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The intelligence source for thehotel investment community

www.hotelanalyst.co.uk

Operators are becoming less rigid in their

relationships with owners and banks, as the

economic climate puts increasing pressure

on pipelines.

The need to be more lenient over terms of

agreements, with possible renegotiations on both

sides is becoming more pressing, as the previous

dominance of owners over operators in the boom

years fades.

Clive Hillier, CEO of Vision Hospitality

Management, told delegates at this year’s

International Hotel Investment Forum in Berlin:

“In general, the operators are responsive. Their

pipelines are decreasing, they need to put flags on

maps. It’s not palatable to renegotiate their fees.

We say: ‘Do you want to talk to the owner you

know, the bank you don’t know, or the receiver

you don’t want to know?’”

The conference’s panel on preventing and

managing default focused on the dissolution

of the Von Essen portfolio, seen by some as a

cautionary tale of investors’ naivety.

David Duggins, director, Von Essen Hotels, said:

“Fraud happens and it happens in every single

industry. You have to be on your guard.

“You need an appropriate level of scepticism

when looking at business plans. If you’re relying on

the asset being sold to repay the loan, remember

you’ve got to know that loan will survive whatever

is likely to come up. If you’re planning to lend with

the expectation you’ll get repaid by refinancing,

that’s not banking, that’s gambling.”

Tom Page, UK head of hotels and leisure group

at CMS Cameron McKenna, added: “When there’s

been a lack of trust in the operator, that’s when

the banks take action – if there’s any suspicion

•Bankersbackthebrandsp4

•InterCon’sservesupitshealthyoptionp7

•Ascottplanningalongstayfuturep8

•MeliarevalutionquestionsSpanishmarketrealityp11

•Whathasassetlightreallyachieved?p18

•KewGreen’sDukestalkssurvivalstrategiesp23

•Carefulthoughtminimizesdisputeimpactsp25

Sectorplayersbecomingflexiblefriends

about how truthful the borrower is being.”

Hillier said: “Von Essen’s an interesting study,

but for every Von Essen there are 99 distressed

situations that are caused by economic events, not

fraudulent ones.”

With much of the Von Essen portfolio having

been sold at the time of going to press, talk turned

to the end of the era of ‘pretend and extend’ and

the options to lenders when it came to selling

properties in the current climate.

Page said: “The banks need to factor in how

much the actual value of the building is. They

need to assess the business plan and then look at

a turnaround plan, or maybe it’s best just sell to

the asset immediately. You also need to look at the

future funding obligations – banks are unwilling to

put good money after bad if capex can’t be funded.”

Duggins commented: “Things get blurred when

you have an ‘extend and pretend’ approach.

Covenants are waived, payments are waived.

These situations are hard to explain, either to staff

or creditors. When you see a default coming, you

need a plan.”

After the rapid expansion at the top of the

market, one of the issues facing owners was

identified as lack of interest from brands, with

Page commenting: “A lot of deals done at the

peak are based on forecasts of keenly rising profits.

The operators are not getting any incentive fees.

From that point on, the operator has no alignment

with you in the business.”

Page suggested that it may be worth changing

the terms of the deal and returning an incentive

element to the relationship.

Volume 8 Issue 2 – May-June 2012

continued on page 3

ContentsNews Review 3, 6-12Marriott’s revpar lag – Steigenberger strategy – Tough Choice – IHG Even healthier – Premier Inn challenge – Long stayer Ascott – Melia looks abroad – NH back in the black – Hyatt solid – Expanding Accor – Rezidor looks eastConference Report 4-5Franchise complexity – MIPIM brand focusSector Stats 13-15Cost rises hit Europe – London strong, provinces weakAnalysis 16-25Boutique performance – Asset light impact – Dukes talks challenges – Dispute avoidanceThe Insider 28Bittersweet buyback – Modesty in Berlin – Travel takes off

www.hotelanalyst.co.ukVolume 8 Issue 2 – May-June 2012

All enquiriest +44 (0)20 8870 6388

Editor Andrew Sangstere andrew@hotelanalyst.co.uk

Deputy Editor Chris Bowne chris@hotelanalyst.co.uk

Marketing Sarah Sangstere sarah@hotelanalyst.co.uk

Subscriptions Anna Drabickae anna@hotelanalyst.co.uk

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

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AlongwayfromboomCommentaryby AndrewSangster

The one hope on the horizon has been the

emergence of new forms of debt funding in the

form of insurance firms and pension funds.

According to research by DTZ published in May,

the debt funding gap in Europe is USD182bn.

The gap was increased by USD107bn thanks to

new rules from the European Banking Authority

which said capital reserves had to be 9%,

estimates DTZ.

The issue of whether the withdrawal of bank

debt could be replaced by new sources of debt

was discussed at the Global Real Estate Institute’s

UK event held at the Sofitel London St James

in May.

Whilst attendees thought there would be some

new debt available from these sources it was

widely felt that it would not compensate for the

problems of banks withdrawing from the market.

In particular, insurers and pension funds have

limited numbers of professionals to make funding

decisions with the average team being well

under 10 people. This means only the biggest

and most prime assets would attract attention.

The small teams meant alternative lenders were

not equipped to deal with smaller or more

complex transactions.

The net effect of the funding drought had

been to make deals difficult outside of prime,

gateway locations.

As well as team size, pension funds have

typically been focused on assets that match their

annuity profiles. So long-term, 25 year lease deals

are attractive but other forms of property lending

are not.

Some pension funds and insurers are looking

beyond this, perhaps using interest rate swap

management to give short-term investments the

right profile, but it remains a cultural problem

for many.

In the absence of significant new debt, most

attendees at the GRI believed that what had

to give were asset prices.

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

hotelanalystBut there would be no flood of cheap deals. As

long as central banks in Europe were prepared to

prop up the lending banks then there was unlikely

to be any motivation for the lending banks to

“scorch assets”.

Opportunity funds had, in some cases, adjusted

their expected returns down from Internal Rates

of Return set in the high teens to the low teens.

High returns were only possible in fast growing

markets like Asia; when distressed assets could

be bought cheap; or when significant leverage

was possible.

The US had seen some non-performing loans

transact but the pace in Europe was anaemic it

was argued. Most opportunity funds were focused

on working with borrowers as a way of getting

into transactions.

The greater readiness in the US for banks to

write-off loans was down to their healthier state,

it was argued. In Europe, there was little impetus

from regulators and no desire on the part of banks

to show the depth of the problem.

Nonetheless there would be a few portfolios

coming to market as banks were, generally, in a

better place than two to three years ago.

The current environment is forcing even

the most aggressive of investors to change

their approach. Lower IRRs are now seen as

acceptable in a world of low interest rates and

few easy opportunities.

At the start of the downturn, a lot of cash

was raised, or at least promised, to exploit

what were expected to be a flood of distressed

opportunities. But it has not turned out to be the

1990s revisited.

Don’t feel too sorry for the limited partners at

the opportunity funds, however. They have also

lowered the hurdle rates at which they are paid

carried interest (effectively their bonus pool). The

concession they have had to make in lowering

the hurdle, from 10% to 6% in the case of one

high profile fund Westbrook, was to reduce

the level of bonus they receive on achieving

hurdle rates (the elimination of the so-called

catch-up provision).

In addition, Westbrook is now pooling deals

and netting profits out across the fund rather than

paying out on a deal-by-deal basis.

Many of these changes will help to smooth

volatility. In particular, getting rid of the catch-

up provision there is less incentive to sell

assets early.

Of course, the changes can be easily reversed if

the “good times” come back but if some of the

sharpest minds in real estate are gearing up for

an extended period of low returns don’t expect

a boom any time soon.

ThereisamassivedebtfundinggapinpropertyacrossEuropeasbankshavebecomemorecautiousandareforcedtorebuildtheirbalancesheets.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 3

AlongwayfromboomNews

But the five to six years of cost growth since

then means it will be significantly longer before

its US hotels are paying out incentive fees to the

same extent as they were at the previous peak.

Marriott declared another strong performance

in revealing its fourth quarter figures, rounding off

what CEO Bill Marriott called “a great year”.

Revpar was up an average 6.3% across the

portfolio in the last quarter, while adjusted revenues

were USD3.4bn. And for the year as a whole,

revpar grew an average 6.4%, dragged down by

poor performances in Japan and the Middle East.

The quarter also saw the company spin off its

timeshare business, and put together key actions

to launch its boutique Edition brand, which will

tie up capital as trophy buildings are purchased to

give Edition initial traction in key markets.

Marriott’s expansion continues at a pace, with

the company’s development pipeline ending the

year with more than 110,000 rooms listed. CEO

designate Arne Sorenson said that the company

currently accounted for about 10% of all rooms

in North America but that Marriott brands claimed

20% of new rooms opened in 2011.

And expansion is increasingly focused overseas

with about half of the pipeline outside of North

America. In China alone, a pipeline of 17,000 rooms

will build on an existing presence of 23,000 rooms.

In terms of performance, Sorenson noted that

revpar was still around 10% below the previous

peak. “We need to grow the revpar back to

those levels.”

He expects Europe to deliver a 2-3% increase

in 2012, but warned: “Probably the biggest single

risk is that we could do worse in Europe.”

Group bookings for 2012 are already notably

ahead of a year ago, which will feed smaller hotels

first. “Big group business takes the longest to

come back,” said Sorenson, “and the big hotels

build slowest, but building they are”.

Sorenson expects more “pitching and catching”

of sales leads across the group, as a result of the

bedding in of the company’s new sales systems.

Sorenson spoke about the company’s recent

announcements to do with its boutique brand,

Edition. In retrospect, “our timing was not

great,” he admitted, with the recession having “a

profound effect” on the company’s progress.

The recent significant investment in sites in New

York, London and Miami was essential. “These are

projects in A locations, in A markets,” he explained.

“They are expensive, to be sure, but we think all

three will come out extremely strong.” Capex was

USD400m in 2011, and is likely to be in the range

USD550-750m this year. “Those numbers are not so

big that they are likely to change our model any.”

HA Perspective: Just 9% of Marriott’s fee

revenue came from Europe in 2011. And this looks

set to shrink in the current year.

The company estimated that 10% of lodging

demand in continental Europe comes from

government-related business. This is going only

one way.

While demand from European sources for

European hotels is set to be weak, Marriott is

hopeful for the 30% of demand for its European

hotels which comes from outside of the continent.

Marriottbelievesrevpartodayisstill10%belowitspreviouspeakachievedin2007andthatitwillbe2013beforerevparinitsdomesticUSmarkethitsthatpreviouslevel.

Marriottsaysrevparstilllags10%

Elsewhere at the conference, the CEOs panel

saw some caution expressed over the ongoing

straightened debt markets. Richard Solomons,

CEO, InterContinental Hotels Group, said: “As

brands we’re seeing a very good picture, for some

owners it’s less good. Banks talk about lenders and

finance, but debt’s the issue. We need our class

of asset to be something which banks will invest

in again.”

He added: “You’ve got to be concerned about

the level of personal debt and government debt in

Europe and the US. At some point this will have to

be addressed.”

The issue of pipeline maintenance was raised,

with an increasing reliance among the operators

on conversion, in particular in the European

market. Steve Joyce, president and CEO, Choice

Hotels International, thanked Solomons for IHG’s

decision to remove hotels from its Holiday Inn

brand as part of the flag’s relaunch, commenting:

“We love his owners, we give them a home”,

suggesting that the sector was not so much

expanding as exchanging the signs over the doors.

Long term, however, there was greater optimism

for real growth.

Frits van Paasschen, president and CEO,

Starwood Hotels & Resorts, said: “It’s hard to paint

a picture that we’ll get out of this unscathed as a

region, but as an industry we could be on the cusp

of a golden age. There will never be another Paris,

Rome or London and as wealth accumulates,

people will want to visit.

“What we’re seeing now is one of the great

transformations of humanity. There are five or

six billion cell phones out there and in three to

four years they will all be smartphones. The next

20 years will see three billion people join the

middle classes.”

The hopeful sentiment was carried over into

the rest of the sector, with Duggins concluding:

“The Von Essen portfolio has some properties that

have never made a profit and yet we’ve still sold

them. There’s always someone who thinks they

can make money from hotels.”

HA Perspective: There is clear evidence that

brand owning hotel operators are using their

balance sheets to promote growth. But this should

not be taken as a reversal of the asset light strategy.

Where the balance sheet is deployed, operators

are looking for a clear exit in a comparatively short

time frame (usually at most it is five or six years).

Speaking in a separate interview with Robert

Shepherd, svp development for IHG in Europe,

there are a number of approaches being deployed

or about to be unveiled.

IHG has four key markets in Europe – the UK

and Ireland; Germany; Russia and CIS; and Turkey.

For Germany in particular some novel approaches

are being wielded to enter what is a lease

dominated market.

According to Shepherd there is a clear gap

for development finance (something of an

understatement in reality) and IHG is stepping in

to help.

For leases, IHG is prepared to offer guarantees

to banks on behalf of developers when a multi-

site franchise deal is signed. Once the developer

reaches five or six operating units, this guarantee

can be transferred across to the developer/operator.

More ways of “filling the gaps in the value

chain” are under discussion but Shepherd is still

seeking approval which he hopes to get by May.

“This is a multi-faceted strategy, not a simple

franchise play. We hope to create a scale-able

management model,” he said.

The target in Germany is to have 200 properties

by 2020, although it was stressed that quality

would win out over quantity. The ultimate aim is to

unseat Accor as the largest operator in the country

although this was a big challenge, it was admitted.

continued from page 1

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 24

FranchiselandscapebecomescomplexLendersareincreasinglydemandingtheservicesofthird-partymanagementcompanieswhenindependentownersadoptafranchise,accordingtosomespeakersatHenryStewart’slatestLondonconference.

Despite this, many owners are looking to

franchise agreements ahead of management

contracts, as they seek to cap the fees paid

to brands.

Nick Pattie, MD, Whitebridge Hospitality, told

delegates at Henry Stewart’s Latest Thinking on

Hotel Operating Agreements conference, which

took place in March, that: “Now, certainly in the

mid-market, I would look for a brand – if I didn’t,

the bank would probably make me. Brands are a

force for good, or a least a necessary evil.

But he added: “If the revpar premium is the

same for a franchise or a management agreement,

why would I get a management agreement?”

Philip Johnston, joint head of hotels, Savills

Commercial, said: “I believe there will be more

franchises – do you need the brand and the whole

[management offer]? You may as well just have

the franchise.”

For the operators, the question was partially

one of geography. Peter Till, head of business

development, UK, The Rezidor Hotel Group, said:

“If you move into developing markets, we have no

franchise agreements. There is not an infrastructure

of third-party management companies.”

The increasing role of management companies

caused debate amongst the panellists as to

whether the added cost made management

contracts more attractive than franchises.

Nick Smart, VP development, UK, Ireland

& Nordics, Hilton Worldwide, said: “You join

a brand to get more than your market share.

You can choose how – as a gross simplification

management fees are twice the cost of franchise.

One half of the fees is the system, the other half is

for the management.”

Steve Terry, development director, UK & Ireland,

InterContinental Hotels Group, said: “If you go

down the franchised route, you’re paying double

fees; the franchise, plus the management fees.”

Terry said that, despite the rise of third party

management, IHG was “conscious of not trying

to be in competition with them. There’s a fine

balance between looking for management

contracts, but not being in competition with the

third party managers.

