ALTERNATIVEAi INVESTMENTR REPORT

HOTEL AND RESORT PROPERTY – 2013 CONTENTS

INVESTMENT CASE MARKET UPDATE RETAIL INVESTMENT DISTRIBUTION UPDATE MARKET RESEARCH INVESTMENT REGISTER

DIRECTLY HELD INVESTMENTS 34 FINDINGS AND ANALYSIS 42 CORPORATE ELEMENT 39 REGIONAL SPREAD: UK 52 COLLECTIVE INVESTMENT GLOBAL SPREAD 40 56 SCHEMES 12 INVESTMENT OBJECTIVES 24 PHASE ONE CATEGORIES OF HOTELS AND PHASE TWO 12 RESORT PROPERTY 24 PROPERTY AND SIPPS OPERATING MODELS 27 14 HOTEL AND RESORT PROPERTY 29 15 INVESTMENT STRUCTURES SWOT ANALYSIS ESTABLISHING INVESTMENT PRODUCT PROVIDER SURVEY INVESTMENT ACTIVITY 18 CRITERIA 30 ANALYSIS 6 THE ROLE WITHIN A PORTFOLIO 9 GLOBAL REAL ESTATE THE MACRO CASE 11 RESEARCH AND DUE DILIGENCE 6 TRANSPARENCY INDEX 20 ALTERNATIVE INVESTMENT REPORT

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2 3 INTRODUCTION The hotel and resort property sector includes such a range of opportunities, locations, investment structures and risk/ HOTEL AND RESORT PROPERTY return profiles that while many property investments do indeed qualify as mainstream, hotel and resort property should still be considered “alternative”.

This sector has seen its fair share of failures which have resulted in intense scrutiny and tighter controls from the regulator over the last year. It has also fallen in and out of favour with investors, but there is now a large amount of optimism as to what the future may hold for the sector.

SCOPE We will be looking at investment opportunities into off-plan, new build or recently refurbished properties that intend to run a business providing guest accommodation. We’ll nod to the mainstream opportunities for investors to gain exposure to this sector so that readers can make meaningful whole of market judgments, but our intention is to focus on non-regulated, direct investments and lightly regulated UCIS schemes as these form the bulk of retail investment opportunities and are less well covered by the analyst community.

WHO SHOULD READ THIS REPORT? The report is aimed at advisors, intermediaries, sophisticated investors, SIPP operators, product providers, developers and other market practitioners who have an interest in the sector.

The intention is to capture the current state of play: the drivers that are shaping the sector; the opportunities that are out there; changes in regulation; pitfalls to avoid and how to invest sensibly. We’ll shed some light on what’s been happening and help readers make informed decisions about their involvement in this sector.

THE INVESTMENT REGISTER As with all of the reports in the AiR series, we’ve also included a comprehensive investment register. We believe this is currently the only place where you can see all of the direct, non- regulated, non-mainstream pooled investments (NMPI) and collective investment schemes in the hotel and resort sector gathered together in one place, allowing readers to conduct whole of market research.

The investment register includes 119 directly held property investments, 29 investments with a corporate element and 13 collective investment schemes.

We’ve carried out our own analysis of the findings that can be drawn from this register and we’ve also surveyed some of the biggest product providers, allowing us to extract some meaningful trends that just might point towards the future for hotel and resort property as an investment sector.

4 5 “2012 saw 1.035 billion international tourist arrivals in one year for the first time, up from INVESTMENT CASE 983 million in 2011 - growth of 5.29%.”

