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The current lack of development finance will result in an end to asset-light strategies, attendees at the 23rd Deloitte European Hotel Investment Conference in London heard.
Hotel operators told delegates that, with
funding limited, there would be increased equity
participation, as companies used the cash being
stored up to maintain their pipelines.
Patrick Fitzgibbon, SVP development, Europe
& Africa, Hilton Worldwide, said: “In the last 30
years this is probably the single hardest year to get
debt. In Russia and Turkey, debt is flowing, but
it’s different in the UK. There is relationship-based
lending though, certainly.
“We still own a lot of real estate. You may well
see hotel companies use their balance sheets to
drive consolidation.”
Puneet Chhatwal, EVP & chief development
officer, The Rezidor Hotel Group, agreed,
commenting: “There has to be some kind of
balance, purely asset-light may not work. Sliver
equity and other such measures will become more
trendy – although I don’t think that hotel companies
will see a return to 50% to 100% ownership.
“The trouble the industry is finding is that
you have this asset-light model, coupled with
management contracts, which is a problem. I think
we might see a little bit of mezzanine debt coming
in from operators. We’ve done a bit of it in Africa,
we might have to do a bit more of it in the big five
Europe countries.”
At Starwood Hotels & Resorts, the company’s
third-quarter earnings call saw the group confirm
that it would invest its own money renovation
some of its owned properties, while waiting for
the transactions market to recover.
•Starwoodplansinvestment p4
•Meliálooksforvolatility vaccine p9
•Hand-held hand-holding p12
•Londonhotels’ revpar drop p16
•Automaticfor the people p19
•Five-ringcircusp20
Downturn deals blow to asset-lightBart Carnahan, SVP acquisitions and development,
EAME, Starwood Hotels & Resorts, told the
conference: “We’re not afraid to own if the right asset
came along. Owning assets is clearly not the model,
but we’ll have to do it. We’re focusing on conversions,
because there is more available for capex.”
Philippe Baretaud, SVP & head of development
EMEA, Accor, added: “The hotel market will all be
about conversions for the next couple of years.”
Turning to active investors in the sector, Fitzgibbon
said: “I know lots of insurance companies are beefing
up their teams. They were looking at assets, but they
might get into lending too. But we have found that
the terms of deals are not just about capital – capital
will still chase the right type of deal.
“We’re seeing the high net worth and sovereign
wealth funds, but what we are seeing is the more
experience buyers coming back to the market.
What will really change the market in Europe is
the emergence of franchises.”
Carlton E Ervin, chief development officer, Europe,
Marriott International, said: “It’s not just the trophy
assets, we’re seeing Middle East investors starting
to take an interest in assets that we might not have
previously thought they would.”
The tone of the conference was mixed, with
Nick van Marken, global head – advisory, travel,
hospitality & leisure, Deloitte, commenting earlier
in the day: “2012 is not going to be quite as strong
as people thought it would be and some think we
will be doing well to keep it flat.”
Commenting on the group’s survey of CFO
confidence, he added: “Risk appetite has fallen
dramatically.”
A survey of senior hospitality industry figures
conducted by Deloitte ahead of the conference
found a more robust response. Despite economic
Volume 7 Issue 6
continued on page 3
ContentsNews Review 3-9 IHG confident – Starwood investment – Hyatt, M&C strong – NH’s domestic rise – Sector wary – Economic remission – Interstate’s global growth – Park Plaza in line – Meliá’s volatility vaccine – Provinces hopeful Analysis 10-15, 19-21Up and away – Hand-held hand-holding – Eurozone and hotels – Automatic for the people – Five-ring circusSector Stats 16-18London’s revpar drop – Sluggish EuropePersonal View 22Biting the pillowThe Insider 24Jaws of life – Once bitten – Nita Ambani and Oberoi
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Europe’sconsolidationopportunity
Commentaryby AndrewSangster
In Europe the big fear is a break-up of the
Eurozone. Some believe this is inevitable but the
reality of it occurring is terrifying. It would surely
make the collapse of Lehman Brothers appear like
a little local difficulty.
There are three things that need to happen
to prevent break-up. Firstly, there needs to be
moves towards fiscal union. This is not going to
be quick. Expert commentators believe it may
take up to 10 years for the countries within the
Eurozone to agree the changes to the treaties
and protocols necessary.
Once the Eurozone has embarked on the path
to fiscal union - and it arguably has already started
with, at the time of writing, significant moves
being made following a series of summits - then
the second necessary condition to solving the crisis
can start. This is for the European Central Bank
to begin buying the bonds of troubled European
countries on a large scale.
Given the political resistance to this in Germany,
the only realistic source of help for the Eurozone,
there has to be signs of progress towards fiscal
union before the ECB is able to set its presses
rolling in a money printing exercise similar to that
already conducted by the Bank of England and
the Federal Reserve. Thus Germany is demanding
a debt for sovereignty swap.
Finally, once fiscal union looks assured, the ECB
can begin issuing its own bonds. These will pool
the credit ratings and collateral of all Eurozone
countries and thus end the current crisis. There are
a myriad of variations to get to these same ends,
involving the likes of the International Monetary
Fund or emerging market giants like China, but
ultimately it boils down to whether the Eurozone
can be held together.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation
hotelanalystJust like the end of the recession the process
is going to be long, drawn out and bumpy. But
better this than failure. A collapse of the Eurozone
would be an unprecedented economic calamity
and nobody knows just how bad things would be
were it to happen.
My favourite observation was by analysts at UBS
who, when asked what would be an appropriate
asset allocation in the event of a meltdown in the
Eurozone, suggested investing in metals, mainly
tinned food and small calibre arms.
There are at least a couple of ways in which
the crisis is going to impact hotels. Firstly,
the macroeconomic impact will be severe to
catastrophic, depending how it plays out. Looking
at the less gloomy side of things (which is still
pretty gloomy), hotel demand is going to shrink
with revpar numbers turning negative for most of
next year at least.
Revpars began sliding this autumn and the trend
has largely accelerated as the crisis deepened.
Although the second recession is likely to be short,
the recovery from it will continue to be slow.
Expert commentators believe it maytake upto10yearsforthecountrieswithintheEurozone to agree the changes to the treatiesand protocols necessary.
The second big impact for the hotel business
is the lack of bank lending. Eurozone banks are
being asked to do the splits by lending more while
improving their core capital. Something is going to
give and it is already clear that it is lending.
The worst hit is lending outside of the Eurozone.
For Eastern Europe this looks like being particularly
acute. But it will not be pretty inside the Eurozone
either. A consolation of sorts will be that the lack
of lending will constrain supply.
For the global majors, who are now as
dependent on pipeline as revpar figures, the focus
in Europe will have to be on conversion rather than
development. There ought to be some significant
opportunities for consolidation as well. In fact, if
consolidation is ever to happen, it is surely the
right time now given the crisis facing a significant
number of mid-sized operators.
Just as this issue went to press, the China’s HNA
pulled out of its deal to buy a 20% stake in NH
Hoteles. This is a significant set-back for Spain’s
biggest business hotel group and presents a prime
target for anyone seeking to swoop on a mid-sized
chain with a pan-European presence
The current crisis will throw-up many similar
opportunities.
Despite all the moves the hotel industry has made in the last few decades to make itself less exposed to the business cycle, particularly by the brand owners and operators, GDP continues to have a huge impact on how well the industry does.Andrightnow,theoutlook is bleak.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 6 3
News
CEO Richard Solomons said that the results were “a
blip”, as the group reported a 33% increase in third-
quarter operating profit to $153m and continued to
see growth in its key US and China markets.
Revpar was up 6.4% for the period, including
2.8% rate growth, led by 10.8% revpar growth
in Greater China and 8.0% in the US. Richard
Solomons, CEO, said: “The economic environment
continues to be uncertain, but we remain confident
in our future due to our resilient business model,
robust balance sheet and powerful brand portfolio,
combined with low medium term supply growth
in many markets.”
Looking at the October slowdown, he said:
“To a degree the slower growth in Europe can
be attributed to the strong comparatives in some
markets, it’s also important to remember that this is
just one month’s data. We are however keeping a
watchful eye as it’s possible that the conditions will
worsen even though there are no signs of this yet.
“October is a big meetings month and this
can lead to volatility – for example we had the
Paris Motor Show last year. Our view is we
have looked into booking pace in November
and December it seems to have been a blip.”
Looking at Europe’s current sovereign debt crises,
he said: “Forward booking pace is maintained,
cancellations are stable, travel intentions data is positive
for business and leisure. Momentum’s been good, but
we’re in complex macroeconomic situations that we
haven’t seen before. In our business what we see
looks good – but we’re in a difficult environment.”
Solomons confirmed that the InterContinental
Westminster, which is currently subject to rumours
over a change in ownership, was unlikely to open
in time for the 2012 Olympics.
The US and China continued to drive the group’s
business, with China leading the development
pipeline. Solomons confirmed that this would
continue, with the group planning provide more
information on its roll-out of a new upscale brand
in China towards the end of the year.
IHG currently has 154 properties in China, with
142 in the development pipeline, representing a
quarter of the company’s total globally. Of the
group’s global pipeline, Richard Solomons, CEO,
told an analysts call that 40% of it was under
construction “which rises to 75% in China”.
Solomons added: “Financing for development
remains constrained in all the key global markets
which is unlikely to change in the short term.
That said, we signed 18,700 rooms into our
development pipeline in the quarter, including
almost 4,800 rooms in China.”
In October was reported that the group had
signed 12 hotels for its new hotel brand in China,
with the first openings of the new flag expected
in late 2012 or early 2013. Most of the contracts
signed will be in tier two and tier three cities as
well as in Shanghai and Beijing. The brand will
also be exported overseas to meet the needs of
Chinese travellers abroad.
In the US, development was less strong.
Solomons said: “Through 2011 we’ve seen a tight
financing environment, with no signs of that getting
better. Conversions tend to happen on change
of ownership so if transactions don’t take place
because finance isn’t available, that will slow.”
The limited transactions market has meant that
the group has not yet sold the InterContinental
Barclay in New York, which is valued at around
$350m, and Solomons said that the hotel could
be taken off the market. Observers have mooted
that a sale could encourage the company to
return more cash to shareholders and Solomons
confirmed that the group was having discussions
with potential buyers but that “if the banks get
even less helpful” this could delay a sale.
He added: “If it is retained we would look
at appropriate phasing of renovation, but our
preference remains to sell it to somebody who is
willing and prepared to refurbish it.”
Although the issues around the sale of the
Barclay have slowed the company’s move towards
asset-light, the group has continued to strengthen
its financial position. Net debt fell from $801m to
$644m and the company has refinanced its debt
18 months ahead of expiry.
InterContinental Hotels Group has reassured shareholders after seeing revpargrowthslowto0.3%intheEMEAregioninOctober.
IHGconfidentonEuropedespite‘blip’
turmoil, just over half (51%) of the respondents
said current trading was better than expected,
whilst 17% said it was unchanged. Just 12% said
trading was worse than expected.
Looking at investors, the survey echoed the
comments made on stage, with respondents
continuing to believe bank funding was still not
readily available. In their view, the most active
investors in the next five years would be high net-
worth individuals and sovereign wealth fund who
are by definition cash-rich.
Private equity was expected to become more
active, with significant funds raised. The prospect
of several major lenders potentially rationalising
their holdings, suggesting more stock would
come to market, offered possible opportunities
assuming, as van Marken said “both pricing and
return expectations can be matched”.
Van Marken closed by adding: “The outlook
remains clouded by uncertainty, with the situation
in the Eurozone only adding to the feeling of
unease. Corporates in particular are sitting on
significant cash but remain reluctant to invest
in this environment. We all need confidence to
make investment decisions and that continues
to be in short supply. Hoteliers, of course, remain
eternally optimistic.”
HA Perspective: What is not being said by
the development teams in hotel groups, at least
publicly, is just how difficult it currently is to keep
deals on track. Announcements are being made
but projects are falling out of the pipeline at an
alarming rate. If the climate doesn’t change
quickly, the hotel groups that are focused on the
fee-based model will shortly be facing problems.
And hence the sudden talk of using balance
sheets. But the switch to a fee-based model is now
too entrenched for it to be significantly reversed.
A big leap in ownership will devastate the return
on capital employed figures the hoteliers have
worked so hard to improve.
There will be a lot of capital recycling, the short-
term use of the balance sheet to get key projects
over the line. But these will be sold on as quickly
as possible.
The most interesting use of the balance sheet,
however, will be in consolidation. The challenge
here is in finding deals that make sense.
Within Europe, there has been some movement
in North European countries – dubbed by Nick
van Marken of Deloitte as the ‘sausage belt’
(Hotel Analyst has previously misattributed this
expression to CBRE’s Derek Gammage, who still
claims the term ‘olive belt’ to cover Southern
Europe and possibly the term ‘herring belt’,
covering Scandinavia, regions where few deals are
being done).
Given that we have endured the worst recession
in living memory and still face one of the tightest
lending markets, consolidation ought to happen. If
it does, the betting is it will be among the sausage
munchers first.
continued from page 1
continued on page 4
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 64
News
Looking forward to next year, the group forecast
revpar growth between 4% and 8%, wider than this
year’s 7% to 9% range, with Ebitda of $1.03bn to
$1.12bn. President & CEO Frits van Paasschen said
that group was planning to “reinvest significantly”
in its owned hotels to ready them for sale when the
transactions market improved.
Full year 2011 Ebitda is expected to reach
between $980m and $990m, up 12% on the
year before adjusting for asset sales and in
the middle of the forecast range. CFO Vasant
Prabhu said that, should recession return to the
global markets, “This could lead to the much
talked about new normal scenario of low global
growth”. This outcome would correspond to the
lower half of the group’s revpar and Ebitda ranges,
and Prabhu added: “If we actually have 4% revpar
growth, the bottom of our range, owned Ebitda
growth becomes hard to realise despite our cost
containment initiatives.
“Whatever growth we get at a 4% revpar
scenario will have to come from our fee business.”
Starwood will continue to pursue its asset-light
model, although the CEO acknowledged that the
group was seeing weaker demand for hotel sales.
“The strongest buyers over the last couple of years has
been the public lodging Reits,” he said, “and they’ve
pulled back. But we can afford to be patient”.
The company did not go into the exact value
of the planned investment, but vice chairman and
CFO Vasant Prabhu said that there would be further
details at the full-year results announcement in
February. The projects underway next year including
the shutdown of the Gritti Palace in Venice and the
Maria Christina in Spain, as well as renovations at
The Westin Maui, The Westin Peachtree and the
Sheraton Rio. The group is also shutting down two
other hotels in the US to convert them to Alofts.
Van Paaschen said: “We have the balance sheet
flexibility to invest in creating a slate of hotels that
are in great shape with a proven track record and,
if the transaction market picks up more quickly in
2012, we may turn some of these projects over
to a potential owner. The opportunity to sell right
now isn’t one that we think is very strong and that
we’d rather hold – invest in our assets and find a
time where we can get a strong price.
“This will detract from Ebitda in 2012, but
importantly, will position us well when the time
comes to sell assets.”
