Volume 8 Issue 6 hotelanalyst · As far as business travel is concerned, December’s American...

hotelanalyst

The intelligence source for thehotel investment community

www.hotelanalyst.co.uk

The sale of the Mint hotels portfolio was so successful that it raised sellers’ expectations and caused other transactions to drift along, according to Desmond Taljaard, COO at Starwood Capital Europe.

The full price for the deal, an estimated £610m

at the end of 2011, caused banks to think they

could get full value for other portfolios, added

Taljaard, speaking at the Ernst & Young Real Estate

Workshop 2013.

The session, a hotel specific break-out from

the main conference that focused on general

real estate, hosted at London’s InterContinental

on Park Lane, examined the outlook for hotel

transactions and financing.

Taljaard said financing was taking longer. He

cited the locked box mechanism, which attempts

to give an equity value to a deal before completion

by working off an historical balance sheet, as a

particular problem in slowing deals.

But he argued that the transaction market was

close to an inflexion point. “Assets are starved

of capital to reposition and banks can’t do it,”

he said.

Deals were in part taking longer as standards of

due diligence are now set where they should be.

“Deals done in 2006 to 2008 were done without

due diligence,” said Taljaard.

Adrian Turner, managing director of Crownway

Capital Europe, said: “You always know you’re at

the top of the real estate cycle when banks get big

into hotels.”

Turner contrasted Europe with the US with the

latter seeing confidence coming back. “REITs are

buying for increased yield. It is starting to change

pricing in the US.”

•Orient-Expressadopts associate model p4

•PremierInnlooksforonline advantage p6

•StarwoodCapitalsells out of French luxury p11

•Wyndhamtestsmixed hotel and apartment model p14

•Howrelevantisrevpar in measuring performance? p22

•Hoteliersneedto embrace technological change p26

Mint lifts expectationsParts of Europe were still scary, said Turner.

Ireland still had an intravenous drip in place from

the European Central Bank. But the country has

taken huge pain already: “If the rest of the world

took on in the same way , the crisis would be

over,” said Turner.

Taljaard said that his firm had taken part in

the Maybourne refinancing which had been

led by a US mortgage REIT. “The talk about

insurance companies filling [the debt finance]

void has not happened,” said Taljaard, adding

that for insurance companies to come in to the

market it was necessary to synthetically solve the

requirements they had in terms of the nature and

shape of returns.

Bob Silk, relationship director at Barclays

Corporate, admitted that banks generally

wanted a “bullet proof codpiece”. The big fear

for buyers was “catching a falling knife” but Silk

was confident we are near the bottom: “I’m fairly

convinced that in five years we will look back and

think ‘I can’t believe it was so cheap’.”

Silk added that he expects to be busy this year

and was already discussing “four big deals”.

Domestic UK lenders had worked out that they

need to lend more money, he said. There won’t

be a return to the “lunacy” of 2005 to 2007 but

lending “will slowly but surely ease up”.

Derek Gammage, head of hotels EMEA for

CBRE, was sceptical that Asian buyers would

feature heavily in the near future. “The premise of

Asian buyers is that they are going to buy cheap,”

he said but there were better opportunities nearer

home. More likely buyers were Americans who

had access to cheaper debt.

More deals were likely to be done as “the stars

were now aligned”: interest rate swaps had burnt

Volume 8 Issue 6

continued on page 3

Contents

News Review 4-15

Orient adds associates – UK upturn

– Choice on hunt – Branded Accor

– Positive Premier Inn – Record for

SLH – IHG for Asia – innovative

Christie – Akkeron deal – French

luxury sale – Qataris’ Berlin swoop

– Rezidor writedowns – Wyndham’s

mixed use – Qhotels refinance

Sector Stats 16-18

Olympic effects – Soccer scores

Analysis 20-26

Development fundamentals – Revpar

relevance – Challenge of change

The Insider 28

Forte searches profits – Branding

challenge – Tough market tips

www.hotelanalyst.co.ukVolume 8 Issue 6

All enquiriest +44 (0)20 8870 6388

Editor Andrew Sangstere [email protected]

Deputy Editor Chris Bowne [email protected]

Marketing Sarah Sangstere [email protected]

Subscriptions Anna Drabickae [email protected]

Art Direction T Square Designe [email protected]

Design Lynda Sangstere [email protected]

©ZeroTwoZero Communications 2013IMPORTANT – Unless otherwise attributed,all material in this publication is the copyrightof ZeroTwoZero Communications. Subscribersare reminded that the publication is circulatedto named individuals only, on the understandingthat material contained herein is not copied,reproduced, stored in a retrieval system orotherwise disseminated, whether inside oroutside subscribers’ organisations, withoutthe express consent of the authors or publisher.Breach of this condition will void thesubscription and may render the subscriberliable to further proceedings.

Hotel Analyst is published by

ZeroTwoZero Communications Ltd

Studio 22 Royal Victoria Patriotic Building

John Archer Way London SW18 3SX

t +44 (0)20 8870 6388

f +44 (0)20 8870 6398

e [email protected]

w www.zerotwozero.co.uk

Europe turns the corner?Commentaryby AndrewSangster

A travel trends survey for ITB Berlin, carried out

by IPK International, suggests a net increase in

activity for 2013.

Of the Europeans surveyed, 28% said they

would travel more in 2013, while 21% expected

to travel less. Russian outbound tourism is

expected to rise by 9%, with the figures for UK

and Germany 5% and 3% respectively.

The report also notes that while negative country

conditions may reduce domestic and outflowing

travel, it does not reduce tourist arrivals.

Italy, for example, saw outbound trips fall 5%

but benefited from greater arrivals from eastern

Europe. City breaks were up 14% and short trips

of one to three nights grew 10%, while beach

holidays fell in popularity.

“The report’s findings illustrate the wide-

ranging impact of economic developments on

European tourism forecasts,” said Martin Buck of

Messe Berlin.

“Changing travel patterns mean that European

countries will have to adapt to a much greater

variety of demand. All the same, the outlook for

next year is mostly positive.”

As far as business travel is concerned,

December’s American Express business travel

barometer provided some grounds for optimism.

The survey found that 63% of European businesses

maintained their business travel budgets for 2012,

and 73% intend to do the same for 2013.

The year just finished saw 23% of businesses

increase their travel budget, and just 14% reduce

it – a positive result when comparing with 21%

cutting down in 2011, and 40% reducing spend

in 2010.

The barometer, which pulls in views from more

than 500 corporates across Europe, noted an

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation

hotelanalystincreasing focus on centralised purchasing, with

59% of respondents using a travel management

company to help them keep track of spending.

Hotel spend is a growing area for companies to

focus on, and 54% now monitor spending in this

category. Cost control will remain a major focus

for companies into 2013. Mobile information

is increasingly valued by business travellers,

for travel alerts, mobile check-ins and making

reservation changes.

In the UK market, agency VisitBritain is

predicting a 3% growth in visitor numbers in

2013, while OTA Travelzoo has surveyed UK

consumers to discover a majority expect to spend

more on their holidays in 2013.

Provincial hoteliers in the UK had their best

month for more than a year, according to recent

statistics gathered by TRI for their Hotstats, with

room rates and profits improving overall.

Research agency PhocusWright predicts that

the European market will continue to grow

weakly in 2013, similarly to the 2.5% growth

experienced in 2012. One trend that will continue,

however, is consumers’ flight to online, where

the OTAs continue to dominate. PhocusWright

expects this year to show a 13% growth in OTA

business while brand websites will see an overall

growth of just 8%.

What this all amounts to is more good news for

the start of 2013, at least in terms of expectations.

How fully realised these will be depends a

great deal on some of downside risks failing

to materialise.

In Europe, the big threat remains a possible

collapse in the Eurozone. Little has changed

in the economic fundamentals and even the

biggest Pollyannas are not expecting a rebound to

significant growth.

So why the optimism? In part, it is a function

of things having been so bad for so long - we

are now five years into the downturn - that the

absence of bad news is taken as evidence of

good news. And there is a sense that things have

stopped deteriorating.

In the US, the fiscal cliff has, for the time being,

been avoided and the Chinese economy, which

had started to look wobbly, is again increasing its

growth rate.

This rosier global outlook, coupled with the fact

that the Eurozone has failed to implode as the

pessimists forecast, has led to a burst of optimism.

Much economic activity is driven by sentiment

more than fundamentals.

The sentiment right now looks more positive

than it has for years. Just don’t look too closely at

what is underpinning it.

As 2012 closed, a raft of surveys gavethehotelsectorhopethatkeyEuropeanmarketsarenowmovingoff the bottom of the cycle. A numberofkeyindicatorssuggestthat, in some countries at least, 2013 will be a more positive year than the one just gone.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.hotelanalyst.co.uk Volume 8 Issue 6 3

Europe turns the corner?News

off; debt was stretched and therefore motivated;

equity was realistic; and banks had taken the

impairment.

Gammage said that banks were selling packages

of debt and there would be pure hospitality debt

trading. “Consensual solutions of three years ago

are not so consensual today,” he added.

HA Perspective: Are we finally at the point where

deals start in earnest? The short answer is no.

But it seems highly likely that there will be more

movement than we have seen for some time.

At the outset of this crisis, Hotel Analyst divided

the problem loans held by banks into three

categories: basket cases, such as GuestInvest,

which needed the plug pulling immediately;

fundamentally sound businesses that had some

issues with the capital structure, such as Mint;

and profoundly indebted companies that needed

serious adjustments to their capital stack, of which

De Vere Hotels was a case.

In this context it made sense for the receivers

to go in immediately at GuestInvest, which they

did, and for the most robust companies to trade,

which was the case for Mint.

While the debt holders got out with their cash

back in the Mint deal it was, and is, unlikely to be

the case in many other deals.

Robert Cook, CEO at De Vere, was also

speaking at the Ernst & Young event. He said that

his bankers Lloyds had been generous to him in

terms of capex but “we are playing catch-up for

the last three years”.

Hugh Taylor, chief executive at Michels & Taylor,

said that in general it was hard to look at a capex

programme that offered a return. If you were able

to reposition and work in an extended or different

market then there is an opportunity that makes

good business sense.

In this context, lenders who are in effective

control of assets need to ask themselves whether

they are the right people to oversee such a

repositioning. Even if existing management can be

incentivised to provide “cover”, debt is still taking

on equity like risks.

Given that the margins for lending on plain

vanilla deals are at historic highs (despite what the

lenders might try to tell you) it makes more sense

to take a write-down on the bad deals to free up

the balance sheet to lend on deals that are much

less risky.

It is a quirk of human nature that losses are felt

far more than gains. Now looks the time for banks

to steel themselves for tough decisions.

continued from page 1

After months of wrangling between the two

main shareholders, a GBP150m rights issue was

fully funded, and a GBP547m loan syndicated to

provide fresh debt for the next five years.

The hotel company, which manages luxury

hotels Claridges, the Connaught and the

Berkeley in central London, is now set fair under

new ownership.

However, clouds on the horizon include an

outstanding threat from minority shareholder

Paddy McKillen to further challenge recent

share buying transactions. While a media focus

on tax avoidance activities at the Ritz, owned

by shareholders the Barclay brothers, could

continue to cast an unwelcome gaze on the

group’s finances.

The last round of legal challenges between the

embattled co-owners was decided in September.

McKillen lost his claim that the Barclay brothers

had acted improperly in securing their controlling

shareholding, and in the way they had taken

control of the GBP660m loan against the hotel

group. He has publicly vowed to fight further.

December started with a call on existing

shareholders to fund a rights issue of GBP150m,

as part of a refinancing proposal advanced

by majority shareholders the Barclays. Their

funds were never in doubt; and despite media

speculation that minority shareholder Paddy

McKillen might struggle to deliver his part of the

cash call, his portion of the funds was delivered,

enabling him to maintain his 36% stake.

In November, McKillen had proposed an

alternative refinancing that would have done away

with the need to fund the rights issue, replacing

the total outstanding debt with fresh funds at a

better rate, from a Qatari source.

However, the Barclays, who control the board,

turned down the proposition, preferring the rights

issue that some commentators suggested was

designed to catch McKillen out.

The GBP547m loan was arranged by Blackstone

Real Estate Debt Strategies, and will repay a

GBP660m bridging loan from Barclays Bank. The

total was committed by a number of banks and

other institutions, including Bank of America

Merrill Lynch, Royal Bank of Canada, Wells Fargo

Bank, RBC and Starwood Capital.

“We are delighted to have completed a complex

refinancing in challenging market conditions before

year end,” said Stephen Alden, Maybourne CEO.

“Our own team, the board, our advisors and the

lending group have worked extremely hard - and

in close collaboration - to achieve this excellent

result. It places us in an ideal position to realize our

capital investment strategy and thus to maintain our

leadership among the world’s finest hotels.”

Bank of America is understood to have advanced

around GBP200m of the total. The loan is the first

time the bank has lent to the UK property sector

since 2006, indicating that it now feels the market

has stabilised.

According to the Irish Times, McKillen still

has EUR300m of personal debt and companies

controlled by him owe a further EUR1.3bn. But

he has committed to repay EUR400m in the next

12 months.

McKillen has also underlined his commitment to

the London luxury hotels he worked to improve,

telling the Irish Independent in December: “I’ve

no interest in selling out in the short term. The

proposed deal I have is for another 15 years. I

intend to stay involved with them for a long time.

There’s still a lot to be done.”

The Barclay brothers, meanwhile, were also

under the media spotlight in December as a

BBC investigative programme revealed their Ritz

hotel in London has paid no corporate taxes for

the last 17 years, despite being profitable. The

companies through which the hotel is managed

have used legal measures to avoid UK company

tax, something that other international brands

including Amazon and Starbucks have recently

been criticised for doing.

HA Perspective: January saw this saga take

another twist with McKillen launching a defamation

suit against representatives of the Barclays,

including Powerscourt Group and Maybourne

Finance, according to Irish press reports.

How far this phase goes remains to be seen but

what seems clear is that McKillen is determined to

fight for as long as he can.

What is also clear is the appetite for luxury

hotels in gateway cities like London. Despite

recent fears about over supply, the UK remains as

attractive as ever to hotel investors. Even if there

is a deterioration in trading in the short-term, it

is doubtful that this appetite for the best quality

assets will be diminished.

Maybourne refinancing truceDecember saw the completion of the refinancing of the Maybourne hotel group.

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisationwww.hotelanalyst.co.ukVolume 8 Issue 64

News

That is the positive outlook for domestic

markets, delivered in new year property predictions

from the UK offices of Jones Lang LaSalle Hotels.

The consultants say London will maintain its

status as a leading world market. While revpar

will dip, they do not expect the post-Olympic

hangover some have predicted. Elsewhere, while

the market will remain flat at a macro level,

there remain opportunities within each locality as

pricing reacts to reality. New product is continuing

to be delivered, forcing older, more tired hotels to

be permanently dropped from the stock.

“Overall, no one’s getting carried away, but

there’s reasonable grounds for optimism,”

summarised JLLH’s Jon Hubbard. London will

retain its position as an attractive investment

location, despite losing some ground on its

Olympic performance during 2012. “It’s a

long term wealth preservation play, and that

won’t change.”

While others have suggested London revpar

could dip by as much as 7% during 2013, Hubbard

is less negative: “I’m not sure it’s going to be at

that level, but there will be some softening.” He

sees the market remaining robust, with continuing

strong occupancy.

Overall UK investment transaction volumes in

the UK market look likely to amount to around

GBP1.8bn for the year, held back by delays in

completing major deals. “There are a few needle

mover transactions that are pending,” said

Hubbard, notably the Marriott portfolio, which

is widely expected to complete its sale during the

first quarter of 2013.

With UK GDP growth pencilled in at just 1% for

the upcoming 12 months, “we’ve another tough

year in the regions,” said Hubbard. “It’s probably

UKoutlookturnspositiveTheUKhotelmarketwillcontinueto thrive in the capital, while the regions should prepare themselves for a 2014 upturn.

The company has signed its first associate, the

Hotel du Palais in Biarritz, France.

Orient-Express will be seeking out other suitable

associate hotels to add to its portfolio, looking for

high quality independents that will plug gaps in its

current “collection”.

The move gives luxury European hotel managers

another alternative to signing up with marketing

groups such as Leading Hotels of the World. And

it follows on from a similar move by Marriott with

its growing Autograph collection, which draws

together independents under an umbrella brand

giving the properties access to the global giant’s

distribution and marketing muscle.

Last autumn saw Marriott sign hotels in Lisbon,

Portugal, Rouen and Lille in France to the programme

which now has close to 40 hotels globally.

For an associate, there is the benefit of being

tapped into the Orient-Express marketing

infrastructure, with marketing, sales and PR

support across 17 markets, and the global

reservations system. Associate hotels appear

within the company’s website, directly alongside

the company’s own properties. The new partners

can also join the company’s Bellini Club preferred

agent programme.

“The associate hotels programme is an

opportunity to enhance our portfolio of iconic

travel experiences by partnering with independently

owned and/or managed luxury hotels,” said David

Williams, chief marketing officer, Orient-Express.

“In return for providing access to our highly

valued international sales force and strategic

marketing channels, this initiative enables us

to curate new destinations for our guests to

discover. Our boutique collection is uniquely

positioned to work with like-minded hoteliers

who wish to preserve their established individual

brand reputation, but who share the vision of the

Orient-Express umbrella brand, offering an equal

standard of authentic experience, revenue return

and service as our owned properties.”

Tapping into the Orient-Express marketing

presence, not least on the internet, also provides

substantial global exposure for associates. “Hôtel

du Palais has been a landmark in Biarritz for 120

years, and we were looking for an opportunity to

increase our distribution without sacrificing our

iconic brand identity,” said Jean-Louis Leimbacher,

general manager of Hôtel du Palais. “In Orient-

Express we have found a partner with the mindset

of an owner-operator that really understands

how to preserve our individual personality and at

the same time grow our revenue with intelligent

marketing and distribution channels.”

