Tourism WA Infrastructure & Investment

Perth Hotel Performance & Development Trend Update

August 2014

MACRO ECONOMIC INDICATORS

The following key economic indicators have asignificant impact on the direction of the hospitality andtourism market fundamentals in the short-to-mid-term.

• Gross State Product (GSP): Western Australia’sreal GSP rose 5.1% in 2012-13, following 7.3%growth in 2011-12, and was above annual averagegrowth of 4.9% over the past 10 years.

• GSP is forecast to rise 3.25% in 2013-14 and 2.5%in 2014-15.

• Merchandise exports are expected to rise by anannual average of 7% between 2013-14 and 2017-18, offsetting falling business investment over theperiod.

• Unemployment: The State’s unemployment ratewas 5.0% in June 2014; unchanged from theprevious month but higher than the 4.6% a yearearlier. Australia’s unemployment rate was 6.0% inJune 2014.

• Population: Population growth is forecast to slowfrom 3.5% in 2012-13 to 2.6% in 2013-14 and 2.1%in each year to 2017-18, according to the 2014-15State Budget.

• Australian Dollar: The recovery of the U.S.economy, a decline in commodity prices and theprospect of the Federal Reserve tapering itsquantitative easing program resulted in theAustralian dollar remaining below parity with theU.S. dollar through the second half of 2013.

• The Australian dollar exchange rate fell 11% to US$0.915 cents in 2013-14 and is forecast by theWestern Australian Treasury to fall to US $0.906cents in 2014-15 and US $0.849 cents in 2017-18.

• Throughout June, the Australian Dollar was tradingbetween US $0.924 and $0.943.

• Consumer Confidence: ANZ-Roy MorganConsumer Confidence rose a further 2.4% to 105.7in the week ending June 22. Having risen around6%, Consumer Confidence has improved slightlyover the past four weeks, coinciding with the recentrecovery in house prices. However, confidenceremains 10% lower than at the end of April, wheninformation around the Commonwealth Budget wasreleased.

• Short term growth in Western Australia (WA) has tempered as a result of a shift in resourcerelated project life cycle and investment landscape.

• A weaker global growth picture, particularly among developing nations has also put downwardpressure on WA economic prospects. However, longer term macro economic outlook is stillpositive with growth ahead of overall Australia.

• The critical role tourism plays in the State’s economy was recognised as Tourism WA received itsbiggest budget ever for the coming financial year.

Sources: Reserve Bank of Australia, Australia Bureau of Statistics, Government of Western Australia, Department of State Development, Deloitte Access Economics, ANZ-Roy Morgan Consumer Confidence Index, WA Treasury Corporation

• Resources: A weakening short term growthoutlook for the Western Australian economy isprimarily driven by the move from miningconstruction to production. The total value ofprojects has continued to trend down, asproject completions have outpaced the newdevelopments coming online.

• Mining new capital expenditure fell 17% to $10billion in the March quarter 2014 (not adjustedfor seasonal factors).

• Business investment in Western Australia rose1% to $17 billion in the March quarter of 2014.

• According to Deloitte Access Economics' WABusiness Outlook February 2014, threesectors that offer the economy the potential forfurther “super-growth”, albeit perhaps not onthe same scale as the resources constructionboom are agriculture, tourism and internationaleducation.

• State Budget: In May, the Treasurerannounced a budget deficit of $29.8b for thiscoming financial year and forecasts continueddeficits for the next four years, before returningto a balanced budget in 2018-19.

• A strategy to return to surplus towards the endof the decade is based on cutting spending inthe education and health sectors, low incomeearners and welfare recipients, and the foreignaid budget.

• Despite key saving strategies announced, a$23.7 billion infrastructure program is plannedover next four years, including $6.7 billion in2014-15. And significant for tourism, TourismWA has received its biggest budget ever,$88.9m for the coming financial year. Thebudget is a clear recognition of the crucial rolethe tourism industry plays in the State’seconomy – supporting 91,000 jobs andcontributing $8.8b (3.6%) to the State’s totalGSP.

• Domestic arrivals of approximately 390,919 through Perth Airport in June 2014 was (-) 0.2% lowerthan June 2013; Year to Date (YTD) June 2014 domestic arrivals were fairly consistent with arrivallevels during the same period in 2013.

• Perth Airport foreign national arrivals increased by (+) 7.65% YTD June 2014 in comparison to theYTD June 2013 period.

• Top markets in YTD June 2014 remained fairly consistent with the same period during the previousyear with majority of visitors coming from the UK, New Zealand, Malaysia, Singapore, China, India,Indonesia and Ireland.

