Hotels & Hospitality - JLL · 6 Hotel Intelligence: Italy Domestic investors continue to retain...

Hotels & Hospitality

Hotel Intelligence Italy 2013

Despite international tourism growth in 2012, Italy witnessed subdued

domestic tourism levels amid the country’s troubled political and

economic environment. Hotel investment in 2012 was characterised

by trophy asset sales and an increase in high-profile foreign

investment transactions is expected in 2013 and 2014.

2 Hotel Intelligence: Italy

Contributors

Introduction The Italian economy remains fragile in 2013 International tourism fuels total demand Domestic investors continue to retain ownership Domestic buyers still the most active, while Middle Eastern buyer activity on the rise Luxury hotels continue to attract international interest

Table of Contents

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Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group’s hotels and hospitality specialists pro-vide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from Jones Lang LaSalle’s Hotels & Hospitality Group, please visit: www.jll.com/hospitality

Giuliano Esposito Vice President, Milan [email protected]

Alexander French Research Assistant, EMEA [email protected]

Hotel Intelligence: Italy 3

Introduction

In 2012, the Italian economy registered its sixth consecutive

contraction in GDP, a fall of 2.4% year-on-year. Weighed down by

necessary austerity measures implemented by the technocratic

government in 2012, including spending cuts and tax increases, the

slump in domestic spending at both household and firm level has

deepened, supporting a further decline in GDP in the first quarter in

2013.

Although there has been a positive yet waning growth in net

exports, a general squeeze in domestic spending predicted for the

Eurozone in 2013, coupled with an appreciating euro, has created a

challenging environment for Italian firms seeking to protect their

market share. The export-led recovery that boosted output in

2010/11 is unlikely to support a growth in Italian output in the short

term, while higher levels of unemployment, a tougher tax regime,

tighter credit conditions, and consumer and business confidence

close to record lows are all anticipated to hamper Italy’s growth in

2013 and 2014. In July 2013, as a result of the continued weakness

of the Italian economy, Standard & Poors lowered the government’s

debt rating from BBB+ to BBB. The Italian economy is not forecast

to return to growth until 2015.

According to the United Nations World Tourism Organization

(UNWTO), Italy ranked fifth globally in terms of total international

arrivals, achieving about 46 million international visitors, and was

sixth in total international tourism receipts in 2012. Rome is Italy’s

most popular destination, followed by Milan, Venice and Florence.

International demand fuelled growth in 2012, while domestic

tourism remained subdued due to the uncertainties in the national

political and economic environment. Although the major hotel

markets experienced an uplift in international visitor demand in Q1

2013, weak economic conditions in the Eurozone coupled with

recession in the domestic economy mean that overall tourism

numbers are expected to remain subdued in the short term.

In 2012, the Italian hotel investment market registered an

impressive increase in activity of over 163% compared to 2011. The

year was characterised by a range of mid-market and upscale hotel

transactions; however, about 60% of total investment volume

concerned three luxury hotel sales. Luxury hotels continue to attract

international interest and we expect such hotels to boost total

investment volume in Italy’s primary cities and popular resort

destinations in the short term. As of July 2013, the most notable

completed transactions were the Four Seasons Hotel in Florence,

acquired by the Sovereign Wealth Fund (SWF) of Qatar, and the

Hotel Villa Tre Ville on the Amalfi Coast (Positano), acquired by an

international private equity group. By year-end 2013, we forecast a

total of up to €500 million in hotel transactions.


The Italian economy remains fragile in 2013

The end of 2012 and Q1 2013 marked one of the most fragile

political and economic environments in Italy’s history. On the

back of Mario Monti’s cabinet resigning in December 2012,

the February 2013 general election produced inconclusive

results, leading the president of the republic (Giorgio

Napolitano) to agree on a second mandate to safeguard Italy’s

political and economic stability. Napolitano became the first

president in Italian history to be called to a second mandate,

and at the end of April 2013 he appointed a broad-based

coalition government, led by Enrico Letta (a centre–left

deputy), to bring forward long-needed reforms.

In Q4 2012, Italy posted its sixth consecutive quarter-on-

quarter negative growth and entered a double-dip recession.

This continued into Q1 2013, on the back of tighter austerity

measures put in place by the previous government, tighter

credit conditions, increasing unemployment, gloomy consumer

and business confidence as well as national political turmoil.

