European Transactions 2008 Is The Party Now Over?

This report was published by the London Offi ce of HVS March 2009 Cristina Balekjian, Elke Geieregger and Saurabh Chawla

In this report... Figure 1 Total Hotel Investment Volume 2000-08

• What happened to the 25 investment market in 2008? 20 • Who was still buying or 15 selling? 10 • How did Europe’s major € Billions transaction markets fare? 5 0 • When could things start to 2000 2001 2002 2003 2004 2005 2006 2007 2008 improve? Single Asset Transactions Portfolio Transactions

Introduction Source: HVS – London Office e saw some warning signs in 2006 and the beginning of the W Thus 2008 saw a transformation. as stock exchanges across Europe end in 2007, but we had to wait until Interestingly, small and budget hotel began to plummet during the autumn, 2008 before the party was offi cially companies were spott ed buying assets resulting in decreasing occupancy rates declared over. Aft er a record year in 2008 and private equity fi rms with and a near halt in average rate growth. in 2006, in terms of the volume of their highly leveraged business model are somewhat dependent on hotel investment, activity in the joined other investors in playing the the corporate and meeting, incentive, European hotel market declined by waiting game. Business models like conference and exhibition (MICE) approximately 7% in 2007. In 2008, it the one used by GuestInvest found it markets. Businesses have had to amend fell back enormously to just over €6 challenging to survive the storms and budgets and cut costs, reducing the billion, a drop of two-thirds. major hotel operators were seen closing amount of travel from these segments We have seen declining hotel investment their shared ownership divisions. and negatively impacting overall activity before, the last time in 2002, hotel performance. Some markets, Few trophy assets managed to change when the European hotel market however, proved to be more resilient hands during 2008, and there was only dropped as a consequence of the 9/11 to the current economic situation and one asset that transacted at a value att acks in 2001. In the European Hotel recorded positive RevPAR growth above €900,000 per room (compared to Transactions report published in 2002, levels by the end of the year (for three in both 2006 and 2007). The JW HVS noted a drop of more than 50% example, in Germany, with Berlin Marriott Capri Tiberio Palace Resort in hotel transactions from 2001 levels. achieving close to 4% growth on the & Spa on the Mediterranean island However, this was primarily driven previous year, and in Switzerland, with of Capri, Italy, was acquired for €61 by plunging values as a direct result Geneva and Zürich demonstrating million or approximately €990,000 of inferior hotel trading performance RevPAR increases of 14% and 10%, per room under a sale-and-leaseback leading to a gap in the asking and respectively). agreement. bidding prices. The decline was The Eurozone is estimated to have relatively short lived and thus transaction Overall, we are now back to transaction achieved GDP growth of 0.8% in 2008, volumes started to increase again in 2003. volumes similar to those seen in 2002- compared to 2.7% in 2007. As a result 03 as shown in Figure 1, with many still At the time this report went to print, of the plunging fi nancial markets and wondering if we have hit the bott om the situation was severe and deep. the general global economic slowdown, yet. Banks had almost turned off the the European economy as a whole lending tap allowing only a few dribbles Hotels in Europe received a bit of a entered into an economic crisis the likes here and there. For those lucky enough cold shower in 2008 when RevPAR of which had not been seen for over to secure funding, the borrowing started to fall as a result of the global a decade. In the fi rst half of the year, was a lot more expensive, which in economic downturn. Although the a reasonable economic environment turn aff ected their fi nancial leverage. hotel industry managed to maintain its allowed levels of hotel investment to be This, combined with poor economic performance levels for the fi rst half of maintained, while hotel performance growth and a bleak outlook for many the year, the beginning of the summer also managed to sustain itself. The EU countries, also led to inferior hotel months saw RevPAR declines across second half of the year, on the other trading performance, further impeding European hotels. Aft er the summer, the hand, saw an aggresive slowdown transactions from all angles. hotel sector found it diffi cult to recover in hotel investment and a signifi cant

HVS – London Offi ce European Hotel Transactions 2008 Page 1 Figure 2 European Single Asset Hotel Transactions 1997-08

160 6 140 5 120 4 100 80 3 € Billions 60 2

40 Number of Transactions 1 20 0 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 € Billions Number of Transactions

Source: HVS – London Office

decrease in hotel performance. This on the other hand, we have seen only investment from 2007. HVS estimates became more evident aft er Lehman one such transaction: the sale of the JW the value of undisclosed transactions Brothers fi led for bankruptcy in Marriott Capri Tiberio Palace Resort & in Spain at approximately €102 mid-September. Banks became even Spa (€993,000 per room). million. more reluctant to lend and investor We note that a third of the qualifying In third place, France maintained its confi dence crumbled. single asset transactions in 2008 did investment activity with the sale of not have their sales price publicly seven properties, accounting for 12% Single Assets disclosed. The total price of these of total single asset deals, and a total n 2008, HVS recorded a total of 77 transactions has been estimated by investment of roughly €385 million. transactions involving single hotel HVS at just under €616 million. Paris continued to maintain its level of I investment with the sale of prominent assets, each of more than €7.5 million, The UK continues to dominate the luxury assets such as the landmark the minimum amount that we have set transactions with approximately a Hotel Prince de Galles and the Hotel for a transaction to qualify for inclusion quarter of the single asset transactions Ambassador, which has recently been in our survey. Although the number by value (€690 million), having taken rebranded by Rezidor to become the of hotel deals in 2008 started off at over from Spain as the leader since Radisson SAS Ambassador Hotel, Paris similar levels to that of the previous 2005. We recorded 12 transactions in Opera. year, we noticed that the market began the UK provinces, compared to only to decline aft er the summer months fi ve in London. Hotel investment In 2008, Germany continued to att ract through to the end of the year. As the values in London amounted to interest from investors. Despite year unravelled, the world moved approximately €367 million in showing a decrease in the number of further into the economic downturn 2008, accounting for just over half properties being transacted, Germany which unsurprisingly had an eff ect the total investment volume in the still proved to be a relatively strong on the amount of deals done in the UK. Meanwhile, the UK provinces market registering a total of nine hotel sector, turning it into a weaker registered an estimated €323 million hotel deals with an approximate total investment market. The number of in transaction volume, enhanced by investment of €274 million, which transactions decreased by a third in the sale of luxury assets such as the represented a 9% share of the total 2008. (The number of transactions in Four Seasons Hamphire (€76 million) number of assets traded. HVS estimates 2007 was 117.) While in 2007 we saw and the Golf Resort, in a total of €105 million for undisclosed a shift from single asset investment (€69 million). Average prices transactions. to portfolios, the case for 2008 diff ers per room varied from €167,000 in the We also note the following signifi cant quite signifi cantly. With banks reluctant provinces to €488,000 in London. HVS single asset transactions in 2008. or unable to lend, fi nancing became an puts the value of the undisclosed hotel enormous obstacle for any larger deal transactions in the UK at around €40 • Lampsa Hellenic Hotels and Plaka, in single asset and portfolio activity. million. a company owned by the Sbokos As a result of the general deceleration family, acquired the Hilton Rhodes Spain remains a strong contender in activity, we have seen a decrease in Resort from Ionian Hotel Enterprises, within the hotel investment market the average price per room of 7.3%, a subsidiary of Alpha Bank, for €35.5 with a total of 17 properties (2,677 reaching a total of €217,000. In 2006 million, or €88,000 for each of the rooms) transacted for a total and 2007, we saw a number of trophy hotel’s 402 rooms. The deal proved of approximately €659 million, assets being traded for a per-room price to be one of the most important demonstrating a 7% increase in above €900,000, including the Four acquisitions in Greece in recent years; Seasons Milan (€1.7 million per room), the total amount spent within the the Chateau de Bagnols in France country. Spain accounted for 21% • On Spain’s southern coast, the Park (€1.2 million per room), and Blakes in of the total single asset investment Casares, still under development London (€999,000 per room). In 2008, volume, maintaining its share of total and expected to open in the third