“We’re finding that the best deals will only get

funded with an experienced manager – whether

that is third-party or IHG. We’re finding that the

owner pool is changing. The traditional owner/

operator isn’t developing any more, now the

owner pool has less interest in operating.”

Smart said: “Some owners have a direct

relationship with us, while others have a stronger

relationship with an operating company. We’re

completely agnostic. Whatever unlocks the deal.”

Tim Walton, VP, Marriott International, was

quick to comment that there were still quality

checks in place in the rush to expand. He

commented: “You need to be selective with your

franchisees. We operate a fairly rigorous selection

process just to make sure we share a blood group,

an operating philosophy.”

Smart added: “It’s very attractive to deal with

people who have been there, got the t-shirt and

done the multiple deals. Success begets success.

Our speed of growth has accelerated, but the

number of people we deal with has fallen – it’s

become almost an unwritten rule of the game.”

The choice between franchised and managed

was not, the panel said, solely that of the owner,

despite increased pressure on pipelines. Terry said:

“We’re not really into managing small Holiday Inn

Express hotels. It’s not what we’re geared up to

do. It depends on location, size, potential fees of

course. Ultimately, though, it’s what’s going to get

the deal done. It’s up to the debt funder.”

Although there was increased enthusiasm for

franchise contracts amongst Europe’s operators,

in contrast, in the US, the home of franchising,

some were pulling back.

Till said: “The people in Carlson are starting

to understand that they’ve gone too far down

the franchising route and are trying to get more

involved with their guests in their hotels. They’ll

never go as far as we have at Rezidor, but they are

trying to get some control back.”

HA Perspective: The requirement of banks to

have third-party managers is yet another sign of the

increased, and possibly increasing, conservatism

among traditional senior debt lenders.

An established operator of hotels should be able

to secure funds to take on another hotel project

but it looks a forlorn hope for new entrants to the

hotels business.

To an extent, this is how it should be. Lenders

have always stressed the need for experienced

managers to be at the helm of any business

they lent to it. Unfortunately, during the boom

period, this was forgotten and money was doled

out to property investors without much, if any,

hotel experience.

There is a problem though in building up a

franchise community. And perhaps here the brands

can help in providing some form of financing to

assist new entrants.

There has been talk of mezzanine funds

by Hilton and InterContinental is, in some

territories, standing as guarantor for loans. Such

innovations are vital to keep the pipelines of

the brands growing.

Conference report

MIPIMtalksofbrandsandcommunicationStrong,clearbrandsthatcommunicatedirectlywiththeircustomersacrossallmediawillbethosethatwinoutinuncertaintimes.

That was the message from Henry Giscard

d’Estaing, chief executive of Club Med, in a

keynote address at the MIPIM property conference

in Cannes.

“You need a brand, but a brand is a lot of

work,” said d’Estaing, who was himself a former

FMCG executive who used to market bottled

water. And brands need careful positioning in

tough times.

“When the market starts to flatten, you see the

bipolarisation of the market.” The premium and

budget ends of the market survive, while “the one

in the middle is suffering.”

Club Med had itself been caught, said

d’Estaing. The brand was previously perceived

as expensive mid-market, “which is a very

difficult place to be when things get tough.

People want things to be simple.”

By repositioning as a premium, all-inclusive

brand, business had turned around. Club Med’s

latest resort at Valmorel opened in December with

full occupancy, he said.

The other area where opportunities abounded

was in the way hotel brands communicate with

their customers, said d’Estaing. “For us, the

internet is not a threat, but an opportunity.

The business is facing a total change in

continued on page 5

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 5

Conference report

distribution channels.” Club Med has set a target

of getting 60% of customers to come to the

company direct by the end of 2012. That may be

online, or it could be phone, said d’Estaing.

The hotel and leisure market has been hit by

a succession of geopolitical and economic body

blows, said d’Estaing. “The lesson is that the only

way to protect yourself is to protect yourself is to

split your risk.”

And one strategy is to be present in several

markets. “I’m not wanting to be worldwide, just

to be worldwide,” said d’Estaing. When the new

Valmorel resort opened, it welcomed customers from

19 different nationalities, a situation that minimises

the risks of exposure to single country markets.

Elsewhere at MIPIM, a separate debate

arranged by Jones Lang LaSalle brought together

senior executives from Accor and Invesco Real

Estate to consider the asset-light model, and

the problems of encouraging development in a

market constrained by the limited availability of

development capital that has to compete with

other property sectors.

New hotel brand concepts, including the Swiss/

German Fizz budget cool brand, were presented

at a series of presentations supported by PKF.

And in MIPIM’s 2012 awards, announced at the

closing of the event, the Six Senses Con Dao in

Ba-Ria, Vietnam, was declared the best hotel and

tourism resort of those shortlisted.

There were two other shortlisted projects in the

awards. One was the 85 room Bulgari Hotel in

central London, delivered by Prime Development

and opening this spring.

The other was the Victoria Tower Hotel in

Kista, Sweden. Located within a 34-storey mixed

use tower, designed in a radical geometric form,

the 229 room hotel is located on 22 floors of

the building.

HA Perspective: There is a lot of talk in the hotel

industry about brands but hotel companies do not

behave like brand owners.

During the IHIF in Berlin, Frits van Paasschen

spoke in a separate interview with Hotel Analyst

about his company’s approach to branding. As

a former senior executive at Nike, he was in a

position to comment on how the hotel industry

approaches branding compared to consumer

goods companies.

At Nike up to 15% of revenue was spent on

marketing, according to van Paasschen. This

compares to less than 1%, usually significantly less

than 1%, at hotel groups.

And to be clear, by marketing activity this is

spending on advertising, promotions and similar.

It does not include investment in product and

delivery systems.

So not included are what hotel groups

spend on their reservation system, their loyalty

scheme or, unless it is direct advertising, their

internet activity.

But van Paasschen was keen to point out that

hotel groups spend a lot indirectly. He compared

Nike’s approach of opening its stores – which

actually lose money, about one dollar for every

visitor was his estimate – to what hotel groups do

with their properties.

He said: “When customers see [say] our Westin

in Dubai we don’t need billboards.”

This is believable up to a point, and makes more

sense than d’Estaing’s rather obvious comments.

But it only matters when the billboards themselves

can be distinguished in the mind of consumers.

As van Paasschan said most five-star hotels

cannot be told apart by guests, and the same

applies across the segments, perhaps even more so.

Starwood Hotels is conscious of this and has

worked hard to turn its brands into something

distinctive, both for guests and owners. This

applies to equally to urban hotels and to resorts,

such as Club Med.

For more information contact:

James Williamson – 020 7911 2109james.williamson@gva.co.uk

Ian Thompson – 020 7911 2962ian.thompson@gva.co.uk

Max Gaunt– 0131 469 6022max.gaunt@gva.co.uk

First for service

gva.co.uk/hotels

Hotels

An all inclusive packageGVA now has one of the most comprehensive Hotel advisory teams in the UK, meaning our expertise covers the services you need, wherever you need them.• Agency • Building consultancy• Business rates• Consultancy• Corporate recovery • Development• Feasibility advice• Investment• Planning• Project management• Valuation

continued from page 4

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 26

News

It said that it expects these cuts are sustainable

in the mid term.

The company finished 2011 with a strong

quarter and results ahead of expectations, and is

expecting good things from 2012.

“We wrapped up the year on a high note,” said

chief executive officer Stephen Joyce. There was

an acceleration in the fourth quarter delivering

7.8% revpar growth against an expected 6.5%.

December, January and February figures were

“showing acceleration of the revpar growth trend

to the high single figures”.

Choice is pushing up market, with its Cambria

Suites and Ascend Collection growing. Ascend

added five US properties, with the chain ending

the year on 69 hotels, of which 11 are outside the

US. In Brazil, Choice is the second largest operator

in what Joyce called “arguably the best hotel

market in the world”.

Joyce said that central sales had delivered

impressive growth in 2011. Gross revenues

delivered by the team were up 23%, while mobile

apps delivered “exceptional growth” of more than

250%. The company was first to market with an

Iphone app in 2010.

For 2012, the company is not expecting to grow

its portfolio. Conversions were driving additions

during 2011, but the constrained new construction

market is now reducing these opportunities.

HA Perspective: It seems an odd time to be

cutting costs given that the US looks to be

recovering, albeit slower than was the case after

previous recessions.

CEO Joyce said the company had concluded

“that we were going to be in a relatively uncertain

environment [during which] we could get a

significant upswing in unit growth or not”.

The problem is that the cuts will surely help the

latter outcome of limited unit growth predominate.

In the final quarter the company was below target

on its domestic hotel franchise signings, hitting

128, but it believes it will do better in 2012. It is

not clear why.

The big push is on refreshing the Comfort

brand, which has just been given a new look. In

the US Comfort totals around 2,100 hotels and

a number of these are for the chop, although

Choice believes it can persuade at least some

of these franchisees to adopt some of its other

brands instead.

The net result of the Comfort exits is that Choice

expects its conversion pipeline to remain flat.

And unfortunately, international growth is not

strong enough to help out. In one of its strongest

territories, Brazil, where there are 60 hotels, the

pipeline was described as “very strong”.

But as Joyce admitted when discussing Brazil:

“In terms of the actual revenue results that we

get from that it’s still relatively small. It would not

materially move the needle.”

ChoicemakesdifficultdecisionsChoiceHotelsistakinganaxetoitsoverheadsforthenexttwotothreeyears,withplanstoslash40%fromitssell,generalandadministrativeexpensesin2012comparedto2011.

Steigenbergerlooksforanewhead

A statement issued by company said: “The

differing strategic views with regard to future

development held by Arco Buijs and the

Supervisory Board mean that his contract will not

be extended when it falls due for renewal in the

middle of the year.”

Buijs left the company at the end of February.

Matthias Heck, CFO, is to be interim CEO. The

short statement by Steigenberger also thanked

Buijs for driving forwards the internationalisation

of the company and introducing significant

structural changes.

Frankfurt based Steigenberger operates in

Germany, Austria, Switzerland, the Netherlands

and Egypt. Of the portfolio, 47 operate under its

Hotels and Resorts brand, and 32 are branded

with its upper mid-range InterCityHotel.

In the summer of 2009, the company was

purchased by Egypt’s Travco, with Buijs joining in

mid 2010. Travco is a major force in tourism in

north Africa and the Middle East, with interests in

hotels, cruises, and tourist travel. Across Egypt, the

company has 52 hotels under the Jaz, Sol Y Mar

and Iberotel brands. However, in recent months it

has not been immune from the negative effects on

tourism of the upheavals in the country.

When the Travco deal was concluded,

Steigenberger had a portfolio of 81 hotels. Buijs

appeared keen to expand. In an interview in early

2011, Buijs spoke of his desire to add 15 hotels

a year, and of adding hotels in German tourist

locations in the Mediterranean, north Africa, and

the Middle East. Later that year, he spoke in an

interview of a three year, E100m plan to grow the

group, including buying a UK chain to add six or

seven British locations with a flagship London hotel.

Last summer, Steigenberger signed an

agreement with Austrian project management

company PORR to expand the InterCityHotel chain

into central and eastern Europe. At the time,

InterCityHotel brand Managing Director Joachim

Marusczyk said: “There has been a significant

increase in the number of business travellers in

the countries of Eastern Europe. We are convinced

that this region provides a major opportunity to

advance our brand.”

PORR was to act as developer, with Steigenberger

leasing the buildings. The announcement spoke

of an aspiration to add 15 locations, but to date

there have been no indications of pipeline deals.

Today, however the Steigenberger portfolio

has shrunk to 79, with a stated pipeline of three

German hotels opening this year and a further

three in 2013. The mismatch between Buijs’

stated aspirations, and the progress of expansion

to date, is marked.

HA Perspective: This is the second major

German chain to have parted company with its

CEO over “strategic differences” in recent years.

The other chain was Arabella and it has chosen to

focus on a role as an owner rather than operator.

It seems unlikely that in the near term

Steigenberger will adopt a similar strategy however,

despite its invidious position of being a mid-sized

player on a field that favours only the biggest.

What is clear is that the lofty expansion goals

have not been achieved. Egyptian parent Travco

has its own woes thanks to the meltdown of the

tourism industry in its home territory. Spending

hundreds of millions of euros growing its German

hotel subsidiary is probably not that appealing

right now.

But trying to grow in an asset light manner

looks challenging, especially given the strength of

the opposition in the form of the global majors.

The big chains have their reservation systems and

loyalty schemes, weapons that Steigenberger will

never outgun.

The logical move is to adopt a major brand.

However the hotel industry is not always a

logical place.

GermanhotelcompanySteigenbergersurprisedattheendofFebruarywiththeannouncementthatArcoBuijs,thecompany’sCEO,wastoleavethecompanybymutualconsent.

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News

The company says EVEN “meets the large and

growing customer demand for healthier travel, at

a mainstream price”.

Based on extensive research, InterCon thinks it

sees a big opportunity for providing hotels that

allow guests to stay healthy when they travel.

Despite widely publicised obesity and health issues

in the US, IHG believes it has a target market of

“17 million healthier-minded travellers who find

it hard to stay active and eat right, and often “fall

off the wagon” when they travel”.

EVEN is expected to fit into the portfolio at

a price point above Holiday Inn, and IHG is not

expecting much cannibalisation of its existing

brand markets by the newcomer. IHG’s president

for the Americas Kirk Kinsell said pricing has not

been set, but “our pricing will be someplace at

the higher end of a mainstream offer, but it will be

very inclusive to a whole host of travellers”.

The hotels will be designed to make exercise

easier. Rooms will be laid out to enable in-room

exercise, even having an exercise mat and a

hanging rail that doubles as a chin-up bar, while

well-equipped gyms with better information are

promised. And, a novelty in hotel construction,

stairs will be made more attractive and easier to

use. Healthier menus will be served from cafes and

bars that feature an exterior patio, while filtered

water, morning coffee and smoothies will be on

the house.

Room designs will incorporate better working

facilities, with a decent desk, multimedia ports and

high speed wifi. And once work is done, mood

lighting, better linens and power showers are

promised to ensure improved sleep and relaxation.

Initially IHG has set a target of signing 100 EVEN

locations within five years, and it has committed

up to USD150m of capex to help get early growth

going. While the brand is expected to consume

both new builds and conversions, the latter will be

the focus initially.

As with previous IHG brand launches, the

company plans to own and manage the first few

hotels, providing owners with a clear view of the

likely outturn when they take on EVEN franchises.

Owners are promised the operating model will be

similar to other limited service hotels.

IHG hopes to announce the first EVEN location

in the second quarter, and open for business

in early 2013. Once established in the US, the

company is also likely to look to key city locations

to expand internationally.

HA Perspective: There is always a danger with

new brand launches like this to take your own

personal prejudices and read through to the likely

success or failure of the concept.

So to be clear from the outset, this is not for

me. When I travel I have never been on the fitness

wagon and so am in little danger of falling off it.

And the idea of having a workout bench in my

room which has seen people sweating all over it is

something I find repellent.

The general reaction within our office to the

interior design was far from positive. “It looks like

a hospital,” was one of the more polite comments.