Orient-Express management is insisting that

associates will be joining by invitation only. Each

associate hotel will need to have a strongly

established, iconic reputation, and be a market

leader within their local market. They will be

independently assessed for their high standards,

and have to be a complementary fit to the

existing Orient-Express portfolio of 45 hotels and

experiences, across 22 countries.

HA Perspective: The brand landscape for hotels

is becoming ever more confused. Quite what an

associate hotel is compared to a core brand hotel

is a nuance that is often lost on experienced hotel

professionals let alone members of the general public.

For example, this correspondent remembers

speaking to an adviser to a hotel owner seeking

to take on the Waldorf-Astoria brand who had

been given a long list of brand standards. This

adviser fumed at the fact that several hotels in

the same city had been given Waldorf Astoria

Collection status while falling short of many of

these brand standards. The significance of the

word “Collection” had been missed.

What OEH is selling is this same confusion. The

promise to the hotel associates is that the public

will believe that the hotel is indeed a proper Orient

Express hotel. The risk, though, is that in the

process OEH dilutes its brand by allowing others

to operate hotels where it has no direct control

and standards are not met. And like the adviser

seeking a Waldorf-Astoria, there is a risk of people

fuming at the discrepancy.

At the top end of the luxury segment, which

is where OEH likes to position itself, service is

everything and this is the very thing that is hardest

to police. For economy, perhaps even midmarket

hotels, the physical product plays a much bigger

role and leaves a little more room for a brand

owner to be hands off.

Through direct ownership, OEH has a model

where individual property profitability matters

more than brand distribution. An increasingly rare

approach in today’s asset light world. The new

approach cuts right across its previous philosophy

as OEH brings in more cash from its associate

model by signing as many hotels as possible.

Whether the fees from signing-up associates is

worth it to OEH remains to be seen. It will certainly

make it harder for OEH to argue that its properties

are somehow unique and different from all other

luxury hotels. Perhaps Taj should apply to join.

Orient-ExpressaddsassociatesHotelgroupOrient-Expresshaslaunched a new associate business model, designed to increase the spread of hotels available to guests under its brand umbrella.

continued on page 5


News

Choice on portfolio hunt

Having delivered a record year, there are no

bumps visible in the road ahead, said president

Steve Joyce.

“We executed effectively against our strategic

plans to drive reservations to choicehotels.com,

to grow our market share, to enhance our equity

brands’ performance to better meet the needs of

our guests, to grow and expand into upscale and

urban markets, to increase share of conversion

opportunities to grow distribution brands, and also

to expand internationally,” said Joyce.

Domestic revpar was up 6.2% on the year, with

473 new hotel contracts signed, a 42% increase

on 2011. Ebitda was up 10% to USD203.7m, For

2013, the company expects revpar to advance

between 4.5 and 5.5%.

Choice has moved aggressively to execute major

deals adding portfolio scale. In the US, it grabbed

a portfolio of 46 Jameson Inns; while in the UK,

a deal with independent hotel group Akkeron

converting 611 rooms to Choice brands is the start

of something bigger.

Joyce said the Akkeron deal would grow in scale:

“This agreement is expected to initially result in nine

Akkeron Hotels operating on Choice Hotels franchise

agreements in the UK, representing an almost 25%

increase in our UK hotel portfolio. With 34 properties

in the Akkeron system, we expect to be able to

convert many more as well. This agreement forms

a critical part of Choice Hotel’s growth strategy, to

offer financial support to boost development in key

international markets such as Europe.”

“We continue to be among the top converters

in the industry,” said Joyce. “Our brands, especially

Quality Inn and Econo Lodge continue to attract

strong interest from mid-scale and economy hotel

owners. This is due to them recognizing the value

that we add to their properties through our great

central reservation system and easy to use cloud

based property management system, as well

our complemented franchise services, including

opening an ongoing property support, training

and other programmes designed to maximize their

return on investment.”

The financial attraction of such deals for landlords

was outlined by CFO Dave White. “I would say that

it’s a little more modest than we’ve offered over the

past 12 months, but it does involve a royalty rate

discount and some level of rebate of initial fees. We

can do in the first two years anywhere from 100 to

200 basis points off of the effective royalty rate. On

the Jameson transaction, if you look at that revenue

stream, we are looking at that to be about $2.5

million a year of royalties in the first year.”

Joyce said 2012 delivered 300 conversions, and

30 new builds, and the coming year would provide

a similar mix, albeit at greater overall numbers.

“We view 2012 as a watershed year for us, a lot

of records for the company, a very positive trends

moving into 2013. We think we are working on

the right things to grow this company in a way

that’s appropriate but also exciting.”

HA Perspective: Choice has maintained system

growth during the recession by cutting fees

and swooping on the off casts of rivals such

InterContinental’s Holiday Inn.

The company has engaged in its own brand

housekeeping but has kept many of the properties

within its system by switching into other brands.

So, for example, 40% of the hotels debranded as

Comfort have stayed within the Choice system.

Choice has also benefited from the US

government small business loan initiative SBA and

from the EB-5 visa programme that allows non-

US citizens into the country provided they make a

certainly level of investment.

The company expects conversions to be the

main way it grows this year and probably next. It

anticipates that a renewed transaction market will

help create conversion opportunities.

During the conference call, CEO Joyce made a

point of highlighting the Akkeron deal as reported

above. But compared to the Jameson deal which

added 46 hotels in the US, Akkeron was small beer.

Obtaining scale in international markets is

Choice’s big challenge as it pursues overseas

growth. It is not easy to see what will stop the

domestic opportunities dominating in the years

ahead as they have done historically.

ChoiceHotelsislookingforwardto grabbing more conversion opportunities, to grow its brands both in the US and in Europe.

not enough to drive any top line growth.”

The consultants have called 2013 a “year of

reckoning” when banks must finally accept that

a bounce back in trading and investment interest

will not re-inflate eroded capital values, and save

their loans.

As a result, JLLH says hoteliers need to position

themselves for recovery, considering careful capital

expenditure and improving systems to ensure more

efficient marketing and channel management that

can ultimately reduce the level of commissions

paid to third party customer providers.

But within individual markets, Hubbard still

expects to see winners and losers, and with those

who have an eye on the horizon, improving market

conditions for 2014 and beyond make now a good

time to consider judicious investment. “There are

encouraging signs, and if you can buy into the

market at the right prices, it’s a good time to buy.”

The continuing supply of new, good quality

product into regional markets, with expansion from

chains such as Premier Inn, means that tired, under-

invested product also needs to leave the market.

Says the JLLH report: “There are large numbers

of hotels that simply need to be taken out of the

supply in many locations in the UK provinces,

preferably by demolition but in a limited number

of cases by refurbishment. In some locations

out-dated, under-invested hotels are dragging

down the market and restricting the ability for

developers to build viable new hotels to satisfy the

demand of the growing brands.”

Major brands are acting where they see a lack of

local representation, and they will demand new, or

well refurbished, stock; while their existing marketing

machines and loyalty programmes will help deliver

a baseline of customer demand, whatever the local

market supply level appears to show.

“It’s churn, and you’ve got to recognise that,”

said Hubbard. “It’s all about getting the product

right.” And an improved product mix will only

come about as lenders and landlords come to

realise the true value of the less attractive product

in the market. “Have the various stakeholders

appreciated the right market level?” he asked.

HA Perspective: The under demolished segment

of the UK hotel industry is often talked about but

it is hardly ever actually demolished. Hotels seem

to have an amazing longevity, lingering on despite

all forecasts of their demise.

With tired and under invested hotels refusing to

visit the equivalent of a Swiss clinic to put them out

of their misery, it remains a challenge for the bigger

hotel brands to distinguish themselves, particularly in

the full service midscale and upscale segments.

The brands might be calling for better quality

properties but they are unlikely to see much in

the way of new supply if existing demand is being

sated - albeit not very satisfactorily - with what

is already in the market. The pattern of tired and

under invested hotels being reincarnated each

cycle under new flags seems set to continue.



News

Revenues are also improving off the back of a

slew of recent openings in London, where room

rates are almost double those in the UK regions.

Speaking as he presented a positive trading

update for the group, chief executive Andy

Harrison said that there were plenty more

tricks in the company’s repertoire, as it seeks to

deliver an outperformance of 1% revpar growth

against competitors.

Dynamic pricing, which had promised a 1-2%

revpar improvement with a dual price option for

customers, is now in place across much of the

budget hotel chain. “We are still in the process

of rolling it out through our London estate,” said

Harrison. “We have two tier pricing in place in

London, but it’s not as highly automated as it is in

the UK regions.”

“Dynamic pricing really is a journey,” he added.

“The systems work on history, and the more

history that we build, the better we become at

forecasting. At the same time, we are making the

systems more sophisticated, so I still feel there’s

significant benefit from dynamic pricing.”

But, said Harrison, the real prize was from

greater digital intelligence. “The wider context

is the fairly dramatic shift of the business online.

We’ve now got really quite substantial amounts

of data available to us, for example we have web

conversion rates by region, which we can correlate

with local dynamic pricing decisions. We’ve got

web scraping of competitor pricing.

“So over time, we can connect up the data

to allow us to make better pricing decisions.

We are continuing to develop our customer

segmentation based on data-driven insights on

customer behaviour. So I think it’s important to

think of dynamic pricing within the context of this

movement to an online digital business, and we

are in the early stages of that.”

The most recent quarter (the 13 weeks to

29th November) saw revpar up 0.7% overall,

helped by a greater weight of London rooms

which now represent around 20% of sales,

compared with just over 17% a year ago. London

revpar was down 0.9% and occupancy was

fairly flat, while in the regions revpar was down

0.2%, with occupancy down 1.4% and average

room rate up 1.6%.

“We’re absolutely delighted with our London

performance,” said Harrison. “We’ve been able

to add 22% capacity with hardly a movement on

occupancy, and really not a massive movement

on rate.”

PremierInnpowersonWhitbreadexpectssmarteronlinemarketingtocontinuetogiveitsPremierInnbudgethotelsasalesedge over the coming months. And therecentroll-outofitsdynamicpricing model is just the start of aprocessoftakingthebusinessfurther online.

New brand managers, or chief operating officers,

were installed from January, with direct responsibility

for each of Accor’s main hotel brands.

The change will affect half of Accor’s total

estate, located in western and central Europe

and covers more than 210,000 rooms in almost

2,000 hotels. The marketing and management of

eight brands will be arranged individually, with the

promise of getting closer to both consumers and

hotel partners.

The aim is to improve the relevance of brands

to customers, improving brand strength and

coherence. For the almost 400 franchise owners,

there is the promise of a closer dialogue with

Accor teams, and the sharing of best practice to

help improve business performance.

“This organization structure will enable us

to develop first-rate specialists in each market

segment and rely on teams that are entirely focused

on their brands and have perfect knowledge of

both their customers and their competitors”, said

Yann Caillère, president and COO of worldwide

operations. “It is also essential to strengthen

our relations with our partners and at the same

time it will offer new development opportunities

to our employees.”

The new brand managers are all internal

appointees. Christophe Alaux, to date Accor’s

country manager in France, becomes COO of the

Mercure and MGallery brands. Jean-Paul Phillipon,

who since 2007 has been responsible for southern

Europe, has been appointed COO for Novotel and

Suites Novotel.

Christophe Vanswieten, who has managed

several country markets for Accor, becomes COO of

the upscale Pullman brand. And Peter Verhoeven,

who has been country manager for Germany since

2009, will become COO for the Ibis brands – Ibis,

Ibis styles and Ibis budget – across Europe.

Each of the brand managers will be provided

with a brand support team, comprising marketing,

human resources and covering management

control and technical standards. The brand

management will be further divided by regions,

covering Northern Europe, Southern Europe,

Central Europe and France, each of which will

have a regional senior vice president.

The company has also introduced a new focus

on employment equality, the Women at Accor

Generation (WAAG). Chaired by the group’s

chief financial Sophie Stabile, the initiative aims

to provide greater access for women employees,

to management positions and help the company

reach its gender equality initiatives.

“There are more female graduates than male

graduates, and yet women are under-represented

in corporate managerial positions,” said Stabile.

“We know that mixed teams are more innovative

and more efficient. WAAG aims to give women

confidence in their potential, to embolden

them, and to accompany them as they take

this approach.”

HA Perspective: This organisational move by

Accor makes sense given the strategic direction

being taken to focus on brands. But it is hard to

see what significant net benefit will be had.

Accor, like the other global majors, has a

substantial portfolio of brands and the challenge

for management is about keeping clear lines

of distinction between each of them as much

as providing a clear focus to enable growth

at each one.

While Accor’s brand portfolio is among the

least confused in that there is comparatively little

overlap, the lines do get blurry at the edges,

particularly for the conversion brands such as

Mercure and Ibis Styles.

Accor claims it is the first hotel company to

take this approach and it believes that its brands

will be “stronger and more coherent” as a result.

The challenge is making sure this strengthening

of the individual brands does not undermine the

strength and coherence of the group as a whole.

AccortakesbrandedrouteAccor has announced plans to place a greater focus on its brands, with a reorganisation of its European business along brand lines.

continued on page 7


News

Room rates in London average just under £80,

while in the regions the average is just over £40.

And thanks to a spate of recent openings in the

capital, the London region of the Premier Inn

estate represents 11% of the portfolio, up from

10% a year ago. The company remains on target

to add a total 4,500 new rooms to its portfolio

across the UK in 2012.

Analysts suggested that the weakness of rival

Travelodge must help the business. Harrison

responded: “Travelodge have got some really

quite fundamental financial issues that they are

trying to work through. We are seeing the gap

between our product and their product growing,

really because they haven’t been spending much

money on maintaining it. But it’s also worth just

emphasising that Whitbread is delivering record

guest scores.”

The group’s Costa coffee business appears

to also be benefitting in the UK from a

customer backlash against rival Starbucks,

which was recently lambasted for avoiding UK

corporate taxes.

Harrison said the company remained on target

to deliver to full-year expectations. “What we’ve

said for quite some while is that we would plan for

Premier Inn to outperform the market in terms of

revpar by a percentage point or two, based on the

strength of our brand, distribution, the customer

experience, what we offer the customer. Clearly

we’ve outperformed the midscale and economy

segments much more than that, and we are clearly

benefitting from Travelodge’s financial problems.

Having said that, I think we can probably assume it

is going to take them quite some time to improve

their business.”

“But over the medium term, we’re working

on the assumption that we’ll outperform the

market by a percentage point or two of revpar.”

Harrison promised a further update on the group’s

development milestones, with the forthcoming

end of year results.

HA Perspective: The slump in the London revpar

performance is perhaps surprising in a year when

the Olympics and the Diamond Jubilee were

expected to deliver sales dividends, particularly for

the tourist-friendly economy segment.

But the reality of such events is that the

displacement effect of people putting off

travel as a result of the events impacts more

than the additional travel under taken because

of the events.

Even so, the double digit (11.2% on STR

Global figures) decline in the wider midscale

and economy segments in the 13 weeks to 29th

November in London was surprising. Premier Inn

clearly came off much better than its rivals, no

doubt significantly helped by its new dynamic

pricing regime.


That’s the verdict of Jones Lang LaSalle Hotels

in their latest London hotel development focus.

London’s previous ability to absorb more supply,

while maintaining occupancy at around 80% will be

tested in the face of few growth drivers for demand.

Supply is continuing to grow, with 4% adding

to room stock this year, and 3% more scheduled

to come on stream in 2014. During 2013, 31 new

hotels are expected to open, adding 4,600 rooms.

“The London hotel market has shown impressive

resilience in recent years with occupancy stable

at around 80%,” said JLLH managing director

Graham Craggs.

“Both domestic and international hotel operators

have been expanding their presence in this core

market, causing supply to increase substantially.

“In our analysis, however, we had found no clear

evidence that a strong supply increase in the city

has had a materially negative impact on the trading

performance of existing hotels. This was even the

case in the City of London and Southwark, where

supply growth has been the highest.”

“With room night demand growth likely to be

limited over the next year, we believe that this

further growth in hotel supply could result in

more challenging market conditions for hoteliers

in the short term. With hotel demand slowing in

2013 due to the absence of major events such

as the Olympics and a sluggish UK and European

economy, we believe that additional supply will

increase the likelihood of a potential flattening or

even a decline in revpar.”

Much of the development activity in the capital

over previous years has been in the budget and

four star sector, which accounted for 71% of

rooms delivered between 2005 and 2012.

Travelodge added more than 4,500 rooms

during that time, with Premier Inn – which has

subsequently targeted London for growth –

adding just over 2,500. Carlson Rezidor also

added more than 2,000 Park Inn and Radisson Blu

rooms across the London area.

At the high end, Melia has recently opened its

first ME in London, and IHG has added a second

InterContinental, in Westminster.

One major shift in recent years has been the

emergence of hotels in the City, the capital’s

financial district. Previously off limits to all but

office developments, the area now boasts growing

retail and residential uses, as well as an influx of

2,900 hotel rooms.

“Revpar in Greater London has seen a strong

growth from 2005 and 2011, posting a cumulative

annual average growth rate of 7.3%, however; this

was primarily driven by a strong rise in room rates

whereas occupancy only increased marginally over

the period,” notes the report. “At the same time,

visitor arrivals, bed nights and airport arrivals (all

London airports) have only shown nominal growth

against a backdrop of greater annual percentage

increase in supply.”

The next two years will see hotels with

unrefurbished facilities suffering most, as properties

compare badly with newly opened stock, say JLLH.

