HOTELS HOTEL INVESTMENT IN

1H | 2018 “Hotel investment in first half of 2018 reaches 1,830 million euros” 01 HOTEL INVESTMENT IN SPAIN

In the first half of 2018 hotel investment was once • The extraordinary level of activity in purchases and again remarkably strong. sales of hotel portfolios. • The leading role played by Blackstone, which in With a total investment of 1,830 million as of the end recent months has become itself as the most active of June, Spain posted the second highest semi-annual investor in the Spanish hotel market. results its history, 13% below the absolute record achieved in 2017. • The limited investment activity in and compared to previous years. Considering the last 12 months (Jun17/Jun18), • The strong inertia at the start of the second half investment amounts to 3,633 million euros, which of teh year, especially regarding the potential shows that investor appetite for the Spanish market completion of deals currently under way, such remains at very high levels. Highlights of this first half- as Blackstone’s offer for the remaining shares of year are: or Minor’s bid for NH.

TOTAL HOTEL INVESTMENT VOLUME 2013 - H1 2018 (€m)

4,500 3,907 4,000

3,500

3,000 2,614

2,500 2,184 2,104 2,000 1,830

1,500 1,081 792 1,061 1,000 697

500

0 2013 2014 2015 2016 2017 H1 2018

H1 H2

Source: Colliers International

PORTFOLIO INVESTMENT ACTIVITY Investment in hotel portfolios outperformed the previous record (612 million euros, posted in the first Purchases of hotel portfolios reached an investment half of 2017) by 71.4%. volume of 1,0481 million euros, accounting for 60% of total investment. Portfolio sales and purchases became the highlight of the half-year and experienced huge growth compared to previous periods.

1 Weighted by the percent of investment actually acquired. The amount of the investment is the GAV of the hotels located in Spain that are included in the acquired portfolio.

Report on Hotel Investment in Spain 1H 2018 3 PORTFOLIO TRANSACTIONS VS. INDIVIDUAL ASSETS (H1’14-18) (€m)

2,000

1,800

1,600

1,400 612

1,200 1,048

1,000

800 609 32 600 74 1,082 400 699 595 200 453 434

0 H1 2014H H1 2015 H1 2016H H1 2017 H1 2018

Asset Portfolio Individual Asset

Source: Colliers International / Investment data on existing hotels

Although many of these deals have taken place in 3. Implementation of the strategy adopted by the context of corporate transactions, the origins and the Accor Group (following in the footsteps of motivations of buyers and sellers have been diverse other international chains) of separating hotel and can be summarised as follows: management and ownership. This strategy resulted in the sale in June of a 57.8% stake in AccorInvest 1. The acquisition by Hispania of 7 hotels (1,708 vehicle to an investor group led by the sovereign rooms) belonging to the Alua hotel chain with an funds of Saudi Arabia (PIF), Singapore (GIC) and asset value of 165 million euros, applying 100% of Colony. The acquired portfolio included 11 hotels the investment capacity initially committed by its (1,572 rooms) located in Spain and operated under shareholders, just before the investment deadline the Novotel and Ibis brands. set in the members’ agreement ran out. 4. The acquisition by Blackstone from Banco 2. Total or partial completion of Build-Up projects Santander of 50% of all the real estate property started in 2014, including: and loans Santander acquired from Banco Popular, which included a significant portfolio of foreclosed • The acquisition of 16.56% of Hispania by hotels (REOs). Blackstone. Through this acquisition Blackstone adds to its earlier investment in HIPartners a 5. Lastly, the recent acquisition by Minor Hotel Group stake in 46 new hotels and three plots of land for of a 29.81% stake in NH, becoming the indirect hotel developments. owner of 11 NH hotels in Spain (1,790 rooms). • The full acquisition by Atom, a Socimi (Spanish REIT) led by Bankinter, of a portfolio of 15 hotels and more than 3,700 rooms. This portfolio was built up by the seller through hotel selective purchases between 2014 and 2017.

Report on Hotel Investment in Spain 4 1H 2018 HOTEL PORTFOLIO DEALS 2018 H1 # Hotels in # Rooms weighted by Spain % acquisition

Alua portfolio 7 1,708 Acquisition by Blackstone of 16.56% of Hispania 49 2,139 Atom Hotels (Bankinter Socimi) 15 3,779 Purchase of 57.8% of AccorInvest 11 903 50% Quasar Project 77 1,976 Acquisition by Minor of 29.81% of NH 11 534 H2 Hotels 2 187 B&B Hotels 2 191 Total portfolios 174 11,417

Source: Colliers International

“Investment in hotel portfolios reaches 1,048 million euros” “Blackstone is the market’s most active investor in the first half of 2018”

Report on Hotel Investment in Spain 6 1H 2018 INVESTOR PROFILE Notably, Covivio, an eminently urban hotel investor, recently approved a broadening of its investment Turning to investors, the most important player by far strategy towards vacation products. in recent months has been the U.S. private equity firm Blackstone. Among the most noteworthy hotel chains in a buying position are the Minor Hotel Group from Asia, which In 2018, as a surprise follow-up to the acquisition has become a key shareholder of the NH Hotel Group of HIPartners at year-end 2017—through which, in (aiming for full control); Hotusa, with the acquisition addition to a large asset portfolio (14 hotels and 3,546 of 8 hotels and 729 rooms; B&B, which continues to rooms), the firm also acquired a hotel investment and add hotels to its portfolio; and lastly, various other management platform—Blackstone acquired George medium-sized hotel chains that have been very Soros’ stake in Hispania, subsequently launching a full effective in scooping up smaller assets that are not takeover bid for the Company. targeted by the large funds and investors.