While the group expected business in North
America to remain much the same in the final
quarter as it had in the third quarter, revpar growth
in Europe was expected to fall to between 3% and
4%, from 7.7%. Vasant Prabhu, vice chairman and
CFO, said: “Hopefully the announcement on the
Euro rescue plan will improve business sentiment
in Europe.”
In Asia Pacific, Prabhu said booking pace
remained on trend, with leads up and cancellations
down. However, with India weak and Thailand
severely disrupted by floods, the group expected
a “small sequential slowdown” in revpar growth
in the final quarter.
In Latin America, the third quarter saw 24%
revpar growth, which the company did not expect
to maintain based on current booking trends,
although it expected double-digit growth.
Van Paasschen said he was confident of
resilience of both the group’s fee businesses and
the sustained growth in high-end global travel,
despite identifying “Economy A, or the land of the
haves .....and Economy B, the land of have-nots”.
Van Paasschen said that, in the former, travel
continued to be key to the pursuit of growth
around the world, with rates expected to increase
as demand continues, aided by limited supply as
few new projects are being financed.
Looking at Economy B, he took the opportunity
to criticise the US government for its restrictive visa
regime, commenting that the US had lost a third
of its share of global travel over the last decade,
while less restrictive regions had benefited from
the rise in travel from emerging markets.
He added: “Major new travel patterns are
springing up, spurred by travel and by rising
wealth among billions of people. And we stand
to benefit as these emerging travellers are loyal
to brands they know from home and that speak
to their needs.”
The group continues to look to growth outside
the domestic market, with the CEO commenting
that 80% of its pipeline was outside the developed
world, with its emerging market pipeline equal
in size to 70% of its entire existing footprint in
those countries.
He added: “In valuing our global pipeline,
remember that the average non-US managed
luxury contract is about three times the present
value per room of a typical American mid-market
franchise. This underscores the value of our
pipeline, which is comprised of 80% emerging
markets; 84%, managed contracts; and over
75%, upper upscale and luxury hotels.”
The group continues to move towards its goal
of being 80% fee-driven. Van Paasschen said that
in 2007, when he joined the group, fees drove u
StarwoodplansinvestmentasdealsmarketslowsStarwoodHotels&Resortsuseditsthird-quarter earnings call to confirm that, despite “a lacklustre economy”, the group was maintaining the full-year2011forecastsmade at this time last year.
IHG will continue to look to China as it goes
forward. Solomons said: “The tail winds of the
hotel industry look very good in terms of the
demographics and developing markets. In some
of our markets, particularly in Asia and parts of
the Middle East, the economic picture is good and
activity remains strong.”
Solomons said that, in the medium term, the
group continued to look at 3% to 5% growth
in its portfolio. He added: “However in the US
we’ve not seen any pick up in terms of ground
breaks although we’re seeing a small increase in
conversions. For 2012 we’re likely to come in at
the bottom end of the range and even delivering
that level of growth will be a challenge.”
He concluded: “We’re taking a larger percentage
of the hotels that are opening – we’re leading the
share of global openings at 16% – in the US it’s a
21% share. As long as we’re growing our room
supply and revpar ahead of the industry, we’ll be
growing market share.”
HA Perspective: IHG, like the other global
majors, is facing headwinds. As a fee-income
based business there are three levers it can pull
to drive revenue: revpar, pipeline and royalty rate.
None of these three look great right now.
Revpar growth is unlikely to be spectacular in
any parts of the world where IHG has a significant
presence, Europe and North America, due to
the economic challenges on both continents. If
anything, the prospects for America are better
than Europe’s but there is certainly little cause
for optimism.
Secondly pipeline is increasingly difficult. IHG is
doing well to increase market share but this is in
a tough environment as it readily admits. In the
absence of any meaningful transaction market
and next to impossible bank financing, signing
new hotels is challenging.
Finally royalty rate is unlikely to be increasing in
a market where most hotel owners are struggling
to survive.
Relatively, IHG is outperforming. Absolutely,
however, it looks a lot less promising.
continued from page 3
continued on page 5
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 6 5
News
45% of Ebitda before overhead, with that figure
set to be over 60% for this year.
He said: “While it seems unlikely, we can’t rule
out the possibility that today’s issues are a prelude
to a full-on double dip. What we can say is, that so
far, this does not feel anything like 2009. The impact
on Starwood is far less dramatic than you might
think – both our corporate and leisure customers
are doing pretty well and still travelling.”
Despite the concerns, the company was
confident that its focus on global corporation
and high-end travellers, the lack of new supply in
developed markets and the rise of middle classes
in emerging markets would continue to deliver.
HA Perspective: There are few signs yet of a
slowdown in demand for hotels. But the industry
typically lags the business cycle by a quarter or two
so it may be coming. That said, it was a difficult
start in many economies at the start of this year
and this should by now be in these trading figures.
It remains a murky picture.
What is encouraging is that hotel companies are
thriving even in this “new normal” environment of
low growth. The days of waiting for the economy
to drive revpar are gone and hotel operators are
helping themselves by growing their pipelines to
deliver higher sales volumes.
In a normal recovery – as in old normal –
Starwood would be in a very happy place given its
leveraged position in regard to the recovery thanks
to its still substantial portfolio of owned hotels.
A slow recovery may actually help Starwood
in that it will not be distracted from focusing on
its fee business but a giant leap in returns from
owned hotels.
The two are continuing to invest in their estates,
with Hyatt spending up to $400m on renovating
its properties this year and M&C having recently
acquired land for a site in Tokyo. By utilising their
balance sheets, both companies can expand, despite
conditions in Europe beginning to cause concern.
Hyatt reported net profit of $14m, compared
with $30m a year earlier, on one-time charges,
with adjusted Ebitda up 21.6% to $135m. Revenue
climbed to $897m from $879m a year earlier,
while North America revpar increased 7.1% – up
8.8% for select-service locations – while overseas
revpar gained 9.6%.
During the quarter the group added 26 hotels to its
portfolio, including 19 that were part of the 24 hotels
it acquired in its $802m LodgeWorks deal. Hyatt
has also announced projects in new markets for the
group, in the Bahamas, Vienna and Vladivostock.
Future expansion will include the extended stay
Hyatt House brand, conversion to which the group
estimated would cost less than $1m per hotel to
owners. The group is planning to convert its Hyatt
Summerfield Suites and Sierra hotels brands to
the new flag in the next year to 18 months and
is also looking overseas, with hotels in India and
China confirmed.
In an earnings call, Mark Hoplamazian, Hyatt’s
president and CEO, said: “We expect to have all
Hyatt launching brands represented throughout
China and India. During my visit to China to last
month it was clear to me that there was great
enthusiasm and significant potential for our select
service brands there. With a growing number
of domestic affluent travels and the increasing
importance of new urban centres, there is a large
and growing markets for these hotels.”
Hoplamazian confirmed that the group would
continue to invest its own capital in expansion,
commenting: “One of the key reasons we have
a commitment from third-party developers is that
we’re putting our money where our mouth is”.
He added: “The shopping list relates to where
we can make the biggest difference in terms of
expanding, where we are serving guests that are
travelling to places where we don’t have significant
presence. There are examples of major cities in
the US where we don’t believe we got sufficient
representation at this point. When you look at large
cities like Miami and Los Angeles, for example.
“And internationally, we’ve got really a
significant number of markets that are open from
a Hyatt brand perspective in Europe.”
The group is also continuing with renovations
in the estate, with its full-year capital expenditure
estimated to reach between $390m and $400m.
The group said that it was in the early days of
planning for capital for 2012, but that it would be
lower than 2011.
At M&C, pre-tax profit increased 62.7% to
£69.3m, on revenues up 27.8% to £242.4m –
with hotel revenue up 4.5% to £195.4m. Revpar
rose by 7.8%%, primarily driven by an increase in
average room rate. Headline profit before tax was
up 50.9%, including a gain of £33.8m from the
sale of development land in Kuala Lumpur.
Chairman Kwek Leng Beng said: “Revpar growth
was positive across all key gateway cities and most
regions whilst asset management contributed a profit
of £33.8m from the sale of land in Kuala Lumpur.
Other asset management activities are proceeding
according to plan. Completion of the land site
acquisition in Tokyo means that we are on track to add
a further gateway city in Asia to our global portfolio
once construction is complete, scheduled for 2014.
M&C did, however, urge caution over trading in
Europe, which meant that its share price fell 5%
following the announcement, regardless of the
increase in profits. The chairman said: “We are
noticing more caution amongst business customers,
reflecting anxiety about events affecting the
Eurozone. Economic uncertainty strengthens the
case for our maintaining a strong balance sheet.”
However, Analyst Nigel Parsons from Evolution
Securities commented in a note that that 60%
of M&C’s pre-tax profit was from Asia Pacific,
with little exposure to Europe (excluding the UK).
Parsons said that the stock “offers upside as a
geared hotels recovery play and asset-backed
owner of gateway hotels”.
When questioned about the position in Europe,
Hyatt CFO Harmit Singh said: “Our quarter three
revpar growth in Europe is in the mid single digits,
so slightly higher than what we have seen in
international business.
“We’ve seen really no change, since similar
trends continue into recent weeks. Overall, our
presence in Europe is small. If we look at our total
room base we have about 5% of our room base
invested in Europe. And our presence in Europe
is largely concentrated in Germany, France, and
a few markets in the UK. We don’t have, for
example a hotel in Spain.”
HA Perspective: There are few signs yet of any
impact from the Eurozone wobbles within the hotel
industry. But nor should any be expected given that
hotels typically lag the cycle by a few months.
In any case, the Eurozone difficulties are likely to
lead to a gradual decline rather than a Lehmans-
like bump.
IHG was the first to exhibit some signs of slowing
at the tail end of its Q3 trading and more can be
expected across the industry in the important
final quarter.
The operational leverage within Hyatt and M&C
looked good at the start of this year, it will appear
less clever at the end if trading does stagnate.
Hyatt,M&CstrongdespiteEuropefearsHyatt Hotels Corporation and Millennium&Copthornebothreported strong third-quarter results, as trading fundamentals improved.
continued from page 4
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News
The announcement came shortly after the
company confirmed that it would open its first
hotel in China, under its agreement with HNA
Group, after having seen a quiet year so far for
signings, with only two new agreements, both in
its domestic market.
Ebitda for the period increased by 24.9% to
E127.7m, with 85% of that generated in Benelux,
Central Europe and Latin America and only 15% in
Spain and Italy. The company added: “It is worthwhile
to stress that due to the seasonality of the business
close to 75% of the Ebitda is generated in the second
and fourth quarter”. Like-for-like revpar was up by
6.9%, as a result of a 4.4% increase in occupancy
and 2.3% increase in ADR.
During the nine-month period, NH signed
two management agreements, for a total of 130
rooms, both in Spain, with one hotel due to open
this year and one in 2013. The year so far has also
seen the opening of six new hotels with 816 rooms
and one hotel extension with 124 rooms.
The company’s domestic market reported its
best quarter of the year so far, with a like-for-like
revpar growth for Q3 of 8.4%, against 4.6% in
Q1 and 2.7% in H1. The third quarter was the first
to see rate growth, with a 1.6% increase.
Italy also saw revpar growth, of 7.2%, driven
by an increase in business travellers. The rise in
corporate travel also pushed up revpar in central
Europe, by 6.7%. Latin America continued to
perform well for the company, with a 10.11%
increase in like-for-like revpar, although results from
the region suffered as the Euro lost strength.
The agreement with HNA Group has now been
revised, with the Chinese group due to pay 24%
less than previously agreed to take a 20% stake,
paying E5.35 per share for 61.7 million new NH
shares compared with E7 per share agreed in May,
as a result of the company’s falling share price. The
opening of the first hotel in China to be operated
under the NH brand is expected in the beginning
of 2012 in Chongqing.
The group has continued to make inroads into
its debt reduction, cutting it from E1.080bn on 30
June to E1.067bn on 30 September. In October the
company announced the sale of a 67% stake of
the Lotti hotel in Paris for E71m to Hotel Costes,
which will be included in the last quarter of the year
and which will, the company said “contribute to
reducing leverage ratios substantially”. In February
the group had announced the sale of a 33% stake
in the Lotti for E35m, with NH to continue to
manage the hotel over the next two years.
The deal meant that asset sales since 2009 have
raised a total of E345m, 15% above the E300m
target initially announced by the company.
HA Perspective: Results from fellow Spanish
operator Meliá Hotels International reported
strength in the domestic market, as Spain benefited
from the travellers avoiding countries affected by
the Arab Spring. For Meliá, this had meant much-
needed growth in its resorts business, which the
more city-driven NH has not enjoyed.
For both companies, the recent bad news on
the country’s economy, with growth falling to
zero from the previous quarter according to a
preliminary estimate by the National Statistics
Institute, is likely to mean more pain ahead in its
urban Spanish markets.
There are other potential headaches ahead for
NH. It announced that the terms of its deal with
HNA had been renegotiated down on October 17th
but with the NH share price at E2.685 at the end
of the week the deal was announced, there is every
chance of a further downgrade to this price before
the 15 December 15 deadline. Right now it is clear
that NH needs HNA more than HNA needs NH.
NH sees domestic rise in Q3NHHotelesreporteda4.7%increase in like-for-like hotel revenues inthefirstninemonthsof2011up4.7%toE40.3m.
While global gateway cities continued to attract
interest, the US bore the brunt of weakening
sentiment, with a downgrade for next year’s
performance from STR and a softening in investor
interest, while the outlook for the UK outside
London remained difficult.
Jones Lang LaSalle Hotels’ bi-annual Hotel
Investor Sentiment Survey reported an increase of
38.6% from investors across the globe indicating
a ‘buy’ strategy for the next six months, an
18-month high.
Upscale assets continued to be the most sought
after asset type globally, although midscale
properties gained favour. Private equity and real
estate funds were the most likely buyers around
the world in the near-term.
There was a geographic split for the survey’s
results, with the largest uptick in ‘buy’ sentiment
recorded in Asia Pacific, followed by the Europe,
Middle East and Africa region. In the Americas,
although investors’ ‘buy’ sentiment decreased
slightly, it still remained at the highest point of the
three regions.
The ‘sell’ sentiment continued to be strongest
in EMEA at 13.8%, and lowest in the Americas
at 7.8%.
Investors active in EMEA exhibited weakened hotel
operating performance expectations, both in the
short and medium term. Arthur De Haast, global CEO,
Jones Lang LaSalle Hotels, said: “Yet fundamentals
have not shown any deterioration, and on a city level,
54% of all cities tracked in EMEA are anticipated to
show growth in the coming six months and 81%
when considering the medium term.
“On a global weighted average basis, the
proportion of investors exhibiting a positive
outlook for performance fundamentals over the
next six months has softened by 27%, but is still
at a more favorable level than one year ago.
“The survey affirms that, while investor sentiment
is more delicate than it was in our previous survey,
investors’ intentions to buy assets globally are
still on the rise, evidencing respondents’ strong
interest in pursuing acquisitions. Additionally,
our survey respondents expect hotel operating
fundamentals to continue to grow in 2012,
even if at a slower pace.”
A movement towards slower growth was
echoed by STR, which cut its estimate for revpar
growth across the US hotel industry during 2012
from 7% to 3.9%.