Page 2 European Hotel Transactions 2008 HVS – London Offi ce quarter of 2009, att racted early interest (part of World) acquired the total investment value on single from buyer Qatar National Hotels. 219-room Turnberry Golf Resort assets. Trophy assets continued to The group is said to have invested €70 for approximately €69 million (£55 att ract investors to the French capital, million (approximately €412,000 per million). The golf resort consists of resulting in the sale of one of Paris’s room) in the acquisition of the fi ve- two 18-hole golf courses, one nine- most renowned hotels, the Hotel star de luxe hotel. The seller, Grupo hole course and a golf academy. The Prince de Galles, on avenue George V, Evemarina, is the company behind the sovereign wealth fund is investing adjacent to the Four Seasons George V. creation of the Doña Julia Golf Resort in a further £30 million in a renovation MH Limited, a Saudi-based company which the hotel is located. The resort is scheme that will see the hotel reopen owned by the Mussallam family, composed of three 18-hole golf courses during the summer, in time to host the acquired ‘les murs’ (the walls) of the and residential developments, with ; hotel for an estimated €141.5 million, fi rst phase of the resort’s construction €842,000 per room, one of the largest • Serbia got a taste of the hotel estimated to cost around €300 million, hotel acquisitions in 2008. The fi ve-star investment arena when NBGP hotel, originally built in 1928, currently of which one-fi ft h is being invested in Properties, a local real estate operates under Starwood Hotels & the hotel component; development and investment company, Resorts’ ‘Luxury Collection’ brand and acquired the Hotel Continental in • In May, InterContinental Hotels has 138 rooms and 30 suites. Group’s (IHG) fi rst ever European Belgrade for €148.8 million or €359,000 , the Crowne Plaza per key. The assets acquired covered Hotel Amsterdam City Centre, an area of 72,225 m², including the Portfolios hotel and the Genex apartments was acquired by HHR Euro CV (a he drastic reduction in portfolio joint venture between Host Hotels located in the city centre. The buyer is reportedly investing a further €35 Ttransaction value was one of the & Resorts, the Dutch pension fund most direct eff ects of the credit crunch Stichting Pensioenfonds and Jasmine million to renovate the hotel over the next two years and rebrand it as a that has taken hold of Europe over the Hotels, which is affi liated to the past 18 months. In terms of investment Singaporean GIC Real Estate). The Crowne Plaza under a management agreement; value, portfolio transaction activity joint venture invested a reported €72 shrank by three-quarters to just over million (approximately €267,000 per • London saw another two major €3 billion. This is in stark contrast to room) in the 270-room hotel. IHG’s transactions out of a total of fi ve in 2007 (€13.9 billion) and particularly share of the earnings was €18 million, 2008. Just over 18 months since its 2006 (€14.4 billion). The overall which reportedly included an agreed fi rst sale, the Crowne Plaza Hotel volumes are already below the diffi cult sett lement for the management contract London – The City has once again years of 2002/03. In previous years, and a repayment on existing loans. The changed hands for an investment portfolios have averaged two-thirds new management contract will last for price of €106 million (£85 million), of the total annual transaction value; another 40 years, and IHG is to remain or €524,000 a room. Gruppo Statuto however, this year the contribution the manager of the property; had purchased the hotel in January of portfolio transactions reached half 2007 for a reported €123 million (£81 • The highest value per room in 2008 the total, which itself was signifi cantly million), thus showing a 5% increase was achieved by the sale of the JW down on 2007 levels. Whilst it is our in value in sterling. The buyer, ARG Marriott Capri Tiberio Palace Resort natural tendency to consider the Hotels, is a company established by & Spa on the Mediterranean island of economic downturn as the main cause Marg Galadari, a wealthy businessman Capri, in Italy. The Italian real estate for the decline in portfolio activity, based in Dubai. Another notable company Aled SpA acquired the luxury it is valuable to consider that the transaction in London, was the resort for approximately €61 million, or ‘asset-light’ strategy adopted by hotel sale of The Metropole Building, in €993,000 per room, under a sale-and- operators during 2006 and 2007 had Northumberland Avenue, just off leaseback agreement. The hotel is a a signifi cant impact on the number Trafalgar Square, by the Crown Estate. short walk from the famous piazzett a, of portfolio deals consummated Aft er having received a number of throughout that period. in the heart of Capri, and has 61 rooms strong bids, IHI and its principal and ten serviced apartments situated in shareholders, Istithmar Hotels FZE While the absolute number of portfolio the nearby Residence Tiberio. The seller and LAFICO, were selected as having transactions has reduced from 52 to of the property, Salvatore Naldi Group, the vision to meet the challenge of 24, roughly half, the average deal is expected to focus on the expansion restoring the once grand hotel to its size has also drastically reduced. of its hotel management company in original use. The investors have so far Between 2003 and 2007, the average primary Italian cities; spent a total of €172 million (roughly number of hotels per deal was 28; this average has decreased to a mere eight • Once again, Scotland appeared €606,000 per room), and plan to properties per deal in 2008. Notable to be an appealing destination refurbish the building to convert it into exceptions include 39 properties across for investment in 2008 with four a fi ve-star luxury hotel that will operate Sweden and Finland acquired by transactions in total. The Point Hotel under the Corinthia brand. The three CapMan, the acquisition of 16 Italian in Edinburgh became the second hotel remaining deals in London were the hotels by Blackstone, and Whitbread in Scotland to carry the fl ag sale of The Pelham Hotel (€25 million), snapping up 21 Express by aft er its new owner, EBH, appointed the Citadines London Holborn- properties across the UK. to manage and rebrand the Covent Garden (approximately €54 million), and the Carlton Court Hotel 139-room, three-star property. It is Unsurprisingly, more than two-thirds (€10 million); reported that EBH paid €25 million of all portfolio transactions were (approximately £20 million, as the • Given the high barriers to entry, recorded in the fi rst half of the year, exact amount has not been disclosed) Paris, yet again, proved to be an and only four hotel portfolios were for the hotel and a neighbouring bar investment hot spot in 2008, with transacted ‘post-Lehman’, or aft er called The Chanter. Meanwhile, on fi ve properties being transacted in the end of September, none of which Scotland’s western coast, Leisurecorp the city, accounting for 11% of the involved more than four properties.