Let’s go back to basics to try to be more

objective. One of the oldest concepts in business

strategy is that of differentiation. If you open an

ice cream shack in the middle of the beach you

are best placed to gain the most business. But if

there are several already there, then you are likely

to do better business by opening at one end of

the beach (presumably muscle beach in this case).

Management guru Michael Porter talks about

four generic business strategies. The one adopted

by IHG for Even appears to be one of differentiation

focus (the others being differentiation, cost focus

and cost leadership).

Differentiation focus is where “a business aims

to differentiate within just one or a small number

of target market segments”. It is distinct from

differentiation in that there is a more limited

target market.

The risks, according to Porter, are establishing

that there is a valid basis for differentiation and

that existing competitor products are not meeting

those needs and wants.

I’m sure IHG has invested significant sums in

researching the basis for this brand. Without

seeing the research it is difficult to claim it is

right or wrong. Nonetheless, it does seem an

extraordinary stretch to believe there are more

than 100 locations in the US where there is

sufficient demand for a hotel where you can do

chin-ups in the wardrobe.

And is it really that difficult to eat healthily in

existing hotels. I’m not a big user of hotel gyms

but most general managers I talk to say they are

under used.

What is clear, however, is that IHG is making

a big bet. Getting this wrong goes to the very

essence of what it is as a brand company. It has

to get it right. To me it looks IHG has positioned

itself so far up one end of the beach that only the

mermaids will be customers. We’ll see.

IHGgetsEVENAmericanroadwarriorswilleatandsleepbetter,thankstoInterContinental’snewEVENmid-marketbrand,launchedatthebeginningofMarch.Thenewbrand,oneoftwopromisedthisyear,isfocusedongrabbingmoreUSbusinessinitially.

Reporting figures from the previous short

quarter of 11 weeks to 16 February, Premier Inn

saw like for like sales drop 0.9% overall. Full year

figures for the 50 weeks to 16 Feb saw total sales

up 8.7%, or 3.4% like for like.

Drilling down into the most recent numbers,

chief executive Andy Harrison conceded: “We’ve

seen occupancy down 1.1% and rate down 1.3%

in the quarter.”

But the numbers have failed to dent Whitbread’s

expansion plans for its budget brand. “Premier Inn

has outperformed its competitive set and we shall

open 4,000 new rooms in this financial year,”

said Harrison.

“We continue to see an exciting opportunity to

grow Premier Inn and to win market share.” The

10,000 rooms in the pipeline means the company

is still on track for growing market share from

its current 7% to 10%, at the expense of small

rivals. “We believe we’ve got fundamental and

structural advantages over the independents.”

Thankfully, flat growth at Premier Inn is offset

by other parts of the Whitbread portfolio, which

in aggregate reported total sales up in first quarter

10.1%, and like for like 1.8%. The Costa coffee

shops, in particular, delivered “outstanding”

results with sales up 25% and expansion drawing

increasing revenues from markets outside the UK

such as India and China.

“We expect to report another year of double

digit growth in earnings, in line with expectations,”

promised Harrison.

PremierInnstruggleswithsoftUKmarketAtradingupdatefromWhitbread,ownersofthePremierInnbudgetchain,clearlydemonstratedtheweaknessintheUKmarket,withtheOlympicstheonlybrightspotonthehorizon.

continued on page 8

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News

London will be a continuing focus for Premier

Inn, even after the excitement of selling rooms

during the Olympics at GBP199 a night has

passed. “Around 25% of our growth is going

to be in London, where we’ve historically been

underrepresented,” said Harrison.

Currently, the London estate represents around

10-15% of the estate by room count, though

higher by revenue.

Harrison was asked about issues at rival

Travelodge, which he was not keen to be drawn

on. “Clearly it’s highly geared, it’s got liquidity

issues, anyone who’s been watching it will not be

surprised by what’s happening.”

In a notable contrast, the results presentation

stressed Whitbread’s commitment to continual

refurbishment of its hotels, to maintain brand

standards. “We will have invested £70m

in refurbishing 13,000 rooms over the two

years 2011-13.”

Going forward, Premier Inn is promising to

outperform the market, with tactics that include

dynamic pricing, and specific promotions based

around UK events including the Royal Jubilee

and Olympics.

“We still see dynamic pricing as something

that’s going to help our performance,” said

finance director Chris Rogers. He noted that with

more than 60% of customers being business

travellers, disruptions to normal business

routines needed to be planned for, and leisure

customers courted: “What we need to do is

make sure we’ve got our pricing absolutely right.”

But the low numbers mean advancing the like

for like business is going to be hard: “We still think

inflation’s going to mix out around 2-3%. So we

need like for likes of 2% to hold steady.”

HA Perspective: A couple of days after this

trading update, Travelodge had the official

opening of its 500th hotel and announced an

expansion programme of 184 hotels, just for

London, by 2025.

Fortunately for Whitbread, it looks highly

unlikely that Travelodge will be proceeding with

many of them in the next few years given its rather

stressed capital structure.

Travelodge agreed with Whitbread that the

London is currently under represented with

economy hotels compared to the rest of the

country. Economy hotels in London are 17% of

the total of hotel rooms against 28% for major

cities like Manchester, Birmingham, Leeds and

Glasgow, according to research by Melvin Gold, a

consultant hired by Travelodge.

But the higher price of property in London

makes it much harder to open profitable economy

rooms in the capital. While occupancy and rates

are higher, they are often not high enough to

outweigh the additional site costs.

Right now is probably the optimum time

to be acquiring sites in gateways like London.

And helping the cause for both Travelodge and

Whitbread are innovative investment schemes.

The Stratford site that is the 500th Travelodge

was funded by HotbedUK, a private investor

syndicate with Peveril Securities and Active Estates

being the JV developers.

HotbedUK, which was bought in February by

Connection Capital, a business set up in 2010

by Claire Madden and Bernard Dale, founders

of Hotbed who left in 2008, has also invested

in Premier Inns and start-up economy brand

Sleeperz.

Riverside Capital Group, joint venture partner

with Connection, has acquired Hotbed’s property

portfolio.

Together the JV partners have assumed control

of Hotbed’s entire investment portfolio which

totals GBP140m of equity under management in

assets valued at GBP500m across venture capital,

private equity and property deals.

It is investment like this that is enabling the

economy hotel sector to keep growing at the

pace it is. For how much longer such growth can

continue until significant diminishing returns set in

remains to be seen.

Meanwhile, for this year, the hope is clearly

being placed on the Olympics to provide a trading

boost. But British Airways has forecast that the

event is likely to disrupt normal traffic and result

in reduced demand, particularly from business

travellers. BA said the Olympics would, “at best”,

be neutral for it in the near term.

Those diminishing returns might kick in sooner

than feared.

continued from page 7

The company, owned by Singaporean property

giant CapitaLand, operates serviced apartments

under the Ascott, Citadines and Somerset brands,

with 28,000 rooms around the globe in more than

20 countries.

Across Europe, the company has 44 hotels,

totalling more than 4,900 studios or apartments,

of which 32 are in France and operating under

the Citadines brand. Ascott saw occupancy of

73% through the year, down a little on the 75%

recorded in 2010, but with the loss accounted

for by refurbishment work undertaken on eight

hotels. The company will refurbish a further

seven European hotels during this year. Ascott

sees around 60% of its revenues from corporate

travellers, and 40% from leisure.

With refurbishments, the company took the

opportunity to upgrade two of its locations to its

Prestige category.

Also during the year, it introduced its Club

Apartment concept to Citadines units, which

takes the better-positioned apartments in the

block and provides a more hotel-like range of

support services including an inclusive breakfast

and daily housekeeping.

Ascott has a target of 40,000 rooms by 2015,

with a current portfolio of 28,000. However,

its development pipeline in Europe is modest

and consists of just two openings, in Hamburg

towards the end of next year, and Frankfurt in

early 2014. The majority of the pipeline is planned

for Chinese and other Asian cities, and key Middle

Eastern locations.

HA Perspective: Ascott already lays claim to

being the world’s largest international owner-

operator of serviced residences. And while its

parent company remains focused on Asia for its

main property development business, Europe is

set for steady growth for its apartment operations.

Alongside Ascott Residence Trust, the Real

Estate Investment Trust which owns many of the

properties it operates including those in Paris,

London, Berlin, Brussels and Barcelona, The

Ascott Limited is an often overlooked rival to

hotel operators.

In the UK, its revenue per available unit

increased by 11% in 2011, thanks largely to its

London exposure. But in Singapore, the increase

was 18%. And so it is not surprising that the

bulk of the SGD665m (USD527m) of investment

committed was in Asia.

Ascott’slongstayplansAparthoteloperatorAscottisplanningfurtherimprovementstoitsEuropeanportfolio,followingayearwhenitsawrevenuesadvanceby8.8%toE152.9m.

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News

The company declared a net profit of E6.2m

for 2011, compared to a E43.2m loss in the

previous year.

The figures were helped by several hotel

sales, and a USD15m compensation payment

from Chinese investor HNA, who pulled out of a

proposed deal to buy a stake in NH during 2011.

Revenues were up 7% to E1.43bn in 2011, while

the final quarter saw revenues 5% ahead of the

final quarter in 2010.

The company is pinning its hopes on an

improvement in fortunes from the second

quarter of 2012, in order to lift performance

from a portfolio dragged down by its dominant

Spanish weighting.

“We also expect year-on-year growth starting

in the second quarter of the year,” said the NH

statement accompanying 2011 results. “The start

of the financial year has borne out this trend, with

a particularly good performance in Central Europe

and the Americas. Income increase (from 3% to

5%) and double-digit EBITDA improvements for

the year are also expected.”

One important constituent in the company’s

performance was an aggressive programme of

cost cutting and efficiency improvements, which

helped substantially improve the results. Gross

operating profit was helped by a 6.6% reduction

in overheads, headed by cost reductions of 14.4%

in Spain and 15% in Italy.

In 2011, like for like revpar grew by 4.9%

overall, combining a 3.1% increase in occupancy

with a 1.8% increase in average prices.

NH’s Americas region was the lead performer

in the portfolio, with a 7.5% advance like for

like through the year. Benelux delivered a 6.2%

increase. Italy and central Europe performed well,

too, with 5.3% and 5% uplifts respectively. But it

was in the home Spanish market that performance

was weakest, and a fourth quarter decline of

3.7% in revpar brought the 2011 average down

to a 2.7% rise overall. The last quarter saw

NHbackintheblackNHHotelesisbackintheblackafterayearofmodestlyimprovedoperationalfortunesandcostcutting.Butthecompanydoesn’texpectbusinessinitscoresouthernEuropeanmarketstostartliftinguntilthesecondquarterofthisyear.

continued on page 10

Despite apparent market weakness in Spain,

the company’s home market Sol brand delivered a

revpar increase of 19.1%, assisted by outstanding

results from island properties, up 26.7% in

the Balearics and 20.1% in the Canaries as

holidaymakers switched away from troubled north

African resorts. Wyndham’s TRYP brand, which is

substantially Spanish, improved by 4.1%, while

Melia Hotels & Resorts increased 4.2%.

Said a company statement: “In Spain, the

strength of holiday destinations dependent on

external demand contrasts with the weakness

in city hotels and segments which are more

dependent on Spanish domestic travellers, which

continue to await an economic recovery.”

The company’s premium brands are Paradisus,

Gran Melia and ME by Melia, predominantly in the

Americas and these delivered an average 9.8%

revpar improvement.

The company noted that an increase in demand

from Canadian and US visitors, up 12% and 9%

respectively, countered a 14.7% contraction in

visitors from Spain.

Melia reduced its debt burden to E1bn by the

end of the year, and renewed its credit facilities.

The year also saw a corporate rebranding,

losing the Sol Melia name in favour Meliá Hotels

International.

Behind this, a company reorganisation includes

a greater push into new markets such as Asia-

Pacific, and an admission that more asset-light

models are the way to go. Brazilian revenues were

up 43%, and 31% from Chinese hotels.

Meliá’s active pipeline contains 31 hotels,

while the current portfolio is 323 hotels. The

company added 20 hotels with 5,056 rooms in

2011, all following the asset-light model being

management, lease or franchise.

The company’s sales initiatives include beefing

up its Mas loyalty programme, whose 2.5 million

members now account for 22% of room sales.

Online, the company has stolen a march on many

competitors, with half a million Facebook fans,

a figure topped only by Hilton and Starwood in

the sector.

Melia is adopting a dual strategy for the immediate

future, focused on growth and improving profits in

international markets, while in Spain it is a case of

grinding through efficiencies and savings.

Expansion is focused on upscale and luxury

hotels, which account for 84% of the pipeline. And

it has promised an increasing focus on expansion in

Brazil, Russia, Eastern Europe and China.

HA Perspective: In contrast to NH, Melia is

making its Chinese partnership work. The idea is to

allow both chains to grow in the market in which

the other enjoys competitive advantage through a

joint growth strategy in China and Europe.

How this is going to work out in practice is not

clear, apart from getting expert advice on adapting

European hotels for the Chinese and vice versa.

Melia describes its new model as being asset

light(er). The crafty use of the brackets emphasises

that future hotels will mostly be management and

franchise while existing hotels will remain owned

although subject to an asset rotation model to

determine whether they ought to be sold.

It is an approach forced on the company if it

wants to grow and maintain its current debt

coverage. Again unlike NH, Melia managed to

meet all its bank covenants in 2011 and expects

to again this year.

Melia talks about inside and outside of Spain.

Inside, the situation looks grim with a severe

cost cutting agenda. Outside, it is a question of

maximise growth, tapping particularly into feeder

markets in the emerging economies of countries

like Brazil and China.

Demand from Spanish guests fell 5.1%, said

Melia, while that from Brazil rose 43%, China

31% and Eastern Europe 13%.

Still strong in Spain are the big cities of

Barcelona and Madrid. These two cities, along

with London, Berlin, Paris and Milan, have enjoyed

revpar growth for the last seven quarters.

MeliapushesoutfromSpainSpanish-basedhotelgroupMeliadeliveredstrongresultsfor2011,andisfocusedonaninternational,asset-lightexpansionplantoimproveits2012performance.Therenamedcompanyproducedanoverallrevpargrowthof9%forlastyearonrevenues,andisnowsetonatargetofbeinginthetoptenhotelmanagementcompaniesglobally.

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positive revpar growth in all markets except Italy

and Spain.

Looking ahead, NH doesn’t expect to see

an uplift until the second quarter of 2012.

Management are bracing themselves for a poor

first quarter, although believe it will not be as bad

as in the last quarter of 2011. But year on year

growth will return in the second quarter, with an

overall 3-5% revenue increase predicted for 2012.

“The last quarter of the year was characterised

by a worse performance with respect to 2010,”

said the company. This was not unexpected, as

NH’s seasonality usually delivers poor performance

in December. “In addition to this, the growing

uncertainty in European markets due to the

sovereign debt crisis has had a negative impact on

the hotel sector.”

One major distraction during 2011 was the

tabling of a bid from Chinese travel conglomerate

HNA, which in May signed an initial intent

to purchase a 20% in NH, a deal that would

have injected E431.6m into the company. The

cash would have been most welcome, while

the transaction also promised to take NH into

the management of Chinese hotels within

HNA’s portfolio.

And, as HNA also owns an airline, the deal

held out the possibility of building a pipeline of

Chinese visitors to NH’s key European markets.

