Global Hotel Corporate Travel Survey: 15Th Edition

November 15, 2017 05:00 AM GMT

MORGAN STANLEY & CO. INTERNATIONAL PLC+ Leisure and Hotels Jamie Rollo EQUITY ANALYST [email protected] +44 20 7425-3281 Global Hotel Corporate Travel Adrija Chakraborty EQUITY ANALYST [email protected] +44 20 7425-6844 Survey: 15th Edition Ed Young EQUITY ANALYST [email protected] +44 20 7677-1761

Our 15th annual Global Hotel Corporate Travel Survey MORGAN STANLEY & CO. LLC suggests slightly stronger support for RevPAR growth in 2018 Thomas Allen EQUITY ANALYST in nearly all regions, both on room rate and volume, with [email protected] +1 212 761-3356 Brian Nowak, CFA particular inflection in Europe and China. We set new country EQUITY ANALYST RevPAR forecasts. Our top picks are Accor, Marriott, Hilton. [email protected] +1 212 761-3365 MORGAN STANLEY ASIA LIMITED+ Background to the survey. This is our 15th annual AlphaWise Global Hotel Praveen K Choudhary EQUITY ANALYST Corporate Travel Survey, and it has historically been a good guide to RevPAR [email protected] +852 2848-5068 growth, as negotiated corporate rates represent 20%-30% of all bookings, and Alex Poon EQUITY ANALYST the corporate segment is up to 75% of hotel industry profitability. 234 corporate [email protected] +852 3963-3838 travel managers answered the survey, and all have primary or shared responsibility for managing corporate travel needs and are involved in hotel MORGAN STANLEY INDIA COMPANY PRIVATE LIMITED+ Satyam Thakur negotiations, which tend to be carried out each year at around this time. EQUITY ANALYST [email protected] +91 22 6118-2231 Key findings: MORGAN STANLEY ASIA (SINGAPORE) PTE.+ Overall, 63% of respondents expect their total travel budgets (air + Wilson W Ng, CFA hotels) to increase in 2018, up from 55% for 2017, with a budget weighted EQUITY ANALYST [email protected] +65 6834-6345 average increase of 2.8% vs 2.4% for 2017. RMB MORGAN STANLEY PROPRIETARY LIMITED+ Corporate travel managers expect both hotel rate and volume growth to Michele Olivier EQUITY ANALYST be stronger than last year. The average expectation for 2018 hotel booking [email protected] +27 11 282-4644 volumes is +1.5% (2017 +0.9%) and hotel room rates +1.3% (2017 +0.8%). Leisure and Hotels This implies 2.9% hotel revenue growth globally next year (2017 1.7%). This Europe improvement is expected across all key markets, with a particular IndustryView In-Line improvement in Europe and China. Revenue growth of 2.9% is above supply growth at 1-2% in most markets, implying positive RevPAR.

US expectations strengthened, with both room rate growth (2.3% vs 1.9%) and volume growth (3.3% vs 2.6%) expected to improve. This implies total spend on hotels accelerating from 4.5% growth in 2017 to 5.6% in 2018, the strongest market overall. We are surprised by the Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a expected strength in volume growth, and are mindful that travel managers result, investors should be aware that the firm may have a commit to rate not volume. With covered companies guiding closer to 0- conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider 2% RevPAR growth and third-party surveys suggesting corporate Morgan Stanley Research as only a single factor in making negotiations could be a bit of a headwind, we leave our 2018 RevPAR their investment decision. For analyst certification and other important disclosures, forecast at 2.3% (having increased it last week here). This is marginally refer to the Disclosure Section, located at the end of this below the 2.6% YTD run rate. Note that comps are tougher in Q1 report. (inauguration / women's marches). += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a Expectations for Europe also strengthened, with room rate growth subject company, public appearances and trading securities held by a research analyst account. expectations improving by around 1%-pt in both France and Germany, and

1 volume expectations increasing by just under half this. This implies hotel revenue growth of 2-3% in both countries versus 1.0-1.5% last year. While these are lower absolute growth rates than the US, Europe performed a lot stronger this year despite weaker expectations in last year's survey, and given occupancies are still growing more strongly in Europe we think RevPAR will again grow more strongly here than the US in 2018. Our top- down model implies 4.0% RevPAR in Europe in 2018, below the YTD run rate of 6.0%. France in particular has lots of catch-up potential as room rates fell this year despite occupancies growing strongly.

UK expectations improved sharply. Hotel revenue growth expectations improved from 2.1% in last year's survey to 3.7%, with both volume and rate growth improving c 1%-pt. Last year saw expectations drop by around half, probably a function of lower certainty after the Brexit vote. This year's expectations are encouraging, though still below the 4.7% from two years ago. UK RevPAR has slowed sharply in recent months, particularly in London where supply is high and the market has lapped the weak GBP benefit. Our top-down model implies 1.8% RevPAR in the UK in 2018, below the YTD run rate of 5.3%.

China expectations strengthened sharply. Expectations for hotel spend improved from 1.8% to 4.0%, with the improvement coming equally from volume and rate. China has surprised on the upside this year, with YTD RevPAR +6.1% and strengthening over the summer as leisure switched to domestic travel.

Airbnb usage increasing. 35% of respondents said their company used alternative accommodation like Airbnb in the last 12 months, above the 20% for our recent consumer survey respondents (see here). Actual usage for the corporate sector is low, reflecting issues over employers' duty of care and the skew to low duration stays, but Airbnb is still growing rapidly, and we estimate it is having a ~0.5% negative impact to annual RevPAR growth. Interestingly 17% of survey respondents said they are using re- pricing tools, like TripBAM, on their reservations.

Positive on Accor, Marriott and Hilton. Around 50% of Accor's revenue is from Europe, and another 30% from Asia, meaning it should continue to report stronger RevPAR than its large US-focused peers. The main catalyst is its planned move to an asset light model, and it still hopes to announce an AccorInvest disposal by year end. Marriott and Hilton are growing rooms 6-7% / year, and with a stable RevPAR backdrop and idiosyncratic drivers (credit card contract negotiations, Starwood synergies), driving double-digit EBITDA growth.