TOURISM AND VISITOR TRENDS

Sources: Department of Immigration and Border Protection (DIBP), Perth Airport Pty Ltd

Notes: International arrivals include Australian residents on international passports.

‘Other’ category includes Germany, France, Japan, South Korea, Thailand, Taiwan, Hong Kong, Italy, Canada, Vietnam, Mauritius, Brunei and UAE

Additional information can be found on Tourism WA’s WA Tourism Industry Scorecard: http://www.tourism.wa.gov.au/Research_and_Reports/Latest_Visitor_Statistics/Pages/Tourism_Industry_Scorecard.aspx

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• Compared to June in 2013, June2014 arrivals from Malaysia haveincreased by over (+) 36% and fromSingapore by over (+) 39%. Arrivalsfrom China in June 2014 increasedby over (+) 3% relative to June2013 levels.

• Notable decreases in passengervolume were experienced in June2014 compared to June 2013 fromthe UK at (-) 20%, Ireland at(-) 24%, South Africa at (-) 22% andthe Philippines at (-) 22%.

3,909,734

4,290,385

4,860,370 4,927,440

2,405,8152,389,202

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2010 2011 2012 2013 YTDJune2013

YTDJune2014

Perth Domestic Airport Arrivals 2010 - YTD June 2014

734,077 775,133

856,787

939,155

451,153485,666

50,000

150,000

250,000

350,000

450,000

550,000

650,000

750,000

850,000

950,000

2010 2011 2012 2013 YTD June2013

YTD June2014

International Airport Arrivals 2010 - YTD June 2014

Singapore17%

UK14%

Malaysia13%New 

Zealand11%

Other22%

Indonesia5%

India4%

China4%

Ireland3%

USA3%

South Africa2%

Philippines2%

International Arrivals Origin June 2014

• Driven largely by interstate and intrastate visitors, overall overnight visitation increased by(+) 8.6% from 7.1m in year ending (YE) March 2013 to approximately 7.7m overnight visitors to WAin the YE March 2014.

• Overall overnight visitor spend in WA as of the YE March 2014 was $6.3b, an increase of (+) 6.9% or$412m compared to YE March 2013.

• For WA, international visitation grew to 776,500 for the YE March 2014, an increase of (+) 4.3% onYE March 2013 visitation (behind the national growth rate of +6.3%).

• Despite the growth in international visitors to WA, international visitor expenditure in WA for YEMarch 2014 declined from YE March 2013 by (-) 1.8%, while nationally international visitorexpenditure grew by (+) 2.5% over the same time period. The decline in visitor spend is driven bythe business segment (-17.2%, -$54 million) and the “other” visitor segment (-17.4%, or -$64million). Both of these segments saw a decline in visitor nights, which can partially explain thedecline in spend by these segments (business down -14.5%, or 359,500 less nights, and “other”down -8.8%, or 481,200 less nights).

TOURISM AND VISITOR TRENDS

Sources: Tourism Western Australia

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Overnight Visitors to Western Australia (+) 8.6% • 7.7 million overnight visitors• Overnight visitors to WA represent 9.0% of all overnight visitors

in Australia

Overnight Visitors Spend in Western Australia (+) 6.9% • $6,369 million in spend• $829 average spend per visitor• Overnight visitor spend in WA constitutes 10.6% of total

overnight visitor spend in Australia

• As a result of continued softening of overall macro economic fundamentals, RevPAR decreased (-) 6.2% from $191.12 in YTD June 2013 to $179.22 in YTD June 2014.

• At 84.3% in YTD June 2014, Perth CBD occupancy remained consistent with levels achieved during the same period a year ago. ADR levels decreased (-) 5.9% from $226.01 in YTD June 2013 to $212.66 in YTD June 2014.

PERTH HOTEL PERFORMANCE – HISTORICAL AND CURRENT

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Year Occupancy ADR RevPAROccupancy

% changeADR

% changeRevPAR

% change2003 76.6% $118.64 $90.912004 76.3% $121.40 $92.62 -0.4% 2.3% 1.9%2005 79.0% $129.89 $102.59 3.5% 7.0% 10.8%2006 81.9% $145.42 $119.06 3.7% 12.0% 16.1%2007 84.1% $163.31 $137.31 2.7% 12.3% 15.3%2008 82.2% $190.50 $156.53 -2.3% 16.6% 14.0%2009 79.7% $187.49 $149.34 -3.1% -1.6% -4.6%2010 82.4% $190.02 $156.60 3.5% 1.4% 4.9%2011 84.4% $210.38 $177.56 2.4% 10.7% 13.4%2012 86.2% $229.69 $197.98 2.1% 9.2% 11.5%2013 85.2% $221.10 $188.31 -1.2% -3.7% -4.9%

YTD June 2013 84.6% $226.01 $191.12YTD June 2014 84.3% $212.66 $179.22 -0.3% -5.9% -6.2%

Note: “% change” results indicate the percentage change (growth or decline) from the previous year, or in the case of the YTDfigures, the percentage change from the previous YTD figure (i.e. the same time period of the year prior).

