development of growth & expansion strategy for client x

Development of Growth & Expansion Strategy for Client X.Final Report – Executive Summary

9 June 2008

Executive Summary Final ReportDated 9 June 2008

© 2008 Deloitte & Touche LLP. Private and confidential2

Agenda

1. Approach

2. Industry overview

3. Sector analysis

4. Strategic options

5. Selected strategy

6. Next steps



Outline of the ProjectThe project consisted of four phases, culminating in final deliverables and board presentation

Purpose

Output

Actions

Phase 1 – Strategy Validation Phase 2 – Review of Strategic

Options Phase 3 – Detailed analysis and

strategy formulationPhase 4 – Final Deliverables and

Board presentation

• Bring Client X management up to same level of understanding of global and regional hotel industry

• Discussion of:– market s and segments that

present opportunities for growth

– Agree on preliminary list of countries for further work

– Growth opportunities via M&A/JV/Alliance

• Analysis of 3 strategic options available to Client X

• Supporting Client X management in deciding on strategic option

• Detailed analysis and formulation of Client X’s strategy based on the review of strategic options

• Define strategic initiatives and finalise findings

• Discussion by Client X Board to agree 3-5 options for further study in Phase 2

• Agreement of options with Deloitte

• Discussion by Client X Board to agree option for further study in Phase 3

• Agreement of option with Deloitte

• Confirmation of agreed strategy • [Implementation]

• Minutes from workshop

• List of markets and segments selected as priority growth opportunities

• List of priority targets

• Agreed priorities for next phase

• Minutes from workshop

• Chosen strategy and strategic initiatives

• Agreed priority for next phase

• Minutes of workshop

• Chosen strategy for Client X

• Agreed final form of deliverable for Board

• Final Board presentation summarising data supporting strategic initiatives



Agenda

1. Approach


• Market overview

• Key considerations

3. Sector analysis



6. Next steps



Industry Overview: The Shareholder Value Model

Brand

Human assetsTechnology

Emerging marketsBusiness model

Mega-trends

The five ‘mega’ trends that will have the greatest impact in share holder value



Industry Overview: Operating Models

Note: 1. Volatility of profit to hotel branded chain, not individual hotelSource: Deloitte Analysis

Whilst all forms of ownership model are employed at the bottom of the market segment scale, the higher up the chain, the ownership model options narrow to owned and managed for reasons of brand integrity. However the level of sensitivity to variations in market conditions increases with both degree of ownership and market segment

Rarely used

Rarely used

Budget Luxury

Ow

ned/

leas

edF

ranc

hise

d

EconomyMid-

MarketUpscale

Upper Upscale

Man

aged

Low High

Degree of volatility1 based on market conditions

Deg

ree

of in

fluen

ce o

ver

asse

t/O

wne

rshi

p m

odel

Level of market segment



Industry Overview: Organisational Structures

Source: Deloitte Analysis

There are four organisational structure models. The choice of structure will depend on the stage of development and suitability for the hotel portfolio given strategic goals

Characteristics • Organized on a region/country basis—resources required to run business self-contained within geography

• Regions have profit-centre responsibility

• Some admin/infrastructure pushed down to local regions

• Organized on a functional basis-most key functions reporting up through a centralized home office structure

• Standards tightly managed throughout entire organization

• Often have matrixed reporting relationships to geographic and functional/brand leadership

• Organized by brand or grouping of brands—most key functional and geographic resources required to run business are self contained within brand grouping

• Standards within brand organization tightly managed

• Brand grouping has profit-centre responsibility

• Businesses are self contained and managed by holding company

• Portfolio companies usually have substantially different propositions

• Companies often report directly to the holding company CEO and often separate from other holding company properties

Advantages • Targeted focus on development and execution in the local marketplace

• Brand tightly managed and consistent throughout footprint

• Efficiencies drive lower costs through use of service centres, common infrastructure, strategic sourcing, etc.

• Each brand team has singular focus and profit responsibilities

• Minimal holding company attention required

• Limits risk of any brand dilution or confusion in marketplace

• Holding company has opportunity to learn from portfolio company

Challenges • Lack of brand standardization across geographies may dilute brand value

• Missed opportunities to reduce costs through consolidation of functions and activities

• Dual reporting relationships can be more difficult to manage

• Central control of key functions may slow decision-making

• Span of control at the executive level is typically higher than regional models

• Cross-brand sales or promotions are more difficult to coordinate or implement (reservations, reward programs, etc.)


• Cross-brand sales or promotions are more difficult (reservations, reward programs, etc.)


Examples

RegionalRegional Global / FunctionalGlobal / Functional PortfolioPortfolioBrand-centricBrand-centric



Industry Overview: Demand & Supply – GlobalEurope continues to dominate regarding total spend by international visitors; however, forecasts for Asia-Pacific focus countries and the Middle East and Africa show high growth by branded hotel room supply and international visitors

0%

2%

4%

6%

8%

10%

0% 5% 10% 15% 20%

Europe

North America

Latin America

Asia Pacific

Middle East and Africa

Growth in branded rooms

Note: Supply data is based on all global and regionally branded hotels, international visitor spend data is based on average trip spend excluding spend on transport to destinationSource: Lodging Econometrics; World Travel and Tourism Council; Deloitte Analysis

Total international visitor spend, size = USD 60bn

International visitor demand vs. branded room supply, 2007-09 Growth in international visitors

Potential in Location A due to increase in

domestic travel

Many deals already completed in Middle

East, which may suggest fewer opportunities



Industry Overview: Demand & Supply – Int’l Overnight and Dom. Trips

0

200

400

600

800

1,000

1,200

1,400

1,600

International 75 8.3 21 14 5.0 6.4 5.5 0.7 3.1 8.3 2.9 56 30

Domestic 1,387 346 43 92 512 105 240 - 37 1.0 19 1,199 121

Total 1,461 355 64 106 517 112 245 0.7 40 9.3 22 1,255 151

% Domestic 95% 98% 67% 86% 99% 94% 98% 0% 92% 11% 87% 96% 80%

Greater China

Japan Malaysia Thailand India Korea Indonesia Maldives Philippines Singapore VietnamUnited States

United Kingdom

Location A leads Asia-Pacific with the largest number of both domestic and international trips

Domestic and International Trips by Country (2007)Million Trips

Note: International demand is determined by international overnight trips for 2007. Domestic trips are for 2007 and are defined as travel of 50 miles or more, each way, which includes an overnight stay. *Due to rounding of decimal places, totals might not always correspond exactly to the sum.

Source: Euromonitor; World Travel and Tourism Council; Deloitte Research & Analysis. Domestic International

*

Benchmark



0

200

400

600

800

1,000

1,200

1,400

1,600

Business 121 41 5.5 44 122 9.2 82 4 0.2 13 312 20

Leisure 1,265 305 37 48 390 96 158 33 0.8 6.4 887 101

Total 1,387 346 43 92 512 105 240 - 37 1 19 1,199 121

Greater China

Japan Malaysia Thailand India Korea Indonesia Maldives Philippines Singapore VietnamUnited States

United Kingdom

Industry Overview: Demand & Supply – Domestic TripsLeisure is the main driver for domestic travellers

Domestic Business and Leisure Trips (2007)Million Trips

Leisure Business

Data not available

Note: International demand is determined by international overnight trips for 2007. Domestic trips are for 2007 and are defined as travel of 50 miles or more, each way, which includes an overnight stay.

Source: Euromonitor; World Travel and Tourism Council; Deloitte Research & Analysis.

Benchmark



China

Malaysia

Phillipines

Indonesia

Thailand

Maldives

Singapore

Vietnam

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0% 10% 20% 30% 40%

Industry Overview: Demand & Supply – Asia-PacificGrowth in room supply and demand is expected in Asia-Pacific lead by Location A and India. These also had the largest number of trips among the Asia-Pacific focus countries for 2007

Total Demand Growth vs. Branded Room Supply Growth (2007-09)Percent

Growth in branded rooms

2007 Total number of Trips. Size = 250mNote: Demand growth is international and domestic travellers

Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.

Gro

wth

in d

omes

tic a

nd in

tern

atio

nal t

rips



0.2 0.3 0.4 0.30.1 0.1 0.1

1.4

0.2

1.5

0.3

2.3

1.7

0.9

4.4

2.4

3.4

0.20.5

1.1

0.8

4.0

5.9

3.5

5.5

0

1

2

3

4

5

6

7

GreaterChina

Japan Malaysia Thailand India Korea Indonesia Maldives Philippines Singapore Vietnam United States UnitedKingdom

Compared to the US and UK markets, there is potential within Asia-Pacific for increasing the current penetration of branded rooms

Hotel Room Supply per Trip by Branded (2006) vs Total Rooms (2007)Rooms per Thousand Trips

Branded Rooms

Total Rooms

Industry Overview: Demand & Supply – Penetration of Room Supply

Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.

US Branded

UK Branded

Benchmark



0.40.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0

6.1

1.8

0.50.8

0.60.3

1.2

0.1 0.10

1

2

3

4

5

6

7

Branded 417,302 129,386 30,859 45,803 51,207 20,248 35,389 263 13,674 2,270 7,910

Total 6,121,583 1,779,323 477,656 768,100 579,290 293,562 1,223,613 - 141,595 55,336 -48,059

Greater China Japan Malaysia Thailand India Korea Indonesia Maldives Philippines Singapore Vietnam

Branded Rooms

Total Rooms

Asia-Pacific Additional Hotel Rooms at UK penetration (2007)1

Million Rooms

Industry Overview: Demand & Supply – UK Penetration in AP (1/2)

Note: 1. Data used: International trips and branded rooms as at 2007; domestic trips estimated for 2007; total rooms as at 2006Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.

Location A, India and Indonesia currently need the most branded hotels to reach UK 2007 penetration figures



0.50.1 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0

7.2

3.0

0.6

1.2

0.60.3

1.4

0.2 0.1 0.3

0

1

2

3

4

5

6

7

8

Branded 479,411 146,249 36,856 53,652 57,420 22,554 39,631 712 16,077 7,316 9,366

Total 7,174,542 2,956,606 646,215 1,193,828 649,996 328,277 1,442,008 - 165,754 95,425 292,867


Branded Rooms

Total Rooms

Asia-Pacific Additional Hotel Rooms at UK penetration (2010)1

Million Rooms

Industry Overview: Demand & Supply – UK Penetration in AP (2/2)Looking forward to the year 2010, there is still a gap to reach UK 2010 penetration for branded rooms among several of the Asia-Pacific countries, lead by Location A, India and Location D

Note: 1. Data used as follows: International trips and domestic trips estimated for 2010; branded rooms as at 2007; total rooms as at 2006Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.



0.6

0.20.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0

3.5

-1.3

0.2 0.1

0.40.2

0.7

0.1 0.0-0.3

-2

-1

0

1

2

3

4

Branded 590,774 185,663 45,470 66,613 70,741 28,246 49,146 841 19,548 10,792 11,335

Total 3,456,807 -1,311,385 166,869 52,092 360,456 175,635 662,619 - 82,067 -19,078 -308,119


Branded Rooms

Total Rooms

Asia-Pacific Additional Hotel Rooms at US penetration1

Million Rooms

Industry Overview: Demand & Supply – US Penetration in AP

Note: 1. Data used: International trips and branded rooms as at 2007; domestic trips estimated for 2007; total rooms as at 2006Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.

There is capacity in Asia-Pacific lead by Location A for additional branded rooms in order to reach US 2007 penetration figures; and interestingly in fairly saturated markets such as Location D, there might still be space for branded hotels



Industry Overview: Demand & Supply – Room Penetration

1.7

6.9

9.4

0.8 0.4 0.2 0.2 0.0 0.10.7 0.9

3.1

0.1

3.2

0.3 0.5 0.1

7.6

4.7

5.1

1.0 1.8

4.1

0.80.1

1.1

11.4

4.9

0.2

3.6

1.0

5.1

1.4

13.7

9.3

13.7

11.6

14.5

1.82.2

4.2

1.0

0.1

1.2

12.1

5.8

0.3

6.8

1.2

5.6

1.5

Total n/a

0

2

4

6

8

10

12

14

16

Europe UK N.America

US LatinAmerica

AsiaPacif ic

ME &Africa

China India Indonesia Japan Malaysia Maldives Philip. S'pore S. Korea Thailand Vietnam

Branded Rooms Non-Branded Rooms Total Rooms

The majority of the Asia-Pacific focus countries have lower room supply penetration relative to Europe and North America. Global and regional brands account for a smaller proportion of room supply outside North AmericaRoom Supply Penetration (2007)Rooms per Thousand Inhabitants

Note: Supply figure for India does not include lower budget. Total Location D supply figure includes ryokans (Location Dese Inns)Source: UN Estimates; National Statistics offices; Lodging Econometrics; Mintel; Deloitte Research & Analysis



Industry Overview: Demand & Supply – Branded Rooms by Chain Scale

0%

20%

40%

60%

80%

100%

N.America

LatinAmerica

Europe ME &Africa

AsiaPacif ic

China India Indonesia Japan Malaysia Maldives Philip. S'pore S. Korea Thailand Vietnam

Budget Economy Midscale Upscale Upper Upscale Luxury

The luxury segment accounts for c. 18% of total branded room capacity in Asia Pacific, which compares to c. 3% and 4.5% in North America and Europe, respectively

Branded Supply by Chain Scale (2007)Share of Branded Rooms

Note: Supply data is based on all global and regionally branded hotels onlySource: Lodging Econometrics; Deloitte Research & Analysis

CountriesRegions



Industry Overview: Demand & Supply – Upper Upscale / Luxury ValuationHotel values have increased on average nearly 6% p.a. between 2002-06, with cities in Location A, Malaysia, Indonesia and Singapore

Tokyo

Hong Kong

Seoul Singapore

Shanghai

BeijingBangkokPhuket Taipei

Bali Kuala LumpurManila Jakarta

0

100

200

300

400

500

600

700

800

900

-2% 0% 2% 4% 6% 8% 10% 12%

Upper Upscale / Luxury Valuation per Key (2006)USD Thousands 2006 vs CAGR 2002-06

$292k

Source: 2007 Asia Hotel Valuation Index; Deloitte Research & Analysis

5.6%



Global hotel operators have achieved success by offering a portfolio of brands tailored to specific customer segments, and creating operational efficiency by leveraging the size and scale of their distribution.

Industry Overview: Global Hotel Operators – Overview

Competitor A Competitor B Competitor C Competitor D Competitor E

Number of brands 7 10 15 12 10

Dominant current operating model

Franchise Franchise Managed Owned/Leased Managed

Dominant geographic position

Americas Americas Americas EMEA Americas

Dominant market segment

Mid-market Budget Upscale Budget Upscale

Dominant historical growth strategy

Initial growth through acquisitions

Initial growth through acquisitions

Initial organic growth and acquisition of new segments

Several brands through acquisitions

Brand growth through acquisition

Current growth strategy Managed and franchised Franchise Managed Owned/Managed Managed

System-wide number of hotels

3,949 6,544 2,999 3,871 925

Pipeline as share of current supply

40% 19% 24% 41% 44%

Dominant organisational model

Regional Global/Functional Global/Functional Brand-centric Global/Functional

Source: Deloitte Research and Analysis

Global Hotel OperatorsIndicative



Industry Overview: Global Hotel Operators – Financial SummaryGlobal hotel operators have achieved high return on capital invested by focussing on management contracts and real-estate transformation.

Financial Results and Key Performance Indicators (2007)Indicative

Competitor A Competitor B Competitor C Competitor E Competitor D

Financial Results

Total Revenue, $m 1,768 4,360 4,415 6,153 11,132

Market Cap, $m 4,470 3,864 12,777 10,469 15,837

EV / EBITDA 10.5x 5.7x 12.0x 11.4x 9.2x

P / E 12.0x 10.3x 18.8x 19.8x 11.9x

Return on capital invested1, % 17 9 25 13 13.6

Key Performance Indicators2

RevPAR, $ 72 871 121 110 77

Occupancy, % 69.6 73.31 73.2 70.1 67.6

ADR, $ 103 1181 165 157 114

EBITDA, $m 437 892 1,385 1,164 1,905

EBITDA Margin, % 27.0 20.5 31.4 18.9 17.0

Note: 1 Due to information availability the figure is based upon the financial statements as at 2004 year end.Source: Deloitte Research & Analysis



Industry Overview: Regional Hotel Operators – Overview (1/2)

Source: Deloitte Research & Analysis

APAC brands have traditionally grown from an iconic flagship properties, and were first required to own a critical mass of their own hotels before expanding beyond APAC or into management contracts.

AAAA BBBB CCCC DDDDD EEEE

Number of brands 2 1 2 2 2

Dominant operating model

Owned Owned Owned Owned Owned


Location A Location A Hong Kong Thailand India


Upper upscale Luxury Luxury Luxury Upper Upscale/Luxury

Grown from iconic flagship property? Dominant historical growth strategy

Owned Owned Owned Owned Owned

Dominant current growth strategy

Owned/Managed Managed Owned Owned/Managed Owned/Managed

Number of existing hotels

52 21 9 22 102

Pipeline as a share of current supply

100% 86% 9% 209% 88%

Regional Hotel OperatorsIndicative



Industry Overview: Regional Hotel Operators – Overview (2/2)

Note: 1. No data/information could be obtained.Source: Deloitte Research & Analysis

APAC brands have traditionally grown from an iconic flagship properties, and were first required to own a critical mass of their own hotels before expanding beyond APAC or into management contracts.