HVS – London Offi ce European Hotel Transactions 2008 Page 3 Large portfolio transactions were Edinburgh, Coventry, Bath, Blackpool, 2008 also witnessed some hotel naturally the fi rst ones to fall victim and Newcastle to name a few. All sites operating chains returning to the hotel to the extremely diffi cult lending have considerable conservation and transaction scene as buyers. Current conditions that characterised 2008. renovation budgets allocated; market conditions and falling asset Therefore, we have only recorded one values represent opportunities for transaction in Europe that exceeded the • Whitbread, ’s main small to medium-sized operators in competitor in the UK budget market, €500 million mark. particular to improve or upgrade their has also benefi ted from the current existing portfolios. • The largest portfolio deal in 2008 situation to enlarge its portfolio. In with a value of €805,000,000 was July 2008, Whitbread announced the • JJW Hotels & Resorts, operator agreed between private equity real acquisition of 21 Express by Holiday of prestigious hotel assets such as estate fund CapMan plc and Northern Inn hotels from Mitchells & Butlers the Hotel Balzac Paris, the Grand European Properties (NEPR), a Jersey- plc in exchange for 44 Whitbread pub/ Hotel Vienna and 42 The Calls in based incorporated company that is restaurants. The exchange has been Leeds, acquired the 196-room Le partly owned by London & Regional made on an estimated asset value Meridien Penina Golf and Resort Properties. The 39 hotels included of close to €98 million. Subject to and the 154-room Le Meridien Dona in this transaction (6,477 rooms) are planning approval on some sites, this Filipa on Portugal’s Algarve coast located across Finland and Sweden transaction will add roughly 1,500 for approximately €180 million or and are made up of the following rooms to the network. €514,000 per room. Seller Starman has brands: Crowne Plaza, Cumulus, Earlier in the year, Whitbread acquired achieved the highest price per room in Holiday Club, Holiday Inn, Radisson, three ‘Real Hotels’ in London under a portfolio transaction this year. JJW , Rantasipi, Scandic and the Purple, Quality and Comfort Inn intends to invest and upgrade both Sokos. Most hotels were transacted brands for nearly €23 million or €57,000 properties with state-of-the-art spas subject to lease agreements with the a key. The diffi cult fi nancial position and conference facilities; hotel operators. of the Real Hotel Company did not improve over the remainder of the year • Louvre Hotels has acquired two Despite the woes of the fi nancial world, and it passed into administration in / hotels in Swindon and 2008’s investor scene has seen a few January 2009; Bradford, in the UK, to rebrand them familiar faces: as Campanile hotels. This transaction • Europe Italy Hotel Srl, a special- has added 239 rooms to the brand’s • Travelodge, one of the UK’s purpose vehicle wholly controlled by portfolio; largest budget hotel operators, has Blackstone Real Estate Partner Funds, • Four German hotels under the Best acquired 18 new hotels in the UK in acquired a portfolio of 16 hotels across Western and three separate transactions. The fi rst Italy for €250 million or €92,000 a key. brands, totalling 182 rooms, were batch was six Menzies Hotels for The portfolio includes the Crowne acquired by hotel operator Mark Hotels approximately €106 million, followed Plaza Hotel in San Donate, Milan, 13 from Westmont Hospitality in the latt er by seven at roughly Holiday Inn hotels in Milan, Rome, part of the year; €88 million and fi nally, in August Venice and other provincial cities 2008, fi ve independent hotels for across the country and two Jolly • Hand Picked Hotels, a privately approximately €40 million. With these Hotels, in Sicily and Sardinia. The owned and managed UK hotel leasehold acquisitions, Travelodge will transactions were fi nanced by Hypo operator, has acquired three properties be able to continue its rapid expansion Real Estate Bank International AG and of the Bridgehouse Hotel portfolio with upcoming hotels in cities such as Merrill Lynch. (60-room New Hall, 72-room Audleys Table 1 Portfolio Transactions 2008

Number Number Total Sales Price per Portfolio Location of Hotels of Rooms Price (€) Room (€) Buyer Seller