Statistics include data from approximately 21 hotels in the Perth CBD.

Source: Smith Travel Research

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTDJune2013

YTDJune2014

Perth CBD Hotel Performance2003 - YTD June 2014

ADR RevPAR Occupancy

• Despite recent decreases in RevPAR through YTD 2014, Perth still achieves one of the highestRevPAR levels in Asia Pacific and Australia.

• In YTD June 2014 the overall Perth market achieved the highest RevPAR levels of all capital citiesin Australia and the third highest RevPAR in the Asia Pacific region.

PERTH HOTEL PERFORMANCE – HISTORICAL AND CURRENT (Continued)

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(US$)

Note: Statistics for Perth include data from approximately 46 hotels in the Perth CBD and surrounding cities.Source: Smith Travel Research

$100

$110

$120

$130

$140

$150

$160

$170

$180

$190

$200

2009 2010 2011 2012 2013 YTD June2013

YTD June2014

Australia Capital City RevPAR Performance2009 - YTD June 2014

Perth Melbourne Sydney Brisbane Australia

$50

$70

$90

$110

$130

$150

$170

$190

$210

Asia Pacific Hotel RevPAR Performance YTD June 2014

• Lodging performance outlook remains positive with RevPAR growth estimated by variousanalysts to increase between 2.5% and 4.2% in 2014 and 2.6% and 7.4% in 2015.

• Decrease in occupancy is expected in the medium term as new supply additions through2018 are absorbed into the market.

PERTH HOTEL PERFORMANCE – OUTLOOK

• Lodging fundamentals are expected to easefrom historical highs in 2012 as a result ofsoftening resource related corporate demand.Approximately 44% of all nights in paidaccommodation are accounted for by corporatetravelers, with much of this travel beingresources-related.

• Perth continues to grow as a leisure tourismdestination and significant investment ininfrastructure projects will contribute to the city’sappeal. Combined worth of an estimated $9billion will be invested in projects such as CitySquare, Raine Square, Riverside, Perth CityLink, Perth Arena, and the Elizabeth Quaydevelopment.

• Strong growth in visitor arrivals from Asia’semerging economies is expected to supportdemand fundamentals going forward.

• The main driver of the occupancy easing issupply additions expected between 2015and 2018.

• Residual strength of the mining sectorcoupled with diversification and growingdemand from the leisure segment willcontinue to support room rate growth.

• RevPAR is estimated by various analysts(Jones Lang LaSalle, Dransfield, Deloitte,Colliers) to increase between 2.5% and4.2% in 2014 and 2.6% and 7.4% in 2015.RevPAR is expected to be weighed downby occupancy easing in 2016 through 2018as new supply enters the market.

• Tourism WA will continue to monitor hotelperformance in the Perth market relative toanalyst forecasts on a real time basis.

• The following chart represents Dransfield’sestimated performance for the Perth hotelmarket.

Source: Dransfield Hotel Futures February 2014

Note: F = Forecast

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50%

55%

60%

65%

70%

75%

80%

85%

90%

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

$260

$280

2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Perth Hotel Performance2014F - 2022F

ADR RevPAR Occupancy

PERTH HOTEL DEVELOPMENT PIPELINE

• There are a myriad of factors that ultimatelydetermine whether a hotel developmentprogresses. Consequently, the estimatedhotel pipeline is constantly moving asvarious projects are cancelled, stalled orprogress.

• The release of the Plot Ratio Bonus by theCity of Perth in February 2013 hasincreased the number of DevelopmentApprovals (DA) being sought by hoteldevelopers – although the conversion rateto building licences has yet to increase.

• Hotel market dynamics and supply anddemand fundamentals will ultimately dictatethe level of investment and developmentactivity in the mid to long term.

• There are a number of DAs pending acrossall hotel segments. However, the majority ofthe committed pipeline supply rooms are inthe top end of pipeline (luxury segment)indicating the need for additional rooms inthe lower end of the segments in order toensure that all types of demand areprovided for.

• Tourism WA’s goal of increasing Perth CBD’s supply by 1,900 additional short stayaccommodation rooms by 2020 is anticipated to be achieved through partnerships with MRA,LandCorp and through private investment.

