right but it lays a benchmark down in the space

being pursued not just by easyHotel but by rivals

including nitenite and Yotel.

All three brands can be built without windows

(in jurisdictions that allow it) and thus lend

themselves to development in difficult sites that

would be unsuitable for more traditional hotels.

The first nitenite, for example, is tucked

beneath a Birmingham apartment block and Yotel

has opened in tricky spots at terminals landside

at both Heathrow and Gatwick with an airside

property in development at Schipol.

Tightening economic conditions seem set to bring political as well as trading challenges for hoteliers.

In mid January the French culture minister,

Christine Albanel, told reporters that she was

planning to introduce a tax on tourists to raise

money to restore ancient monuments.

The Albanel plan is to charge Eu2 per night for

guests at four- and five-star hotels. She said the

charge was equivalent to half the price of a soda

from the mini-bar at such hotels.

The challenge in balancing budgets is forcing

governments of all persuasions to look at novel

ways of raising revenue. Travel and tourism is an

easy target given that the perceived impact is often

on outsiders who are not eligible to vote.

The British Hospitality Association only last year

fought off an attempt to enable local government

to levy a tourist tax.

JapanLeisureHotelsmarkedlyscaledbackitsfundraisingviaafloatonLondon’sAlternativeInvestmentMarket.

The company, which is a closed-end investment

fund registered in Guernsey, had hoped to raise up

to £100m but this was scaled back to £3.05m in

the January 16 flotation. Priced at 50p, the shares

set off at a modest premium.

The proceeds from the float were still enough to

enable the company to complete the purchase of

five so-called Japanese love hotels. The properties

are costing £19m and are currently trading under

the Bonita brand, operated by New Perspective.

There are an estimated 25,000 love hotels in

Japan, an Asian phenomenon that can also be

found in countries like South Korea. The hotels

offer short stays of as little as an hour, targeting

couples seeking the privacy they cannot obtain in

their often overcrowded homes.

The estimated size of the love hotel business in

Japan is put at $35bn a year with up to 2% of the

Japanese population using them each day.

The business has in the past few years attracted

the interest of a number of investment firms,

including blue chip overseas players.

For its part, Japan Leisure Hotels believes that

the absence of any significant chains presents a

particular opportunity. Alan Clifton is appointed

non-executive chairman, while JLH’s adviser is

Shore Capital.

Barcelo has paid Eu148m to buy the remaining stake in eight hotels it held inaJVwithpropertygroupMartinsaFadesa.

The purchase of the 83.5% stake is part of

the company’s plan to focus on upscale hotel

properties and divest non-core businesses.

Seven of the hotels are in Spain and one in

Morocco. As well as consolidating its position,

Barcelo is expanding. It has opened a new property

in Cologne, the first in Germany, meaning it is now

present in 15 countries worldwide with more than

160 hotels. The 301 room Cologne hotel, formerly

a Crowne Plaza, is a management contract with

Spanish investment fund Losan.

In the UK it will shortly dispense with the

Paramount brand and rebadge the 20 properties it

leases from Dawnay, Day. The properties are to be

given a “more Mediterranean feel”.

On the disposal front, Barcelo has appointed

Christie & Co to lead the divestment programme

starting this year.

Documents

hotelanalyst · Accor sales – values head lower – Finnish sales – MWB and JJW report – good year for Wyndham and Choice – IHG share doldrums – ALIS conference report –