Northern European Properties Portfolio Sweden 39 6,477 805,000,000 124,000 CapMan Northern Europe Properties (NEPR) Park Inn Heathrow, Marriott Victoria & Albert UK 2 1,029 250,300,000 243,000 Yianis Group RBS 16 Italian Hotels (Crowne Plaza, Holiday Inn, Jolly Hotels) Italy 16 2,721 250,000,000 92,000 Blackstone Real Estate Undisclosed 2 Le Meridien Resorts Portugal Portugal 2 350 180,000,000 514,000 JJW Hotels & Resorts Starman UK 3 Starwood Hotels Italy 3 418 156,000,000 373,000 EST Capital Starwood Hotels & Resorts 6 Menzies Hotels UK 6 650 106,300,000 164,000 Travelodge Menzies Hotels 2 Husa Hotels Spain 2 423 100,000,000 236,000 Dutch Property Fund Metrovacesa 21 Express by Holiday Inn Hotels UK 21 1,245 97,700,000 78,000 Whitbread Mitchells & Butlers 7 Swallow Hotels UK 7 669 88,500,000 132,000 Travelodge Undisclosed 5 Independent (Travelodge) Hotels UK 5 500 39,700,000 79,000 Travelodge Undisclosed 4 UK Regional Hotels UK 4 335 31,700,000 94,000 Hallmark Hotel Group (Zeus Group) Private Owner 3 Real Hotel Company Hotels UK 3 400 22,900,000 57,000 Whitbread Real Hotel Company 2 Valmeda Hotels Lithuania 2 302 19,800,000 66,000 Triangle Group Invalda AB 4 Paten Hotels UK 4 404 — — BDL Select Hotels Paten Hotels 2 Sirenis Hotels Spain 2 450 — — Hotel Paraiso Sirenis Hotels & Resorts 2 Novotel/Ibis Hotels UK 2 239 — — Louvre Hotels Unknown 3 Achat Hotels Germany 3 295 — — European Hospitality Properties Unknown 20 Three-Star Hotels (Austrian Hotel Company) Europe 20 1,875 — — Azimut Hotel Company Austrian Hotel Company 3 Bridgehouse Hotels UK 3 189 — — Hand Picked Hotels Bridgehouse Hotels 3 Brentwood Hotels UK 3 182 — — Moorfield Group REIT Asset Management 4 German Hotels (, Four Points by Sheraton) Germany 4 425 — — Mark Hotels Westmont, Goldman Sachs Seaham Hall and The Samling UK 2 29 — — von Essen hotels Tom's Companies 2 Mercure Hotels Germany 2 370 — — Private Israeli Hotel Company Falk Fonds 66 50% Stake in Europe 33 1,650 — — Oman Investment Fund Quinlan Private

Note: The total investment volume shown in this report includes transactions for which the sales prices are confidential Source: HVS – London Office

Page 4 European Hotel Transactions 2008 HVS – London Offi ce Wood, 57-room Hendon Hall) for an Paris Marriott Rive Gauche Hotel • In regards to single asset undisclosed sum. This brings the Hand & Conference Center, Renaissance transactions, real estate investors led Picked Hotels portfolio up to 17 hotels Amsterdam Hotel, Renaissance Paris the investors’ table aft er showing a (949 rooms). Hotel La Defense, Renaissance Paris sharp increase on the previous year Vendome Hotel, (see Figure 3). With a share of 14% of Other noteworthy transactions include Düsseldorf Seestern and Courtyard by all single asset transaction activity in the following. Marriott Paris Defense West Colombes, 2007, their relative share increased to • Following its record acquisition of totalling 1,954 rooms. The announced 30% and a total investment of €938 the Jurys Inn chain for €1.1 billion in purchase price for these properties million, showing the greatest increase 2007, private equity group Quinlan was €565 million and therefore would on investment from 2007 with a 40% Private sold 50% of the Jurys Inn have been the second-largest portfolio growth, when investments totalled €671 enterprise to Oman Investment transaction in 2008; million. Major investments undertaken Fund (OIF), an investment arm of the by real estate investors include the Sultanate of Oman. Since July 2007, • Scandinavian hotel group Norgani acquisition of the JW Marriott Capri Quinlan has grown the portfolio by was said to be on the verge of being Tiberio Palace Resort & Spa by Aled three hotels in operation and has ten sold again in 2008, one year aft er SpA and the Crowne Plaza Amsterdam more in the development pipeline. OIF current owner Norwegian Property City Centre by HHR Euro CV; is an example of an oil-rich Sovereign succeeded to take it over. Despite Wealth Fund (see Cross-Border Activity) several bidders this time around – • Hotel operators remained at similar investing in hotels in Western Europe; one of which allegedly reached a levels in 2008 in terms of single asset sum of NOK11.2 billion (€1.4 billion) transactions with an 18% share of • Central European Hotel Investment – Norwegian Property decided to investment activity. As we investigate (CEHI), an affi liate of Azimut, the retain ownership of Norgani’s 74-hotel later in the article, however, it is largest Russian Hotel operator, has portfolio (totalling some 12,800 rooms); notable that such buyers have become spread its wings into Western Europe. much more dominant within portfolio In April 2008, the company acquired • Hotel Silken, in London, was to be activity. The total monies invested by a portfolio of 20 three-star hotels purchased by the Spanish group Losan this category amounted to €560 million (totalling 1,875 rooms) from the Hotels World and was reported as sold compared to €819 million in 2007; Austrian Hotel Company. The hotels in early 2008. However, we understand are in Austria, Germany and the Czech that the deal failed to materialise • Investment activity by hotel Republic. The parties agreed not to when the project, which was under investment companies accounted for disclose the transaction price; development, was put on hold and 16% of all single asset transactions Losan Hotels World decided to step (€500 million), which is down from • Real-estate investor and developer away from the investment; the 31% share they had in 2007 (€1.5 Yianis Group acquired the largest hotel billion). Noteworthy transactions at Heathrow Airport, the 881-room • Whitbread has been coveting the included the acquisition of the Park Park Inn, together with the 148-room budget hotel company Travelodge for Hyatt Casares Golf & Spa Resort by Marriott Victoria and Albert in central the past fi ve years but a deal looked Qatar National Hotels and the Hotel Manchester for some €250 million set to close in the beginning of 2008. Ambassador in Paris sold to Westmont or €243,000 per room. The seller was The takeover plan was ready and Hospitality Group; Royal Bank of Scotland. The Yianis both Whitbread’s boss and its adviser, Group already owns the prestigious Deutsche Bank, had given the go ahead • High-net-worth individuals showed Four Seasons Canary Wharf and the for the purchase of the hotel group. a decrease in their share of single Marriott West India Quay in London’s The seller, Dubai International Capital asset transaction activity from 17% Docklands; (DIC), on the other hand, was hesitant (€827 million) in 2007 to 15% (€484 • The second-highest portfolio as it looked to gain over €1 billion million) in 2008. The acquisition by transaction on a price-per-room basis for the sale aft er having purchased Bahraini investors of the Four Seasons was the sale of three Italian hotels the hotel group 18 months earlier for Hotel Hampshire and the purchase (Westin Excelsior Resort and the approximately €977 million (£675 of Amsterdam’s Dylan Hotel by the Hotel des Bains in Venice Lido and million). Questions remain for the Murtagh Family are examples of the Hotel Villa Cipriani in Asolo) for possible merger of the two companies investments made by high-net-worth €156 million or €373,000 per room to in the medium term, although in the individuals in 2008; long-term such a deal seems unlikely. EST Capital, an independent asset • Institutional investors, who were not management company that specialises particularly prominent in acquiring in closed-end property funds. Seller Profi le of Investors single assets in 2006, have proved to Starwood Hotels & Resorts is expected be one of the fastest-growing investor ithin single asset investment, the to agree a management contract for the segments in 2008, with a 25% growth in profi le of buyers has also seen a hotels. W single asset investment on the previous more balanced spread of investment For a few companies, however, 2008 year. Institutional investors’ share of amongst the diff erent investor types, presented a few stumbling blocks investment amounted to 11% (€353 with real estate investors rising to the and some transactions that were million), a notable fi ve percentage top of the single asset investor table. previously announced failed to points higher than in 2007 when it We expect the presence of high-net- materialise. accounted for 6% (€282 million) of worth individuals and institutional single asset activity. We expect activity investors in hospitality investment to • One of these abandoned transactions from this particular group of buyers to increase in the future. We expect to see was the acquisition of six Marriott - continue to increase in the future; branded hotels by a joint venture too the emergence of Sovereign Wealth of Host Hotels & Resorts, Stichting Funds from the Middle East as these • Not surprisingly, private equity Pensioenfunds and GIC Real Estate begin to diversify their portfolios and funds followed at the bott om end of Pte Ltd. The hotels in question are invest in hotels in the West. the single asset investment table with