The deal fell apart in December, as the Chinese

appeared spooked by eurozone problems. “I think

the Chinese looked at the situation in Europe with

the financial turbulence and Spain’s debt crisis and

things probably seemed horrible,” NH president

Mariano Pérez Claver said recently in an interview.

The other issue exercising management

currently is the scale of NH’s debt. The company

realised E16.97m from property sales during 2011,

including four hotels and nine plots of land, sales

that helped towards reducing net debt, which fell

to E962.8m, from E1.06bn at the end of 2010.

But talks are ongoing with funders, as February

was the deadline for a E195m payment of due on

a syndicated loan, part of a E650m package taken

out by the company in 2007.

During the year there were five new hotels

added, totalling 540 rooms, all under management

contracts. Two of these were in Spain, a hotel in

Bratislava that will open this year, and projects in

Turin and Mexico scheduled for 2013 openings.

Ten hotels totalling 1,416 rooms were added,

while eight hotels, totalling 1,051 rooms and all

based in Europe, left the portfolio.

Following some pruning, the NH pipeline now

consists of 21 projects and 2,620 rooms. All but

one in Panama are leased or managed, while

there are eight hotels for Spanish locations, six in

Italy, five in eastern Europe and three additions in

South America.

HA Perspective: NH’s forecast for revenue

growth of 3% to 5% coupled with EBITDA growth

in the double digits looks ambitious. Given that the

company has been walking wounded for several

years now, it seems extraordinary that extra profits

can be squeezed out of more restructuring. It calls

into question what the previous management

team were doing.

Since arriving a year ago as chairman and ceo,

Mariano Perez Claver has dramatically cut costs

and brought in a new team, last year hiring Mikael

Anderson as chief commercial officer and more

recently Rafael Ros as the new head of sales.

Customer service 2.0 has been the big

management brainstorm with a particular

emphasis on exploiting online distribution

channels. Quite how effective this can be in the

cash-constrained environment remains to be seen.

While the ongoing economic woes of Spain are

a huge problem, more than 75% of NH’s EBITDA

are generated outside of the country. And it is

now benefiting from its German exposure which

until recently had been a source of woe.

Not surprisingly given its debt burden,

expansion has been modest. The collapse of the

deal with HNA further dented whatever hopes of

growing out of the problem remained.

Now the focus is back again on Latin America

with the first Columbian hotel opening in the past

year. NH said it was in talks to enter the Brazilian

market and is looking at other countries.

All-in-all it looks like a good effort in very

difficult circumstances. Whether it adds up to

something that will transform the company’s

prospects is much less certain.

continued from page 9

News

“The outlook has never been brighter,” insisted

CEO Mark Hoplamazian, although he remained

concerned at short term issues in Europe.

Revpar was up 6% in the quarter, compared

with the end of 2010. North American operations

performed well, while international revpar rose

just 2.9% in the quarter.

The portfolio saw one net addition in the US,

and four additions internationally during the

quarter. Total revenues for the year 2011 were

USD3.698bn.

The business is looking increasingly

internationally spread as it grows. The current

pipeline measures a third of the size of the existing

portfolio, and around 70% of that pipeline is

located outside Hyatt’s home US market.

Having successfully absorbed the LodgeWorks

acquisition during last year, Hyatt will be

looking for more. “We are seeing interesting

opportunities of hotels, small collections of hotels

and some opportunities for brand acquisitions,”

Hoplamazian told analysts. “The deal activity in

the second half of last year was actually relatively

low. And so as we’ve looked across the globe, it’s

really been more outside the U.S. than in.

“We are admittedly very focused on key

gateway city representation. We do expect

transactional activity to grow…. So I would tell

you that we expect to be active on both sides.”

With effectively no net debt on the balance

sheet, and credit lines of USD1.2bn, Hyatt is well

placed to make larger acquisitions. Hoplamazian

told analysts: “Having flexibility in terms of capital

available to us, to be able to act both definitively,

but with some rapidity is important to us.”

HA Perspective: Hyatt is on a growth path. Two

years ago, its contracted pipeline represented

28% of its existing portfolio. Today, the contracted

pipeline is 35% of a bigger portfolio.

And the company is looking to add to this

through acquisitions, especially outside of the US

having bedded in the USD661m LodgeWorks deal.

Hoplamazian talked about putting the balance

sheet to work “more aggressively” over the next

couple of years. But this should not be seen as an

abandonment of an asset right strategy towards

more ownership.

He said: “I think we will be pursuing new

investments but we will also be pursuing sales that

will help us fund those new investments as well.”

HyattlookstogrowthHyattsignalleditsinterestingrowthbyfurtheracquisition,asitannouncedsolidfourthquarternumbers.

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News

The exercise, undertaken by Jones Lang LaSalle

Hotels, suggests Melia’s estate is today worth

E3,314m. Of that figure, E3,162m relates directly

to hotel real estate.

Today, the company owns 90 hotels, while the

valuation included a further 13 assets, and this is

against a total portfolio under management of

323 hotels.

However, while the headline 14% like for like

decrease in value may not sound too bad, the

overall valuation is not exactly comparing like for

like – the devil is in the detail.

Melia’s press announcement noted that “the

2007 figures also included the valuation of the

hotel brands and the contracts for hotels operated

lease, management and franchise agreements”.

Melia insists the 14% reduction “is in line with the

discounts observed in recent asset rotation activity”.

One relief for the banks, currently holding

around E1bn of the company’s debt, is that Melia’s

accounting policy has been conservative, in that

it did not update its asset book values to reflect

the rather more positive valuations evident in the

2007 valuation.

As a result, the historical values within the

balance sheet mean that even today’s downgraded

values are showing a 61% premium to historical

book value. Melia notes that the declines in

Spain are partly offset by improvements on assets

elsewhere in Europe, and in Latin America.

For the future, Melia is pursuing an asset light

business model, as illustrated by its announcement

earlier this month of a project in La Defense, Paris.

There, it will open a 369 room hotel in late 2014,

having tied up construction of the project, and a

German landlord, Union Investment, to finance

the completed development.

Melia’s most recent results demonstrated

an increase in revpar of 9% during 2011, with

performance improved by a switch to developing a

presence in expanding markets in south America,

notably Brazil, and in Asia-Pacific.

During the year, the company added 20 hotels

with 5,056 rooms, all following the asset-light

model, being one of management, lease or

franchise. Expansion is focused on upscale and

luxury hotels, which account for 84% of the

pipeline. And it has promised an increasing focus

on expansion in Brazil, Russia, Eastern Europe

and China.

And the company is no slouch when it comes

to social networking, it claims to be behind only

Hilton and Starwood in its use of social media,

with 500,000 Facebook fans, while its loyalty

programme already generates 22% of room

night bookings.

HA Perspective: Leaving aside whether having

lots of Facebook fans is a benefit (it is bookings

that count, as readers of our sister title Hotel

Analyst Distribution & Technology will well know),

Melia International is presenting the best face it

can on what is an ugly situation.

The latest valuation of Spanish hotel assets

shows a 17% decline from the 2007 peak, on a

comparable basis (that is excluding the value of

brands and so forth that were lumped in last time).

Given that Ireland has seen a 50% plus crash in

its real estate values and the Spanish economy is in

a similar fix, the decline looks surprisingly modest.

The depth of the problem was highlighted in late

March with the acquisition of savings bank Civica

by rival Caixabank at a third of book value. The

deal saw a E3.4bn write-down of troubled real

estate assets out of the total of around E10.5bn

held by Civica.

The problem for Melia is that it is incredibly

close to its debt covenants. These are set such

that EBITDA must be 4.5 times net interest

expense. In 2011, it was 4.52, a comfort margin

of just 0.02. Any EBITDA slippage is going to see it

breach covenants.

Spain is now increasingly seen as the next crisis

for the Eurozone. And this is going to impact its

international tourism business. Greece estimates

that bookings from German tourists are down

20% to 30% for 2012. It has seen double digit

declines from Britain, the US and Italy as well,

according to the Reuters report from earlier

in March that was based on an interview with

Andreas Andreadis, the head of Greece’s main

tourism association Greek Tourism Enterprises.

Rioting and continued bad headlines about the

economy have thus clearly impacted Greek tourism

and it will do so in Spain. The net impact of this is

surely to make the likely decline in Spanish hotel

property prices more pronounced than those of

other commercial property sectors.

Melia claims that the 17% drop in prices in

Spain is in line with its “recent asset rotation

activity”. But the reality is that very little is actually

being sold and so it almost impossible to use a

market comparison method for valuation.

The projections used for the discounted cash

flow analysis method are unlikely to have factored

in a major decline in tourism revenue nor the

massive economic contraction that is going to

occur following the latest round of austerity

measures that is taking E27bn out of the economy

with 17% cuts to government spending.

Without radical action, it looks a certainty that

Melia will join NH Hoteles in busting through its

debt covenants.

Melia’scrumblingpropertyassetsAttheendofMarch,SpanishhotelgroupMeliaannouncedthelatestvaluationofitshotelassets,revealinganapparentlymodestfallinvaluesof14%comparedwithits2007valuation.

“We have initiated strategic changes that will

structure our business for the future, with the

ambitious objective of becoming the global reference

in the hotel industry,” said Denis Hennequin,

chairman and CEO, announcing the 2011 results.

“Performance in 2011 was remarkable and

demonstrates the new growth potential of Accor, of

its brands and of its operations,” added Hennequin.

“All of our objectives have been met or

exceeded. The group is in excellent financial health,

which enables us to continue our growth strategy.”

Revenues were up 5.2% like for like at E6.1bn,

with operating profit up 39.2% at E438m.

With the exception of southern Europe, all regions

were in positive territory. The economy sector outside

the US delivered a 6.3% like for like uplift, helped

by improving room rates and occupancy maintained

above 70%, the best in the group.

In the US, while diposals hit the reported

figures, like for like revenue at Motel 6 was up

4.3%, helped by rate increases in the second half.

A record expansion of 38,700 rooms added

during the year was helped by the acquisition

of 24 franchised hotels in the UK, helping the

Mercure brand to 11,000 openings. Of these

openings, 95% were in franchises, management

contracts or variable leases, with almost half in

Europe and a third in Asia-Pacific.

AccorsteamsaheadAccorended2011onaverypositivenote,andshowsnosignofslowingdownitsexpansionplansasitaimshigh.

continued on page 12

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The portfolio now has half its rooms under

franchise or management contract, continuing the

push to asset-light.

Its 2012 target is to raise openings to 40,000

and already Accor is off to a good start, with the

Mirvac acquisition in Australia adding 6,100 rooms

at a stroke. And the total pipeline now stands at

104,000 rooms, of which 45% are planned in

Asia-Pacific, further tilting the portfolio towards

emerging markets.

One target that looks a little more challenging

is that to reduce adjusted net debt by E1.2 billion

over the 2011-2012 period.

During 2011, the company disposed of

peripheral operations Groupe Lucien Barrière and

Lenôtre , and refinanced 129 hotels. Thanks to a

flurry of New Year deals, including the sale of the

Novotel New York and the Pullman Rive Gauche in

Paris, a further net E119m has been paid down,

meaning the company is over half way to its goal.

For the coming year, Accor has E1.8bn in unused

lines of credit, with no debt maturing.

In the US, work continues to restructure the Motel

6 business, with 41 hotels sold in 2011 and another

100 pencilled in for sale this year. During last year, 55

new franchised Motel 6 outlets were opened.

Also well underway is a rebranding of Accor’s

budget brands, under one Ibis umbrella. All 919

Ibis, 517 Etap and 131 All Seasons hotels will be

renamed as a three tier brand of Ibis, Ibis Styles

and Ibis Budget.

Accor said 70% of the portfolio (more than

1,000 hotels) would be rebranded by the year-

end. It is also promising “additional innovation”

with bedding and public spaces on the brand.

HA Perspective: Accor is making steady progress

on its asset light ambitions. At the end of 2010,

64% of its then 507,000 rooms were in asset

light structures (which includes 18% on variable

leases). By the end of 2011, 68% of its 531,700

rooms were asset light.

But there is still E3.7bn worth of assets on

the books. And this means the company is still

leveraged into any upswing or indeed exposed if

the Eurozone travails turn even uglier.

The EBIT sensitivity has reduced significantly,

Accor claimed. At the end of 2010, a 1% rise in

revpar led to a E20m increase in EBIT. This shrank

to E14m by the end of last year.

Conversely, a 1% decline led to EBIT down

E25m at the end of 2010 but this had decreased

to E20m by the end of 2011.

During 2011 and the start of this year to mid-

February, Accor had sold 137 hotels worth E652m.

It is targeting 400 by 2015 to shave E2.2bn off

net debt.

Net system growth last year was 24,700 rooms,

or just under 5%. This is not a bad result given

the current economic climate. Next year a further

40,000 rooms are slated to open; exits have not

been forecast, but might well be more this year

given the promise to speed up the changes at

Motel 6 in the US.

The Accor roadmap for 2012 is built around

brands, expansion and asset management.

So far, all seems on course with the main fears

being further macroeconomic turmoil and more

restiveness from its activist shareholders.

continued from page 11

The fourth quarter was the best the company

has seen since 2007. Revpar grew 3.2%, driven by

rate growth, but it was a dramatic performance

in the eastern European region which held up the

portfolio. Here, revpar rose 17.3%, with occupancy

up 10.3% and rate improving 6.3%. In contrast,

occupancy fell 11.6% in the Middle East and

Africa. Within this region, finance director Knut

Kleiven noted some contrasts – South Africa was

up, while Dubai “has performed extraordinarily”.

The last quarter figures lifted Rezidor’s 2011

year end figures, which saw a12 month increase

of 3.7% in revpar and average occupancy ease up

0.3%. Revenues increased 10% to E864.2m, but

were flat on a like for like basis.

Rezidor used the 2011 results to take a write

down on its UK regional portfolio. And Kleiven

signalled the company will be exiting lease

contracts that don’t fit with the company’s

structure, and where individual properties have

proved difficult to turn round into profit. In the UK,

this could affect around 20% of leased properties,

Kleiven revealed during analysts’ questions.

In the short term, economic problems in Europe

and troubles in north Africa will continue to impact

on performance, said CEO Kurt Ritter. “There is no

reason to get over-enthusiastic at this stage,” he

said of the first quarter figures.

Medium term, he re-iterated the group’s Route

2015 plans, aiming to lift ebitda margin by 6-8%

in three years.

And he outlined the benefits of the combination

of operations with Carlson, announced in January.

“We are convinced that it helps generate revenues

through global sales channels,” and in particular

Ritter stressed the importance of grabbing

consumers from the US and Asia. “There are

more attractive financial returns for hotel owners,

greater value for all our shareholders, and the

legal status of Rezidor remains the same.”

“The core areas of collaboration are branding,

revenue with marketing synergies, purchasing and

communications.”

Rezidor’s 2015 plan includes a portfolio target of

growth to 100,000 rooms. Ritter noted Rezidor’s

activities in Russia and the Baltics, where he believes

the company is well placed. The company is twice

as large as its nearest brand competitor in the

region. “It’s a significant contributor to our future

growth” he promised, with close to a quarter of

the Rezidor pipeline in this region. Combining

existing stock and pipeline, the company will

have 60,000 rooms in these markets.

