HVS INTERNATIONAL EUROPEAN TRANSACTIONS 2002

This edition has been published by the Office of HVS International 2002 Edition

Philippa Bock and Bernard Forster

76% respectively, with approximately Over the past three years liquidity Introduction €1.1 billion of single asset sales within the European hotel market has uropean hotel investment activity transactions recorded and €2.1 billion improved, with the total value of came to a near standstill in the of portfolio transactions. single asset hotel transactions rising months immediately following phenomenally; in 2001 there was a E € the sudden and unprecedented terrorist record high of over 3.2 billion. This atrocities in the USA. Nevertheless, European Single represented a 44% increase upon the the strength of the European hotel total value of transactions in 2000 and investment market in 2001 prior to Asset Transaction an astounding 108% increase since 1998. these events was phenomenal, resulting It is also interesting to note that, in in record levels of investment activity Activity addition to the increased volume of in both single asset and portfolio uring 2001 we recorded a total of transactions, the average price sales transactions. In 2001 the total 80 single asset hotel transactions achieved per room increased by 35% investment volume of single asset Dwhich met the criteria for between 1999 and 2001. This trend has transactions over €7.5 million achieved inclusion within our survey. These not yet been repeated in 2002; however, a new all-time record of over represented an 11% increase compared several quality single assets are €3.2 billion, an increase of over 44% with the previous year’s 72 qualifying currently being marketed (or are on the previous year. Meanwhile, transactions, and a 13% increase upon rumoured to be), including ’s portfolio and corporate activity 1999 levels, when a total of 71 single Ciga portfolio, the Ritz in Paris, the recorded approximately €9.2 billion, asset hotel transactions were recorded. Nikko in Düsseldorf, the Four Seasons an astounding 81% increase on the In 2002 we have recorded 34 qualifying in Milan, the Hotel des Bergues in previous year. transactions to-date in our survey. Geneva and the Sheraton Pulitzer and The cautious and uncertain outlook HVS International is pleased to the Sheraton Schiphol Airport in that ensued during the last quarter of have been involved with providing Amsterdam. 2001 resulted in a sudden change in the valuation and due diligence support to The surge in transactional activity investment market. As a result of a significant proportion of the single began in 1999. This can be attributed uncertainty over future profit margins, asset and portfolio sales recorded to various factors, such as EMU and as evidence of a difference between within this report. convergence, benefiting the investment the bid and the asking price unfolded, a number of deals close to completion were put on hold. Meanwhile, fewer Figure 1 European Hotel Single Asset Transactions 1995–02 assets came onto the market as hotel owners, able to service debt through 90 3,500 falling interest rates and reduced gearing, chose instead to ride out the 80 3,000 stormy conditions. In contrast to the previous year, which benefited from 70 2,500 deals already well progressed following 60 buoyant trading conditions in 2000, a reduced level of investment activity in ransactions 50 2,000 Millions

the first half of 2002 was apparent. It is € only in the second half of 2002 that the 40 1,500 hotel investment market is showing 30 distinct signs of recovery. Despite Number of T 1,000 Approx possible further military action against 20 Iraq and other countries perceived as a 500 10 threat to international security, there are signs of a renewed optimism as an 0 0 increasing number of deals are 1995 1996 1997 1998 1999 2000 2001 2002 completing, in terms of both single asset and portfolio transactions. As at No. of Transactions € Millions September 2002 year-to-date, single asset and portfolio sales transactions were down by approximately 46% and Source: HVS International Research

HVS International European Hotel Transactions 2002 1 climate; the removal of currency risk, allowing increased cross-border Figure 2 Portfolio Investment Activity by Buyer Category 2000–02 activity; lower interest rates, improved market transparency and improved Private 0% profitability as a result of strong trading Equity 62% conditions in many of the European 30% Joint 1% markets, thus ensuring greater funds Venture 4% were made available for acquisitions. Hotel Transactional activity has been further Investment 20% boosted by the availability of sources of Company 5% finance, such as securitisation and sale 0% Individual 1% and leasebacks. Furthermore, private 3% equity investors have become Real 7% 1% increasingly prevalent within the Estate 58% Investor European investment market, a market Fund 6% which was traditionally dominated by 1% hotel owner-operators. Hotel 65% Investment activity in 2001 was Operator 25% 9% particularly impressive (at least during the first three quarters of the year), 0% 10% 20% 30% 40% 50% 60% 70% spurred on by deals which began in 2000 and, in some instances, 2002 2001 2000 opportunistic investors realising the capital gains achieved from entering the market during the early growth financing hotel acquisitions in 2001, commercial property remains positive. stage of the cycle. The global economic with the source of funding widening to DTZ Research anticipates higher slowdown and the resultant effects of include open and closed ended funds, turnover of property assets in 2002, the terrorist atrocities in the USA pension funds and property with net investment expected to be in resulted in a considerable stagnation in companies. While the concept of sale the region of €4.2 billion in the UK. the hotel investment market during the and leaseback transactions is not new Such conditions favour the hotel final quarter of 2001, stagnation that to the European hotel industry, with investment market, as there is an continued into 2002. Transactional having been particularly abundance of institutional capital activity in 2002 has so far been notably aggressive in the market for alternative seeking a more diversified property weaker, but several deals are in the methods of funding during the 1990s, it investment portfolio. As a result, there pipeline and are expected to finalise in wasn’t until 2001 that this method truly is a definite and long-lasting shift in the last quarter of 2002 or in early 2003. became more than a mild flirtation, at attitude towards private equity least within the UK hotel industry. investment in European hotel real In 2001, sale and leasebacks became estate. Company and more than a passing fad: it became clear Who are the winners with respect to that they were to change the future sale and leaseback activity? It appears Portfolio shape of the hotel industry. Hotel that hotel operators who have assets in Transactions operators, by divesting themselves of key locations, strong brands and ownership of hotel assets in return for consistent operating standards will be onsolidation within the leases and management contracts, the most likely to benefit. Sale and European hotel market has been would gain a considerable sum of leasebacks are particularly attractive to Ca key phenomenon over the past capital to be used towards hotel operators for the following three few years as hotel operators and refurbishment and to fund acquisition reasons. investors strive to gain maximum and development activity. Sale and 1. The capital raised through this exposure in markets, and in doing so leaseback, through the release of medium provides financing equal to seek to achieve economies of scale and capital, provides the financial means 100% of market value, unlike debt maximise shareholder value. for greater pan-European financing which typically would only HVS International recorded 14 consolidation, which until now has provide capital of between 60% and corporate or portfolio transactions been starved of appropriate sources of 80% of the value; during 2001 and nine transactions year- funding. An example of this was 2. The removal of debt, which is to-date in 2002. In 2001 the number of Hilton’s sale and leaseback activity, shown as a liability on the balance deals was down 36% on the number of which provided the necessary funds for sheet, will ultimately improve the transactions recorded the previous it to acquire Scandic . financial and earnings ratios as well as year, but, more importantly, the total Troubled times in the global stock the return on capital employed; value of these transactions was market have resulted in real estate once 3. Operators are in a strong bargaining considerably greater. In 2001 the more becoming a desirable asset in position at the time of arranging the portfolio activity represented an which to invest. Net institutional deal and are likely to receive a good exchange of around €9.2 billion, an investment in UK commercial property rate of return on their investment while 81% increase on 2000. The activity was is estimated to have totalled €3.75 assured of long-term leases and dominated by the disposal and billion in 2001.1 Although this management contracts and the fragmentation of the Compass represented a 50% reduction upon the essential capital to fund expansion and portfolio, which opened the gateway to record levels achieved in 2000, property development. more innovative financing. weighting has increased for the past Meanwhile, the three major benefits Sale and leaseback transactions two consecutive years and the long- enjoyed by investors include: were the predominant method of term outlook for institutional interest in 1. The ability to invest in hotel real

