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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

www.hotelanalyst.co.ukVolume 7 Issue 6

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Marketing Sarah Sangstere sarah@hotelanalyst.co.uk

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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 paulslattery@otusco.com

Ian Gamse, Otus & Co Ltd iangamse@otusco.com

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%

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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

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.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 7 Issue 622

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

hotelanalyst

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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.