AAA DDD BBB CCC EEE FFF

Number of brands 8 2 1 2 1 1

Dominant operating model

Managed Owned Managed Owned Managed n/a1


Spain Location D APAC Location A Americas Indonesia


Mid-market/Upscale Upscale Luxury Budget Luxury Luxury

Grown from iconic flagship property? Dominant historical growth strategy

Acquisitions Owned Owned Owned n/a1 Owned

Dominant current growth strategy

Owned/Managed Managed Managed Owned/Managed Managed Owned

Number of existing hotels

328 63 8 232 80 18

Pipeline as a share of current supply

10% n/a1 160% 15% 152% n/a1

Regional Hotel Operators (cont’d)Indicative



Industry Overview: Regional Hotel Operators – Financial SummaryAsia Pacific chains have relatively high EV/EBITDA multiples and relatively low return on capital invested as a result of their asset heavy strategies.

Financial Results and Key Performance Indicators (2007 unless otherwise stated)Indicative

Financial Results

Total Revenue, $m 1,002* 558 582 211* 430* 1,583 607 253*

Market Cap, $m 8,341 1,635 2,095 696 1,873 3,700 1,946 3,800*

EV / EBITDA 23.6x 12.8x 19.3x 17.9x 14.7x 7.8x 14.1 No data available

P / E 22.4x 15.2x 5.1x 12.1x 38.7x 10.0x 20.4 58.2x

Return on capital invested1, % 7* 8 4 8* 10.1* 11 16 11.6


RevPAR, $ 102* 215 316 178* 34** 65 No data available No data available

Occupancy, % 70 74 68 65* 71** 69.5 No data available No data available

ADR, $ 146* 291 465 274* 48** 94 No data available No data available

EBITDA, $m 350* 190 194 70* 111 410 173 80*

EBITDA Margin, % 34.9* 34.1 33 33* 26 25.9 28 32*

Note: 1 Based on continuing operations, excluding special items; 2 Company operated; 3 Relevant data is not available for JAL, Raffles, and Four Seasons. * Figure is based on 2006 figures due to information availability. ** Jin Jiang figures are based upon their 3-Star brand. This provides a best estimate given the width of their offerings

Source: Company Data; Deloitte Research & Analysis



Agenda

1. Approach


• Market overview

• Key considerations

3. Sector analysis



6. Next steps



Key Considerations: Strategic Framework Initial Thoughts

LocationLocationPortfolio

Approaches

Portfolio Approaches

Play to your Strengths

Play to your Strengths

Most significant driver of guest hotel choice– Very few people choose a hotel

brand and then choose a location

Returns first, brand fit second– Led to most development

approaches being more tactical than strategic

– Organisations will have their desired location lists but market opportunity often overtakes

– Organic growth focused on locations where there is capacity within a segment

– Can create tension between Brand and Development

– Led to most brands having significant range of quality and locations

– Only strongest brands can adopt more strategic approach

– In the absence of property asset value increases, new management contracts are one of the key sources of increasing financial return

– Development pipeline now THE most important KPI for the major listed hotel operators

Single segment approach– With the exception of Four

Seasons, all luxury single segment operators have built growth on the foundation of one or two iconic properties

Luxury brands– Almost all luxury brands have

extended into resorts and residences (both owned and fractional)

– Resort developments are aimed at capturing the leisure market of their customers

– In the past 2 years the incorporation of a residential element has been required to make new builds financially viable

Multi segment approach– Many organisations have a

luxury brand to deliver a ‘halo’ effect

– The core business is mid-market and the luxury brand delivers an aspiration for these guests

– Few organisations have mid-tier resort brands

Many hospitality organisations have natural strengths– Iconic properties

– Strong brand names

– Deep heritage

– Strong cultural links

– Corporate owners

– Access to capital

Successful organisations have developed ways of harnessing these strengths

Operational Excellence

Operational Excellence

A critical driver in delivering financial return– No value in delivering low

profitability on high occupancy and ADR

– Poor performance can destroy benefits of strong brand and location

– A key consideration for owners when selecting operators

Number 1 core competency– Vital that have strong core

operations to support future growth – organic or acquisition

– All successful operators have either CEO or COO with many years operational experience often with same organisation and often starting from very low level

– Need stable central ‘system’ to support growth to enable new properties to be transitioned into the organisational smoothly

– Create pool of expertise that can be exported to new properties to ensure rapid adoption of standard processes and procedures

Growth PatternsGrowth Patterns

Home comfort– With the exception of Four

Seasons, all the major global and regional players have expanded close to home before significant global expansion

– This is reflected in the percentage of property portfolios in their domestic markets

– Second stage expansion is often in overseas regions with strong brand or cultural recognition

Home advantage– Easier to support new hotels

from a logistical perspective as can leverage current suppliers, staff redeployment is easier and management can maintain closer oversight role. There are also obvious time zone advantages.

– Need to build critical scale of operations before adding additional strains of distant operations

– It is likely that there is stronger brand awareness in countries closer to home and also easier to build this brand awareness in weaker countries due to cultural similarities

TalentTalent

Global and regional hospitality organisations invest significantly in their talent – One of most significant assets

particularly since property assets typically disposed

– At the heart of operational efficiency

– At the heart of delivering the branded experience

– Becomes more significant the higher the segment

– Large, high quality talent pool required to support growth

– Increasingly in short supply and predicted to get more so

– Recruitment and retention

Its not just about operational training– Staff engagement is just as

important – feeling emotionally connected to the organisation

– Structured career development


We have identified a range of key considerations for Client X, which fall broadly into six categories



Agenda

1. Approach


3. Sector analysis

• Region

• Country

• City



6. Next steps



Region Analysis: Summary (1/2)


Requirements Europe North AmericaMiddle East &

AfricaAsia Pacific

Ability to develop management skills, detailed operating procedures and central shared services

Ability for Client X to oversee operations from Location X

Ability to generate efficiencies from increased scale of operations

Summary

Ability for Client X to Enter Region in Short to Medium TermIndicative

On a regional level, the ability for Client X to enter region in the short to medium term is high only in Asia-Pacific



Region Analysis: Summary (2/2)


Key Drivers Europe North AmericaMiddle East &

AfricaAsia Pacific

Demand drivers

Supply drivers

Historical performance

Ability for Client X to enter region in short to medium term

Investigate further?

Summary of Key DriversIndicative

Demand and supply drivers are positive in both Asia-Pacific and the Middle East & Africa



55%

60%

65%

70%

75%

-2% -1% 0% 1% 2% 3% 4%

Region Analysis: Historical Performance – GlobalLuxury and upper upscale have outperformed the other segments on average in each region

0

50

100

150

200

250

300

-5% 0% 5% 10% 15%

ADR by Market (2005-07)USD 2007 vs CAGR 2005-07

0.9%

67.3%

Note: Growth rates based on local currency dataSource: Smith Travel Research; Deloitte Research & Analysis

UpscaleMid-scale U. UpscaleBudget/EcAmericas

Asia-Pacific

EMEA

Luxury

RevPAR by Market (2005-07)USD 2007 vs CAGR 2005-07

Occupancy by Market (2005-07)Occupancy 2007 vs PP Change 2005-07

8.3%

$136

0

20

40

60

80

100

120

140

160

180

200

0% 5% 10% 15%

$92

9.1%



Agenda

1. Approach


3. Sector analysis

• Region

• Country

• City



6. Next steps



Country Analysis: Overview

The key success factors for Client X to be able to enter these countries have been identified as:

• Economic drivers

• Demand drivers

• Supply drivers

• Ability for Client X to implement

• Historical performance

• An analysis was performed determining the quantum of each of these success factors

The focus countries have been split into the top four, middle four and bottom three through the quantification of key success factors and subsequent ranking of these

Quantification of key success factors Ranking of countries based on key success factors

• The grouping has been determined by ranking the each country from 1 to 11 based on the relative performance of the key drivers, with 1 being the country with the best performance and 11 being the country with the worst performance

• We have primarily ranked the growth metrics in order to identify markets where there is high potential for future growth

• Absolute metrics are included to show relative size of metric



Country Analysis: Ranking by Degree of Opportunity for Client X


Country Rank

Location A 1

Location B 2

Thailand 3

Location Y 4

Philippines 5

Ranking of Mid-market and Upscale Country MarketsIndicative Opportunity

The mid-market and upscale opportunity for Client X appears to be highest in Location A, followed by Location B, Thailand, Location Y and the Philippines



Country Analysis: Country Focus – Location Summary (1/2)

Country

Economy Demand DriversLocation Z

Dep.Supply Drivers

GDP Growth 2007-15

(%)

Int’l Trips2007

(Million)

Int’l Trips Growth 2007-15

(%)

Domestic Trips 2006

(Million)

Domestic Trips Growth

2007-11 (%)

Dom. Tourism Spend1

2007 ($bn)

Dom. tourism spend growth

2007-15(%)

Location Z departures

2006(Thousands)

Penetration(Rooms per

thousand trips)

Penetration(Rooms per

Million Inhabitants)

Location Y 4.9% 6.4 3.0% 102 1% 19.6 5.5% n/a 0.1 1.2k

Location D 2.3% 8.3 3.2% 341 1% 216.5 4.6% 1,908 0.3 12.1k

Location A 13.3% 74.7 6.4% 1,196 10% 105.4 16.8% 361 0.2 1.0k

India 11.8% 5.0 6.7% 445 17% 22.4 10.4% n/a 0.1 0.1k

Singapore 5.5% 8.3 4.3% 906 11% 1.2 7.1% 230 1.5 6.8k

Thailand 5.9% 14.4 4.2% 85 8% 8.5 7.0% 825 0.3 5.6k

Philippines 9% 3.1 5.8% 33 15% 3.6 7.1% 485 0.3 0.3k

Location B 13.8% 2.9 8.8% 17 16% 1.5 8.5% 299 0.3 1.5k

Malaysia 6.2% 21.0 7.7% 39 6% 2.1 8.9% 111 0.4 5.8k

Indonesia 12.3% 5.5 7.5% 226 7% 7.7 12.1% 100 0.1 1.2k

Maldives n/a 0.7 4.7% n/a n/a 0.01 0% n/a 1.4 n/a

Ranked

Summary of Key Forward-looking DriversIndicative

Note: 1. Excludes business spend as data unavailableSource: See reference pack

Key forward-looking looking drivers have been assessed for each country…



Country Analysis: Country Focus – Location Summary (2/2)

CountryAbility to

implement

RevPAR Performance1 RevPAR Growth in local currencies Profitability Valuation

Key Cities2007(USD)

Key Cities Growth2006-07

(%)

Luxury2005-07(CAGR)

Upscale / U. Upscale

2005-07(CAGR)

Mid-market 2005-07(CAGR)

Budget 2005-07(CAGR)

GOP Margin2

2006(%)

Valuation per Key

2006(USD ‘000s)

Val. Growth per Key2002-06(CAGR)

Location Y Very high 138 6% 3% -4% n/a n/a n/a 387 4%

Location D High 119 8% 8% -2% 2% 4% 28% 831 5%

Location A High 118 3% n/a 0% -2% n/a 44 – 50% 389 8%

India Low 207 32% 28% 30% n/a n/a 56% n/a n/a

Singapore Medium 141 22% 23% 21% 31% n/a 42% 384 10%

Thailand High 80 1% 2% 8% 14% n/a 46% 194 (0.4)%

Philippines High 79 15% 16% 11% n/a n/a n/a 96 4%

Location B High 96 35% n/a 30% n/a n/a n/a n/a n/a

Malaysia High 63 10% 11% 15% n/a n/a 30% 131 9%

Indonesia High 56 34% 16% 12% 17% n/a 26-26% 116 4%

Maldives Medium 4301 n/a n/a n/a n/a n/a n/a n/a n/a

Ranked

Summary of Key Historic DriversIndicative

Note: 1. Maldives figures for RevPAR and RevPAR growth are based upon Luxury and Upper Upscale hotels only; 2. GOP Margin is Income Before Fixed Charges based upon capital city figures with the following exceptions: Location A (Beijing, Hong Kong and Shanghai), India (Mumbai), Indonesia (Jakarta, Bali)

Source: See reference pack

…followed by key historic drivers such as valuations, key performance indicators and profitability, and Client X’s ability to implement



Country Analysis: Recap – Location Drivers Ranking (1/2)

CountryAbility to

implement

Location Z Dep.

Economy Demand Drivers Supply Drivers

Location Z departures

2006(Rank)

GDP Growth 2007-15(Rank)

Int’l Trips2007

(Million)

Int’l Trips Growth 2007-15 (Rank)

Domestic Trips 2006

(Million)


2007-11 (Rank)

Dom. Tourism Spend1

2007 ($bn)

Dom. tourism spend growth

2007-15 (Rank)

PenetrationRooms/Trip

(Rank)

PenetrationRooms/Pop’n

(Rank)

Weighting Critical Very High High High High

Top 2

Location A High 4 2 74.7 5 1,1961 5 105.4 1 4 3

Location Y Very high n/a 9 6.4 11 102 10 19.6 9 2 4

Middle 5

Location B High 5 1 2.9 1 17 2 1.5 5 7 6

Philippines High 3 5 3.1 6 33 3 3.6 6 6 2

Thailand High 2 7 14.4 9 85 7 8.5 8 8 7

Indonesia High 8 3 5.5 3 226 6 7.7 2 3 5

Malaysia High 7 6 21 2 39 8 2.1 4 9 8

Bottom 4

India Low n/a 4 5 4 445 1 22.4 3 1 1

Singapore Medium 6 8 8.3 8 1 4 1.2 7 12 9

Location D High 1 10 8.3 10 341 9 216.5 10 5 10

Maldives Medium n/a n/a 0.7 7 n/a n/a 0.01 11 11 n/a

Ranking of Key Forward-looking DriversIndicative

Note: Location A figures for phase 1 based on Greater Location A; 1. Domestic trips for Location A includes mainland Location A onlySource: See reference pack

Location A and Location Y appears to provide the best opportunities for Client X



Country Analysis: Recap – Location Drivers Ranking (2/2)

Country

RevPAR Performance RevPAR Growth in local currencies Profitability Valuation

Key Cities2007(USD)

Key Cities Growth1

2006-07 (Rank)

Luxury 2005-07(CAGR)

U. Upscale/ Upscale2005-07 (Rank)

Mid-market 2005-07(Rank)

Budget 2005-07 (Rank)

GOP Margin2

2006 (Rank)

Valuation per Key

2006(USD ‘000s)

Val. Growth per Key

2002-06 (Rank)

Weighting Medium Medium Medium Medium

Top 2

Location A 118 9 n/a 8 5 n/a 2 389 3

Location Y 138 8 7 10 n/a n/a n/a 387 6

Middle 5

Location B 96 1 n/a 2 n/a n/a n/a n/a n/a

Philippines 79 5 4 6 n/a n/a n/a 96 7

Thailand 80 10 8 7 3 n/a 3 194 8

Indonesia 56 2 3 5 2 n/a 7 116 5

Malaysia 63 6 5 4 n/a n/a 5 131 2

Bottom 4

India 207 3 1 1 n/a n/a 1 n/a n/a

Singapore 141 4 2 3 1 n/a 4 384 1

Location D 119 7 6 9 4 1 6 831 4

Maldives 4301 n/a n/a n/a n/a n/a n/a n/a n/a

Ranking of Key Historic DriversIndicative

Source: See reference pack

Location A and Location Y appears to provide the best opportunities for Client X



Country Analysis: Drivers – Economic and Demographic

Summary of Key Forward-looking Economic and Demographic DriversIndicative

Note: 1. Percentage of income received by the 40% of households with middle bracket of income; 2. Location A figures for phase 2 focus on Mainland Location ASource: UNICEF; Price Waterhouse Coopers; The Economic Intelligence Unit; Deloitte Research & Analysis

Country

Economy Average Population Demographics and Spending Demand

GDP per Capita (2007; USD)

Total Population (Million)

Total Income held by middle class1 (%)

Middle Class Disposable Income

Estimate (2007; USD Billion)

PDI per Capita (2007; USD)

Consumer Expenditure

(2007; USD)Intl Receipts 2006

(USD Billion)

Total Receipts Growth 2006-112,3

(CAGR)

Location A2 2,450 1,291 35% 491.4 1,063 910 34.26 9.7%

Philippines 1,582 77 34% 21.9 706 1,098 2.77 7.4%

Location Y 19,680 49 42% 230.4 11,196 10,790 5.84 4.5%

Thailand 3,700 63 35% 42.2 1,814 1,980 10.51 5.5%

Location B 810 84 36% 11.4 369 510 2.30 1.4%

The selected countries boast encouraging demographic indicators and are forecast continued strong demand growth



0

50

100

150

200

250

300

350

400

450

2000 2004 2008 2012 2016 2020

Country Analysis: Drivers – Investment in TourismChinese investment in travel and tourism is both significantly larger and forecast to grow more quickly than other focus countries

Note: Private capital investment includes foreign investmentSource: World Travel and Tourism Council; Deloitte Analysis

Historic Forecast

CAGR

Capital Investment (2000-20)1

$ Billions

113.0

1.312.7 3.2

1.5

12.8

0.42.6 0.6

0.04

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China Philippines South Korea Thai Vietnam

Capital Investment (2007): Public vs PrivatePercent

Private

Public2000-07 2007-20

Location A 19.0% 10.1%

Location Y 2.5% 6.4%

Thailand 4.5% 6.9%

Philippines (0.8)% 5.7%

Location B 14.0% 6.5%

125.8 1.7 15.3 3.8 1.5



Country Analysis: Historical Performance – RevPARRevPAR performance varies, both in absolute level and growth CAGR (2005-07), by both geography and market segment

0

50

100

150

200

250

300

-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

RevPAR by Market (2005-07)USD 2007 vs CAGR 2005-07

12.1%

$123

Note: Location D Budget/Economy, Malaysia Upscale / Upper Upscale, and Philippines Upscale / Upper Upscale are all 2006-07 Percentage Change; Growth rates based on local currency dataSource: Smith Travel Research; Deloitte Research & Analysis

Upscale / Upper Upscale

Mid-/scale LuxuryBudget / Economy

Indonesia

Location A

Hong Kong

India

Location D

Malaysia

Philippines

Singapore

Location Y

Thailand

Location B



Country Analysis: Historical Performance – OccupancyHowever occupancy shows a more varied picture with a higher proportion of categories showing negative change (2005-07)