According to IHS Global Insight, forward indicators suggest

that economic output will shrink further in the next few

quarters, spilling over into 2014. GDP is forecast to return to

growth in 2015.

Italy: Economic Indicators

2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F

Real GDP growth (%) 1.1 2.3 1.5 -1.2 -5.5 1.7 0.5 -2.4 -2.0 -0.5 0.5

Consumer price inflation (av. %) 2.0 2.1 1.8 3.3 0.8 1.5 2.8 3.0 1.3 1.5 1.8

Unemployment rate (%) 7.7 6.8 6.1 6.8 7.8 8.4 8.4 10.7 12.1 12.2 11.3

Exchange rate LCU/US$ (av.) 0.8 0.8 0.7 0.7 0.7 0.8 0.7 0.8 0.8 0.8 0.8

Fiscal Balance (% of GDP) -4.3 -3.3 -1.5 -2.7 -5.4 -4.6 -3.9 -3.0 -3.0 -2.7 -2.1

Current account balance (% GDP) -0.9 -1.5 -1.3 -2.9 -2.0 -3.5 -3.1 -0.7 0.1 0.3 0.2

F = forecast

Source: IHS Global Insight, June 2013

Italy: GDP Growth

f = forecast Source: IHS Global Insight, June 2013

-6%

-4%

-2%

0%

2%

4%

6%

2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

European Union Italy

Consumer confidence in Italy is still relatively low; thus in

order to alleviate the effects of the austerity measures the

current administration plans to eliminate the next IMU

(property tax) instalment to try and facilitate consumer

spending. However, the government has little room for

manoeuvre in regaining control of public finances, as the

public debt to GDP ratio is set to increase from 127% in 2012

to 130% in 2013. The current administration is also expected

to work on long-anticipated electoral reform legislation, public

fund cuts for political parties and a reduction in size of the

parliamentary assemblies, although the sustainability of this

political front remains a concern in the medium term.

Consumer price inflation (CPI) is likely to rise due to the 1%

hike in VAT anticipated for Q4 2013, but inflation is expected

to remain weak due to a lack of confidence amongst

consumers. According to IHS Global Insight’s June 2013

forecast, CPI is forecast to average 1.3% in 2013 and 1.5% in

2014.


International tourism fuels total demand

Tourism is one of the most important sectors of the Italian

economy. According to the World Travel & Tourism Council

(WTTC), the total contribution of travel and tourism to GDP

was €161.2 billion, representing 10.3% of GDP in 2012.

Tourism is also one of Italy’s most important employers,

representing a direct contribution of around 4.8% of total

employment. This proportion grows to 11.7% if we consider

direct, indirect and induced employment from the travel and

tourism sector. By 2023, direct and total contributions to

employment are forecast to represent 5.8% and 13.3%

respectively.

Furthermore, according to the Travel & Tourism

Competitiveness Report 2013, produced by the World

Economic Forum, Italy ranks 26th in the world and 18th in

Europe, moving up one place compared to 2012. Together

with its rich historic and cultural heritage, offering a wide range

of World Heritage Sites, internationally appealing events and

exhibitions, as well as its celebrated design and creative

industries, Italy is renowned for its tourism infrastructure,

ranking 1st alongside Austria.

Despite presenting a gloomy domestic political and economic

landscape in 2012, according to the UNWTO Italy ranked 5th

globally in terms of total international tourist arrivals after

France, the USA, China and Spain. In that year, Italy

registered a total of 46.4 million international visitors. Italy’s

most popular tourism destination is Rome, followed by Milan,

Venice and Florence, and these cities have historically

represented about 20% of total arrivals to Italy.

In 2012, Rome achieved the greatest uplift in total hotels arri-

vals (+5.1%) and bed nights (+4.3%), followed by Milan, which

achieved increases of 1.7% and 1.9% in arrivals and bed

nights, respectively. Florence remained mostly stable year-on-

year, while Venice posted a decrease of 1.7% in arrivals and a

drop of 3.0% in bed nights. The latter can be attributed to the

fact that in 2012 the city did not host the Biennale event,

which is hosted every other year and typically attracts a signif-

icant influx of visitors to the city.