Cautious on IHG, DiamondRock and Sunstone. Although IHG has a high exposure to the US where we see another year of solid RevPAR, its skew to the high supply growth Midscale segment as well as its renovation programme mean it is likely to continue to underperform on RevPAR, and also we think on unit growth. We expect US REITs such as DiamondRock and Sunstone to experience below-market RevPAR growth, given exposure

2 to gateway cities where corporate negotiated rate growth is expected to decelerate in 2018, traditional supply is growing faster and Airbnb penetration is higher, with the effect illustrated in our compression night analysis. In addition, cost inflation headwinds will become more pronounced as RevPAR remains muted.

Recent Reports: Global Hotels: Surprising Airbnb Adoption Slowdown in US/EU, and What It Means for Hotels and OTAs Hotels: Global RevPAR Tracker European Hotels: No Airbnb Wake-up Call (Yet) Global Hotels: Are Hotels Better Off from Brands' Direct Booking Push? Hotels: Space Exploration: IHG to Underweight

Global Hotel Corporate Travel Survey

This is our 15th annual Global Hotel Corporate Travel Survey. Our survey has historically been a good guide to RevPAR growth, as negotiated rates represent 20-30% of all bookings, and the corporate segment is up to 75% of hotel industry profitability.

Exhibit 1: Our survey has historically been a good guide to corporate hotel rates

US 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2013 2014 2015 2016 2017* 2018 Corporate rate growth (survey expectation) Actual room rate growth (STR)

Source: STR, AlphaWise, Morgan Stanley Research *YTD ADR growth for 2017

Key takeaways

63% of our respondents said they expected an increase in their overall travel budget vs. 55% last year …

Exhibit 2: 63% of respondents expect their overall travel budget to increase in 2017 vs. 55% last year, with a budget weighted average increase of 2.8% versus 2.4% for 2017

35% Change in overall travel budget, 2018 vs. 2017 30% 63% (vs. 55% in 2016) 25% 20% 15% 10% 5% 0% Decrease Decrease Decrease Decrease Decrease No Increase Increase Increase Increase Increase by more 16% - 11% - 6% - 10% by 5% or change by 5% or 6% - 10% 11% - 16% - by more than 20% 20% 15% less less 15% 20% than 20%

Source: AlphaWise, Morgan Stanley Research, note total budget includes hotel and airline spend

4 … with respondents expecting c. 1.5% growth in both hotel volumes and room rates, better than last year (0.9%/0.8%) …

Exhibit 3: 44% of respondents expect room booking volumes to increase in 2017 (vs. 41% last year), with an Exhibit 4: … 39% expect room rates to increase (vs. 52% last year), average 1.5% increase (0.9% last year) ... with an average 1.3% increase (0.8% last year)

Expected change in negotiated rates, 2018 vs. 2017

48%

20%

12% 6% 5% 6% 0% 2% 0% >10% + 7% to 10% + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10%

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Exhibit 5: Price and volume growth expectations look better than in 2017 in all markets 5.0% Price 5.0% Volume 4.0% 4.0%

3.0% 3.0%

2.0% 2.0%

1.0% 1.0%

0.0% 0.0% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 UK France Germany US China Average UK France Germany US China Average

Source: AlphaWise, Morgan Stanley Research

Exhibit 6: Room rates and booking volumes are expected to accelerate in 2018 vs. this year, c. 1.2%-pt stronger hotel revenue growth 2018 2017 Room volume Room Rates Revenue growth Room volume Room Rates Revenue growth UK 1.8% 1.9% 3.7% 0.9% 1.2% 2.1% France 0.7% 1.2% 1.9% 0.5% 0.3% 0.8% Germany 1.5% 1.5% 2.9% 1.1% 0.3% 1.4% US 3.3% 2.3% 5.6% 2.6% 1.9% 4.5% China 2.3% 1.7% 4.0% 0.8% 1.0% 1.8% Latin America 1.6% 0.8% 2.3% 0.8% 0.5% 1.2% Middle East 1.2% 0.9% 2.0% 0.0% 0.8% 0.8% Africa 0.7% 0.6% 1.3% 0.4% 0.5% 0.8% Asia 1.6% 1.7% 3.3% 1.0% 1.2% 2.2%

Average 1.5% 1.3% 2.9% 0.9% 0.8% 1.7% Source: AlphaWise, Morgan Stanley Research

5 Exhibit 7: 2018 revenue expectations from survey participants: 5.6% in the US, 3.7% in the UK, 3.3% in Asia Average changes expected in 2018 5.6% Revenue growth Room Rates 4.0% Room volume 3.7% 3.3% 3.3% 2.9% 2.3% 2.3% 2.3% 2.0% 1.9% 1.8% 1.9% 1.5% 1.7% 1.6% 1.7%1.6% 1.2% 1.5% 1.2% 1.3% 0.7% 0.8% 0.9% 0.7% 0.6%

UK France Germany US China Latin America Middle East Africa Asia

Source: AlphaWise, Morgan Stanley Research. Note Asia is calculated as an average of China, Hong Kong and Singapore

Exhibit 8: … with primary markets (where the large hoteliers have the largest presence) increasing room rates the most Expectation of room rate growth in primary vs. secondary markets 26.0% 25.0% 24% 19%

5% 1%

Rates in primary Rates in primary Rates in primary Rates growth to be the Rates in primary Rates in primary markets to grow at markets to grow 3-4% markets to grow at 1- same in primary and markets to grow at 1- markets to grow 3-4% least 5% more than more than secondary 2% more than secondary markets 2% less than secondary less than secondary secondary markets markets secondary markets markets markets Source: AlphaWise, Morgan Stanley Research

Exhibit 9: The proportion of companies looking to trade down in hotels (to offset increases in airfares or decreases in travel budgets) increased from last year

Yes No 80% 67% 67% 68% 66% 70% 62% 63% 58% 60% 50% 42% 38% 37% 40% 33% 33% 32% 34% 30% 20% 10% 0% 2011 2012 2013 2014 2015 2016 2017

Source: AlphaWise, Morgan Stanley Research

6 Exhibit 10: 17% of our survey respondents said they use re-pricing service (such as TripBAM) on their hotel reservations

Yes, 17%

No, 83%

Source: AlphaWise, Morgan Stanley Research

Survey details

This year’s survey was conducted online between October 13 and October 23. 234 corporate travel managers answered at least part of the survey. All participants have primary or shared responsibility for managing corporate travel needs and are involved in hotel negotiations. Companies represented in the survey are from a good mix of industries: Industrials (17%), Technology/Telecom (14%), Financial Services (11%), Consumer Products (8%), Pharmaceutical/Healthcare (4%), Media (2%) and Real Estate (1%). 35% of respondents' companies have annual revenue of $1-15 billion and 29% have $16+ billion in revenue. 57% have an annual travel budget of $10 million or more.