occupancy in a stable location might have risky, but investors should be rewarded You have to dig a bit deeper to get the numbers for some of the smaller destinations that have been popular locations for some of the THE ROLE WITHIN A PORTFOLIO a lower yield than other opportunities, but by much higher returns when these unregulated investments on offer: will hopefully provide regular income and investments are successful. Products here DIVERSIFICATION portfolio diversification. can be thought of on a spectrum, from POPULAR LOCATIONS FOR HOTEL AND RESORT PROPERTY INVESTMENTS (2003 - 2011) Obviously the success of a hotel or genuine investments at the low risk end of International Tourist International Tourist International Tourist 2010-2011 % 2003-2011 % From this perspective, the investment is Year resort property is dependent upon high the spectrum, to pure speculation at the Arrivals 2003 Arrivals 2010 Arrivals 2011 Change Change only a small allocation within an overall occupancy – getting enough guests to stay. higher end. portfolio that is already well on its way to Country A particular property achieving high levels achieving its financial objectives. However, Whether investors are always Argentina 2.9 million 5.3 million 5.7 million 7.1% 90.5% of occupancy can be something that is the proliferation of single asset SIPPs appropriately rewarded for the risk that entirely divorced from the wider economy Barbados 0.5 million 0.5 million 0.5 million 6.8% 7.0% suggests that this has not always been the they take on and whether the risks are or the mainstream markets. Brazil 4.1 million 5.2 million 5.4 million 5.3% 31.5% case, and is something we will examine even fully identified in the unregulated Cape Verde 0.2 million 0.3 million 0.4 million 27.4% 185.3% If investors can find these sorts of further on in this report. sector is questionable. We’ll return to Chile 1.6 million 2.7 million 3.0 million 11.0% 90.2% properties, they can provide returns this theme later in the report, as well as that are uncorrelated from the rest of a SPECULATION looking at how some naive investors have Dominican Republic 3.3 million 4.1 million 4.3 million 4.4% 31.2% more mainstream investment portfolio, Hotel and resort property can also been seduced into the more speculative Egypt 5.8 million 14.1 milion 9.5 million -32.4% 65.3% providing diversification benefits and provide opportunities for high returns, investments, when they were wholly France 75.1 million 77.6 million 81.4 million 4.8% 8.5% reducing overall portfolio volatility. often from capital growth. Investing in inappropriate for them. Germany 18.4 million 26.9 million 28.4 million 5.6% 54.2% off-plan properties or more speculative Properties that can fulfill this objective Grenada 0.1 million 0.1 million 0.1 million 7.3% -16.9% developments in unproven locations should not be high risk investments. An Hungary - 9.5 million 10.2 million 7.8% - or with new developers is much more established property with proven levels of Indonesia 4.5 million 7.0 million 7.7 million 9.2% 71.3% Malta 1.1 million 1.3 million 1.4 million 5.7% 25.3% Panama 0.6 million 1.3 million 1.5 million 11.3% 160.2% THE MACRO CASE Slovenia 1.4 million 1.9 million 2.0 million 9.0% 48.4% TOURISM AND TRAVEL Spain 50.1 million 52.7 million 56.7 million 7.6% 11.5% Thailand 10.1 million 15.9 million 19.2 million 20.7% 90.7% Obviously the numbers of tourist and business travelers are the major driver of success or failure in the hotel and resort property sector. Turkey 13.3 million 31.4 million 34.0 million 8.4% 155.1% Tourist numbers and business demand are now increasing and the emergence of affluent middle-classes in Asia, North Africa and South United Kingdom 22.8 million 28.3 million 29.3 million 3.6% 28.6% America is predicted to increase demand in the coming years. United States 41.2 million 59.8 million 62.7 million 4.9% 52.1% Tourist Numbers Venezuela 0.4 million 0.5 million 0.6 million 13.1% 76.6%

2012 saw 1.035 billion international tourist arrivals in one year for the first time, up from 983 million in 2011 and 940 million in 2010 - Source: Wikipedia growth of 5.29% from 2011 to 2012. Based on these numbers, Cape Verde, (2010 - 2012) (2013) TOP 10 COUNTRIES BY TOURIST ARRIVALS Panama, Turkey, Egypt and Argentina have INTERNATIONAL TOURIST ARRIVALS BY CITY

International Tourist International Tourist witnessed the strongest levels of growth 20 Rank Country UNWTO Region Change (2010-2011) Change (2011-2012) International Tourist Arrivals (Million) Estimated Worth (Billion) Arrivals (2011) Arrivals (2012) in tourism numbers since 2003. Grenada,