• Despite positioning in the top end of thepipeline, the incoming supply is varied witha wide range of types of hotels (i.e. luxury,boutique, casino hotels) brands, hotelmanagement companies, includingindependently managed hotels, arerepresented in the pipeline.

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Notes: Star category is often self-rated. When analysing the pipeline segmentation target Tourism WA analysis may rate various projects differently.Both traditional hotels and apartments hotels are included in figures.Perth CBD also includes East, West Perth, Northbridge and Burswood.F = ForecastSource: MRA, City of Perth, various industry developers, investors, operators and other stakeholders and market participants.

Recently Added, 276

Under Construction,

265

Committed, 566

Crown Towers, 500

Additional Rooms

Needed, 293

2020 Target: 1,900 Rooms

6,874

8,481 15

48

566

500

236 71

146

25

5,600

5,800

6,000

6,200

6,400

6,600 6,800

7,000

7,200

7,400

7,600 7,800

8,000

8,200

8,400

8,600

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Perth CBD Hotel Pipeline (Number of Committed Rooms)2011 - 2020F

Total Hotel Supply Five Star Crown Towers Four Star Three Star

• Currently seven projects and 1,331 rooms are committed to enter the Perth CBD market between2015 and 2018, including the Crown Towers in Burswood. Many of the projects consideredcommitted are government-supported projects.

PERTH HOTEL DEVELOPMENT PIPELINE (CONTINUED)

• Hotel developments are considered committed if they are under construction or if government is actively involved in the project.

• Serviced apartments are included in the pipeline.

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Committed Hotel Development Pipeline

Project NameStatus

Expected Opening

Date

Total Number of

Rooms

Terrace Hotel (Best Western Premier) Completed (2012) 15

Fraser Suites Completed (2012) 236

Bailey’s Serviced Apartments Completed (2014) 25

Completed 276

Treasury Precinct Hotel Under Construction 2015 48

Quest (Mounts Bay Road) Under Construction 2015 71

Alex Hotel Northbridge Under Construction 2016 74

Quest (Kings Park Road) Under Construction 2016 72

Westin (FESA House) Committed/Planning – Government 2018 362

Ritz-Carlton (Elizabeth Quay) Committed/Planning – Government 2018 204

Crown Towers Under Construction 2016 500

Committed825

500 (Crown)

Total 1,331

Remaining Potential Government (MRA) Hotel Sites

Perth City Link Early Planning 2018 ~200

Waterbank/Riverside Early Planning TBD ~200

• Crown Towers is included in the analysis due to its proximity to the CBD and its market positioning that includes high end and corporate visitors. However, it is reported separately given its location in Burswood and its gaming/casino focus.

• In addition to the hotels in the development pipeline considered ‘committed’ there are a numberof hotels that are in various stages of planning and either have a development applicationpending or already approved; however, they have not yet commenced construction or have beengranted building licences. Many of these hotels have also signed management and/or franchiseagreements.

PERTH HOTEL DEVELOPMENT PIPELINE (CONTINUED)

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Recently Announced Hotels

Some recently announced hotels in the early planning phase of the pipeline include the following:

• The MRA developments at City Link and Waterbank both contain hotels in the master plans. Short termaccommodation at these locations would likely be positioned below the 5 star category and wouldcontribute between 300 and 400 additional rooms to the supply pipeline. Once locked in through the landsale process, these hotel developments would be considered committed, although they won’t be deliveredto the market until 2018 or later; Lots 2 and 3A of the City Link were released by MRA through Jones LangLaSalle on 11 June 2014 for a hotel and mixed-use development via an Expression of Interest (EOI). TheEOI period closed in August 2014.

• Silverneedle Hospitality announced its second Sage-branded hotel in Australia would be a 101 room hotellocated in West Perth and is estimated to open in 2016.

• In early 2014 Hilton announced that they signed a management agreement with SKS Group to manage twohotels under the DoubleTree brand, located in Perth (at the Barrack Street Jetty site) and Fremantle; apotential third location in Northbridge was also noted.

• It was recently announced that Rehawk Property Group had signed a management agreement with Accorfor an Ibis Styles branded hotel to be located at 69 Adelaide Terrace. A new build 120 room Mantra-branded hotel was also announced earlier this year to be located in the King Square precinct; buildinglicences have not yet been issued for either of these developments.

• On 2 July 2014, Quest announced that they will double their supply of hotel rooms in Perth. In addition tothe two sites noted above, there is a third under construction in Rockingham. Two other sites are alsoplanned and awaiting Building Licences; Adelaide Terrace (130 rooms) and Fremantle (120 rooms).