Rezidor saw net 7% portfolio growth of in 2011

During the year, the company signed 9,600 rooms

to the pipeline, of which 75% were in emerging

markets, with one quarter conversions. There are

no more leased hotels in the pipeline, and this, in

combination with the judicious exit from those in

the UK which are dragging the numbers down,

will have a positive impact on cash flow.

HA Perspective: Route 2015 is never going

to trip off the tongue but it does offer mouth

watering improvements to EBITDA margins. This

is being driven by openings of margin-friendly

management contract hotels rather than leases.

It would be wrong to assume that the company

is totally lease shy. In the Nordics, the final quarter

was boosted by new leased hotels.

But the overall direction continues to be

towards fee business, either management

contract for Radisson or franchise for Park Inn.

The ambition remains to exit what it describes as

“non-strategic” leases.

And much of this growth is to come in emerging

markets with three quarters of the nearly 10,000

rooms signed in 2011 being in emerging markets.

Russia, CIS and the Baltics account for almost a

quarter of the current pipeline.

With exits planned in the UK, the centre of

gravity for Rezidor is shifting rapidly.

RezidorlookseastforupliftRezidor’syearendand2011resultsdeliveredthepromiseofgreatthingstocome,asthecompanydrewattentiontoitsstrongpipeline,andrecentcombinationofoperationswithCarlson.

News

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Europeanhoteliersstruggleascostsrise

A drop in TrevPAR was suffered in Amsterdam

(-1.5%), Frankfurt (-9.7%), Zurich (-0.9%) and

the freefalling Athens (-17.5%) this month.For

three of these four cities, the decline in TrevPAR

was primarily as a result of a drop in RevPAR,

but for hotels in Amsterdam, a positive rooms

Europeanchainhotels–performancereport

Source: TRI Hospitality Consulting

performance (+0.4%) was cancelled out by

declines in food and beverage revenue (-1.7%) and

meeting room hire revenue (-31%) per available

room. Unsurprisingly, due to the current instability

in its economy, hotels in the Greek capital suffered

declines in all headline performance measures

during March. In addition to the 16.9% decline

in RevPAR, which was primarily as a result of

a 13.1% drop in achieved average room rate,

an 11.3 percentage point increase in payroll, to

70.2% of total revenue, would suggest that

labour costs in the Greek capital have not been

modified to reflect declining demand levels. Rising

payroll costs are clearly an issue for many of the

hotel markets polled this month, with profit

levels impacted by increases in Athens, Brussels,

Frankfurt, Istanbul, Moscow and Zurich.

The month of March 2012 Twelve months to March 2012

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

74.6 168.97 126.06 31.1 68.92 Amsterdam 77.9 176.11 137.25 29.9 78.82

43.0 121.76 52.40 70.2 -11.75 Athens 54.8 164.34 90.13 49.7 20.51

69.9 123.06 86.01 32.3 43.72 Barcelona 72.3 134.59 97.32 31.4 51.02

72.3 143.59 103.88 28.4 49.99 Brussels 69.2 126.66 87.66 33.4 31.89

60.1 128.48 77.25 31.7 38.82 Frankfurt 61.2 127.86 78.27 31.1 36.92

74.6 190.24 141.87 28.5 110.92 Istanbul 72.3 219.00 158.27 26.4 124.01

80.3 175.80 141.16 24.0 93.58 London 81.9 184.82 151.29 23.4 100.97

69.0 173.84 119.97 25.0 81.59 Moscow 70.3 159.10 111.83 26.4 73.86

59.4 79.90 47.44 27.3 27.57 Prague 69.3 78.15 54.13 25.4 31.06

81.5 195.70 159.49 33.4 105.70 Zurich 79.4 182.53 144.83 36.4 79.69

The month of March 2011 Twelve months to March 2011

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

71.6 175.50 125.59 31.3 71.39 Amsterdam 77.6 166.88 129.47 31.2 71.51

45.0 140.15 63.04 58.9 -4.51 Athens 55.4 168.56 93.37 47.5 27.84

63.2 121.31 76.68 34.2 35.81 Barcelona 68.1 130.42 88.75 32.6 45.21

71.4 143.42 102.33 27.0 50.02 Brussels 67.5 125.06 84.40 33.8 31.41

61.1 145.40 88.83 26.6 49.10 Frankfurt 62.8 125.08 78.51 30.1 38.36

76.1 183.44 139.57 27.4 114.16 Istanbul 75.5 181.87 137.23 30.9 92.13

80.3 169.25 135.95 24.1 90.63 London 81.4 174.70 142.24 23.8 96.09

64.8 171.55 111.21 24.3 83.99 Moscow 67.1 149.48 100.30 25.2 70.88

55.6 75.07 41.74 29.4 21.71 Prague 64.7 77.81 50.34 27.8 25.30

77.8 214.01 166.51 31.4 112.99 Zurich 79.3 185.43 147.03 35.1 83.50

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

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

3.0 -3.7% 0.4% 0.2 -3.5% Amsterdam 0.3 5.5% 6.0% 1.3 10.2%

-2.0 -13.1% -16.9% -11.3 -160.5% Athens -0.5 -2.5% -3.5% -2.2 -26.3%

6.7 1.4% 12.2% 1.9 22.1% Barcelona 4.3 3.2% 9.7% 1.1 12.9%

1.0 0.1% 1.5% -1.4 -0.1% Brussels 1.7 1.3% 3.9% 0.4 1.5%

-1.0 -11.6% -13.0% -5.2 -20.9% Frankfurt -1.5 2.2% -0.3% -1.0 -3.8%

-1.5 3.7% 1.6% -1.1 -2.8% Istanbul -3.2 20.4% 15.3% 4.5 34.6%

0.0 3.9% 3.8% 0.1 3.3% London 0.4 5.8% 6.4% 0.4 5.1%

4.2 1.3% 7.9% -0.8 -2.9% Moscow 3.2 6.4% 11.5% -1.3 4.2%

3.8 6.4% 13.7% 2.1 27.0% Prague 4.6 0.4% 7.5% 2.5 22.8%

3.7 -8.6% -4.2% -2.0 -6.5% Zurich 0.0 -1.6% -1.5% -1.4 -4.6%

Although the 5.2 percentage point increase in

payroll levels at hotels in Frankfurt, to 31.7% of

total revenue, is somewhat unsettling, it is not

surprising as the cyclical nature of major events

at the Frankfurt am Main causes significant peaks

and troughs in performance throughout the year.

This month, year-on-year headline performance

levels at Frankfurt hotels plummeted as a result

of the absence of the biennial ISH Renewable

Energies exhibition, which in 2011 attracted more

than 200,000 visitors to the city. Whilst hoteliers

in the German city can take heart from the fact

that the ISH event will be back in 2013, the impact

of this event not taking place in the city in 2012

was a 20.9% year-on-year decline in profitability

to €38.82 per available room.

WhilstsixoftheEuropeancitiespolledthismonthsuccessfullyachievedanincreaseinTrevPAR,onlythreewereabletoconvertthisgrowthintotalrevenueintogrowthinprofitperroomduringMarch,accordingtothelatestHotStatssurveybyTRIHospitalityConsulting.

Sector stats

ThemonthofMarch2012

The3monthstoMarch2012

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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 March 2012 London 79.4% £127.75 £101.40 51.6% 5.7% 9.9% 22.2% 10.6% £139.69 £143.38 £83.69 £127.71 £102.39 £3,240 £1,124 £186 £4,549 71.2% 24.7% 4.1% 100.0% 46.4% £2,113

March 2012 Provincial 67.7% £68.69 £46.52 49.0% 11.7% 6.2% 25.6% 7.5% £69.99 £81.30 £54.27 £67.41 £56.58 £1,466 £1,049 £295 £2,810 52.2% 37.3% 10.5% 100.0% 28.1% £791

March 2012 All 71.9% £91.99 £66.13 50.0% 9.4% 7.6% 24.2% 8.7% £98.36 £96.27 £69.30 £89.16 £78.61 £2,094 £1,076 £256 £3,426 61.1% 31.4% 7.5% 100.0% 36.7% £1,259

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

Year on year change March 2012 London (0.3) 3.3% 2.9% 0.8 (0.4) (1.1) 1.1 (0.5) 2.2% 4.4% -2.3% 3.5% 11.8% 2.9% 1.3% 12.3% 2.8% 0.0 (0.4) 0.3 – (0.3) 2.1%

March 2012 Provincial 0.1 1.0% 1.2% (2.8) (0.7) 0.8 1.3 1.4 0.4% 4.4% 6.2% 1.1% 7.8% 1.3% 2.4% -1.7% 1.4% (0.0) 0.4 (0.3) – (0.9) -1.7%

March 2012 All (0.1) 2.2% 2.1% (1.4) (0.6) 0.1 1.3 0.6 2.5% 4.3% -2.2% 2.2% 6.6% 2.2% 2.0% 1.5% 2.1% 0.1 (0.0) (0.0) – (0.6) 0.6%

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

Last year March 2012 London 79.7% £123.66 £98.58 50.8% 6.1% 10.9% 21.0% 11.1% £136.67 £137.27 £85.65 £123.44 £91.60 £3,149 £1,110 £165 £4,424 71.2% 25.1% 3.7% 100.0% 46.8% £2,069

March 2012 Provincial 67.6% £67.98 £45.97 51.8% 12.5% 5.4% 24.3% 6.1% £69.75 £77.86 £51.12 £66.69 £52.47 £1,447 £1,024 £300 £2,771 52.2% 37.0% 10.8% 100.0% 29.0% £804

March 2012 All 71.9% £90.02 £64.76 51.4% 9.9% 7.6% 23.0% 8.1% £95.93 £92.31 £70.84 £87.24 £73.73 £2,049 £1,054 £252 £3,356 61.1% 31.4% 7.5% 100.0% 37.3% £1,252

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

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

Current year YTD London 75.3% £124.14 £93.46 50.2% 5.9% 9.5% 23.5% 11.0% £135.91 £141.34 £84.98 £122.33 £98.55 £8,510 £2,873 £498 £11,881 71.6% 24.2% 4.2% 100.0% 42.5% £5,052

YTD Provincial 62.4% £67.37 £42.07 50.3% 11.3% 5.0% 25.8% 7.7% £69.09 £78.30 £53.13 £65.85 £54.43 £3,833 £2,649 £814 £7,297 52.5% 36.3% 11.2% 100.0% 21.9% £1,595

YTD All 67.0% £89.96 £60.26 50.2% 9.1% 6.8% 24.9% 9.0% £95.65 £94.49 £70.88 £87.07 £75.80 £5,489 £2,729 £702 £8,920 61.5% 30.6% 7.9% 100.0% 31.6% £2,819

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

Year on year change YTD London 1.3 2.6% 4.4% 0.7 (0.8) (0.9) 1.6 (0.6) 0.8% 3.8% 1.6% 3.2% 10.0% 5.7% 2.0% 4.3% 4.7% 0.7 (0.7) (0.0) – (0.1) 4.5%

YTD Provincial 0.3 0.1% 0.5% (1.2) (0.8) 0.3 0.1 1.5 -0.3% 1.9% 4.3% 0.6% 4.4% 1.7% -0.4% -0.5% 0.7% 0.5 (0.4) (0.1) – (1.5) -6.0%

YTD All 0.6 1.7% 2.7% (0.4) (0.8) (0.1) 0.7 0.7 1.2% 2.1% 0.8% 3.2% 4.3% 3.9% 0.5% 0.6% 2.6% 0.8 (0.6) (0.2) – (0.7) 0.4%

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

Last year YTD London 74.0% £121.04 £89.56 49.4% 6.7% 10.4% 21.9% 11.6% £134.87 £136.21 £83.64 £118.50 £89.57 £8,049 £2,818 £478 £11,344 70.9% 24.8% 4.2% 100.0% 42.6% £4,836

YTD Provincial 62.2% £67.33 £41.85 51.5% 12.0% 4.6% 25.7% 6.2% £69.30 £76.85 £50.93 £65.42 £52.11 £3,770 £2,659 £819 £7,248 52.0% 36.7% 11.3% 100.0% 23.4% £1,696

YTD All 66.3% £88.48 £58.70 50.7% 9.9% 6.9% 24.2% 8.3% £94.50 £92.55 £70.33 £84.37 £72.70 £5,284 £2,715 £698 £8,697 60.8% 31.2% 8.0% 100.0% 32.3% £2,807

Sector stats

Londonstartsstrongwhileprovincessuffer

strong increases in GOPPAR recorded in January

(+6.8%) and March (+2.1%).

In line with the performance of London hotels

in 2011, the year-on-year growth in TrevPAR in

Q1 2012 has been primarily as a result of a strong

increase in achieved average room rate, which

in the first quarter of the year grew by 2.6%

to £124.14.

The 3.3% increase in achieved average room rate

in March, to £127.75, was as a result of a strong

increase in corporate (+3.3%), residential conference

(+4.5%) and leisure (+3.5%) rates as significant

volume levels enabled the capital’s hoteliers to

effectively yield demand across all sectors.

Although hotels in the capital have been able

to successfully grow profit per room across Q1; in

line with the provincial market, hotels in London

have been the victim of increasing food costs,

which have impacted the overall profitability in this

department, which dropped by 0.3 percentage

points to 31.8% of food and beverage revenue.

“Whilst revenue and profit levels between London

and the Provinces become increasingly disparate,

the one thing which unites the two hotel markets

is the price of goods. And whilst branded hotels

in the regions are feeling the pinch because

of inflationary increases in food cost, hotels in

London will undoubtedly be equally hard hit,”

said Jonathan Langston, managing director at TRI

Hospitality Consulting.

Despite suffering a 1.7% decline in food and

beverage revenue per available room, hotels

in London’s five-star sector achieved a 3.3%

increase in profit to £97.49 per available room.

The GOPPAR increase in the five-star sector for Q1

2012 was primarily as a result of a 5.1% increase

DespitetheslightdeclineinroomoccupancyinMarch,hotelsinLondonhaverecordedanearfaultlessperformanceacrossallheadlineperformancemeasuresinthefirstquarterof2012suggestingthattheyareshapingupforasuccessfulOlympicyear,accordingtothelatestHotStatssurveyofapproximately560full-servicehotelsacrosstheUK.