1 France Europe 81.6 million 83.0 million +5.0% +1.8% France and Barbados have seen the lowest. 15 2 United States North America 62.7 million 67.0 million +4.9% +6.8% However, developed markets such as France, Germany, Spain and the USA still 3 China Asia 57.6 million 57.7 million +3.4% +0.3% 10 attract the highest numbers. (Note that 4 Spain Europe 56.2 million 57.7 million +6.6% +2.7% they are all big territories as well!) 5 Italy Europe 46.1 million 46.4 million +5.7% +0.5% 5 6 Turkey Europe 34.7 million 35.7 million +10.5% +3.0% Within countries it’s also important to 7 Germany Europe 28.4 million 30.4 million +5.5% +7.3% identify the right cities: The World’s top 10 0 tourist locations have remained reasonably 8 United Kingdom Europe 29.3 million 29.3 million +3.6% -0.1% Paris similar for the last few years but cities such London Istanbul Bangkok New York 9 Russia Europe 22.7 million 25.7 million +11.9% +13.4% Singapore Dubai UAE Hong Kong Barcelona as Bangkok, Istanbul, Dubai and Kuala Kuala Lumpur 10 Malaysia Asia 24.7 million 25.0 million +0.6% +1.3% Source: MasterCard Global Destination Cities Index Lumpur have dramatically increased in Source: Wikipedia popularity recently.

Paris ranks first among the top 5 Travelers’ Readers should examine these numbers and carry out their own further research to Choice World destinations and benefits help them come to informed decisions on whether an investment location makes sense from high occupancy and increasing and whether the claims made in product providers’ marketing matches the actual average daily room rates. This has made tourist demand. the city one of the most sought after

France U.S.A. China Spain Italy Turkey Germany U.K. Russia Malaysia markets for hotel investment.

6 7 OCCUPANCY ASIA / MIDDLE EAST / EUROPE AMERICAS RATES: 67% PACIFIC 66% 63% 62% AFRICA MARKET UPDATE

Travel Numbers INTERNATIONAL PASSENGER MARKET (2007 - 2013) INVESTMENT ACTIVITY GLOBAL HOTEL INVESTMENT VOLUME (1998 - 2013) Another leading indicator is air traffic 350 BUYERS numbers. The International Air Transport 140 Private equity in the United States Association (IATA) announced global 330 Asia Pacific EMEA Americas Global passenger traffic results for August 2012, and Europe continues to dominate 310 120 showing that air travel continued to investment activity in the sector. These expand at a healthy rate, with growth led 290 investors have significant buying power by the Middle East and emerging markets. and risk tolerance which allows them 100 270 Overall demand in 2013 has increased by to take advantage of current market 250 conditions, buying at low valuations and 5.2% compared to the previous year. 80 seeking high returns. The Middle East had the strongest growth 230 Sovereign wealth funds (mainly from Qatar with a 15.1% increase year on year. Latin 60 Monthly (Billion) Numeber Passenger 210 and Abu Dhabi) and family offices for America and Asia/Pacific experienced ($Billions) Volume the super wealthy have been purchasing growth of 9.8% and 8.6% respectively, in 190 Actual Seasonally Acquired ‘trophy assets’ with an average size of 40 contrast with slower growth in Europe 170 £395m ($630m) in H1 2013. (5.4%) and North America (5.1%). 2007 2008 2009 2010 2011 2012 2013 Real Estate Investment Trusts (REITs) have 20 Source: IATA It appears that travel of all kinds is continued to make headline acquisitions growing faster for emerging economies, to diversify their portfolios, particularly 0 but a healthy travel and tourism market in North America. After raising record 2011 2010 1998 1999 2001 2002 2007 2003 2005 2009 2008 2006 (2013) 2000 2004 2013F overall is good news for the hotel and INTERNATIONAL PASSENGER GROWTH BY REGION breaking amounts of debt and equity 2012E resort sector. Source: Jones Lang LaSalle 16% in 2012 ($67.4billion) they have been on 15.1% Jul-13 Aug-13 something of a buying spree. US Hotel REIT OCCUPANCY 14% averaged 12% in the index in 2012. Verifiable occupancy figures can be hard 12% to come by for ordinary retail investors Interestingly, despite REITS being available (2012 - 2013) since 2007 and their favoured tax status, RECENT GLOBAL HOTEL INVESTMENT and their advisers. However some major 10% 9.8% hotel operating companies such as IHG there are no specific Hotel REITs listed US$ billions H1 2012 H1 2013 % change Q2 2012 Q2 2013 % change 8.6% (InterContinental Hotels Group) do publish 8% in the UK. Perhaps market players were Americas 7.2 10.8 50% 3.9 5 28%