Exhibit 11: Annual hotel nights booked … Exhibit 12: … and travel budgets demonstrate the breadth of the survey Annual travel budget More than $100 million, 19%

$76 million - Less than $5 $100 million, 5% million, 32% $51 million - $75 million, $264 m%illion - $50 million, $5 million - $9 8% $10 million - $25 million, 10% million, 21%

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Airbnb

35% of our respondents said their company used alternative accommodation like Airbnb in the last 12 months. This would imply a sharp increase versus 16% in 2016 and 14% in 2015 and another 13% might use it in 2018 (11% last year), but note last year's survey just asked about Airbnb, and this year's asked about alternative accommodation, so the figures are not directly comparable.

Our survey suggests 35% of respondents used alternative accommodation in the last 12 months, a major step-up from 16% last year. This compares to our consumer Airbnb survey (published here) which suggests 20% of corporate travellers used Airbnb in the last 12 months.

Amongst those who have not used Airbnb in the last 12 months, 13% said they expected to use it in 2018 (vs. 11% last year), implying increasing penetration.

Exhibit 13: 35% of respondents used alternative accommodations like Airbnb in the last 12 months vs. 16% who had used Airbnb Business Travel in 2016, as per our previous survey ...

2017 2016 Yes, 16% Yes, 35%

No, 65%

No, 84% No, 86%

Source: AlphaWise, Morgan Stanley Research

Exhibit 14: … and 13% of non users expect to use Airbnb in the next 12 months vs. 11% a year ago

2018 Yes, 13% 2017 Yes, 11%

No, 87% No, 90%

Source: AlphaWise, Morgan Stanley Research

USA

We see US RevPAR growing 2.3% in 2018 and 1.6% in 2019, decelerating slightly from 2.6% in 2017, driven by increasing Airbnb usage and slightly higher supply growth We model corporate negotiated rates as having a neutral impact to growth, versus a drag in 2017. While our survey suggests negotiated rates could be a slight positive driver to growth, a recent NYU survey suggested a slight drag, so we meet in the middle.

Our survey respondents expect overall corporate negotiated rates to increase by 2.3% vs. last year's expectation of 1.9%. US room booking volumes are expected to increase by 3.3%, also stronger than last year's expectation of 2.6%.

That said, using results of its annual study, NYU is forecasting US corporate rate increases of 2-3.5%, down from 3-4% growth in 2016.

For the key markets in the US, next year rate growth is expected to decelerate slightly to 2.5% from the 3.1% rate growth expected for 2017, while booking volume growth is expected to remain similar to last year at 1.9%.

Exhibit 15: Our survey suggests stronger volume growth in the US ... Exhibit 16: … and stronger room rate growth versus last year

2018 US Hotel Volume Expectations 2018 US Rate Growth Expectation 60.0% 40% 35% 50.8% >10% 50.0% >10% 35% 33% + 7% to 10% + 7% to 10% 30% 27% 26% 40.0% + 3% to 6% 24% + 3% to 6% 25% 22% 28.7% + 1% to 2% + 1% to 2% 30.0% 27.1% 20% Flat Flat 18.9% 20.0% 16.8% 18.1% - 1% to 2% 15% 14.4% - 1% to 2% - 3% to 6% 10% 8% 8% - 3% to 6% 10.0% - 7% to 10% 4.0% 4.7% 5.9% 3% 3% 2.0% 1.7% 2.7% 2.1% 5% 3% 2% 2% - 7% to 10% 0.7% 0.4% 0.5% 0.5% <-10% 1% 0% 0% 0.0% 0% <-10% US Main Cities US US Main Cities US

Source: AlphaWise, STR, Morgan Stanley Research Source: AlphaWise, STR, Morgan Stanley Research

Exhibit 17: We forecast 2.3% 2018 and 1.6% 2019 US RevPAR growth, Exhibit 18: US RevPAR up 2.6% YTD with neutral corporate negotiated rate impact (vs. drag in 2017) USA 20.0% Occ.TTM Avg.RoomRate.TTM RevPAR.TTM 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Source: STR, Morgan Stanley Research -15.0% E = Morgan Stanley Research estimates -20.0% 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 9 9 9 9 0 0 0 0 0 1 1 1 1 ------p p p p p p p p p p p p p p e e e e e e e e e e e e e e S S S S S S S S S S S S S S Source: AlphaWise, STR, Morgan Stanley Research

9 Exhibit 19: Lodging demand follows the economic cycle. Demand Exhibit 20: Supply growth hit 2% in 2017, its longer-term average softened from 1Q15 but has stabilized in recent quarters 5.0% 4.5% Average 10.0% 4.0% 8.0% 3.5% 6.0% 3.0% 4.0% 2.0% 2.5% 0.0% 2.0% -2.0% 1.5% -4.0% 1.0% -6.0% 0.5% -8.0% 0.0% E E 9 0 1 2 3 4 5 6 7 8 9 0 2 3 4 6 7 8 9 0 1 2 3 5 6 8 1 5 4 7 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -10.0% 9 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 3 5 8 0 3 5 8 0 3 5 9 1 2 4 6 7 9 1 2 4 6 7 9 1 2 4 6 7 2 2 9 9 9 9 0 0 0 0 1 1 1 8 9 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Source: STR, Morgan Stanley Research Room Demand Growth Real GDP Growth e = Morgan Stanley Research estimates Source: STR, Morgan Stanley Research

Exhibit 21: Occupancy levels are well above the 59% level where Exhibit 22: Room rates grow mid-single digits during upcycles, are up hoteliers have pricing power, but pricing hasn't reached historical 2.0% YTD, at the low-end of typical ranges levels 75% 20% Occupancy Rate growth 12% Up-cycle average rate growth 65% 10% 1972-1990: 8% 1992-2000: 4.1% 15% 8% 70% 2004-2008: 4.9% 63% 2011-2016: 4.0% 6% 10% 4% 65% 61% 2% 5% 0% 59% 60% OCCUPANCY SWEET SPOT -2% 0% -4% 57% 55% -6% -5% Average daily rate Occupancy 55% -8% -10% 50% -10% 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 8 8 8 8 8 9 9 9 9 9 1 7 7 7 0 0 0 0 0 1 1 9 9 9 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 0

53% -12% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Source: STR, Morgan Stanley Research Source: STR, Morgan Stanley Research