55%

60%

65%

70%

75%

80%

85%

90%

95%

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

Occupancy by Market (2005-07)Occupancy 2007 vs Percentage Point Change 2005-07

1.9%

71.8%

Upscale / Upper Upscale

Mid-/scale LuxuryBudget / Economy

Indonesia

Location A

Hong Kong

India

Location D

Malaysia

Philippines

Singapore

Location Y

Thailand

Location B

Note: Location D Budget/Economy, Malaysia Upscale / Upper Upscale, and Philippines Upscale / Upper Upscale are all 2006-07 PP Change; Growth rates based on local currency dataSource: Smith Travel Research; Deloitte Research & Analysis



Note: 1. The business environment rankings model examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.Government prioritization examines the level of government consideration given to travel and tourism in comparison to other industries. 2. The effectiveness of marketing and branding relates to that used to attract tourists into the country. In both cases, the scale is from 1 to 7; The Business Environment rating scale is from 1 to 10

Source: World Economic Forum: The Travel & Tourism Competitiveness Report 2008; Economic Intelligence Unit: Country Forecast February 2008; Deloitte Research & Analysis

Country Analysis: Drivers – Business and Tourism Country Rating

Business Environment and Travel and Tourism Prioritization Score Card (2007)Rating (1 = low)

Good PoorModerateVery Good

Country Business Environment Rating1Government prioritization of travel and tourism2

Effectiveness of marketing and branding2

Overall outlook

Location A 5.6 5.2 4.7

Philippines 5.9 5.1 4.4

Location Y 7.1 5.1 5.1

Thailand 6.7 6.1 5.9

Location B 4.8 5.4 4.7

The overall business environment and travel and tourism prioritisation scores appear to be strongest in Location A, Location Y and Thailand



3.5%

2.1%

5.1%

1.8%

0.2%0%

1%

2%

3%

4%

5%

6%

7%

8%

China Philippines South Korea Thailand Vietnam

Note: Supply data is based on all global and regionally branded hotels onlySource: Lodging Econometrics; Deloitte Research & Analysis

Whilst Location B has the largest pipeline as a proportion of existing hotels, Location A has the largest absolute number of hotels in the pipeline

Mid-Market/Upsc. Room Supply and Pipeline (2007-10)Percentage, Thousand Rooms

Current 2008 2009 2010+

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Greater China Philippines South Korea Thailand Vietnam

113,229

65,690

13,007

8,660

1,817

385

4,447

184220

13,301

5,264

1,434

1,162

1,455

200,586 2,702 4,851 21,161 3,839

Country Analysis: Rooms Supply, Pipeline and Penetration

Change in Mid-Market/Upscale Room Supply Penetration (2007-09)Rooms per Thousand International and Domestic Travellers

500

1,355

489

540



Location B, Thailand and Philippines have shown good RevPAR growth, predominantly driven by ADR growth, with some occupancy gains in Location B

ADR by Country (2005-07)USD 2007 vs CAGR 2005-07

Note: Average indicators are based on weighted average and therefore skewed to towards the large Location A mid-market/upscale room numbersGrowth rates based on local currency data; Location B is a combination of upscale and upper upscale KPIs

Source: HotelBenchmark; Lodging Econometrics; Deloitte Research & Analysis

RevPAR by Country (2005-07)USD 2007 vs CAGR 2005-07

Occupancy by Country (2005-07)Occupancy 2007 vs PP Change 2005-07

60%

65%

70%

75%

80%

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

(5.0)%

65%

0

20

40

60

80

100

120

140

160

180

-10% 0% 10% 20% 30%

9.7%

$94

0

20

40

60

80

100

120

140

0% 5% 10% 15% 20% 25% 30%

$61

5.6%

Country Analysis: Key Performance Indicators

UpscaleMid-Market

Thailand

Location A

Philippines

Location Y

Location B



0

20

40

60

80

100

120

140

15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

2006

2005

Location B

Location Y

Location A

Philippines

Thailand

Room Revenue & Profitability by Country (2005-06)Comparative RevPAR Index 2005, 2006 vs. GOP Margin 2005, 2006

Mid-Market/Upscale room profitability grew across all countries; the exception being Location Y

Average 2006: 77

Average 2006: 40.4%

Average 2005: 71

Average 2005: 38.1%

Note: USD RevPAR 2005 and equivalent USD RevPAR 2006 assuming local currency growthSource: HotelBenchmark; Deloitte Analysis

Country Analysis: Profitability



3.2k

21.6k 20.6k

0.9k0

5

10

15

20

25

30

35

40

45

50

China Philippines South Korea Thailand Vietnam

Location A Mid-Market/Upscale opportunity drastically exceeds that of the other countries; with Thailand and Location B showing a still sizeable opportunity

Illustrative Supply Opportunity (2009-18)Thousand Mid-Market/Upscale Rooms

Note: Estimates are based on a number of assumptions and should be seen as illustrative and not regarded or relied upon as a forecast by Deloitte of expected future market behaviour. Actual outcome could be materially different to that shown

Source: World Travel & Tourism Council; Lodging Econometrics; Hotel Benchmark; Deloitte Research & Analysis

Country Analysis: Illustrative Supply Opportunity

240

245

250247.2k

Relative # hotels:

~1050 ~12 ~4 ~91 ~102



0

20

40

60

80

100

120

140

160

180

200

10% 15% 20% 25% 30% 35%

2006

2005

Philippines

Country Analysis: Illustrative Yields – New Build HotelLocation B offers the highest yields with the least investment. The increases in hotel IBFC in Philippines and Thailand have been higher than the increases in construction costs, resulting in increasing yieldsIllustrative Mid-market Yield by Country (2005-06)Construction Costs per Room Thousand USD vs. Relative Yield

Location A

Thailand

Location Y

Location B

Construction costs increasing faster than increases in hotel IBFC

Construction costs increasing less than increases in hotel IBFC

Note: Construction costs exclude land costs; IBFC excludes ownership costs (rates, insurance, rent, interest, management fees, depreciation and taxes). Relative yield equals IBFC per key divided by construction costs per key

Source: Hotel Benchmark; Davis Langdon; Deloitte Research & Analysis

Annual Income before Fixed Charges per available room, expressed as a percentage of construction costs per Room



Country Analysis: Location YHotel Market – Overview


The Location Yinbound market remains stable, while the outbound and domestic market are growing at high rates

InboundInbound OutboundOutbound HotelsHotels

• Except for the dent in 2003 which was caused by the outbreak of SARS, the Location Ytourism market is growing at a steady rate of 4.2% and is forecasted to grow at 4.5% in the near future.

• 76% of all visitors come from nearby Asian countries such as Location D (37%), Location A (14%) and Location C (5%) and also some from the U.S (10%). The strongest growth is of Location A (16%) and Location C (24%).

• However, receipts from tourists of 5.6 Trillion Won is growing at 3% which is lower than that of visitors, despite an increased length of stay, but because of a decrease in spend per night

• Location Y’s outbound tourism market is growing at a dynamic rate of 10.4%, while expenditure is growing at a even higher rate of 12% driven by the strong Location Z Won. However, departure and expenditure growth is forecasted to slow to 4.4%.

• Asian countries such as Location A, Location B, Location C and Location D remain the most popular countries to visit, representing more than 75% of all outbound trips.

• The Location Z hotel market has been stable growing 3.2% with inflation at 3%.

• Although the accommodation supply is dominated by above mid-market hotels, the budget hotel sector has been growing at 17.6% rate for the past five years.

• Luxury/upper upscale hotels with more than 200 rooms represent four percent of the entire lodging supply only.

• Despite Client X’ market leading position in Location X, there are several competitors with similar propositions. Several of them have recently undergone refurbishment programs.

DomesticDomestic

• The domestic travel market has been growing at a rate of 13% but is forecasted to slow down to 1.4%.

• There was a dip when the Location Z Won strengthened, which was balanced by an increase in international travel.

• Domestic travel spend increased even when the number of travellers decreased indicating a higher spend per trip.

– Increase from 49 k won/trip in 2005 to 55.3 k won/trip in 2006

• include the two biggest cities of Location Z – Location E and Location X, represent 50% of all trips.

DriversDrivers

• The evidence supports that the outlook for the domestic hotel market is positive as GDP continues to grow along with PDI

– Additionally a growing number of people are eating out which will support hotels’ F&B proposition.

• The market for international travellers is likely to be remain stable without a fluctuation in the exchange rate.



Country Analysis: Summary – Key Decision-making Drivers

Key metricsDemand Drivers

Location Z Arrivals

Illustrative opportunity

Historical Performance

(KPIs and profitability)

Investment in Tourism

Business Environment

Illustrative Yield

Ability to implement

Weighting Medium Medium High Medium Low Low High High

Location A

Philippines

Location Y

Thailand

Location B

Summary of Key Decision-making DriversIndicative


The summary of key decision-making drivers shows medium to high results for most countries



Country Analysis: Summary – RankingBased on the 3 most important factors of illustrative opportunity, illustrative yield and ease to implement, Location A appears to be the first choice for mid-market growth

CountryIllustrative

opportunity ratingIllustrative yield rating Ease to implement

Total (max. 30)

Ranking

Location A 10 7 8 25 1

Philippines 2 5 4 11 5

Location Y 1 4 10 15 4

Thailand 5 7 6 18 3

Location B 5 10 5 20 2


Key Criteria Description High Low

Illustrative opportunity rating

Based on the forecast increase in international and domestic demand to 2018, assuming constant occupancy and no increase in penetration of hotels

10 1Illustrative yield rating Illustrative yield for each location, based on investment cost required and indicative profitability

Ease to implement A subjective rating based on geographical proximity and Deloitte insight on local market conditions

Overall Ranking Relative positioning of locations based on equal weighting of 3 key criteria



Agenda

1. Approach


3. Sector analysis

• Region

• Country

• City



6. Next steps



Gateway Cities: Ranking by Degree of Opportunity for Client X

City Rank

Shanghai 1

Beijing 2

Bangkok 3

Ho Chi Minh City 4

Singapore 5

Hong Kong 6

New York 7=

Tokyo 7=

London 9=

Paris 9=


Ranking of Luxury Gateway CitiesIndicative Opportunity

Shanghai is first when ranked by degree of opportunity, and followed by Beijing, Bangkok, Ho Chi Minh City and Singapore in the remaining top 5 positions



Gateway Cities: Why Luxury

Category Section Detail

Market

Financials

• Overall profitability of luxury hotels is higher than other market sectors both in terms of absolute quantum vs benchmark sample and overall margin

• Luxury focused hotel chains have achieved historic growth in operating margin

• As an indicator of both analyst and investor confidence in the sector, share prices of luxury hotels have outperformed the index for hotels

• Luxury hotels tend to have higher yields than lower rated hotels

KPIs• Performance of luxury hotels KPIs has shown growth above other segments and (by definition) higher RevPAR levels

• Historically, luxury segment has outperformed upscale segment throughout the cycle

Timing Supply growth

Currently strong growth in luxury hotel supply in the AsiaPac market creates both opportunity and risk:

• An opportunity to get involved in current development or flag an independent or speculative development (e.g. Hong Kong)

• If the luxury market is not entered now, the increase in luxury product in the AsiaPac market will make it increasingly hard to find development opportunities or acquisition opportunities at a reasonable price. Additionally it will become increasingly hard to create a new brand based on competition versus already established brands

Real Estate Valuations

• Growth in valuations per key of luxury hotels is based on increase in value of real estate and quality of location, brand and product

• Real estate of luxury hotels tends to be in prime locations and, if owned, tends to create a further opportunity for value creation. This is the unique differentiator of luxury versus other segments as premier locations command prices beyond the economic multiples

Client X

Brand• Client X is a luxury brand, focusing on luxury product would be consistent with

customer perception Potential to leverage both brand and experience into overseas growth, which is not possible for mid-market segmentExperience

• Current hotel experience is in the luxury segment, which is different to other segments

Vision • Growth in luxury hotels is consistent with the vision of the senior management in Client X

Scale • Lower number of luxury hotels (compared to mid-market) required to achieve critical mass

Client X has an opportunity to enter the luxury hotel market abroad based on both external and internal factors




Gateway Cities: Demand (1/2)

Country

Country Economic Indicators

City Demand Drivers

Country Demand Drivers Illustrative Opportunity

GDP Per Capita 2006

(USD)

Real GDP Per Capita Growth

2006-13(CAGR)

Tourist Arrivals

2006 (Million)

Int’l Trips2006

(Million)

Int’l Trips Growth 2006-11 (CAGR)

Domestic Trips 2006

(Million)


2006-11 (CAGR)

Average Trip Spend 2006 (USD)

Avg. Trip Spend Growth

2006-11(CAGR)

Illustrativeadditional u. upscale / luxury hotels required

by 2018(# hotels)

Bangkok 3,166 4.6% 10.4 14 4% 86 8% 847 5.6% 53

Beijing 2,012 8.9% 3.6 49 8% 1,196 8% 272 11.0% 123

Ho Chi Minh City 723 6.6% 2.3 2 13% 17 16% 893 (0.5)% 15

Hong Kong 27,499 4.1% 8.1 16 2% 6 4% 454 4.2% 46

London 39,681 1.8% 15.6 30 2% 129 (5)% 1,055 2.6% 58

New York 44,118 1.3% 6.2 51 5% 3,079 2% 2,090 2.1% 62

Paris 36,706 1.6% 9.7 79 3% 165 2% 234 2.6% 44

Shanghai 2,012 8.9% 4.3 49 8% 1,196 8% 272 11.0% 115

Singapore 31,028 3.4% 9.5 8 5% 1 10% 725 5.0% 14

Tokyo 34,264 1.8% 1.5 7 5% 341 1% 1,155 4.6% 20

Summary of Key Forward-looking DriversIndicative

Note: Growth rates based on local currenciesSource: Deloitte Research & Analysis

Most gateway cities analysed are forecast continued strong growth in domestic and international tourism, which may drive future demand for hotels



Gateway Cities: Demand (2/2)

Country

Upper Upscale / Luxury Benchmark PerformanceUpper Upscale / Luxury Benchmark Profitability

Upper Upscale / Luxury Market Valuation

Occupancy2007(%)

Occupancy Change

2004-07 (p.p. Δ1 p.a.)

ADR 2007 (USD)

ADR Growth2004-07(CAGR)

RevPAR 2007(USD)

RevPAR2004-07(CAGR)

GOP Margin2006(%)

GOP Margin Growth 2005-06 (p.p. Δ1)

Valuation per Key

2006(USD ‘000s)

Val. Growth per Key2002-06(CAGR)

Bangkok 70.5% (1.9)% $168 5.5% $118 2.8% 44.6% (0.1)% 195 1.7%

Beijing 68.9% (0.7)%2 $141 5.0%2 $77 3.9%2 53.7% 1.7% 229 7.0%

Ho Chi Minh City 75.8% 5.0%2 $116 38.8%2 $88 48.6%2 52.4% 3.4% n/a n/a

Hong Kong 83.0% 0.5% $227 10.8% $189 11.6% 40.2% 2.1% 624 4.5%

London 79.5% 1.7% $477 1.7% $379 11.2% 42.8% 4.2% 724 2.7%

New York 83.1% 0.7% $397 13.7% $330 14.7% 37.4% (1.9)% 540 4.0%

Paris 77.9% 2.8% $533 5.8% $415 9.9% 33.1% 4.4% 664 1.6%

Shanghai 68.6% (2.4)% $196 7.8% $135 4.2% 47.1% (0.7) 315 7.5%

Singapore 81.4% 1.8% $187 16.6% $152 19.3% 38.9% 2.5% 384 3.9%

Tokyo 76.1% (2.2)%2 $232 6.3%2 $177 3.3%2 28.3% 0.9% 831 4.2%

Summary of Key Historic DriversIndicative

Note: Growth rates based on local currencies. 1 Average percentage-point change per annum. 2 Based on figures from 2006-07Source: Deloitte Research & Analysis

Historic RevPAR performance is encouraging for the gateway cities. Half the benchmark samples having experienced double-digit growth in 2004-07, driven primarily by higher ADR



Gateway Cities: Current and Pipeline Supply

Source: Lodging Econometrics; Deloitte Research & Analysis

The largest pipelines – both in terms of total rooms and as share of current supply – are found in the Chinese cities

29.1k

51.1k

4.5k

23.2k29.5k

54.6k

19.3k

35.9k

12.7k

26.7k

2.5k

8.1k

7.8k

6.2k

8.7k

0.2k

0.3k

0.5k

1.6k

0.6k

0

10

20

30

40

50

60

70

Bangkok Beijing Ho Chi Minh City Hong Kong London New York Paris Shanghai Singapore Tokyo

Current (2007) and Pipeline (c. 2008-10) Upper Upscale / Luxury Supply by CityThousand Rooms

Current Supply Pipeline

Pipeline: 8.7% 15.9% 12.8% 33.6% 5.5% 11.3% 2.8% 24.1% 2.1% 0.8%

Predominantly independents



Bangkok

Beijing

London

New York

Paris

ShanghaiSingapore

Tokyo

Ho Chi Minh City

Hong Kong

0

50

100

150

200

250

300

350

400

450

0% 5% 10% 15% 20% 25% 30% 35% 40%

Gateway Cities: Key Performance IndicatorsNew York, Singapore and Ho Chi Minh City have experienced above-average growth in RevPAR 2004-07

Benchmark RevPAR by MarketUSD 2007 vs CAGR 2004-07

Note: Ho Chi Minh City growth rate for 2005-07; Beijing and Tokyo are 2006-07Source: Hotel Benchmark; Deloitte Research & Analysis