% Growth YoY 7.3% 7.5% global occupancy figures in their annual discouraged by the £2billion failure of Vector, EMEA 5.2 7.4 42% 1.6 2.2 37% 6% 6.5% 5.9% financial statements. The most recent figures 5.4% 5.4% a UK hotel REIT that failed to launch in 2007. 5.1% Asia Pacific 1.7 3 82% 1.4 1.6 22% 4% 4.6% released show average room occupancy Total 14 21.1 51% 6.9 8.9 29% 3.6% 3.5% SELLERS across the group of 61.1% for Q1 2013. 2% The main sellers of hotel and resort Source: Jones Lang LaSalle TR Global also collect occupancy figures 1.2% 0% property have been private equity and average daily room rates by region, Africa Asia/Pacific Europe Latin Middle East North Industry firms and institutional investors (37% of their figures suggest average annual America America Source: IATA transaction volumes) who continue to sell occupancy rates range from 60 to 70%. the global financial crisis - with nearly $80b One notable observation is that a off some of their previous acquisitions to invested in 2006 and over $120b in 2007. significant amount of this investment will ROOM RATES Europe trailed due to the Eurozone crisis, free up capital. Hotel operators are the So while these figures can provide a be international in nature. Overseas hotel but it should be noted that London is an second largest seller (18% of transaction However, in 2013 hotel investment activity globalised macro view of occupancy levels, It’s not just about rising numbers of and resort property investments provide exception that has bucked this trend due volumes), disposing of assets to raise has seen very strong growth. Investment it can be harder to find this information on travelers and rising occupancy, the rates diversification from domestic currencies, to improved stock and exposure post the additional capital to repay loans and levels reached US$21 billion during the first a localised level to benchmark investment that can be achieved per room are also locations and economies. Cross-border 2012 Olympics. PwC estimated that 10.6% finance other operations. six months of the year - a 51% increase on opportunities against. an essential part of the equation (usually investment accounted for 30% of global measured by the average daily rate or ADR). of additional supply opened in London in the same period last year. The vast majority of transactions and activity in 2012, mainly driven by strong 2012 (approx. 7,700 rooms) with a further (2013) market activity that are publicised Based on current investment activity capital flows from the Middle East and GLOBAL OCCUPANCY Hotels.com produces the Hotel Price 4,600 bedrooms expected to have opened relates to these large scale institutional Jones Lang LaSalle expects investment to Asia. Sovereign wealth funds and family Index, a regular survey of hotel prices in in 2013. Potential investors need to assess World Regions Occ. (%) ADR (USD) investments rather than retail investors, exceed US$33 billion for the whole of 2013. conglomerates are predicted to continue major destinations around the world. We if this is a rising trend they can benefit from, have extracted some useful information but these levels of activity are encouraging This would indicate that whilst we aren’t their strong cross-border investment 2013. Asia Pacific 66.70 123.59 or if they have missed the boat for now… from their findings. In 2012, guests paid for the entire sector and for all investors. yet witnessing a sea-change in market Another observation worthy of note: Europe 66.10 133.12 over 3% more for accommodation than sentiment, perhaps we can say that we GLOBAL INVESTMENT in the previous year. Regionally the despite the growth in travel to the Middle have reached the bottom and are slowly on Americas 63.20 112.40 Caribbean saw a 6% rise, North America East, hotel receipts did not rise. Again, this Global investment activity into hotel and the way back up to the levels of transaction 5%, Pacific 4%, Asia 2%, Latin America 1% could potentially represent an opportunity resort property was $31.8 billion in 2012, a and activity witnessed prior to 2008, Middle East/ Africa 61.60 164.21 and Europe and the Middle East registered if investors can find the right property decrease of 5% compared to 2011 and much although hopefully not into the dangerous Source: STR Global a slight fall. and they have the appetite to invest in a lower than the highs seen in the run up to bubble territory witnessed in ’06-’07. volatile region.

8 9 GLOBAL HOTEL INVESTMENT YEAR ON YEAR GROWTH AMERICAS EMEA ASIA PACIFIC 2012 - 2013 50% 42% 82% GLOBAL REAL ESTATE TRANSPARENCY INDEX