10 Exhibit 23: Top down US annual RevPAR model US RevPAR build-up 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e Real GDP (A) 2.5% 3.5% 3.1% 2.7% 1.9% -0.3% -3.1% 2.4% 1.8% 2.2% 3.1% 2.4% 2.6% 1.6% 2.0% 2.0% 2.0% GDP multiplier (B) 0.8x 0.9x 1.2x 0.5x 0.8x 6.1x 1.7x 3.3x 2.9x 1.3x 0.9x 1.9x 1.2x 1.1x 1.3x 1.2x 1.2x Avg demand (mm) (C) 2.54 2.63 2.73 2.76 2.80 2.75 2.60 2.81 2.96 3.04 3.12 3.26 3.36 3.42 3.51 3.59 3.68 Demand growth = A x B 2.0% 3.3% 3.8% 1.3% 1.5% -1.8% -5.4% 7.8% 5.3% 2.8% 2.7% 4.6% 3.0% 1.8% 2.6% 2.4% 2.4% Avg supply (mm) (D) 4.26 4.28 4.31 4.35 4.41 4.52 4.67 4.77 4.80 4.82 4.85 4.89 4.95 5.03 5.13 5.24 5.35 Supply growth 1.4% 0.5% 0.8% 0.7% 1.5% 2.4% 3.5% 2.0% 0.8% 0.2% 0.7% 0.9% 1.2% 1.6% 2.0% 2.1% 2.1%

Occupancy = C / D (E) 59.2% 61.3% 63.1% 63.4% 63.2% 60.4% 55.1% 57.6% 60.1% 61.4% 62.3% 64.4% 65.6% 65.5% 65.9% 66.1% 66.3% % growth 0.2% 3.7% 2.9% 0.5% -0.2% -4.2% -8.7% 5.7% 4.4% 2.5% 1.5% 3.6% 1.7% 0.1% 0.6% 0.3% 0.3% ADR (F) $83 $86 $91 $97 $104 $107 $98 $98 $102 $106 $110 $115 $120 $124 $126 $129 $131 % growth -0.1% 4.0% 5.3% 7.0% 5.9% 2.4% -8.8% -0.1% 3.7% 4.2% 3.9% 4.6% 4.4% 3.1% 2.0% 2.0% 1.3% RevPAR ($) = E x F $49 $53 $57 $62 $65 $64 $54 $56 $61 $65 $69 $74 $79 $81 $83 $85 $87 % growth 0.2% 7.8% 8.4% 7.5% 5.7% -1.9% -16.7% 5.5% 8.2% 6.8% 5.4% 8.3% 6.3% 3.2% 2.6% 2.3% 1.6% Source: STR; Morgan Stanley Research. e = Morgan Stanley Research estimates

We see 2018 RevPAR growth at c. 2%, driven mostly by room rate growth, with supply growth still relatively high Our survey shows expectations for volume and rate growth in the UK have both increased from a year ago.

This implies corporate revenue growth of 3.7% in 2018 vs. 2.1% last year.

The UK hotel market benefitted from increased inbound tourism in the first half of the year but this has slowed given the terror attacks and lapping the drop in the GBP.

We expect c.2% RevPAR growth in 2018, slowing from c.4.3% this year.

Exhibit 24: Our survey suggests UK hotel booking volume should grow Exhibit 25: … with rate growth expectation at +1.9%, stronger than 1.8% in 2018, stronger than the 0.9% expected in last year's survey ... last year's +1.2% 2018 UK Hotel Volume Expectations 2018 UK Hotel Rate Expectations 38% 42.5%41.9% 32% 2018 2018 2017 25.6% 24.4% 2017 21.8% 22.1% 17% 20.5% 17.8% 11.5% 10.3% 7% 10.5% 4% 2%1.3% 1.3% 2.6% 1.3% 6.2% 8.1% 0% 0% 0% 3.4% 4.7% 4.8%3.5% 3.4% 3.5% 3.5% 2.3% 1.4% 0.0% >10% + 7% to 10% + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10%

>10% + 7% to + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to <-10% Source: AlphaWise, Morgan Stanley Research 10% 10%

Source: AlphaWise, Morgan Stanley Research

Exhibit 26: In London, our survey respondents expect both rate and volume to grow at c.2% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% >10% + 7% to + 3% to + 1% to Flat - 1% to - 3% to - 7% to <-10% 10% 6% 2% 2% 6% 10% Rate growth expectation Volume growth expectation

Source: AlphaWise, Morgan Stanley Research

12 Exhibit 27: We forecast c.2% RevPAR growth in 2018 ... Exhibit 28: … driven by room rate growth and moderating supply UK 2012 2013 2014 2015 2015 2017e 2018e growth Real GDP growth 1.3% 1.9% 3.1% 2.2% 1.8% 1.6% 1.1% GDP multiplier 1.6x 2.7x 1.4x 1.0x 0.9x 1.7x 1.5x Hotel demand growth 2.1% 5.2% 4.3% 2.2% 1.7% 2.8% 1.7% UK Hotel supply growth 2.5% 2.7% 1.4% 1.8% 2.1% 2.0% 1.8% 12% Occupancy - % growth -0.4% 2.4% 2.9% 0.4% -0.4% 0.8% -0.1% 10% ADR- % growth 3.2% 0.1% 4.8% 3.7% 1.6% 3.5% 2.0% RevPAR - % growth 2.8% 2.5% 7.9% 4.1% 1.2% 4.3% 1.8% 8% Source: AlphaWise, STR Global, Morgan Stanley Research 6% e = Morgan Stanley Research estimates 4% 2% 0% -2% -4% -6% -8% 9 6 7 4 8 5 0 7 4 8 1 5 3 6 0 3 7 5 6 2 3 7 4 4 1 0 0 1 1 0 0 1 1 1 0 0 1 1 0 1 1 0 1 1 0 1 0 1 0 1 ------l l t t r r r r v c v c y y p g p g p n n n n b b u u c c p p a a o e o e a a e u e u e u a u a e e J J A O A O J J J J M F M F N D N D S A S A S M M Demand 3M rolling Supply 3M rolling

Source: STR, Morgan Stanley Research

Exhibit 29: UK RevPAR is 23% above prior peak in nominal terms, with Exhibit 30: … but in real terms, the UK is marginally above prior peak London +25%, Regions +20%......