The revision included a 0.2% increase in
occupancy to 60.0% and a 3.7% rise in average
daily rate to $105.29. Amanda Hite, president of
STR, said: “While we are still confident industry
performance will remain positive during 2012, we
are concerned about the lack of growth in the
overall macro-economic indicators.
“In addition, the stronger-than-expected demand
growth for hotels this year will make for difficult
year-over-year comparisons in 2012. Our revised
forecast reflects an industry posting record levels of
demand, operating in an environment where the
economic fundamentals cannot be ignored.”
In the UK, increased reliance on online travel
agents was expected to lead to increased costs
for hotels, as hoteliers were less optimistic in the
light of ongoing economic uncertainty, according
SectorwaryasyearclosesCaution is currently the watchword in the global hotel sector, amid a mixed series of reports.
continued on page 7
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to the TRI Hospitality Consulting HotStats Hotel
Confidence Monitor.
The study found that 47.6% of UK hoteliers
were less optimistic compared to Q3 2011. This
represented the most pessimistic response of the
last nine surveys conducted by the company, with
38% of respondents either pessimistic or very
pessimistic about their hotel performance over the
next three months.
In line with London’s ongoing strength, 41.5%
of general managers in the capital were expecting
an increase in performance in Q4 2011 compared
to Q3 2011. This increase in demand was
thought likely to further boost average room rate
performance and 77.4% of GMs were expecting
an increase in Q4 2011, which is anticipated to
result in further revpar growth.
In contrast, just over half of provincial hoteliers
(51.7%) saw no change or only inflationary
growth in revpar performance, a similar proportion
compared with Q3 2011 expectations.
The increased pressure to drive bookings was set
to drive GMs online, with 25.5% of provincial and
29% of London hoteliers expecting more bookings
to be made directly with the hotel’s website.
Additionally, hotel bookers were expected to
become increasingly reliant on OTAs, with 41.1%
of hoteliers in the provinces and 44.9% of London
managers anticipating more reservations through
these channels.
“Whilst the increase in the number of bookings
through web-based channels will impact costs in
the rooms department, due to sources charging
commission levels of up to 30% per booking, the
ease of use for customers, presence and geographical
spread which is achieved as well as access to previously
unpenetratable markets means that the strength of
these new channels cannot be ignored,” said Mark
Dickens, managing director of HotStats.
HA Perspective: Nobody knows what the macro-
economic prospects are for the year ahead. The
Eurozone crisis, the US debt problems and potential
over heating in Asia are all unquantifiable risks.
On the ground, and outside of the finance
community, things are not looking so bleak.
The big concern is the concern itself. Never has
Franklin Roosevelt’s phrase, uttered at the peak of
the Great Depression, “you have nothing to fear
but fear itself” been more appropriate.
The underlying hotel business is one of secular
growth. In the long-run, it will come good. But as
Maynard Keynes observed, we may all be dead by
then – or at least bust.
Trading is coming off, but it is not collapsing,
seems to be the message coming through. Those
hotel groups that are not labouring under an
impossible capital structure and have a long term
viable business model will come out winners.
Morgan Stanley’s equity analysts have raised
the price targets on the stock they monitor citing
“positive data points that increases our conviction
in continued strength in lodging fundamentals”.
Few on the European side of the Atlantic would
share this level of optimism but perhaps some of
the negativity has been overplayed. Then again,
we have yet to see anywhere near the level of
distress that was anticipated since the crisis started
and perhaps 2012 will see this change.
News
The increase in activity, as banks lose patience
and take action, looks likely to grow as concerns
build about the economic health of the Eurozone
and its impact on trading and financing in
the UK.
The division of the Von Essen estate continues
apace. Buyers have included The Eden Hotel
Collection, Longleat and Bath Priory, the company
owned by Andrew Brownsword, which picked up
a package of four hotels.
So far no sale prices have been confirmed.
The estate was reported to have been suffering
from a lack of investment, which is likely to have
meant tough negotiations from buyers, with jewel
in the crown Cliveden thought to be one of the
more dilapidated.
The Times also reports that Andrew Davis, founder
of Von Essen Hotels, owns a so-called ‘ransom strip’
of land at Ston Easton Park, his favourite of the
portfolio, which could delay its sale.
The land means that Davis could control access
to the site. However, the newspaper understands
that Lloyds Banking Group and Barclays are
investigating whether, by splitting off the land into
his private ownership, Davis may have abused his
position as a director of the company.
Meanwhile, Jurys Inn is reported to have
written down the value of its assets by nearly
£440m last year, as its lenders are thought to have
called in PricewaterhouseCoopers to find ways to
restructure debt at the three-star hotel chain, with
a debt-for-equity swap thought to be the most
likely conclusion.
Jurys Inn was bought in 2007 for E1.2bn by a
consortium led by Derek Quinlan, while an Omani
investment fund bought a 50% stake a year later.
The group’s assets are valued at about £340m,
while it owes £616m to lenders led by Royal Bank
of Scotland Group. Trading at the group is thought
to be good, with sales of £138m in the year to
December 2010, up 5.9% on the prior year.
Maybourne Hotel Group, which shares a
Quinlan connection with Jurys Inn, continues to
boost lawyers’ fees, with the Barclay brothers
are reported to be attempting to buy the debt
associated with the 36% stake of the Maybourne
Hotel Group owned by Paddy McKillen.
HA Perspective: The companies involved in the
UK’s most high-profile hotel property restructurings
are as different as they are similar. A group of
faded country houses, a chain of three star hotels
and some of London’s most famous hotels. What
unites them is debt and the need to deal with it.
Right now, however, the economy appears to
be in remission from recession rather than recovery
as the autumn forecast from the European
Commission showed. Growth for the whole of
2012 is forecast to be just 0.5% as an average
across the EU, and just 1.5% in 2013. The OECD
forecast at the end of October just 0.3% growth
for the Eurozone in 2012.
Only those patients refusing treatment for their
debt disease from their bank doctors – or who
the banks refuse to treat – are dying. The problem
for patients is that the current sovereign debt
crisis is causing banks to continue to deleverage
rather than expand their balance sheets as would
normally happen a couple of years after a recession.
Treatment is increasingly likely to be withdrawn.
A report from Nomura suggests that the
deleveraging is going to be large, particularly in
the Eurozone. Nomura said the maths equates to
Eurozone banks selling assets worth E1,000bn.
Nomura added that these assets are unlikely to
be in domestic markets but among the E6,000bn
outside the Eurozone.
The US has the biggest chunk, at E1,800bn;
the UK is next with E1,600bn; and then Eastern
Europe at E1,000bn. In amongst these enormous
numbers are some significant hotel loans. The
NAMA travails have been well flagged but expect
more from the Germans, the French et al. Nurse!
Economic remission rather than recoveryThemovetorestructuretheUK’sailing hotels has sped up, with a slew of former Von Essen hotels being sold, debt restructuring plans at Jurys Inn and a potential resolution to the ownership battles atMaybourneHotelGroup.
continued from page 6
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News
The comments were made as the group
reported third quarter revenue growth of 25.7%
to E51.8m for the three months to 30 September.
The company, which spent much of last year
strengthening its financial position, continued
to build its pipeline, including a rebranding
in Croatia.
Group revpar for the period increased by 10.7%
for the period, driven by an 8.7% increase in rate
and 1.4% increase in occupancy. On a like-for-like
basis, total revenue increased by 7.3% for the
three month period and increased by 14.9% for
the nine months to 30 September.
The group did not split its performance
out along regional lines, but commented that
it had benefited from its recent acquisitions
and development activity “as well as the
continued recovery in certain markets in which
the group operates”.
Boris Ivesha, president and CEO, said: “Park
Plaza has continued to deliver a strong trading
performance in the third quarter, in line with the
board’s expectations, adding to an already strong
first half of 2011. We have benefitted from a
recovery in all our markets and have continued
to grow our revpar, mainly driven by increased
average room rates across the portfolio.”
During the period the company refinanced
a banking facility with Bank Hapoalim which
will fund the development of the new art’otel
Amsterdam. The facility was for an amount up
to E26m, E14m of which is to refinance existing
amounts owed to the bank in connection with
land costs while the additional amount will be to
fund the development of the hotel.
Shortly before the results announcement,
the company also announced a share buyback
of 800,000 shares (representing 1.91% of the
company’s voting rights) at a price of 227.5p per
share, representing a total investment of £1.82m.
The group strengthened its development
pipeline during the quarter by adding a hotel
project in Pattaya Bay, Thailand through a joint
venture, while continuing to build on its holdings
in London, through the art’otel in Hoxton and the
acquisition for £6m of 628 Western Avenue, a site
on the A40 into the capital which is currently going
through planning for the addition of a hotel.
The company has also continued extensive
renovation works at several of its hotels,
completing those underway at the Park Plaza
Victoria Amsterdam and Park Plaza Eindhoven. The
group said it had seen a “good contribution” from
its new hotel openings and renovated hotels.
Following the results announcement, the group
was reported to be rebranding of two Resort
Hotels in the Arenaturist group. After a E25m
renovation programme, Park Plaza Histria Pula
and Park Plaza Verudela Pula are set to open their
doors in May 2012.
“Croatia is a fast growing holiday and group
incentive destination offering ample natural
and cultural diversity with strong Mediterranean
influences. We are proud to enter into our first
resort venture in Croatia with our upscale Park Plaza
Hotels & Resorts brand,” Ivesha told local press.
In April 2008, Park Plaza Hotels became a
shareholder in the Arenaturist group and won the
management agreement for the entire portfolio
which includes eight hotels, five apartment
complexes (with a total of 2,868 rooms) and
seven campsites. It accompanied the purchase of
a 20% stake in Bora the holding company of the
Arenaturist Group.
Park Plaza said it remained focused on its
growth strategies of “driving top line growth
and maintaining operational efficiency” and had
expanded its management team to support them.
HA Perspective: Park Plaza has shown some fancy
footwork to maintain profitability in the current
climate. As a small hotel developer and operator,
the past four years have been particularly tough so
it was smart extend its exposure to management
contracts back in 2008 with Arenaturist.
This deal with the Goldman Sachs related funds
of Bora is now set to deliver a couple of properties
under Park Plaza’s own badges as originally
promised at the time it was struck.
ParkPlazaunaffectedby‘uncertainty’inEuropePark Plaza said that trading continued to be in line with its expectationsinOctober,although it was “mindful of the broader macro economic uncertainty in Europe”.
The deal marks Interstate’s first Eastern European
hotel and is the group’s tenth country outside the
US, as the company continues to expand rapidly
outside its home territory.
In addition to managing the hotel upon
completion, Interstate will provide pre-opening
and technical services to assist in construction
planning, design and FF&E.
Leslie Ng, Interstate’s chief investment officer, said:
“We continue to execute on our growth strategy
outside of North America. By partnering local, in-
country experts with top-quality international brands,
we see significant management opportunities for
Interstate in the region.”
Earlier in November the group announced that
its strategy had seen it reach six hotels opened or
signed in India as part of JHM Interstate Hotels
India, a 50/50 joint venture management company
between Interstate and JHM Hotels. Prior to
that, in September, the company entered into a
joint venture with TVHG Budget Group Beheer
BV, through its subsidiary TVHG Budget Group
Netherlands, to invest in a portfolio of nine hotels
located across the Netherlands.
Thomas Hewitt, Interstate’s chairman and
CEO, said: “This contract, our 28th in Europe,
demonstrates that our business model translates
well in any part of the world. We have the size,
scale and management depth to support this
rapid, global expansion.”
Interstate and its affiliates manage and/or have
ownership interests in nearly 400 hotels with more
than 69,000 rooms in 40 states, the District of
Columbia, China, Russia, India, Mexico, Belgium,
Canada, Ireland, England and the Netherlands.
The company has ownership in 58 of those hotels,
including six wholly-owned assets.
In Hungary, the company is not reported
to have a stake in the hotel, which is part of a
mixed-use development. KÉSZ Holding is a new
owner for the group, with principal Mihaly Varga
commenting: “With its strong ties to the brand
and solid operating platform, Interstate was
the best choice. They have a robust presence in
Western Europe and Russia, and we are pleased to
be the developer that introduces this outstanding
company to Eastern Europe.”
HA Perspective: Interstate is at the forefront of
the trend towards separating management and
brand – the brawn and brain split. It has also been
a pioneer for Western hoteliers in Russia and has
forged a JV with China’s Jing Jiang. And now it has
added Hungary to its roster of emerging markets.
How much cross fertilisation there is in
management experience across the many territories
is hard to quantify but Interstate undoubtedly
has a good spread of geographic risk and good
exposure to fast growing emerging markets.
Interstate continues global growthInterstateHotels&Resortshasentered into a long-term management agreementforthe136-roomFourPointsbySheratonKecskemét,located in central Hungary.
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News
The comments referred not only to varied
performance in its domestic estate, which has
seen a split between urban and resort hotels, but
also globally, with the “uneven pace of recovery in
developed economies”.
The news came as the company reported a
9.3% increase in accumulated revpar for the first
nine months of the year. Revenue fell by 0.7%
to E969.5m while Ebitda was down 18.3% to
E176.6m compared to the first nine months of
2010 due to lower capital gains (E36.6m from
January to September 2011 against E93.2m in
2010), which included gains from the sale of the
Tryp brand to Wyndham Hotel Group and from the
sale of other assets. The group said it expected the
gradual correction of this effect up to year-end.
Third quarter results also included a 15.8%
increase in revpar at Spanish resort hotels, notably
in the Balearic and Canary Islands, which confirmed
the rate trend seen during the first half of the
year. The Spanish cities recorded revpar growth
of 3.9%. The group expected the split between
urban and resorts to continue, supported in part
by a redirection of travellers due to the instability
in North Africa.
Further afield, in Latin America the positive trend
was expected to continue in Mexico, Puerto Rico
and the Dominican Republic. In the Caribbean,
the company forecast a positive high season for
the first quarter of next year. The period also saw
the company open its second hotel in the US, the
Meliá Orlando, which it said it saw as important it
terms of its position in the main feeder market for
the resorts in the Caribbean.
The group said that its alliance with Wyndham
had seen, during September, its Tryp by Wyndham
hotels registering an incremental share of 5.6%
in guests coming from “key feeder markets”,
with the 12% increase in the US market
“especially encouraging”.
The group said that, in the European cities, it
expected revpar growth to continue, driven by bi-
annual trade fairs and meetings in Germany and
the Olympics in London. The company added:
“Clearly a higher cautious stance is maintained
regarding Spanish consumption – especially in the
domestic urban segment and affecting therefore
the Spanish cities – on the back of the potential
stagnation of the economy.”
Given, it said, the positive developments and
forecasts for international tourism in 2012,
the company was planning to accelerates its
international growth, continuing to do so though
low capital intensive routes, with 88% of the
hotels in its current pipeline of 32 hotels added
under such methods. Agreements signed so far
this year have seen it expand into countries such
as Tanzania, Austria, Denmark and the UAE.