“We have already witnessed this in some areas,

for example in the luxury segment in the area of

Westminster where newly opened/re-opened hotels

have demonstrated strong performance relative to

existing unrefurbished product.”

HA Perspective: Simply looking at supply

numbers without drilling down to the detail of

location and segment can give a distorted view

of a market. London has a shortage of economy

segment hotel rooms so a big increase in supply

should not have the adverse impact that say a rush

of luxury rooms might have.

And here is a puzzle. London has had a rush of

luxury hotel rooms coming online. Leaving aside the

nonsense of big events, what will drive demand at

the top end are business travellers. And here London

may yet again outperform expectations.

US businesses have again got the travel bug and

London is widely used as the entry point to Europe

which, for all the talk of emerging markets,

remains the dominant trading partner of the US.

Whether this is enough to counteract the

ongoing weakness in Europe’s economy remains

to be seen.

London wobblesLondon’shotelmarketisthreatenedwithapost-Olympichangover,asroom supply through the next two yearsislikelytodamageoccupancyand revpar in the short term.


News

While London’s attraction as a safe haven for

funds means hotels in the British capital remain

strongly in demand – with prices staying high as

a result – the provinces and regions rarely see an

overseas investor.

Constrained availability of bank lending meant

investment activity was down in 2012, with overall

volumes in the UK reduced by 20% over the

previous year, at just GBP1.8bn.

But prices in London are staying strong, buoyed

by demand from a wide range of international

investors. And despite the challenges of funding,

the UK market remains Europe’s most active and

liquid hotel investment market.

International interest means just 53% of London

four and five star hotels are in domestic ownership.

Asian investors account for 18% of the stock,

while Europeans hold 12% and Middle Eastern

investors 7%. Splitting out owner type, almost half

of the London higher end market is owned by hotel

operators, while high net worth individuals hold

19% and property companies 18%.

“In the regional UK, we have witnessed a

wholly different picture as hoteliers continue to

suffer under weak economic growth, rising costs

and fragile corporate demand,” says the report.

“Receivership sales have increased across the

regional UK and a number of hotels that have

been taken into administration are currently being

offered for sale. It is very likely that some of these

properties will sell at big discounts to the original

investment levels.”

Outside London, the UK provincial market is

dominated by domestic owners, who hold 79% of

the four and five star bed stock, say JLLH. Global

investors hold just 9% while other European

investors own merely 6% and Asian investors 4%.

Reviewing the type of owner, around one third

of the stock is owned by hotel operators, with

investment funds and private equity holding 21%,

and institutional investors 16%. This latter figure

includes banks, some of whom have become

involuntary hotel owners due to business collapse,

and JLLH expects sales during 2013 as they divest

themselves of these properties.

Looking forward, JLLH says there is no reason

why London will not remain one of the top

performing hotel markets in Europe. For a

range of reasons, not always directly to do with

performance but more about capital preservation,

the market will continue to attract attention. And

despite the pre-Olympic rush to open new hotels,

a development pipeline continues to deliver. Says

the report: “If all planned hotel developments are

realised, hotel supply in London will increase by

4% and 3% in 2013 and 2014 respectively.”

There will be a short term decline, however,

in absolute performance as revenues in 2013 fail

to match those from the Olympic hosting year of

2012. No major events are planned, though it is

expected that tourist visitor numbers into London

will continue to rise:

“Occupancy is likely to weaken somewhat

although hoteliers will be keen to maintain ADR

levels as much as possible. The outlook for hotel

performance from 2014 is likely to be more

promising with hotels expected to benefit from an

improvement in economic conditions and further

strengthening in foreign travel, in particular from

developing and emerging economies such as

China and Brazil.”

And it’s not all bad news for provincial markets

in the UK, so long as pricing is realistic. Says

the research paper: “The regional UK will offer

UKmarketintwodistincthalvesThe contrasting fortunes of hotel properties in the British capital, and its hinterland, are laid bare inJonesLangLaSalleHotels’latestHotelIntelligencereportsontheUKmarkets.

The group also managed to add 56,000 members

to its loyalty club, representing a 56% increase

on the year before with an 18% improvement

in membership activations, and 38% growth in

club revenue. SLH now numbers 190,000 club

members, who are delivering 22% of bookings.

During the year, SLH added 63 new hotels and

now represents a portfolio of 529 hotels. Additions

included 13 hotels in the Americas, 17 in Asia

Pacific and 33 in EMEA. New destinations coming

under the SLH umbrella include the Galapagos,

Japan and Nicaragua.

“It’s extraordinary that after over 20 years in

the business we’re still managing to exceed the

work we’ve done the year before, especially when

you consider the current economic climate,” said

Paul Kerr, CEO of SLH. “The secret to our success

is choice. With over 520 hotels in more than 70

countries, and multiple means of booking, we give

the customer the freedom to choose how, where,

when and why.”

“Our club is also a big part of the reason we

have so much to celebrate – this year our club

has accounted for 22% of our bookings, which is

significant compared to last year.” For the current

year, SLH has targeted growth of 50% in club

members advancing to the top of its three tiers

of membership. “This may seem like a lofty goal,”

said Kerr, “but with such a great product we’re

confident it’s achievable.”

SLH also released figures providing an insight

into the growing importance of online visibility

across multiple platforms. The group website,

which lists member hotels by country, received

close to four million visits during 2012, a 19%

increase on the previous year. Reservations booked

through the site rose 26% while the site increased

its share of bookings by 15% against 2011.

Tablet and smartphone statistics also echo the

experience of others in the industry. SLH saw iPad

visits rise 167% to nearly 500,000 while iPhone

visits climbed 132%.

HA Perspective: How has SLH managed to do

so well? One way is to present the numbers in a

favourable light - the net additions to the network

are just three. Even with this reality check, the

revenue growth is still impressive given the

current climate.

But the total revenues are still small compared

to the likes of InterContinental where annual

system revenues are USD20bn plus. Given these

much smaller revenues than the global majors,

SLH should be being squeezed as it lacks the

resources to pump into marketing and advertising.

Somehow, though, SLH is connecting to owners

and guests, giving sufficient value to both groups

without the big spending of the majors. It is only

when the majors start to squeeze groups like SLH

that they will be able to claim that their brand

infrastructure gives them a competitive edge.

Right now, the likes of SLH appear to be making

the running.

SLHbreaksrecordsHotelmarketinggroupSmallLuxuryHotelsoftheWorldhasdeclared 2012 its best year to date. Initstwentyfirstyear,theaffiliateorganisation delivered a 10% increase inroomnightsbooked,to341,000.The added volume translated into USD119m of revenues, a 9% increase on the previous year.

continued on page 9


News

IHG now has 83% of its global pipeline in Asia,

and the company is looking to its upscale brands

to accelerate the business in the region.

Simon Scoot, vice president of global brand

marketing for the InterContinental brand, is moving

to Bangkok from the company’s UK office. He will

be joined by Phil Broad, who has been appointed

vice president for food and beverage, across Asia,

Middle East and Africa (AMEA). Food and beverage

is a more integral part of the IHG offering in the

region, compared with other mature markets,

accounting for up to 40% of revenue.

Both will report to the regional CEO Jan

Smits. “Managing a historic, global brand out

of Asia will enable us to continue elevating the

InterContinental brand globally, but in a way that

is also best suited to the growth opportunities in

this region,” said Smits.

“This is not just a first for us, but for the industry

and I am confident that Simon’s expertise in luxury

travel, operations and brand management will give

us a fresh winning edge in the upscale segment.

I am equally excited to have Phil on board and

am looking forward to the changes he will make

in how we develop and conceptualise brand-

defining F&B experiences across our region.”

Broad joins IHG having run his own business

in the UK, and advised numerous brands. Most

recently he has been managing director of

Jumeirah Restaurants, the food and beverage

operation of the Jumeirah group.

Currently, IHG’s portfolio across AMEA extends

to 227 hotels, with a further 115 in the pipeline. In

Greater China, the company has 181 hotels with a

further 160 to come. IHG’s Indigo brand will launch

shortly in the region, joining InterContinental,

Crowne Plaza, Holiday Inn, Holiday Inn Express

and Staybridge. The company is also signing

partners for its dedicated Hualuxe brand in China,

following the brand launch earlier in 2012.

HA Perspective: The difference between Asia and

hotels in either Europe or North America is summed

up neatly in the statistic that up to 40% of revenues

in Asian hotels come from food and beverage.

In the West, f&b is seen more as a cost centre

than a profit centre, as something hotels have to

offer to stay in business. The status of f&b has

been in decline for many years thanks in particular

to its lower margins when compared to the

beds business.

The Asian approach, which has f&b as the

cornerstone to a hotel’s success, requires a different

mindset from hotel managers. It is tweaking areas

like this in operations which will determine the

success or otherwise of particular brands. Much

less important is creating Asia specific brands.

IHGunderlinesAsiafocusInterContinentalhasmade two new senior appointments to its Asia team, underlining the growing focus of the group’s activities in the region.

possibilities especially for more opportunistic

investors that are willing to accept a higher risk.

There is also a sound interest in hotel assets in

comparatively stable locations with year-round

leisure demand, a healthy commercial base and

high barriers to entry, such as Oxford, Cambridge,

Bath and Edinburgh. Whilst regional UK faces

continued short-term operating challenges, the

potential trading recovery as the economy picks

up and corporate and conference demand returns

is attracting strong investor interest for correctly

priced assets.”

HA Perspective: There is a sharp contrast in tone

between what JLLH is saying on this side of the

Atlantic and on the other. In the US, it is talking

about the re-emergence of commercial mortgage

backed securities as a source of hotel financing

and private equity stepping forward as the big

buyers this year.

In the US, JLLH is anticipates that the “great

deleveraging” will start this year with the

USD19bn worth of existing hotel CMBS being

repaid at a faster pace.

Hotel CMBS never really took off in Europe

during the boom and there is little sign of it now.

Unfortunately more conventional debt seems as

hard as ever to come across and has been fingered

by JLLH as a cause of the lack of transactions. This

dearth of debt means 2013 is not likely to see that

many more deals than 2012 even if receiverships

wend their way to market.

The consultants, who handle a substantial

volume of hotel and leisure property sales in the

UK hotel market, say an innovative approach is

key to managing businesses successfully in a tight

market. Those hotels that keep doing the same as

before could well find business falling away. Banks

will step in to take control of such businesses, the

report predicts.

Realistic pricing and renewed investor enthusiasm

helped lift transaction activity during 2012, and this

is set to continue. Buyers will be able to purchase

operationally sound businesses, Christie + Co

predict, as overleveraging forces them to be sold.

Investors and opportunity funds are already taking

a closer look at the market, “as evidenced by their

willingness to pay for sector intelligence,” says the

report. While debt will become easier to find, it will

remain relatively expensive.

The report suggests hotel values in the UK

market are now highly attractive. “Investors and

lenders are finally starting to wake up to the fact

that hotel values are at, or at least close to, the

bottom of the curve.” Banks are prepared to lend

judiciously into the sector, and are now more likely

to consider refinancing debt secured against hotels.

A number of large portfolio sales are promised

to complete during early 2013, adding to the

buoyancy in the hotel investment marketplace.

Christie recorded an 18.4% rise in their

transactions during 2012, with notable deals

including the sale of three De Vere hotels, the

marketing of a portfolio of Travelodges, and the

disposal of the last of the Von Essen portfolio.

HA Perspective: One of the most interesting

tables in Christie + Co’s Business Outlook is the

one detailing the movement in average prices for

hotels. This index does not make pretty reading.

For the last five years its shows decline (in 2010

there was 0.1% growth but this barely counts).

The worst declines were in 2008 and 2009

with drops of 18.4% and 19.5% respectively.

The last couple of years, 2011 and 2012, have

been better but still show declines of 5.1% and

3.1% respectively.

Transaction volumes rose last year but off a low

base level. The same modest rise can probably be

anticipated this year, despite claims that prices are

now being set at realistic levels.

While buyers no longer fear catching a falling

knife, there is still no major catalyst to make them

rush out to buy. We may indeed have hit the floor

as Christie claim but it is not a motivation to buy

if the outlook remains one of bumping along

the bottom.

Innovationthekey,saysChristieInnovationsinproductandmarketingduring2013willhelp set winning hotels apart, while those who fail to adapt could become high profile casualties. That’s the warning from agent Christie + Co in their latestBusinessOutlookreport.



News

In mid and upscale hotels, the Latin American

portfolio led with a 5.0% rise in revenues as room

rates eased up. Europe delivered a healthy 1.3%

rise, with Asia trailing at 1.0%.

But Accor’s large exposure to the budget end

of the constrained European markets showed

through in the figures for its economy hotels.

Europe remained in positive territory with a

0.8% rise in revenues, albeit against far better

comparables elsewhere; Latin America was

up 7.4% while Asia Pacific performance was

4.1% improved.

Southern Europe, however, continues to

decline. Fourth quarter economy sector like for like

revpar in Spain fell 11.8%, and in the period since

the year end has fallen a further 12.4%. While the

latter figure covers a seasonally quieter period, it

is notable that the next weakest European market

during the current period was the Netherlands,

with a 4.9% decline.

However, the red ink being spilt in Spain has

not put Accor off its declared targets for the year,

which will deliver an ebit of between EUR510m

and EUR530m. A roll out of a refreshed Ibis

family of brands has seen the company continue

to invest in its economy sector portfolio. Strong

growth continues, with a focus on emerging

markets in Asia and Latin America, while disposals

continue to move the company towards a more

asset light structure.

HA Perspective: Pain in Spain has been such

a cliche that it hurts to type it out. But it is an

ongoing reality.

The International Monetary Fund in January

forecast GDP growth this year at a negative 1.5%.

This is fractionally worse than the 1.4% slump it

expects was the case in 2012.

Thanks to the Arab Spring, the Costas have

performed remarkably well. This has left the

cities showing the weakest numbers with even

the economy hotel segment, which given its

comparatively undeveloped state many expected

to be the most resilient, exposed.

Most worrying is that the performance declines

are continuing to accelerate. While Northern

Europe does at last seem to have bottomed out, the

South looks like it has significantly further to fall.

Spanish troubles fail to deflect AccorAccor’s European hotels continued to deliver positive performances through the last quarter, despite weaknessintheSpanishmarket.All segments saw growth, with an overallincreaseinlikeforlikerevparof 2.5% in the quarter. Management and franchise fees grew strongly, as the ongoing transformation in Accor’s ownership model start to feed through into results.

The conversions will see Ramada branded

hotels in Bury St Edmunds, Colchester, Kings

Lynn and Peterborough, and a Forestdale hotel

in Bristol, change over to the Quality brand. And

the Ramada Stevenage, along with Forestdales

in Darlington, Ringwood and Winchester will

become Clarion hotels.

While terms have not been revealed, Akkeron’s

Nick Greaves said of the agreement: “It’s a very

long term commitment from both sides.” The

arrangement is expected to grow, as Akkeron

continues with a rapid expansion in the UK market.

“It was clear from us that we wanted to position

the hotels better,” said Greaves. “We’ve spent a

good two years looking at a number of brands.”

“We are delighted to have entered into this

relationship with Akkeron,” said Duncan Berry,

the UK CEO for Choice Hotels Europe. “Akkeron

is a strong hotel operator and an ideal company

for Choice to work with and grow its presence

in the UK. The agreement initially will focus on

rebranding nine hotels with the opportunity

to discuss rebranding further Akkeron hotels

in the future.”

Akkeron was founded in 2008 by former

Citigroup head of lodging and real estate

investment James Brent with the takeover of

Folio Hotels. In late 2010 it paid more than

GBP40m to acquire Forestdale Hotels, and

bought Birmingham-based Butterfly Hotels out of

administration in 2011.

Currently the company has a turnover of around

GBP62m from a portfolio of 34 three and four star

hotels across the UK. To date it has operated six as

Ramada, two as Best Western and the separately

branded Forestdale portfolio numbering 18 hotels,

mainly in southern England. The remainder run as

independents, while Akkeron also lists hotels in

Birmingham, Coventry and Chester as associates.

The company’s target is to build a portfolio of 150

hotels across the UK, across a mix of tenures.

Akkeron managing director Matthew Welbourn

added: “Our relationship with Choice is about

developing a long term strategy of increasing UK

market share for both companies. It is clear that

Choice is prepared to invest in the UK market in

terms of brand and distribution. Alongside the

change in brand comes a significant investment

into the nine hotels to reposition those businesses

along with the conversion to the Clarion Collection

and Quality brands.”

While Choice has around 6,200 hotels

franchised, its dominant market is the US. In

Europe, the company has less than 500 franchised

hotels under its soft four to five star Clarion

brand; three star Quality and two to three star

Comfort Inn. For owners and operators, Choice

offers strong marketing and distribution, and

its proprietary property management system.

The company’s loyalty programme also has 16.5

million members globally.

“This agreement underscores the fact that

Europe is a key focus of growth for Choice, and

in order to substantially increase the size of the

portfolio we have made significant investments

in technology in the European marketplace,” said

Mark Pearce, senior vice president, Choice Hotels

International.

“This includes introducing choiceADVANTAGE,

our cloud-based hotel property management

system in the UK and Europe, which provides

our franchisees with a fully integrated solution

to manage guest interaction from the moment a

reservation is made through check-out and even

after the stay.”

ChoicelinkswithAkkeronChoiceHotelshastakenamajorstepforwardintheUKmarket,signingadealwithAkkeronhotelsthat will grow the presence of its brands by almost 25% immediately. TheagreementwillseeAkkeronrebrand nine hotels around the country, adding 611 rooms under Choice’s Quality and Clarion brands with the promise that the joint venturewilllooktoconvertmore in the future.

continued on page 11


News

HA Perspective: It is much more interesting what

is not said about this deal than what has been

said. When contacted by Hotel Analyst, Akkeron

wanted to remain tight-lipped about the details.