2 European Hotel Transactions 2002 HVS International Table 1 Sale and Leaseback Transactions 2000–02 (€)

Number of Price per Year Corporate/Portfolio Country Properties Rooms Total Sales Price Room Buyer Seller 2002 Jarvis Hotels UK 9 1,341 237,000,000 177,000 Lioncourt Capital led PE ConsortiumJarvis Hotels 2002 Hilton UK 10 2,043 528,000,000 258,000 Rotch, Farnsworth Group, Hilton Hilton International 2002 Thistle Hotels1 UK 37 5,454 951,000,000 174,000 Orb Estates 2002 NH Hoteles Spain 4 643 91,000,000 142,000 Pontegadea Immobiliaria NH Hoteles 2001 Le Meridien UK 12 4,300 1,645,000,000 383,000 Royal Bank of Scotland Nomura International 2001 Hilton UK 11 2,131 512,000,000 240,000 Royal Bank of Scotland Hilton International 2001 Accor UK 13 1,200 98,000,000 82,000 London & Regional Properties Accor 2001 Airtours Spain 7 2,124 106,000,000 50,000 Private Investor Airtours 2000 Premier Hotels UK 8 660 69,000,000 105,000 Accor/London & Regional Premier Hotels 2000 Club Med Hotels 5 2,119 112,000,000 53,000 Gothaer Club Med

1 ’Sale-and-management back’

estate without having the burden of hotels’ revenues or £50 million a year in plus a €5 million payment, equating to hotel operations; rent for the 30-year leases, whichever is approximately €37 million per annum 2. Sale and leasebacks lend themselves the greater. RBS, through the turnover until 2004. Thereafter the lease is to passive investors who aim to structure of the lease, benefits from subject to a minimum guarantee of diversify their property portfolio above average growth prospects that €27.5 million, which is adjusted in line without having the cyclical volatility, they envisage within the hotel sector. with inflation capped at 5%. The lease due to the long-term stable revenue In 2002 Thistle Hotels entered into a charge is higher than the sale and stream; uniquely structured deal with Gamma leaseback deal completed with the 3. The benefit of an appreciating asset, Four, a subsidiary of the property Royal Bank of Scotland, but this is and one which is able to be recouped in group Orb Estates. The deal involved considered in part to be due to the the future; some 31 provincial UK properties and inclusion of a central London property, Sale and leasebacks are set to six London properties, equating to which is expected to make a become increasingly common with the some 5,500 rooms. Strictly speaking the significantly greater margin than the expanding pool of private equity deal should be termed a ‘sale and provincial UK properties. Hilton’s investors and hotel operators’ relentless management-back‘ transaction rather guaranteed rental payments until 2004, need to raise capital. Nevertheless, with than a pure sale and leaseback. Thistle together with its retaining a 40% stake sale and leaseback activity considered signed 30-year management contracts in the assets, are an indication of the in some countries as ‘off-balance sheet’, and has guaranteed a minimum complexity of completing such a deal some concern exists over future legal EBITDA of €70 million for the first ten during the current, uncertain trading regulations of off-balance sheet activity years. The operator will meet any environment. following the Enron scandal. Sale and shortfalls, capped at twice the Most recently, in October 2002, leaseback deals are increasingly a minimum EBITDA, with the minimum Jarvis confirmed that it had entered combination of both fixed and variable EBITDA indexed with inflation. Thistle into a sale and leaseback agreement lease structures. The fixed element is likely to receive management fees in with a private equity consortium led by allows investors to benefit from a excess of €12.5 million per annum. The Lioncourt Capital for €237 million in guaranteed income stream, while the corporate deal transacted for €950 exchange for a 34-year lease. The deal variable element allows the investor to million, representing a very low involved nine properties, some 1,341 benefit from the upside of the market discount on the book value. rooms, of which three hotels are located and the growth prospects of the hotel In late August 2002, Hilton in London and represent 43% of the sector. announced that it had successfully bedroom stock. The rent payment, The Royal Bank of Scotland (RBS) completed its second sale and leaseback which is linked to turnover, is was particularly active in 2001, deal, releasing a further €488 million of equivalent to 31% of turnover, and is acquiring 11 Hilton hotels for capital. The deal involved ten subject to minimum and maximum approximately €510 million, with properties, some 2,043 rooms, and led payments of between €15.6 million and Hilton keeping operating leases of 20 to to the formation of a limited €17 million; this represents an initial 30 years with extensions of fixed and partnership between the property yield of 7%. The deal confirms the variable portion rents. RBS continued company Rotch, the hotel investment group’s intentions to focus on hotel its aggressive investment stance, company Farnsworth Group, and Bank management as opposed to hotel providing finance to Nomura’s of Scotland. Hilton itself invested €39 ownership, although the weak Principal Finance Group (PFG) for the million for a 40% equity stake (with the economic environment is thought to sale and leaseback of six Le Meridien option to reduce its stake to 20%). The have resulted in the size of the deal to properties, five Principal Hotels hotels thus sold for a total of €528 have been scaled down. Nevertheless, (acquired by Nomura in February 2001) million; this contrasts with a book value the hotels are reported to have been and the Cumberland Hotel (acquired of €467 million. Hilton will lease the sold at 101% of their net asset value. separately by Nomura from Compass). hotels for a period of 27 years under a In addition to the fragmentation of Under the agreement, Le Meridien variable lease agreement. The lease the Compass portfolio in 2001, which agreed to pay either 25% of the 12 charge is based upon 28.8% of turnover resulted in the €1.3 billion sale of the