REGIONAL INVESTMENT Central America investors such as pension funds should Jones Lang LaSalle produces the Global Real Estate Transparency Index which quantifies transparency of investing into property worldwide. lead to an improvement in investor The Index aims to help investors, corporate occupiers and retailers understand important differences when transacting, owning and operating Americas Like the Caribbean, Costa Rica experienced a confidence in 2013. These investors in foreign markets. The index ranks 97 countries worldwide on a number of criteria including investment performance, market fundamentals, wave of development and new resorts over According to recent figures released by will start to fill the funding gap left by regulatory & legal structure and the ease of completing transactions. The lower the combined score, the more transparent and easier it is to the last seven years with many properties Jones Lang LaSalle, hotel investment in traditional banks. invest in real estate in that country. This index is updated every two years and the top 50 countries are listed below. Countries in black on the including residential units. Due to its stable H1 2013 in the Americas increased by map below are not included in the top 50 transparent countries for real estate investment according to Jones Lang LaSalle. political environment, healthy economic Middle Eastern investment almost tripled 50% compared to the same period last fundamentals and the newly expanded from £620m ($991m) in the first half of year. This was supported by improved (2012) Liberia airport, Costa Rica is predicted to be a 2012 to £1.75b ($2.8b) in the same period TRANSPARENCY INDEX economic conditions, low new supply, popular investment location. of 2013. This came mainly from sovereign Transparency Level 2012 Rank Market 2012 Score Transparency Level 2012 Rank Market 2012 Score strong hotel trading and increased wealth funds in Qatar and Abu Dhabi who availability of debt financing. 1 United States 1.26 26 Hungary 2.53 continue to invest in Europe. South America 2 United Kingdom 1.33 27 Brazil - Tier 1 2.54 There has also been increased liquidity in Development is expected to pick up in the 3 Australia 1.36 28 Portugal 2.54 resort property which has been a strong South America presents a number of Middle East with 150 new hotels scheduled 4 Netherlands 1.38 29 Taiwan 2.6 driver behind recent investment in the opportunities due to strong economic to have opened in 2013. The majority are in sector. The resort market has taken a lot growth and large amounts of investment 5 New Zealand 1.48 30 Brazil - Tier 2* 2.75 Saudi Arabia and the United Arab Emirates Highly Transparent longer to recover from the 2008 financial and development in the pipeline. Just 6 Canada 1.56 31 Turkey 2.76 – development in Dubai is slow as the crisis than other hotel sectors, but 15% of rooms in Brazil are supplied by an 7 France 1.57 32 China - Tier 1 2.83 international hotel brand, meaning there is market is nearing maturity. occupancy levels have now returned to 8 Finland 1.57 33 Greece 2.84 large potential for growth in a country that previous peaks and the sector is attracting The UK remains Europe’s most active 9 Sweden 1.66 34 Israel 2.85 is enjoying global exposure at the moment a large amount of attention. market with investment for 2013 predicted 10 Switzerland 1.67 35 Philippines 2.86 as the host of both the 2014 World Cup and to be £1.88bln (40% of total EMEA 11 Hong Kong 1.76 36 Slovakia 2.9 2016 Olympics. investment), followed by France at £1.06b Caribbean 12 Germany 1.8 37 Russia - Tier 1 2.9 (23%) and Germany at £525m (11%). The Caribbean has experienced improved EMEA 13 Singapore 1.85 Semi-Transparent 38 Indonesia 2.92 demand in 2013, particularly in the Dominican 14 Denmark 1.86 39 Thailand 2.94 Hotel investment of £110b accounted for Asia Pacific Republic, Jamaica, the Cayman Islands 15 Ireland 1.96 40 Romania 2.96 7% of the total commercial real-estate Investment in Asia Pacific in H1 2013 and Aruba. The recovery has been led by 16 Spain 2.06 41 South Korea 2.96 all-inclusive resorts which are forecast to transactions in Europe in 2012. High-net- was up 82% compared to the same 17 Belgium 2.07 42 Puerto Rico* 2.96 continue to strengthen in 2013. The bulk of worth individuals (HNWIs) (domestic period last year, with increased activity Transparent 18 Norway 2.08 43 Mexico 2.97 large resorts in the Caribbean have been and international) accounted for 20% in Japan, China, Singapore and Australia, 19 Poland 2.11 44 Russia - Tier 2 2.98 financed by high levels of debt and many of the market. collectively accounting for three-quarters include residential units, with sales activity Hotel operators, although net sellers, were of regional investment. 20 Italy 2.16 45 Chile 3.01 driven by owners who are forced to sell due the third largest group of hotel investors 21 South Africa 2.18 46 China - Tier 2 3.04 Despite the recent slowdown in economic to default. Hotels in these locations are highly with 18% of transactions. Hotel operators 22 Austria 2.22 47 UAE - Dubai 3.05 growth and the weaker economic outlook, susceptible to changes in tourist numbers, disposed of £1.6b worth of assets, 21% of 23 Malaysia 2.32 48 India - Tier 1 3.07 China accounted for the second largest share the impact of hurricanes or rising costs. the total hotel property market. of investment in Asia Pacific with a total of 24 Czech Republic 2.34 49 India - Tier 2 3.08 The majority of transactions are likely to be Despite continued economic challenges £415m ($665m). Investment in Australia fell 25 Japan 2.39 50 India - Tier 3 3.15 driven by upscale and luxury resorts changing in Europe, hotel investment for 2013 is to £211m ($337m) during the first half of ownership due to debt restructuring. expected to remain similar to 2012 at 2013, compared to a record £600m ($955m) Strongly performing assets are much less roughly £6.9b ($11b). The emergence for the same period last year. likely to change hands as their prices remain of new sources of debt and alternative suppressed and below potential.