Average: 12%

Average: $206



0

50

100

150

200

250

300

350

400

450

500

25% 30% 35% 40% 45% 50% 55%

Singapore

Hong Kong

Bangkok

Shanghai

Beijing

Ho Chi Minh City

Tokyo

Paris

London

New York

Gateway Cities: ProfitabilityLuxury hotels in Beijing, Ho Chi Minh City increased their profitability from 2005 to 2006 with little addition to overall RevPAR. Bangkok and Shanghai did not experience profit growth

Room Revenue & Profitability by City (2005-06)Comparative RevPAR Index 2005, 2006 vs. GOP Margin 2005, 2006

Average 2006: 210

Note: USD RevPAR 2005 and equivalent USD RevPAR 2006 assuming local currency growthSource: Hotel Benchmark; Deloitte Research & Analysis

Average 2006: 39.0%

2006

2005

Average 2005: 182

Average 2005: 35.8%

Low Cost



Gateway Cities: Illustrative Supply OpportunityThe Chinese gateways appear to have the largest opportunity, driven by growth in demand

43.2k

4.0k

19.7k

9.2k

19.2k

6.5k

32.5k

6.5k9.1k

17.3k

0

5

10

15

20

25

30

35

40

45

50

Bangkok Beijing HCMC Hong Kong London New York Paris Shanghai Singapore Tokyo

Illustrative Supply Opportunity (2009-18)Thousand Upper Upscale / Luxury Rooms

Note: Estimates are based on a number of assumptions and should be seen as illustrative and not regarded or relied upon as a forecast by Deloitte of expected future market behaviour. Actual outcome could be materially different to that shown

Source: World Travel & Tourism Council; Lodging Econometrics; Hotel Benchmark; Deloitte Research & Analysis

Relative # hotels:

~53 ~123 ~15 ~46 ~58 ~62 ~44 ~115 ~14 ~20



Tokyo

Hong Kong

Singapore

Shanghai

BeijingBangkok

London

Paris

New York

New York 2002-06

0

100

200

300

400

500

600

700

800

900

0% 1% 2% 3% 4% 5% 6% 7% 8%

Gateway Cities: ValuationsHotels in Shanghai and Beijing are experiencing the greatest level of growth in property value of properties across the gateway cities

Upper Upscale / Luxury Valuation per Key (2006)USD Thousands 2006 vs Local Currency CAGR 2002-06

Note: USD Valuation 2005 and equivalent USD Valuation 2006 assuming local currency growth. Valuations based on Upper Up-Scale and Luxury only. Figures for Ho Chi Minh City unavailable. 1 CAGR 2002-06 shows low valuation due to 9/11. New York value taken from 2000-06

Source: HVS International; Deloitte Research & Analysis

Average: 4.1%

Average: $501k

1



2006

2005

Singapore

Bangkok

Shanghai

Beijing

Tokyo

New YorkRelatively high return and low investment costs

Gateway Cities: Yields – AcquisitionThailand and Chinese cities offer the highest yields at relatively low investment levels

Illustrative Acquisition Upper Upscale / Luxury Yield by City (2005-06)Valuation Thousand USD vs. Benchmark Percentage Return per Annum

Note: Valuation figures not available for Ho Chi Minh City; IBFC excludes ownership costs (rates, insurance, rent, interest, management fees, depreciation and taxes). Relative yield equals IBFC per key divided by valuation per key

Source: Hotel Benchmark; HVS International; Deloitte Research & Analysis

Annual Income before Fixed Charges per available room, expressed as a percentage of valuation per Room

Location X

0

100

200

300

400

500

600

700

800

900

5% 7% 9% 11% 13% 15% 17% 19% 21%

Market valuations increasing faster than increases in hotel IBFC

Market valuations increasing less than increases in hotel IBFC

Hong Kong

Paris



0

100

200

300

400

500

600

5% 10% 15% 20% 25% 30% 35% 40%

Gateway Cities: Yields – New BuildThe three Chinese cities appear to offer the highest yield relative to construction costs. New build yields are higher than acquisition yields because of the lower costs

Illustrative New Build Upper Upscale / Luxury Yield by City (2005-06)Construction Costs per Room Thousand USD vs. Relative Yield

Note: Construction costs exclude land costs; IBFC excludes ownership costs (rates, insurance, rent, interest, management fees, depreciation and taxes). Relative yield equals IBFC per key divided by construction costs per key

Source: Hotel Benchmark; Davis Langdon; Deloitte Research & Analysis

2006

2005

Singapore

ShanghaiHo Chi Minh

Bangkok Beijing

Hong Kong

Tokyo

Construction costs increasing faster than increases in hotel IBFC

Construction costs increasing less than increases in hotel IBFC

Location X

Annual Income before Fixed Charges per available room, expressed as a percentage of construction costs per Room



Gateway Cities: Summary – Key Decision-making Drivers


Key Drivers Bangkok BeijingHo Chi

Minh CityHong Kong

London New York Paris Shanghai Singapore Tokyo

Demand drivers

Location Z Arrivals

Supply drivers

Historical KPI performance

Historical profitability

Illustrative opportunity

Illustrative yield unknown unknown

Ability to implement

Summary of Key Decision-making DriversIndicative

The summary of key decision-making drivers shows the majority of Asia-Pacific cities with medium to high results



Gateway Cities: Summary – RankingThe Chinese cities of Shanghai and Beijing, followed by the other five gateway cities in Asia-Pacific are all attractive options for luxury gateway market entry

City Illustrative opportunity rating Illustrative yield rating Ease to implement Total (max. 30) Ranking

Bangkok 6 9 8 23 3

Beijing 10 10 5 25 2

Ho Chi Minh City 2 91 7 18 4

Hong Kong 5 5 5 15 6

London 6 51 2 13 9=

New York 6 6 2 14 7=

Paris 5 6 2 13 9=

Shanghai 10 8 9 27 1

Singapore 2 7 8 17 5

Tokyo 3 3 8 14 7=

Note: Rating 10 = high, 1 = low. 1. Proxy based on construction cost and local market knowledgeSource: Deloitte Research & Analysis



Based on the forecast increase in international demand to 2018, assuming constant occupancy and no increase in penetration of hotels






Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A


6. Next steps



Strategic Options: Overview

Current Value RealisationCurrent Value Realisation Status QuoStatus Quo Growth StrategyGrowth Strategy

At the highest level, Client X has to chose from 3 strategic options


• Sell Client X

• Real estate manager with new brand

• Fix Client X operations

• Defend against marketplace



Strategic Options: Pros & ConsGrowth in luxury hotels in gateway cities carries high investment cost and significant risk factors.The mid-market option is potential very attractive under the franchise-in option

Option 1: Mid-Market Countries Option 2: Luxury Gateway Cities Options 3: M&A

Advantages

• Growth opportunities

• Existing development partners

• Gain platform in a master franchise

• Existing brand

• Economies of scale with current product


• Equity capability.

• Proven brands

• Speed

• Acquire expertise

• Current market discount

• Choice of segment

Disadvantages

• No sector experience

• Potential to devalue Client X brand

• Investment requirement or need to acquire skills

• Current capital investment requirement

• Current operational performance

• Implementation risk

• Skills requirement.

• Credit markets

• Post Merger Integration risk




Strategic Options: Organic Growth – Available Operating ModelsClient X will need to follow an owned/leased operating model in both the mid-market and luxury sector in the short to medium term, until it is able to prove its ability to operate hotels profitably to owners

Owned/Leased under Client X Brand or Client X Brand Family

Entering the mid-market with a Client X brand would be high risk due to the lack of an existing brand, and lack of experience and skills in the mid-market.

If Client X is willing to commit significant investment capital into owned/leased hotels, it will be able to enter gateway cities in the luxury sector

Managedunder Client X Brand or Client X Brand Family

For the above reasons it would be highly risky to attempt to manage hotels under a Client X mid-market brand. Furthermore, returns are likely to be higher under a franchised in brand.

Client X will only be able to secure management contracts in the luxury sector in gateway cities (other than potentially in Location X) once it has a proven track record. This will be in the medium to long term.

Owned/Leasedunder franchised in brand

Depending availability within each country, Client X has the potential to franchise in a global brand and capitalise on their brand, operational experience and procedures, sales and marketing platform, etc.

Not applicable as luxury operators do not franchise out their brands.

Managedunder franchised in brand

Not applicable in short to medium term until Client X can prove to owners that it can operate effectively.

Not applicable as luxury operators do not franchise out their brands.

Mid-market in focus countries Mid-market in focus countries Luxury in gateway citiesLuxury in gateway cities

= Operating models available to Client X in the short to medium term




Strategic Options: Key Components of a Platform for Profitable GrowthClient X will need to ensure it has the necessary platform to ensure profitable growth

Sales and marketingSales and marketing

• Global or regional sales and marketing team driving reservations

• Participation in global marketing strategies and programmes (e.g. promotions, yield management)

• Access to a globally recognised guest loyalty program (driving 30% - 50% of paid room nights)

• Strong cost effective distribution systems including website and GDS

• Standard operating procedures

• Improving hotel operating margins through procurement savings

• Providing shared services

• Providing access to training

• Brand standards

• Architecture and construction services

• Providing local development expertise

• Financial modelling

• Expertise in maximising real estate values

OperationsOperations

DevelopmentDevelopment


Real estateReal estate



Strategic Options: Focus Country International ArrivalsBased on number of international arrivals (line width) and historical growth (%), Location A and Location B appear to be the most attractive country options. However, this will depend on risk/reward aptitude

Note: Reflects major population flows between focus countries onlySource: Euromonitor; Deloitte Research & Analysis

Location ALocation B

ThailandPhilippines

Rep. ofLocation Z 30%

15%

16%

18%

16%

22%

3%

51%

20%

4%

13%

11%

12%

Suggested countries of focus

3%Historical growth & International Arrivals 2002-06

Approx. # Int’l Arrivals

3.0m

1.0m

0.5m



Strategic Options: Approach – Luxury Gateway CitiesViable approach but requires development of operational platform and recruitment of a development team. Consequently rollout rate will be slow at c. 8-10 hotels in 10 years

ApproachApproach

• Begin development activity (sourcing opportunities) in top target cities simultaneously with a view to opening 1 property in year 3, second in year 4, third in year 5.

• Top target cities – Shanghai, Beijing, Bangkok, Ho Chi Minh City

• Based on current analysis Phase Two opportunities in Years 5-10 should focus on Hong Kong, Singapore and Tokyo

• Market analysis should be repeated within first five years to refine development activity

• Need experienced Development Team and this will take time and money to recruit with inherent risk

• Due to lack of brand awareness outside of Location Z the management contract model is not appropriate and so the ownership model is the most viable option

• Due to lack of brand awareness outside of Location Z it will be more difficult to acquire assets in these competitive cities

• The expenditure/revenue profile will show:

– Significant capital outlay in years 1 – 2 with no revenue

– Significant capital outlay in years 3 – 5 with limited revenue

– Significant capital outlay in years 5 – 8 with moderate revenue

• Lack of experienced management talent pool to manage new properties

• Lack of stable and efficient operating platform to deliver profitable growth

Comment/CaveatComment/Caveat




Strategic Options: Approach – Mid-market CountriesFranchising in Location A offers the most attractive opportunity for growth both in terms of speed and building a reliable operational platform

ApproachApproach

• Initial focus on Location A in years 1 – 5 with a target of 5 hotels

– Three potential approaches:

- Major brand franchise and building assets

- Acquire small portfolio of hotels ( 5 – 10 properties)

- Acquire and convert single 4* properties

• Years 5 – 7 focus on Location B and Thailand through single asset development

– Need to begin Location B development activity in year 3 due to long lead time

– Begin Thailand development activity in year 4

• Results in portfolio of 15 – 20 hotels within 10 years

• Lack of operational platform to support profitable growth which is particularly important for the mid-market

• Franchise option most attractive as will gain the most important elements of platform such as brand standards, standard operating procedures, training, central reservations and global marketing

– Remaining elements are the easiest to implement locally such as centralised IT systems

• Lack of experienced management pool to support growth

• Lack of experienced development team

• Opportunity to build on existing relationship with Suning

• Opportunity for rapid growth through acquisition of small portfolio and moderate growth through conversion of existing properties in Location A

• Precise location in Location A very important as not all secondary cities offer the best opportunities

• Review geographical options in year 4 before beginning phase 2





Strategic Options: Approach – M&AOffers best option for growth with sector choice dependent on Client X’s growth ambitions

Sector DynamicsSector Dynamics

• Mid-market segment offers potentially larger more stable growth

• Luxury segment offers greater return in a growing market but greater risk in a declining market and less opportunity for growth in scale

• Cultural fit to Client X

• Geographic location of headquarters

• Capabilities acquired – talent, platform, property assets

• Synergies with current Client X brand and operations

• M&A provides quickest, least risky option for growth

• Returns will clearly be dependent on exact nature of acquisition target

• Choose segment based on vision

• Select targets based on fit (return, culture, footprint)

• Implement via tactical delivery of JV / majority stake / minority stake, as possible

Implementation Considerations

Implementation Considerations



ApproachApproach



Strategic Options: Summary

Category Detail

Build on strengths

Valuable asset in Client X that needs realising to full potential

• Operational improvement and capital investment

• Increase returns and become showcase for growth strategy

Obtain experienced CX team• To realise potential in current portfolio

• To drive forward chosen growth strategy

Start close to home• Easier to manage, can leverage existing operations, brand awareness

• Most major multinational and regional players adopted this approach

Trust the data• The luxury segment in AsiaPac is out performing other regions and there is still plenty of future growth

• Shanghai, Beijing, Bangkok, HCMC, Singapore, Hong Kong offer best market opportunities


In summary, Client X should build on the strengths of Client X, obtain an experience CX team to drive forward and focus on expansion close to home



Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A


6. Next steps



Organic: Gateway Cities Ranking RecapThe Chinese cities of Shanghai and Beijing, supported by SE Asia’s Bangkok and HCMC appear to be the best opportunities for luxury gateway market entry

City Illustrative opportunity rating Illustrative yield rating Ease to implement Total (max. 30) Ranking

Bangkok 6 9 8 23 3

Beijing 10 10 5 25 2

Ho Chi Minh City 2 91 7 18 4

Hong Kong 5 5 5 15 6

London 6 51 2 13 9=

New York 6 6 2 14 7=

Paris 5 6 2 13 9=

Shanghai 10 8 9 27 1

Singapore 2 7 8 17 5

Tokyo 3 3 8 14 7=

Note: Rating 10 = high, 1 = low. 1. Proxy based on construction cost and local market knowledgeSource: Deloitte Research & Analysis



Based on the forecast increase in international demand to 2018, assuming constant occupancy and no increase in penetration of hotels






Organic: Gateway Cities Ranking Opportunity Recap

City Rank

Shanghai 1

Beijing 2

Bangkok 3

Ho Chi Minh City 4

Singapore 5

Hong Kong 6

New York 7=

Tokyo 7=

London 9=

Paris 9=



All top 6 cities represent attractive and interesting options for Client X to operate hotels in based on illustrative opportunity, yield and ability to implement,

The long term goal must remain to have properties in each of the top 6 cities to provide strong regional coverage across key gateway cities.

Ranking suggests an ideal order based on perfect market situation. However given pragmatic realities, it may not be possible to approach the cities in this order and Client X will need to opportunistic as to which options are achievable in what order

The top 6 cities in the ranking represent attractive options for Client X which should be pursued to provide good regional coverage



Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A

– Overview

– Majority stake corporate targets

– Strategic partnership targets

– Iconic property targets


6. Next steps



Existing properties:

Development opportunity:

M&A: Overview of M&A OptionsDeloitte have analysed 4 majority stake corporate targets, 8 minority acquisition targets and 4 iconic property targets

Iconic property acquisitionIconic property acquisitionMajority stake corporate targetsMajority stake corporate targets Strategic partnership targetsStrategic partnership targets


Aman deal with DLF now believed to be

complete. Unlikely to be able to take majority stake



M&A: Illustrative Time-lineIt is vital that any approach to potential targets is fully thought out and a strategy formulated before the target is contacted

Months

Task 0 6 12 18

Evaluation of appropriateness of M&A strategy

- Determine Client X's overall vision and strategy

- Determine capacity to invest

- Determine aim of M&A strategy (operations, brand, growth)

- Evaluate the type of potential M&A targets

Plan M&A

- Appoint management team

- Appoint advisors

- Complete targeting and acquisitions search and analysis

- Formulate an approach strategy

- Agree a preliminary view on valuation and financial structuring

Execution

- Approach the target using top level contacts

- Initial discussions and determining targets requirements

- Obtaining and analysing targets management information

- Financial due diligence and commercial due diligence

- Negotiations & completion

Post merger integration

- Integrate management teams

- Execute growth strategy

Approach only takes place after careful

planning

Client X is still at the very early stages of an M&A

process. No final decision on targets can be made at

this stage,




M&A: Key Success Factors of M&A Transactions

TimingTiming

M&A transactions are difficult to execute. Key success factors differ from deal to deal. However, the following represent some of the key success factors for most deals.

Value-addedValue-added

Capacity to do dealCapacity to do deal

• The timing of any acquisition significantly effects acquisition prices.

• Completing M&A deals in the current market is extremely challenging unless the acquirer is willing to pay a significant premium above quoted market values.

• In order to justify any M&A transaction you need to be able to show how the transaction will generate value for the combined new entity / group. For example, providing access to new markets or providing investment capital for expansion,

• The acquirer will need to be able to demonstrate the capacity to do the deal. This includes securing both the necessary debt and equity requirements.

• The acquirer needs to understand the needs of the vendor, i.e. “What’s in it for me” in order to be able to present a proposition they will be interested in discussing. For example, is the vendor looking to exit the business completely, are they looking to expand, etc.

• The acquirer and the vendor will need to be able to work together in order to successfully complete a transaction. This is even more important when the vendor has an ongoing interest in the company (e.g. Joint Venture)

Understanding the vendorUnderstanding the vendor

ChemistryChemistry




Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A

– Overview





6. Next steps



Majority acquisition on own Majority acquisition with real estate partner

Description

• Client X acquires more than 50% of the target company and therefore acquires brands, operations and real estate

• Examples: Competitor A, Competitor D, Competitor E and Competitor C

• Client X acquires the target together with a partner. Subsequent to the transaction the real estate is spun off into a propco.