HVS International European Hotel Transactions 2002 3 79-strong Posthouse chain to Six In February 2002 NH Hoteles German hotel group Dorint for a price Continents at 7.9 times EBITDA, secured the purchase of an 80% quoted to be around €50 million, with and the €385 million sale of the 48- majority stake in Astron Hotels, the an option to raise its stake to 55% by strong Heritage Hotels group in a joint German owner operator, for €130 2010. The opportunity arose as a result venture agreement between Macdonald million, with the option of buying the of the German company’s financial Hotels and the Bank of Scotland at eight remaining 20% within three to four distress brought about by an aggressive times EBITDA, there have been a years. Almost all of the 53 hotels (8,396 expansion plan in 1999–01. Dorint number of other significant portfolio rooms) are held as leasehold, with an currently has 91 hotels, 75 of which are transactions in the European market. average length of 22 years remaining. in , and all the hotels are Hilton’s sale and leaseback deal This transaction reflects an 8.4 multiple operated on fixed leases, typical of the with RBS provided the necessary on 2001 EBITDA for the 80% transacted. German hotel market. capital to fund a strategic acquisition in NH Hoteles helped to fund the Finally, in December 2002, Compass the Scandinavian market. The Hilton acquisition through the sale and completed its sale of the 220-strong Group surprised the market with the leaseback of four of its Spanish hotel chain and the 397 acquisition of for over properties to the property company Little Chef restaurants. The private €1 billion in a cash and share offer. Of Pontegadea Immobiliaria. equity group Permira emerged as the the 154 hotels, 132 are located in The number of portfolio/corporate triumphant party, agreeing to pay a total Scandinavia and the rest in other transactions in the year-to-date 2002 of €111 million. Compass is likely to seal European countries. Scandic’s reported has been far fewer than in the its exit from the hotel business in 2003, operating profit in 2001 was previous year. This is due to investors with the sale of the Strand Palace and the approximately €75 million, which erring on the side of caution, the Regent Palace, some 1,700 rooms, most represents an earnings multiple of 13.4 decline in European-wide operating likely. Initially the two assets were to and a yield of approximately 7.5%. performance, and the differentials have been sold to London and Regional; In April 2001 the troubled Swiss between the bid and asking price. however, it has since been reported that company SAirGroup disposed of Nevertheless, as the European market the deal failed to complete. its hotel interests through the sale recovers and operating performance A deal involving four of Starwood’s of Swissôtel to Singapore’s Raffles improves, investor interest and Ciga properties in Italy is understood not Holdings for €268 million. The confidence will be revived, which is to have completed, although Starwood transaction enabled Raffles Holdings to likely to mean that investment activity are endeavouring to sell the fortfolio, yet significantly extend its market coverage, increases and higher prices are retain the management of the hotels. increasing its room inventory by 139% to achievable. Other possible targets in the quest to some 13,500 rooms; it now operates in 17 Most recently, Accor announced the consolidate include Copthorne, Jolly countries across six continents. acquisition of a 30% stake in the Hotels, Maritim, Moat Houses, NH

Table 2 Selected Portfolio/Corporate Transactions 2000–02 (€)

Number of Total Sales Price per Year Company/Portfolio Country Properties Rooms Price (000s) Room Buyer 2002 Astron Hotels Germany/Austria/Switzerland 53 8,396 130,000 15,000 NH Hoteles 2001 Principal Hotels UK//Netherlands 17 2,500 418,000 167,000 Nomura Principal Finance Group 2001 Heritage Hotels UK 48 3,110 385,000 124,000 /Bank of Scotland 2001 Le Meridien Hotels Worldwide 128 40,000 3,008,000 75,000 Grand Hotels (M) Acquisitions Co. 2001 Posthouse Hotels UK 79 12,300 1,328,000 108,000 Six Continents 2001 Scandic 154 26,452 1,004,000 38,000 Hilton International 2001 Swissôtel Worldwide 23 7,827 268,000 34,000 Raffles Holdings 2000 Hotels UK 5 572 125,000 219,000 MWB/Radisson SAS1 2000 Rafael Hotels Europe & USA 6 1,223 237,000 194,000 Mandarin Oriental 2000 BAA Hotel Portfolio UK 8 2,927 307,000 105,000 Airport Hotels Partnership 2000 Sungarden Spain 4 1,786 180,000 101,000 Iberostar 2000 Oriel Leisure UK 8 818 69,000 84,000 Premier Hotels 2000 Krasnapolsky Europe 64 10,000 495,000 50,000 NH Hoteles 2000 Millennium & Copthorne Worldwide N/A 22,500 845,000 38,000 City Development 2000 Tryp Hotels Spain, Cuba, Tunisia 60 9,700 360,000 37,000 Sol Meliá 2000 Provobis Sweden 17 3,000 71,000 24,000 Scandic 2000 Don Pedro Hotels Spain 28 5,000 72,000 14,000 Airtours 2000 Hotetur Club Spain 19 3,300 47,000 14,000 Airtours 2000 Orbis N/A 10,500 145,000 14,000 Accor (25% stake) led Consortium 2000 Gran Dorado Benelux & Germany N/A 8,664 101,000 12,000 Pierre & Vacances