In line with its asset-light strategy and efforts
to cut debt, the group said that it was continuing
to look at the disposal of assets. CEO and vice-
chairman Gabriel Escarrer confirmed that the
company was currently valuing its assets, with the
results expected “soon”. Debt rose to E1.17bn
during the period, above the group’s E1bn target,
as a result of the Paradisus Playa del Carmen
resort and the ME London. Escarrer said that
the group planned to have debt below the E1bn
by the year-end.
HA Perspective: It is somewhat ironic that the
resort market is proving one of the strongest
performers for Melia. A few years ago it was the
resort market which was characterised as the
disease for which Melia needed a cure.
Now the meltdown in the Spanish economy has
turned this on its head and it is the urban markets,
particularly outside of central Madrid and Barcelona,
which are suffering from a virus. And unfortunately
the latest strain appears particularly virulent.
MeliálooksforvolatilityvaccineMeliáHotelsInternationalsaidthat it was looking to geographical diversity in its expansion, to act as “a vaccine against any increase in regional risk”.
Despite the new reality of low bank lending and
an increasing number of assets being forced onto
the market, delegates were confident it was still
possible to attract investment outside London.
Christopher Davy, chairman of the British
Hospitality Association, reiterated calls made
by much of the industry for a reduction in VAT
for hotels. Presenting the British Hospitality
Association-commissioned Oxford Economics
report ‘Hospitality: Driving Local Economies’, Davy
highlighted the contribution the sector made
to the UK economy, despite factors such as the
second highest VAT rate on hospitality in Europe.
Key amongst the findings of the report was
the estimate that over half a million new jobs
could be created by the sector in less than a
decade. “But this needs to be in the context of a
supportive framework by government; not grants
or handouts, rather a greater understanding of
the sector’s potential for growth and the lowering
VAT on hospitality as has been the case in all but
two of the EU countries” commented Davy.
Davy did, however, welcome the news that
hotels would be able to participate in the
Enterprise Investment Scheme from next April. The
scheme, which allows users to benefit from 30%
up front tax relief, freedom from Capital Gains
and Inheritance Tax and unlimited CGT deferral
had not previously been open to hotels, although
has been widely used in the pub sector.
Changes will include the ability to raise up to
£10m per EIS company, employ 250 employees as
opposed to the current limit of 50, and to invest in
companies with gross assets of £15m, compared
to £7m currently.
With the potential for new investment through the
EIS not yet in place, there was debate over how to
maintain properties, with a view to selling when the
market improved. Julian Troup, Colliers International’s
head of UK hotels, said: “We now realise how easy
life was between 2003 and 2008. The banks are
looking for comfort and risk aversion.”
Robert Crook, managing director, Chardon
Management, responded: “Where cash is tight you
need to take a ‘lick and stick’ policy and get your
maintenance team to work. Make sure any capex
you spend is value-add – buy those projectors, don’t
rent them. Decide if you should lease or capitalise
items.” If this is done, it will help present a tidy
balance sheet for any prospective purchaser.
HA Perspective: It is right and proper that the
BHA is once again highlighting the importance of
the hospitality industry to the UK economy. But it
seems a forlorn hope to expect the government to
cut VAT in the current environment.
Rather the hotel industry will need to rely on
its own resilience to survive in the current tough
patch. Unfortunately, despite talk of optimism,
that resilience is going to be severely tested.
And while it is undoubtedly true that is still
possible to attract investment into provincial UK,
the reality is that the total level of investment being
made is at tiny levels to the recent past and is taking
an excruciating amount of time to be delivered.
Transforming provincial plight to provincial
progress is going to take a while longer.
Provinceshopeful,AHCfindsTheUK’sprovincialhoteliersdebatedthebestroutestoprofitattheAnnualHotelConferenceinManchester.
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Up, up and awayKatherineDoggrellmeetsStarwoodHotels&Resorts’MichaelWale as the group opens its second brand in London within a year.
You wait for ages and then two come along
at once. It’s true of buses, colds and Christmas
TV specials featuring misguided members of the
public exhibiting talents in a national forum. In the
current climate it isn’t usually true of hotels unless
its a group which has an advertising campaign
fronted by a gang of menacing teddy bears.
Or Lenny Henry.
Starwood Hotels & Resorts last month celebrated
the opening of its newest hotel in London with the
opening of an Aloft next to the ExCeL International
Exhibition and Convention Centre, in the same
year that it bought its W brand to the capital, no
mean feat in a city which is renowned for having
some of the highest barriers to entry.
Starwood has circumvented some of these, in
that it owns neither hotel, however, with the Aloft
brand only three years old, the group is counting
the openings as a testament to its brand strength.
In the case of Adnec, which owns the 41m,
252-room Aloft London Excel, the group does
not own any other hotels under Starwood brands,
being attracted solely by the product, also owning
the Aloft in Abi Dhabi, which was the first of the
brand in the Middle East.
While Starwood does not have any equity in
the two Europe Alofts currently open but, despite
the flag being touted as a franchise brand, it
does manager them. Michael Wale, SVP director
operations, North West Europe, Starwood Hotels
& Resorts, said: “They wanted management and
we wanted to manage. We wanted to make
sure that we could present the brand absolutely
the way we wanted it presented – plus then we
have all the numbers so that we can show them
to others, which was part of the strategy. We
wanted to introduce the brand correctly and then
we wanted to be able to show that the model
worked. But ultimately it’s a franchise brand and
it’s going pretty well.”
The company currently has 53 Alofts open
around the world, led by North America, where
there have been some conversions from other
uses, although the design of the brand requires a
certain ceiling height to create the loft-style effect,
which is not always available in office space.
Looking ahead, Wale says: “We’re 53 now,
we want to double in three years. I don’t have a
target in Europe, to be honest we know there’s
lots of destinations where the brand would work.
And we can now prove the business model so we
can encourage developers to think more about it.
The whole franchise model is not as mature as the
managed and owned markets.
“I prefer to franchise but I will manage if I find
people who want to want to invest. Clearly we’d
like to get more of them. There’s lots of cities
where I think it will work – Glasgow, Birmingham,
Newcsatle, Bristol, those sort of places. Places
where you can generate an average rate
somewhere between £90 and £120, that’s how
we think about it.
“I think it will go well in Northern Europe. A
lot of our North Europeans are quite self-sufficient
when they travel, so they’re not necessarily looking
for full service, they’re looking for the right price
point. What they want for that is a lifestyle design
brand. We’re in a space where nobody else is
playing at the moment.
“You get a good sized room – 24sq m to
30sq m – you get good technology – free wireless
– and so you’ve got everything. Those are the
things, with a good bed and shower, that people
want and they’re quite happy to self-manage their
way through. You can touch and go on the way
in, if you don’t want to have a personal interaction
and for lots of people on business, that’s what
they want. When I go to the airport, I’m already
checked in, so we’re just extending that process
through here.
“Brussels has been open a year and in its
competitive set its running in first position versus
full-service brands. And what that shows me is that
it’s resonating with the travellers that we’re aiming
at, which are Gen Y, Gen X style travellers.”
The openings have been timely for Starwood,
which has been slow to expand in Europe. Wale
says: “We’re under-represented in the UK and
we’re under-represented in London, New York is
the only city in which we have all of our brands. I
think we have a lot of development potential. In
the mature markets of Europe, clearly there are
high barriers to entry. It took us a long time to get
W into London, I’m really pleased that we held
out for the right location. I’m thrilled that we’ve
bought two new brands to London, but we could
do more here and certainly we would like to do
more. We’re talking to people – let’s hope some
of it comes off.”
The group has increased its estate in London just
in time for the Olympics, something Wale is happy
about. He says: “Clearly the word is in relatively
uncertain times, I think London next year looks
pretty robust, clearly we do have some demand
generators which is extremely helpful – we have
a Farnborough year, you’ve got Wimbledon
Analysis
Wale: “The point is that the phone is ringing”
Aloft’s loft-style rooms
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and the Olympics then it’s back into September,
which is normal corporate travel time.
“We were very early signatories with Locog, we
think the Olympics is a brilliant idea. We’ve put
a sizeable amount of our rooms into Locog, so I
think the timing couldn’t be better. The Olympics
will pick up the slack in a time when there can be
a dip because of the leisure focus.
“For us, corporate travel has been exceptionally
good, London reached a new peak in 2010 and
will reach another new peak in 2011. Leisure
travel varies, there’s a group of people out there
who are still travelling and we are predominantly
in the upscale and luxury end of the market and
those brands have had the biggest bounce-back
in terms of revpar.”
Starwood has not been immune to the lack of
development finance in the market, with Wale
adding: “It’s been pretty tight, I don’t think that’s
a secret. 2008/09, the phone didn’t ring, 2010/11,
the phone’s been ringing. Real estate people and
developers are starting to ring. Some are the same
people, some are new. The enquiry level’s pretty
high, clearly converting them is probably the same
as it is in any part of the business, in that we’re
having to take more enquiries to convert.
“The point is that the phone is ringing. In the
emerging markets it’s still pretty OK, in the mature
markets slightly more challenging. People are
liking our very distinctive brand positioning and
Aloft is a new price point that we haven’t really
historically had in the middle of the market, so
we’re coming to a space where other people are
not really playing that much.
“The beauty of the range of brands is that
it’s not a cannibalisation, you just have different
personalities. I know I do. What we see is that
Starwood Preferred Guest delivers one out of
every two guests to out hotels and what we do
see is that people have different trip personas, it
depends what you do and where you’re going.”
At the company’s third-quarter results president
& CEO Frits van Paasschen said that , although
Starwood would continue to pursue its asset-light
model, that the group was seeing weaker demand
for hotel sales. “The strongest buyers over the last
couple of years has been the public lodging Reits,”
he said, “and they’ve pulled back. But we can
afford to be patient”. Instead, group is planning
to “reinvest significantly” in its owned hotels
to ready them for sale when the transactions
market improved.
For the company, retaining owned properties has
also allowed them to benefit from higher earnings
from their asset-free rivals. Wale says: “We have a
strategy to divest ourselves of real estate assets, but
our balance sheet is very strong, we did an awful
lot of work after the 2008/09 period, so we’re in a
very good place at the moment. We’re not in any
hurry to sell our real estate. There’s no emergency.
We will when pricing is right and if somebody offers
us the right price then we will sell.
“On the other hand, owned assets can help you
in certain market conditions. On the upside it can
help you, there’s a view that on the downside it’s
a bit of a drag. The reality of it is that we own 59
hotels, five years ago we owned 120.
Wale concluded: “At the end of the day, there
was a line which Frits used, where he said: “There’s
a headline and there’s a trend line”. Headlines that
you read make you think that’s the world’s not a
very good place to be but actually our trend lines
are extremely positive. You can only talk about
what we in the business are seeing and what
we’re seeing is great.”
Analysis
The brand’s destination bars are designed for locals as well as guests
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Hand-held hand-holding
Whenwereyoulastdispossessed of a handheld communication device for more than 24 hours? Every business person appreciates the value of constant connectivity.
Recently, on a trip to Shanghai my Blackberry
died! As the device was routed through our
company server in London, transferring the sim
card to a new device or even Pay as you Go were
not solutions and I was faced with a further 10
days on the road without the instant handheld
connectivity that we all take so much for granted.
It has been years since I made calls from a hotel
room phone and I became reliant on my laptop
and wireless wi-fi which proved to be routinely
too weak to support a stable connection and
thus, all in all, I felt and was transported back
in time. The situation proved to be as infuriating
for me communicating out as for those trying to
reach me. The whole experience served as a stark
wake up call and a critical reminder of just how
reliant we have become upon technology and
of how basic and fundamental communication
can be immediately debased when the hardware
goes wrong.
Without my Blackberry to accompany breakfast,
the more traditional pastime of glimpsing the
newspaper took place, and an article in the
International Herald Tribune caught my eye. It
appears that in the emerging markets, much more
so than in the developed markets, ‘voice blogging’
is catching on, and, at a pace. Whilst voice SMS
messaging, one to one, has been with us for a
while, sending a ‘bubble’ ( the familiar name for a
voice blog), is much newer and was introduced in
India in May 2010 by a Singapore based company
called Bubble Motion. It has been expanded into
three further countries, Philippines, Indonesia and
Japan during 2011. Quite staggering is the uptake
which, during 2011 is cited to be 100,000 new
users joining every week and some 12 million
users now ‘bubbling away’ across four countries.
(to put this in context Twitter has currently
c 21 million users in the US alone – but these
‘bubbles’ are relatively new).
Some of the temporary obstacles facing this
new bubble phenomenon and the application
of the service to our industry are intriguing. With
Facebook and Twitter, one only need know one’s
target by name however, in order to ‘Bubble’, one
needs to know their phone number and possibly
even their mobile network provider. It’s clearly
early days and there are challenges to overcome
but there is no doubt that the technology will
be developed. Of more concern is how this new
technology will be applied and business leaders
define where it will add value and contribute
to effective communication and where it may
damage their brand if used badly.
The world currently appears to have an insatiable
appetite for the latest ‘app’ and software update
which, outside of the office environment causes
little upset however, as soon as this technology
enters the business environment and is applied to
business situations, there are ramifications which
affect one’s brand. Take a look at the effect of a
good or bad report on TripAdvisor.
Aneffectivecommunicatorsendsclear,concise messages to recipients, they also make special efforts to ensure the recipient understands messages.
Encouragingly, Bubble Motion’s website
provides advice on ‘ how to be a great bubbler’
and these tips include, bubbling daily, sounding
authentic and “not like a phoney” as well as
asking for feedback – all sound stuff in the
world of messaging. Research shows that many
business leaders have a ‘ghost twitter writer’
in their organisation, ghost bubbling will be
more challenging!
The definition of effective communication from
Wikipedia states that an effective communicator
sends clear, concise messages to recipients. They
also make special efforts to ensure the recipient
understands messages, and may restate the
message using written, verbal or non-verbal
responses. One of the challenges of communicating
via most of the methods described is that they
make no allowance for non-verbal responses and
hence those other vital communication attributes
of intuition and perception.
As the leader of an executive search and
management recruitment consultancy in the
hospitality sector, I hear regularly now from key
strategic partners of worrying trends regarding
how some recruiters and some hotel firms are
communicating inappropriately with their target
prospects, especially by social media. There is
no question that Linked In has become a useful
tool, a business equivalent of Facebook and that
identifying ‘who is who in the zoo’ has become
quicker and easier through this advancement in
technology. Selection of the most appropriate
communication tool and social media to achieve
the required result is clearly posing some challenges
in some markets. The CEO of a significant hotel
business in Asia told me that several of his senior
team had been individually targeted recently to
join a an emerging company in the region. He was
clearly intrigued to learn of this and was clearly
relieved that each team member had declined
the advance. However, he was bemused when a
day or two later he received a ‘linked in’ message
from a recruiter asking him if he would consider
the job!
In the hospitality sector worldwide, we point to
quality relationships being at the heart of success
in our business. Building those relationships takes
time and involves face to face meetings, telephone
calls as well as ‘transactional’ emails to develop
real two-way understanding which includes non-
verbal communication and intuition. The advent of
so many communication devices and social media
have made accessing any individual on the planet
relatively easy and Linked In is only the first step
in reaching out to contacts. I wonder whether the
most effective communicators are behind the fast
fingers that use the technology. The way Linked In
is used reflects directly on the employer brand.