In the lead up to the collapse of the Real Hotel

Company in 2009, Choice lost first its master

franchisee for Western Europe and then its master

franchisee for the UK. This deal then, looked at

over the past five years, is a case of two steps back

and one step forward.

And even then, how much of a step forward

is it? Akkeron supremo James Brent, even though

his head is currently diverted by Plymouth Argyle

soccer club, will look to realise his investment at

some point. Does he believe best value can be

realised with the assets encumbered with Choice

flags or has he inserted a break clause?

He is certainly likely to have applied the thumb

screws to Choice when it comes to fees. While

Choice offers brand standards, a distribution

system and loyalty scheme, it does not have the

same level of system delivery as market leaders in

the UK such as Accor, InterContinental, Marriott

or Hilton can offer. And this would have come into

play during negotiations.

It will be a tough game for Choice to advance

in the UK and the rest of Europe. The master

franchise concept has delivered in Scandinavia

where it is the region’s largest hotelier with

170 properties. But it failed in the UK and

Western Europe.

The new approach of signing-up hotels directly

looks like a sounder method of building the

business but it is long, laborious and expensive.

The European branded hotel marketplace is

hugely fragmented and a knock-out competition

is long overdue. Choice has to grow significantly

more if it wants to stay in the competition.


The disposal is a further step in Starwood’s

unpicking of its 2005 purchase of the Societe du

Louvre portfolio, which brought with it Europe’s

second largest hotel group, Louvre.

The Martinez in Cannes, Palais de la

Mediterranee in Nice and Paris properties the

Hotel du Louvre and Concorde Lafayette were sold

as a single package to Qatar Holding. According

to French newspaper Les Echos, the winning

bidders beat Accor, who pitched in partnership

with property company Unibail-Rodamco.

Concurrently with the sale, Starwood

announced the first openings for its new, boutique

hotel brands Baccarat and 1Hotel. Five openings

have been promised within the next 24 months, in

Morocco, Florida and New York.

Hyatt has announced it will convert the 1,700

room Louvre purchase to its brands from April,

and give each a makeover. The Martinez will

become a Grand Hyatt, while the Concorde

Lafayette and Nice properties convert to Hyatt

Regency. The Louvre hotel will remain under its

own name for the immediate future, before being

refurbished and relaunched under the company’s

Andaz banner.

The deal will more than double Hyatt’s presence

in France at a stroke. Peter Norman, senior vice

president, real estate and development, EAME

for Hyatt, said: “There is significant demand for

our brands in Europe, and we are delighted to

expand our representation in these high-barrier-

to-entry markets with a single transaction. These

destinations have consistently high demand –

which gives us a fantastic opportunity to increase

awareness of all Hyatt has to offer.”

“Completing the sale of a majority of our luxury

hotel assets marks an important milestone in the

ongoing monetization of the Groupe Du Louvre

portfolio,” said Barry Sternlicht, Chairman and

CEO of Starwood Capital Group. The company is

retaining the core of Louvre, which today operates

more than 1,090 hotels across brands Première

Classe, Campanile, Kyriad and Golden Tulip.

“We have sold more than USD3bn in assets

since closing, and will continue to maximize the

value of our remaining assets to generate attractive

returns for our investor partners. In the coming

years, we expect to continue our expansion and

renovation of our Louvre Hotels Group portfolio

and to support the growth of Baccarat into new

geographies, with a focus on Asia, expanding its

presence in the hotel and residential arena.”

Flagship for the Baccarat brand will be the

Baccarat Hotel & Residences on 53rd Street, New

York. The 50-storey block will have 114 rooms,

and a further 61 residences ranging in size from

one to five bedrooms. Sales of the residences

will begin this March, with a 2014 completion

planned. The second Baccarat will be opening

in Rabat, Morocco while further locations are

promised in the Middle East and Asia, including

Dubai and Marrakesh.

1Hotels, which sets out its stall as “the first

ground-up luxury eco-design and living hotel

concept”, will launch with a Central Park hotel

in New York and South Beach, Florida hotel and

residences opening in early 2014; the latter will

have 417 hotel rooms, and 167 residences with

one to four bedrooms, and is being created

with a major refit of an existing 1970s building.

These will be followed by a second New York

hotel, at Brooklyn Bridge, opening a year later.

The first international location for 1Hotel will

be in Marrakesh.

“What was once just an idea will soon be a

reality,” said Sternlicht. “With two revolutionary

hotel brands entering the marketplace and five

hotel openings in the next two years, we are

confident that Baccarat and 1Hotels will place

Starwood Capital Group at the very forefront of

the dynamic hospitality industry.”

Starwood originally planned to sell a portfolio of

nine of the Louvre luxury hotels to Middle Eastern

buyer JJW Hotels & Resorts. But the deal fell apart

in 2009 amid claim and counter claim relating

to funding of the USD2.1bn deal. Since then,

the hotels have been marketed on an individual

basis, with earlier sales from the Louvre portfolio

including the Lutetia, which Israeli investor Alrov

paid EUR150m for in 2010; the Hotel de Crillon,

sold for EUR250m to Saudi investors; and the

Concorde Montparnasse, which was bought by

hotelier Didier Ferre in 2011 for EUR87m.

HA Perspective: Starwood Capital’s acquisition

of Societe du Louvre and the champagne maker

Groupe Taittinger for EUR2.1bn back in 2005

looks to be at last paying off. The hold period

is no doubt longer than preferred and this will

impact the returns but compared to some of the

transactions struck in the years following it looks

a smart deal.

What the deal also highlights is the contradiction

between being an opportunistic real estate

player and an investor in a brand and operating

company. As Starwood Capital seeks to build up

its own luxury brands, it appears ironic that it is

simultaneously selling out some of the most iconic

hotels in Europe, handing rival Hyatt an important

leg-up in its own ambitions.

Starwood Capital moves on luxury hotelsStarwood Capital has sold four landmarkFrenchhotelsinadealworth an estimated EUR700m. The hotels,boughtbyQatarHoldingthrough its vehicle Constellation Hotels,aretoberefurbishedandconvertedtoHyattbrands.


News


Every one of the group’s owned hotels is

potentially up for sale at the right price, senior

executives confirmed, as they announced a solid

set of 2012 figures that matched the lower end

of predictions.

Worldwide revpar was up 4.1% in the fourth

quarter, giving a full year figure of 5%. Net income

for the year increased to USD562m, compared

with USD489m for 2011. Fritz van Paasschen, who

admitted he had opened the year with the promise

that 2012 had the potential to surprise on the

upside, had seen a more moderate year with a result

that “was at the low end of our baseline range”.

Speaking of the potential to accelerate property

sales, Starwood’s CFO Vasant Prabhu commented:

“We do believe that we are entering a window of

opportunity here, where there is more liquidity in

the asset market. There is certainly more money

coming in that is willing to offer debt in terms of

structured deals in the US. The biggest buyers we

think will remain the public Reits. And there is a

significant amount of money from the ME and

Asia and, for certain assets, from Latin America.”

“So we are certainly keen to step up the pace of

asset sales. We will be in the market very actively,

all the indications are that it will be a more robust

asset sale market this year, than it was last year.

Our goal is to move as fast as we can down the

track to finishing our asset sale programme.”

Chief executive Fritz van Paasschen said the

company had sold 10 properties through last year,

yielding USD580m. The company had taken a

“rifle shot” approach to sales, identifying buyers

for specific single assets. “I would say that the one

distinction even today with a pick-up in asset sales

- and what was at play before the crisis - is we

still haven’t seen the really frothy multiple property

volumes picking up.”

Everything was potentially up for sale, even

owned properties delivering the best returns in the

portfolio. “If we see demand for particular assets

in markets, we would be sellers. Our goal is to be

an asset light company, and to that end, there

isn’t a property on our list that we would deem

as unsellable.” Van Paasschen said that while

Starwood senior management did not currently

see the spinning off of a Reit as an attractive way

to clear the portfolio, “never say never” and the

idea remained under review.

Van Paasschen made much of a new loyalty

programme link with Delta airlines, announced at

the beginning of February. The Crossover Rewards

tie-up allows customers to transfer benefits from

flying into hotels, and will commence in March.

“In one bold stroke, we’ve made both loyalty

programmes more attractive,” he said. “Getting

more business from existing loyal customers is a

high return marketing spend.”

Several economic factors had put the brakes

on the potential upside during 2012, he said.

Uncertainty in China, due to the administration

change, was now past, as were worries about the

settling of the US fiscal cliff. In the US, occupancies

remain at high levels, and the market is performing

solidly. “Europe remained at a stalemate during

2012, and we’re not expecting much difference

in 2013.” For 2013, van Paasschen said his team

were predicting 5-7% revpar growth. “One month

into the year, the early signs point to the upside,

but it’s early days.”

There was disappointment, too in another key

emerging market: “Latin America is behaving more

like a collection of countries than a region. Mexico

is rebounding; Chile is strong. But Argentina and

Uruguay are down. Excluding those two countries,

the region would have been up 8.5%.”

The year saw Starwood reduce its debt by

USD900m, and issue fresh debt with bonds priced

at 3.125%, “what we believe to be the lowest

rate ever by a U.S. lodging company for publicly

traded 10-year notes.”

A conservative approach would hold a good

cash balance going forward. There might be the

potential for an acquisition, if something suitable

appeared, or for increasing dividends, said Prabhu.

“We have no plans to pay down any more debt.

We will continue to generate cash, as we continue

our transition to asset light over the next three years.”

StarwoodlookstoincreaseassetsalesStarwood is planning to increase its asset sales programme, in the face of increasing investor interest, andaneasingdebtmarket.

The deal saw Al Faisal buy the Grand Hyatt

and Maritim hotels in the German city, through

its hospitality subsidiary Al Rayyan Tourism &

Investment (ARTIC), for an undisclosed sum.

The buys adds to a growing portfolio that last

year bought the Radisson Blu Aqua in Chicago,

and aims to gather further assets “in prime cities

around the world”.

The seller was SEB Asset Management, the

property investment arm of the Swedish bank

which had been holding the hotels in its open-

ended SEB Immoinvest fund.

The Grand Hyatt is a modern, 342 room hotel

designed by Spanish architect Jose Rafael Moneo,

centrally located opposite the city’s philharmonic

concert hall. The Maritim, which opened in 2005

in a 1930s art deco style, is larger still with 505

rooms and a MICE capacity of 5,500.

“We are delighted with the acquisition of

the Grand Hyatt Hotel and the Maritim Hotel in

Berlin,” said sheikh Faisal Bin Qassim Al Thani,

chairman of Al Faisal Holding. “These two iconic

hotels with their unique architectural qualities

and prime, city centre locations reflect our clear

investment focus on high quality assets and bring

us a step closer to our target. We will continue to

build our portfolio locally and internationally and

I look forward to further expansion all around the

world over the coming years.”

ARTIC currently has a portfolio of 25 hotels

complete or under construction, including many

with major brands including Hilton and Marriott

over the door. Its opened estate includes four

hotels in Qatar, three in Egypt, the W hotel in

London and Radisson Blu Aqua in Chicago. The

pipeline includes six more Qatari hotels and three

in Algeria.

News of the deal came hard on the heels of

the announcement of the EUR700m sale of the

French Louvre luxury hotel portfolio, to a Qatari

investment group.

HA Perspective: Middle Eastern money likes

hotels. The security and kudos of a luxury hotel

in a gateway city usually counts for more than

the modest returns such an investment is likely

to generate.

There has been some interest in more modest

hotel investments, such as Travelodge, but it is

hard to see these investors going too far from their

existing stomping grounds.

The really transformational capital looks most

likely to come from the US, with opportunity

funds and REITs looking to seize bargains in more

unloved segments.

Qataris swoop on Berlin duoQatariinvestorAlFaisalHoldinghas purchased two Berlin hotels, in the latest example of Qatari capital coming into European hotel real estate.


News


Following the success of last year’s trip to

China, the Starwood senior team is next planning

a month’s stay in Dubai – after New York, the

city with the most Starwood hotels. Such trips

provided valuable feedback from other cultures,

and positively colour the way Starwood does

business, said van Paasschen.

HA Perspective: Starwood talks up the growth

potential of the hotel industry but it still returned

more cash to shareholders than it invested in

growing its business. It is a strange contradiction.

During the year, the company generated

USD800m in operating cash flow before capex;

USD460m from apartment sales at Bal Harbour;

and over USD500m from asset sales. A total of

over USD1.76bn.

But just USD370m was redeployed into the

business, either as capex or as investment to grow

the pipeline. USD900m of debt was paid down

and USD560m was handed back to shareholders.

Of course, Starwood is not alone in this and

invests as much (or as little) as its rivals. The

question that now arises with economic recovery

now gathering pace is how much more of its own

capital will Starwood be prepared to deploy?

It is undoubtedly correct that Starwood should

be focusing on building its brand and operating

business which means it should not be expected

to significantly step up its investment in real estate

(in fact, the reverse). But now is surely the time

to use its balance sheet muscle to acquire more

brand or operating companies and if not, what

message does it send to its hotel owners that it

believes the best use of its money is to hand it

back to shareholders.

The fallout from lease exit deals agreed during

the last few months was evident in Rezidor’s 2012

results, which saw the company declare a loss.

But alongside the EUR9.4m of termination costs

were further write-downs, related to further lease

exits that appear to be in the pipeline. And there

was more red ink, with write-downs of deferred

tax assets relating to hotel contracts in the UK.

The termination costs related to the conversion

of two lease agreements to franchise agreements

in Sweden, and the exit from seven leases in

France, announced previously. Together these

should add around 0.5% to the ebitda margin

going forward.

Write-downs are analysed on a quarterly

basis, relating to specific contracts, and can be

written up as well as down, noted chief financial

officer Knut Kleiven. “Why did they come to

so much in this quarter? It’s not to say that the

outlook has turned worse, but we have probably

taken a little bit more conservative assessment

of the situation.”

“This helps us to create a platform for further

exits of loss making contracts,” added Kleiven.

Pressed about what such properties might be,

he responded:“We cannot be very specific on

that, we will only announce those when we have

closed a deal with someone. What I can say is that

I would be very disappointed if, at the end of the

year, we haven’t at least announced something in

that direction.”

Among those “conservative” items was a

provision for future losses on one contract in

Germany : “We had the same thing earlier in the

year, for the same contract”, said Kleiven. There

was also a write-down of assets where the cash

flow expectation on leases looks as though it may

fall short – notably on hotels in Benelux and the

UK. “This is something we do, to prepare ourselves

for exits from unprofitable hotels.”

“Would we expect more of this to come? Well,

we should expect that this should be less of an

issue going forward.”

There was also news of progress with Rezidor’s

Park Inn brand. “Park Inn in the past has

underperformed, we have put a lot of effort on

that brand, and see now the traction. We also see

the recognition of the brand increasing, said chief

executive Wolfgang Neumann.

“Park Inn continues to be the most improved

brand in the mid market sector,” according to

independent research. “We can capture additional

market share. This is particularly important in the

UK but also in Germany. There the progress is

above our expectations, and we’re now getting to

track where we would expect these hotels to do

in the market.” Neumann admitted that a modest

amount of rate was being sacrificed, to ensure

growth in market share.

Kleiven explained the details behind a soft

makeover of the brand, which is being rolled

out with Amsterdam the first renewed property.

“We are relaunching Park Inn under the next

gen concept, targeting Park Inn more towards

the expectation of generation X and generation

Y, focusing particularly in key countries as mid-

market is a domestic play and you need to drive

critical mass in key countries forward.”

The write-downs obscured a positive year

of performance, said Neumann. “Despite a

continued fragile global macroeconomic climate,

Rezidor’s like for like revpar continued to show a

positive development with a healthy growth of

4% in the fourth quarter of 2012. For the full year,

revpar grew by 5%, fuelled by a strong growth in

Eastern Europe and the Middle East and Africa.”

Revpar had seen consistent growth in all

quarters “That is certainly better than we expected

at the outset of the year.” The Nordics saw an

improvement in the last quarter of the year.

“The revpar improvement together with the

continued weakening of the euro, resulted in a

revenue increase of 7% in Q4 2012 including a

strong growth of 18% in fee revenue from our

managed and franchised business. Cash flow from

operations, adjusted for the termination costs,

improved by MEUR 12.”

Our commitment to profitable asset-light

growth continues. All of the 4,000 room openings

and 7,100 room signings in 2012 were either

managed or franchised contracts.

HA Perspective: New CEO Wolfgang Neumann

has wasted no time in stamping his mark on

this business. There was some surprise with his

appointment as CDO Puneet Chhatwal had been

tipped for the role given that he had been the

right hand man of previous CEO Kurt Ritter.

But Ritter left a big legacy and a completely

fresh face was necessary to set a course that

would not be seen as Ritter in absentia.

Neumann has taken the opportunity of his

honeymoon period to declare all the bad news,

writing down the difficult leases to leave a business

focused on fee income and a few profitable leases.

(Although these exits would have been in train for

some time, even ahead of Neumann’s arrival as

COO let alone CEO).

His challenge is going to be maintaining the

extraordinary momentum the business had in

emerging markets growth, particularly in Russia and

Africa. One area that might deliver results is Park Inn.

The rebranding of Radisson SAS to Radisson

Blu was so successful that it was adopted by the

mothership Carlson in the US. If a similar feat can

be achieved with Park Inn, Neumann will be well

on his way to creating his own legacy.

Rezidor clears out the cobwebsRezidor is planning further steps to exit unprofitable leases in Europe, asitpreparesarefreshofitsParkInnbrandacrossthecontinent.