1 MWB acquired Radisson SAS’s interests in 2002

4 European Hotel Transactions 2002 HVS International Hoteles and Steigenberger. Meanwhile, Tryp becoming the brand for the brands. This latest deal is part of the the Thistle group is rumoured to be group’s city hotels in both the three-star company’s plan to transform itself into considering further sale and leaseback and the four-star categories. a hotel operator rather than owner, activity with its remaining owned repositioning itself as a hotel properties and Le Meridien has revived management services group. plans for a sale and leaseback of ten of Marketing Alliances In May 2001 Millennium & its continental European properties. In Copthorne (M&C) announced that it had terms of likely buyers, the poor and Franchise entered into a global strategic marketing performance of the stock market in Agreements alliance with Maritim Hotels. The recent times is likely to make property alliance provided Maritim with instant investment more attractive, with hile the European hotel market marketing exposure in key gateway German open-ended and closed-ended has experienced extensive cities throughout Europe, Asia and the funds as well as private equity funds Wconsolidation in recent times, USA. Meanwhile, M&C will benefit from likely to increase their prominence there is also a growing trend towards Maritim’s strong foothold in the German further in the European hotel strategic alliances. Such a practice allows market. Together, the alliance provides a investment market. the parties concerned to extend their combined portfolio of some 130 hotels, geographical exposure, widen their sales totalling some 35,000 rooms. and marketing distribution channels, and provides benefits to both the Consolidation customers and the companies concerned, Sources of without the need to acquire and Brings Rebranding amalgamate the two existing portfolios. Investment Capital ollowing much consolidation In September 2002 Rezidor SAS y reviewing the types of buyers within the European hotel Hospitality entered into an agreement active in the European hotel Fmarket, considerable investment with Carlson Hotels that entitles it to Bmarket, it is evident that has taken place involving a number of hold the 30-year master franchise for investment capital is available through rebranding exercises and rationalisation the Regent, Park Inn and Country Inns a variety of sources. The prevalence of of brands. & Suites brands in Europe, the Middle trade buyers, which represented some NH Hoteles’ acquisition of the East and Africa. Rezidor will gain 57% and 40% of total single asset Dutch chain Krasnapolsky has resulted control of existing management and investment activity in 1999 and 2000 in considerable rebranding. In addition, franchise contracts for these brands and respectively, has been shown to have in February 2002, NH Hoteles sold the will continue to extend the reach of weakened considerably in 2001 and company Golden Tulip Worldwide and these three brands alongside the 2002. Indeed, diversity in today’s therefore the rights to the Golden Tulip Radisson SAS brand to total some 700 competitive investment market is and Tulip Inn franchises. This hotels within the next ten years. becoming more apparent, resulting in instigated the rebranding of all of NH In May 2002 Raffles International real change to the capital structures of Hoteles’ owned and leased Golden and Hotel Okura Co. of Japan formed a hotel ownership. Tulip and Tulip Inn hotels to the NH strategic alliance to explore business Increasingly, dynamic and brand. Most recently the group opportunities in areas including hotel innovative means of financing are announced that it will invest €8 million development, securing of management taking place, with the European hotel in the rebranding of the Astron group contracts, marketing and procurement investment market witnessing a to the NH flag. opportunities. Hotel Okura comprises notable shift away from public equity Hilton’s acquisition of Scandic in 2001 23 hotels, 16 of which are located in to that of private equity in the form of will result in approximately 20–25 Japan; Raffles, which operates under private equity players, property properties being converted to the Hilton the Swissôtel and Raffles brands, has companies and institutions. There is a brand in Scandinavia. In addition, eight some 39 hotels. growing trend of splitting hotel former franchises under In August 2001 Le Meridien and ownership from management, with Scandic ownership have been terminated announced an expansion joint ventures, partnerships and sale and the hotels have been rebranded either of their global strategic alliance, formed and leasebacks all becoming familiar as Scandic or as Hilton. With the in 2000, which encompassed all Nikko terminology within the realm of hotel prominence of the mid-market Scandic Hotels’ properties outside of Japan and financing. Such methods of financing brand within the Scandinavian market, China. The alliance has been extended hotel real estate are in fact not new, coupled with some properties in to include all Nikko hotels. Together, having been practised within France Germany not meeting Hilton brand the alliance provides a combined and Germany for some considerable standards, the future of the Scandic brand worldwide network of 169 properties time. However, the fundamental is set to continue within the European within 63 countries. difference now is that a number of hotel market. In June 2001 the UK group Jarvis factors, such as the increasing desire to Six Continents’ acquisition of Hotels entered into a 20-year franchise benefit from a more diversified and Posthouse in 2001 has resulted in the deal with , under balanced portfolio, and the transfer of entire portfolio being converted to the which 56 of its 66 hotels have since been capital from the depressed stock Holiday Inn brand. Seven hotels rebranded as Jarvis. markets to that of property earmarked for disposal at the time of Eventually, the co-branding is expected investment, have had the effect of the acquisition have since been sold, to disappear altogether, leaving just the widening the range of investment providing additional sales at the lower Ramada name. More recently, in June media available to hotel real estate. end of the single asset transaction 2002, Jarvis entered into a second Alternative methods of financing market. franchise deal, with the US giant hotels can no longer be considered Sol Meliá’s acquisition of Tryp Cendant. Under the terms of the deal simply as a phenomenon, but truly an Hoteles in 2000 resulted in a new Jarvis will manage budget hotels under established and sophisticated form of branding structure for the group, with the and Howard Johnson hotel financing.

HVS International European Hotel Transactions 2002 5 In addition to private equity joint venture with Ian Schrager and perspective such innovative deals funding, new sources of financing have has since opened two hotels in allow it to focus on the management come through the establishment of London. aspect, and moreover provide the development funds, very often in the Finally, direct institutional funding opportunity for a wider spread of form of a joint venture agreement is also a new source of capital. In 1999 capital, thus accelerating brand between the operator and the investor. Union, the UK pension fund, exposure. From a property investor’s Examples include partnerships purchased nine Hilton hotels and perspective, despite hotel markets’ between Macdonald Hotels, in subsequently leased them to Jarvis cyclical nature and volatility, an above conjunction with Royal Bank Hotels. This is perhaps the first known average return is achieved over the Development Capital, and the Bank of example of a deal involving part fixed long term. Moreover, hotel assets are Scotland; a joint venture agreement and part variable lease structures. Since increasingly sought after to provide an between Hanover and the Bank of then a number of dedicated hotel funds alternative to office and retail Scotland, which has created the have been formed in which institutions investments, providing a more investment vehicle Tweed Investments; hold direct equity stakes; one example diversified and balanced portfolio. and a joint venture between Rocco is MWB’s hotel fund, which enlists European quoted hotel companies Forte Hotels and the Bank of Scotland. institutional investors such as Norwich are relatively few in number and are An alternative source of capital has Union, Clerical Medical and Scottish characterised by a relatively small