My journey through Asia without a hand-held
device has heightened my awareness of just how
extremely dependent we are all becoming on swiftly
advancing technology. Fast as some great apps
are being developed, however, much application
needs to be placed on how and by whom they are
being used in the business environment.
Despite social media, JP Morgan’s tag line “the
right relationship is everything” still holds true.
Portfolio’s CEO, Lesley Reynolds reflects on the need to improve inter-personal communication skills as technology advances
Analysis
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Analysis
IntroductionWe write this article in the aftermath of a dramatic few days in which the 17 Eurozone countries, and all but one of the other European Union countries, have agreed to sign up to a set of obligations and procedures designed to protect the Euro from collapse. Or something like that. The economic and political context in Europe has changed dramatically, particularly as the United Kingdom’s refusal to join the new Eurozone has left it on the outside looking in, but the banking crisis and the sovereign debt crisis have not been resolved – nor has the thorny issue of whether in the short to medium-term European governments will formulate economic policies directed at generating economic growth rather than reducing budget deficits, let alone what those policies might be. And, as ever, we remind ourselves that each European country has a different history, culture, laws, political priorities, economic structure and hotel business.
This is a deeply insecure context for the hotel business. In this note we review, as we must, the current economic and political position, discuss the options for the future and examine the implications for the hotel business.
The economic and political position The 17 countries which share the Euro as their currency are struggling, broadly speaking, both economically and fiscally. Nine of the other 10 members of the EU have agreed in principle to join the Eurozone countries in seeking and implementing a solution to the current problems. Together they have announced that they will:• Maintain fiscal prudence, defined as each
economy maintaining its annual national budget deficit within 3% of GDP
• Imposeautomaticsanctionsonaneconomy ifits budget deficit limit is exceeded
• Meetmonthlytoreviewtheeconomicandfiscaldevelopments across the Eurozone with the intention of making adjustments to ensure that prudence is maintained.Only the UK has rejected the proposal and will
be excluded from the new Eurozone and its new structures. The British position is based on one issue and one problem. The issue is economic and relates to the UK financial services sector. The City is substantially larger, substantially more diverse
The Eurozone and the hotel businessand substantially more global than its equivalent in any other European economy. It employs more than 10% of the UK workforce, contributes around 10% of GDP and pays more than 10% of the total tax receipts of the public purse. The UK is unwilling to enter into the new Eurozone proposals that are designed to accommodate the small, limited and geographically constrained financial markets of the Eurozone without guarantees that the City would be protected. In particular, the UK is opposed to the imposition of a financial transaction tax, which would put it at a disadvantage to competitors in other world regions. It is opposed to the imposition of more lax capital requirements for banks without taking into account the wider range of activities of British banks compared to those in the Eurozone and it is opposed to Europe-wide regulatory control of financial markets which would constrain the global reach of the City and its capacity to compete outside the Eurozone. The members of the Eurozone were unwilling to provide the necessary guarantees to the UK on these issues. Thus, the UK exercised its veto and has become isolated from other EU members in fiscal management.
The move towards full fiscal union is the central plank in the management of the EU’s sovereign debt crisis. A binding agreement under which a large number of European economies would agree collectively to adhere to a new basis of fiscal prudence, with collective enforcement provisions, is intended to de-risk national debt for the bond markets and to enable the Eurozone governments to manage national debt more effectively. Establishing such a platform might well contain the sovereign debt crisis, but it is not a recipe for economic growth. Indeed, there are risks to GDP performance in the Eurozone in the near future.
FiscaltighteningandemploymentprospectsFiscal prudence demands the reduction of public service budgets in each Eurozone country and a sharp reduction in the numbers employed in the public services. This in turn creates an economic problem: how can governments reduce unemployment while at the same time making large numbers of public employees redundant? In the UK, the Chancellor of the Exchequer announced in the Autumn Budget Statement late in November 2011 that fiscal tightening would result in a reduction of 700,000 public service employees. If the other 26 EU countries were to reduce their public service employment by the same proportion as the UK, there will be five million redundancies. To put it another way, they will need to create five million new jobs. But where will these come from?
Governments have yet to think systematically about the impact of fiscal tightening on the structure of their economies so that they can tailor
economic policies to those segments that will grow demand and thus create at least the five million jobs that will be lost in public services. Indeed, those governments that have already introduced new economic policies have failed to grow their economies. The UK is a case in point. The Plan for Growth published by the British Government in the first quarter of 2011 provided support to grow only manufacturing – but economic growth has declined since its introduction. As an alternative, the Government has announced an infrastructure fund, mainly to build roads and railways, to soak up unemployment mostly in the Midlands and North. It is difficult to see that any of the mainly blue collar jobs that will be generated by the infrastructure initiatives will be suitable for the mainly white collar and professional employees being made redundant from the public services. It will require the development of the service business segment to redeploy public service workers. The pressing political issues of 2012 will be: what economic policies will be enacted and how will they lead to GDP growth? Success is not guaranteed.
StructuralshiftintheEurozone and hotel demandIn assessing the outlook for the Eurozone’s hotel markets, we start by looking at its economic structure as reflected in the segmentation of employment and likely shifts in that structure.
Table 1 shows that both the Eurozone and the rest of the EU have a higher proportion of employment in the agriculture and industry segments than the UK. These are the lowest yielding segments for domestic business demand into hotels. Employment in these two segments continues to be on a long-term downward trend as improved technology and work practices increase labour productivity and reduce their employment needs. Thus, these segments are of limited value to the growth of domestic business demand into hotels.
Public services account for no less than ten per cent of hotel demand in the Eurozone countries and, as we have already seen in the UK, public service travel and hotel stays are sitting ducks when budgets are being cut as severely as the fiscal tightening dictates. So, the first impact of the fiscal tightening will be negative for hotel demand. It is also likely that there will be a time lag between the public service redundancies and the creation of new jobs in other economic segments, and this too will have a negative effect on hotel demand.
Service business and experience business are the segments in which the Eurozone is under-represented and for which there is significant potential growth. The service business segment is the priority – and it should receive a boost from the privatisation of some public services. Within the
Paul Slattery and Ian Gamse from Otus & Co look at the future for hotels in Europe
Table 1: Economic Structure in the European Union
Employment Public Service Experience by segment Agriculture Industry services businesses Businesses
Eurozone 4% 28% 44% 17% 7%
EU excluding UK 6% 28% 43% 16% 7%
UK 1% 22% 38% 29% 10%
Source: EIU and Otus & Co Ltd
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Analysis
service business segment the priority growth area will be personal demand for service businesses and within personal demand for service businesses will be the growth in demand for financial services. The Eurozone economies are under-represented in financial services and the trigger for growth is the transfer from renting homes to owning homes. Collectively, more than half of homes are rented in the Eurozone economies while in the US and the UK around 70% of homes are owned. The growth of home ownership, as seen in the US in the 1950s and in the UK in the 1980s, provides a greater proportion of the population with ownership of a long-term appreciating asset. It extends insurance policies for homes, for home contents and for life. It provides access to credit and it accelerates spending, which drives growth in the economies.
Growth in the size and diversity of the service business segment is a major driver of domestic business demand and domestic leisure demand into hotels. The strong growth in US hotel chain supply in the 1950s – up from 1.1 million rooms to 1.5 million rooms, an annual average growth of three per cent – was exceeded by the average annual growth in room nights sold of 5%. In the UK during the 1980s chain room supply rose from 110,000 to 150,000, an annual average growth of 3%, exceeded by the annual average growth in room nights sold of 4%.
Introducing fiscal tightening and structural shift in the economies to service businesses will not be plain sailing for the Eurozone countries. Political and civil disruption can be expected from the enactment of fiscal tightening. Banks and financial institutions will need to make significant mortgage funds available and inducements will need to be made to change a lifetime habit of renting homes to home ownership. The major challenge for the new Eurozone is that with the inevitable sharp rise in unemployment from fiscal tightening, the growth in home ownership taking time, and the adjustment to a new set of economic, political and social priorities taking even longer, the economies will go through a rocky period to 2020. The hotel business will not fare well during the transition from public services to service businesses, but it will do dramatically worse in the longer term if the transition is not made. The prize for the new Eurozone hotel business in terms of strong secular growth in hotel demand and hotel supply will be collected when the structural shift in the economies is achieved after 2020 as it was in the US in the 1950s and the UK in the 1980s.
Hotel supply growth and the EurozoneThe rooms supply ratio, the number of hotel rooms per thousand citizens, in the Eurozone, shown in Table 2, is high owing to the inefficient seasonality of demand in many of the economies, which is reflected in the low level of hotel room concentration in brands and the high counter-cyclical net growth in chain room stock since the beginning of 2007.
Table 3 shows the supply profile of the EU countries and illustrates an extensive range within each of the measures. The rooms supply ratio stretches from exceptionally high levels in the small countries with no effective domestic demand and a hotel supply determined by foreign visitors. In the cases of Malta and Cyprus, the high seasonality from summer holiday demand creates a very inefficient volume of hotel supply. At the
other end of the range are five former Soviet bloc economies with low single digit rooms supply ratios reflecting under-developed economic structures with high exposure to agriculture and industry and very low exposure to the service business and experience business segments.
Over the four years of the credit crunch and recession from the beginning of 2007 to the end of 2010 there was also a very wide range in the change in hotel chain net room stock in the Eurozone economies from an increase of 33,000 in Germany to a reduction of 1,400 rooms in Bulgaria. High counter-cyclical net supply growth coupled with the prospect of, at best, sluggish demand growth is a sure recipe for decline in performance.
A similar pattern of extensive levels is evident in the range of hotel room concentration, the proportion of total hotel rooms in a country affiliated to hotel brands, from 59% in Spain to a mere 8% in Slovenia. We suspect that in the coming years there will be a marginal increase in concentration as struggling unaffiliated hotels seek shelter in hotel chains, but this will be limited by the specifications of the unaffiliated hotels, which in the main, fall short of the requirements of the larger chains.
ConclusionsThere are many uncertainties about the operation and impacts of the decisions taken by EU leaders
at the recent landmark summit conference. However, some things are becoming clearer about the prospects for hotel chains. Sustained demand growth in the years ahead will be hard to find until effective economic policies have been put in place, structural shift to the service business segment has been successfully achieved, and at least five million new jobs have been created, mainly in service businesses.
The pre-recession strategy of strong organic growth by the larger hotel chains will be a non-starter in the coming years as limited demand, tight debt markets and heightened uncertainty about economic performance will constrain net supply growth. The larger hotel chains will need alternative growth strategies in the coming years, one of which will be consolidation among the nine hundred or so hotel brands in Europe to generate synergistic benefits and de-risk struggling performance. It will still take decades to halve the number of hotel brands to make the chains more effective in generating premium demand, delivering premium operating margins and attracting effective capital, but the current economic context is giving a boost to the process.
Paul Slattery, Otus & Co Ltd [email protected]
Ian Gamse, Otus & Co Ltd [email protected]
Table 2: Hotel supply profile in the European Union
Hotel rooms per Proportion of hotel Net growth in chain thousand citizens rooms in chains Chain rooms rooms since 2006
Eurozone 9 36% 1.3m 2.5%
EU excluding UK 11 35% 1.4m 2.5%
UK 8 61% 0.3m 3.7%
Source: Otus & Co Ltd
Table 3: Hotel supply profile in the countries of the new Eurozone
Hotel rooms per Proportion of hotel Net growth in chain Country thousand citizens rooms in chains Chain rooms rooms since 2006
Luxembourg 119 43% 3 k 27%
Malta 42 25% 4 k -22%
Cyprus 34 38% 14 k 6%
Austria 29 12% 29 k 18%
Greece 28 17% 52 k 17%
Spain 14 59% 392 k 5%
Ireland 13 41% 25 k 7%
Estonia 12 22% 3 k 35%
Italy 12 13% 97 k 12%
Sweden 12 40% 43 k 8%
Finland 10 58% 29 k 11%
Portugal 10 31% 34 k 14%
France 9 52% 279 k 5%
Czech Republic 9 21% 19 k 20%
Denmark 8 44% 19 k 21%
Slovenia 8 8% 1 k 14%
Germany 7 41% 224 k 15%
Hungary 7 29% 19 k -5%
Slovakia 7 11% 4 k 42%
Belgium 6 38% 25 k 12%
Netherlands 6 51% 49 k 12%
Bulgaria 4 43% 13 k -11%
Latvia 4 26% 2 k 31%
Romania 4 12% 11 k 24%
Lithuania 3 24% 2 k 21%
Poland 2 41% 26 k 13%
Source: Otus & Co Ltd
ThemonthofOctober2011
The10monthstoOctober2011
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Sector stats
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year October 2011 London 85.5% £134.34 £114.83 50.1% 5.9% 12.4% 20.4% 11.3% £146.02 £159.33 £96.14 £136.58 £107.61 £3,469 £1,144 £204 £4,817 72.0% 23.7% 4.2% 100.0% 50.7% £2,443
October 2011 Provincial 73.6% £69.40 £51.10 47.1% 11.5% 8.6% 25.6% 7.1% £71.79 £78.80 £50.81 £70.98 £55.20 £1,554 £1,043 £287 £2,884 53.9% 36.2% 9.9% 100.0% 31.5% £908
October 2011 All 77.9% £94.76 £73.78 48.3% 9.3% 10.1% 23.5% 8.8% £101.86 £98.57 £72.57 £93.14 £81.58 £2,238 £1,079 £257 £3,575 62.6% 30.2% 7.2% 100.0% 40.7% £1,456
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change October 2011 London (2.5) 2.1% -0.7% 1.9 (1.0) (0.7) 0.7 (0.8) -1.0% 9.5% 8.8% -1.0% 14.3% -0.7% -7.2% 2.8% -2.2% 1.1 (1.3) 0.2 – (0.4) -3.0%
October 2011 Provincial 0.1 -0.1% 0.0% 0.0 (1.0) 0.0 (0.5) 1.4 0.1% -0.7% 3.0% 0.5% 1.6% 0.0% -4.4% -2.6% -1.9% 1.0 (1.0) (0.1) – (2.1) -8.0%
October 2011 All (0.8) 0.6% -0.5% 0.7 (0.9) (0.3) 0.0 0.5 -0.5% 1.5% 5.1% 0.1% 5.3% -0.5% -5.5% -1.1% -2.1% 1.0 (1.1) 0.1 – (1.3) -5.2%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year October 2010 London 87.9% £131.56 £115.69 48.2% 6.9% 13.2% 19.6% 12.1% £147.56 £145.45 £88.38 £137.99 £94.12 £3,495 £1,233 £199 £4,927 70.9% 25.0% 4.0% 100.0% 51.1% £2,520
October 2010 Provincial 73.5% £69.48 £51.08 47.1% 12.5% 8.6% 26.1% 5.8% £71.71 £79.34 £49.35 £70.60 £54.35 £1,554 £1,092 £295 £2,940 52.9% 37.1% 10.0% 100.0% 33.5% £986
October 2010 All 78.7% £94.24 £74.14 47.5% 10.3% 10.4% 23.5% 8.3% £102.40 £97.07 £69.03 £93.07 £77.49 £2,250 £1,142 £260 £3,653 61.6% 31.3% 7.1% 100.0% 42.1% £1,536
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year YTD London 82.2% £131.40 £107.95 47.1% 5.9% 14.0% 21.0% 12.0% £149.12 £152.45 £89.64 £131.24 £100.21 £32,954 £9,693 £1,853 £44,500 74.1% 21.8% 4.2% 100.0% 48.1% £21,383
YTD Provincial 70.8% £68.55 £48.55 46.7% 10.9% 9.9% 25.8% 6.7% £71.81 £77.70 £49.74 £69.46 £54.76 £14,741 £9,785 £2,912 £27,438 53.7% 35.7% 10.6% 100.0% 29.9% £8,209
YTD All 74.9% £93.27 £69.85 46.9% 8.9% 11.5% 23.9% 8.8% £102.35 £97.04 £68.82 £90.82 £79.26 £21,248 £9,752 £2,534 £33,534 63.4% 29.1% 7.6% 100.0% 38.5% £12,916
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London (0.3) 8.2% 7.8% 0.5 (0.1) 0.4 0.0 (0.8) 7.4% 16.7% 13.0% 4.3% 12.9% 8.7% -0.7% 0.2% 6.1% 1.8 (1.5) (0.2) – 0.8 8.0%
YTD Provincial 0.7 1.0% 2.0% (0.3) (0.2) (0.2) 0.1 0.6 1.4% -1.2% 2.3% 0.5% 3.9% 2.3% -1.2% -0.6% 0.7% 0.8 (0.7) (0.1) – (0.9) -2.3%
YTD All 0.3 4.7% 5.1% 0.0 (0.1) 0.0 0.1 0.0 4.9% 5.3% 9.2% 2.1% 7.5% 5.6% -1.1% -0.3% 3.1% 1.5 (1.2) (0.3) – 0.1 3.4%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year YTD London 82.5% £121.44 £100.17 46.5% 5.9% 13.7% 21.0% 12.9% £138.84 £130.63 £79.30 £125.88 £88.75 £30,317 £9,766 £1,849 £41,932 72.3% 23.3% 4.4% 100.0% 47.2% £19,805
YTD Provincial 70.1% £67.86 £47.59 47.0% 11.1% 10.1% 25.7% 6.0% £70.79 £78.68 £48.62 £69.12 £52.69 £14,415 £9,907 £2,930 £27,252 52.9% 36.4% 10.8% 100.0% 30.8% £8,402
YTD All 74.6% £89.10 £66.43 46.8% 9.1% 11.5% 23.8% 8.7% £97.61 £92.16 £63.04 £88.94 £73.70 £20,116 £9,857 £2,542 £32,515 61.9% 30.3% 7.8% 100.0% 38.4% £12,490
London hotels see revpar drop
drop in food and beverage revenue to £30.23 per
available room and a 4.6% decline in meeting
room hire revenue to £7.64 per available room.