130 110% TTM RevPAR from peak Real TTM RevPAR from peak 125 105% 120 100% 115 110 95% 105 90% 100 85% 95 80% 90 85 75%

80 70% 8 9 0 1 6 7 2 3 4 5 9 0 1 2 6 7 9 0 1 2 3 4 5 6 7 3 4 5 2 3 4 5 8 9 0 1 6 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 5 6 7 4 9 0 1 2 3 4 5 6 7 0 0 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 1 1 1 0 1 1 1 1 1 1 1 1 ------0 0 1 1 1 1 1 1 1 0 0 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 r r r r r r r r r ------c c c c c c c c c p p p p p p n n n n n n p p p p n n n a a a a a a a a a y y y y y y y y y y n n n n n n n n n p p p p p p p p p p e e e e e e e e e u u u u u u e e e e e e e e e e u u u a a a a a a a a a a e e e e e e e e e e a a a a a a a a a J J J J J J J J J M M M M M M M M M D D D D D D D D D S S S S S S S S S S J J J J J J J J J S S S S S S S S S S M M M M M M M M M M London UK Regional London UK Regional Source: STR, Morgan Stanley Research Source: STR, Morgan Stanley Research

Exhibit 31: … with stronger occupancy levels than the prior cycle Exhibit 32: RevPAR growth +5.3% in 2017 YTD vs 0.6% last year 20.0% 90 UK 15.0% 85 Occ. TTM Avg. Room Rate TTM RevPAR TTM London 10.0% 80 5.0% 75 0.0% 70 Regions -5.0% 65 -10.0% 6 7 8 9 0 1 2 3 4 5 6 7 0 0 0 0 1 1 1 1 1 1 1 1

60 ------p p p p p p p p p p p p 3 5 7 9 1 3 5 7 4 6 8 2 4 6 3 5 7 9 1 3 5 7 0 e e e e e e e e e e e e 0 0 0 0 1 1 1 1 0 0 0 0 1 1 1 1 0 0 0 1 1 1 1 ------S S S S S S S S S S S S y y y y y y y n n n n n n n n p p p p p p p p a a a a a a a e e e e e e e e a a a a a a a a J J J J J J J J S S S S S S S S M M M M M M M Source: STR, Morgan Stanley Research Source: STR, Morgan Stanley Research

France

We expect the recovery in French RevPAR growth to continue in 2018 Our survey results show an expected 0.7% growth in room volume and 1.2% in room rates, better than last year's 0.5% and 0.3% respectively.

This implies corporate revenue growth of c.2%.

We expect RevPAR growth to improve to c.4% in 2018 as inbound tourism improves, similar to this year.

This year's recovery has been driven mainly by strong occupancy growth, and room rate growth should follow.

Exhibit 33: According to our survey, booking volume growth in France Exhibit 34: … with room rates expected to increase to 1.2% vs. 0.3% is expected to improve marginally to 0.7% vs. 0.5% last year... last year

2018 France Hotel Volume Expectations 2018 France Hotel Rate Expectations 52.9% 58.1% 60.0% 2018 2018 41.8% 2017 2017 27.7% 22.4% 19.4% 17.3% 10.1% 10.1% 9.3% 10.4% 10.4% 10.4% 0.0% 2.7% 3.9% 4.7% 4.0% 0.8% 2.3% 2.7% 2.7% 0.8% 0.0%1.3% 3.4% 3.4% 0.8% 1.5% 1.5% 1.7% 0.0%0.0% 0.0%1.5% >10% + 7% to 10% + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10% >10% + 7% to + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10% 10%

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Exhibit 35: We forecast c.4% RevPAR growth for 2018 Exhibit 36: RevPAR growth 3.6% YTD 2017, well above -2.9% in 2016 France 2012 2013 2014 2015 2016 2017e 2018e Real GDP growth 0.2% 0.6% 0.7% 1.2% 1.1% 1.8% 1.8% France GDP multiplier -6.9x 0.1x 1.7x 1.4x -0.3x 2.9x 1.5x 15.0% Hotel demand growth -1.5% 0.0% 1.1% 1.7% -0.3% 5.3% 2.7% TTM.Occ TTM.Avg.RoomRate TTM.RevPAR Hotel supply growth 0.0% 0.8% 1.3% 2.3% 0.6% 0.5% 0.5% Occupancy - % growth -1.7% -0.3% 0.1% -0.1% -1.8% 4.7% 2.2% ADR- % growth 3.6% -1.6% 3.3% 7.1% -0.9% -1.0% 2.0% 10.0% RevPAR - % growth 1.9% -2.0% 3.5% 6.9% -2.7% 3.7% 4.2% Source: MKG, Morgan Stanley Research 5.0% e = Morgan Stanley Research estimates

0.0%

-5.0%

-10.0% 8 9 0 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 0 1 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 ------p p p p p p p p p p p p p p p p p p p p e e e e e e e e e e e e e e e e e e e e S S S S S S S S S S S S S S S S S S S S

Source: MKG, Morgan Stanley Research

Germany

Our survey suggests stronger volume and room rate growth versus last year Our survey respondents expect room volume to grow by 1.5% in 2018 (1.1% last year).

Room rate is expected to grow by 1.5%, much stronger than last year's expectation of just 0.3%.

We expect RevPAR growth of c.3.5% in 2018, stronger than 2017 YTD growth of 2.2%, which has been held back by calendar shifts.