Figure 3 Single Asset Hotel Investment by Buyer Category 1999–02

2002 2001

Hotel Private Equity Hotel Private Equity Operator Hotel Operator Hotel 22% 3% 22% Investment 26% Investment Company Company 3% 23% Fund Fund Real Estate 7% Individual Individual Real Estate 15% Investor 4% 7% Investor 41% 27%

2000 1999 Hotel Private Hotel Investment Equity Individual Investment Company 2% 2% Company 9% Hotel 10% Operator 42% Real Estate Individual Investor Hotel 9% 19% Real Estate Operator Investor 57% Fund Fund 29% 9% 12%

Source: HVS International Research

stemmed directly from property Widows. One further example worthy market capitalisation when compared companies. Active players include of mention is that of the partnership to other industries. Sentiment towards Marylebone Warwick Balfour (MWB), formed between the British Airports hotel stocks has in recent times been which has invested in the Howard Authority (BAA) and a number of relatively weak, and failure to raise Hotel (managed by Swissôtel) and direct institutional investors. The deal, sufficient capital through the equity ownership of the Malmaison portfolio. which involved eight airport hotels in markets has resulted in companies London & Regional, another property the UK (six are located at either increasingly seeking alternative company, is also active, having Gatwick or Heathrow), is based upon methods of financing. With hotel purchased the boutique Trafalgar turnover-based leases with a minimum companies very often trading at a Hotel in London and more recently a guarantee, and BAA retaining a discount to their net asset value, the majority stake in the Hilton on Park minority equity stake. opportunity to divest hotel ownership Lane. It also purchased eight Premier This new intensity in private equity to savvy property investors and other hotels and subsequently leased them funding makes strategic and good hotel investment vehicles provides a to Accor. The Burford Group is another business sense for both parties welcome impetus for change in the example; the company has formed a concerned. From the hotel operator’s capital structures of the European

6 European Hotel Transactions 2002 HVS International Table 3 Top Single Asset Investment Transactions 2001–02 (€)

Sales Price Year Hotel Location Star Rating Rooms Sales Price Per Room Buyer 2002 Hilton Park Lane London 5 450 247,652,000 550,000 London & Regional/Land Securities 2002 Regency Budapest 5 353 50,000,000 142,000 HVB-Leasing Hungary 2002 Hotel Praha Prague 4 120 16,934,000 141,000 Falcon Capital 2002 Düsseldorf Düsseldorf 4 232 32,499,000 140,000 Deutsche Bank Subsidiary 2001 Hotel Arts1 Barcelona 5 482 285,000,000 591,000 Deutsche Bank Private Equity/Patron Capital Partners 2001 Noga Hilton Geneva 4 410 188,000,000 459,000 UBS/BNP Paribas 2001 Four Seasons Prague 5 162 70,000,000 432,000 Quinlan Partnership 2001 Radisson SAS Brussels 5 281 85,000,000 302,000 DIFA Fund 2001 Maritim Pro Arte Berlin 5 406 119,000,000 293,000 Allgemeine Leasing 2001 Radisson SAS 5 360 62,000,000 172,000 Not Disclosed 2001 Hilton Vienna 5 600 69,000,000 115,000 Soravia Bautrager GmbH

1Price includes 13,000 m2 of retail space, 12,000 m2 of office space, residential apartments and a casino.

hotel market. Furthermore, with the compounded by the terrorist atrocities financing structures, previously more recent troubles in the global stock in the USA. Nevertheless, the the norm for other asset classes. The markets, liquidity in hotel real estate is possibility of war with Iraq and the risk increased weighting of the real estate set to increase as investors seek to of further terrorist attacks are likely to sector, particularly by pension funds increase the weighting of real estate in have an impact upon the future trading and institutional investors, is likely to general and hotel assets in their environment especially while there is result in greater hotel investment portfolios. uncertainty as to when such activity. Investment in hotel real estate Particular trends in recent times conflagrations may erupt. looks set to become more than just a have witnessed German funds looking The strength of the European hotel flirtation, as both property and financial increasingly outside their domestic investment market in 2001 prior to 11 investors become more accustomed to markets and institutional investors September was phenomenal, resulting determining hotel-sector risk. In the continuing to gain a stronger foothold in record levels of investment activity medium term, this will increase within hotel real estate, with pension in both single asset and portfolio sales investment by those institutions that funds becoming increasingly active. transactions. This was due to a number would traditionally shy away from Meanwhile, private equity finance, of late deals completing from the ‘revenue-generating’ property, therefore such as Tweed Investments and previous year and a particularly strong increasing portfolio diversification. Nomura Principal Finance, has year with respect to portfolio Sale and leaseback deals are provided a wealth of capital. transactions. However, the real effect of expected to become more numerous as Nevertheless, US investors who the slowdown in the economy has been operators seek to remove themselves historically sought quality assets in felt in 2002, and this is true with respect from the burden of real estate primary locations within markets that to hotel investment activity. The first six ownership, concentrating instead on have a strong US exposure are now months of 2002 were particularly quiet, what they know best – hotel exercising caution due to the recession due to the caution exercised by management. This is likely to increase in their home market. Instead, US potential investors, a lack of suitable net asset value to share prices and investors have become far more products available, due to the difficulty improve financing capabilities and particular in terms of their asset in pricing assets in troublesome times, ratings. selection to avoid over reliance on a the difference in price expectations As a result, further consolidation in single source market. between the buyer and the seller and the European hotel sector can be little pressure from lenders to sell assets expected both among hotel owners – at below market prices. Nevertheless, institutions, banks, private equity Conclusions and 2002 has witnessed an impressive roster houses and investment funds – and of both single asset and corporate deals, hotel operators seeking to extend their Outlook and the investment market is expected penetration and distribution. he outlook for European hotel to continue to strengthen and resume operating markets is positive the traits and trends set in the previous following the challenging times years. T 1 experienced after a substantial Investment activity is likely to be Money Into Property, edition 27 – DTZ Research slowdown in the global economy, increasingly characterised by innovative 2002