Whilst trevpar levels for the month remain
approximately 10% above the year-to-date
average (£145.77), illustrating the strength that
remains in the London hotel market at this time
of year, as a result of the downward departmental
movement, total revenue levels in the capital
dropped by 2.2% during October to £159.46.
In line with the decline in trevpar, year-on-year
profitability levels in London dropped by 3% this
month to £80.87 from £83.41 during the same
period in 2010. This is only the second month in
2011 in which profit per room has declined in the
capital, with the first being August.
“Although a decline in profit levels for the city
could not be ruled out following the 16% year-on-
year increase in profit per room in October 2010,
it goes against the robust performance in the city
last month when goppar grew by 10.4%,” said
Jonathan Langston, managing director of TRI
Hospitality Consulting.
Despite the increase in achieved average room
rate in October, London hoteliers were faced with
another unfamiliar situation of a softening in
both the achieved rate in the corporate (-0.9%)
and leisure (-0.3%) sectors. The decline in these
segments this month are in contrast to an increase
in achieved sector rates of 5.4% in the corporate
sector and a 5% increase in the leisure sector in
the previous nine months.
Despite continued growth in achieved average room rate, hotels inLondonsuffereda0.7%declinein revpar as year-on-year room occupancy levels dropped by 2.4 percentage points, according tothelatestHotStatssurveyofapproximately550full-service hotels across the UK by TRIHospitalityConsulting.
In addition to the decline in rooms revenue,
hotels in London endured unfamiliar declines
across all ancillary departments, including a 7.9%
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 6 17
Sector stats
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year October 2011 London 85.5% £134.34 £114.83 50.1% 5.9% 12.4% 20.4% 11.3% £146.02 £159.33 £96.14 £136.58 £107.61 £3,469 £1,144 £204 £4,817 72.0% 23.7% 4.2% 100.0% 50.7% £2,443
October 2011 Provincial 73.6% £69.40 £51.10 47.1% 11.5% 8.6% 25.6% 7.1% £71.79 £78.80 £50.81 £70.98 £55.20 £1,554 £1,043 £287 £2,884 53.9% 36.2% 9.9% 100.0% 31.5% £908
October 2011 All 77.9% £94.76 £73.78 48.3% 9.3% 10.1% 23.5% 8.8% £101.86 £98.57 £72.57 £93.14 £81.58 £2,238 £1,079 £257 £3,575 62.6% 30.2% 7.2% 100.0% 40.7% £1,456
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change October 2011 London (2.5) 2.1% -0.7% 1.9 (1.0) (0.7) 0.7 (0.8) -1.0% 9.5% 8.8% -1.0% 14.3% -0.7% -7.2% 2.8% -2.2% 1.1 (1.3) 0.2 – (0.4) -3.0%
October 2011 Provincial 0.1 -0.1% 0.0% 0.0 (1.0) 0.0 (0.5) 1.4 0.1% -0.7% 3.0% 0.5% 1.6% 0.0% -4.4% -2.6% -1.9% 1.0 (1.0) (0.1) – (2.1) -8.0%
October 2011 All (0.8) 0.6% -0.5% 0.7 (0.9) (0.3) 0.0 0.5 -0.5% 1.5% 5.1% 0.1% 5.3% -0.5% -5.5% -1.1% -2.1% 1.0 (1.1) 0.1 – (1.3) -5.2%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year October 2010 London 87.9% £131.56 £115.69 48.2% 6.9% 13.2% 19.6% 12.1% £147.56 £145.45 £88.38 £137.99 £94.12 £3,495 £1,233 £199 £4,927 70.9% 25.0% 4.0% 100.0% 51.1% £2,520
October 2010 Provincial 73.5% £69.48 £51.08 47.1% 12.5% 8.6% 26.1% 5.8% £71.71 £79.34 £49.35 £70.60 £54.35 £1,554 £1,092 £295 £2,940 52.9% 37.1% 10.0% 100.0% 33.5% £986
October 2010 All 78.7% £94.24 £74.14 47.5% 10.3% 10.4% 23.5% 8.3% £102.40 £97.07 £69.03 £93.07 £77.49 £2,250 £1,142 £260 £3,653 61.6% 31.3% 7.1% 100.0% 42.1% £1,536
Rooms Department Headlines Business Mix – Rooms Business Mix – Rate£ Departmental Revenues Departmental Revenues Mix % IBFC
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Current year YTD London 82.2% £131.40 £107.95 47.1% 5.9% 14.0% 21.0% 12.0% £149.12 £152.45 £89.64 £131.24 £100.21 £32,954 £9,693 £1,853 £44,500 74.1% 21.8% 4.2% 100.0% 48.1% £21,383
YTD Provincial 70.8% £68.55 £48.55 46.7% 10.9% 9.9% 25.8% 6.7% £71.81 £77.70 £49.74 £69.46 £54.76 £14,741 £9,785 £2,912 £27,438 53.7% 35.7% 10.6% 100.0% 29.9% £8,209
YTD All 74.9% £93.27 £69.85 46.9% 8.9% 11.5% 23.9% 8.8% £102.35 £97.04 £68.82 £90.82 £79.26 £21,248 £9,752 £2,534 £33,534 63.4% 29.1% 7.6% 100.0% 38.5% £12,916
Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %
Year on year change YTD London (0.3) 8.2% 7.8% 0.5 (0.1) 0.4 0.0 (0.8) 7.4% 16.7% 13.0% 4.3% 12.9% 8.7% -0.7% 0.2% 6.1% 1.8 (1.5) (0.2) – 0.8 8.0%
YTD Provincial 0.7 1.0% 2.0% (0.3) (0.2) (0.2) 0.1 0.6 1.4% -1.2% 2.3% 0.5% 3.9% 2.3% -1.2% -0.6% 0.7% 0.8 (0.7) (0.1) – (0.9) -2.3%
YTD All 0.3 4.7% 5.1% 0.0 (0.1) 0.0 0.1 0.0 4.9% 5.3% 9.2% 2.1% 7.5% 5.6% -1.1% -0.3% 3.1% 1.5 (1.2) (0.3) – 0.1 3.4%
Average Room Tours/ Tours/ Total Total Month Region Occupancy Room Rate Revpar Commercial Conference Groups Leisure Other Commercial Conference Groups Leisure Other Rooms Catering Other Revpar Rooms Catering Other Revpar IBFC % IBFCpar
Last year YTD London 82.5% £121.44 £100.17 46.5% 5.9% 13.7% 21.0% 12.9% £138.84 £130.63 £79.30 £125.88 £88.75 £30,317 £9,766 £1,849 £41,932 72.3% 23.3% 4.4% 100.0% 47.2% £19,805
YTD Provincial 70.1% £67.86 £47.59 47.0% 11.1% 10.1% 25.7% 6.0% £70.79 £78.68 £48.62 £69.12 £52.69 £14,415 £9,907 £2,930 £27,252 52.9% 36.4% 10.8% 100.0% 30.8% £8,402
YTD All 74.6% £89.10 £66.43 46.8% 9.1% 11.5% 23.8% 8.7% £97.61 £92.16 £63.04 £88.94 £73.70 £20,116 £9,857 £2,542 £32,515 61.9% 30.3% 7.8% 100.0% 38.4% £12,490
Profitability levels in the provincial hotel market
declined by 7.9% this month as a disappointing
decline in total revenue levels was further
exacerbated by rising costs.
Whilst rooms revenue levels for October
remained broadly similar to the same period in
2010 at £51.10, Provincial hoteliers suffered
declines in food and beverage (-4.1%), leisure
(-2.1%) and meeting room hire (-7.3%) revenue
per available room. The impact of the decline in
ancillary departments resulted in a 1.9% drop in
trevpar of to £94.84 from £96.65 in 2010.
Echoing the results of the HotStats Confidence
Monitor for Q4 2011, which highlighted the
opinion of more than 500 general managers
in the UK that hoteliers are to become more
reliant on web-based technologies, this month’s
survey revealed an increasing proportion of high-
commission third party bookings as year-on-year
travel agency commission levels per available room
increased by 16.7% to £3.27 per room sold from
£2.80 per room sold during the same period in
2010. This is equivalent to a net cost of 6.4% of
rooms revenue for the month of October.
“Despite general managers in the UK remaining
torn as to whether the high cost of third party
websites is offset by the elevated profile which is
achieved through their use, it is clear that Provincial
hoteliers are more reliant than ever before on this
booking channel and this is only set to increase in
future,” said Langston.
Further cost increases this month were suffered
in property and maintenance expenses (+3.8%),
utility costs, which increased by 7.7% to £4.20
from £3.90 per available room during the same
period in 2010 and payroll, which increased by
0.9 percentage points to 31.4% of total revenue
from 30.5%.
“Whilst provincial hoteliers have made a brave
comeback in 2011 with growth in all revenue
measures, they are at serious risk of suffering a
fourth consecutive year of profitability decline
having achieved only two months of growth
in profit per room during 2011. And with the
Bank of England reporting a risk of stagnation
until the middle of 2012, provincial hoteliers will
continue to face challenging trading conditions,”
added Langston.
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Sector stats
‘Sluggish’Europehitshotels
“Sluggish European economic growth is
beginning to impact on hoteliers. The past two
years has seen a relatively robust rate of recovery
but it looks likely that trading will worsen in the
future, at least for the coming few months,”
said Jonathan Langston, managing director, TRI
Hospitality Consulting.
Whilst historic performance indicates that the
three major European markets of London, Paris and
Amsterdam have experienced robust revpar, trevpar
and goppar growth on a year-to-date basis, there
European chain hotels – performance report
Source: TRI Hospitality Consulting
was a decline in the overall value of demand from
the commercial sectors (that is the corporate and
conference market) for the month of October.
Paris experienced the greatest decrease in goppar
performance (-10.6%). Although occupancy
increased by 2.1 percentage points, average room
rate declined by 6.4% and trevpar by 4.3%. The
market experienced a decline in both leisure and
commercial-related achieved average sector rates.
The Amsterdam market, which has been
experiencing relatively robust month-on-month
profit growth since the beginning of 2010, also
posted reduced goppar performance in October
(-9.0%). Revpar performance declined by 6.3% as
the Dutch capital saw a reduction in the volume
of roomnight demand generated by the corporate
and conference sectors. An increase in the volume
and value of leisure demand was not enough to
stem the decline in rooms revenue performance,
The month of October 2011 Twelve months to October 2011
Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR
83.3 189.46 157.78 26.1 101.73 Amsterdam 76.4 176.92 135.16 30.2 76.99
77.5 102.13 79.14 23.1 52.04 Budapest 68.2 91.48 62.36 29.2 29.13
84.0 129.69 108.94 36.9 57.78 Dublin 77.2 127.43 98.41 38.8 46.01
66.6 161.84 107.70 25.7 66.71 Frankfurt 62.6 129.49 81.08 31.0 40.43
81.9 234.82 192.26 22.1 162.88 Istanbul 73.6 209.02 153.82 26.6 120.42
86.2 179.63 154.84 22.0 111.90 London 81.6 177.15 144.61 23.5 97.40
81.3 126.18 102.56 33.4 57.03 Madrid 68.1 119.22 81.18 39.6 35.64
86.2 217.10 187.15 34.0 105.29 Paris 78.6 209.80 164.80 37.8 80.41
77.2 91.00 70.27 20.3 50.39 Prague 68.5 84.08 57.63 25.2 32.84
83.8 203.65 170.65 35.6 76.97 Rome 72.0 187.89 135.31 42.6 42.94
The month of October 2010 Twelve months to October 2010
Occ% ARR RevPAR Payroll % GOP PAR Occ% ARR RevPAR Payroll % GOP PAR
87.2 193.16 168.34 25.6 111.81 Amsterdam 74.9 163.81 122.68 31.8 65.78
76.1 109.36 83.17 22.8 55.58 Budapest 64.1 89.86 57.63 30.6 26.29
81.2 126.70 102.90 36.8 55.45 Dublin 70.3 122.06 85.75 41.3 37.94
68.1 140.01 95.27 27.2 56.18 Frankfurt 62.1 120.42 74.77 32.0 35.98
82.6 199.08 164.52 27.5 113.74 Istanbul 72.9 170.73 124.37 31.7 79.50
88.3 177.80 156.97 22.5 116.05 London 82.5 163.22 134.59 23.7 91.58
79.9 126.11 100.75 33.1 59.48 Madrid 65.6 118.08 77.42 38.9 35.18
84.1 231.91 194.96 32.2 117.82 Paris 76.1 195.32 148.55 38.6 71.34
80.2 98.09 78.62 20.7 57.66 Prague 65.2 82.76 53.94 26.7 28.25
83.9 208.79 175.23 34.0 97.92 Rome 68.6 192.85 132.22 41.3 47.22
Movement for the month of October Movement for the twelve months to October
Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change
-3.9 -1.9% -6.3% -0.5 -9.0% Amsterdam 1.5 8.0% 10.2% 1.6 17.0%
1.4 -6.6% -4.8% -0.3 -6.4% Barcelona 4.0 1.8% 8.2% 1.5 10.8%
2.8 2.4% 5.9% -0.1 4.2% Berlin 7.0 4.4% 14.8% 2.5 21.3%
-1.5 15.6% 13.0% 1.5 18.7% Brussels 0.5 7.5% 8.4% 1.0 12.4%
-0.8 18.0% 16.9% 5.5 43.2% London 0.7 22.4% 23.7% 5.0 51.5%
-2.1 1.0% -1.4% 0.5 -3.6% Milan -0.8 8.5% 7.4% 0.2 6.4%
1.4 0.1% 1.8% -0.3 -4.1% Paris 2.5 1.0% 4.9% -0.7 1.3%
2.1 -6.4% -4.0% -1.8 -10.6% Vienna 2.5 7.4% 10.9% 0.8 12.7%
-2.9 -7.2% -10.6% 0.4 -12.6% Warsaw 3.3 1.6% 6.8% 1.5 16.2%
-0.1 -2.5% -2.6% -1.6 -21.4% Zurich 3.5 -2.6% 2.3% -1.3 -9.1%
caused by a double digit percentage drop in
corporate and conference sector rates.