Not only will the eventual outcome of this takeover bid Finally, there is the Bankinter-led initiative to set up greatly affect the year-end investment figure, but a the Atom Socimi, creating an investment alternative major bet on the Spanish hotel market by a fund such in the hotel sector for its private banking clients. It as Blackstone at this point in the cycle will also help currently has a portfolio of 19 hotels comprising more maintain investor appetite in our country. than 4,500 rooms and has a core profile.

Other international Socimis (REITs) such as Elaia and Covivio (formerly Foncière des Murs) remain very active in the Spanish hotel sector.

INVESTOR PROFILE (1H 2018-%)

International Real Estate Investor 31% 1% Hotel chain 11%

National 10% chain

13% 34% Socimi National Investor

Source: Colliers International / Global investment data

Report on Hotel Investment in Spain 1H 2018 7 GEOGRAPHIC DISTRIBUTION OF INVESTMENT The reasons for this marked difference are:

Unlike the first half of 2017, when the investment • In the first half of 2017 both Madrid and Barcelona was more or less evenly shared between the urban were the targets of a large number of investments and vacation segments, in the first half of 2018 71% in high-value individual assets: Edificio España, sale of the investment was intended for the acquisition of 50% of the Four Seasons Canalejas, the Hilton of vacation hotels, mainly resulting from deals such Diagonal Mar in Barcelona, Silken Diagonal, etc. as the acquisition of Alua by Hispania, Blackstone’s • The political uncertainty in in the wake investment in Hispania and the bulk of the assets of the 1st October 2017 referendum paralysed acquired by the Atom Socimi. Barcelona’s investment market. The Canaries and the attracted 53% • Madrid is still an object of desire for many of the total investment, well ahead of the rest. It is investors, but the good market prospects have noteworthy to mention the sharp fall in Madrid and put owners in a position where they can retain particularly Barcelona. Whereas in the first half of ownership of the hotels, invest in their repositioning 2017 Madrid and Barcelona had 549 and 310 million and profit in the medium-term from the city’s euros of investment, the respective figures for the continued draw as a destination. same period of 2018 are 154 and 71 million.

MAIN INVESTMENT DESTINATIONS 1H 2018 (€M)

Other Madrid 154 437 Barcelona 71 239 269 230

Malaga 148 300 302 479

353 Canary Balearic Islands 460 Islands

Source: Colliers International / Global investment data

Report on Hotel Investment in Spain 8 1H 2018 Also worth noting is the increase in investment in As we indicated in previous reports, this seems a clear “non-prime” destinations. In the first half, as can indicator that secondary markets, which are more be observed in the chart, 437 million euros (25% of dependent on domestic customers, are becoming the total) were invested in destinations other than more attractive as a result of the Spanish economy’s Madrid, Barcelona, the Islands or the . good growth figures. This investment was shared among 36 provinces. This contrasts with the smaller volume recorded in the first half of 2017 (239 million euros), which was spread across 18 provinces.

2 Asumiendo toma de control del 100% de Hispania.

Report on Hotel Investment in Spain 1H 2018 9 02 OUTLOOK

The Spanish market is now in its fourth consecutive together with the hotel chains, have given way to more year of unprecedented investment volumes. conservative (Core) investors, who acquire the now repositioned and stabilised product; yet there are still The aggregate volume over the last three and a half opportunities to be found at all levels. years already comes to 10,535 million euros, which represents an average of 3,010 million euros per Nevertheless, the strong investor pressure and the year. Added to that figure are the almost 1,000 million market’s good performance at the operational level euros invested annually, on average, in Capex for have pushed up hotel purchase prices, and business repositioning and hotel construction. plans are reducing their room for manoeuvre in comparison to three years ago. The reasons behind these extraordinary investment volumes include, among other things, the market Moreover, the vacation market is starting to show consensus regarding the good fundamentals for the first signs of a slowdown in growth. Against in Spain over the medium and longer term this background we anticipate a gradual easing of and the fact that both institutional investors and investment levels over the next few years, although specialised funds have discovered in vacation hotels the positioning achieved by Spain among the investor an attractive investment product category to keep community will allow it to continue to be one of the in their portfolios and on which they can deploy preferred investment alternatives in Europe in the different investment strategies (core, value added and medium to long term. opportunistic). The strong inertia that has marked the start of the The path has not been easy. After considerable effort, second half of the year, investment levels for 2018 as the developments that have taken place in the market a whole could approach or even surpass those of 2017 since 2015, when the starting signal was given for if the various deals under way eventually go through. the more opportunistic and value-added investors, are Minor’s bid for 100% of NH, coupled with a successful gradually bringing about a transformation of mature bid by Blackstone for Hispania, could catapult the destinations and breathing new life into obsolete investment volume to levels approaching 3,700 million hotels that were eroding Spain’s ability to reposition euros2. Combined with the good number of sales of itself commercially and be profitable as a destination. individual assets currently in progress, that could bring investment close to the record levels seen in 2017. The opportunistic and value-added investors, acting as the principal initiators of the hotel repositioning

2 Assuming the acquisition of control of 100% of Hispania and NH. CONTACT

Miguel Vázquez Managing Director | Hotels [email protected] +34 91 579 84 00

Laura Hernando Managing Director | Hotels [email protected] +34 91 579 84 00

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