Following the period of decline in Q4 2011,

hotels in London have successfully achieved a

3.1% increase in profit per room in Q1 2012, with

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 2 15

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 March 2012 London 79.4% £127.75 £101.40 51.6% 5.7% 9.9% 22.2% 10.6% £139.69 £143.38 £83.69 £127.71 £102.39 £3,240 £1,124 £186 £4,549 71.2% 24.7% 4.1% 100.0% 46.4% £2,113

March 2012 Provincial 67.7% £68.69 £46.52 49.0% 11.7% 6.2% 25.6% 7.5% £69.99 £81.30 £54.27 £67.41 £56.58 £1,466 £1,049 £295 £2,810 52.2% 37.3% 10.5% 100.0% 28.1% £791

March 2012 All 71.9% £91.99 £66.13 50.0% 9.4% 7.6% 24.2% 8.7% £98.36 £96.27 £69.30 £89.16 £78.61 £2,094 £1,076 £256 £3,426 61.1% 31.4% 7.5% 100.0% 36.7% £1,259

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

Year on year change March 2012 London (0.3) 3.3% 2.9% 0.8 (0.4) (1.1) 1.1 (0.5) 2.2% 4.4% -2.3% 3.5% 11.8% 2.9% 1.3% 12.3% 2.8% 0.0 (0.4) 0.3 – (0.3) 2.1%

March 2012 Provincial 0.1 1.0% 1.2% (2.8) (0.7) 0.8 1.3 1.4 0.4% 4.4% 6.2% 1.1% 7.8% 1.3% 2.4% -1.7% 1.4% (0.0) 0.4 (0.3) – (0.9) -1.7%

March 2012 All (0.1) 2.2% 2.1% (1.4) (0.6) 0.1 1.3 0.6 2.5% 4.3% -2.2% 2.2% 6.6% 2.2% 2.0% 1.5% 2.1% 0.1 (0.0) (0.0) – (0.6) 0.6%

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

Last year March 2012 London 79.7% £123.66 £98.58 50.8% 6.1% 10.9% 21.0% 11.1% £136.67 £137.27 £85.65 £123.44 £91.60 £3,149 £1,110 £165 £4,424 71.2% 25.1% 3.7% 100.0% 46.8% £2,069

March 2012 Provincial 67.6% £67.98 £45.97 51.8% 12.5% 5.4% 24.3% 6.1% £69.75 £77.86 £51.12 £66.69 £52.47 £1,447 £1,024 £300 £2,771 52.2% 37.0% 10.8% 100.0% 29.0% £804

March 2012 All 71.9% £90.02 £64.76 51.4% 9.9% 7.6% 23.0% 8.1% £95.93 £92.31 £70.84 £87.24 £73.73 £2,049 £1,054 £252 £3,356 61.1% 31.4% 7.5% 100.0% 37.3% £1,252

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

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

Current year YTD London 75.3% £124.14 £93.46 50.2% 5.9% 9.5% 23.5% 11.0% £135.91 £141.34 £84.98 £122.33 £98.55 £8,510 £2,873 £498 £11,881 71.6% 24.2% 4.2% 100.0% 42.5% £5,052

YTD Provincial 62.4% £67.37 £42.07 50.3% 11.3% 5.0% 25.8% 7.7% £69.09 £78.30 £53.13 £65.85 £54.43 £3,833 £2,649 £814 £7,297 52.5% 36.3% 11.2% 100.0% 21.9% £1,595

YTD All 67.0% £89.96 £60.26 50.2% 9.1% 6.8% 24.9% 9.0% £95.65 £94.49 £70.88 £87.07 £75.80 £5,489 £2,729 £702 £8,920 61.5% 30.6% 7.9% 100.0% 31.6% £2,819

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

Year on year change YTD London 1.3 2.6% 4.4% 0.7 (0.8) (0.9) 1.6 (0.6) 0.8% 3.8% 1.6% 3.2% 10.0% 5.7% 2.0% 4.3% 4.7% 0.7 (0.7) (0.0) – (0.1) 4.5%

YTD Provincial 0.3 0.1% 0.5% (1.2) (0.8) 0.3 0.1 1.5 -0.3% 1.9% 4.3% 0.6% 4.4% 1.7% -0.4% -0.5% 0.7% 0.5 (0.4) (0.1) – (1.5) -6.0%

YTD All 0.6 1.7% 2.7% (0.4) (0.8) (0.1) 0.7 0.7 1.2% 2.1% 0.8% 3.2% 4.3% 3.9% 0.5% 0.6% 2.6% 0.8 (0.6) (0.2) – (0.7) 0.4%

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

Last year YTD London 74.0% £121.04 £89.56 49.4% 6.7% 10.4% 21.9% 11.6% £134.87 £136.21 £83.64 £118.50 £89.57 £8,049 £2,818 £478 £11,344 70.9% 24.8% 4.2% 100.0% 42.6% £4,836

YTD Provincial 62.2% £67.33 £41.85 51.5% 12.0% 4.6% 25.7% 6.2% £69.30 £76.85 £50.93 £65.42 £52.11 £3,770 £2,659 £819 £7,248 52.0% 36.7% 11.3% 100.0% 23.4% £1,696

YTD All 66.3% £88.48 £58.70 50.7% 9.9% 6.9% 24.2% 8.3% £94.50 £92.55 £70.33 £84.37 £72.70 £5,284 £2,715 £698 £8,697 60.8% 31.2% 8.0% 100.0% 32.3% £2,807

in RevPAR as the top hotels in the capital achieved

a 3.7% year-on-year increase in average room rate

to £212.99.

However, at 39.7%, profit conversion at hotels

in the five-star sector was slightly below the

overall London market at 42.5% of total revenue,

reflecting the higher operational cost base

associated with the five-star product, particularly

in payroll.

In contrast, the first three months of 2012

make for gloomy reading for provincial hoteliers

as profit per room suffered a year-on year decline

of 7% in Q1.

March was the strongest period of trading

for provincial hoteliers since the beginning of

the year with a 1.2% increase in RevPAR, which

was primarily driven by a one per cent increase

in achieved average room rate, to £68.69.In

addition to the growth in rooms revenue, hotels

in the provinces were able to achieve a 4.5%

increase in food and beverage revenue, to £28.89

per available room, which contributed to the first

TrevPAR increase in the regions in 2012.

However, rising costs were to blame for a swing

from a TrevPAR increase of 1.3% to a GOPPAR

decrease of 1.8% during March. Following the

tough start to the year which included a 14.3%

decline in profit per room in January and a 10.2%

decrease in February, the 1.8% decline in profit

per room in March may be considered a step in the

right direction. Whilst payroll costs for the month

remained stable at approximately 32.6% of total

revenue, the decline in profit per room only

served to highlight the threats to profitability in

other costs.

One of the hardest hit this month was food and

beverage, which, despite the increase in revenue

levels showed a decline in food profit conversion of

0.8%. “During a period when hoteliers are finding

it increasingly difficult to pass on any increases in

costs to the consumer, the latest figures from the

British Retail Consortium show that the rate of

food price inflation in the UK climbed to 5.4%

in the year to March, up from 4.2% in the year

to February. This has undoubtedly impacted the

ability of hoteliers to convert a strong increase in

food and beverage revenue to an increase in profit

in this department,” said Langston.

Good news has been hard to find in the

provincial hotel market during the first quarter

of the year, but the markets which have recorded

positive profit results on a per available room

basis during this period have included Cambridge

(+0.7%), Reading (+6.5%) and Chester (+29.5%).

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

Edgwarebury Hotel Elstree UK Upscale 49 Freehold April 2012 5,800,000 7,018,000 143,224 Corus Hotels Laura AshleyIbis Prague Prague Czech Republic Midscale 226 Freehold April 2012 Undisclosed Undisclosed Undisclosed Quinn Group HPI Hotelbesitz GmbH Hotel will be renovated and rebranded Royal Crescent Hotel Bath UK Upper Upscale 77 Freehold April 2012 18,000,000 21,780,000 282,857 Administrator for Von Essen Topland Group Price is reportedSeaham Hall Durham UK Upper Upscale 20 Freehold April 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Seasons Holidays Asking price was £5mHilton Southwark Hotel London UK Upper Upscale 281 Unknown April 2012 Undisclosed Undisclosed Undisclosed Shiraz Boghani Partner buyout. Hotel is currently under constructionExplorers Hotel Ile-de-France France Midscale 390 Unknown April 2012 24,000,000 24,000,000 61,538 Thomas Cook Verquin SAS Thomas Cook will receive cash proceeds of €3.4m and Verquin

will assume €20.1m operating lease liability Holiday Inn Eindhoven Eindhoven Netherlands Upper Midscale 206 Sale &

LeasebackMarch 2012 22,500,000 22,500,000 109,223 Eden Hotel Group Invesco Real Estate Hotel is on a hybrid lease under and InterContinental

franchise agreement3 Penta Hotels in Germany Various Germany Upper Midscale 414 Freehold March 2012 Undisclosed Undisclosed Undisclosed CRE Hotel Immobilien GmbH HPI Hotelbesitz GmbH Pentahotel Braunschweig, Pentahotel Eisenach and

Pentahotel KasselPremier Inn Princess Street and Retail Unit

Edinburgh UK Economy 97 Unknown March 2012 34,000,000 41,140,000 Unknown Deramore Property Group La Salle IM The development include the 97 room hotel and 30,000 sq ft retail unit pre-let to New Look

2 Scarborough Hotels Scarborough UK Midscale 188 Freehold March 2012 Undisclosed Undisclosed Undisclosed Administrators for ERH Limited Britannia Hotels The Royal Hotel and the Clifton Hotel were marketed at £7.5m-8m and £2m-2.25m

American Hotel Amsterdam Amsterdam Netherlands Upper Upscale 175 Sale & Leaseback

March 2012 Undisclosed Undisclosed Undisclosed Eden Hotel Group Deka Immobilien

Melia Hotel Esplanade de Charles de Gaulle

Paris France Upscale 369 Freehold March 2012 Undisclosed Undisclosed Undisclosed Union Invest RE Vinci Immobilier The hotel is leased to Melia Hotels International

Dalhousie Castle Edinburgh UK Upper Upscale 29 Unknown March 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Robert and Gina Parker The hotel was on the market for £5mSuite Novotel Hamburg City Hamburg Germany Upscale 186 Unknown March 2012 Undisclosed Undisclosed Undisclosed iii-investments Deka Immobilien

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

Intercontinental Vienna Vienna Austria Luxury 453 Unknown March 2012 59,700,000 59,700,000 131,788 Toufic Aboukhater WestInvest Group Deal is expected to close at the end of H1 2012. Planned renovation

Reid's Hotel Madeira Madeira Portugal Luxury 163 Unknown March 2012 Unknown Unknown Unknown Orient-Express Wyndham Grand Chelsea Harbour

London UK Upper Upscale 158 Long Lease March 2012 Unknown Unknown Unknown

Staybridge Suites Newcastle UK Upscale 128 Unknown March 2012 Unknown Unknown Unknown Administrator for Trinity Hotels

Analysis

BoutiquehotelsareheretostayBlakes Hotel in London and Morgans Hotel in New

York. Since then the concept of boutique hotels

has evolved with the entry of international chains

into the sector, with brands such as Edition by

Marriott, W initially and later Aloft and Element by

Starwood, Indigo by Intercontinental and Andaz

by Hyatt. Mostly known with the term “lifestyle”,

these hotels provide the same unique experience

as boutique hotels but tend to be larger and

more formulaic.

However, the question is how do boutique hotels

(excluding “lifestyle” brands) perform in relation

to their branded competitors? Is the demand for

good quality boutique hotels so strong that these

hotels can survive without being connected to an

internationally branded network? To answer this

question we analysed the performance (sourced

from STR Global) of a sample (chosen and

defined by Colliers International) of good quality,

centrally located boutique hotels in and around

central London and in major provincial UK cities,

and compared their trading performance to a

The boutique concept certainly seems to be paying its way in the UK, says Justin Lanzkron of Colliers International

Althoughnostandarddefinitionofboutiquehotelshasbeenagreedupon,mostboutiquehotelsdosharesomecommoncharacteristics.Theyaredesign-ledpropertieswithusuallynomorethan100roomsandprovideauniqueexperienceatanupscalelevel.Mosttendtobeofgoodqualityandwelllocated.

As with any other hospitality product, the

success stories of boutique properties relies on

fundamentals such as location, a personality-based

product, quality, market demand and a clearly

defined marketing approach. Most boutique

hotels can be found in trendy neighbourhoods of

sophisticated urban destinations, but lately they

are increasingly being found in gateway cities as

well as rural and regional locations.

Boutique hotels first appeared in the 1980s with

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Analysis

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

Edgwarebury Hotel Elstree UK Upscale 49 Freehold April 2012 5,800,000 7,018,000 143,224 Corus Hotels Laura AshleyIbis Prague Prague Czech Republic Midscale 226 Freehold April 2012 Undisclosed Undisclosed Undisclosed Quinn Group HPI Hotelbesitz GmbH Hotel will be renovated and rebranded Royal Crescent Hotel Bath UK Upper Upscale 77 Freehold April 2012 18,000,000 21,780,000 282,857 Administrator for Von Essen Topland Group Price is reportedSeaham Hall Durham UK Upper Upscale 20 Freehold April 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Seasons Holidays Asking price was £5mHilton Southwark Hotel London UK Upper Upscale 281 Unknown April 2012 Undisclosed Undisclosed Undisclosed Shiraz Boghani Partner buyout. Hotel is currently under constructionExplorers Hotel Ile-de-France France Midscale 390 Unknown April 2012 24,000,000 24,000,000 61,538 Thomas Cook Verquin SAS Thomas Cook will receive cash proceeds of €3.4m and Verquin

will assume €20.1m operating lease liability Holiday Inn Eindhoven Eindhoven Netherlands Upper Midscale 206 Sale &

LeasebackMarch 2012 22,500,000 22,500,000 109,223 Eden Hotel Group Invesco Real Estate Hotel is on a hybrid lease under and InterContinental

franchise agreement3 Penta Hotels in Germany Various Germany Upper Midscale 414 Freehold March 2012 Undisclosed Undisclosed Undisclosed CRE Hotel Immobilien GmbH HPI Hotelbesitz GmbH Pentahotel Braunschweig, Pentahotel Eisenach and

Pentahotel KasselPremier Inn Princess Street and Retail Unit

Edinburgh UK Economy 97 Unknown March 2012 34,000,000 41,140,000 Unknown Deramore Property Group La Salle IM The development include the 97 room hotel and 30,000 sq ft retail unit pre-let to New Look

2 Scarborough Hotels Scarborough UK Midscale 188 Freehold March 2012 Undisclosed Undisclosed Undisclosed Administrators for ERH Limited Britannia Hotels The Royal Hotel and the Clifton Hotel were marketed at £7.5m-8m and £2m-2.25m

American Hotel Amsterdam Amsterdam Netherlands Upper Upscale 175 Sale & Leaseback

March 2012 Undisclosed Undisclosed Undisclosed Eden Hotel Group Deka Immobilien

Melia Hotel Esplanade de Charles de Gaulle

Paris France Upscale 369 Freehold March 2012 Undisclosed Undisclosed Undisclosed Union Invest RE Vinci Immobilier The hotel is leased to Melia Hotels International

Dalhousie Castle Edinburgh UK Upper Upscale 29 Unknown March 2012 Undisclosed Undisclosed Undisclosed Administrator for Von Essen Robert and Gina Parker The hotel was on the market for £5mSuite Novotel Hamburg City Hamburg Germany Upscale 186 Unknown March 2012 Undisclosed Undisclosed Undisclosed iii-investments Deka Immobilien

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

Intercontinental Vienna Vienna Austria Luxury 453 Unknown March 2012 59,700,000 59,700,000 131,788 Toufic Aboukhater WestInvest Group Deal is expected to close at the end of H1 2012. Planned renovation

Reid's Hotel Madeira Madeira Portugal Luxury 163 Unknown March 2012 Unknown Unknown Unknown Orient-Express Wyndham Grand Chelsea Harbour

London UK Upper Upscale 158 Long Lease March 2012 Unknown Unknown Unknown

Staybridge Suites Newcastle UK Upscale 128 Unknown March 2012 Unknown Unknown Unknown Administrator for Trinity Hotels

sample of internationally branded hotels in similar

locations in and around London and the same

provincial UK cities.