Exhibit 37: Our survey respondents expect booking volumes to grow Exhibit 38: … and 1.5% room rate growth vs. 0.3% last year by 1.5% in 2018 vs. 1.1% last year ... 2018 Germany Hotel Rate Expectations 2018 Germany Hotel Volume Expectations 50% 48% 42.6% 56.0% 45% 2018 48.9% 40% 2018 35% 2017 29.4% 2017 30% 28% 25% 20% 23.3% 15% 11.8% 17.3% 15% 10.3% 15.0% 10% 2% 4% 4.4% 6.7% 5.3% 4.0% 5% 2%0.0% 0.0% 1% 0%0.0% 0%1.5% 3.0%2.7% 3.0% 3.0% 4.0% 1.3% 2.7% 2.3% 1.5% 0.0% 0% >10% + 7% to + 3% to 6%+ 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to <-10% >10% + 7% to 10% + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10% 10% 10% Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Exhibit 39: We forecast c.3.5% RevPAR growth in 2018 Exhibit 40: RevPAR growth in Germany 2.2% YTD 2017, well below Germany 2012 2013 2014 2015 2016 2017e 2018e +4.9% in 2016 Real GDP growth 0.7% 0.6% 1.9% 1.5% 1.9% 2.1% 1.9% GDP multiplier 3.3x 2.6x 1.2x 1.2x 1.2x 1.0x 1.2x Germany Hotel demand growth 2.2% 1.6% 2.3% 2.1% 2.2% 2.1% 2.3% Hotel supply growth -0.3% 0.0% -0.1% 0.5% 0.0% 0.8% 0.5% 20.0% Occupancy - % growth 1.8% 1.7% 2.3% 1.9% 0.9% 2.8% 1.6% Occ. TTM Avg. Room Rate TTM TTM RevPAR Chg. ADR- % growth 3.7% -0.5% -0.9% 3.3% 3.6% 1.0% 1.7% 15.0% RevPAR - % growth 5.6% 1.1% 1.4% 5.2% 4.6% 3.3% 3.4% 10.0% Source: MKG, Morgan Stanley Research e = Morgan Stanley Research estimates 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 5 6 7 4 1 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 ------p p p p p p p p p p p p p p p p p p p p e e e e e e e e e e e e e e e e e e e e S S S S S S S S S S S S S S S S S S S S

Source: AlphaWise, MKG, Morgan Stanley Research

Europe

RevPAR in Continental Europe is c.7% above the prior peak vs. 24%/27% in the UK and US, and just c.3% above in real terms. We thus see faster RevPAR growth in Europe than the US, given their relative positions in the current cycle. We forecast 4% RevPAR growth in 2018, slower than 2016's 6% but stronger than the US at 2%.

Exhibit 41: Occupancy now above 2008 but well below 2001 Exhibit 42: TTM real RevPAR is c.3% above 2008 peak

Europe 10.0% 72% 10% 5.0% 70% 5% 0.0% 68% -5.0%

66% 0% -10.0% OCCUPANCY SWEET SPOT -15.0% 64% -5% -20.0% 9 1 3 5 7 8 0 2 4 6 62% 8 9 0 1 2 3 4 5 6 7 0 0 1 1 1 1 1 1 1 1 0 1 1 1 1 0 1 1 1 1 ------r r r r r r r r r r -10% p p p p p p p p p p a a a a a a a a a a e e e e e e e e e e S S S S S S S S S S

60% M M M M M M M M M M

58% -15% TTM RevPAR % from peak 1999 2000 2002 2004 2005 2007 2009 2010 2012 2014 2015 2017 Source: MKG, Morgan Stanley Research Occ. TTM Avg. Room Rate TTM

Source: MKG, STR, STR Global, Morgan Stanley Research

Exhibit 43: Our top-down model implies 4% RevPAR in 2018, slower Exhibit 44: Europe hotel cycle – current versus prior shows headroom than this year's 6% but still strong for improvement Europe 2012 2013 2014 2015 2016 2017e 2018e Real GDP growth -0.5% 0.2% 1.4% 2.0% 1.8% 2.1% 1.8% GDP multiplier -0.7x 6.8x 1.8x 1.3x 0.7x 2.0x 2.0x Europe 01-08 Europe 08-present Hotel demand growth 0.3% 1.6% 2.5% 2.5% 1.2% 4.2% 3.6% 115 Hotel supply growth 0.6% 0.7% 0.5% 0.8% 1.0% 1.0% 1.3% Occupancy - % growth -0.4% 0.9% 1.9% 1.8% 0.3% 3.2% 2.4% 110 ADR- % growth 1.6% 0.5% 0.3% 6.1% 2.3% 3.0% 1.5% 105 RevPAR - % growth 1.2% 1.5% 2.3% 8.2% 2.5% 5.6% 4.0% Source: MKG, Eurostat, STR Global, Morgan Stanley Research 100 e = Morgan Stanley Research estimates 95 90 85 80 75 70 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 Source: MKG, STR, STR Global, Morgan Stanley Research

Asia

Our survey respondents expect room revenue to grow by 3.3% in 2018 versus 2.2% in our previous survey

Exhibit 45: Our survey respondents expect booking volumes to Exhibit 46: … with negotiated room rates growth of 1.7% vs. 1.2% in increase by 1.6% in 2018 versus 1.0% last year ... 2017

2018 Asia Hotel Volume Expectations 2018 Asia Hotel Rate Expectations 40.7% 45.2% 45.8% 2018 32.1% 33.7% 2018 2017 28.1% 2017 22.5% 20.51%8.7% 16.4%17.8% 15.9%

7.8% 5.5%4.9% 2.7%2.4% 4.1%3.4% 3.0% 4.1%3.4% 4.1% 4.0% 0.0%0.5% 1.4% 1.9% 3.1% 0.0% 1.7% 1.1% 0.0%1.6% 0.3%1.6% >10% + 7% to 10% + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to 10% <-10% >10% + 7% to + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to <-10% 10% 10%

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Exhibit 47: Our survey suggests booking volumes will grow by 2.3% in Exhibit 48: … with respective rate increases of 1.7% and 1.9% China and 1.1% in Hong Kong ... 2018 Mainland China Rate Growth Expectation 50% 2018 Mainland China Hotel Volume Expectations 44% 45% >10% 60.0% 55.5% 40% 37% + 7% to 10% >10% 50.0% 35% 31% + 3% to 6% + 7% to 10% 30% 39.4% 30% 40.0% + 3% to 6% + 1% to 2% 25% + 1% to 2% 19% Flat 30.0% 28.5% 20% 16% Flat - 1% to 2% 15% - 1% to 2% - 3% to 6% 20.0% 15.1% 10% 13.9% 14.3% 5% 5% 4% - 3% to 6% 5% 3% 3% - 7% to 10% 2% 1% 1% 0% 0% 10.0% 5.8% 7.3% 6.7% - 7% to 10% <-10% 2.9% 4.2% 2.5% 0% 1.5% 0.0% 0.7% 0.8% 0.8% 0.0% <-10% China Hong Kong 0.0% China Hong Kong Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Exhibit 49: Corporate booking volume is expected to grow by 1.5% in Exhibit 50: … with a similar increase in negotiated room rates 2017 vs 1.3% last year ... 2018 Singapore Hotel Rate Expectations 2018 Singapore Hotel Volume Expectations 40.3% 47.0% 35.5% 44.1% 33.9% 2018 2018 27.1% 2017 2017 22.0% 26.8% 19.7% 12.9% 15.7% 15.2% 6.8% 3.2% 3.4% 4.0% 2.4%3.4% 3.1% 4.7% 3.0% 1.6% 1.7% 1.7% 3.0% 3.0% 4.5% 3.0% 0.0% 0.0% 0.0% 2.4% 1.5% 1.6% 0.8% 0.8% >10% + 7% to20+1 38%U tSo H6%ot+e 1l %V otol u2m% e ExFplaetctat-i o1%n sto 2% - 3% to 6% - 7% to <-10% >10% + 7% to + 3% to 6% + 1% to 2% Flat - 1% to 2% - 3% to 6% - 7% to <-10% 10% 10% 10% 10% Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Recent RevPAR trends