HVS International European Hotel Transactions 2002 7 Corp) Accor a / Group) one Construction (Abel & KB AB NV (ANA) Capital Partners Co Hotels Hotels Hotels Blackst Rt. ering & SA & / Sweden Europe Development Int. Int. Int. Hotels Hotels Airways Byggnads Hotel Municipality (Colony Smith Engine 6 Hotels Individual Hotels Individual Capital Corporation Alicantinas Group SA Doyle Doyle

Colombo Property Hotels Espais Continents Hotelinvest ler Nippon irgin Sel Lucy Graflunds Prague Lucia Iber Jurys Jurys All Copenhagen Hotel Pannonia Choice Copenhagen Private n/a V Private Six Copenhagen Espais/Landscape Choice AB Morun NCC Colony Kingston Daewoo Hesperia Prom. Bulgaria Companies) of Lodging AS) Intl (ICE) Intl Group Invest rust T Bulgaria, Exchange (Home AB Fund/Marriott AB Income Axxon RE esorts Subsidiary Hotels Resorts R Hungary 124 Currency and & & 1

ess les s acances Bank dividual Hotels Fastighets Hotels Hotels Hotels V els Catalonia

roup Hotels Hotels In Individual

Capital f f Expr

& Hote G European Eurobank, Maya ational

Hot Hotels Hotel Hotels Sjukförsäkrings (Capital re G utsche A ivate enaas enaas enaas F incci Buyer JJW HVB-Leasing Koncept Private Pr Falcon Orion Debutanten W Hoteles Princess Mac A Intern Orient Pier Mitsis EF McEnif UNA W CIT De W UNA McEnif Hotel Losan V per 00 00 ,000 2,000 Price 13,000 54,000 74,000 46,000 75,000 19,000 74,000 56,000 42 51,000 Room 1 1 428,000 103,000 141,000 812,0 298,000 166,000 381,000 155,000 129,000 14 128,000 140,000 188,0 212,000 167,000 Sales yal oyal o Hotel R R Skylon SAS SAS Palace Price Jurys ) 8,941,000 8,535,000 1,954,000 9,000,000 7,810,000 9,318,000 1 87,800,000 10,414,000 16,934,000 43,033,000 63,127,000 10,000,000 24,000,000 32,000,000 50,000,000 23,800,000 14,000,000 24,075,000 24,384,000 32,499,000 69,000,000 14,000,000 10,000,000 24,000,000 As Sales € Central Radisson Radisson 155,985,000 As As As 92 83 72 53 63 70 66 205 166 120 212 135 692 353 200 186 188 329 232 140 368 220 195 144 1004 Rooms Republic Country Austria Czech Italy Sweden France UK UK Denmark Ireland Greece Bulgaria UK France Spain Germany UK Hungary Spain Sweden Denmark Denmark Ireland Italy Spain Spain Sweden Spain UK Spain TRANSACTIONS 2000–02 ( Portocristo Croydon aterford ienna City Prague Mallorca, V Goteborg Naples Mallorca London, Sicily Mallorca Dusseldorf Cannes W Copenhagen Nice Budapest Rhodes Sofia Eskilstuna Dublin Barcelona London London Copenhagen Copenhagen Alicante Barcelona London Demeure Hotel) estern) W Hotel (Project) Hotel Balkan Residence (Atrium 1 Hotel Royal Scandinavia Globetrotter Nice - Anglais (Best Kensington Hotel Croydon Hotel Hotel Hotel Hotel - SAS SAS SAS SAS Hotel Garden Hotel Inn Street Beach Dusseldorf aterford Palace Hotel Hotel Memories Cel W Skylon Regency Praha Diagonal Maya Grand el d Park Residencia Property Paradiso Hyatt Posthouse Hotel Novotel Jurys Stadshotellet 47 Sheraton-Sofia Radisson Radisson Radisson Lindos Jurys Central La Hotel Mornington Scandic Quality ANA Radisson Cannes Colombo Palace Comfort Hotel Mornington Illa 2002 2002 2002 2002 2002 2002 2002 2002 Date 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 2002 Sale EUROPEAN SINGLE ASSET HOTEL

8 European Hotel Transactions 2002 HVS International Group Inc. SAir Holding / AG Realisation Estate Hotels de Bremen Interhotel Group Holdings Zehden Real Government Holding Logistik Individual Individual Individual Capital Individual Individual Individual & Airlines Securities AB Resources Seasons te ate Continents ler Sel Private Memphis Priva Bannimo Private Sparkasse Colony Drott Stinnes Deutsche Japan Sodereal n/a Private Six BBC Albeck Croatian Consortium Kaphag n/a Private Four n/a n/a n/a Land n/a Priv Securities Resorts GmbH & K Stiftung rtner U ional/Land

Hotels Partner Partner Partner Pa Leasing InterSelect

SA ividual Hotels Reg & & & & tels Hotels

City Hotels Hotels Sander Partnership vestor Bauträger & ine Hotels Ind Capital/Accor Individual Individual Ho Hotels Hotels In Fund ia Invest e Fund

Hotels

Azur A annia Fund Ebertz Ebertz Ebertz Ebertz France ka vate ilhelm estInvest est I IF lp Buyer Private Dr Diana Carlton Brussels Dr Quinlan Dr Brit Privat Colony G Saudi Pri City JJ D Marston Diana London Sorav Dr Astron Allgeme A De W W W per