London’s goppar performance fared better in
comparison to Paris and Amsterdam, experiencing
a decline of 3.6%, as a reduction in the volume
of corporate and conference-related demand
underpinned the 2.1 percentage point decrease in
occupancy for October.
“For the first time since October 2009 we have
seen a decline in monthly revenue and profit
performance of the three major European hotel
markets monitored in our survey”, said Langston.
Istanbul registered astonishing profit growth
in the latest HotStats survey as the Turkish capital
increased trevpar and goppar performance by
19.8% and 43.2%, respectively, in October. Seven
of the 10 cities surveyed experienced goppar
decline as Frankfurt and Dublin were the two
other cities which registered goppar growth.
London,ParisandAmsterdamregistered a decline in trevpar and goppar performance for themonthofOctoberaccording to the latest Hotstats survey by TRIHospitalityConsulting.
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Analysis
At some point between 1 October 2012 and
1 September 2016, all employers will become
subject to new duties to enrol workers into a
pension scheme either automatically or on request.
You can find the date the duties will first apply
to you on the DWP’s website. For the first time,
there will also be an obligation on employers to
pay pension contributions. We consider below the
key issues arising for the hotel industry as a result
of these new duties.
Whodothedutiesapplyto?The duties apply to all “workers” who are working
or ordinarily working in the UK.
“Worker” includes employees, contractors
or others retained under a contract for services
unless the relationship is one of client or customer.
It also includes agency workers, casual workers
and those on zero-hours contracts, of which there
are a great many in the hotel industry.
The table below illustrates who has to be
automatically enrolled, who can ask to be
enrolled and whether contributions are payable
by the employer.
Automatic enrolment applies from the first
day that the duties apply to a worker, but the
government has proposed an easement allowing
employers to postpone automatic enrolment for
up to three months. This is welcome news for the
hotel industry, where staff turnover can be high,
but note that employees can opt in (and receive a
contribution) during that three month period.
AutomaticforthepeopleDLA Piper’s Tamara Calvert investigates the new pensions duties for employers
AssessingtheworkforceHotels will need to assess which of their employees
fall into which category based on their age and
earnings. The additional cost of implementing
the new duties will depend on what pension
arrangements are currently in place and the take-
up rate. Additional costs will need to be factored
in to budgets, and may influence your choice
of pension arrangements. On a practical level,
processes will need to be put in place to monitor
the workforce and ensure that each worker is
always in the right category.
Whatcontributionsarepayable?Almost all employers will use a defined contribution
scheme for automatic enrolment. The minimum
contribution requirements are being phased in but
by October 2017 the total contribution will have
to be at least 8% of “qualifying earnings” (£5,035
to £33,540* including all commission, overtime
and bonuses) with at least 3% being paid by
the employer.
Workers earning less than £5,035 can asked
to be enrolled but there is no requirement for the
employer to pay contributions.
Whatschemescanbeusedforautomaticenrolment?Employers can select any registered pension
scheme(s) provided that:
• membershipdoesn’tdependonanyactionbeing
taken or decisions being made by the member
(e.g. there can be no application form);
• nothing in the scheme rules must prevent
automatic enrolment;
• schemesmustsatisfytheminimumcontribution
requirement.
Does our defined contribution scheme meet the minimum contribution requirements? Few existing schemes have a definition of
pensionable earnings which matches the statutory
definition of “qualifying earnings” so employers
may need to look at whether existing contributions
meet the statutory minimum.
There will be a certification process which allows
employers to certify that their scheme is at least as
good as the statutory minimum. If a scheme provides
for at least the following contribution levels, it can be
certified as meeting the quality requirements:
• 9%ofbasicpay(min4%fromtheemployer)
• 8%ofbasicpay (min3%fromtheemployer)
where at least 85% of total pay is pensionable
• 7%of totalpay (min3%from theemployer)
where 100% of total pay is pensionable
Example: Under the ABC Hotel Group Scheme,
employees pay 5% of basic salary and employers
pay 6% of basic salary. Overtime, bonuses and
commission are non-pensionable. This scheme
could be certified as meeting the requirements
because the total contribution exceeds 9% of basic
pay with at least 4% coming from the employer.
Opting-outandrefundsAll members (including those who opt-in) will
have a right to opt out of the scheme within one
month, receive a refund of their contributions and
be treated as if they had never been a member. The
opt-out form has to be obtained directly from the
scheme (NOT the employer) but once completed,
has to be returned to the employer for checking
and submitting to the scheme. This has a very
quick turn around time, so employers will need to
ensure that resources are available to undertake
this checking process. Once a member has opted-
out, the employer has to refund the member and
the scheme in turn refunds the employer.
All eligible workers will have to be re-enrolled
every three years, but will again have the right
to opt-out.
Communication is keyThis is a big change and communication will be
crucial. There are legal requirements to provide
certain information to staff about their pension
rights. There are also reporting requirements to
the Pensions Regulator.
RegulatingthenewdutiesThe Pensions Regulator is responsible for policing
the new regime and there are substantial penalties
for non-compliance. In addition, it will be illegal
to induce an employee not to join the pension
scheme or to opt-out. It will not be possible to
contract out of the new duties.
SummaryThis is a significant change in the provision of
workplace pensions and is expected significantly
to increase the number of workers participating in
pension schemes, particularly in the hotel industry
where many staff are not currently in a pension
scheme. There are number of practical steps which
employers can start taking now to make sure they,
and their workforce, are ready for the change.
Qualifying Automatic Employer contribution Age Earnings* or opt-in? payable?
16 to 21 £5,035 or less Opt-in No
more than £5,035 Opt-in Yes
22 to under State Pension Age £5,035 or less Opt-in No
£5,035 - £7,475 Opt-in Yes
more than £7,475 Automatic Yes
State Pension Age to 74 £5,035 or less Opt-in No
more than £5,035 Opt-in Yes
*Numbers subject to uprating
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Analysis
Completed dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Four Von Essen Hotels Various UK Various 81 Freehold October 2011
32,000,000 37,280,000 Unknown Administrator for Von Essen Andrew Brownsword Price is reportedly £32m, hotels include Amberley Castle, Lower Slaughter Manor, Westbourne Court & Buckland Manor
De Vere Village Hotel Birmingham UK Upscale 125 Unknown October 2011
12,300,000 14,329,500 114,636 Axa on behalf of Friends Life Earlsky Limited Leased to De Vere until 2039
Bishopstrow House Wiltshire UK Upscale 32 Freehold October 2011
Undisclosed Undisclosed Undisclosed Administrator for Von Essen Longleat Guide price of £6m
The Samling Cumbria UK Upper Upscale 11 Freehold October 2011
Undisclosed Undisclosed Undisclosed Administrator for Von Essen Private buyer Guide price of £6m
Hoxton Hotel London UK Upscale 208 Unknown October 2011
68,500,000 79,802,500 383,666 Bridges Ventures Morgans Hotel Group Backing from Invesco Ltd.
Radisson Edwardian Manchester Manchester UK Upscale 263 Unknown November 2011
Undisclosed Undisclosed Undisclosed Administrators for Free Trade Hall Hotel Limited
Edwardian Group Reportedly sold for in excess of the £37.5m guide price
Plaza Hotel Wembley London UK Upscale 306 Leasehold November 2011
15,000,000 17,475,000 57,108 Quintain Sojourn Price includes £1.75m deferred payment due 1 year after completion
Four Seasons Hotel Gresham Palace
Budapest Hungary Luxury 179 Unknown November 2011
Undisclosed Undisclosed Undisclosed Avestus Capital Partners State General Reserve Fund (Oman)
Movenpick Royal Palm Hotel Dar Es Salaam Tanzania Upscale 230 Unknown November 2011
Undisclosed Undisclosed Undisclosed Movenpick Hotels Serena Hotels The hotel will be rebranded as the Dar Es Salaam Serena Hotel
Hotel Ibis Sibiu Sibiu Romania Midscale 195 Sale and Leaseback
November 2011
Undisclosed Undisclosed Undisclosed Continental Hotels Unicredit Group
Motel One Munich Munich Germany Budget 252 Unknown November 2011
Undisclosed Undisclosed Undisclosed Buschl Group Patrizia Immobilien AG Leased to Motel One for 25 years, transfer of ownership planned for Q2 2012
Radisson Edwardian Providence Wharf
London UK Upscale 169 Unknown November 2011
37,600,000 43,804,000 259,195 Ballymore Properties Ltd Edwardian Hotels Ltd Price is not confirmed. Guide price was £37.5m
Ramada-Treff Hotel Munster Germany Midscale 141 Unknown November 2011
21,535,925 21,535,925 152,737 SEB Group Wurttembergische Leben Versicherung
Malmaison Hotel Aberdeen Aberdeen UK Upper Upscale 80 Sale and Leaseback
November 2011
16,100,000 16,100,000 201,250 MWB Group Holdings Plc CIP Property CIP Property has brought the property, on behalf of Citibank International as trustee for Aviva Investors Property Trust
Elite Hotel Mollberg Helsingborg Sweden Upscale 104 Unknown November 2011
97,500,000 10,734,200 103,213 Wihlborgs Fastigheter AB Elite hotels
Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Portfolio of Hampton by Hiltons (3)
Various UK Upper Midscale Various Unknown November 2011
Administrators for Osborn Securities
Hotels are located in Braintree, Shrewsbury and Birmingham with an estimated guide price of £10m
Hotel Rosalp Verbier Switzerland Luxury Unknown November 2011
Matterhorn Capital Includes a hotel, apartment building and chalet and consent to redevelop
Five-ringcircus
The London 2012 Olympics, at which both Bolt
and Gay will be competing, will commence in less
than eight months’ time and there is still much
speculation about the benefits to the London
hotel industry, and indeed the UK in general, given
the turbulent European economy in the lead up
to the games.
Preparation for the games is well underway,
with some in the hotel industry embracing it; IHG
are the official hotel provider of the games and are
the provider of 55,000 rooms to the organising
committee, LOCOG, whilst other hoteliers are
prioritising their regular existing and long term
clients during the 27 day Olympic and Paralympic
event. Opinions as to the benefit of the games
to the hotel industry, both during and after, are
equally split.
Looking back at former hosts; Atlanta, Sydney,
Athens and Beijing, it appears that Olympic
demand simply replaces existing demand within
the Olympic months, as the usual demand is
moved to alternative dates or destinations. Athens
actually saw a drop in year-end occupancy in 2004;
which was partly due to press reports of hugely
inflated room rates over the games.
Historically Olympic cities increase hotel
supply in the run up to the games, in some
Colliers’ Kirsty Brannon asks whether the Olympics have come at the wrong time
TheAmericansprinterTysonGayis the second fastest man in the world ever. Unfortunately for him, Gay’srunningcareerhaspeakedatthe same time as the fastest man in the world ever; Usain Bolt. Consequently Bolt is the one with the gold medals, worldwide profile and the biggest sponsorship deal in athletics history.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 6 21
Analysis
Completed dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Four Von Essen Hotels Various UK Various 81 Freehold October 2011
32,000,000 37,280,000 Unknown Administrator for Von Essen Andrew Brownsword Price is reportedly £32m, hotels include Amberley Castle, Lower Slaughter Manor, Westbourne Court & Buckland Manor
De Vere Village Hotel Birmingham UK Upscale 125 Unknown October 2011
12,300,000 14,329,500 114,636 Axa on behalf of Friends Life Earlsky Limited Leased to De Vere until 2039
Bishopstrow House Wiltshire UK Upscale 32 Freehold October 2011
Undisclosed Undisclosed Undisclosed Administrator for Von Essen Longleat Guide price of £6m
The Samling Cumbria UK Upper Upscale 11 Freehold October 2011
Undisclosed Undisclosed Undisclosed Administrator for Von Essen Private buyer Guide price of £6m
Hoxton Hotel London UK Upscale 208 Unknown October 2011
68,500,000 79,802,500 383,666 Bridges Ventures Morgans Hotel Group Backing from Invesco Ltd.