% Change in (of which (of which YTD TTM TTM RevPAR RevPAR occupancy) room rate) RevPAR RevPAR since peak Europe Jul-17 5.7% 2.8% 2.8% 5.8% 4.1% 5.3% Aug-17 7.7% 3.7% 3.9% 6.0% 4.8% 6.0% Sep-17 5.8% û 2.8% û 2.9% û 6.0% 5.2% ü 6.7% ü France Jul-17 1.9% 5.2% -3.1% 2.3% -0.8% 9.5% Aug-17 9.6% 7.6% 1.8% 3.2% 1.0% 10.4% Sep-17 6.1% û 5.0% û 1.0% û 3.6% ü 2.3% ü 11.1% ü Germany Jul-17 6.7% 1.0% 5.6% 2.2% 3.1% 14.8% Aug-17 5.9% 2.7% 3.1% 2.6% 3.8% 15.2% Sep-17 0.2% û 1.4% û -1.1% û 2.2% û 2.6% û 15.3% ü UK Jul-17 4.5% -0.2% 4.8% 6.2% 4.5% 23.7% Aug-17 3.3% -0.4% 3.7% 5.8% 4.7% 24.0% Sep-17 2.1% û -0.7% û 2.8% û 5.3% û 4.8% ü 24.3% ü Spain Jul-17 7.1% -0.6% 7.7% 10.0% 8.4% 32.2% Aug-17 9.9% -1.1% 11.1% 10.0% 8.8% 33.6% Sep-17 13.4% ü 1.4% ü 11.9% ü 10.4% ü 9.4% ü 35.0% ü Sweden (SEK) Aug-17 4.5% 0.8% 3.7% 4.3% 4.0% 12.5% Sep-17 0.0% -0.7% 0.7% 3.8% 4.1% 12.5% Oct-17 -2.2% û -2.2% û 0.0% û 3.2% û 3.1% û 12.3% û Norway (NOK) Aug-17 5.3% 1.9% 3.4% 8.1% 5.8% -1.3% Sep-17 10.9% 3.0% 7.7% 8.4% 6.4% -0.2% Oct-17 9.2% û 4.1% ü 4.9% û 8.5% ü 7.5% ü 0.5% ü Denmark (DKK) Aug-17 8.3% 1.0% 7.2% 5.9% 7.2% 10.7% Sep-17 -0.7% -0.5% -0.2% 5.2% 5.5% 10.6% Oct-17 -10.3% û -1.8% û -8.7% û 3.6% û 3.5% û 9.6% û US Jul-17 0.8% -0.5% 1.4% 2.6% 3.0% 26.0% Aug-17 2.5% 0.9% 1.6% 2.6% 3.0% 26.3% Sep-17 2.4% û 1.4% ü 1.0% û 2.6% 2.7% û 26.6% ü APAC (USD) Jul-17 4.4% 3.8% 0.6% 2.8% 2.0% -8.7% Aug-17 5.6% 3.3% 2.3% 3.1% 2.4% -8.3% Sep-17 3.4% û 3.6% ü -0.2% û 3.2% ü 2.5% ü -8.0% ü CHINA (RMB) Jul-17 8.6% 5.2% 3.2% 5.8% 3.9% -3.6% Aug-17 8.0% 4.8% 3.1% 6.1% 4.9% -3.0% Sep-17 6.4% û 5.2% ü 1.1% û 6.1% 5.6% ü -2.5% ü JAPAN (YEN) Jul-17 0.2% 0.7% -0.4% 2.6% 1.1% 3.4% Aug-17 1.6% 1.2% 0.3% 2.5% 1.6% 3.5% Sep-17 1.8% ü 1.4% ü 0.4% ü 2.4% û 2.2% ü 3.7% ü MEA (USD) Jul-17 -9.8% 1.2% -10.9% -1.2% -2.9% -16.1% Aug-17 5.1% -1.1% 6.2% -0.5% -2.2% -15.8% Sep-17 -9.3% û 0.7% ü -10.0% û -1.5% û -2.4% û -16.4% û Source: AlphaWise, MKG, Morgan Stanley Research

The Global View

RevPAR cycles across regions

Exhibit 51: Global RevPAR cycles over time – US and UK RevPAR is Exhibit 52: Occupancy rates in the US and UK are significantly above 27%/24% above prior peak prior peak, while Europe and Asia have more catch-up potential TTM average occupancy US RevPAR European RevPAR UK RevPAR 80% 150 75% 140

130 70%

120 65%

110 60%

100 55% 90 50% 80 45%

70 J S M J S M J S M J S M J S M J S M J S M J S M J S M J S M J S M J S M J S M J S a a a a a a a a a a a a a a e e e e e e e e e e e e e e a a a a a a a a a a a a a 40% n n n n n n n n n n n n n n p p p p p p p p p p p p p p y y y y y y y y y y y y y ------9 9 9 9 9 0 0 0 0 0 1 1 1 1 8 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 9 7 9 9 0 1 1 9 9 9 0 0 0 0 1 1 9 0 0 1 1 9 9 9 0 0 0 1 1 7 1 5 9 1 3 5 9 3 7 1 3 5 7 1 5 9 3 5 7 9 3 7 3 7 1 1 5 2 6 8 0 2 6 0 4 4 4 8 2 6 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 9 1 9 0 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Source: STR, MKG, Morgan Stanley Research 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Europe UK US Asia Source: STR, MKG, Morgan Stanley Research

Exhibit 53: This cycle may be more similar to the 1990s' 'stronger for Exhibit 54: US hotel stocks' relative performance in the past three longer' cycle cycles: current cycle holding up relatively well, but stocks underperformed sharply in the late 2000s even though RevPAR growth US 90-01 US 01-08 US 08-present Europe 01-08 remained positive Europe 08-present UK 01-08 UK 08-present 160 150 140 130 120 110 100 90 80 70 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 Source: STR, MKG, Morgan Stanley Research