• Examples – Prince Alwaleed & Four Seasons

Requirements• Significant investment capital

• Required to pay 20% - 30% more than current market prices

• A partner interested in acquiring the real-estate and wanting to partner with Client X. In the short to medium term the partner would need to be Samsung related (until Client X proves themselves).

Pros

• Complete control of transaction

• Acquisition of proven brands and operations

• Fastest method of expansion

• Significantly reduces acquisition costs for Client X as it acquires operations only

• Provides base for future growth if partner continues to invest in real-estate of new developments

• Partner can have real-estate or development expertise

Cons

• If target is listed Client X will be required to make an offer for 100% of the equity of the target as a result of most stock exchange regulations

• Will need to pay a significant premium over current market prices in order to secure majority control.

• No real estate appreciation for Client X

• Will need to pay a significant premium over current market prices in order to secure majority control.

Majority Stake: Potential Deal StructuresIn order to perform a majority acquisition Client X will require significant investment capital and be willing to pay in excess of current market prices




Majority Stake: Screening ‘Long List’ of Potential Targets4 Luxury/Upper Upscale companies were identified as potential majority stake acquisitions

‘Long List’ of targets


Targets meeting

minimum investment

criteria

Targets meeting

minimum investment

criteria

‘Short list’ of targets


Luxury / Upper UpscaleLuxury / Upper Upscale Upscale / Mid MarketUpscale / Mid Market

Minimum Investment Criteria

Value Creation Criteria

3836

98

54Client X has indicated

they do not wish to pursue a mid-market

M&A strategy

Note: (1) enterprise values is c.$1bn or less; (2) Based on target’s brand equity, operational experience and geographical presence in focus countries/citiesSource: Deloitte Research & Analysis



Majority Stake: Alternative Strategies for Engaging Identified Targets

Minority investment

• Banyan is a listed investment therefore minority investment can be acquired through purchasing on the open market or through off-market purchases from significant investors.

• Price premium can be limited by careful planning of open market acquisitions.

• Stock exchange rules require disclosure of interests in excess of thresholds (e.g. 5%)

• This is unlikely to be a possibility as DLF have significant funds available for investment (don’t need investment partner) and already have a presence in Asia Pacific.

• Client X would need to demonstrate the value it could add to the deal.

Client X is restricted to a minority or JV investment unless it is able to increase the funds available for investment.

• Possibility of a minority investment is unknown until an approach is made.

• Client X would need to demonstrate the value it would add to an M&A deal (e.g. expansion in Asia).

• Possibility of a majority acquisition is unknown until approach is made.

• Will require the payment of a significant premium.

• Will need to observe stock exchange rules (offer to acquire 100% of stock)

Majority investment

• Unlikely to be a possibility as recently acquired by DLF who have significant expansion plans.

• Unlikely to be a possibility unless Client X has access to over $1bn for investment. The Hunt family and Maritz Wolff each own 50% and therefore both would need to be bought out.

• Possibility of JV acquisition is unknown but likely to be challenging given that Banyan is a listed company with a large number of investors.

• Client X would need to prove value-add.

Joint Venture

• This is unlikely to be a possibility as DLF have significant funds available for investment (don’t need investment partner) and already have a presence in Asia Pacific.

• This is a possibility, however, Client X would still need to have access to c.$0.5bn+.

• Client X would need to demonstrate the value it would add to an M&A deal (e.g. expansion in Asia).

Note: Morgan’s has not been included in the above analysis and Client X indicated they do not consider it to be an attractive target. 1. DLF believed to have completed deal to acquire controlling interest in Aman Resorts group


1



Majority Stake: Acquisition Target (1/4)

0%

20%

40%

60%

80%

100%

HQ: Haryana, India HQ: Haryana, India

Ownership and Share Price

• Significant shareholders: DLF limited, Adrian Zecha

• Enterprise value band: c.$400m (last transaction value)

• Key executives: Adrian Zecha

• Share Price: N/A

Geographical Distribution

% of # of hotels

Brand Distribution

% of # of rooms

Aman resorts

0%

20%

40%

60%

80%

100%

Aman

Note: 1. France (1), Morocco(1), U.S.(1), Turkey (1)Source: Deloitte Research & Analysis

Portfolio Overview

• 100% Resorts

• Operating Model:

• Hotels: 18 existing

• Rooms: 806

• Number of Employees: N/A

Indonesia

Owned

Number of New Hotels Total Number of Hotels

# of New HotelsTotal # of Hotels

Key Performance Indicators

07 06

Occupancy Rate

ADR $778

RevPAR

Return on Capital Employed

Return on Equity

EBITDA Margin

Profitability – Revenue, EBITDA (US$ million)

09E 08E 07 06 05 04 03 02

Revenue

EBITDA

Sri Lanka

IndiaBhutan

Bora Bora

Other1

CambodiaPhilippines

Thailand

13

68 910 11 121314

1718

0

5

10

15

20

1988 1991 1994 1997 2000 2003 2006

0

1

2

3

4




HQ: Singapore, Singapore

Ownership and Share Price• Significant shareholders: Ho Kwon Ping (36.5%), Chiang See

Ngoh Claire (36.5%)• Enterprise value band: c.1$bn (current) - c.1.6$bn (June 2007)• Key executives: Ho Kwon Ping, Ariel P Vera, Chiang See Ngoh

Claire • Share Price:


% of # of hotels

0%

20%

40%

60%

80%

100%


07 06

Occupancy Rate 67% 63%

ADR $ 235 $ 215

RevPAR $ 157 $ 135

Return on Capital Employed 10% 15%

Return on Equity 18.8% 9.9%

EBITDA Margin 29.0% 33.2%

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Laguna

Angsana

Banyan Tree

Note: 1. India(1), Sri Lanka(1), Laos(1); 2. Seychelles(1), Morocco(1), Australia(1), Bahrain(1); 3. Data on shaded area not available as Banyan Tree went public in only June 2006Source: Deloitte Research & Analysis, CIMB Report, Yahoo Finance


09E 08E 07 06 05 04 03 02

Revenue 396.8 309.5 280.2 211.1 112.6 159.4

EBITDA 124.0 93.0 81.3 70.1 20.9

Thailand

Other2

Maldives

Location A

APAC other1

Indonesia

Portfolio Overview

• 82% Resorts


• Hotels: 23 existing & 49 pipeline

• Rooms: 2,330

• Number of Employees: 7,068

ManagedOwned

1

6911

1315

2023

4

0

5

10

15

20

25

1987 1991 1995 1999 2003 2007

0

1

2

3

4

5# of New HotelsTotal # of Hotels


1997 Asian Financial

Crisis

Sep 06 Jan 07 May 07 Sep 07 Jan 08

3.0

2.5

2.0

1.5

1.0

0.5

Sha

re p

rice

(S$)




HQ: New York, NY HQ: New York, NY

Ownership and Share Price• Significant shareholders: Morgan Stanley & Co (17.66%), Fidelity

Management & Research (14.78%), Blackrock Advisors (6.38%)• Enterprise value band: $1.2bn (current) - $1.4bn (June 2007)• Key executives: David Hamamoto (Chairman), Fred J.Kleisner

(CEO), Richard Szymanski (CFO)• Share Price


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

MorgansRoyalton Delano Hudson

Mondrian

Note: 1. As of December 31, 2006 – does not include employees of joint venture restaurantsSource: Deloitte Research & Analysis, Yahoo Finance, Oppenheimer

Portfolio Overview

• 36% Resorts



• Rooms: 6,800


0%

20%

40%

60%

80%

100%

Miami

New York

JVOwned




07 06

Occupancy Rate 80.1% 77%

ADR $ 396 $ 319

RevPAR $ 317 $ 246


Return on Equity -9% -10%



09E 08E 07 06 05 04 03 02

Revenue 389.0 345.6 323.0 278.6 260.4

EBITDA 149.3 111.7 113.2 85.1 79.5

Went public in February

2006

Sha

re p

rice

(US

$) 3025

20

15

10Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

45

910

12

7

21

3

0

5

10

15

1984 1988 1992 1996 2000 2004

0

1

2

3

London

Las VegasL.A.

San Fran.Scottsdale

CliftSt.MartinsSandersonShore ClubHard Rock




HQ: Dallas, Texas, United States HQ: Dallas, Texas, United States


• Significant shareholders: Hunt family (50%) and Maritz, Wolff & Company (50%)

• Enterprise value band: c.1$bn+

• Key executives: John Scott (President & CEO), Susan Aldrige (SVP & General Counsel), Bob Boulogne(COO), Jim Brackensick (SVP – Purchasing), George Fong (SVP – Architecture & Design), Ernest Glidden (SVP – Finanace), Alex Alt (Diretor- Development & Strategy), Sheri Line (HR Director)



% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Al Faisaliah

Carlyle Al Khozoma Caneel BayPeachtree

Rosewood

Seiyo GinzaLas Ventanas AnasaziJumby BayCordevalleSan YsidroKing Pacific

Note: 1. Five hotels including Rosewood Corniche, Rosewood Mansion on Turtle Creek, Rosewood Crescent Hotel, Rosewood Little Dix Bay, Rosewood MayakobaSource: Deloitte Research & Analysis

Portfolio Overview

• 55% Resorts



• Rooms: 1,939

• Number of Employees: c.5,000

0%

20%

40%

60%

80%

100%

Middle East

Tokyo

Latin America

NorthAmerica

Caribbean

ManagedOwned

4 56 7 8 9 10

1214

16

0

5

10

15

20

1978 1984 1990 1996 2002

0

1

2

3

4

5




07 06

Occupancy Rate

ADR

RevPAR


Return on Equity

EBITDA Margin


09E 08E 07 06 05 04 03 02

Revenue 350

EBITDA



Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A

– Overview





6. Next steps



Deal description

Client X enters into a strategic partnership with a target whereby value is created for both partners:

• Client X acquires a minority share (10% - 20%) in the target company and negotiates a position on the board.

• Client X transfers management of its existing hotels to the target company in exchange for the target investing repositioning capex.

• Client X co-invests in real estate of new hotel developments that bear the brand of the target. Client X helps source the opportunities using Samsungs muscle/contacts/network/own customer base of it's employees

Client X will be well positioned to acquire a majority stake if the opportunity presents itself in future years.

Pros Cons

• Opportunity to acquire an immediate stake in target (with minimum premium) and positions Client X well to acquire a majority stake in the future.

• Only have minority interest in target therefore have limited control over its direction and strategy.

• Value generated by improved performance at existing Client X hotels as a result of access to targets platform and operational excellence.

• Risk of losing control of Client X Brand.

• Opportunity remains to expand Client X brand (e.g. co-brand with target where it makes sense.

• Potential negative impact on shareholders view of the value of the company (i.e. no longer runs its own hotels).

•Client X ideally positioned invest in prime hotel real estate projects.

Strategic Partnership: Investment PlanA strategic partnership investment plan would allow Client X to acquire an immediate stake in the target with a view of acquiring a majority stake at a later stage



Strategic Partnership: Screening ‘Long List’ of Potential TargetsEight Luxury/Upper Upscale companies were identified as potential minority stake acquisitions



Targets within Client X

investment capacity

Targets within Client X

investment capacity



Note: (1) required investment to obtain a 10% interest must be less than $300m; (2) Client X fits within target brands and M&A transaction likely to generate valueSource: Deloitte Research & Analysis

Within Client X investment capacity(1)

Brand ‘fit’ with Client X(2)

20 hotels

9 hotels



0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Strategic Partnership: Potential Targets –

Ownership and Share Price• Significant shareholders: Ho Kwon Ping (36.5%), Chiang See

Ngoh Claire (36.5%)• Enterprise value band: c.1$bn (current) - c.1.6$bn (June 2007)• Key executives: Ho Kwon Ping, Ariel P Vera, Chiang See Ngoh

Claire • Share Price:


% of # of hotels

Brand Distribution

% of # of rooms

Laguna

Angsana

Banyan Tree

Note: 1. India(1), Sri Lanka(1), Laos(1); 2. Seychelles(1), Morocco(1), Australia(1), Bahrain(1); 3. Data on shaded area not available as Banyan Tree went public in only June 2006Source: Deloitte Research & Analysis, CIMB Report, Yahoo Finance


09E 08E 07 06 05 04 03 02

Revenue 396.8 309.5 280.2 211.1 112.6 159.4

EBITDA 124.0 93.0 81.3 70.1 20.9

Thailand

Other2

Maldives

Location A

APAC other1

Indonesia

Portfolio Overview

• 82% Resorts



• Rooms: 2,330


ManagedOwned

1

6911

1315

2023

4

0

5

10

15

20

25

1987 1991 1995 1999 2003 2007

0

1

2

3

4

5# of New HotelsTotal # of Hotels


1997 Asian Financial

Crisis

Sep 06 Jan 07 May 07 Sep 07 Jan 08

3.02.5

2.0

1.5

1.0

0.5

Sha

re p

rice

(S$)

HQ: Singapore


07 06


ADR $235 $215

RevPAR $157 $135







0%

20%

40%

60%

80%

100%

Ownership and Share Price1

• Significant shareholders:• Enterprise value band: $2.5bn (current)• Key executives: Ka Shiu Lo (Chairman of the Board, managing

director) Yiu Wah So (Hotel executive vice president)• Share Price


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Langham

Note: 1. information of Great Eagles Holdings Limited, which owns Langham Hotels International Limited;2. The EBITDA is high due to the large increase in fair value changes on investment properties


Portfolio Overview

• 10% Resorts



• Rooms: 5,580


Americas

Hong Kong




07 06


ADR $189.8 $169.8

RevPAR $149.4 $133.8

Return on Capital Employed1 14.5% 1.92%

Return on Equity1 15.5% 2.0%

EBITDA Margin1 39.7% 37.6%

Profitability – Revenue, EBITDA (US$ million)1

09E 08E 07 06 052 042 03 02

Revenue 536.1 485.6 452.8 363.5 312.2 329.5

EBITDA 212.6 182.7 1,750 499.0 70.1 94.8

Sha

re p

rice

(HK

$)

4030

20

10

Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

Pacific

London

ThailandDelta

Eaton

HQ: Hong Kong, Location A

4

Owned

4

23

5

1

109

0

2

4

6

8

10

12

1990 1994 1998 2002 2006

0

1

2

3

4

5




0%

20%

40%

60%

80%

100%

Ownership and Share Price• Significant shareholders: Jardine Strategic and its subsidiaries

(73.58%)• Enterprise value band: $2.3bn (current)• Key executives: Edouard Ettedgui (Group CEO, Director), John

Witt (Finance Director)• Share Price


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Note: 1. Bangkok, Chiang Mai, Hong Kong (3), Jakarta, Kuala Lumpur, Macau, Manila, Singapore, Tokyo; 2. Data available only for those with significant ownershipSource: Deloitte Research & Analysis, Reuters

Portfolio Overview

• 0% Resorts


• Hotels: 21 existing & 18pipeline

• Rooms: 10,000


Managed

Owned




07 06

Occupancy Rate 72.1% 72.9%

ADR $ 381 $ 331

RevPAR $ 286 $245

Return on Capital Employed 10.4% 13.8%


EBITDA Margin 19% 14%


09E 08E 07 06 05 04 03 02

Revenue 1,007 850.3 815.4 667.3 541.2 547.5

EBITDA 190.2 116.4 124.0 99.0 68.8 78.0


2006

Sha

re p

rice

(US

$)

3

2

1

0

Mandarin Oriental

Asia1

Americas

Europe

Leased


04 05 06 07 0803

JV

68 910

131415161921

5432

10

5

10

15

20

25

1963 1973 1983 1993 2003

0

1

2

3

4

5




0%

20%

40%

60%

80%

100%

Ownership and Share Price• Significant shareholders: Minor Corporation Plc. (17%), Minor

Holdings (Thai)Ltd. (17.28%), William E. Heinecke (7.10%)• Enterprise value band: $1.9bn (current)• Key executives: Michael Sagild• Share Price2:


% of # of hotels

Brand Distribution

% of # of rooms

Sri Lanka

Location B

Thailand

0%

20%

40%

60%

80%

100%

Maldives

Four Seasons

Anantara

Competitor C

SigiriyaSerendibBodu Hura

Note: 1. Data unavailable for one JV hotel; 2. Available data only; 3. Data of entire group; 4. Data of hotel operations onlySource: Deloitte Research & Analysis, The Stock Exchange of Thailand

Club Dolphin Harbour View

Naladhu


07 06


ADR US$ 307 US$ 215

RevPAR US$ 196 US$ 142

Return on Capital Employed3

9.2% 7.1%

Return on Equity3 18% 18%

EBITDA Margin3 21% 21%Profitability – Revenue4, EBITDA (US$ million)

09E 08E 07 06 05 04 03 02

Revenue 216 201 193 123

EBITDA 47 42 40 26

• 61% Resorts



• Rooms: 2,654


14

16

18

20

Sha

re p

rice

(TH

B$) 20

18

16

14

12Jan 08 Feb 08 Mar 08 Apr 08 May 08

1

45

78910

1112

17

3

02468

1012141618

1976 1985 1994 2003

0

1

2

3

4

5

6


Went public in

1988

# of New HotelsTotal # of Hotels1

JV

Owned

HQ: Bangkok, Thailand




Ownership and Share Price• Significant shareholders: Morgan Stanley & Co (17.66%), Fidelity

Management & Research (14.78%), Blackrock Advisors (6.38%)• Enterprise value band: $1.2bn (current) - $1.4bn (June 2007)• Key executives: David Hamamoto (Chairman), Fred J.Kleisner

(CEO), Richard Szymanski (CFO)• Share Price


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

MorgansRoyalton Delano Hudson

Mondrian

Note: 1. As of December 31, 2006 – does not include employees of joint venture restaurantsSource: Deloitte Research & Analysis, Yahoo Finance, Oppenheimer

Portfolio Overview

• 36% Resorts



• Rooms: 6,800


0%

20%

40%

60%

80%

100%

Miami

New York

JVOwned




07 06

Occupancy Rate 80.1% 77%

ADR $ 396 $ 319

RevPAR $ 317 $ 246


Return on Equity -9% -10%



09E 08E 07 06 05 04 03 02

Revenue 389.0 345.6 323.0 278.6 260.4

EBITDA 149.3 111.7 113.2 85.1 79.5


2006

Sha

re p

rice

(US

$) 3025

20

15

10Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

45

910

12

7

21

3

0

5

10

15

1984 1988 1992 1996 2000 2004

0

1

2

3

London

Las VegasL.A.