International tourism fuelled growth to all the major cities,

while domestic demand registered double-digit decreases in

Venice, where domestic arrivals and bed nights decreased by

13% and 22% respectively. Italy’s other primarily leisure-

driven city, Florence, also registered falls in domestic demand,

albeit at a marginal level (−0.5% in arrivals and −1.2% in bed

nights). Milan registered a marginal decrease in domestic bed

nights while arrivals remained generally stable. Rome was the

only major city to post significant positive results concerning

domestic demand, with arrivals and bed nights increasing by

4.8% and 3.6%, respectively. This trend continued for the

capital in 2013, and as at Q1 2013, due partly to the appoint-

ment of the new Pope, arrivals had increased by 5.4% while

bed nights posted a 5.8% uplift compared to the same period

in 2012.

Source: ISTAT National Statistics Office

Italy: Major Foreign Source Markets

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Rome Milan Venice Florence2010 2011 2012


Domestic investors continue to retain ownership

The Hotels & Hospitality Group of Jones Lang LaSalle

constantly updates its database of 3, 4 and 5 star hotels in

Italy’s primary hotel markets (Rome, Milan, Venice and

Florence) to analyse the evolution of the ownership structure

in terms of nationality and owner type. Our sample comprises

about 30,000 hotels, of which about 80% are located in the

main gateway cities of Rome and Milan.

Private owners, very often family-based companies, are the

most widespread hotel owner category in the market. Most of

them are private hotel operators (42%), followed by private

companies (27%) - companies that are not necessarily spe-

cialists in the hotel business. The next most dynamic investor

category are institutional investors. This investor type is rapid-

ly catching up with private entities, along with private compa-

nies and operators who are already well-established in the

market. Public hotel operators also represent a large percent-

age of owners and they usually correspond to an international

hotel operator, as no significant public Italian hotel chain ex-

ists at present.

Interestingly, each market analysed brings its own peculiari-

ties. For example: Milan has a much larger percentage of

rooms owned by institutional investors (23%), likely due to

Milan being the Italian business capital.

The majority of hotel owners in Italy are of domestic origin

(84%), with 9.2% coming from Europe and 5.7% from the

United States. Middle Eastern investors make up only 1.1% of

hotel ownership in Italy at present, however we can expect

this to increase in the short term. The majority of international

buyers are concentrated in Milan, with Rome in second place.

However, the second most numerous owners by origin differ

by market, with Americans being the second largest category

in Rome (7%) while European buyers are the second largest

category in Milan (17%). In the near future we anticipate

increased interest from investors in Asia.

Source: Jones Lang LaSalle Hotels & Hospitality

Italy: Quality Hotel Ownership by Nationality

Domestic, 83.9%

Europe, 9.2%

Middle East, 1.1% USA, 5.7%

Italy: Ownership by Investor Type


Public Hotel Operator, 7.4%

Private Hotel Operator, 42.4%

Property Company, 2.3%

Institutional Investor, 12.4%

HNWI, 4.0%

SWF, 0.8%

REIT, 2.9%

PrivateEquity, 0.4%

Private Company, 27.4%


Domestic buyers still the most active, while Middle Eastern buyer activity

on the rise

Hotel property sales in Italy have historically accounted for

about 6% of total hotel transaction volume in EMEA (Europe,

the Middle East and Africa). In the middle of the last decade,

Italian hotel investment volume increased substantially,

peaking at just over €1 billion in 2007, driven by favourable

market conditions which allowed for the sale of large assets

as well as portfolios. Furthermore, the peak investment

volume was also fuelled by a surge in institutional investors,

achieving a record market share of 73% of total hotel

investments in 2007. Examples of deals completed by

institutional investors include the acquisition of the Forte

Village for approximately €220 million on behalf of Fimit SGR

at the beginning of 2007. In Q4 2007, Beni Stabili acquired a

portfolio of six mid-tiered hotels for some €128 million, whilst

Castello SGR acquired two luxury hotels in Tuscany for a total

of €85 million.