Source: STR, Morgan Stanley Research. Note: X-axis takes month 0 as the peak in TTM RevPAR growth (1990s cycle = Feb 1997, 2000s = June 2006, Current = Feb 2015)

19 Exhibit 55: In the previous two cycles it has been profitable to buy hotel stocks when occupancy is rising and sell c. 12 months after occupancy peaks … in this cycle US occupancy is at a record level and only marginally up YTD Trailing-twelve-months Occupancy 66% 64% 62% 60% 58% 90-01 cycle 56% 01-08 cycle 54% 08 to date 52% 2 8 4 0 2 8 4 0 6 2 8 4 0 6 2 8 4 0 6 0 6 0 0 1 2 1 1 2 3 3 4 4 5 6 6 7 7 8 9 9 m m 1 1 1 1 m m m m m m m m m m m m m m m m m m m Months from the peak of the cycle US hotels relative to S&P500 indexed to 100 at the RevPAR peak of the cycle 400 350 90-01 cycle 300 01-08 cycle 250 08 to date 200 150 100 50 0 2 8 4 0 2 8 4 0 6 2 8 4 0 6 2 8 4 0 6 0 6 0 0 1 2 1 1 2 3 3 4 4 5 6 6 7 7 8 9 9 m m 1 1 1 1 m m m m m m m m m m m m m m m Months from the peak of the cycle m m m m Source: STR, MKG, Morgan Stanley Research. Note: red arrows show that hotel share price performance peaked c.12 months after peak occupancy

Exhibit 56: There is a 91% correlation between hotel share prices and Exhibit 57: US hotels have outperformed European hotels this cycle RevPAR growth $90 8000 US RevPAR Growth US Hotel Stocks 7000 $80 6000 $70 5000 $60 4000 3000 $50 2000 $40 1000 $30 0 8 9 0 1 2 3 4 5 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 6 7 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0

1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Source: STR, Datastream, Morgan Stanley Research Source: STR, Datastream, Morgan Stanley Research

20 Exhibit 58: Asset light hoteliers sustain EV/EBITDA multiples over 12x Exhibit 59: Asset light hoteliers trade at higher multiples, given their during the upcycle superior returns and cash flow Asset light hotel index EV/EBITDA US RevPAR growth (blue line) (shaded area) 50% de-rating as RevPAR turned negative 20 20% 18 15% 16 10% 14 12 5% 10 0% 8 -5% 6 -10% 4 2 -15% 0 -20%

Source: STR, Datastream, Morgan Stanley Research Source: STR, Datastream, Morgan Stanley Research e = Morgan Stanley Research estimates

The major hotel groups are expected to raise rates by c.1.5%, similar to what respondents saw in 2017

Exhibit 60: Negotiated room rates grew by low single digits in 2017... Exhibit 61: … and our survey respondents expect a similar growth in 2018 Up over 10% Up 7-10% Up 3-6% Up 1-2% Flat Down 1-2% Down 3-6% Down 7-10% Down over 10% 70% Up over 10% Up 7-10% Up 3-6% Up 1-2% Flat Down 1-2% Down 3-6% Down 7-10% Down over 10% 60% 60% 50% 40% 50% 30% 40% 20% 30% 10% 20% 0% 10% IHG Mariott/Starwood Hilton Hyatt Four Seasons Accor Premier Inn Hoteles City Express 0% IHG Mariott/Starwood Hilton Hyatt Four Seasons Accor Premier Inn Hoteles City Express

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research

Hotel Comparative Valuations

Exhibit 62: Global Hotel Comparable Valuation

Source: Thomson Reuters, Morgan Stanley Research * Estimates for companies not covered are Thomson Reuters estimates. e = Morgan Stanley Research estimates, NM = Not meaningful, NC = Not covered

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24 definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) OTHER MATERIAL INVESTMENT SERVICES CLIENTS (MISC) STOCK RATING COUNT % OF COUNT % OF % OF COUNT % OF CATEGORY TOTAL TOTAL IBC RATING TOTAL CATEGORY OTHER MISC Overweight/Buy 1154 36% 293 39% 25% 562 38% Equal-weight/Hold 1413 44% 359 48% 25% 682 46% Not-Rated/Hold 56 2% 6 1% 11% 9 1% Underweight/Sell 606 19% 92 12% 15% 237 16% TOTAL 3,229 750 1490

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Due to rounding off of decimals, the percentages provided in the "% of total" column may not add up to exactly 100 percent. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). 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INDUSTRY COVERAGE: Leisure and Hotels

COMPANY (TICKER) RATING (AS OF) PRICE* (11/13/2017)

Ed Young JD Wetherspoon (JDW.L) U (01/05/2015) 1,228p Ladbrokes Coral Group (LCL.L) O (11/01/2016) 134p Paddy Power Betfair Plc (PPB.L) E (09/05/2017) 8,550p Parques Reunidos (PQR.MC) O (02/20/2017) €13.55 Playtech Plc (PTEC.L) O (07/09/2013) 819p William Hill (WMH.L) E (02/03/2017) 269p

Jamie Rollo AccorHotels (ACCP.PA) O (04/04/2017) €41.29 Basic-Fit NV (BFIT.AS) O (07/20/2016) €19.50 Carnival Corp. (CCL.N) U (09/02/2016) US$65.98 Carnival Plc (CCL.L) U (09/02/2016) 4,947p Compass Group (CPG.L) E (04/02/2012) 1,644p Greene King PLC (GNK.L) E (10/21/2015) 542p InterContinental Hotels Group (IHG.L) U (06/15/2017) 4,270p Merlin Entertainments (MERL.L) O (06/13/2014) 383p Mitchells & Butlers (MAB.L) E (12/05/2016) 259p Royal Caribbean Cruises (RCL.N) E (01/05/2016) US$124.48 Scandic Hotels Group AB (SHOTE.ST) E (01/11/2017) SKr 103.50 Sodexo SA (EXHO.PA) E (07/18/2017) €106.30 SSP Group PLC (SSPG.L) U (09/05/2017) 589p Thomas Cook Group (TCG.L) E (03/18/2015) 115p TUI (TUIT.L) E (11/16/2016) 1,316p TUI AG (TUIGn.DE) E (11/16/2016) €14.85 Whitbread (WTB.L) E (10/25/2017) 3,537p

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.