Between 2006 and 2010 the London boutique

hotels achieved occupancy levels between 80%

and 84%, while the London branded sample

achieved a level of occupancy between 85%

and 87% in the same period. Regarding average

room rate (ADR), the London boutique hotel

sample consistently achieved an ADR between

£195 and £200 (dropping to £189 in 2009), while

the London branded sample achieved an ADR

between £100 and £130. The London boutique

hotel sample’s ADR has consistently outperformed

the London branded hotel sample. In 2005 the

gap between the two samples was £100 while

in 2010 the gap between the two samples was

£66. Although the data indicates the occupancy

of the London boutique hotel sample is much

more sensitive to economic fluctuations compared

to the branded hotels, what is impressive is that,

despite not being part of a larger international

brand or network, the boutique hotels can achieve

almost the same occupancy as the branded hotels

and a significantly higher ADR.

The same trend exists for the sample of UK

provincial boutique hotels. Over the last two

years UK provincial boutique hotel’s occupancy

has outperformed their branded competitors by

two percentage points. Over the last six years

the ADR of the provincial boutique hotels sample

has consistently outperformed their branded

competitors in similar markets by between £42

and £53. In 2010 the difference in ADR between

the two samples was £44 (£117 compared to

£73). Again it is impressive that, despite not being

part of a larger international brand or network,

the boutique hotels can still generate much higher

ADRs compared to the branded hotels within

the same market. This again indicates the high

demand and power of the boutique concept, and

the importance of having a high quality hotel in a

good central location within a particular market.

The rise in boutique hotels has been aided by

the rapid advancement of technology and a new

generation of hotel guests who expect speedy

gratification of their wishes and highly customised

products. The boutique hotel sector has enjoyed

significant growth, particularly in the UK/London,

over the last five to ten years. Given the continued

popularity and increasing demand for the boutique

hotel concept and impressive performance of this

type of hotel (particularly in ADR), it is likely this

growth and popularity trend will continue in the

future. Boutique hotels are here to stay!

Justin Lanzkron is Associate Director

at Colliers International

Justin.lanzkron@colliers.com

This table features individual asset and

portfolio transactions in excess of €5m

in the EMEA region. The exchange rate

used on the table was £1 = €1.2100.

Boutiquehotelsareheretostay

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Amovetoassetlightpromisedatransformationintheperformanceandunderstandingofhotelcompanies.Ithasdeliveredinsomeways,buthasleftunansweredquestions.

IntroductionAsset light has become the modus operandi of

the global major hotel companies reflected in

both their capital structure and their corporate

structure. Some smaller hotel companies have

tried to climb on the band wagon by achieving

some management contracts and franchises, but

few have succeeded in becoming significantly

asset light. In this note we examine the move

to asset light, explore its implications for the

valuation of hotel chains and for the management

of supply, demand and performance by global

major hotel chains.

TheemergenceofassetlighthotelcompaniesIn the broadest terms asset light hotel companies

are those affiliated to their hotels through

management contracts and franchises. Those

companies which own or lease as well as

manage their hotels are asset heavy. In practice

the distinction between asset light and asset

heavy companies is not binary since many hotel

companies have a mixture of both and style

themselves as asset right or asset smart companies.

Franchising started seriously in the US in the

early 1950s. Holiday Inns grew dramatically from

a standing start in 1952 to 25,000 rooms in

1960, mostly through franchising. Management

AssetLightHotelCompanies:WhereNext?contracting followed in the US driven by the larger

publicly quoted hotel companies such as Hilton

and Sheraton needing to access more capital than

was available to them from their shareholders and

seeking to de-risk their international expansion. A

further boost to asset light was the development

of the US accounting convention requiring public

companies to depreciate owned and leased real

estate, which was a precursor to the introduction

of REITS.

In the UK, the move to asset light did not begin

until the 1990s and was for different reasons

than in the US. By the mid-1990s investors had

become irrevocably dissatisfied with the returns

achieved by asset heavy hotel companies and

marked their valuations sharply downwards. As a

result, over the following years, most of the 51

publicly quoted hotel companies operating in the

UK in 1995 with 125,000 rooms were either taken

private or were acquired reducing the number of

quoted hotel chains operating in the UK by 2010

to 20 with 139,000 rooms. Over the period the

quoted global majors grew their UK asset light

portfolios from 19,000 rooms to 88,000 rooms.

The presence of the other quoted companies in the

UK fell from 106,000 asset heavy rooms in 1995

to only 51,000 in 2010, which is a measure of

change in the perception of value by shareholders.

CorporatevaluationandthetransitiontoassetlightThe promise of the asset light structure was that it

would reduce the risk profile of the companies, it

would accelerate portfolio expansion, increase the

level of free cash flow and would be rewarded with

higher PE multiples producing higher valuations.

The problem is that there is little evidence that the

valuation multiples of asset light hotel chains have

benefited from the transition. At the end of 1996,

the shares of Bass, the precursor company of IHG,

which in addition to its hotel business owned

breweries, pubs, bingo clubs, betting shops, a

share in a soft drinks business and sundry other

leisure businesses stood on a price earnings ratio

of 15.6x in November 1996 against 17.5x for IHG

in April 2012. Additionally, in 1996 the forward

EV/EBITDA of Bass was 10.6x whereas in April

2012 it was 10.1x for IHG.

Over the past 15 years the business profile of

Bass changed radically as did its capital structure,

its corporate structure, its corporate culture and

the expertise it needs to run the business. Over the

period, Bass sold its non-hotel businesses and its

hotel real estate. Moreover, it boosted shareholder

returns materially with a progressive dividend

policy, returned circa $3 billon to shareholders from

asset disposals and grew its hotel rooms portfolio

by a CAGR of 4% adding 280,000 rooms, net,

on an asset light basis. In return investors have

rewarded the company with little change to the

two prime valuation metrics and left the enterprise

value of the company 40% below its 1996 level.

The asset light model means that the companies

consolidate only the fee income from franchises

and management contracts and have been unable

to produce enough free cash flow or attract higher

ratings to provide larger valuations. An example of

this is from the sale of Le Meridien to Terra Firma

in 2001 on which we advised the seller when we

were at Kleinwort Benson. At the time, Le Meridien

had a portfolio of 146 hotels with 41,000 rooms

in 55 countries. 37 of the hotels were owned or

long leases, 96 were management contracts and

13 were franchised. The 37 owned and leased

hotels accounted for 90% of the brand EBITDA,

while in economic terms the 109 managed and

franchised hotels were marginal.

Despite vigorous efforts to expand their asset

light portfolios, none of the global majors have

amassed enough management contracts and

franchises to generate significant market value

in global terms. The largest global major hotel

company by market value, Marriott International,

would need to grow its value by one third to

become the 500th largest company in the world

as table 1 illustrates.

Paul Slatteryand Ian Gamsefrom Otus & Co assess the good and the bad of asset light

Table 1: Global major hotel companies and market value 2011

Market Value Discount to Businesses in end 2011 $m FT Global 500 addition to hotels

Accor 5,686 -66% None

Choice Hotels International 2,268 -86% None

Hyatt 6,402 -61% Timeshare

InterContinental Hotels Group 5,385 -68% None

Marriott Internatioinal 11,087 -33% None

Starwood Hotels & resorts 10,032 -39% Timeshare

Wyndham Worldwide 5,797 -65% Timeshare

Source: Bloomberg and Financial Times

Analysis

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continued on page 20

Portfoliogrowth1995-2010The most vigorous activity of the asset light

companies over the past 15 years has been to

expand their portfolios. Collectively, the global

majors have doubled their room stock through

organic hotel growth and chain acquisition as

table 2 illustrates.

The most notable of the chain acquisitions

include the Hilton Hotels Corporation acquisitions

of Promus and Hilton International. Similarly,

Bass/IHG acquired Intercontinental Hotels and

Posthouse, which provided the spine of its UK

Holiday Inn portfolio.

Most of the doubling of the global major

portfolios over the past 15 years has been organic,

which required the substantial expansion of

development teams incentivised to sign as many

new hotels as possible, thus annual additions to

the portfolios and the pipeline of each company

have become signs of corporate virility. However,

the focus on portfolio growth has produced an

imbalance in the structure and performance of

the global chains. Over the past 15 years in the

US, the UK, France and Germany, most of the key

markets for the global majors, a sharp imbalance

between room supply and demand has emerged

as the chart for the US illustrates.

During the first decade of the 21st century,

187 million hotel room nights, net, were added

by hotel chains in the US, but they sold only 50

million more room nights. Although there were

cyclical elements to the volume of room nights

sold between 2007 and 2010, room supply growth

was impervious to the pattern of demand growth

throughout the period. In the US, as well as the

UK, France and Germany the chains, the hotel

owners and their advisors have been ineffective

in assessing supply and demand risk. The chains

have been lured into accelerating supply growth

because of the assumption that they suffer little

or no supply risk, however that assumption has

proved to be misguided.

One manifestation of the supply and demand

imbalance is that the incentive fees earned from

management contracts have collapsed. Marriott

and IHG have reported that in the US a minority of

their managed hotels have been paying incentive

fees and there are no good reasons to believe that

the other global majors have fared any better.

Hotel supply management by the asset light

chains is now a problem for the chains and the

owners of the hotels.

DemandgenerationandassetlightcompaniesAnother way to look at the issue of the imbalance

between supply and demand is that the chains

have been focused too much on portfolio

growth and focused too little on their capacity

to generate demand. It is an article of faith that

hotel chains are more effective at generating

demand than unaffiliated hotels and further that

the global major chains are more able to generate

premium demand than short chains. The asset

light period requires these beliefs to be considered

more closely.

There is little evidence that any one of the

global majors is noticeably better than any other

in generating demand even though there is a

significant difference in the size of their marketing/

media funds. Of the chains that publish the size of

their funds, IHG recorded $1,200m in the most

recent year, three times more than the €310m,

$400m recorded by Accor and a reflection of the

much heavier concentration of the IHG portfolio at

mid-market and above, while the Accor portfolio

is concentrated at mid-market and below.

Table 2: Global chains expansion 1995-2010

Company Global rooms Company Global rooms 1996 1995 2010 2010 Net change CAGR %

Accor 248,200 Accor 485,300 237,100 5%

Bass 377,700 InterContinental Hotels 656,700 279,000 4%

Carlson 89,000 Carlson Rezidor 163,000 74,000 4%

HFS 434,800 Wyndham Hotel Group 606,800 172,000 2%

Hilton Hotels Corporatiion 92,600 Hilton Worldwide 597,200 504,600 13%

Hyatt 78,000 Hyatt 126,000 48,000 3%

ITT Sheraton 139,700 Starwood Hotels & Resorts 300,900 161,200 5%

Manor Care 267,000 Choice Hotels International 490,500 223,500 4%

Marriott 219,780 Marriott International 595,500 375,720 7%

Total Global Majors 1,946,780 Total Global Majors 4,021,900 2,075,120 5%

Source: Otus & Co Ltd

-20

-10

0

10

20

30

-20

-10

0

10

20

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Ann

ual c

hang

e in

roo

m n

ight

s (m

illio

ns)

Chain room nights supply growth p.a.

Chain room nights sold growth p.a.

Hotel chain supply and demand growth: US 2000-2010

Source: Otus & Co

Analysis

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Demand generation capacity also relies on

the geographic spread of the global majors.

Carlson Rezidor, Choice Hotels, Hilton, Hyatt,

InterContinental, Marriott, Starwood and

Wyndham all have a significant presence in the

US and Accor has a material presence in France as

table 3 illustrates.

In the US and for Accor in France, the global

majors have the market share, the cash flow,

the brand power, the brand infrastructure and

the manpower to generate premium demand.

However, even in these countries and despite

outperforming unaffiliated hotels over the past

decade, hotel chains as a whole added to hotel

supply at a faster rate than they sold room nights

and the proportion of managed hotels on which

they earned incentive fees declined.

In most of the other countries their

market share, cash flow, brand power, brand

infrastructure and manpower are too low to

generate premium demand. Hyatt, for instance,

has more rooms in Chicago than it has in the

whole of Europe. There are 38 European countries

in which it has no presence. It has only one hotel

in Greece, Italy, Kazakhstan, Kyrgyzstan, Poland,

Serbia, Switzerland and Ukraine. It has only two

hotels in Azerbaijan, Russia and Turkey. It has

three hotels in France and the UK and five hotels

in Germany. Its fee generation from these hotels,

its microscopic market share, its absence of brand

power and its limited brand infrastructure means

that it is a greater challenge for Hyatt to generate

effective demand. Additionally, it has the second

lowest exposure of the global majors in the US

and thus has more limited funds to subsidise

demand capture throughout Europe. The evidence

from the past decade in the US, the UK, France

and Germany is that the global majors have not

developed effective enough strategies to close the

supply/demand imbalance, to earn incentive fees

on greater proportions of their managed hotels

and to enhance their share valuation.

Despite the challenges of the supply and

demand imbalance, the inherent structure of the

asset light global major companies enables them

to generate more significant free cash flow than

asset heavy companies, which invariably they have

used to buy back their shares to try to enhance

the valuation metrics or to make special dividend

payments to enhance the total returns for

shareholders. The impact of these actions has put

a floor on share valuations more than they have

enhanced the ratings of the companies involved.

ConclusionsIf the global major hotel companies had not

made the transition to asset light, the valuation

of their shares and thus their corporate valuations

would have collapsed. However, the transition to

asset light has not delivered much of a re-rating

of their shares in spite of reducing the risk profile

of the companies, accelerating the growth of the

companies, focussing more on the hotel business

and generating more free cash. The companies are

now faced with complex strategic issues about the

performance of their portfolios and about how

they will be able to achieve a medium to long term

rate of growth that will sustain and enhance their

valuation multiples. These are very adult issues that

will require the main boards of the global majors

to analyse more creatively than they have done

in the past the economies in which they operate

and aspire to operate. It will also require them to

capture greater market share of hotel supply and

demand in ways that does not impede hotel and

chain performance. The most able managements

will be those that deliver faster sustained growth

than their global major competitors. Sadly there

is little sign that, thus far, they have had many

good ideas.

Paul Slattery, Otus & Co Ltd

paulslattery@otusco.com

Ian Gamse, Otus & Co Ltd

iangamse@otusco.com

Analysis

continued from page 19

Table 3: Global major hotel chains – world presence 2010

World rooms US rooms US share % Europe rooms Europe share % Elsewhere rooms Elsewhere share %

Intercontinental Hotels Group 656,700 394,200 60% 95,300 15% 167,200 25%

Wyndham Worldwide 606,800 458,800 76% 27,600 5% 120,400 20%

Hilton Worldwide 597,200 481,800 81% 46,900 8% 68,500 11%

Marriott International 595,500 476,900 80% 39,900 7% 78,700 13%

Choice Hotels International 490,500 389,600 79% 42,200 9% 58,700 12%

Accor 485,300 111,200 23% 257,700 53% 116,400 24%

Starwood Hotels & Resorts 300,900 146,300 49% 39,500 13% 115,100 38%

Carlson Group 163,000 69,300 43% 64,000 39% 29,700 18%

Hyatt 126,000 91,100 72% 6,100 5% 28,800 23%

Totals 4,021,900 2,619,200 65% 619,200 15% 783,500 19%

Source: Company Websites, Otus & Co Ltd

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Analysis

HRimplicationsof“thenewreality”

AschairmanofKewGreenHotelsandHOSPA,andanexperiencednon-executivedirector,Paulhasaninvaluableperspectiveonthecurrentclimateandhowthisinfluencesthecriticalrelationshipbetweenthebanksandmanagementteams.