REITsUSA and private equity buyers are InvestmentAS is predominantlyIA from REITs, EMEAHotel investment was dominated by expected to account for 70% of total Asian family companies, owner operators institutional investors such as Westmont, investment activity in 2013. and opportunity funds in Japan. Starwood Capital and Morgan Stanley Highly transparent

which accounted for 24% of the market, up Transparent

from 17% in 2011. Semi-transparent

Not part of the top 50 countries

Source: Jones Lang LaSalle 10 11 "Investors can choose from seven different categories of investment property: beach resort, ski resort and RETAIL INVESTMENT chalet, holiday park, city centre, luxury, budget and business hotel."

Ordinary retail investors who want daily investing in an unregulated fund structure For a lifestyle purchaser, they would need #1 BEACH RESORT #2 LUXURY HOTEL There are both newly built and re-sale liquidity, low minimum investments, low or by directly purchasing a property. to consider the on-going costs of owning Beach resorts tend to be large (100+ rooms) Luxury hotels have a small number of properties available, with ski resorts transaction costs, the assurances that the property and how they would cover and are located in popular tourist locations rooms and often offer additional services in accounting for approximately 12% of This usually involves a trade-off; higher come with investing in a heavily regulated these, the travel costs and time it takes to in the Caribbean, Mediterranean and Cape comparison to standard hotels, such as spa directly held investments in the market. risk. The risk will come from bigger up environment and the protections afforded get to the property and how often they will Verde Islands. There are also a large number access or golf courses. They are regularly used This end of the market is where lower front financial commitments, higher by the FSCS must stick to mainstream actually be able to use it. of properties in emerging markets such as for short luxury breaks and weekend retreats. return / lower risk opportunities can be transaction costs, lower liquidity and investments. These will include open- Thailand, North Africa and South America. found, especially in established properties. ended property funds that are listed on the lower levels of regulatory scrutiny. These If it is an investment purchase, then the Luxury hotels account for approximately stock exchange, individual shares in quoted risks can be mitigated by researching the investment objectives must be considered There is a wide choice of locations 13% of investments currently available in the #4 BUDGET HOTEL right opportunities, or added to by using next. Is it for diversification, income or major property companies, REITs and PUTs available, with the more established directly held sector. Properties are located There has been a large amount of growth leverage, buying off-plan and investing in speculation? What level of diversification, (Property Unit Trusts). destinations being more expensive and the in the UK and other European countries, and in the budget hotel sector in the UK which unproven locations. That’s not necessarily level of income or level of return is less established being riskier, but with the tend to be built hotels that are in need of is being led by brands such as Holiday However, all of these investments have a bad thing to do, but investors who go required? What is the investor’s appetite potential for high capital growth. refurbishment and upgrading. Inn, Travelodge and Park Inn. According to a high degree of correlation to the stock down this route must have a very healthy for risk and capacity for loss? Clarity on the Deloitte research, the budget hotel sector market (reducing diversification benefits) appetite for risk and capacity for loss. answers to these questions is essential to The investor can purchase a room (or Properties are run by private brands which has increased from 3% of total UK hotel and tend to be focused on commercial avoid taking on more risk than necessary. fraction of a room) in an all-inclusive focus on providing luxury services at a supply in 2000, to 18% by 2010 and by property: office blocks, retail centers and resort which will be managed by a high price and therefore can achieve high 2016 could account for 25% of the UK hotel industrial premises. Investors would be INVESTMENT OBJECTIVES Investors can answer these questions specialist management company: either an operating margins and returns. sector. Properties are often in city centre very unlikely to be able to achieve specific In exchange for the risks associated with themselves, but professional financial advice established brand or a new independent Some of the opportunities in this sector locations or up and coming areas close to exposure to the hotel and resort property an expensive, illiquid asset an investment is invaluable