News

A small but growing number of new developments

are featuring a combination of hotel rooms with

apartments for sale, the company revealed during its

fourth quarter results presentation.

Announcing strong results that have enabled

the company to upgrade its 2013 expectations,

chief executive Stephen Holmes commented:

“While the view in the rearview mirror is great,

the view out the windshield is even better.”

Revenues increased 9% in the fourth quarter

to USD1.1bn, as the company delivered a 30%

increase in earnings per share through the year.

The hotels division delivered a 19% revenue uplift

in the fourth quarter, helped by systemwide revpar

increasing 4%, and higher fees. The encouraging

performance led management to modestly

upgrade their 2013 revenue predictions, with the

full year expected to deliver USD4.925 - 5.100 bn.

Holmes told analysts: “The timeshare hotel

mixed-use concept is one that we’ve been trying

to get off the ground for a while. We now have

gotten it launched, and I think you’ll will see more

of this going forward.”

Holmes said there are several properties,

initially in the US, that the company is taking its

mixed use model to. “At Wyndham Vacation

Ownership, our timeshare business, we launched

our movement to an asset-light model with our

WAAM program. Since its inception in 2009,

we modified the program and continue to find

creative ways to transition from capital-intensive

product development. The latest example of that

transformation is the recent acquisition of the

Alex Hotel on 45th Street in New York City by

Guggenheim Partners. We will manage the hotel

while we prepare to convert it to timeshare. As

we are ready for the inventory, it will be delivered

to us, and we will pay for it at that time. We are

looking to expand this relationship to possibly

have a partner purchase some of the existing

unfinished inventory, which is on our balance

sheet, which will then be finished and returned to

us as needed.”

“Another great example of a creative application

of our WAAM model is our recent deal with HPT

for Hotel 71 in Chicago. This 350 room hotel will

undergo a renovation and will be converted into

a Wyndham Grand. A portion of the hotel will be

converted to timeshare and leased to WVO for

timeshare use. Similar to the project in New York,

this deal will give us an entry into an urban market

for tour generation and sales. As we have seen

in San Francisco, Seattle, New Orleans and other

cities, urban locations are highly desired by our

timeshare customers.”

He added: “We recently obtained full ownership

of the 600-room Wyndham Grand Rio Mar Resort

in Puerto Rico, a resort we have managed since

2007. The purchase price was approximately

USD100,000 per key for this ocean-front, upscale

resort. We will leverage our mixed-use model by

converting roughly one third of the existing hotel

rooms into vacation ownership units.”

“So I think that, yes, you’re going to see us do,

hopefully, creative things that can drive both the

size of the Wyndham brand in the US and around

the world but also, get us into opportunities

where we might be able to unlock markets than

we previously have not been able to get into for

both timeshare and for the hotel business. But

we’ll continue to build some of our own product.

As I said, we are thinking about possibly bringing

a partner in to take some of our inventory off our

balance sheet. It’s unfinished. Finish it up and in

the next few years, deliver it back to us.”

The hotel business continues to perform well. An

aggressive push into conversions has added new

WyndhammixesitupWyndhamismixinguptimesharewith hotels, in a bid to improve the company’s performance.


Staffandmarketingspendup

A third are planning to hire additional team

members, while more than half will increase

marketing spend.

The results of the survey by TravelClick, gather

together the views of more than 600 professionals

in the sector from around the globe. “This data

showing an increase in hiring paints a strong and

vivid picture for 2013,” said Jason Ewell, executive

vice president, business intelligence at TravelClick.

“The fact that hotels are expanding their

marketing budgets tells us that growth through

marketing efforts will be a strong tactic for 2013.”

Of the respondents, 31% expect to be hiring

additional staff this year. The focus on improving

customer service is evident from the fact that

59% of the new hires will be for front desk staff;

a further 37% will be sales manager positions,

while marketing managers will account for

16% of new posts and revenue managers 15%.

There is also a positive outlook on the marketing

front, with plans to increase spending on promotion.

Just under 59% of respondents expect to increase

their marketing budget spend during 2013, with

84% of those planning to grow their investment

by up to 10%. A further 13% expect to increase

marketing spend by 11-20% during the year.

The survey also asked about capital investment,

and discovered that two thirds of respondents

are planning capital improvements in their hotels

during this year.

TravelClick has also recently surveyed the group

booking market in the US, noting that demand

has improved following a temporary weakness

towards the end of 2012. Looking ahead through

2013, its figures show committed occupancy is

up 3.9% compared with a year ago, with ADR up

4.6% and revpar up 12.8%.

“Based on our data, it appears that decline

in group was temporary,” said Tim Hart of

TravelClick. “However, we expect that some

hoteliers may be incentivising group bookings by

keeping average daily rate relatively flat. As we

head into the New Year, there are opportunities

for hoteliers to increase both ADR and occupancy

in this critical segment.”

Forward commitments in the leisure sector

stand 8.9% up on the year previously, while

business travel bookings are ahead by 9.4%

compared with the situation in early 2012. In

both sectors, TravelClick says rates are ahead with

business travel rates up 6.7% and leisure room

rates ahead by 4.8%.

HA Perspective: This is a genuine piece of

good news, although it does appear to be heavily

influenced by the rebound in North America rather

than any green shoots in Europe.

There is currently a huge divide in sentiment

between North America and Europe. Hoteliers in

North America are more optimistic than they have

been since 2007. By contrast, Europe remains

mired in gloom.

With this renewed vim in the US and ongoing

vigour in Asia, Europe risks being left on the

sidelines of activity. And there seem to be no

catalysts for changing this outlook on the horizon.

Hotelmanagersarelookingtoincreasespendingonstaffingandmarketingin2013,accordingto a new poll of industry opinion.


News

stock, notably in the USA. Said Holmes: “We have

also recently completed several notable transaction

with hotel REITs and ownership companies that

bring conversion of properties into our brands. An

added benefit is that we will be managing some

of these properties, expanding our presence in this

arena. Deals with HPT, FelCor and Colony bring

hotels into our Wyndham Hotels and Resort brand,

as well as Hawthorne Suites by Wyndham and the

Baymont Inn & Suites. In addition, adding Wyndham

branded hotels in Boston, Houston, New Orleans,

Philadelphia, San Diego and other great markets

make these relationships an important source of

targeted geographically attractive growth.”

The company finished the year with 7,340 hotels

representing 627,400 rooms. This signed pipeline

will add a further 110,700 rooms of which 59% are

already under construction. However, Wyndham

remains wedded to the US market, with just 59%

of the pipeline destined for international markets.

However, chief financial officer Tom Conforti

warned the effect of rapid growth would be

negative on performance figures. “As we grow

internationally, specifically in countries such as

China, there will be a dilutive impact on global

revpar. We opened 66,000 new rooms in 2012,

our highest level in ten years, and terminations

were down 5%, resulting in a 2% net increase in

system size.”

Putting more detail on the outlook, Conforti

added: “We expect another strong year. At the

guidance midpoint, we expect revenue growth of

approximately 9% and adjusted EBITDA growth

of approximately 10%. Regarding hotel drivers,

we expect revpar growth of 4% to 6% and room

growth of 2% to 4%.

HA Perspective: Wyndham’s numbers

pleased Wall Street, beating profit and revenue

expectations, and the share price was up 5% or so

on the day of the results.

The excitement around Wyndham though is

more about the revival, or at least prospects for

the revival, of its timeshare business. Hotels are

less than a quarter of Wyndham’s EBITDA. The

timeshare exchange business is 30% and timeshare

sales is 46%. It is not surprising then that timeshare

is what has stock market investors excited.

That is not to say that the hotel business is

insignificant or unattractive. Wyndham describes

itself as being uniquely positioned because of its

high free cash flow and diversified revenue streams.

With over 600,000 rooms it remains a global

giant. But it is heavily skewed towards the US and

towards the long suffering budget and economy

segments in that country.

Given that the synergies with timeshare

are primarily in the upscale arena, the value

of retaining its economy and budget portfolio

looks questionable.

There is a big restructuring task ahead in the

US in these segments and it might be that this

is best carried out in the hands of private equity.

With Motel 6 and La Quinta already under its belt,

perhaps Blackstone could be persuaded to take on

another challenge.


The deal with Irish Bank Resolution Corporation

will see the original group holding company,

QHotels Group Ltd, placed into administration and

replaced with a new holding vehicle, to be named

QHotels Holdings Ltd.

In return, the hotelier gets a three year agreement

to stabilise its finances. A statement from the

company talks of the new deal “enabling the

QHotels group to continue its successful programme

of business development and investment”.

The company has promised that the change

will make no practical difference to suppliers,

staff or customers and business continues as

normal. Managing director Michael Purtill and

finance director Ian Goulding remain. But there

is a new arrival at the top, with outsider Tim

Scoble appointed chairman of the new holding

company. Scoble, an accountant by profession,

was until last year chief executive of Guoman

Hotels Management.

Back in April, 2012 the company put four of

its more leisure-oriented hotels up for sale, in

the expectation of raising between GBP55m and

GBP60m. Christie & Co were instructed to dispose

of Aldwark Manor Hotel, near York, Park Royal

Hotel in Stretton, near Warrington, the 100 room

Bridgewood Manor Hotel in Chatham, Kent, and

Stratford Manor Hotel in Stratford on Avon.

Hotel Analyst understands that all but one of

these have been withdrawn from sale, as part

of the refinancing agreement. Just Bridgewood

Manor remains officially on the market.

QHotels was formed in 2003 as Quintessential,

and since then has grown to encompass 21 four

star hotels across the UK. The major growth in the

chain was a 2006 deal which saw the company

take over Kent-based Marston Hotels, adding 12

locations in a GBP180m deal and propelling the

company to its present size. The group lacks a

London location in its portfolio, which it owns and

manages directly.

Among recent investments was a GBP1.7m

spend on IT facilities in 2011 which included

the provision of broadband internet throughout

the portfolio. This ensures guests have unlimited

internet access, and also provides corporates

renting conference space with the facility of ultra

fast connectivity, with dedicated bandwidth and

speeds of up to 90Mbps.

The company is majority owned by private

equity investor Alchemy Partners, along with

founder Michael Purtil, who previously owned

Paramount Hotels.

HA Perspective: IBRC, has been forged out of

the ashes of Anglo Irish and the Irish Nationwide

Building Society, is clearly taking a punt that it can

recover the most value by hanging on to these

assets and trading them out.

Industry gossip suggests that as much as £300m

was offered for the senior debt in this deal, leaving

IBRC suffering a 20% haircut (this is a guestimate

based on rumours). Given that Ireland’s National

Asset Management Agency has taken on nearly

all its loans with discounts above 50%, it does not

appear an unreasonable offer.

During the 1990s, many senior lenders exited the

market at deep discounts and enabled a multitude

of opportunity funds to clean up. This time around

there appears to be determination not to let this

happen again. But there is risk that value is going

to be destroyed by hanging on too long.

There is a question as to whether this portfolio

of provincial hotels can trade back to health given

the difficult economy. The 1990s recession was

followed by a burst of above trend growth for a

couple of years. The road ahead today looks set

for several more years of below trend growth

at best.

New owners of the portfolio are probably

better placed to restructure the business in the

radical way that looks necessary. Hanging on,

presumably by throwing some significant incentive

to management, looks a gamble.

QHotelsrefinancinggambleBritishhotelierQHotelshasagreeda refinancing that will enable it to continue to trade and invest in the group’s portfolio of hotels in the provinces.

The month of December 2012

The 12 months to December 2012


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 December 2012 London 74.6% £125.42 £93.54 42.9% 4.4% 12.4% 27.4% 12.8% £146.00 £136.27 £80.17 £127.17 £92.94 £2,998 £1,257 £164 £4,418 67.8% 28.4% 3.7% 100.0% 48.0% £2,120

December 2012 Provincial 59.2% £66.55 £39.39 42.5% 11.2% 6.5% 31.5% 8.3% £70.09 £68.89 £51.55 £68.02 £51.70 £1,239 £1,388 £285 £2,912 42.6% 47.7% 9.8% 100.0% 27.0% £786

December 2012 All 64.7% £90.70 £58.65 42.7% 8.4% 9.0% 29.8% 10.2% £101.42 £83.30 £67.84 £90.34 £73.06 £1,857 £1,342 £242 £3,442 54.0% 39.0% 7.0% 100.0% 36.5% £1,255

Month Region Points % % Points Points Points Points Points % % % % % % % % % Points Points Points Points Points %

Year on year change December 2012 London 1.0 -2.2% -0.8% (4.2) (0.1) 0.9 2.2 1.2 -0.6% -0.5% -1.2% -0.5% -4.9% -2.0% 2.1% -5.2% -1.0% (0.7) 0.9 (0.2) – 0.7 0.4%

December 2012 Provincial 1.9 1.0% 4.3% (0.6) 0.2 (0.3) 1.5 (0.8) 0.4% -0.1% 0.4% 0.6% 5.8% 4.2% 3.3% -0.5% 3.3% 0.4 0.0 (0.4) – 0.6 5.7%

December 2012 All 1.5 -1.4% 1.0% (2.1) 0.2 0.1 1.8 0.0 -2.2% -1.2% 0.2% 0.1% 1.0% 0.5% 2.9% -1.6% 1.3% (0.4) 0.6 (0.2) – 0.4 2.4%


Last year December 2011 London 73.6% £128.22 £94.31 47.1% 4.4% 11.6% 25.2% 11.7% £146.84 £136.92 £81.14 £127.75 £97.68 £3,058 £1,230 £173 £4,462 68.5% 27.6% 3.9% 100.0% 47.3% £2,110


December 2011 All 63.2% £91.97 £58.08 44.8% 8.2% 8.8% 28.0% 10.2% £103.70 £84.27 £67.70 £90.27 £72.33 £1,848 £1,303 £246 £3,398 54.4% 38.4% 7.3% 100.0% 36.1% £1,226



Current year YTD London 81.1% £138.50 £112.37 47.4% 6.7% 11.8% 23.0% 11.1% £152.97 £162.76 £104.25 £135.11 £103.90 £41,252 £13,034 £2,282 £56,568 72.9% 23.0% 4.0% 100.0% 48.8% £27,633

YTD Provincial 70.3% £69.72 £49.05 45.9% 11.1% 8.5% 27.3% 7.1% £72.28 £79.59 £52.72 £70.17 £56.33 £17,934 £12,571 £3,680 £34,184 52.5% 36.8% 10.8% 100.0% 28.4% £9,712

YTD All 74.1% £96.25 £71.36 46.5% 9.4% 9.8% 25.6% 8.6% £104.00 £102.52 £76.73 £92.60 £79.85 £26,130 £12,734 £3,189 £42,052 62.1% 30.3% 7.6% 100.0% 38.1% £16,012


Year on year change YTD London (0.2) 3.7% 3.4% (0.6) 0.8 (1.7) 1.1 0.4 1.5% 6.0% 15.9% 2.0% 2.2% 3.7% 4.2% 10.1% 4.1% (0.3) 0.0 0.2 – 0.5 5.2%

YTD Provincial 0.6 0.5% 1.4% (1.4) (0.1) (0.5) 1.1 1.0 0.6% 1.2% 2.9% 0.2% -1.8% 1.5% 0.5% 0.4% 1.0% 0.3 (0.2) (0.1) – (0.8) -1.8%

YTD All 0.3 2.0% 2.4% (1.1) 0.3 (1.0) 1.1 0.7 1.2% 5.1% 9.5% 1.0% -1.0% 2.6% 1.8% 2.8% 2.4% 0.1 (0.2) 0.0 – (0.1) 2.2%


Last year YTD London 81.4% £133.51 £108.66 48.0% 5.9% 13.5% 21.9% 10.7% £150.77 £153.60 £89.97 £132.43 £101.68 £39,782 £12,507 £2,073 £54,362 73.2% 23.0% 3.8% 100.0% 48.3% £26,263

YTD Provincial 69.7% £69.39 £48.38 47.4% 11.2% 9.1% 26.2% 6.1% £71.82 £78.68 £51.22 £70.00 £57.37 £17,664 £12,504 £3,664 £33,832 52.2% 37.0% 10.8% 100.0% 29.2% £9,890

YTD All 73.8% £94.35 £69.67 47.6% 9.1% 10.8% 24.5% 7.9% £102.79 £97.55 £70.11 £91.67 £80.65 £25,459 £12,505 £3,103 £41,068 62.0% 30.4% 7.6% 100.0% 38.1% £15,661

Olympic effect helps London

The started well for hoteliers in the capital, with

the first five months of the year delivering well. The

country’s Diamond Jubilee celebrations knocked

June to a 9.3% profit decline, followed by a 3.1%

decrease in July, ahead of the Olympics. Then,

following the festivities, the post-event hangover

began in November with profits down 5.6%.

However, the wins through the busy Olympic

period offset the weaker months overall, leaving

London hotels with a 4.9% increase in profit per

room over the year, lifting the figure to GBP75.27.

“Despite the last few years being one of the

toughest trading periods in recent history, hotels in

London have recorded yet another year of profit

growth on the back of increases in 2010 (+13.9%)

and 2011 (+4.7%). For London hoteliers it has been

a breathless charge through 2012 and it now seems

like a lifetime ago that the industry was discussing

how bad the Olympic Games may be for business.

How different our perspective is now, as, taking

nothing away from the ability of London’s hotel

managers, the Olympics are the saviour of the year

and we will take only positive memories away from

2012,” said Jonathan Langston, managing director

of TRI Hospitality Consulting.

The year finished in positive territory, with

HotelsinLondonwouldprobablyhaveachievedayear-on-yearprofitincrease without the incoming Olympics, but in the event the spectacle helped improve profits in August by 90%. This offset an unpredictable few months around the event, when demand remained uncertain.