HVS – London Offi ce European Hotel Transactions 2008 Page 5 Figure 3 Single Asset Investment Activity by Buyer Category 2006-08

6

5

4

3

2 Investment (€ billions) 1

0 2006 2007 2008

Hotel Operator Institutional Investor Hotel Investment Company Private Equity Real Estate Investor High-Net-Worth Individual

Source: HVS – London Office

a share of 4%. Total investment for previous year. We note the resurgence portfolio investment, accounting for the group amounted to €140 million, of hotel operators as one of the main 29% of the total activity, though a drop showing a signifi cant decrease on the prevailing contenders, even though in the number of deals closed by the activity in 2007 when transactions private equity funds remained top of investor group is evident. Investments totalled €755 million. Examples of the investors table in terms of portfolio made by this buyer category amounted transactions made by such buyers investment volumes (see Figure 4). to €892 million in 2008, compared to include the sale of the Marriott Munich However, private equity funds, with €7.6 billion in 2007. Such a level of to JER Partners and the purchase of their highly leveraged buyouts, will investment can be att ributed primarily the NH Sanvy Hotel Madrid by the fi nd it increasingly diffi cult to remain to the sale of the Northern European Spanish Grupo Testa. at the top in the current economic Properties Portfolio, including 39 hotels climate. across Scandinavia, to private equity When we consider portfolio group CapMan plc. The buyers are transactions, we note a shift in the main • Private equity funds found said to have invested an estimated €805 investor type when compared to the themselves in fi rst position within million; Figure 4 Portfolio Investment Activity by Buyer Category 2006-08

16

14

12

10

8

6

Investment (€ billions) 4

2

0 2006 2007 2008 Hotel Operator Institutional Investor Hotel Investment Company Private Equity Real Estate Investor High-Net-Worth Individual

Source: HVS – London Office

Page 6 European Hotel Transactions 2008 HVS – London Offi ce • Institutional investors accounted sale of three Brentwood Hotels to the In previous issues of this report, we for a 28% share of the total portfolio Moorfi eld Group for an undisclosed have noted the likely emergence of activity, just a percentage point behind sum. eastern European investors. The fi rst the private equity funds. This type of evidence was the Azimut Group investor showed a signifi cant increase investing in 20 hotels of the Austrian in its share from 13% in 2007 (€1.8 Cross-Border Hotel Corporation. However, given billion), thus proving such investors the fact that funding diffi culties have continue to be and will remain active Activity now reached Russia as well, we expect buyers and future contenders in espite the transactions market Russian/CEE investors to sit tight for the hotel investment market. Total Dbeing relatively sluggish last year, the next few months, even though their investments made by institutional European assets in general remain a appetite for Western European hotel investors amounted to €836 million. major att raction for investors all over assets still appears to be very strong. One noteworthy deal involving the the world. The credit crunch has not sale of three Starwood hotels to EST aff ected investors’ preference to look Our buyer analysis by region (see Capital amounted to an investment abroad for suitable assets rather than in Figure 6) shows the clear dominance of €373,000 per room for the luxury the country where they are based. We of European companies; however, we Westin Excelsior, Hotel Des Bains and expect that investors, today more than note that the Middle Eastern share has Villa Cipriani; ever, will take an opportunistic view grown to 17%, outperforming even the North American share of 8% of total • Hotel operators’ share of total and look for the best deal available, hotel investment in Europe. portfolio activity signifi cantly rose even if it means forfeiting the ease of from 9% (€1.2 billion) in 2007 to 26% buying closer to home. (€781 million) in 2008. Whitbread and In 2008, 38% of all acquisitions, a total Conclusions, Travelodge have established themselves of €2.3 billion, were made by buyers as active investors within portfolio in their home countries. Cross-border Outlook and How transactions, having been involved transactions totalled €3.8 billion, or in a total of fi ve out of the 13 hotel 62% of the total transaction value. Both Long Will the operator deals completed. Notable single asset and portfolio transactions portfolio transactions include the sale show a higher-than-average foreign Hangover Last? of six Menzies Hotels to Travelodge, as share: 52% and 73%, respectively. By e all are aware of the two cycles well as the sale of the two Le Meridien comparison, the average of the last fi ve that aff ect hotels: the investment hotels in the Algarve to JJW Hotels & years has been 43% for single assets W market/investor confi dence cycle and Resorts; and 57% for portfolios. We note that the hotel trading performance cycle. • Investments made by hotel investment in markets such as Spain and Italy companies totalled approximately domestic transactions are still very The investment market and investor €270 million, or 9% of the total common. confi dence suff ered as debt fi nancing portfolio activity. In terms of share became increasingly scarce and more It is widely expected that Sovereign expensive which, combined with either of investment, such buyers showed a Wealth Funds (SWFs) will play a more slight decrease (investments totalled higher yield requirements or the ‘wait important role over the next few years. and see’ approach of investors, led to €1.8 billion in 2007) returning to a share SWFs are defi ned as pools of money similar to that shown in 2006 when a huge drop in transaction activity in derived from a country’s reserves, 2008. they accounted for the same percentage which are set aside for investment of portfolio investment. One example purposes that will benefi t the home Similarly, hotel trading performance would be the sale of four Paten Hotels country’s economy. Very oft en Middle has suff ered. With the global downturn to BDL Select Hotels for an undisclosed Eastern funds are organised as SWFs. and poor economic forecast, businesses sum; For example, 2008 witnessed the sale across the globe increased their cost • High-net-worth individuals of 50% of the Jurys Inn group to Oman cutt ing, thereby impacting adversely continued to make a much bigger Investment Fund (OIF) by Quinlan. on hotels, especially those that are proportional impact on portfolio activity in 2008, with an estimated Figure 5 Single Asset and Portfolio Transactions 2001-08 total of €250 million and an 8% share of portfolio activity, while in 2007 the 25 group represented a 2% share with total investments of €319 million. We note that activity by high-net-worth 20 individuals is set to continue as they are less dependent on debt and have 15 Cross-Border cash to spend; Domestic • Real estate investors have also shown litt le activity within portfolio deals € Billions 10 representing 0.3% of total investment made in 2008. This shows a signifi cant 5 decrease on 2007 when real estate investors accounted for approximately €1.3 billion of portfolio transactions, 0 which was equivalent to 9% of total 2001 2002 2003 2004 2005 2006 2007 2008 portfolio investment volumes. We have recorded one deal in this segment: the Source: HVS – London Office