San Fran.Scottsdale

CliftSt.MartinsSandersonShore ClubHard Rock

HQ: New York, NY




Ownership and Share Price1

• Significant shareholders: Bermuda Trust Company Limited (55%), The Mikado Prviate Trust (50%), Bermuda Trust (Cayman) Limited (30.6%), Acorn Holdings Corporation (29.6%)

• Enterprise value band: $2.5bn (current)• Key executives: The Hon.Sir Michael Kadoorie (Chairman),

Clement King Man Kwok (CEO)• Share Price


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Source: Deloitte Research & Analysis, Company website

Portfolio Overview

• 11% Resorts



• Rooms: 2,874

• Number of Employees: Number of New Hotels Total Number of Hotels



07 06


ADR $465 $369

RevPAR $316 $266



EBITDA Margin 33% 34.2%


09E 08E 07 06 05 04 03 02

Revenue 582 479 421 400 323 332

EBITDA 192.1 163.8 139.8 127.4 93.3 95.8

Peninsula


Quail Lodge

Owned4

78

6

3

0

2

4

6

8

10

1989 1993 1997 2001 2005

0

1

2

3

4

5

0%

20%

40%

60%

80%

100%

US

Location A

Bangkok

Manila

Tokyo

20

15

10

5

Jan 04 Jan 05 Jan 06 Jan 07 Jan 083S

hare

pric

e (H

K$)





• Significant shareholders: Hunt family (50%) and Maritz, Wolff & Company (50%)

• Enterprise value band: c.1$bn+

• Key executives: John Scott (President & CEO), Susan Aldrige (SVP & General Counsel), Bob Boulogne(COO), Jim Brackensick (SVP – Purchasing), George Fong (SVP – Architecture & Design), Ernest Glidden (SVP – Finanace), Alex Alt (Diretor- Development & Strategy), Sheri Line (HR Director)



% of # of hotels

Brand Distribution

% of # of rooms

HQ: Dallas, Texas, United States

0%

20%

40%

60%

80%

100%

Al Faisaliah

Carlyle Al Khozoma Caneel BayPeachtree

Rosewood

Seiyo GinzaLas Ventanas AnasaziJumby BayCordevalleSan YsidroKing Pacific

Note: 1. Five hotels including Rosewood Corniche, Rosewood Mansion on Turtle Creek, Rosewood Crescent Hotel, Rosewood Little Dix Bay, Rosewood MayakobaSource: Deloitte Research & Analysis

Portfolio Overview

• 55% Resorts



• Rooms: 1,939


0%

20%

40%

60%

80%

100%

Middle East

Tokyo

Latin America

NorthAmerica

Caribbean

Managed

Owned

4 56 7 8 9 10

1214

16

0

5

10

15

20

1978 1984 1990 1996 2002

0

1

2

3

4

5




07 06

Occupancy Rate

ADR

RevPAR


Return on Equity

EBITDA Margin


09E 08E 07 06 05 04 03 02

Revenue 350

EBITDA




Ownership and Share Price• Significant shareholders: Kerry Group Limited3 (49.6%),

JPMorgan Chase & Co.(5.0%)• Enterprise value band: US$9.9bn• Key executives: Khoon Ean Kuok (Chairman), Khoon Loong Kuok

(President and CEO), Man Shing Lui (Deputy Chairman)• Share Price


% of # of hotels

Brand Distribution2

% of # of rooms

0%

20%

40%

60%

80%

100%

Shangri-La

Note: 1. Headcount of all the group’s managed hotels and resorts; 2. Includes brands of managed hotels; 3. Owned by the Kuok familySource: Deloitte Research & Analysis, Company website, Yahoo Finance

Portfolio Overview

• 14% Resorts


• Hotels:52

• Rooms: 20,299


Oceania

0%

20%

40%

60%

80%

100%

Location A (inc Hong

Kong)

Owned


07 06


ADR $152 $135

RevPAR $105 $96





09E 08E 07 06 05 04 03 02

Revenue 1,219 1,003 842 726 540

EBITDA 478 350 265

Philippines

Malaysia

Managed

Traders

Other2

HQ: Hong Kong

Singapore

Thailand

Other Asia

Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

Sha

re p

rice

(HK

$) 25

20

15

10



18

18

3843

52

6 712

3427

0

10

20

30

40

50

60

1971 1979 1987 1995 2003

0

2

4

6

8

10



Strategic Partnership: Potential Targets


• Significant shareholders: DBS Nominees Pte Ltd(16.05%), C Y Wee & Co Pte Ltd (13.25%), Wee Investments Pte Ltd (10.12%), Tye Hua Nominees Pte Ltd (9.34%), Citibank Nominees Singapore Pte Ltd (7.14%)

• Enterprise value band: US$3bn +

– Acquired Pan Pacific in 2007 for US$4.3 million

• Key executives: Wee Cho Yaw (Chairman), Gwee Lian Kheng (Group President and CEO)


% of # of hotels

Brand Distribution

% of # of rooms

0%

20%

40%

60%

80%

100%

Pan pacific

Note: 1. In Singapore only; 2. As of Dece0ber 31, 2007; 3. Singapore (4), Location D(3), Malaysia(3), Location B(3), Thailand(1), Indonesia(1), Philippines(1), Bangladesh(1), Myanmar(1), Location B(1), Location A(1); 4. Canada(3), US(2)

Source: Deloitte Research & Analysis, company website

Portfolio Overview

• 15% Resorts


• Hotels: 28

• Rooms: 9,646


Managed


07 06

Occupancy Rate 75%

ADR

RevPAR


Return on Equity 19% 11%

EBITDA Margin


09E 08E 07 06 05 04 03 02

Revenue 474 381 304 273 267

EBITDA

Novotel

Crowne Plaza

Owned

Parkroyal

Sheraton

HQ: Singapore

# of New HotelsTotal # of Hotels2


13

24

9

576

1

42 3

02468

101214161820222426

1979 1984 1989 1994 1999 2004

0

2

4

6

8

10

12

0%

20%

40%

60%

80%

100%

Asia3

North America4

AustraliaSofitel



Agenda

1. Approach


3. Sector analysis


• Overview

• Organic

• M&A

– Overview





6. Next steps



Iconic M&A: Iconic Property Approach

Proven approachProven approach Not viable for Client XNot viable for Client X Could acquire “Tier 2”Could acquire “Tier 2”

• The strategy of buying a truly iconic property and then building a portfolio using the name of this property as the brand has been popular in the recent past

– Dorchester Collection

– Langham

– Le Crillon

– Plaza Athenee

– Raffles

– Waldorf = Astoria

• However, this would appear not to be a viable approach for Client X:

– All the truly iconic properties around the globe are either part of corporate groups or owned by individuals embarking on a similar strategy

– If one was available it is likely that the valuation would consume most of the $1bn investment capital leaving very little to fund the growth programme

– The high valuation is likely to reduce the yield to below 4%

– Competition for assets is with sovereign wealth funds who are investing for “national good” not just financial returns

• There are a number of ‘2nd tier’ iconic properties in Asia that with the right investment and approach could form part of the organic development strategy:

– Accelerates the increase in the portfolio

– Could bring platform and management experience if independently owned

– Could bring guests as often property more well known than operator

Whilst acquiring an iconic property is a proven approach, it is not currently viable for Client X. However Client X could acquire a “Tier 2” iconic property



Iconic M&A: Gateway Cities Ranking Opportunity Recap

City Rank from phase 2Market entry strategy based on insight from local

THL experts and identified opportunitiesPotential timeline

Shanghai 1 New build Year 3

Beijing 2 New build Year 4

Bangkok 3 Acquire existing hotel or new build Year 2

Ho Chi Minh City 4 New build Year 5

Singapore 5 Acquire existing hotel or convert Year 1

Hong Kong 6 Acquire existing hotel or convert Year 6

New York 7= Acquire existing hotel Medium to long term

Tokyo 7= Acquire existing hotel or convert Medium to long term

London 9= Acquire existing hotel or convert Medium to long term

Paris 9= Acquire existing hotel Medium to long term



The top 6 cities in the ranking represent attractive options for Client X which should be pursued to provide good regional coverage



Iconic M&A: Acquisition Target (1/4)

HQ: Hong Kong, Location A1

Ownership

• Significant shareholders: HKR International, Payson Cha.

Management

• General Manager Duncan Palmer who previously managed two hotels for The Savoy Group. Prior to that he spent twelve years in senior management roles with the Mandarin Oriental Hotel Group


• ’07 occupancy rate: 71%

Awards

• Ranked 8th in Asia for Overseas Leisure Hotels and 10th for Overseas Business Hotels in the Conde Nast 2003 Readers’ Travel Awards

• Best business hotel in Thailand by Business Asia Thailand

Note: 1. Headquarters of HKR InternationalSource: Deloitte Research & Analysis, company website

Overview

• Market Position: Luxury

• Location: Bangkok, Thailand

• Rooms: 210

• Built: 1988

• Remodeled in: 2007

• Dining: 7 restaurants & 1 bar

• Conference/Banquets: 17 meeting rooms & 2 ballrooms

• Spa: Yes

• Other: Squash and tennis courts




Ownership

• Significant shareholders: Ng family

Redevelopment

• Acquired by Sino Land Company Ltd from Urban Redevelopment Authority with US$72.9 million (S$100million) in 1997.

• Renovation to convert the historic building into a hotel and development of 1 Fullerton commercial complex cost US$291.5 million (S$400million) and opened in 2001.

Awards

• 2008, 2007: Conde Nast Traveller Gold List Hotel

• July 2007: Leading Hotels in the World in Travel & Leisure’s World’s Best Awards

• October 2006: Ranked #1 in Asia by Conde Nast Traveller


Overview


• Location: Singapore

• Managed by: Sino Group of Hotels

• Rooms: 400

• Opened: January, 2001

• Built in: 1928

• Dining: 4 restaurants & 1 bar


• Spa: Yes

• Other: The straits room and roof garden



Iconic M&A: Acquisition Target (3/4), Conversion Opportunity

HQ: Singapore

Ownership

• Owned by the National Parks Board of Singapore

• Leased by: The Legends Fort Canning Park Pte.Ltd., which is owned by: Ms.Goh Min Yen (Executive Chairman – daughter of Mr. Goh Eng Wah), Mr. Oh Chee Eng (CEO), Mr.Goh Eng Wah (founder of Eng Wah Organisation)

• The family is also behind listed cinema operator Eng Wah Organisation

Management

• Mr. Oh Chee Eng (CEO), Mr.Herbert M. Hofer (GM)


Acquired

• The National Parks Board granted the new owners with a 30-year lease on the 11,148 sq m site for SGD85 million in 2002

Affiliation

• Members attain access to The Legends Golf & Country Resort in South Carolina, US

Overview

• Market Position: A fully member-oriented club

• Location: Singapore

• Managed by: Owners

• Rooms: None

• Built: 1926

• Remodeled in: 2002

• Dining: 4 restaurants & 2 bars

• Conference/Banquets: 8 function rooms & 1 ballroom

• Spa: Yes

• Other: Tennis courts, member’s lounge, card rooms




HQ: Hong Kong, Location A1

Ownership

• Significant shareholders: HKR International, Payson Cha


• ’07 Occupancy rate: 68%

Relaunch

• Previously known as the Beaufort Singapore, it was renamed as The Sentosa Resort & Spa after a US$10 million upgrading of the property.

• This includes Singapore’s first destination spa, Spa Botanica

• Sentosa’s branding strategy is to align itself closely to the destination in which it is located and to earn itself an independent identify

Note: 1. Headquarters of HKR InternationalSource: Deloitte Research & Analysis, company website

Overview


• Location: Sentosa, Singapore

• Rooms: 215

• Opened: 1991 as The Beaufort Hotel

• Renamed in: 2002 as Sentosa Resorts & Spa

• Dining: Two restaurants & two bars


• Spa: Yes

• Other: Golf club, Seven Eden Wellnes Centre



Agenda

1. Approach


3. Sector analysis



• Foundation stage

• Growth stage

• Financial implications

6. Next steps



Selected Strategy: Key Decision Making QuestionsThere are 4 key questions that Client X needs to answer that will help determine which strategy to chose


Question Organic (inc. potential property acquisition)

Strategic partnership

1. Is your vision to be a hotel and brand operator? If yes, then need to follow an organic growth strategy

Possible in long term if able to purchase a majority stake

2. Are you willing to recruit an external CX team inc:

- Provide them with autonomy?

- Provide them with a commensurate package?

- Provide suitable incentives, inc. equity?

- Incorporate and HQ the company outside Location Y?

If yes, then possible to follow an organic growth strategy

If no, Client X will have to pursue strategic partnership as the risk of failure in organic will be very high given current management experience

3. What is your risk appetite? Requires appetite to be high given uncertainty of organic development

Require lower risk as investment in established company

4. What is your investment capability? Investment capability will determine the approach – either pure organic or accelerated growth via property acquisitions and therefore the level of returns

• Level of investment will determine the scale of company that can be invested in and the amount of control within that company

• Additionally will determine how much further investment is available for sliver equity in real estate development, and therefore how attractive to a strategic partner Client X will be



Selected Strategy: Strategic Options OverviewDeloitte are suggesting an initial 2 dual track strategy for c. 3 months to determine which route is going to fit with Client X objectives and provide the best option longer term


Dual track strategy

Client X can initially pursue a dual track strategy, with key benefits:

• Ensure that Client X moves on

• Outlay of costs during the initial phase is minimal

• Creates maximum impact in short timeframe

Strategic Partnership

Organic Development


• Initial exploration of potential for strategic partnership with luxury hotel company

• Estimated timeline of c. 3 months to know whether or not this option will achieve Client X goals

Organic Development (inc. potential property acquisitions)

• Organic development including potential for acquisition of c. 2 properties in key gateway cities

• Initial activity will be low cost and create positive growth platform even if strategic partnership is deemed achievable after initial 3 month period



Selected Strategy: Roadmap – Proposed ApproachWhichever track is followed Client X will need to follow a 3 stage approach. 1. Foundation Stage - Initial fix of core product; 2. Initial growth stage - lay foundations for growth either via organic approach (inc. possible acquisition of tier 2 iconic properties) or strategic partnership; 3. Secondary growth stage which may include full corporate M&A

Organic Iconic Corporate

1. Foundation Stage

• Recruit CX team • Fix Division X • Brand research • Corporate governance activity Based on pragmatic/

opportunistic implementation, activities may

overlap between stages

2.

Init

ial

gro

wth

sta

ge

3.

Se

co

nd

ary

gro

wth

sta

ge


• New luxury hotel product by Greenfield/Brownfield development, property conversion, lower grade hotel upgrade

• May also include reflagging of luxury property/ies via acquisition (overlap with corporate)

• Acquisition of well known “iconic” hotel

• Icons fall into 2 categories:– Tier 1 – Globally recognised

brand

– Tier 2 – Locally recognised product based on architecture, location, service, history

• Acquisition of a luxury corporate chain

• Investment in minority stake within corporate chain

• Includes management of existing hotels by partner and sliver investment in future real estate pipeline

Strategic Partner

Potential to convert strategic partnership into full corporate M&A via majority acquisition in longer term



Selected Strategy: Key Growth Drivers and Success FactorsThe key growth drivers for each strategy is the addition of hotels into Client X portfolio and the level of investment available. Success is determined by experience within either management or advisors

Note: 1. What’s in it for me

Option Key Growth Driver(s) Key Success Factors Examples

Organic Development

• Growth is going to be driven by number of new properties added to the existing portfolio, either by Greenfield/ Brownfield development, conversion or acquisition and upgrading of existing properties– Size of growth will depend on choice of location (and achievable

RevPAR) along with size of hotel(s) and extra revenue generating facilities

• Choice of location may be based on factors such as forecast demand and supply, current penetration levels and ease of entry into market

• Strong and experienced CDO

• Availability of locations

• Efficient development process from origination through to completion

• Acceleration of ramping period to mature operation

• Mandarin Oriental

• Shangri-La

Iconic Acquisition • Availability of locations

• Acquisition of assets to add into Client X portfolio

• Value add proposition for acquisition

• Strong M&A negotiation skills

• Ability to execute – funds and credit

• Speed of completion and integration with Client X

• Dorchester Collection

• Langham

Corporate Acquisition - Majority

• Availability of targets

• Type and make up of corporate acquisition

• Timing and approach

• Value add proposition for acquisition

• Strong M&A negotiation skills

• Price

• Availability of equity and credit

• Post merger integration activity (e.g. 100 day plan)

• Four Seasons


• Size of investment

• Availability of funds for investment in real estate

• Impact of brand and operations on Division X

• Timing and approach

• Rationale for acquisition and WIIFM1

– Rationale could include investment in rollout properties, which would require further capex investment

• Effective contract negotiations for matters relating to operations and leverage of expertise to improve Client X performance

• Board seat(s)

• Rosewood

• Aman



Selected Strategy: Available Funds

Funds availableFunds available ImplicationsImplications

Our understanding of Client X fund availability:

• Year 1-2: $300million (Equity and Debt)

• Year 3-5: $700million (Equity and Debt)

• Year 5+: Unknown

• Greater funds may be made available subject to need, but will require access to external funding sources

• Available funding in years 1 and 2 is not enough to purchase either a corporate or an iconic property (tier 1 or 2), suggesting that initially only 2 potential options are available:

1. Organic growth

2. Strategic partnership

• Accessing external funds would require Client X to meet investment criteria of external sources. This would limit the ability of Client X to invest in iconic properties that may be the basis of a rollout, given the low IRR that would be achieved based on the premium price required

• Subject to timing of funding in year 3-5 it may be possible to follow all 3 strategic options

The funds available to Client X have a significant impact on the strategies that can be pursued in the short term, although subject to timing of funds long term all 3 strategies are possible

Note: Renovation funds for Division X are separate that noted above



Selected Strategy: Comparison of Strategic OptionsWhilst a higher risk option than strategic partnership, organic growth would enable Client X to remain a hotel operator


Organic (inc. potential property acquisition) Strategic Partnerships

Implementation Risk – People High Low

Implementation Risk – Investment • High

• $1bn [Yr 1-7]

• Medium/low

• $1bn [Yr 1-7]

Returns IRR 22% [15x] TBD

Recruit CEO and Team Yes • ?