0

200

400

600

800

1,000

1,200

€m

illio

ns

Single Asset Portfolio

Italy: Hotel Investment Volumes 2000-2012

Hotel Location Sale Price

(€m) Rooms Grade

Price/Room

(€) Buyer Origin

2012

Luxury Resort Capri Confidential Confidential 5-star Confidential Confidential

Hotel San Cassiano Venice 9.6 40 4-star 240,000 Domestic

Alliance Hotel Bologna Bologna Confidential 143 4-star Confidential Domestic

Mediterraneo Palace Ragusa 4.7 99 4-star 47,000 Domestic

NH Grand Hotel Verdi Milan 18 100 4-star 180,000 Domestic

Luxury Hotel Rome Confidential 125 5-star Confidential Middle East

Bristol Palace Genova 12.5 133 4-star 94,000 Domestic

Villa Cipriani Asolo 7.5 31 4-star 242,000 Domestic

Arenella Resort Siracusa 26 460 4-star 57,000 Domestic

Luxury Hotel Project Via Veneto Rome 100 100 5-star 1,000,000 Asia

Palazzo Giovanelli Venice 12 80 4-star 150,000 Domestic

Hotel Victoria Verona 16 71 4-star 225,000 Domestic

Grande Albergo delle Nazioni and Hotel Project Rome 80 215 4-star 372,000 Domestic


Italy: Transactions 2012


Following the €1 billion peak reached by hotel investments in

2007, the Italian hotel investment market recorded a 46% drop

in 2008 and a further 60% drop in 2009. As the global

economy showed some timid signs of recovery, hotel

investments seemed to follow the trend: in 2010, transaction

volumes increased by around 35% on the previous year. This

increase can be attributed partly to the sale of the Grand Hotel

Timeo and Villa Sant Andrea in Sicily, together with a number

of investment sales based on the acquisition of hotels

encumbered with lease agreements with established hotel

operators, as hotel investors tried to reduce their exposure in

the market.

Despite the prolonged global and Eurozone sovereign debt

crisis, the hotel investment market in Italy in 2012 showed

signs of recovery, although it was still characterised by

investors seeking secure investments. The year will probably

be remembered for the sale to Qatar Holding of the Costa

Smeralda Portfolio for €580 million, the largest transaction

ever recorded in Italy, with an estimated yield of 5.5%. This

confirms that interest in trophy assets is still strong in the

current market. However, even if this transaction is ignored,

the volume of hotel sales at year-end 2012 was 163% higher

than in 2011. Major transactions completed include two

properties located in the centre of Rome, a 5-star hotel and a

former office building acquired by Middle Eastern and Asian

buyers for conversion into 5-star luxury hotels.

In the first half of 2013, just three transactions were completed

for a total of around €195 million, representing a contraction of

around 35% compared to the same period in 2012. The most

prominent transactions included the Hotel Four Seasons in

Florence, acquired by the Sovereign Wealth Fund (SWF) of

Qatar, and the more recent acquisition of the Hotel Tre Ville

located in Positano by Ivanhoe Capital. Should the hotels

currently in the due diligence stage and other opportunities on

the market come to fruition, total hotel investment volume in

2013 may reach €500 million.

As the domestic economy continues to struggle and tight

credit conditions persist, we envisage a reduction in the total

number of completed transactions in the short term. However,

total hotel investment volume is expected to be boosted by a

number of high-profile transactions in 2013 and 2014, as the

primary hotel markets of Rome, Milan and other celebrated

Italian leisure destinations continue to attract foreign capital.

Luxury hotels continue to attract

international interest

Hotel Intelligence: Italy

This report is confidential to the recipient of the report. No reference to the report or any part of it may be published in any document, state-ment or circular or in any communication with third parties without the prior written consent of Jones Lang LaSalle Hotels & Hospitality, including specifically in relation to the form and context in which it will appear. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions in respect of a considerable number of varia-bles which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome and we draw your attention to this factor. Jones Lang LaSalle Hotels & Hospitality makes no representation, warranty, assurance or guarantee with re-spect to any material with which this report may be issued and this report should not be taken as an endorsement of or recommendation on any participation by any intending investor or any other party in any transaction whatsoever. This report has been produced solely as a general guide and does not constitute advice. Users should not rely on this report and must make their own enquiries to verify and satisfy themselves of all aspects of information set out in the report. We have used and relied upon information from sources generally regarded as authoritative and reputable, but the information obtained from these sources may not have been independently verified by Jones Lang LaSalle Hotels & Hospitality. Whilst the material contained in the report has been prepared in good faith and with due care, no representation or warranty is made in relation to the accuracy, currency, completeness, suitability or otherwise of the whole or any part of the report. Jones Lang LaSalle, its officers, employees, subcontractors and agents shall not be liable (to the extent permitted by law) to any person for any loss, liability, dam-age or expense (‘liability’) arising directly or indirectly from or connected in any way with any use of or reliance on this report. If any liability is established, notwithstanding this exclusion, it shall not exceed $1,000.


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