LR:Howwouldyousummarisetheoverallsituation.Whatisthebackground?

PD: The hotel sector, whilst inherently cyclical in

nature, has failed to bounce back after four years

of downturn since its peak in 2007, in line with

the economy as a whole. The general consensus of

opinion in 2009, seemed to be that recovery would

commence in 2011. It has not, and remains flat at

best. Where we are in the business cycle is, frankly,

anyone’s guess ( assuming there still is “a cycle”!)

The sector’s fortunes have historically been

closely correlated with movements in overall GDP

and there is now no clear visibility of the timing of

an eventual economic recovery, and this could well

take at least two years to come through. Some

financial pundits are even less optimistic.

Given the over-lending to the sector up until

2007, and the subsequent sharp fall in performance

and property values, many individual hotels and

groups of hotels, are significantly over-leveraged,

have breached covenants, and have been in this

parlous condition for some time. Transactions in

the sector have been minimal, largely negated by

the continued lack of availability of bank finance

from nil at best, to now anything at more than

a maximum of 50% of LTV (or 5-6x EBITDA) in

prime locations.

There have been some high profile flops in

the past two years, and subsequent piecemeal

disposals (for example, Von Essen), but by and

large the lending banks have sought, so far,

to avoid hoisting the “For Sale” signs, or from

placing hotels into administration or receivership.

There now seems to be a realisation that the

banks, and their clients, post a re-financing of

their portfolios in some cases, will need to learn

to live with their heavily-indebted hotel companies

until the market recovers sometime down the line.

This “new reality” for the banking sector, is

unfamiliar territory (and indeed, an unknown and

uncomfortable space).

LR:Fromyourperspective,whataretheHRimplicationsofthecurrentsituation?

PD: Whilst post a re-financing, the banks may have

board representation, the quality of the management

teams in the hotel companies is crucial.

Banks are not renowned for their hands-on

managements skills, and indeed, have needed to

incentivise key players at hotel management team

level that can recover value over time and share

in the overall economic interest. Management

teams will need to be strengthened in some cases

with an emphasis on financial awareness, solidity

and experience

Where there are several different lending banks

involved in financing the company, and different

sections of each bank providing debt or equity

finance, all with differing priorities, it requires a

skilled bank-appointed chairman or non-exec to

navigate the company forward, whilst binding

in the executive team to the achievement of the

agreed, sometimes diverse, objectives. Often, the

only route to value-enhancement in the short and

medium term is to be able to demonstrate to the

banking community that other portfolios under

their wing would be better managed by one of

their other investee companies. The free availability

and the plethora of independently benchmarked

sector relevant KPI’s, has enabled this analysis to

be performed at arms length. This new set of

relationships, requires an understanding that the

next few years will require a partnership between

lending banks and management to work through

to a position of mutual benefit.

LR:Doyouseethetrendofbankstakingonindustryadvisorsasanongoingtrend?

PD: Yes. Whilst expensive in the short term, it

seems eminently sensible to seek advice from

industry specialists when the banks are considering

their strategic options. I see this trend as welcome

and ongoing.

LR:AschairmanofKewGreenHotels,whathavebeenthebiggestchallengesfacedbythecompanyinthelastyear?

PD: Following the re-financing of the company

in March 2011 with Lloyds and Barclays, the

management team have had their heads down

maximising returns, and nailing down the cost

base given the weak economic outlook, with

little available organic growth. This has made

the company much leaner, with industry-leading

profit conversions. This now gives all parties the

confidence to move forward, albeit in a flat market.

All but one of our properties carry a major

brand flag, and each of our franchise partners

have “played ball” and been supportive. Similarly,

all of our leasehold properties have had their

leases re-negotiated in the last year. We have been

active with the banking community in growing

the company through management contracts,

being able to demonstrate our superior profit

conversions. The shortage of capital has prevented

us from other forms of expansion and value

creation, and this drought is likely to continue.

LR:Whatdoyouthinkarethekeyattributesforaneffectivenon-execorchairman?

PD: In the current and uncertain economic malaise,

I see the key qualities are, inter alia:

• Astrongfinancialbackground

• Agoodlistener

• Agoodfacilitator

• Goodnetworkingskills

• Awidespreadcontactbase

• Strongdiplomaticskills

• Persistence

• Personalandprofessionalintegrity

• Aboveall,widespreadandextensiveexperience

in the sector, in understanding the bank’s

requirements, and in what motivates the

management team.

LR:Andwithyourcrystalballfirmlyinplace,whatisyourprognosisofthenext24months?

PD: Tough! Very! It will be a long and hard road to

recovery, with little or no visibilty! Both operators

and banks will need to learn to live with this

new reality.

Lesley Reynolds is chief executive

of Portfolio International

lesley.reynolds@portfoliointl.com

Lesley Reynolds, CEO of Portfolio, talks with Paul Dukes

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Recentturbulenteconomicconditionshaveledtoariseincommercialdisputes.However,bythetimecompaniesarefacedwiththerealityofalegalbattle,manyfindthattheyarealreadyatatacticaldisadvantage,andhotelsarenoexceptiontothisrule.

When it comes to the drafting of commercial

contracts, whether it be an international hotel

management contract, a franchise agreement or

otherwise, dispute resolution clauses are often

an afterthought, addressed at the tail end of the

negotiation process. Yet when a conflict does

arise, a well considered clause could mean the

difference between resolving the dispute swiftly

and preserving the commercial relationship, or

being trapped in a lengthy, costly and adversarial

legal battle.

There is no ‘one size fits all’ approach when

deciding whether to opt for litigation, arbitration,

or some other dispute resolution process.

However, there are a number of key questions that

hotel operators can consider when negotiating

contracts to ensure that any potential disputes

are addressed by the method that is most likely to

protect their interests, and minimise financial risk.

The questions below are by no means exhaustive

but illustrate some of the key differences between

arbitration and the court process.

Litigateorarbitratetosettlethescore?DLA Piper’s Matt Dudley says thinking ahead can prevent disputes getting out of hand

Doyouenterintointernationalcontracts?Given that some nations do not automatically

recognise judgments of the courts of other

countries, it can be difficult to enforce such

judgments across jurisdictions. Whilst EU

legislation provides for judgments automatically

to be recognised within the EU, no universally-

applicable legislation exists outside the EU.

International hotel operators need to ensure at the

outset that any judgments arising from disputes

could be adequately enforced – particularly to

jurisdictions outside the EU.

Arbitration awards, on the other hand, are

generally easier to enforce in other countries.

The majority of developed countries have agreed

to recognise arbitration awards made in other

countries, through ratification of a treaty known as

the New York Convention. At the time of writing,

146 states have ratified the New York Convention,

including states such as Afghanistan, India and

the United States where the enforcement of

foreign court judgments can prove particularly

problematic.

This being so, arbitration can be the preferred

process when dealing with multi-jurisdictional

trading relationships, though it ultimately depends

very much on which countries are involved.

Whatistheestimatedvalue/complexityoftheclaim?The commonly held view is that arbitration is

cheaper and faster than court litigation. In reality,

however, the speed and cost of any process

greatly depends on the attitudes of the parties

involved, the skills of the arbitrator/judge and

the complexity of the claim. For example, a well-

selected arbitrator can implement a streamlined

process that achieves an early and cost-effective

solution. However, a less well-managed arbitration

process can prove to be inefficient and costly. The

selection of the tribunal is therefore an important

ingredient if arbitration is your preferred route.

Equally, selecting the right arbitration rules to

apply is important – some rules, for example,

provide for confidentiality whilst others do not.

For a lower value claim, the cost of paying

the arbitrator’s fees may be disproportionate

when balanced against the value of the claim,

particularly if the relevant dispute resolution clause

obliges the parties to appoint a three member

tribunal. Consider, for example, a low value claim

by an operator for an unpaid franchise fee. It is

likely that the operator would wish to avoid a

binding commitment to use three arbitrators to

determine the claim. Careful consideration of the

likely nature of any dispute is key to shaping the

relevant dispute resolution mechanism.

Shouldthedisputebekeptconfidential?It is not only money that is at stake during a dispute.

Companies may be equally concerned over the

long term risk to brand reputation and commercial

relationships. The last thing an operator may

want is for allegations of mismanagement to be

reported on by the media.

If the quality of your services is being called into

question, there will likely be a significant benefit

to keeping the dispute out of the public domain.

Arbitration allows this to happen as hearings can

be held in private and all statements of case, orders

and awards usually remain private documents.

By contrast, court trials are open to the public.

Moreover, third parties, such as competitors

and the media, can freely obtain copies of any

statements of case, courts orders and judgments

relating to the proceedings.

Isthereanon-goingrelationshiptoprotect?For the reasons discussed above, if it is likely that

there will be an ongoing trading relationship

notwithstanding any dispute, the privacy and

flexibility of an arbitration process can be

preferable to the court process.

Doyouwanttohavetheoptiontoarbitratebutstillusethecourtsifnecessary?Parties can seek to retain the option to decide

whether to use the courts or an arbitration process

(whether for specific claims or more generally) at

the time of a dispute arising. This requires more

careful drafting at the time when the contractual

documentation is drawn up, but can be a valuable

tactical option to have later.

ConclusionIt is not always possible to avoid disputes,

particularly in an increasingly litigious climate.

There are however a wide range of options for

dealing with disputes (not just arbitration or court

processes), and it is worth taking time early in

the negotiation process to identify the areas in

which conflict may arise and drafting appropriate

methods to address those areas. If an appropriate

course is taken at the outset, businesses can avoid

placing themselves at a costly disadvantage and

actually empower themselves to be able to achieve

effective and positive solutions to future problems.

Matt Dudley is a solicitor in DLA Piper’s

Litigation & Regulatory Group

matt.dudley@dlapiper.com

Analysis

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The Insider

Featured businessesAccor 5, 11, 12, 19, 20Active Estates 8 Arabella 6Ascott 8Barclays 23Capitaland 8Carlson 4, 12, 20CBRE 28Choice 3, 6, 20Club Med 4CMS Cameron McKenna 1Colliers International 16, 17Connection Capital 8DLA Piper 25DTZ 2 Hilton 4, 18, 19, 28HNA 9, 10HotbedUK 8Hyatt 10, 16, 20InterContinental 3, 4, 7, 16, 18, 19, 20, 28Invesco Real Estate 5Jones Lang LaSalle 5, 11Kew Green 23Lloyds 23Marriott 3, 4, 16, 18, 19, 20Melia 9, 11NH Hoteles 9, 10, 11Otus & Co 18, 19, 20Peveril Securities 8PKF 5Portfolio 23Prime Development 5Rezidor Hotel Group 4, 12, 20Riverside Capital Group 8Savills 4Sheraton 18Splendid Hotels 28Starwood Hotels & Resorts 3, 5, 16, 20Steigenberger 6STR Global 16Travco 6Travelodge 8TRI Hospitality Consulting 13, 14, 15Vision Hospitality Management 1Von Essen 1, 3, 23Westbrook 2 Whitbread 7Whitebridge Hospitality 4Wyndham 9, 20

hotelanalyst

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SplendidresultforBhoghani

Nomorejellydoughnut

The InterContinental Westminster, still under

construction, is back in the hands of one of its

original development partners. And the deal

would appear to have substantially settled a

spat between the partners of the Splendid Hotel

Group, which came to the fore as the hotel was

put on the market last September.

The InterCon, which CBRE was asking more than

GBP80m for, was put up for sale alongside the

Southwark Hilton, which had a GBP35m price tag.

The sales of the part built hotels were forced

by a disagreement between Shiraz Boghani and

Bashir Nathoo, joint owners of the Splendid

Hotel Group.

Founded in 1986, the company built a portfolio

of hotels in the UK. But when IHG signed to

manage the new Westminster InterCon in 2009,

clearly all was not sweetness and light. In 2010,

Splendid put a portfolio of seven Holiday Inn and

Express hotels on the market, aiming to raise

GBP200m to help fund the move upmarket.

Matters came to a head in April 2011, when

Boghani served notice to dissolve the Splendid

partnership. Boghani wanted to sell the two hotel

assets as they stood, while Nathoo wanted to share

the spoils once the schemes were completed. A

High Court judge decided the hotels could be sold

while incomplete.

Berlin is haunted by three events: Hitler’s suicide,

the rise and fall of the Berlin wall and the launch

of Hilton’s Denizen brand.

Since the launch party and lengthy lawsuit

that was Denizen, operators have been wary of

revealing their brands in Berlin, where there is a

tough crowd, but one that can often be mollified

with the adroit application of a mini-burger.

It was not lost on perennial IHIF panel chair

Simon Johnson, CBRE’s director of specialist

markets, that InterContinental chose the week

before the conference to launch its wellness

brand, Even Hotels.

IHG has stuck to the defence that, with Even

launching in the US, it was not appropriate to

reveal the brand at a Europe-centric event (despite

the roll of delegates including the senior executives

of many of the global operators).

You’reintherightplaceTravel and tourism’s inexorable rise as a business

sector has been underlined by figures delivered by

the World Tourism & Travel Council, who reckon

2012 will be a landmark year when the sector will

contribute more than USD2trn in GDP.

WTTC suggests the industry will grow 2.8%,

ahead of global economic growth of 2.5%, and

will directly sustain 100.3 million jobs.

“It is clear that the travel and tourism industry

is going to be a significant driver of global growth

and employment for the next decade,” said said

David Scowsill, WTTC president. “Our industry is

responsible for creating jobs, pulling people out of

poverty, and broadening horizons. It is one of the

world’s great industries.”

But growth in tourism still faces some

fundamental challenges, according to the UN

World Tourism Organization. “Complicated,

lengthy and overpriced entry formalities are

making it extremely difficult for tourists, especially

from emerging economies which are leading

growth in terms of outbound markets, to travel,”

said UNWTO Secretary-General, Taleb Rifai.

“Travel facilitation must top our agenda and we

must speak together on this if we are to be heard

at the highest levels of decision-making,” he said.

The impact of restrictive border formalities has

not been lost in the USA, where in January president

Obama called for action after noting the USA has

slipped from grabbing a 17% share of international

traveller spend in 2000, to just 10% in 2010.

Government departments were given two

months to sharpen up their visa procedures,

allowing Chinese and Brazilian visitors easier

access. Until recently, visitors would wait up to

four months to obtain the necessary paperwork.

It may be that IHG had in mind John F Kennedy’s

“Ich bin ein Berliner” quote – translated, it reads

“I am a jelly doughnut”. Not the image that a

brand which encourages you to do chin-ups on

the clothes rail necessarily wants to foster.

IHG ceo Richard Solomons spoke up for the

brand, including the rationale that the flag, which

is priced above Holiday Inn, would give the group

another option in cities which already have a

number of IHG properties.

However, it was his comment that IHG had

already seen “interest from corporates who are

encouraging wellness in their employees” which

struck fear in the delegates’ hearts. For those

who have seen gyms and juice bars pop up in

their HQs, the business trip was the last refuge, a

chance to kick back and relax with a fry-up, away

from prying eyes. Alas no more.