• Will require hotel real estate asset management expertise

Autonomous hotel business • Yes

• Required to attract top team and enable value creation

• ?

• Subject to specifics of strategic partnership

OpCo/PropCo structure • Yes

• Maximum flexibility for debt financing and asset value over time (leverage asset business)

• Yes

• Driven by tax benefits

Client X full potential Yes [10/10] • R/E = Yes, Ops = No [Yr 1-5]

• Minimises investment requirement

Brand awareness Yes • Yes

• Key criteria for selection of strategic partner

• Growth of hotel company will increase power and value of brand

Platform for growth in operations Yes Possibly over longer term subject to JV/majority investment

Brand ownership Yes Own a share of brand, but not direct control

End State in yr 5/10 • 10/10

• OpCo and PropCo

• 10/10

• OpCo– Minority Yr1-5– Majority Yr 5 ++

• PropCo– 4 @ yr 5– 10 @ yr10



Agenda

1. Approach


3. Sector analysis




• Growth stage


6. Next steps



Foundation Stage: Key Recommendations – SummaryThere are 5 foundation steps that Client X needs to undertake prior to any growth strategy


Category Detail

1. Recruit experienced CEO• Experienced both in operational efficiency and growth through development and M&A

• Will recruit CX team particularly COO, CDO and CMO

2. Create autonomous hotel business• Separate legal, accounting and reporting entity

• CEO reports to Mr Sung

3. Create Op Co/Prop Co structure within hotel business

• Real estate requires deep skills to maximise value and ‘challenge’ operations

• Operational focus gravitating towards brand as key driver of shareholder value

• Enables leverage of PropCo

4. Realise the potential of Division X• Improve GOP through operational efficiencies

• Complete refurbishment to global 5 star standards

5. Conduct brand awareness research in AsiaPac

• Need to ascertain true strength of Client X brand in the identified key markets

• Will directly impact nature of growth strategy



Business Unit Subsidiary Spin-Off Joint Venture

Description• Client X reports to Client X board • Client X reports to Client X CEO • Client X is a separate legal entity but

reports to a Client X Corp entity• Client X reports to Client X board and JV

Partner

Pros

• Simple structure

• No change to current operations and management of group

• Smooth transition

• Gives hotel development visibility

• Simplifies hierarchy by having Client X report only into the CEO

• Dotted line allows for sharing of information, co-ordination and consistency of Client X brand name

• Gives flexibility in choosing operating model (OpCo/PropCo etc.)

• Gives flexibility in expanding to different locations

• Indicates the importance and scale of the strategy

• Provides clear governance: source of funding, responsibility and ownership of strategy

• Gives clear indication of the importance and scale of the strategy

• Might have positive market buy-in by linking of iconic M&A activity to JV Partner

• Provides dual sources of resources such as funding / budgeting

Cons

• Insufficient visibility and support for building a luxury hotel portfolio

• Need for more structure in case of multi-market and multi-hotel expansion

• Need to manage relationship with Client X board although they are not officially linked to Client X

• Need to ensure that visibility with CEO provides the necessary support an relays the importance of the growth strategy regardless of option: organic or M&A

• Restructuring needed to shift current hotel portfolio into new structure

• Need for co-ordination when using Client X name across the business units

• Restructuring needed to shift current hotel portfolio into new structure

• Divides governance between JV Partner and Client X

• Harder to maintain Client X brand consistency with separation of portfolio

Foundation Stage: Corporate Governance – Ownership Structure

Note: Current Client X Divisions: Duty Free, Fitness / Direct Sales, New Business, Management Administration, Strategy, Internal AuditSource: Hotels Magazine; Deloitte Research & Analysis

As a subsidiary Client X Company Ltd. can demand the right level of support, continuity and visibility with adequate independence and autonomy for the growth and expansion strategy with responsibility for new CX team

Shilla

Current Shilla

Divisions CEO

CMOCDO CFO COO

The Shilla Hotel Co. Ltd.Shilla

Current Shilla

Divisions CEO

CMOCDO CFO COO

The Shilla Hotel Co. Ltd.Shilla

CurrentShilla

Divisions

The Shilla Hotel Co. Ltd.

CEO

CMOCDO CFO COO

Shilla

CurrentShilla

Divisions

The Shilla Hotel Co. Ltd.

CEO

CMOCDO CFO COO

Client X

Current Client X

Divisions

CEO

Samsung

CMOCDO CFO COO

Client X Hotel Co. Ltd.Client X

Current Client X

Divisions

CEO

Client X Corp..

CMOCDO CFO COO

Client X Hotel Co. Ltd.

Client X

Current Client X

Divisions

Samsung

CMOCDO COO

CEO

CFO


Client X

Current Client X

Divisions

JV Partner

CMOCDO COO

CEO

CFO




External Sale and Leaseback(S&LB)

OpCo / PropCo OpCo / PropCo Joint Venture

Description

• Involves Client X. disposing of commercial property for its fair market value and immediately taking a long lease back from the purchaser. Client X. would retain operational control for the duration of the lease

• Client X. would transfer commercial property to a new subsidiary (PropCo) for its fair market value. PropCo services the debt using rental received from the operating company (OpCo). Client X Co. would retain operational control and, via the PropCo, property equity upside

• Client X. would transfer commercial property to a new subsidiary (PropCo) for its fair market value. PropCo sells equity to a JV partner. Third parties can contribute cash, skills etc., while Client X. Would retain operational control and, via the PropCo, property equity upside

Pros

• Crystallise value – leveraging any differential between corporate and property valuations

• Cash available to de-gear/distribute/re-invest etc.

• Lease payments should be less than debt interest

• Retain operational control of the hotel portfolio

• Reduce WACC and financial risk

• Retain ownership of property and capital appreciation upside

• Retain operational control

• Reduce WACC

• Independent exits for OpCo and PropCo

• Retain interest in property; capture residual value

• Retain operational control

• Benefit from third party expertise, cash etc.

• Reduce WACC and any development risk

• Independent exits for OpCo and PropCo JV

Cons

• Loss of freehold interest in favour of lease

• Loss of capital appreciation upside

• Increased operational gearing

• Possible arbitrage - property/corporate valuations

• Only a portion of property assets’ investment value is realised (dependent on gearing)

• Highly geared structure with banking covenants over both OpCo and PropCo

• Full banking and property due diligence required

• Possible arbitrage - property/corporate valuations

• Only a portion of property assets investment value is realised dependent on gearing

• Highly geared structure with banking covenants over both OpCo and PropCo JV

• Shareholder agreement to regulate JV relationship

• Full banking and property due diligence required

Impact - Growth Options

• Not viable for a long term growth strategy regardless of option: organic, iconic M&A, corporate M&A, hybrid

• Can be used for iconic M&A, corporate M&A and hybrid growth options where third party skill and experience is already assumed to be gained in the acquiring of these hotels and can also be leveraged for organic hotels

• Can be used for organic growth option in order to gain that third party investment and expertise while mitigating risk

Foundation Stage: Corporate Governance – Operating Model


Hotel ShillaCo. Ltd.

PropCo

OpCo

Assets

Rent

All operational activity

£/Equity


PropCo

OpCo

Assets

Rent


£/Equity


PropCo JV

OpCo

Assets

Rent


Investor

£/Equity

Cash

Equity£/Expertise


PropCo JV

OpCo

Assets

Rent


Investor

£/Equity

Cash

Equity£/Expertise

An OpCo/PropCo operating model can give Client X Company Ltd. the structure needed for long term and sustainable growth and expansion but local tax considerations are paramount

Property

Hotel Client XCo. Ltd.

InvestorRent

EBITDA

Assets

Property

Hotel Client XCo. Ltd.

InvestorRent

EBITDA

Assets



Option A:

Organic

• Construction of hotels including external space

• Refurbishments and renovations

• Take strategic direction from Brand

• Take budget direction from Finance

• Responsible for real estate management

• Coordinate budgeting process

• Define purchasing strategy and policies in order to obtain synergies and cost efficiency

• Investment approval CAPEX, ROI

• Determine brand architecture, brand plan

• Build relationships with and develop insight into customers (end users / intermediaries)

• Analyse competitor information

• Manage promotions, pricing and distribution

• Allow for seamless processes throughout hotel portfolio through use of technology

• Supply chain / inventory management

• Run hotels within brand expectations

Option B:

Iconic M&A

• Maintain facilities and standard of brand

• Hotel refurbishments / renovations

• Drive development capability for M&A

• Investment approval CAPEX

• Coordinate budgeting process, ROI

• Assess value of brand and other intangibles

• Determine how to use iconic brand (reverse branding)

• Leverage existing relationships with customers (end users / intermediaries)

• Maintain level of operations

• Run hotel within brand expectations

• Leverage iconic operations with Client X

Option C:

Corporate M&A

• Development economies of scale

• Hotel refurbishments / renovations

• Direct existing development capability

• Drive development capability for M&A

• Investment approval CAPEX

• Assess value of brand and other intangibles


• Leverage existing relationships with customers (end users / intermediaries)


• Use and improve on operations from M&A and incorporate throughout Client X


Option D:

Hybrid

• Maintain consistency in constructions, refurbishments and renovations throughout Client X portfolio

• Development economies of scale

• Support development capability

• Responsible for real estate management

• Drive development capability for JVs, M&A and managed hotels

• Coordinate budgeting process

• Purchasing economies of scale

• Investment approval CAPEX, ROI


• Leverage and integrate existing relationships with customers (end users / intermediaries)


• Allow for seamless processes throughout hotel portfolio through use of technology

• Supply chain / inventory management

• Manage relations with hotel managers


Foundation Stage: Corporate Governance – Organisational StructureWhichever strategic option is chosen, the high-level organisation structure remains the same, but the roles within the structure vary as will the consequent job description

CEO

Finance(CFO)

Investment & Strategic Planning

Finance

Operations(COO)

Organisational Effectiveness

Technology

Sales & Marketing (CMO)

Communications & PR

Development(CDO)

Product Development

Project Development &

ConstructionSales

Marketing

Source: Hotels Magazine; Deloitte Research & Analysis

Area of responsibility

Executive Management

Real Estate



Keep Separate Names Merge or Link Names Create a New Name Choose One Name

Reasons to choose individual, linked or new brand names

• Acquired brand already has a strong, established image and identity

• Client X brand would not add value

• There are potential risks to Client X brand image by linking to acquired brand

Example:

acquired

• Each brand has unique and complementary values

• The brand is the result of a joint venture

• Each company maintains significant ownership in joint venture

Example: Mandarin combined with The Oriental

• Support a repositioning strategy

• When brand value is not significant or out of line with target markets

• If brand value of purchased hotel has significant negative connotations

Note:

Rarely done and requires immense brand spend

• The acquired brand is weak or narrow

• The Client X brand adds significant value

• The acquisition is being integrated into an existing Client X. brand portfolio

Example:

rebranded

Indicative strategy for brand name change on Client X growth and expansion strategy options

Option A:

Organic

• n/a • n/a • If after conducting market research, Client X is regarded as an inappropriate name for international use, option would be to create a new name

• One corporate name (such as Client X.) can be utilised in the case of organic growth

Option B:

Iconic M&A

• Iconic brand name should be kept separate

• Iconic brand name can be used for reverse branding of or linking to Division X e.g. Client X by The Ritz Carlton

• n/a • Leverage iconic brand name to Client X

Option C:

Corporate M&A

• Perhaps, in order to retain Client X brand strength in Location Z – Division X and / or Jeju names can remain unchanged

• Depending on the brand purchased the name can be merged with Client X e.g. The Rosewood Client X

• If after conducting market research, Client X / M&A brand are deemed not appropriate names, option would be to create a new name

• Depending on the brand purchased the name can be used for reverse branding of The Client X. Portfolio or vice versa

Option D:

Hybrid

• Iconic brand name should be kept separate

• Brand architecture would have to be created to classify the different hotel types within the portfolio

• n/a • Iconic brand name can be used for reverse branding of The Client X. Portfolio or vice versa

Brand name and architecture formation requires market research to understand cultural name implications across entry and customer source markets for the strategic options chosen

Note: Brand architecture refers to the collection of brands within a brand portfolio; Choosing of brand name would need to be conducted via focus groups across the gateway cities and customer source markets


Foundation Stage: Marketing Strategy – Brand Strategy



Foundation Stage: Marketing Strategy – Distribution StrategyFor luxury hotel expansion, there are several direct and indirect distribution channels that must be efficiently utilised, but use of channels vary by growth option


Distribution StrategyOption A:

Organic

Option B:

Iconic M&A

Option C:

Corporate M&A

Option D:

Hybrid

Direct

• Initially the sales force plays an important role in creating awareness and consideration for the brand

• As portfolio grows, CRS would be one way to have seamless distribution throughout group

• In the longer term brand recognition and a larger luxury portfolio should drive customers to direct distribution

• Customers are driven directly to this brand

• Sales force, website, email and telephone would be important channels especially when convincing customers of the M&A impact and/or reverse branding

• Use website of iconic brand to link to Client X

• Leverage CRM system

• Train sales force to cross sell

• Sales force, website, email and telephone would be important channels especially when convincing customers of the M&A impact and/or reverse branding

• Integrate Client X into existing CRS

• Use CRS for cross and up selling across Client X. new portfolio

• Leverage CRM system

• Train sales force to cross sell

• Opportunity to leverage website of iconic brand to cross-sell

• Re-direct traffic from corporate M&A direct sales channels

• Common sales force, CRM system, website, email and telephone would be channels used to communicate with customers on both the M&A impact and to advertise new and re-branded properties (whether through organic growth or corporate M&A)

Indirect

• To create awareness in the luxury space GDS and alliances should be formed and leveraged including LHW, GHA etc.

• Initially promotions should be targeted at travel agencies, tour operators, e-channels etc. specific to the markets

• Leverage GDS to improve awareness of Client X and/or reverse branding

• Other channels have less impact for an iconic brand but can also be leveraged to raise awareness of Client X and/or reverse branding

• Link GDS to internal inventory management systems for efficient and accurate customer bookings

• Depending on size of acquired company, leverage existing direct relationships with channels

• Leverage the increased importance of the larger group for existing indirect channel relationships as previously separately honed by Client X, the iconic brand, and the corporate M&A target

CRM / sales forceWebsiteTelephoneWalk-insEmailCRS

Global distribution systemTravel agenciesTour operatorsE-channelsAlliances



The reason for executing promotions and the channels used to deliver the promotions differ depending on organic or M&A strategy

Note: ATL = above the line marketing e.g. mass media campaigns; BTL = below the line marketing e.g. email and word-of-mouth marketingSource: Deloitte Research & Analysis

Promotions Strategy

Option A: Organic

Option B:Iconic M&A

Option C: Corporate M&A

Option D: Hybrid

Promotions objectives

• Creating awareness for the brand in gateway city markets for both domestic and international travelers

• Use PR and high marketing budget spend to drive potential customers directly to website

• Use promotional budget to ‘convince’ GDS players and opinion leaders/trend setters to recommend Client X hotels

• Link existing promotions of iconic brand to Division X

• Link existing promotions of Division X to iconic brand

• Use PR that comes from buying the iconic brand to increase awareness for other luxury hotels in Client X portfolio and create positive association

• Link existing promotions of M&A brand to Division X

• Link existing promotions of Division X to M&A brand

• Use PR that comes from M&A to increase awareness for other luxury hotels in Client X portfolio

• Use hotel investment, luxury and luxury THL events as a platform to gain market buy-in and approval

• Link existing promotions of iconic brand to Division X

• Until re-branded, link promotions of corporate M&A properties to iconic brand

• Use PR that comes from buying the iconic brand and the corporate to increase awareness of and create positive associations between the iconic brand and Client X brand

Promotions channels

• Engage indirect distribution network through forming relationships rather than pricing promotions e.g. through holding THL and luxury PR events

• Entice luxury trendsetters to convince the wider market of the new hotel group

• Use ATL marketing channels to create awareness and consideration for the brand (television, luxury magazines)

• Use ‘emerging’ channels to promote brand e.g. hotel alliances, hospitality complementary alliances (rental cars, airlines, trains etc)

• Apply search engine optimisation; key words such as: luxury, [gateway city] etc. bring up Client X hotels

• Focus on direct distribution network for formulating promotions

• Focus on BTL channels for creating cross and up selling

• Use CRM to determine the segmentation of the customers and motivation for staying at iconic brand and at other Client X luxury hotels and determine the right type of promotion to offer (room, service, complementary gift, loyalty)

• Focus on direct distribution network for formulating promotions

• Use combination of ATL (creating awareness of the new group of hotels and management); BTL channels and CRS (for fostering cross and up selling)

• Use CRM to determine the segmentation of the customers and motivation for staying at M&A brand and at other Client X luxury hotels and determine the right type of promotion to offer (room, service, complementary gift, loyalty)

• Focus on direct iconic brand distribution network for formulating promotions and cross-selling

• Focus on BTL channels for creating cross and up selling

• Use ATL marketing channels to create awareness and consideration for the organic growth properties (television, luxury magazines) and its positive association with the iconic brand

Foundation Stage: Marketing Strategy – Promotions Strategy



Note: 1. Assumes that markets chosen have positive economic forecast e.g. GDP, business index etc. (See analysis from workshops 1 and 2); Existence of CRS/CRM/software/segmentation etc. is dependent on hotel purchased


Pricing Strategy

Option A: Organic

Option B: Iconic M&A

Option C: Corporate M&A

Option D: Hybrid

Price Setting1

• Rack rate based on the price points of other recently constructed luxury hotels in close proximity

• Assess price reaction of other hotels that might use Client X market entry as a reason to raise prices resulting in a smaller gap than expected between lower scale segments and luxury

• Use comparative CRM data for determining segments and rate card

• Understand rack rate of competitive set of hotels in city; but most likely leave rates untouched (not advised to decrease rates)

• Assess existing CRM data used for determining segments and rate card which might be leveraged for current Client X portfolio

• Understand rack rate of competitive set of hotels in city; but most likely leave rates untouched (not advised to decrease rates)

• Link existing CRM data used for determining segments and rate card to existing system for Client X to allow for cross and up selling

• Iconic brand rate remains the same; corporate M&A and organic brands should be priced consistently across Client X. new portfolio

• Assess price reaction of other hotels that might use Client X market entry as a reason to raise prices resulting in a smaller gap than expected between lower scale segments and luxury

• Link existing M&A CRS and CRM data used for determining segments and rate card to existing system for Client X and new organic hotels to allow for consistency and cross and up selling

Price Execution

• Carefully construct promotions and distribution frameworks

• For sales force promote incentives based on ‘value/quality’ of customer

• For indirect sales, promote incentives based less on fees and more on actual sale

• Assess and remove any unnecessary promotions/incentives, generally not needed for an iconic brand

• Assess and remove any unnecessary promotions/incentives

• Assess and remove any unnecessary promotions/incentives

• Use larger portfolio of hotels as ‘bargaining power’ with indirect distribution

• Create select arrangements where possible

• Use cross and up selling across hotels as a means of executing prices and reducing revenue leakage across Client X.