0 Price 42,000 95,000 55,000 87,000 96,000 49,000 15,000 Room 1 102,000 140,000 130,000 430,00 125,000 365,000 100,000 225,000 426,000 142,000 302,000 207,000 550,000 190,000 123,000 293,000 149,000 339,000 178,000 182,000 137,000 Sales Mate Price 15,000 Hotel ) 8,1 8,357,000 As 12,172,000 25,600,000 12,425,000 20,967,000 10,567,000 22,348,000 69,740,000 66,675,000 37,500,000 16,794,000 12,954,000 22,300,000 23,000,000 37,228,000 10,668,000 85,000,000 68,700,000 37,000,000 19,429,000 19,000,000 13,700,000 34,700,000 54,000,000 28,000,000 Sales € 1 247,652,000 100,000,000 1 1 60 85 46 99 54 92 1 292 252 150 191 172 162 764 300 130 262 281 172 450 600 195 158 406 295 195 296 205 Rooms Republic Country Austria Germany UK Germany UK France Czech UK France France France Croatia UK France Germany Belgium Belgium Austria Belgium Austria UK Germany Germany Germany France Austria Belgium Germany Germany TRANSACTIONS 2000–02 ( Alps Roissy orcester ienna ienna ienna ienna ork City V W Paris, Bonn Sainte-Maxime Bremen Y Manchester Paris Dubrovnik Paris Prague Brussels Manchester Paris Brussels Berlin Brussels V Wiesbaden Wiesbaden Meribel, V Berlin London Brussels V Cologne Cologne Club Country Marceau & Paris Golf Etoile Brussels Prague otel Hall Mayfair (Project) Manchester Schlosshotel (Project) H (Project) de Bonn Lane - Sablon Balard Plaza Stadpark Hof Brussels SAS SAS Hotel Hotel Hotel Maritim Manor Inn Hotel Hotel Hill allon Norton Park Hotel Am Hotel Dependance Golf Development Mate V Seasons Hotel Hotel Arte Meridien ood Property Hotel Radisson Swissotel Hotel Ritz-Carlton Four Park Princess W Radisson Barsey Excelsior Nikko Hotel Holiday Posthouse Forest Aldwark Le Jolly Aukamm Hilton Hotel Mont Pro Astron Nassauer Hilton Hilton 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 Date 2002 2002 2002 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2002 2002 2001 2001 Sale EUROPEAN SINGLE ASSET HOTEL

HVS International European Hotel Transactions 2002 9 Group Government Airlines Fonds AB City Developments Hotel Insurance Hotels Life Renting Individual Hungarian Mclean Diplomat Family Hotels Hotels Mindanao Co/HOVISA Group Immobilien Estaques Samil ler Petersburg yan es Sel Hotel Private Malev Occidental Nordisk Hotell David Shirayama Ryan n/a n/a Ogan Chamberlain Skandia St n/a R BBV n/a n/a n/a Sosul Sogo Inm n/a S Amrey n/a Partners ienna V Capital UBM / Finanz Landesbank Equity/Patron Ltd Group arimpex Sons W Private Hotels & / A/SNCC k Hessische r s Hotels f Business aribas o otels P Hotels Ban p ereira Hoteles lding Group ncing H Garriga P AB o AB Neville Pasto Individual H10 H Express ntinents Hotele Doyle Hotels Hoteles m Grou Fina Hotels Lao ona Hotels dox Co Continents inthia

l ys

ient Buyer Riu Deutsche Private Pannonia Six Bancor Jur Playa Pan UBS/BNP Willia Hesperia Nike Portuguese Cap SSRS Bul Knox Cor Six Hot Globalia Sara Catalonia Queiroz City Subsidiary Or Group per 00 000 Price 88,000 72,000 57, 95,000 89,000 74,000 38,0 90,000 92,000 64,000 66,000 46,000 88,000 70,000 Room 591,000 430,000 160,000 209,000 460,000 280,000 215,000 135,000 599,000 163,000 155,000 440,000 716,000 106,000 1,300,000 Sales Price ) 9,875,000 9,875,000 9,000,000 9,015,000 18,030,000 25,323,000 10,217,000 45,000,000 66,171,000 45,000,000 13,421,000 28,802,000 18,030,000 12,675,000 29,547,000 20,347,000 18,030,000 39,428,000 36,000,000 10,000,000 14,000,000 80,000,000 21,475,000 15,477,000 31,200,000 Sales € 285,000,000 174,759,000 188,496,000 168,818,000 46 30 24 85 204 482 353 179 406 281 695 215 150 410 103 244 335 328 151 195 154 282 242 137 232 216 159 182 220 Rooms Country Spain Hungary Spain Switzerland Spain Poland Spain Ireland Spain UK Spain Portugal Sweden UK Spain Sweden Sweden Ireland Russia Spain UK Spain Spain Germany Spain Spain Sweden Italy Spain TRANSACTIONS 2000–02 ( Gordo Compostela Kista Sol de Monte del Petersburg arsaw igo City Barcelona Algarve, Costa Santiago Geneva Stockholm, Birmingham Berkshire Budapest Barcelona Madrid W Seville Dublin Canaries Stockholm Limerick Stockholm St Adeje Birmingham V Wiesbaden Salou Linkoping Madrid Ibiza Ravello Barcelona Hotel Hotel Beach Hotel (Project) Malmen ower Hotel T Lago Hotel Hotel Plaza Estaques Dorado Hotel Inn Hotel Hotel Hotel Palace Plaza Belvedere Marine Diplomat Hotel Hilton Coeli Peregrino Regency Costa Mindanao Ses Samil Rose Helios Gravina Arts Magna Chip Nina illa Property Hotel Mr Scandic Chamberlain Royal Swan Hyatt Limerick Inter-Continental Nevskyj Playa Hotel Hotel Hotel Porta Stockholm Noga Crowne Neptuno Apartotel Hotel Hotel La Hotel Hotel Scandic Caruso V Hotel 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 Date 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 Sale EUROPEAN SINGLE ASSET HOTEL

10 European Hotel Transactions 2002 HVS International Co. Co Society Estates) Group Investment Investment Rezidor (Sirdar - Group Britain Assurance Hotel Hotels Hotels Hotels Group Life SAS hotels Hotels Great Algerian Algerian Investors Hotels/Marconi Holdings International International International International Doyle Inc. Hotels Development Consulting ler uwaiti A Sel Radisson K Private Jarvis n/a Leisure SAIF Paramount Jurys EHI Hilton Hilton Acropolis Hilton Hilton Paramount P Equitable n/a Kuwaiti BDL Premier n/a Chamberlain Compass Union Mossley Seasons Group Ltd Funds Systems/Four Hotel orts Finance Group l roup dmark s s Res Investment Investments Ltd ipal els Group G Hotels tels & l stments Hotels Construction Castle Lan Life Life Hot Ho vestments Hotels Hotel Hotel Princ Hotels Individua Individual Individual Company Island Inve In Investments Hote enues Hotel ield Doyle ard V pit Hotels Essen ! ate nzies eed eed eed rivate on w w w Buyer Private Private Lancaster Prince JJW P Priv Firmdale T n/a V Standard Britannia Rochamel Grand Centre First Jurys T Me Cock Stand Menzies Menzies T Nomura Stonef per