HVS – London Offi ce European Hotel Transactions 2008 Page 7 seen in other commercial real estate Figure 6 Buyer Analysis by Region 2008 sectors, making hotel investments comparatively less att ractive at present. Asia North America 8% Charles Human, Managing Director 1% of our sister company, HVS Hodges Middle East Ward Elliott adds, ‘Towards the end 17% of 2009 and into 2010 we expect to see an upturn in activity as operating markets stabilise, increased liquidity returns and prices reduce either as a consequence of owners needing to sell or banks foreclosing. We expect activity, Europe when it does return, to be strongest in 74% the core European markets, such as the UK, France and Germany. There will Source: HVS – London Office be a fl ight to quality and generally less appetite for emerging markets, where dependent upon MICE and commercial The award for ‘perfect timing’ no risk premiums have become inadequate segments. Hotels witnessed dropping doubt will be given to all those hotel relative to higher yields which are occupancies and many reduced rates to operators who embarked upon their now becoming available in Europe’s try to sustain what levels of occupancy strategy to go asset light during 2006- established markets.’ they could. This decline in hotels’ 07. It will be interesting to note if the The situation of investors in 2008 was trading performance precipitated major hotel operators return to buying similar to that of a ‘deer in headlights’: the overall fall. HVS has for a long assets again in the medium term. time been advising hotels not to cut shocked and somewhat confused to rates indiscriminately, especially Whilst 2008 challenged perhaps see the events unfold and fi nding during extraordinary events. Our past more novel business models, like it impossible to decide on how best experience suggests that hotels that the one used by GuestInvest, 2009 to react. As we now move through reduced their rates across the board to and beyond is expected to see the 2009, the outlook appears to be more boost occupancy levels took longer to continuing success of budget and encouraging, especially for the latt er rebuild their trading performance. Our no frills hotels. The boutique hotel part of the year; however, it will be advice continues to be ‘it’s wiser to use trend is also expected to continue, some time before the scars from the a rifl e rather than a shotgun when it at least for the medium term. Most current economic climate begin to fade. comes to pricing’. new developments, if they are still to We suspect things have to worsen still happen, are likely to be mixed-use. before the hotel transaction market in While the big question of ‘Have we Europe gets appreciably bett er. reached the bott om yet?’ still remains Equity still exists and all opportunistic unanswered, we consider this to be investors will carefully scan the dependent upon yet another question: markets. Distressed sales are also – HVS – ‘Can hotels hold steadfast during expected to happen, especially for this economic downturn?’ If most of hotels with soon-to-expire debt the hotels can maintain their trading maturity, although perhaps initially performance, and thus manage to not to a great extent as both sellers and stay within their bank’s lending banks will be reluctant to sell assets covenants, it will indeed help those in the prevailing conditions. Highly banks with minimal losses to restore leveraged private equity is expected their confi dence to lend again, albeit to remain impossible until the debt carefully. Should hotel performances market improves and we should see deteriorate more signifi cantly, the debt an increase in activities from long-term market will no doubt remain closed for investors like pension funds and SWFs some time. as the year unfolds. In contrast to 2007, when we saw an On the positive side, at least for the UK, increase in large-scale investment the depreciating pound should att ract made by private equity funds, as hotel more tourists and increase cross-border operators continued their move away deals into the UK. The reluctance of from asset ownership, 2008 has seen some UK citizens to travel to Europe some return of hotel operators as for leisure because of the exchange buyers, as well as an increase in activity rate will also produce an increase in from institutional and other real estate domestic tourism. investors. The increased activity of hotel operators in the hotel investment Overall, we expect transaction activity arena demonstrates a clear strategy to remain at relatively low levels for growth by investing in existing during 2009, particularly during the properties. Interestingly enough, fi rst half. Bank lending appears to Travelodge came up with a rather novel remain restricted in the short term, idea to acquire hotels through a campaign together with weak buyer confi dence to the public, by off ering, through with a general opinion that values may its website, £500 per room upon decline further. Also, hotel pricing has introduction to a possible hotel site. not yet adjusted to the extent already