Price optimisation

• Systematically use market knowledge and forecast information for room and services demand planning e.g. using competitive rate knowledge to pull customers by manipulating price at strategic times

• Develop interlinked CRM, GDS and pricing software (revenue/occupancy management) to determine best rates

• Software can seamlessly and automatically produce rates with minimal manual interpretation (segment, occupancy)

• Assess existing pricing and revenue management software; decide if to replicate within Client X

• Assess historical and forecast data for demand planning

• Assess existing pricing and revenue management software; and demand planning

• Link with CRS, CRM, GDS and replicate within Client X Company e.g. using competitive rate knowledge to pull customers by manipulating price at strategic times

• Systematically use market knowledge/historical data and forecast information for room and services demand planning e.g. using competitive rate knowledge to pull customers by manipulating price at strategic times

• Assess existing CRS, pricing and revenue management software of M&A corporate hotels

• Software can seamlessly and automatically produce rates based on minimal manual interpretation (segment, occupancy)

Foundation Stage: Marketing Strategy – Pricing StrategyPrice setting, execution and optimisation can vary across the different growth options



Agenda

1. Approach


3. Sector analysis




• Growth stage


6. Next steps



Growth Stage: Key Recommendations – SummaryThere are 3 key areas of focus in the initial growth stage (subject to the outcome of the dual track strategy during the foundation stage)

Organic DevelopmentOrganic Development Tier 2 AcquisitionsTier 2 Acquisitions

Note: 1. New-build properties typically take 2 years from opening to stabilise revenueSource: Deloitte Research & Analysis

Strategic Partnership (subject to outcome of dual track in foundation stage)

Strategic Partnership (subject to outcome of dual track in foundation stage)

• Begin active investigations into the identified 2nd tier iconic properties in Asia– Probable initial locations Bangkok, Singapore

and Hong Kong

– Research suggests there are no suitable hotel properties in Shanghai, Beijing or HCMC

– Issue mandate to advisors

– Key benefit of an acquisition strategy is the acceleration of growth and lower risk of development

• Begin active identification of development opportunities in the prioritised Asian gateway cities– Both Greenfield/Brownfield and conversion

– Probable locations Shanghai, Beijing and HCMC

• Implement partnership with hotel company identified during foundation stage

• Support development of hotel pipeline:– Financial investment in hotels under

development; and/or

– Support entry of strategic partner into AsiaPac region (subject to type of company)

• Within 8 years aim to open :

2 “iconic” properties and 6 other stabilised organically developed properties

• Within 10 years aim to open:

8 stabilised1 organically developed properties

• Within 10 years aim to open :

10 properties with minority investment



Growth Stage: Strategic Initiatives – Timeline overviewWhilst the initial priority is to get the management team in place, and the main push on organic development will be done by the new management, there are activities that can start immediately across all areas

0-3 months 3-6 months 6-12 months 12-24 months 24 months +

Management team

• Mandate to head-hunters • Recruit CEO and additional team based on CEO requirement

• Additional recruitment of team if/as required

• Recruitment of management for hotels as required

Client X, Location X

• Begin initial operational improvements “quick wins”

• Research strategic activities, e.g. CRM system

• New management team to begin room renovation

• Implementation of plan aimed at “best in class” operational excellence

• Continuation of room renovation and operational excellence plan

• Question regarding Client X brand subject to brands acquired via M&A activity

Organic Property Development

• Recruitment of development director (see management team)

• Development director tasked with sourcing individual properties and development sites in Top 5 target locations

• Agree contracts

• Initiate construction or conversion activity

• Integrate new properties into Client X system

Iconic Property M&A

• Issue mandate to acquire iconic property

• Agree targets and make approaches

• Complete purchase of 1 (or max 2) properties

• Complete Post Merger Integration (PMI) activity

• Continued mandate for iconic property acquisitions on an opportunistic basis, subject to availability of funding


• Issue mandate for strategic partnership

• Appoint CEO with real estate expertise

• Identify and approach targets

• Agree terms of partnership

• Implement strategic partnership (ongoing)

• Analysis of real estate opportunities as available with strategic partner

Corporate M&A

• Issue mandate to acquire luxury focused hotel company

• Agree targets and make approaches

• Complete purchase of corporate, subject to market conditions and availability of funds

• Complete PMI activity, specifically:

1. Leveraging platform for Client X, both operations and S&M)

2. Decide on branding and associated activities

• Continued mandate for corporate acquisitions on an opportunistic basis, subject to availability of funding

Note: Timing indicative only. Actual timings may vary subject to both internal and external factorsSource: Deloitte Analysis

In

itia

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row

thF

ou

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Growth Stage: Strategic Partnership – RationaleThere are 4 steps in the strategic partnership process that will bind the two organisations together and ensure that goals are aligned

Source: Deloitte analysis

1. Client X investment in SP2. Contribution of Client X owned

properties3. SP investment in Client X

owned properties4. Client X investment in SP

pipeline

• Client X invests majority of available capital in the equity of the strategic partner

• Own stake in operating company, but not be an operator per se

• Client X contributes both Division X and Client X Jeju to be managed by the strategic partner

• Provides gateway location not in existing distribution network/portfolio

• Strategic partner to invest in room refurbishment of Client X properties

• Enables upgrading of rooms and repositioning to meet requirements of strategic partner’s brand

• Reduces capital investment requirement for Client X in own property, freeing up capital for either investment in larger share of equity in strategic partner (see 1) or future pipeline (see 2)

• Remaining Client X capital to be invested in strategic partner’s real estate pipeline on a preferential basis

• Client X to provide (Samsung) contacts to support development activity and provide opportunities

• Strategic partner to have proven track record of successful development, thereby reducing the development risk

• Client X to do due diligence on case by case basis prior to investment in property



Growth Stage: Strategic Partnership – Company FocusDepending on whether Client X decided to partner with an AsiaPac focused company or not will impact both the share available for Client X’s investment capacity and the “story” (rationale) for the approach


Non-AsiaPac Dominant Non-AsiaPac Dominant

• Hotel company with dominant focus on Asia Pacific region

• E.g. Shangri-La, Mandarin Oriental, Peninsula

Potential Share

Strategic Rationale

Client X impact

Definition (Examples)

AsiaPac DominantAsiaPac Dominant

• Client X to leverage brand strength in Asia Pacific region

• Greater immediate impact on Client X properties

• c. <10% for initial $300m investment, with no capital for sliver investment in real estate

• Low

• Given already substantial scale, Client X would have a small impact on the organisation

• Hotel company with no or limited number of properties in Asia Pacific region

• E.g. Rosewood, Morgans

• Client X to leverage contacts in Asia Pacific region for growth pipeline

• Provide experience of Asia Pacific to management team

• 20% + for initial investment of $300m

• High

• Significant interest/impact as players are of smaller scale



Growth Stage: Strategic Partnership – TimelineIf a strategic partnership is to be pursued, most of the actions are front loaded in first year

Note: Buying a minority investment in a company will provide limited control over the growth strategy of that company, even with a board seat. Therefore the management contract model, segment extension and alternate models are not a choice that Client X will be able to make and therefore not covered here


Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Expansion (ongoing)

• Leverage contacts to find development opportunities

• Invest sliver equity in real estate on an ongoing, pragmatic basis

Majority Acquisition

To be considered, subject to:

• Financial returns

• Ability to buy/willingness to sell

• View on brand strength


• “Value add” proposition

• Capacity to fund deal

Stage 1: Initial activity Stage 2: Expansion Stage 3: Acquisition

• M&A Target and investment skills

• Contract negotiation for repositioning

• Real estate management expertise

• Individual development to assist target with development activity and act as a link to Samsung

• Capability should be acquired with majority stake.

• Critical to ensure key individuals are retained within the business

Indicative Timeline

Foundation Stage

Corporate Governance

• Create autonomous hotel business

• Create OpCo / PropCo structure

M&A Activity

• Target companies for investment

• Acquire minority stake

Fix Division X

• Transfer management of existing hotels

• Repositioning spend on hotels

Organisational Capability / Requirement



Growth Stage: Potential JV StructureBased around the strategic partnership option, it may be possible to create a JV with the partner company and invest sliver equity in PropCo


Example JV StructureIndicative

• Operations

• Development

• Brand

• Marketing

• Viable

• Who invests?

JV PropCo

External investors?

Client X

?

Royalties

JV OpCo

% controlRoyalties (tax)

Asia-Pacific Hotel

Asia-Pacific Hotel

Asia-Pacific Hotel

Asia-Pacific Hotel

Asia-Pacific Hotel

Division X

% control

Transfer of operations people

Sliver equity

• CRM

• CRS

• Other functions TBD

Strategic PartnerLicense fee

Key issues:

• Critical to understand how value is realised, e.g. IPO

• There must be firm structures in place to manage dispute resolution



Growth Stage: Implications of ActivitiesGiven the volatility and uncertainty in the current market, Client X should reduce the risk of following a single growth strategy by leveraging different growth accelerators on a pragmatic basis


Strategic PartnershipStrategic Partnership Iconic PropertiesIconic Properties Corporate M&ACorporate M&A

• Start search for partnership, with anticipation of achievability within 3 months

• Looking for assets to buy, with an aim for 2 properties, subject to available funds

• “Watching brief” for corporate M&A on an opportunistic basis, subject to available funds

• Any organic development pipeline that has been initiated may be leveraged by the strategic partner subject to negotiation and alignment with partner’s strategy

• Accelerates development, with properties open sooner than under pure organic

• Organic pipeline develops in parallel

• Initially instigated development activity can be added to the pipeline of the corporate target

• Development strategy to be aligned, specifically around target cities

Description

Impact on Development

• If strategic partner is found, a decision will need to be made as to whether to rebrand the existing portfolio or remain separate

• Brand of iconic property will depend on terms negotiated during acquisition process and strength of brand

• Organic pipeline may then either be branded “iconic” or Client X

• Choice regarding development pipeline, either:– Branded as corporate M&A target; or

– Client X and organically developed properties maintained as separate

Impact on Brand

Accelerator

Given the volatility and uncertainty in the current market, it is too risky to bet growth strategy on just strategic partnership, iconic or corporate acquisition. Therefore the strategy should initially be to establish foundations (outlined previously) and plan to grow organically in 6 cities, supported by the accelerators on a pragmatic basis. The organic development activity will support each

accelerator, whichever is successful over the longer term



Agenda

1. Approach


3. Sector analysis




• Growth stage


6. Next steps



Financial Profile: Organic Roll-out Plan

Roll-out Plan (2009-18)Based on Prioritised Target Cities, Ability to Implement, and Investment Capacity Available to Client X

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Organic Growth Strategy

New-build – 305 rooms in Shanghai

New build – 516 rooms in Beijing

New build – 384 rooms in Bangkok

New build – 375 rooms in Ho Chi Minh

New build – 478 rooms in Singapore

New build – 463 rooms in Hong Kong



Organic and Acquisition Growth Strategy

Acquisition – 478 rooms in Singapore

Acquisition – 384 rooms in Bangkok



New build – 375 rooms in Ho Chi Minh

New build – 463 rooms in Hong Kong



Client X can add eight stabilised hotels to its portfolio within the next ten years

Hotel under Construction Hotel OpenedNote: The figures presented are strictly illustrative and based on a broad range of assumptions.

It is assumed that it takes two years for new-build hotels to stabiliseSource: Deloitte Research & Analysis



Financial Profile: Organic Roll-out Key Assumptions

Assumption Detail

Interest Rates Based on applicable interest rates for target countries

Construction Period 18 months, with 60% of costs in second half

Construction Costs by Country Based on Davis Langdon & Seah, with land costs assumed at an additional 20%

Debt to Equity Share 50/50

Ramp-up (until stabilised) 2 years

Profitability by City Hotel Benchmark bespoke profitability survey less estimated fixed charges and provision for renewals at 4%

Head Office Costs $3m in year 1, growing to $10m by year 4

Acquisition of Existing Asset Estimated at 17.5x EBITDA

Number of Rooms per Hotel Based on average of Hotel Benchmark bespoke profitability survey sample

Key AssumptionsIndicative

Note: The figures presented are strictly illustrative and based on a broad range of assumptionsSource: Deloitte Research & Analysis

Based on the following key assumptions, we have calculated the financial impact of the two roll-out scenarios



Financial Profile: Development Costs – Organic

Development Costs (2009-18)USDm

13.7m

61.9m88.4m

146.7m

258.8m

153.0m

36.5m10.2m

16.1m

48.4m

40.6m

18.3m

0.0m

23.9m

61.9m

104.5m

195.1m

299.3m

171.3m

36.5m

0.0m 0.0m0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Construction Costs Land Costs

Construction costs are phased over 18 months, which gives the roll-out scenario highest costs in year 6 at $300m. Total cumulative development costs are c. $900m over the period


Cumulative Costs: 23.9m 85.8m 190.3m 385.4m 684.8m 856.1m 892.6m 892.6m 892.6m



Financial Profile: Development Costs – Combined

Development Costs (2009-18)USDm

13.7m

61.9m85.6m

155.8m 153.0m

36.5m10.2m

14.0m

40.6m18.3m197.0m

252.7m

0.0m

276.6m258.9m

99.5m

196.4m

171.3m

36.5m

0.0m 0.0m 0.0m0

50

100

150

200

250

300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

A combined organic and acquisition strategy has cumulative development costs of c. $1bn


Cumulative Costs: 276.6m 535.5m 635.0m 831.4m 1002.7m 1039.3m 1039.3m 1039.3m 1039.3m

Construction Costs Land Costs Acquisition Costs



Financial Profile: Cashflow – Organic

Cashflow (2009-18)USDm

-3m

-207m

-304m

-169m

-8m

70m 90m

-29m -71m -119m

-103m

-222m

-429m

-734m

-903m -911m-842m

-751m

-32m-3m

-1,100

-900

-700

-500

-300

-100

100

300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cashflow Cumulative Cashflow

The suggested roll-out strategy will utilise $1bn of invested capital by year 8. Assuming no further development, Client X could become cash generative by year 9




Financial Profile: Cashflow – Organic and Acquisition

Cashflow (2009-18)USDm

-197m -164m

-9m

67m 89m 94m

-274m -255m

-102m

-634m

-831m

-995m -1004m-936m

-847m

-753m

-3m

-532m

-1,100

-900

-700

-500

-300

-100

100

300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cashflow Cumulative Cashflow

A combined organic and acquisition strategy will require more up-front capital investment




Financial Profile: Illustrative IRR

IRR Assuming Exit in Year 10Illustrative

Assumed EBITDA Exit Multiple

Organic Combined

15x 30% 20%

17.5x 34% 23%

20x 37% 26%

Both the organic and combined approaches could yield favourable IRR. A combined approach offers lower risks but at relatively lower yields


• Higher organic IRR reflects risk to reward balance as Client X would benefit from return on development risk compared to accelerating the development process by buying an existing mature property



Agenda

1. Approach


3. Sector analysis



6. Next steps



Next Steps: Project Activity and Implementation

• Identification and recruitment of CEO

• Creation of new corporate structure (autonomous hotel

business)

• Creation of new operating model (OpCo / PropCo) –

subject to tax benefits

• Client X brand awareness research in key Asian markets

• Start building land bank for development

• Decision on M&A approach

Fast Track Implementation ProcessFast Track Implementation Process

There are a number of next steps Client X should undertake to fast track the implementation of whichever strategy is pursued


development of growth & expansion strategy for client x

Documents

deloitte touche llp

deloitte analysisthere

deloitte analysiswhilst

final deliverables

market conditions

brand groupingstandards

brand organization

strategy validation