00 1,000 5,000 Price 61,000 71,000 45,000 74,000 39,000 13,000 16,000 54,000 77,0 Room 1 1 156,000 104,000 223,000 219,000 388,000 179,000 296,000 180,000 163,000 104,000 249,000 17 2 10 267,000 541,000 l Sales Hote ower T Edinburgh Price 73,000 44,025,000 ) 8,231,000 8,229,000 8,896,000 7,578,000 1,592,000 8,089,000 8,978,000 Hilton Hilton 1 15,630,000 50,385,000 50,385,000 83,908,000 22,063,000 12,339,000 14,807,000 23,609,000 18,894,000 24,687,000 13,578,000 35,3 61,697,000 12,633,000 28,152,000 Sales € 238,308,000 As As Chamberlain As 2 7 79 69 50 79 1 1 33 52 1 1 100 226 230 136 216 309 131 103 481 378 151 250 142 360 120 894 Rooms Country UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK TRANSACTIONS 2000–02 ( Wiltshire Cheshire , Heathrow Heathrow Bromley Lomond arrington, arminster City Stoke London Bradford London London London, Newcastle Folkestone London London, Bath London London W Kent, W Edinburgh Rugby Birmingham Birmingham Manchester Hampshire London Loch Airport Dock (Project) Hotel Centre Hotel Leeds Albert Hotel Hotel Hotel Belford rent Hotel T Hotel Manchester Hampshire Hotel aterside Park Park Hotel House Hotel on Express Heathrow Express Edwardian Hotel W International ales Conference Park Arms Park SAS W Hotel Inn Inn Inn Hotel Hotel of Court Edinburgh Stoke Newcastle Bath Europe Royal Seasons Property Holiday Kensington Park Holiday Hotel Prince Hilton Chamberlain Chamberlain Burstin Sundridge Holiday Berners Heathrow Knightsbridge Radisson Dunchurch Hilton Bishopstrow Hilton Hilton Cedar Four Kensington Albany Cumberland Buchanan 2001 2001 2001 2001 2001 2001 2001 Date 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 Sale EUROPEAN SINGLE ASSET HOTEL

HVS International European Hotel Transactions 2002 11 HVS INTERNATIONAL EUROPEAN HOTEL TRANSACTIONS 2002

The Latest Hospitality News Straight to your Desk HVS International’s London Office offers a free weekly news service via e-mail. HVS Hospitality Enews is issued weekly on Fridays and covers the latest breaking news affecting the European hotel industry. To subscribe to HVS Hospitality Enews, simply send an e-mail to [email protected] noting ‘subscribe’ in the reference/subject box and include your full contact details in the body of the message section. Please include the e-mail address where you wish to receive HVS Hospitality Enews.

ABOUT THE AUTHORS DIVISIONS: OFFICES: Vancouver 4235 Prospect Road HVS Investment London N Vancouver, British Columbia Russell Kett Canada V7N 3L6 Philippa Bock is an Associate with HVS Services Charles Human +1-604-988-9743 International’s London Office. She joined Simon Hudspeth +1-604-988-4625 fax HVS Asset Dominique Bourdais HVS International Management & Bernard Forster Toronto in February 2000 14 Hallam Street Hammersmith House having worked in Operational Advisory London W1W 6JG 2120 Queen Street East, Suite 202 various manage- Services Toronto, Ontario +44-20-7878-7700 Canada M4E 1E2 ment roles within +44-20-7436-3386 fax +1-416-686-2260 the European HVS Eco Services +1-416-686-2264 fax hotel industry Madrid Laurent de Kousemaeber HVS Executive Search Sao Paulo and holds a first Paseo de la Castellana 93-2 class BSc (Hons) 28046 Madrid, Spain Av Brig Faria Lima HVS Food & Beverage 1912 cj 7F degree in Hotel +34-91-597-4635 Services +34-91-597-3054 fax 01452-001 São Paulo/SP and Catering Brazil Management HVS·Compass New +55-11-815-5722 from Brookes University. Philippa (Interior Design) 372 Willis Avenue +55-11-815-5722 fax was responsible for the HVS Research depart- Mineola, New York 11501, USA +1-516-248-8828 Buenos Aires ment before joining the consultancy team in HVS Timeshare +1-516-742-3059 fax Reconquista 1056 – 10o Piso September 2001, during which time she pio- Consulting Services 1003 Buenos Aires neered the successful news journal HVS San Francisco Argentina Hospitality Enews. Since then, she has con- HVS Gaming Services 116 New Montgomery St, +54-11-4515-1461 Suite 620 +54-11-4515-1462 ducted several valuation and consultancy San Francisco, California 94105, assignments in the UK and Europe. Hospitality Venture USA New Delhi Services, Inc +1-415-896-0868 x 108 C-67 Anand Niketan +1-415-896-0516 fax 2nd Floor New Delhi 110021 Bernard Forster is a Director with HVS HVS/The Ference Miami th India International's London Office. He joined HVS Group: Operational & 8925 SW 148 Street, Suite 216 Miami, Florida 33176, USA +91-11-410-1005 International in Management Strategy +1-305-378-0404 x 11 +91-11-410-1066 fax 1997, previously Development +1-305-378-4484 fax Singapore working in the IT 100 Beach Road sector as well as HVS Marketing Denver 2229 Broadway #28-10/13 Shaw Towers several years in Communications Boulder, Colorado 80302, USA Singapore 189702 various hotel +1-303-443-3933 +656-293-4415 operational man- HVS Capital Corp +1-303-443-4186 fax +656-293-5426 fax agement roles in Switzerland and © 2002 HVS International. All rights reserved. London. Bernard holds an MSc Published by: in Property HVS International, 14 Hallam Street, London W1W 6JG Investment from City University London, as Tel: +44 (20) 7878 7700 Fax: +44 (20) 7436 3386 well as a BSc in Hotel Management from Oxford Brookes University. He has advised For further information please contact Philippa Bock or on hotels throughout Europe, the Middle East Bernard Forster, or visit our website at: and Africa. www.hvsinternational.com

12 European Hotel Transactions 2002 HVS International