Page 8 European Hotel Transactions 2008 HVS – London Offi ce ns les Mines G (17%) Per Room Sales Price Rooms ák Spa Hotel Karlovy Vary Czech Republic 126 Undisclosed — Raiffeisen Leasing Warimpex Finanz- und Beteiligungs Ĝ PropertyArcotel KaiserwasserHilton Vienna (75% stake)Dvo Vienna Vienna Location Austria Austria Country 282 572 Undisclosed 34,000,000 121,000 Sales Price Union Investment Real Estate — Raiffeisen Zentralbank Österreich Buyer Raiffeisen Evolution Project Development Group Soravia Seller Citadines Paris LouvreHotel AmbassadorCampanile Paris BerthierMarriott MunichCourtyard by Marriott BremenMövenpick Hotel Frankfurt City ParisIberotel Fleesensee ParisMercure Hotel Remscheid Paris BremenGrand Hyatt Berlin FrankfurtNovotel Freiburg France MunichMotel One Nürnberg-City France France GermanyTreff Hansa Hotel Remscheid Germany Göhren-LebbinHilton Rhodes Resort 51 GermanyGreen Isle Hotel 150 Germany 246Newpark Hotel Germany 294 Berlin 21,500,000 288 NurembergSouth Court Hotel & Suites 23,800,000 Undisclosed 152,000,000 Freiburg 422,000 348 63,000,000JW Marriott Capri Tiberio Palace Resort & Spa Capri 156 The Ascott Group 116 159,000 517,000Hotel Giardino Germany 65,000,000 219,000 Düsseldorf Rhodes Deka Immobilien Westmont Hospitality Group GermanyClub Med Kamarina — 17,600,000 Union Investment Real Estate Undisclosed Germany 187,000 PaninvestResidenza Cannaregio Limerick 113,000 JER Partners Dublin Germany 200Dylan Hotel Italy Lloyd Fonds 342 Greece Kilkenny — Amsterdam the Grand 219 Undisclosed Danish InvestorCrowne Plaza Amsterdam City Centre Undisclosed Ireland 198 Undisclosed Ireland 402 Kamarina (Sicily) Ireland Amsterdam 61 Ascona Undisclosed Venice — — Amsterdam Fonds Lloyd Italy 35,500,000 127 — Asset Management GmbH SEB 60,600,000 The Netherlands 270 + Partner Ebertz — 129 993,000 88,000 15,000,000 Italy The Netherlands 270 Amsterdam Italy Mark Hotels Aled SpA Starwood Capital Group 40,000,000 Lampsa Hotels and Plaka SA (Sbokos Family) – 50:50 CA Immobilien Anlagen 182 118,000 25,000,000 636 Predica 72,000,000 148,000 Robert Butler and Paul O'Brien The Netherlands 194,000 60,000,000 Baum Gruppe of Hanover Brennan Hotels Undisclosed 267,000 John and Allen Flynn 72 HHR Euro CV 41 66 330,000 Omani Family Ionian Hotel Enterprises 33,000,000 Undisclosed — 27,000,000 Undisclosed Ability Group GBI AG 458,000 659,000 Private investor Credit Suisse Real Estate Fund LivingPlus DaimlerChrysler Murtagh Family — Hotels World (75%) and Hotusa Group (25%) Losan GBI AG Westinest Gesellschaft fuer Investmentfonds mbH Lynch Hotels GA Holding Undisclosed Salvatore Naldi Group Hotel Giardino Immobilien AG Private Owners Hotels Lynch Institutional Investor (83%) and IH Accor Heron International Apollo Real Estate Advisors Sokos Hotel HelsinkiLe MarquisLe WaltHotel AmbassadeurHotel Prince de Galles Helsinki Paris Juan-les-Pins Finland Paris Paris France 202 France France 42,000,000 225 France 208,000 25,000,000 36 Exilion Capital 168 111,000 11,800,000 25 141,500,000 Jesta Group 329,000 842,000 8,200,000 Hélion MH Limited Partnership 329,000 Hélion Sponda Caisse Autonome Nationale de la Sécurité Sociale da Undisclosed Hall Phoenix Inwood Hall Phoenix Inwood Source: HVS – London Office Table 2 Table European Single Asset Hotel Transactions 2008 (€)

HVS – London Offi ce European Hotel Transactions 2008 Page 9 %) Altavista Hotelera Per Room Sales Price Rooms PropertyQuality Hotel MastemyrAndel's Hotel Krakow (50% stake)IBB AndersiaHotel Cristal KrakowMemmo Baleeira HotelPark Inn Ekaterinburg OsloSokos Hotel Vasilievsky LocationHotel Sovetskaya PolandHotel Continental ¹Bauza Hotel & Restaurant Norway Algarve Poznan CountryMonasterio de San Miguel 159 Algarve Ekaterinburg St PetersburgPark Hyatt Casares Golf & Spa Resort 33,000,000 152NH Sanvy Hotel Madrid Portugal Poland RussiaGeneral Alava Russia Marbella 208,000 St Petersburg Portugal Madrid 17,500,000Confortel Barcelona Belgrade Warimpex CádizSky Hotel & Restaurant 115,000 144 Russia Sales Price 171 160 Home Properties AB Spain 255 118 Undisclosed Spain Madrid Serbia 82,500,000 22,500,000 Undisclosed Spain 1000 7,500,000 482,000 141,000 Buyer 170 — Deka Immobilien Investment Undisclosed Barcelona Wenaas Hotel Russia 64,000 Barcelona Vitoria 415 — 177 ARTEH Hotels and Resorts Spain José Emídio (Private Investor) 70,000,000 Group SOK 175 148,800,000 65,000,000 — 412,000 Spain Spain 359,000 24,000,000 AMG Worldwide Comfortable Hotels (Cyprus) Qatar National Hotels 367,000 Spain 149 NBGP Properties Rosales 2007 137,000 61,000,000 BBVA 224 259 409,000 115 103,000,000 47,000,000 City Finansiering Grupo Testa UBM 14,000,000 398,000 210,000 Von der Heyden Group Salyut Estate Sol Meliá (40%), Caja Mediterráneo-CAM, Invernostra and Duero (60 Inmobiliaria Oncisa 122,000 Private Owner Undisclosed AC Hotels Russia SRV Seller Manutent OU Group Evemarina Genex Habitat Hotels Incosol Caja Madrid and Mapfre Familia Nozaleda Hotel General Alava Hotel Palacio de MiramarGran Hotel CanariasHotel Los Monteros Apsis AraneaGuadalete Hotel MálagaHusa Via Barcelona Mediterrani MadridSumma Paguera MarbellaCarabela SpainHotel Bahía del EsteHoliday Inn Zürich Messe Barcelona Spain Jerez de la Frontera Barcelona SpainHotel Schweizerhof 188 SpainHotel Royal Savoy Lausanne Spain 21,500,000 Spain Majorca 116 Minorca 172 114,000 Zürich Cala Millor 137 36,000,000 Grupo Promur 115,000,000 Lausanne Tarragona Undisclosed 84 Spain 310,000 Spain Berne 90 669,000 Spain NH Hoteles North-West Oil Group Undisclosed Switzerland Undisclosed Switzerland Spain — Hotusa Hotels 145 180 160 Switzerland — 188 108 — Undisclosed Best Hotels Undisclosed 35,000,000 Husa Hotels 108 Undisclosed Undisclosed 84 219,000 Undisclosed — KanAm Grund — Undisclosed — BQ Hoteles — Grupo Optursa Alltours Barwa International — — Rothensteyn (Independent) Igor Barwa International Junta de Andalucia Private owners Santana Cazorla JOSÉ ESTEVEZ, S.A. Apsis Hotels Martinsa-Fadesa PIVISE, S.L. Undisclosed Undisclosed Bojucasa S.A. Summa Hoteles Undisclosed Undisclosed ¹ As part of a mixed-use transaction Source: HVS – London Office Table 3 Table European Single Asset Hotel Transactions 2008 (€) – continued