Sector stats



Current year December 2012 London 74.6% £125.42 £93.54 42.9% 4.4% 12.4% 27.4% 12.8% £146.00 £136.27 £80.17 £127.17 £92.94 £2,998 £1,257 £164 £4,418 67.8% 28.4% 3.7% 100.0% 48.0% £2,120


December 2012 All 64.7% £90.70 £58.65 42.7% 8.4% 9.0% 29.8% 10.2% £101.42 £83.30 £67.84 £90.34 £73.06 £1,857 £1,342 £242 £3,442 54.0% 39.0% 7.0% 100.0% 36.5% £1,255


Year on year change December 2012 London 1.0 -2.2% -0.8% (4.2) (0.1) 0.9 2.2 1.2 -0.6% -0.5% -1.2% -0.5% -4.9% -2.0% 2.1% -5.2% -1.0% (0.7) 0.9 (0.2) – 0.7 0.4%

December 2012 Provincial 1.9 1.0% 4.3% (0.6) 0.2 (0.3) 1.5 (0.8) 0.4% -0.1% 0.4% 0.6% 5.8% 4.2% 3.3% -0.5% 3.3% 0.4 0.0 (0.4) – 0.6 5.7%

December 2012 All 1.5 -1.4% 1.0% (2.1) 0.2 0.1 1.8 0.0 -2.2% -1.2% 0.2% 0.1% 1.0% 0.5% 2.9% -1.6% 1.3% (0.4) 0.6 (0.2) – 0.4 2.4%


Last year December 2011 London 73.6% £128.22 £94.31 47.1% 4.4% 11.6% 25.2% 11.7% £146.84 £136.92 £81.14 £127.75 £97.68 £3,058 £1,230 £173 £4,462 68.5% 27.6% 3.9% 100.0% 47.3% £2,110


December 2011 All 63.2% £91.97 £58.08 44.8% 8.2% 8.8% 28.0% 10.2% £103.70 £84.27 £67.70 £90.27 £72.33 £1,848 £1,303 £246 £3,398 54.4% 38.4% 7.3% 100.0% 36.1% £1,226



Current year YTD London 81.1% £138.50 £112.37 47.4% 6.7% 11.8% 23.0% 11.1% £152.97 £162.76 £104.25 £135.11 £103.90 £41,252 £13,034 £2,282 £56,568 72.9% 23.0% 4.0% 100.0% 48.8% £27,633

YTD Provincial 70.3% £69.72 £49.05 45.9% 11.1% 8.5% 27.3% 7.1% £72.28 £79.59 £52.72 £70.17 £56.33 £17,934 £12,571 £3,680 £34,184 52.5% 36.8% 10.8% 100.0% 28.4% £9,712

YTD All 74.1% £96.25 £71.36 46.5% 9.4% 9.8% 25.6% 8.6% £104.00 £102.52 £76.73 £92.60 £79.85 £26,130 £12,734 £3,189 £42,052 62.1% 30.3% 7.6% 100.0% 38.1% £16,012


Year on year change YTD London (0.2) 3.7% 3.4% (0.6) 0.8 (1.7) 1.1 0.4 1.5% 6.0% 15.9% 2.0% 2.2% 3.7% 4.2% 10.1% 4.1% (0.3) 0.0 0.2 – 0.5 5.2%

YTD Provincial 0.6 0.5% 1.4% (1.4) (0.1) (0.5) 1.1 1.0 0.6% 1.2% 2.9% 0.2% -1.8% 1.5% 0.5% 0.4% 1.0% 0.3 (0.2) (0.1) – (0.8) -1.8%

YTD All 0.3 2.0% 2.4% (1.1) 0.3 (1.0) 1.1 0.7 1.2% 5.1% 9.5% 1.0% -1.0% 2.6% 1.8% 2.8% 2.4% 0.1 (0.2) 0.0 – (0.1) 2.2%


Last year YTD London 81.4% £133.51 £108.66 48.0% 5.9% 13.5% 21.9% 10.7% £150.77 £153.60 £89.97 £132.43 £101.68 £39,782 £12,507 £2,073 £54,362 73.2% 23.0% 3.8% 100.0% 48.3% £26,263

YTD Provincial 69.7% £69.39 £48.38 47.4% 11.2% 9.1% 26.2% 6.1% £71.82 £78.68 £51.22 £70.00 £57.37 £17,664 £12,504 £3,664 £33,832 52.2% 37.0% 10.8% 100.0% 29.2% £9,890

YTD All 73.8% £94.35 £69.67 47.6% 9.1% 10.8% 24.5% 7.9% £102.79 £97.55 £70.11 £91.67 £80.65 £25,459 £12,505 £3,103 £41,068 62.0% 30.4% 7.6% 100.0% 38.1% £15,661

December profits up 1.6%. This was against a

revpar drop of 0.8%, as room rates fell 2.2%; with

the improvement possible only due to a 5.4%

increase in ancillary revenues including food and

beverage sales.

In the provinces, 2012 was a fifth year of profit

decline, as an improvement in revenues was offset

by rising operating costs. Revpar grew 1.4%,

compared with 1.5% in 2011, the third year in a

row that revpar has shown a modest improvement.

But the uplift was wiped out by a 0.2% increase

in payroll costs as the minimum wage rose 1.8%;

the wage bill typically accounts for 32.4% of

total revenue. As a result, profits declined 1.9%,

slightly less bad than the 3.2% registered in 2011.

Other costs were also increasing, with travel agent

commissions creeping up 6.8% on a per room let

basis, now representing 7.3% of rooms revenue.

“Whilst our RevPAR-focussed competitors will

be telling you that hoteliers in the provinces have

enjoyed yet another year of growth, the truth is

that the overall provincial profit picture remains

negative. After five years of decline, the keep calm

and carry on mentality is wearing a bit thin, and

it is clear that the impact of the fundamental shift

in the operating structure of provincial hotels will

continue be played out as the market anticipates

further casualties in 2013,” said Langston.

Either side of the line on the graph, Liverpool

was a winner with a 3.7% increase in profit per

room; and hotels in Basingstoke benefitted from

the Farnborough air show in July, which led to an

overall 6.4% increase in profit per room, and a

41.3% year on year increase in profit. Losers in

the battle of the provincial cities were Newcastle,

where profits per room fell 10.4%, Nottingham at

12.7%, Bath, Manchester and Leeds.


Sector stats

DublinandWarsaw2012’swinners

Tourism figures in Warsaw held up well through

the summer, though the last quarter saw a 14.9%

decline in profit per room as demand plummeted.

Elsewhere, it was Dublin that delivered

outstanding profit growth, with a solid increase in

European chain hotels – performance report

Source: TRI Hospitality Consulting

visitors to the city, throughout the year. Hoteliers

in the city achieved a 15.1% increase in revpar

through the year, with occupancy up 5.4% and

average room rate rising by 7.3% to EUR132.79.

Dublin’s story has been one of consistent

improvement from the bad days of 2009. The

2012 revpar was up 30% on the 2010 figure,

based on occupancy up close to 15% to 80.8%

in 2012. Profit per available room has risen over

three years to EUR58.21, a 48.3% increase.

“The impact of the economic downturn on

commercial development in Ireland has prevented

significant further additions to bedroom

supply, which has remained relatively stable at

approximately 19,000 bedrooms since 2010. The

static supply and increases in demand, created

by a boost in tourism as a result of the 9% VAT

rate on the hospitality and tourism sectors, have

The month of December 2012 Twelve months to December 2012

Occ % ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR

66.9 149.46 99.94 37.9 43.89 Amsterdam 78.9 175.18 138.14 29.8 77.72

25.9 126.58 32.78 75.5 -19.23 Athens 48.6 155.27 75.45 53.5 8.04

68.3 100.69 68.76 38.6 33.50 Berlin 76.6 111.67 85.56 27.8 47.37

72.2 128.05 92.42 33.7 64.29 Dublin 80.8 132.79 107.35 34.8 58.21

75.6 177.02 133.73 25.9 95.44 London 81.8 196.00 160.40 23.1 109.34

53.9 104.54 56.31 49.9 11.30 Madrid 65.6 119.91 78.67 40.6 30.88

60.8 163.99 99.64 25.6 72.38 Moscow 71.8 158.48 113.78 26.3 77.62

64.0 79.78 51.07 25.7 28.39 Prague 68.4 83.37 57.03 25.2 33.97

73.8 146.09 107.83 33.0 57.07 Vienna 72.1 139.79 100.73 38.3 42.22

63.4 79.58 50.48 31.7 26.07 Warsaw 74.3 108.19 80.37 23.9 55.66

The month of December 2011 Twelve months to December 2011

Occ% ARR RevPAR Payroll % GOP PAR Occ % ARR RevPAR Payroll % GOP PAR

63.5 151.28 96.05 37.9 42.26 Amsterdam 77.9 176.52 137.52 29.9 79.44

30.4 139.23 42.26 67.5 -17.27 Athens 55.8 166.49 92.85 48.7 22.80

65.7 99.08 65.13 28.6 34.06 Berlin 74.7 105.08 78.43 27.4 41.73

62.6 123.13 77.03 35.8 54.11 Dublin 75.4 123.73 93.29 37.4 47.46

75.1 178.96 134.36 25.4 94.34 London 81.4 188.53 153.47 23.4 102.77

57.0 113.05 64.42 42.6 21.39 Madrid 67.0 121.25 81.28 39.7 34.74

61.4 157.52 96.72 24.2 71.78 Moscow 67.9 156.07 106.02 26.4 70.21

62.4 75.25 46.93 25.3 23.93 Prague 68.0 77.98 53.04 25.9 29.54

74.9 145.05 108.58 32.1 65.84 Vienna 70.7 135.40 95.70 39.2 40.43

55.8 94.14 52.53 28.4 33.14 Warsaw 72.5 93.07 67.50 25.5 45.36

Movement for the month of December Movement for the twelve months to December

Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change Occ Change ARR Change RevPAR Change Payroll Change GOP PAR Change

3.4 -1.2% 4.0% 0.0 3.9% Amsterdam 1.0 -0.8% 0.5% 0.1 -2.2%

-4.5 -9.1% -22.4% -8.0 -11.3% Athens -7.2 -6.7% -18.7% -4.8 -64.7%

2.6 1.6% 5.6% -10.0 -1.6% Berlin 2.0 6.3% 9.1% -0.4 13.5%

9.6 4.0% 20.0% 2.1 18.8% Dublin 5.4 7.3% 15.1% 2.6 22.7%

0.5 -1.1% -0.5% -0.6 1.2% London 0.4 4.0% 4.5% 0.3 6.4%

-3.1 -7.5% -12.6% -7.3 -47.2% Madrid -1.4 -1.1% -3.2% -0.9 -11.1%

-0.6 4.1% 3.0% -1.5 0.8% Moscow 3.9 1.5% 7.3% 0.1 10.6%

1.6 6.0% 8.8% -0.5 18.6% Prague 0.4 6.9% 7.5% 0.7 15.0%

-1.1 0.7% -0.7% -0.9 -13.3% Vienna 1.4 3.2% 5.3% 0.9 4.4%

7.6 -15.5% -3.9% -3.4 -21.3% Warsaw 1.8 16.2% 19.1% 1.6 22.7%

contributed to Dublin’s strong performance

growth in 2012,” said David Bailey, deputy

managing director at TRI Hospitality Consulting.

Elsewhere in Europe, London registered another

year of profit increase, assisted by the city hosting

the Olympics and Paralympics. Four and five star

hotels in the city improved profit per available

room by 6.4%, helped by a strong August.

The Greek capital Athens saw contrasting

fortunes, with year on year profit per available

room down to a low of EUR8.04 as the sector was

hit by a series of problems, including the American

and Australian governments warning travellers

not to visit the country. In addition, the hard-

pressed Greeks also cut their holiday plans, hitting

domestic business in Athens. The Greek capital

saw occupancy fall 7.2% over the year, with a low

of just 25.9% in December.

The European soccer championships helpedhotelsinWarsawdeliverabumper year of profits, offsetting weakwinterbusinessdemandtoregister a 22.7% increase in profits overtheyear.Thankstodemandfrom visiting teams and fans, hotels inthePolishcapitalwereabletocharge an average EUR253.55 room rate, up 161.3% in June.

The International Hotel Investment Forum (IHIF) brings the hotel industry together in a first-class location to deliver the very best educational programmes, outstanding networking opportunities and the most senior level professionals from all areas of the industry. It has firmly established it’s reputation as the leading and most important meeting place in the world for the industry.

Over 1700 people now attend. However, it’s not just the number of people that attend that’s important, what sets IHIF apart is the seniority of the delegates. IHIF attracts more world-wide Investors , Owners and Hotel Chain CEOs than any other event.

Whatever section of the hotel industry you are in, the IHIF will introduce you to people who can open up business opportunities and partnerships for you.

“It [IHIF] is a very good way of meeting Investors in the industry... I am looking to continue the expansion of my business and this is one of the main reasons I come here”

SIR ROCCO FORTE CHAIRMAN, ROCCO FORTE HOTELS

“This is a conference where business gets done. It’s extremely well run and the people who attend are first-rate. I come to this event to get in touch with the industry and to meet with our stakeholders and investors.”

FRITS VAN PAASCHEN PRESIDENT & CEO, STARWOOD HOTELS & RESORTS WORLDWIDE

IHIF paints a picture of the year ahead

The 16th International

Hotel Investment Forum 20134-6 March 2013 | InterContinental | Berlin, Germany

Hosted by In Association with

The Art of InnovationMeet the Grand Masters of hotel investment

Founder PatronCBRE HotelsPatronACCORAshford Hospitality TrustCarlson Rezidor Hotel GroupChoice Hotels InternationalChristie + CoCorinthia HotelsHilton WorldwideHyatt International (EAME) LLCIHGInterContinental BerlinJones Lang LaSalle’s Hotels &

Hospitality GroupMarriott International IncMoroccan Agency for Tourism

Development SMITPPHE Hotel GroupStarwood Hotels & Resorts WorldwideSteigenberger Hotel GroupThe Leading Hotels of the WorldVision Hospitality Asset ManagementWyndham Hotel GroupSponsorsAECOMBarclaysBerwin Leighton Paisner LLPBNP Paribas Real EstateBridgeStreetClifford Chance LLPCMS Law.TaxColliers International DeloitteDLA Piper UK LLPErnst & YoungESPAExpediaField Fisher Waterhouse LLPGoodwin Procter LLPGrand City HotelsGVA Hotels and LeisureHamilton Hotel Partners ltdHorwath HTLHotel Partners AfricaHVSHVS Hodges Ward ElliottJA Resorts and HotelsJumeirah GroupLeisure DreamsLouvre Hotels GroupMcAleer & Rushe GroupMeliá Hotels InternationalMotel One GroupNH HotelesOrient-ExpressPandox AB PKF hotelexpertsRBS GroupSavillsServotelSNR DentonSTR Global LtdSwisscomUnion Investment Real Estate GmbHViceroy Hotel GroupWATG | Wimberly InteriorsWorldHotelsyoo

Sponsors as of 5 December 2012

SPONSORS

Helping you expand across the globe… Join us at our other events

North Asia Hotel Investment

ConferenceSpring 2013

ihif.questexevents.net

Turkey & Neighbours Hotel Investment Conference

29-30 May 2013Marmara Taksim Hotel

Istanbul, Turkeycathic.com

Brazil Hospitality Investment Conference

13-14 June 2013 Sao Paulo, Brazil

ihifsummitseries.com

Asia Pacific Tourism Destination Investment

ConferenceOctober 2013

Date/venue to be announcedtdiasia-questexevents.net

Russia & CIS Hotel Investment Conference

October 2013Date/venue to be announced

russia-cisconference.com

North America Hotel & Tourism Investment Conference

November 2013Date/venue to be announced

nathic.com

To Register visit www.berlinconference.com

121205 Hotel Analyst 190x255.indd 1 05/12/2012 12:20


Advertisement


Analysis

HoteldevelopmentaliveandwellLuton Airport, the 157-bed ME London on the

Strand operated by Melia; the 36-bed Wellesley

Hotel on Knightsbridge, which is operated by

Bespoke Hotels.

In 2012 Travelodge opened a new hotel in

Bethnal Green, London. This will be followed by

a further 11 new UK hotels in 2013 in locations

including Aylesbury, Cambridge, Liverpool,

London (3), Manchester and Kings Lynn.

Also in 2012 Premier Inn also opened a new

hotel in Glastonbury. However, a further 10 new

openings are scheduled in the first quarter of

2013, including new hotels in Bicester, Ipswich,

Lincoln, Shrewsbury and Weymouth.

New hotel development is occurring and the signs are that it is actually pickinguppace.

New products are also making their London

debuts, such as the Citizen M Hotel and the Z

Hotel in Soho with others planned elsewhere in the

UK. Outside of London there is also life with new

Indigo Hotels opening in Edinburgh, Birmingham,

Glasgow, Newcastle and Liverpool, with others

in the pipeline. Tune Hotels and Motel One both

opened new hotels in Edinburgh while a 202-bed

‘eco’ Orchard Hotel opened at the University

of Nottingham.

Colliers has recently received extremely strong

interest in a multi-hotel development in central

Edinburgh and new hotels planned in Birmingham,

Reading, east London, and Southampton. Expect

work to start soon on new hotels at Edinburgh

Airport and Bristol Airport too.

All of this during a ‘double-dip’ recession, a

credit squeeze and a eurozone crisis – surely there

can be few sectors that have fared as well in recent

years. In addition to the above there are also the

one-offs, such as St. George’s Park in Burton,

which is the home of the new National Football

Centre and a project with which we have been

closely involved over the last two and a half years.