Radisson Edwardian Manchester Manchester UK Upscale 263 Unknown November 2011
Undisclosed Undisclosed Undisclosed Administrators for Free Trade Hall Hotel Limited
Edwardian Group Reportedly sold for in excess of the £37.5m guide price
Plaza Hotel Wembley London UK Upscale 306 Leasehold November 2011
15,000,000 17,475,000 57,108 Quintain Sojourn Price includes £1.75m deferred payment due 1 year after completion
Four Seasons Hotel Gresham Palace
Budapest Hungary Luxury 179 Unknown November 2011
Undisclosed Undisclosed Undisclosed Avestus Capital Partners State General Reserve Fund (Oman)
Movenpick Royal Palm Hotel Dar Es Salaam Tanzania Upscale 230 Unknown November 2011
Undisclosed Undisclosed Undisclosed Movenpick Hotels Serena Hotels The hotel will be rebranded as the Dar Es Salaam Serena Hotel
Hotel Ibis Sibiu Sibiu Romania Midscale 195 Sale and Leaseback
November 2011
Undisclosed Undisclosed Undisclosed Continental Hotels Unicredit Group
Motel One Munich Munich Germany Budget 252 Unknown November 2011
Undisclosed Undisclosed Undisclosed Buschl Group Patrizia Immobilien AG Leased to Motel One for 25 years, transfer of ownership planned for Q2 2012
Radisson Edwardian Providence Wharf
London UK Upscale 169 Unknown November 2011
37,600,000 43,804,000 259,195 Ballymore Properties Ltd Edwardian Hotels Ltd Price is not confirmed. Guide price was £37.5m
Ramada-Treff Hotel Munster Germany Midscale 141 Unknown November 2011
21,535,925 21,535,925 152,737 SEB Group Wurttembergische Leben Versicherung
Malmaison Hotel Aberdeen Aberdeen UK Upper Upscale 80 Sale and Leaseback
November 2011
16,100,000 16,100,000 201,250 MWB Group Holdings Plc CIP Property CIP Property has brought the property, on behalf of Citibank International as trustee for Aviva Investors Property Trust
Elite Hotel Mollberg Helsingborg Sweden Upscale 104 Unknown November 2011
97,500,000 10,734,200 103,213 Wihlborgs Fastigheter AB Elite hotels
Available dealsHotel name/brand Location Country Classification Number rooms Tenure Date Price (local currency) Price (€) Price per key (€) Seller Buyer Notes/comments
Portfolio of Hampton by Hiltons (3)
Various UK Upper Midscale Various Unknown November 2011
Administrators for Osborn Securities
Hotels are located in Braintree, Shrewsbury and Birmingham with an estimated guide price of £10m
Hotel Rosalp Verbier Switzerland Luxury Unknown November 2011
Matterhorn Capital Includes a hotel, apartment building and chalet and consent to redevelop
Five-ringcircuscases outstripping demand during the games,
and in many cases afterwards. Atlanta saw an
increase in supply of 14%, Sydney by 32% and
the Beijing increase was thought to be even
higher due to a low starting point. The resultant
oversupply in Sydney was such that an estimated
ten Sydney hotels were converted into residential
accommodation in the four years after the games
(source: ETOA).
Of course a comparison to other cities is only
as useful as their situations are comparable.
Not only is London hosting in more turbulent
economic times but the city is far larger, better
performing, and more conspicuous than Atlanta,
Sydney, Athens or Beijing. Olympic related new
hotel supply in London, at a time when funding
is notoriously difficult, has been estimated by
Deloitte to be around 11% albeit with London
starting from a higher base than its predecessors.
London also has by far the highest RevPAR going
into the games, despite the economic climate.
Additionally LOCOG say that they do not expect
to release any of their room reservations before
the games, reducing the risk of sudden glut of
rooms being released into the market – a problem
experienced by other Olympic cities. Pricing has
also been a hot topic, with the Royal Wedding
reminding hoteliers of the dangers of overpricing
and hoteliers have inevitably be considering their
strategy carefully.
So, have the Olympics come at the wrong time
for London? As for Tyson Gay, the chances are
that he will miss out to Bolt on the gold medal.
Perhaps London’s hotel sector too would have
been able to win more from the event if they were
hosting at a different time. That said, with the
resilience of London’s hotels through the recent
economic problems so far, it seems hard to believe
that the UK’s capital will not make a success of
the Olympic period. The economic climate may
have held back development and investment but,
given the experience of other cities, this may be
a blessing in disguise. The Olympic legacy might
be more difficult.
Kirsty Brannon is a senior consultant
at Colliers International
This table features individual asset and
portfolio transactions in excess of €5m
in the EMEA region. The exchange rate
used on the table was £1 = €1.1650.
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Personal view
In the film Romy and Michele’s High School
Reunion, two former High Schoolers try and
convince their ex-classmates that they invented
Post It notes. It almost works, but inevitably they
are sprung and have to come to terms with their
true identities before the big dance number.
There are many inventions which we feel we could
have come up with, if only we’d made that small
connection which fills the gap we hadn’t previously
seen. In Jonathan M Tisch’s Chocolates on the
pillow aren’t enough, that invention is Facebook.
Written in 2007, the book addresses the changing
demands of an ever-changing array of consumers,
but without forcing the sector to become as
unrecognisable as some of its consumers. To do this
he takes his cue from an array of businesses, from
Lacoste, to Lego, to LVMH.
And Facebook, or, as this was 2007, MySpace
and Rupert Murdoch’s $580m purchase of it in
2005. “You might not think,” he says, “of Rupert
Murdoch as a cutting-edge pioneer of the hip
and happening. But in December 2005 he proved
that he is savvy enough to recognise a hot trend
among 20-somethings and jump on it.” It might
have looked like an odd fit at the time, but as
the less-charitable observers of the recent News
International debacle might observe, one can
see the attraction of reams of easily-accessible
personal details to the organisation.
The MySpace acquisition proved to be a dud
for Murdoch, who, at the time of the deal said:
“It’s sticky, it’s fun, it’s informative. It’s also about
to be very profitable.” It was also usurped by
Facebook, another social media site about to be
very profitable.
For Tisch, readers of Chocolates could be
forgiven for thinking that he had invented
Facebook, out-hipping Murdoch. In attempting
to describe the burgeoning social networking
sector, he says: “Online social networking spaces
are a little different from anything that has gone
before. They’re a bit like the traditional printed
‘face books’ created by colleges to help freshman
Biting the pillowKatherine Doggrell reads Jonathan M Tisch’s ‘Chocolates on the pillow aren’t enough’
find friends, except they aren’t limited to any one
school or geographic location.”
Before encouraging Tisch to join the ranks of
those suing Mark Zuckerberg, later in the chapter
he acknowledges the existence of Facebook,
which at that point had a mere 11 million users to
MySpace’s 54 million.
Tisch’s thoughts on the social networks of the
time may highlight the speed at which the sector
can change, but his concerns remain relevant. He
says: “Advertisers aiming at a youthful audience
are especially interested in social networking.
Apple Computer sponsors a site devoted to
the company’s products on Facebook; Disney’s
Touchstone Pictures created blogs on Xanga.com
that were supposedly written by characters from
Hitchhiker’s Guide to the Galaxy.
“These efforts raise the obvious question: how
long will an online community based on real human
connections retain its appeal when corporations
infiltrate it in hopes of creating a gloss of authenticity
over what are essentially marketing ploys?”
Elsewhere in Chocolates, Tisch addresses some of
the other issues facing the modern hotelier, including
global expansion and attitudes towards diversity.
He notes: “Any organisation that hopes to grow
with evolving markets must learn to cope with
diversity. It is true on a global scale, as vast new
middle-class cohorts emerge in countries like China,
India, Indonesia, Nigeria and Brazil. Hundreds
of millions of newly-affluent customers who are
probably quite different from your current customer
base in cultural, linguistic, ethnic and social terms
hold the key to global economic growth in the next
century. For the past 150 years, American firms have
enjoyed the advantages of serving a vast, rapidly
growing, relatively homogeneous continental
marketplace right here at home.
“International expansion was gravy. Now the
situation has changed. The US is a mature market.
Over the next 50 years the most successful
companies will be those that literally know how
to speak the languages of overseas markets, from
Mandarin and Hindi to Spanish and Farsi, because
that’s where the economic growth will be.”
Tisch is at this point singing from the global
operators’ strategy song sheet. The average hotel
earnings call currently features the word ‘China’
more often than a cockney chatting about his
friends (me old china plate – mate, geddit?).
Starwood Hotels & Resorts has launched a
programme offering a set of specific services for
Chinese travellers, including in-room tea kettles,
slippers and translation services, in addition to
new menu items.
Hilton Worldwide has Hilton Huanying – from
the Chinese word for “welcome”, which offers
a front desk worker fluent in Mandarin and a
Chinese television station, as well as a full Chinese
breakfast including dim sum, congee and fried
dough fritters, among other items.
This is an excellent start, but for those hotels
which don’t have the resources to provide
translators and dim sum, it is surely enough to
rely on that traditional hotel welcome. After all,
global travellers are frequently looking for a global
experience, rather than a clone-from-home. It must
be enough just to treat all guests equally well and
let the fried dough fritters fall where they may.
In the case of this book, and don’t tell the
Communists, equality is not what it appears. “You
might assume that this kind of [respectful] behaviour
doesn’t need to be taught. ‘Isn’t treating people
with respect a matter of simple etiquette? That’s
something they should have learned as kids’.
“This is a shortsighted assumption,” he says.
“Understanding and respecting diversity takes
knowledge, sensitivity and self-awareness, none
of which necessarily come naturally or easily to
any of us...As one diversity expert has pointed out,
‘treating everyone the same’ may sound egalitarian
and fair. But if a blind customer walks into your
business, do you simply hand him a brochure to
read and walk away? Treating everyone the same
can be wildly inappropriate.”
Tisch looks at the Venetian Resort in Las Vegas for
examples of diversity management. Everyone’s equal
at the craps table, after all. Like other hotel casinos,
the hotel maintains an extensive database tracking
the interests of its frequent customers. Now, says
Tisch “the Venetian is working with a marketing
firm to develop segmented marketing programmes
for a range of subgroups. Each segment is given a
name and a definition. The ‘Jonathans’ are defined
as elite single men, as opposed to the ‘Ryans’, who
are energetic and sports-minded men. The ‘Jeffreys
and Ellens’ are affluent married couples with
children, while the ‘Burts and Marilyns’ are mature
couples with empty nests.” And so on.
Tisch is gracious enough to acknowledge that he
may not be the elite single man of the Venetian’s
Jonathan dreams, but comments that “it helps
to break down our image of the customer base
as monolithic”.
“It means getting past the natural tendency
to look at your customers and your organisation
from your own point of view and learning to see
the world through other people’s eyes.”
Look out hotels, this book seems to say,
customers are constantly changing, like Madonna,
but with baggage they have to carry themselves.
But underneath the constant changes of hair
colour and writhing around at the feet of our
Lord and Saviour they still want access to feeding,
cleaning and bedding. There are just an awful lot
more ways to offend them while doing it.
©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 7 Issue 6 23
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The Insider
Featured businessesAccor 1Apple 22Arenaturist Group 8Avestus Capital Partners 21Ballymore Properties 21Barclays 7Bridges Venture 21CBRE 3CIP Property 21Colliers International 9, 20, 21Continental Hotels 21Deloitte 1, 3Disney 22DLA Piper 19Earlsky 21Edwardian Hotels 21Elite Hotels 21Evolution Securities 5Facebook 22FMC Corporation 24Goldman Sachs 8Hilton Worldwide 1HNA Group 6Hongkong & Shanghai Hotels 24Hyatt Hotels Corporation 5InterContinental Hotels Group 3Interstate Hotels & Resorts 8ITC 24Jin Jiang 8Jones Lang LaSalle Hotels 6JP Morgan 12Jurys Inn 7KÉSZ Holding 8Lloyds Banking Group 7Longleat 21Marriott International 1Maybourne Hotel Group 7Meliá Hotels International 6, 9Millennium & Copthorne 5Morgans Hotel Group 21Movenpick Hotels 21MWB Group 21MySpace 22NH Hoteles 2, 6Nomura 7Oberoi 24Osborn Securities 21Otus & Co 14, 15Oxford Economics 9Park Plaza Hotels 8Patrizia Immobilien 21Portfolio 12PricewaterhouseCoopers 7Quintain 21Reliance Industries 24Rezidor Hotel Group 1Royal Bank of Scotland 7SEB Group 21Serena Hotels 21Sojourn 21Starwood Hotels & Resorts 1, 4, 10, 11STR 6TRI Hospitality Consulting 6, 16, 17, 18Unicredit Group 21Von Essen Hotels 7
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Too many Cooks
Verta’sXFactor
All may be fair in love and war and in the world
of advertising the thinking tends to be more ‘war’
and less ‘love’, as Thomas Cook has found in its
recent travails.
The company took time out from its busy
negotiations with its banks to file a complaint
against TUI Travel, which swooped in with adverts
for its First Choice brand on its website under the
headline: “No worries about your holiday company
AND no worries about what you’re spending.”
The advert went on: “Unlike a certain holiday
company we could mention, you don’t need to
worry about the way we run our business.” Ad
advert for the Thomson brand, which ran in
print media, included the line: “Another holiday
company may be experiencing turbulence, but
we’re in really great shape.”
Thomas Cook said that the First Choice advert
breached Abta’s code of conduct.
In an analysts’ call, TUI Travel’s CEO Peter Long
acknowledged that recent growth in sales volumes
in the UK was due “in part” to customers booking
holidays with TUI Travel rather than Thomas Cook,
commenting: “If people aren’t booking with
Thomas Cook, then we would be the natural place
for them to migrate to.”
Long denied that the campaign was an attack on
Thomas Cook, commenting that some customers
had thought Thomson was part of Thomas Cook.
He said: “It was not a cheap shot. It was in order
to ensure there was clarity that Thomson is part
of TUI.”
The advert has been going down well in some
quarters. In a research note, Jason Streets, analyst
at RBS, said: “We expect TUI Travel to benefit from
any fall-out as being the most trusted alternative
brand and we further expect TUI Travel to continue
with its aggressive marketing campaign.”
In these dark economic times, anyone starting a
business would be advised to make sure that they
have a clear idea of what their consumers look
like. As anyone who knows somebody with a gift
for making jam, this often starts at home.
This appears to have come home to roost in the
hotel sector with the sale of the Hotel Verta by
Christie & Co to a private buyer off an asking price
of around £20m, thought to be Nicholas Cowell.
Rhombus International Hotels will take over the
management contract of the hotel, adding it to
four hotels in Hong Kong.
The marketing of the hotel had attracted much
interest in the sector and in these pages, because of
the location of the site – on the wrong side of the
river in a largely residential area – and because of
AllReitonthenightBrendan McDonagh, CEO of Ireland’s National Asset
Management Agency, has called for changes in UK
legislation which would allow it to place its E31bn
loan book into a real estate investment trust.
Reits have been making their presence felt
during the downturn as a buying force, particularly
in the US where they are well-established in the
sector. Recent weeks have seen their activity start
to wane, as comments from Starwood Hotels &
Resorts president & CEO Frits van Paasschen at the
group’s most-recent earnings call illustrated.
Back in the old country hotel Reits have had a
less glorious history, with the effects of the failed
Vector Hospitality effort still being felt almost five
years down the line.
A victim of, amongst other things, bad timing,
the Vector Reit was intended to include properties
such as the Malmaison and Hotel du Vin, which
have recently been involved in a series of sale and
leaseback deals which caused rumours of a rift
between Richard Balfour-Lynn and Robert Cook
and an actual rift with shareholder Pyrrho.
The machinations around the estates have
included lengthy attempts at a sale, as well as
rumours of a licensing agreement with Marriott
International, all of which eventually came down
to the need to deal with £279m of debt secured
on the businesses.
Ireland’s property market has suffered greatly
because of rapant egos. There are those who
would look at its neighbour’s history with Reits
and warn it not to go down the same route.
its USP – a position next to the London Heliport.
Ah ho, it was thought, there may be any number
of high net worths currently looking to buy in
London, who are laden down with helicopters, but
would any of them buy a hotel with the intention
of filling it with helicopter owners?
It appears that the last laugh may have been
on us, as Nicholas Cowell, property consultant, or,
if you rather, speculator, is none other than the
brother of Simon Cowell, pop impresario, or, if
you rather, speculator.
The good news for Nick is that Simon is a big
fan of helicopter travel and is thought to own
his own, despite once blaming being late to the
studio on a helicopter falling on his car. That’s one
room sold then.