Page 10 European Hotel Transactions 2008 HVS – London Offi ce Per Room Sales Price Rooms PropertyFour Seasons Hampshire The Metropole Building LondonExpress by Holiday Inn StrathclydeExpress by Holiday Inn StevenageThe Point Hotel London Hampshire MotherwellRamada Jarvis Leeds North StevenageWessex Hotel LocationCarlton Court Hotel UK UK UKTurnberry Golf Resort UKCitadines London Holborn-Covent Garden Leeds CountryPatio Hotel Aberdeen London EdinburghTen Square 133 120 283Crowne Plaza Hotel London – The City 129 UK 76,200,000 London The Pelham Hotel 171,600,000 Bournemouth 9,500,000 Ayrshire, Scotland UK UK LondonPremier Inn Stoke (Trentham Gardens) 573,000 13,700,000 UK 606,000 79,000Liverpool Marriott Hotel South Al Khalifa Family (Bahrain's royal family) UK Nakheel, IHI, LAFICO Sales Price Aberdeen 106,000 Geminex Hotels and Leisure Stoke-on-Trent UKNorfolk Hotel JER Partners 105 UK 192 139 UK UK 219 Belfast 9,200,000 Liverpool 109 54,400,000 25,400,000 London Buyer 68,800,000 22 88,000 283,000 183,000 9,100,000 203 Blair Estates The Ascott Group EBH Ltd 314,000 119 UK 10,000,000 UK 168 Leisurecorp () 106,300,000 UK 84,000 Gregory Park Limited 12,600,000 Birmingham 455,000 LaSalle Investment 524,000 45,200,000 Private Investor 106,000 ARG Hotels Ltd 269,000 KS Habro Stoke UK 164 LRG Acquisition Invesco Real Estate 23 52 Undisclosed Crown Estate 12,600,000 25,000,000 548,000 169 — 481,000 Acquisition LRG Private Investor Kew Green Hotels Private Investors Undisclosed Starwood Hotels & Resorts — Securities Land Seller Undisclosed Morley Property Fund Forestdale Hotels WG Mitchell Group Sunterra Group Gruppo Statuto Patio Hotels Ltd St Modwen Undisclosed Hill Brothers Firmdale Hotels Undisclosed Source: HVS – London Office Table 4 Table European Single Asset Hotel Transactions 2008 (€) – continued

HVS – London Offi ce European Hotel Transactions 2008 Page 11 Offi ces and Services

About the authors HVS Offi ces Services Cristina Balekjian is a Market Intelligence Analyst with HVS’s Athens • Consulting & London offi ce. Cristina holds a BSc Atlanta Valuation (Hons) in International Hospitality Beijing and Tourism Management from the • Executive Search University of Surrey. She worked in Boston a number of operational roles in the Boulder • Investment hospitality industry before joining HVS Buenos Aires Banking in 2007, where she has worked on a Chicago number of research-based assignments in Europe, the • Interior Design Dallas Middle East and Africa. • Shared Ownership Denver Services Elke Geieregger is a Senior Associate Dubai with HVS’s London offi ce. Having • Hotel Management worked as a consultant and in various Hong Kong roles in hospitality accounting, she London • Convention, Sports is now completing assignments Madrid & Entertainment in numerous European countries. Mexico City Facilities Originally from Austria, Elke holds Consulting a BA (Hons) in tourism management Miami and is a part-qualifi ed member of the Moscow • Asset Management CharteredhdI Institute of Management Accountants (CIMA). Mumbai & Strategic Saurabh Chawla is an Associate New Delhi Advisory Director with HVS’s London offi ce. He Newport, RI • Parking Consulting joined HVS in 2006 aft er seven years’ New York operational and managerial experience San Francisco • Food & Beverage in the hospitality industry. Saurabh Services holds an MBA from IMHI (ESSEC São Paulo Business School – France), and degrees Shanghai • Gaming Services in Hotel Management and a Bachelor Singapore of Commerce. He has conducted Toronto • Marketing numerous valuations,l feasibility studies and consulting Communications Vancouver assignments across Europe, the Middle East and Africa. Washington, D.C. • Golf Services

© 2009 HVS. All rights reserved. For further information please contact Saurabh Published by: Chawla on +44 20 7878 7708 ([email protected]) HVS London Offi ce, 7-10 Chandos Street, London W1G 9DQ or visit our website at www.hvs.com Tel: +44 20 7878 7700 Fax: +44 20 7878 7799

A global consulting and services organization focused on the hotel, restaurant, shared ownership, gaming and leisure industries www.hvs.com

Page 12 European Hotel Transactions 2008 HVS – London Offi ce