Hotel Industry:Key Trends That Impact Congress Centres

International Association of Congress Centres

Graz, Austria

17 July 2007

Stephen D. PowellSVP Worldwide Sales

Topics

• Industry Performance

• Consolidation

• Key Growth Areas

• Outlook for 2009

• Hotel Operations – Pricing Strategies

• Hotels and Convention Centres– Relationships

2007 is shaping up to be another strong year in the global hotel industry

• Global demand drivers are robust– Best global economy in 40 years– Inflation is in check– Unemployment is at multi-decade lows– Corporate profits moderating but still growing

• Supply growth is increasing, but remains modest

• Occupancy stable at levels enabling continued rate gains

The global economy is very strong and is expected to remain so for the next two years

Source: International Monetary Fund World Economic Outlook Database, April 2007

Worldwide Real GDP Growth

4.0%

5.3%4.9%

5.4%

4.9%

2003 2004 2005 2006 2007F

Unemployment remains low, and in industrialized countries is well below the mid-1990’s peak

6.6%6.3%

6.0%5.6% 5.5%

2003 2004 2005 2006 2007F

G7 Global Unemployment

Source: International Monetary Fund World Economic Outlook Database, April 2007

Tourism is up 6.3% April YTD, above the prior two years, and ahead of the 4% gain expected at year end

International Tourist ArrivalsChange Over Prior Period

10.1%

5.4%4.9% 4.9%

6.8%

8.7%

5.1%

2004 2005 2006 Jan-07 Feb-07 Mar-07 Apr-07

Source: UNWTO World Tourism Barometer

8.6%

5.2% 5.6% 6.5%

15.1%

APAC U.S. Americas Europe MEA

OCC ADR

Source: HotelBenchmark; Smith Travel Research/The Bench

RevPAR Change by RegionMay YTD

Rate growth continues to be the primary driver of performance around the world

-5.4%-2.4%

3.5%4.2%

5.5%5.8%5.8%

7.1%7.6%

9.1%12.4%12.8%

15.3%15.6%

15.7%16.3%

18.1%24.5%

32.7%

Rio de JaneiroRome

Tel AvivBeijing

Washington, DCToronto

ParisHong Kong

BerlinSan Francisco

New YorkLondonSydney

Buenos AiresTokyoDubai

Sao PauloSingaporeAbu Dhabi

OCC ADR

RevPAR Change by MarketMay YTD

Most key global cites are also seeing substantial rate growth

Source: HotelBenchmark; Smith Travel Research

In Europe, demand grew at a slightly lower rate in the first quarter while supply growth remained flat

-10

-5

0

5

10

2002 2003 2004 2005 2006 2007

Supply % change Demand % change

European Supply & DemandMonthly Change

Source: Smith Travel Research/The Bench

U.S. demand growth has slowed while supply is on the increase

-10

-5

0

5

10

2002 2003 2004 2005 2006 2007

Supply % change Demand % change

U.S. Supply & DemandMonthly Change

Source: Smith Travel Research

Rapid Development

ADR Declines

Minimal Development

Development Increases

ADR Increases

Occupancy Increases

Occupancy Declines

Development Slows

Long Run Occupancy

Where we are

Buyer’s Market Seller’s Market

Where we were

Source: PKF

Recognise Where We Are!

Industry Performance : Summary

• Sound global fundamentals are driving demand • Industry is doing well and will continue to through Qtr 3 of 2008• Supply has started to grow, but remains at modest levels• Supply and Demand forecasted to intersect in late 2008• Demand growth in most markets is unprecedented• High occupancies supporting continued rate growth• Rate growth is beginning to slow down in many markets• RevPar growth driven by rate rather than occupancy• 2008 looks positive for the industry, but growth will continue to

decline

Continued Strength ofGlobal Lodging Market

Mergers/Acquisitions/Consolidation

• Hilton Deal– Blackstone buys Hilton for $26bn– Purchase price exceeds stock value by 40%– 15x Multiple EBIT for Hilton vs. 7-12x Multiple– Blackstone claims strategic vs. financial investment

• Comments from the financial analysts– Too much capital for too few assets– Assets yield cash– More purchase opportunities in the industry– Starwood, Marriott, IHG and others are appealing to investors

Key Growth Areas

• China– All major brands represented– 88,000 rooms added by 2009

• India– All major brands represented– 45,000 rooms added by 2009

• North America– Lodging Supply Growth: 1.1% to 3.5% from 2006 to 2009

• United Kingdom

• Middle East

Growth by Segment

• Balanced Growth Globally– Luxury/Upscale to Midscale to Budget

• Number of Hotels– Indexes to limited service

• Number of Rooms– Indexes to Upscale (larger room inventory)

• Urban growth– Suburban growth outpaces CBD development

Outlook for 2009

• Supply Begins to Meet Demand

• Rate growth begins to decline

• Occupancy growth declines

• Pressure on profit margins

• Pressure for improved hotel performance from those owners that paid high multiples for the asset

• Some hotels preparing now by optimising levers and adjusting overheads

Current Pricing StrategiesThe Impact on the Convention Market

• Corporate Transient Demand

• Pricing Strategies– Preference for Corporate Transient

• Rate Yield• Drives Less Flexibility

– Internet Drives Transparent Pricing

– Connectivity: Less Allocations• Real time availability and pricing

Sunday Monday Tuesday

Wednesday Thursday Friday Saturday

Corporate Transient vs. Meetings

Price

Point 1 $350

Price

Point 2 $280

Future Pricing Strategies The Impact on the Convention Market

• Dynamic Pricing (Flex Rates)

• Value to the Customer– % Discount rather than Fixed Discount Rate– % Discount from BAR (Best Available Rate or Market Rate)– Supply and Demand Pricing– Customer Protection: BAR must be competitive in the market

• Confluence of Negotiated Corporate Transient Rate Programs with Volume Meeting Rate

Hotels and Convention CentresThe Relationship

• What are the Key Performance Drivers?– For the Convention Centre?– For the Hotel?

• Marketing and Sales Plan Alignment?– Local Trade Events or Meetings/Exhibitions with inbound travelling

delegates?– Focus on destination marketing– Price Sensitivity in Peak and Off-Peak

• Real Estate? What is the primary focus?– Guest Rooms or Function/Exhibition Space?

Or– Delicate Balance of Both?

Hotels and Convention CentresFuture Development

• Increasing preference for branded hotels in the business segment– Brand alignment and distribution with meetings market

• Brand fit with the destination– Luxury, Upscale, Midscale– New property inventories decreasing

• “Asset-light” branded hotel companies– Major branded hotels companies prefer NOT to own– Investor Concerns

• Can hotel stand alone and achieve financial performance targets?• Accessibility of the destination?• Preference for mixed use development: exhibition space, office,

retail, hotel, etc.• Land prices• Local planning agreed: planning and parking regulations, local

government support, tax incentives or inducements

Hotel Industry:Key Trends That Impact Congress Centres

International Association of Congress Centres

Graz, Austria

17 July 2007