A new combined core brand comprising a Hilton

and Hampton Hotel has just opened its doors in a

soft opening which will see this property quickly

become a new benchmark for quality mixed brand

hotel buildings.

So, new hotel development is occurring and the

signs are that it is actually picking up pace. One

piece of advice though, make sure you get the

fundamentals right and don’t cut corners.

Justin Lanzkron – Associate Director,

Colliers International

[email protected]

Colliers’ Justin Lanzkron says new hotels are being built

If a site is a poor location or market, or if the

developer over paid for the site then this will

lead to trouble. Similarly, a half-baked business

plan or no coherent feasibility study will lead to

disaster. Many other developers and investors fail

to understand that the hotel business is actually

two businesses – a real estate business and an

operating business. It is necessary to get both right

in order to be successful.

A well-bought property will not work without

a strong operator. Similarly the best operator in

the world will not be able to rescue a project if

developer over paid for the real estate transaction

or if it was poorly financed.

It was, perhaps, the private equity model and

the way in which they calculate their returns that

drove the urgency to overload hotels (and other

real estate classes) with excessive amounts of

debt. The banks contributed to this by forgetting

that they were lenders and involving themselves

in all areas of the capital stack – often on the

same deal.

The excessive over-emphasis on the time value of

money, financial engineering and the theoretically

higher returns available to highly leveraged equity,

led to many financing structures that would simply

not survive even a mild downturn.

Fundamentals were ignored and the logic

of location and market were swept aside in the

search for ‘modelled’ returns. This led to a belief

that a 5.0% return in the provinces was as good as

a 5.0% return in central London. Unprecedented

levels of deals were done and an increased

separation of the real estate decision from the

operating model occurred.

Banksarelendingtonewdevelopments,and investors are showing interest again.

Things unravelled very quickly, a slump in

operating profits collapsed the whole capital

stack, values plummeted and the fair weather

participants fled. The hangover was a bad

one. Fortunately, just like any hangover, things

do gradually improve, and there is new hotel

development occurring in the UK right now.

Banks are lending to new developments, and

investors are showing interest again. The projects

that we see happening are the solid sensible

projects that should always find funding, the ‘no-

brainers’ and the steady well-founded projects

that tick all of the boxes.

Examples of the new wave of development in

2012 included the 256-room InterContinental

Hotel , London – Westminster at St James’s Park,

the re-opening of the Café Royale in Regent Street,

London, the 630-bed Premier Inn London Gatwick

Airport, the 188-bed Hampton by Hilton London

Inrecentyearsyoumighthavebeengiven the impression that new hotel development is a thing of the past. Themarketviewappearstobethatwith no debt and little investor appetite, these factors conspired to all but stop new hotel development. This has been viewed as the accepted new norm.

The days of freely available debt for new

development often including multiple hotel

projects and in some case without planning are

long gone. From a superficial stand point it would

appear that new hotel development has for the

time being run its course.

However, the reality is somewhat different. It

is true that the hotel development ‘reality’, as we

came to know it during a few over-heated years,

is gone but hotels are being built and developers

are starting to show strong interest in the sector

again. We are now in a new reality – or to be more

accurate, a return to the old reality that we had all

known and been comfortable with for many years

before the ‘bubble’.

The new reality is actually the old reality re-

invented. In the current market it is all about

development based on sound fundamentals. A

successful new hotel development today needs

very much the same thing as it has always

needed: a well-located site at a sensible price, a

knowledgeable investor with a robust business

plan, an experienced hotel developer, a strong and

capable operator that is right for the product to be

developed, a sensible level of debt, a realistic and

planned exit strategy.

It is amazing how little has actually changed. Fail

on one or more of these fundamentals, however,

and the problems soon mount up and the cycle

will get you every time.


Advertisement

Hoteldevelopmentaliveandwell

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation www.ha-dt.com Volume 1 Issue 5 1

The development of the Web as a consumer

research and booking tool greatly increased the

amount of information available to guests.

Guests can now compare features and prices

for themselves on Online Travel Agency (OTA)

websites such as Expedia, Travelocity and Priceline.

com, and can find in-depth product information,

photos and often even videos on hotel chains and

hotel property websites. However such sources

suffer from a credibility problem.

How can the customer be sure that the marketing

focused information presented on such sites, which

was after all designed to sell, was trustworthy?

Social media – sites where users could interact

and exchange information with other users –

helped address this issue. On social networks

such as Facebook, customer can actively solicit the

opinion of their expanded, almost global, network

of friends as to where they should stay. On social

sharing sites such as YouTube and Flickr they can see

candid photos and videos of real guest experiences.

But it is user generated reviews, on dedicated

review sites such as TripAdvisor or Yelp, or as

Hotel Review & Social Media Monitoring Tool Benchmark 2012

The growth of social media sites where users can interact and exchange information on hotels with other users has had a dramatic impact on hotel distribution and customer decision making. It has become critical for hotel companies to review these sites and manage the reputation of their brand.

This report produced by Peter O’Connor, editor-at-large of Hotel Analyst Distribution and Technology and Professor of Information Systems at Essec Business School France, looks at the social media revolution, the impact this has had on the hospitality industry and reviews the social media management tools on the market.

This report is for:

• Anyone who needs to be up to speed on the key players and major trends in the market for social media management software in hotels.

• Hotel marketing professionals who need to select and review software platforms to manage the social media of a hotel brand.

• Analysts looking at hotel brand information on social media sites.

supplemental content on Online Travel Agency

websites such as Expedia or Booking.com that

is currently having the most dramatic effect on

hotel distribution.

On these sites customers guests can see both

quantitative and qualitative peer evaluations of

practically each and every property practically at

a glance, providing them with an unparalleled

and highly credible insight into the quality of

each product.

User generated reviews have shown to be highly

credible and to have a high degree of influence

on the customer’s decision making process. Thus

managing its reputation on both online review

sites – and on the wider social media space – has

become a critical issue for hotels.

A wide variety of these tools exist to help

manage this process, ranging in scope from free

tools that monitor a single social media to highly

comprehensive tools that cast their monitoring

net over most of the web, using sentiment

analysis to estimate consumer reaction to recent

brand initiatives.

But while these generalist tools are useful, few

actively monitor travel specific user review site or OTA

sites that feature user reviews – content that is critically

important for hotels as it influences the customer at

the point of purchase. Hotel industry specific tools do

exist, but these tend to be highly variable in terms of

features, system coverage and even price!

This report examines the broad range of online

reputation management systems available for use

by hotels. Having explained the significance of

the management process for hotels, and detailed

where reviews of hotel products can be found,

an overview of how best to manage your social

media presence is given.

A comprehensive list of the core, essential,

desirable and advanced features of online

reputation management systems is examined,

and the hotel specific systems available in today’s

marketplace are benchmarked.

Lastly indications are given as to pricing models,

and contact details for each of the systems

evaluated is provided.

Price: £1500 + VAT

Hotel Review & Social Media Monitoring Tool Benchmark 2012

Hotel Review & Social Media Monitoring Tool Benchmark 2012 is available now

To order go to

www.hotelanalyst.co.ukand click on Hotel Distribution and Technology under HA Research Reports

HAD&T_v01i05_p9.indd 1 2/21/13 2:57 PM

now half price

Now just £750 + VAT


IntroductionThere is a whole generation of hotel executives,

advisors from across the investment community as

well as consultants and agents who hold it to be

an article of faith that RevPAR is the critical metric

for hotel performance. Accordingly, we need to

be sure that the calculation and use of RevPAR

is effective.

In this note we will review the concept of

RevPAR, identify some of the problems in its

calculation and use and make suggestions to

improve the potency of the concept.

TheconceptofRevPAREveryone knows that RevPAR is the rooms revenue

generated by each hotel room. It is the measure of

the efficiency of historic hotel rooms demand. It is

the measure of the effectiveness of the relationship

between rooms supply and rooms demand. To be

effective, RevPAR requires robust and consistent

definitions of room nights available, room nights

sold, room occupancy and rooms turnover. The

problem is that there is no consensus on any of

these, although it is encouraging that the current

edition of the Uniform System of Accounts for

the Lodging Industry (USALI), published under

the auspices of the American Hotel and Lodging

Association, has tightened its definitions a little.

It now defines room nights available as, “the

difference between the total number of rooms

in the hotel and rooms that are not available

for transient rental, including seasonally closed

rooms (where the entire hotel is closed for 30

or more consecutive days), rooms designated

for permanent house use, and extended closed

rooms.” It falls short of accepting that the

investment in the hotel has been made in the

physical number of bedrooms in the hotel. Thus,

excluding rooms from the calculation of room

nights available for whatever purpose does not

RevPAR:usesandabusesdiminish the investment in the hotel, but it does

diminish the return on investment that the hotel

can achieve.

The USALI defines the rooms occupancy ratio as,

“calculated by dividing the rooms occupied by the

rooms available...excluding complimentary rooms”.

If the physical number of rooms in the hotel have

been reduced for whatever managerial purpose

then the room occupancy statistic is inflated.

Rooms turnover is the measure of total rooms

demand value and is the turnover generated

from renting rooms, net of sales tax. For hotel

companies there is a host of common practices

for the allocation of hotel turnover to rooms

each of which produce different levels of

rooms turnover and each of which is calculated

without transparency.

This problem is a consequence of hotels being

conceived and managed as vertically integrated

businesses in which hotel companies do not

disclose the basis of internal transfer pricing or the

criteria on which hotel packages are disaggregated.

The issue is material. In Europe alone, 1.6 million

chain rooms, 79% of all chain rooms, are in hotels

heavy with non-rooms facilities, that is, around

half of hotel turnover can be generated in the

non-rooms businesses. The congruent demand

for these hotels is packaged conference demand

and packaged leisure demand. Bed and breakfast,

dinner bed and breakfast, short break packages

and all inclusive packages are commonplace in

these hotels. Often packaged hotel demand is

offered at tactical discounted rates to boost short-

term demand volume, but there is no transparency

about which items are discounted and there is

no transparency about how the packages are

disaggregated. In our experience, and typical of

vertically integrated businesses, a high allocation

is made to the higher operating margin business.

In the case of the hotel, the rooms business, which

invariably achieves operating margins of more

than 50%, also benefits from the high allocation

from packages. Consequently, the low margin

non-rooms businesses, which invariably achieve

operating margins no better than low double

digits and sometimes negative margins receive

only a low allocation from packaged demand. It

is the way of vertically integrated businesses that

they contain some components that are winners

and some that are losers in reported performance.

In hotels, the rooms business wins and the non-

rooms businesses lose.

Similar practices occur in economies with a

lower sales tax on rooms than on the non-rooms

businesses to limit the total sales tax burden. In

brief, we are left with the conclusion that the

allocation of hotel turnover to rooms is a matter

of opinion designed to boost reported RevPAR.

It is not available for those outside of any hotel

company to know the basis on which hotel

packages are disaggregated or the consistency

with which internal transfer pricing is applied. In

our long experience we have yet to come across

an instance in which reported rooms turnover has

been depressed to boost non-rooms turnover.

But that is not all. There are other foggy issues

about the calculation of rooms turnover. The

accounting for loyalty programme points used to

buy room nights is one. There is no transparency

about the working of the programmes and

virtually no visibility about the net cash rooms

turnover earned by hotels when rooms are

booked with loyalty points. Further, franchise

and management contracts in which fees paid

to the franchisor or operator may be calculated

as a proportion of rooms turnover, may also be

inconsistent from one brand to another and even

within brands.

Another significant issue is the accounting for

rooms turnover bought from online and offline

travel agencies. It is not uncommon for room

rate to be charged cum agent commission,

which boosts RevPAR only for commission to the

agencies to be charged as a cost further down the

profit & loss account. To its credit, TRI Hospitality

Consulting, in its HotStats calculations has

trumpeted GOP PAR, Gross Operating Profit per

Available Room as a means to capture more of the

additional costs of buying rooms turnover.

In hotels, and in particular, hotel chains, the

calculation of RevPAR and its components is

more complex and diverse than many of its

users acknowledge. The low visibility of the

disaggregation of hotel packages, of the allocation

to rooms turnover from the use of loyalty points

to rent bedrooms and of the reported rooms

turnover from travel agencies has the effect of

boosting reported RevPAR at the expense of the

rarely reported non-rooms performance. It also

means that investment and other industry analysts

can make no reasonable assumptions about the

criteria for reported rooms turnover and reported

RevPAR of hotel companies or more generally of

the supply and demand performance of the hotels.

ReportedRevPARintheUKProvincesOne example of a significant problem that reported

RevPAR has not identified and not resolved has

been the progressive decline in UK Provincial

hotel performance over the past decade, at

least. Two trends have been sustained. First, non-

rooms demand has been the main problem. The

Is revpar a reliable metric for hotel performance, ask Paul Slattery and Ian Gamse of Otus & Co

Analysis



progressive growth in high street restaurant and

pub brands has taken much of the local demand

from Provincial hotel restaurants and bars. The

growth in health club chains has taken health

club membership from Provincial hotels, reduced

hotel health clubs to an amenity for hotel room

customers and reduced hotel health clubs to a

cost centre rather than a profit centre.

Similarly, hotel based conference and meetings

demand in Provincial hotels has endured long-term

decline. Service businesses, the biggest bookers of

hotel based conferences and meetings in Provincial

hotels, have grown and developed their own

national office infrastructure with meeting rooms.

Progressively, companies have been holding their

conferences and meetings on their own premises.

Over the years, packaged conference demand

into hotels has been replaced by transient rooms

demand leaving the hotels with underperforming

conference facilities as well as underperforming

restaurants, bars and health clubs.

The second trend that has been sustained is the

growth in UK Provincial rooms supply despite on-

going collapse in non-rooms demand. Over the

years, the demand developments have impacted

most severely on extended feature, full feature

and classic feature hotels, the non-rooms heavy

categories. Since 2000 hotel chains have added

35,000 of these rooms in the UK Provinces, a

CAGR of 2%, however over the last five years,

during the period of economic trauma, chains

have accelerated the rate of supply growth to an

annual average of 3% adding 19,000 of these

categories of room. It is not only the supply of non-

rooms heavy categories that has grown. Over the

past five years, non-rooms light hotels, the limited

feature and rooms only categories, predominantly

at the economy and budget levels in the Provinces

have added 21,000 rooms as well.

One question is why has there been such a

growth in chain supply when there has been

a palpable decline in hotel performance in the

Provinces. An available answer is that the focus

on reported RevPAR has not only ignored the

decline in non-rooms business, but also, from our

experience and analysis, the reported RevPAR,

although sluggish and on a downward trend has

been inflated at the expense of already declining

non-rooms turnover.

Throughout the period, the increasing rate

of addition to non-rooms heavy chain supply

has been supported by feasibility studies, which

must have illustrated that reported RevPAR would

recover and grow sufficiently for investment in

new non-rooms heavy hotels to be made. Even

more problematic is that hotel owners, lenders

and hotel chains have been seduced by such

feasibility studies and inflated RevPAR analyses

and paid insufficient attention to the downward

rebasing of non-rooms demand.

A parallel problem has emerged mainly for

the global majors such as Hilton Worldwide,

InterContinental Hotels Group and Marriott

international with significant portfolios of

extended feature, full feature and classic feature

hotels held under management contract in the

UK Provinces. The pattern of sluggish reported

RevPAR and progressive decline in non-rooms

performance is the basis of our doubts that the

management companies earn much in incentive

payments on these management contracts. We

cannot be more explicit in this conclusion since

this is yet another area in which the chains lack

transparency. To make sense of events and their

implications for the hotel business in the context

of low visibility of hotel company reporting we

need to explore connections between events. For

instance, at the time of writing the real estate of

a portfolio of 42 Marriott hotels, mainly in the

UK Provinces, is reported to be close to sale for

about £640 million. In 2007, the same portfolio

was acquired for about £1.2 billion. The sluggish

reported RevPAR performance as well as the

sharply declining non-rooms demand in the UK

Provinces can be considered as factors in the

halfing of the real estate value in this portfolio in

only five years.

TheuseofreportedRevPARinEuropeThere are regular examples to illustrate that

in many European countries reported RevPAR

has been decoupled from the supply profile

of hotels. One recent example illustrates the

point. In its publication, “European Cities Hotel

Forecast 2013”, PWC concluded that, “in 2013

Paris is expected to top the ‘fullest’ ranking

with occupancy at 79.1%; the ‘most expensive’

with ADR at €267 and the city with the ‘highest

RevPAR’, at €211.” The PWC analysis is based on

occupancy, rate and RevPAR data from STR Global.

In contrast, PWC expects that London will achieve

room occupancy of 77.1%, ADR of €174 and

RevPAR of €134, 36% less than Paris.

The problem with this city-wide analysis is the

implicit assumption of a like-for-like comparison.

Were it the case that the hotel supply profiles

of London and Paris were identical and that the

sample sets for which STR provides data were

fully representative of the cities’ hotel markets,

the conclusions would be valid. However, the STR

data is fundamentally flawed in this respect, as

the hotels supplying raw data are a self-selecting

group – those that wish to use STR’s services – not

a random sample nor even a set selected to reflect

the overall market profile. It is not of course clear

how PWC and STR define the “market” in each

city – is it, for example, the total hotel market,

the chain hotel market, the international chains;

does it include the suburbs and, if so, by what

definition; does it include all types of hotel and all

market levels or only a subset; and so on.

What is very clear to us is that there is no good

reason to assume that the hotel supply profiles

of Paris and London are identical – or even that

they have a close resemblance. Let’s take a look

at the profiles of chain hotel supply, as reflected

in the Otus Hotel Brand Database. (Numbers as at

December 2011.)

London includes 88,900 chain rooms, 15,500

more than Paris. Table 1 profiles the supply of

chain room stock in Paris:

While table 2 does the same for London:

Analysis

Table 1: Paris Chain Room Supply Profile

Urban Airport Suburban Total

Luxury 2% 2%

Up market 18% 3% 2% 23%

Mid-market 18% 2% 11% 31%

Economy 14% 3% 14% 30%

Budget 4% 1% 9% 13%

Total 56% 9% 35% 100%

Source: Otus Analytics

Table 2: London Chain Room Supply Profile

Urban Airport Suburban Total

Luxury 5% 0% 5%

Up market 38% 7% 1% 46%

Mid-market 14% 4% 3% 22%

Economy 15% 4% 7% 26%

Budget 1% 0% 0% 1%

Total 72% 16% 12% 100%

Source: Otus Analytics


Some differences are immediately apparent.

First, 72% of London’s chain rooms are in urban

areas, against 56% in Paris. And nearly 60% of

London’s urban rooms – 38,000 in absolute terms

– are up-market or luxury. Paris has only 15,000 up-

market or luxury rooms in urban locations. Even if

we accept that in some circumstances that these

Parisian up-market and luxury hotels may be able

to achieve higher occupancy and rates than their

London counterparts, it tells us nothing about the

performance of the bulk of Parisian hotels. On the

contrary, other things being equal we would expect

the rooms turnover of the overall Paris market to be

dragged down by its large suburban exposure to

budget and economy segments.

We suspect therefore that the STR data set is

not actually representative of Paris as a whole, that

PWC’s conclusions are therefore based on false

premises and that their poor statistical analysis is

best described as naive.

Other examples of naive analysis include

Spain where the disseminators of RevPAR do

not differentiate between interior Spain and the

Costas. Spain is the largest economy in Europe

for hotel chains accounting for 398,000 rooms,

of which roughly two-thirds are in the Costas and

one-third in the interior. The Costas are different.

Most of the chain presence is in national chains

that rely on tour operators to generate demand

for their hotels. The global major chains have only

a token presence, 7,500 rooms, in the Spanish

Costas. But the tour operators price the holidays

by person rather than by room and are focussed

more on bed occupancy than on room occupancy.

A material proportion of total room stock on the

Costas closes for some months each year and

progressively the hotels are moving to all-inclusive

holidays, which further distort any hope of realistic

RevPAR data.

WhatcanbedonetomakereportedRevPARmoreeffectiveIn the calculation of RevPAR we propose the

following:

• Roomnightsavailableshouldbebasedonthe

total rooms in the hotel with no reductions.

• Room nights available should include every

night of the year.

• Roomoccupancy%should includeonlyroom

nights sold and should exclude complimentary

and internal hotel company use.

• Internal transfer pricing policies should be

declared and applied consistently.

• Thebasisofcalculationofrateallocationfrom

loyalty program points payment for room nights

should be declared and applied consistently.

• Travel agency commissions should be netted

from room rates paid.

• Non-rooms turnover should be reported as a

separate category.

In the use of RevPAR we propose the following:

• RealisethatRevPARcanbeapowerfulmeasure,

but realise that it is no panacea.

• BelessnaiveabouttheuseofRevPAR.

Summary and conclusionsAt least in prolonged periods of economic trauma

it is necessary to have credible and robust data

about hotel performance. Sadly, we do not have

that. The low visibility of the basis on which

the 900+ hotel brands in Europe calculate the

components of RevPAR and the poor analysis of

the hotel business by users of RevPAR as their

prime metric has caused havoc among the owners

of hotel equity and their lenders.

At Otus we have illustrated very regularly

over the years that in the absence of credible

and robust data from hotel companies, mature

analysis of the dynamics of hotel supply and of the

dynamics of economic structure are necessary to

make sense of the dynamics of the hotel business.

Indeed, on many occasions over the past five years

we have illustrated that hotel chain room supply

has increased despite the poor performance of the

European economies and that this is prolonging

the underperformance of the hotel business.

The hotel business now needs to improve its

credibility with all sections of the investment

community. We are clear that the hotel business

will not achieve this if we continue with insecure

calculation of the components of RevPAR and

naive analyses of complex hotel business problems

by its users.

Paul Slattery, Otus & Co Ltd

[email protected]

Ian Gamse, Otus & Co Ltd

[email protected]


Analysis

www.Burba.com

Hot.E HA_Ad.indd 1 2/7/2013 2:43:35 PM


Advertisement


Analysis

Whilst many protagonists described the hospitality

market of 2012 as “uncertain”, the phrase

being used for 2013 seems to be “modest”.

The uncertainty of the “fiscal cliff” in the US

(which inevitably effects all world markets) has

been replaced by a “fiscal ceiling”. Therefore,

whilst there will be growth, this growth will be

patchy in terms of both geography and type. The

challenge for hoteliers will be to build, manage

and differentiate their brands across all market

segments and territories and, in doing so, to

understand what customers are looking for to

build all-important brand and consumer loyalty.

The power of the brandBrand awareness remains a key influence on

the hotel sector and whilst there are numerous

challenges facing global hotel operators, these

operators remain best placed to face those

challenges. This said, as in so many walks of life,

some of the best ideas come at a micro level but

are then translated to businesses operating at

the macro level. This can be seen in the context

of the global hotel operators currently striving

to promote brands with their own, unique

independent identities. Established brands will

always have a place, but in today’s fast paced

world staying “current” is vital. A well-defined

brand, satisfying customer expectations in terms of

their experience is the cornerstone of the franchise

system, therefore hotel franchising remains critical

to growth and geographical expansion in the

hotel sector.

As we are all becoming increasingly aware,

the volume and richness of data and information

now available to consumers (and to the operators

themselves) is huge. Traditional media (such as

print) is no longer as important, digital platforms

like Expedia, TripAdvisor, Google Hotel finder and

a plethora of alternative sites are where consumers

GamechangersinthehospitalityindustryHoteliers need to embrace changes in the market, says DLA Piper’s Matthew Duncombe

obtain information. Add to this consumers’

requirement for mobile bookings (according to

statistics, just over 27% of mobile web browsing is

related to travel websites) and the rise and rise of

social media platforms disseminating information

(“likes”; “dislikes” and twiterrati followers), it is

easy to come to the conclusion that innovation

will be the focus for the hotel industry in the

coming years.

Technology:challengesandopportunitiesFew would disagree that the technological

revolution has become embedded in the travel

industry, but is the industry really taking the

bull by the horns? The majority of global hotel

operators are engaged in programmes to decipher

real time information and experiences and to

define their particular brands with consumers.

“Crowdsourcing” – the use of a defined crowd

to provide input into a particular problem – is

a methodology which the likes of IHG and

Starwood Hotels have already utilised, and in

the case of the latter was instrumental in helping

them develop what has become their successful

Aloft brand. However, the speed and scope of

technological change is a difficult quandary for

the hotel industry.

There was a time when technology in a hotel

was better than that at home. This trend has

somewhat reversed lately due to the domestic

spread of technology, such as smartphones and

tablets, tied with the significant infrastructure

costs for hotels to “get connected” and offer

guests the experience they now take for granted.

The prospect of seeing guest tablets in rooms

now seems possible, and research suggests there

are potential benefits for operators, where data

suggests guests are more likely to use services

such as room service or treatments if the services

are made available electronically via tablet app or

similar. Other services, such as f&b or more retail

related experiences (click & collect stores already

exist in city centres) could equally be offered

through partnerships with other brands that

resonate with the hotel. In the context of brands

and customer loyalty, these additional services

offer themselves as potential “micro brands”

that could be a differentiator for the operator.

The possibilities for operators seem vast and

it will be interesting to see how operators seize

the initiative.

Whilst adoption of technological change is seen

as “a must”, the legal implications of doing so are

numerous. The bigger players have the resources

to invest in new media platforms, mobile booking

systems, data harvesting and wifi access but they

will have to be cognizant of the e-commerce,

privacy and data protection, licensing, security,

cookies and numerous advertising issues

associated with it.*

Cyber security and cyber crime are extremely

topical issues which the hotel industry must

grapple with, given guests’ demand for

constant uninterrupted internet access. Equally

mobile booking systems create a conundrum

in the context that the virtual world is a multi-

jurisdictional world and thus it can be difficult to

establish what e-commerce rules and regulations

should be complied with (the country of origin

compliance issue under the EU’s e-commerce

directive); multi-jurisdictional terms and conditions

are feasible, but can be complicated. The use of

social media is fraught with risks and liabilities and

can operate both for and against the interests of

an operator, but generally the rewards outweigh

the risks if utilised appropriately.

The sustainability agendaInnovation can also be seen in the context of

eco-friendly policies. Today’s consumers are

increasingly environmentally aware and expect

the brands they affiliate with to be likewise

engaged. The combination of regulatory pressures

and guest requirements for sustainable and

value for money options make the hotel industry

extremely challenging.

Whilst not specifically targeted at the hospitality

industry, governments around the world are using

both a carrot and stick approach on sustainability,

with incentives such as tax credits and deductions

for sustainable development on the one hand

and schemes like the UK’s Carbon Reduction

Commitment (CRC) energy efficiency scheme

(which commits operators of both managed

and franchised hotels to be responsible for the

carbon emissions of those hotels) on the other.

Implementing sustainability policies across a

portfolio of hotels is particularly demanding for

hotel operators and achieving the right blend of

eco-friendly brand, with commercial realities and

local regulatory compliance is no mean feat.

•DLAPiper’sseriesof“ShiftingLandscapes”

articles (www.dlapipershiftinglandscapes.com)

provides an overview of the challenges

organisations face in the context of new

and emerging IT and digital technologies.

Matthew Duncombe is an associate

in DLA Piper’s Intellectual Property

and Technology group

[email protected]


Delivery address Invoice address (if different)

Name

Job title

Company

Address

Postcode Country

E-mail

Telephone

Name

Job title

Company

Address

Postcode Country

E-mail

Telephone

Subscribe

ZeroTwoZero Communications Ltd,Studio 22, Royal Victoria Patriotic Building,John Archer Way, London SW18 3SX, United Kingdomor fax to +44 (0)20 8870 6398

Please let us know if you do not want us to keep your details for use in other promotions by the publisher of Hotel Analyst or other parties.

Company number: 04661849 VAT registration number: 810 0943 69 Directors: Andrew Sangster, Sarah Sangster

Discounts are available for multiple copies. Please contact us for further details.

Payment

Colleague subscriptions

Send your order to:

For more information please call +44 (0)20 8870 6388 or e-mail [email protected] subscribe online...

Cheque enclosed/to be forwarded(payable to ZeroTwoZero Communications)ORPlease send me an invoice(the purchase order number is )(Companies within the EU but outside the UK should supplyTVA/BTW/MOMS or equivalent number )

Takeafreefourweektrial. Sign up online...

HA,HAEMandHADTarecosteffectivepurchasesbecause:

They save time – rather than plough through piles of overlapping print titles or suffering a clogged up inbox of irrelevant e-news,HA,HAEMandHADTdeliverstoyouthekeyinformationsuccinctly and accurately.

They provide insight – be up to speed with the deals that matter, the motivationsofthekeyplayersandthereasons driving them forward.

They enable you to understand –learnthekeythoughtsandopinionsof industry leaders. Read reports on the latestindustrythinkingdiscussedatconferences and seminars.

Hotel Analyst (HA), Hotel Analyst Emerging Markets (HAEM) and Hotel Analyst Distribution and Technology (HADT) are key reads for hotel industry professionals. They are different from all other titles in the hospitality sector. They are designed to focus purely on the information needs of the hotel investment and operating communities.

Hotel Analyst titles bring you more than simply news. Rather than historic reporting, it asks the crucial so what? question about events, exploring the meaning and impact of today’s deals and anticipating tomorrow’s transactions and trends.

A subscription to HA comprises three things: a newsletter published six times a year, a weekly web-based online news service and a daily news summary. All three are supplied within the one subscription price of £595 + VAT.

A subscription to HAEM and HADT comprises two things: a newsletter published six times a year and a weekly web-based online news service. Both are supplied within the one subscription price £495 + VAT.

The intelligence source for the hotel investment community

The intelligence source for the hotel investment community focused on emerging markets

The intelligence source for the hotel distribution and technology community

www.ha-dt.comwww.ha-em.comwww.hotelanalyst.co.uk

£595 + VAT(total price £714)



Sub

scribe

tick

£842.50 + VAT(total price £1011)

+


+


+

SINGLE PACKS 50% DISCOUNT PACKS BEST VALUE PACK

+

+


The Insider

Featured businessesAccor 6,10,11Akkeron 5,10,11Al Faisal Holding 12Alchemy Partners 15Amazon 3American Express 2Bank of America Merrill Lynch 3Barclays 1,3Bespoke 20Blackstone 3,15Carlson 13Carlson Rezidor 7CBRE 1Choice 5,10,11Christie + Co 9Colliers 20Colony 15Constellation Hotels 11Crownway Capital 1De Vere 3DLA Piper 26Ernst & Young 1Expedia 26Felcor 15Google 26Guestinvest 3Hilton 20,23Hogan Lovell 28HPT 14,15Hyatt 11IBRC 15InterContinental 7,8,9,20,23Jameson Inns 5Jones Lang LaSalle 4,5,7,8,9Leading Hotels of the World 4Lloyds 3Marriott 4,5,23Maybourne 1,3Melia 7,20Michels & Taylor 3Mint 1,3Motel One 20Orient-Express 4Otus & Co 22,23,24PhocusWright 2Powerscourt Group 3QHotels 15PWC 23,24Qatar Holding 11Rezidor 13Rocco Forte Hotels 28Royal Bank of Canada 3Savills 28SEB Asset Management 12Small Luxury Hotels of the World 8Starboard 28Starbucks 3,7Starwood 12,13Starwood Capital 1,3,11STR Global 7,23,24Taj 4Travelodge 7,9,20TravelClick 14Travelzoo 2Tripadvisor 26TRI Hospitality Consulting 2,16,17,18,22,28Tune Hotels 20Unibail-Rodamco 11VisitBritain 2Von Essen 9Wells Fargo Bank 3Whitbread 6,7Wyndham 14,15

hotelanalyst

©This is copyright material. Strictly no photocopying or scanning – including sharing within your organisation

Forte’s profit challenge

What’sinaname?

Tough times for Rocco Forte, whose chain of

luxury hotels recently declared its fourth year of

losses in a row. Despite declaring hotel profits up

11% and a turnover that rose to GBP185.4m,

Forte’s eponymous company still filed a pre-

tax loss of GBP9.3m in the year to April 2012,

a modest improvement on the previous year’s

GBP9.6m loss.

Despite the numbers, the company is pressing

ahead. Forte recently opened its first health and

wellness resort in Sicily; and it appears to have

agreed a truce with the landlord at the Augustine

in Prague. Reports in the Financial Times in

November suggested Rocco Forte Hotels was to

be given 30 days’ notice to quit; today, the Forte

website is still taking bookings.

Building a strong brand is all very well, but what

if it upsets the guests? Many customers prefer to

feel their choice is something distinct, local and

different; it’s a challenge not just for the major

groups growing boutique hotel chains, but for

hostel operators too.

Paul Callingham of Starboard Hotels, who is

currently working on his second UK hostel project,

in Liverpool, is wrestling with the issues of a brand

name, as well as a suitable moniker for the venue’s

ground floor bar and restaurant. “We’re silent on

QuickeningtheprocessMichelle Webb, director of hotel transactions in

Savills London office, reckons that worse than the

reduced deal flow at present is the length of time

transactions are taking.

She spoke at the Hogan Lovells hotel

conference, which is supported by both Savills and

TRI Hospitality and was held in London in February.

You could feel her pain.

To help ease the deal process she gave a

presentation on the top 10 tips for getting over

the line. First up was to get your due diligence

done up front. She, understandably, cited Savills

approach with Admiralty Arch in London as a case

of how to do it.

Much more fun though was her giving the

Birmingham Hyatt and the Cardiff Radisson as

examples of how not to do it when it comes to

another tip, giving realistic forecasts. In the case of

the Birmingham hotel it went from a £35m asking

price down to a final transaction price of £26.8m

thanks in part to over ambitious forecasts. The

Cardiff Radisson failed to transact.

Realistic forecasts feed into another tip,

realistic pricing. Agents are never happy

suggesting prices should be lower but in the

case of London’s Cavendish, it went from £230m

down to £160m and endured a 24 month sales

process. A more realistic approach at the outset

would have secured another £10m at least

suggested Webb.

More prosaic were the tips about sourcing

debt and becoming a counsellor. But with this

latter Webb gave some insight into the wily ways

of brokers by suggesting it was important to

understand the buyer. In the case of the Premier

Inn sale in Cambridge this meant knowing that

institutions had to commit funds by their year

end. With the Malmaison sale and leaseback it

meant getting London under offer before taking

the other properties to institutions and keeping

the transaction off market to avoid delaying

the process.

Finally, Webb was candid enough to admit

her own struggles. “It took us 19 months to

sell the Radisson Blu in Glasgow.” Her advice:

“Never give up.”

the brand at the moment,” admitted Callingham,

“and we’ve still not got a name.” And one major

challenge is not upsetting hostel guests: “Our

client group almost rebels against the brand,”

he notes.

As for the Liverpool bar, it may just end up being

called the Kansas Food Company. Not because

Callingham’s colleagues love the Midwestern

state, or plan to serve barbecued ribs; but as the

new hostel is being converted from what most

Liverpudlians know as the Kansas buildings.

Volume 8 Issue 6 hotelanalyst · As far as business travel is concerned, December’s American...

Documents

Transcript of Volume 8 Issue 6 hotelanalyst · As far as business travel is concerned, December’s American...