here and is recommended. management company. offer guaranteed returns of 10% or higher transport links and popular attractions sector through these routes. property must offer the investor certain Once the investor is sure of what they are advantages over other investments such The investor is offered a fixed return for for an initial period, followed by a share such as sporting venues. looking for from an investment property, Investors who want direct exposure to as diversification, strong returns and the an initial period, usually between 2 and of rental income. Initial investment levels they can then look at the types of property Hotels have 100 to 200 rooms, with the sector are usually looking for higher opportunity for capital appreciation 5 years, followed by a share of rental are very high, and therefore properties relatively basic facilities for short stay returns and diversification. This will mean available in the sector. income. A number of properties offer fixed are often split into fractional investments clients. Revenue is achieved by high returns of between 7-10% per year. The to make them more accessible to retail occupancy rates at competitive prices. longest fixed return available is 10.33% investors, with many being SIPP acceptable. which is assured by the product provider CATEGORIES OF HOTEL AND RESORT PROPERTY Budget hotels account for only about 6% for 10 years. These properties are widely #3 SKI RESORT AND CHALET of directly held investments currently Based upon our research into the direct and non-regulated investment market we have identified seven different categories of targeted at retail investors and a number Ski resort and chalet property is a available in the market, but their popularity investment property. of them have been accepted by SIPP very well established sector with sale is growing. For example, a project in In the following section we give a short market update and synopsis of what is currently available in each category. providers over the last few years. It’s worth and leaseback agreements being used London recently sold out after offering considering the difference between ‘fixed’ successfully in the USA and France for a investment properties with strong returns (2013) PROPORTION OF RETAIL INVESTMENT OPPORTUNITIES and ‘guaranteed’ here – they do not mean number of years. Properties are relatively of 8-10% per year. the same thing. small with up to 15 apartments and are 53% sold on a leasehold or fractional basis. Properties are sold as new-build or off-plan Beach resort properties account for investments and are widely SIPP accepted. the largest share of the sector with Location is very important with a large number of properties located in popular, well 13% approximately 53% of the direct property #5 CITY CENTRE HOTEL investments currently available to retail established ski resorts in the French Alps. 12% Boutique city centre hotels account for investors. The vast majority of these 8% There are a few very well established a relatively small part of the market with investments are new properties which are 5% 5% companies that run sale and leaseback about 5% of available investments. sold off-plan, so one of the risks to investors ski properties and pay a fixed return of is that the construction of the property is 4% between 3.5-5% for up to 10 years. The There are a number of UK based delayed or it doesn’t get built at all. longest leaseback currently available pays investments which turn previously built distressed or commercial property into city Delays can lead to higher costs, lower 3.8% per year guaranteed for 18 years. centre hotels (in a similar way to purpose returns, or loss of the initial deposit if the The returns on offer are lower than other built student property). Opportunities property isn’t built. hotel property investments as the ski season is relatively short (3 to 4 months), include direct investments, collective Based on our research, construction of meaning that average annual occupancy investment schemes and debt financing. nearly 40% of beach resort properties is is much lower. However, it’s likely that the Properties are relatively small (50 to 100 currently running behind schedule (or the owner will be able to use the property rooms) and privately managed with a completed hotel opened late). A further during the summer months when focus on niche customers looking for short 30% are built and opened on time, with occupancy levels are very low. (This would breaks and weekend getaways. Initial BEACH RESORT LUXURY SKI RESORT BUDGET CITY CENTRE BUSINESS / the remaining 30% of properties currently not be acceptable within a SIPP.) HOLIDAY PARK investment levels tend to be high as they HOTEL AND CHALET HOTEL HOTEL CONFERENCE under construction.

Source: Intelligent Partnership HOTEL

12 13 ANNUAL “The promotion and sale of UCIS and Close Substitutes (NMPI) to ordinary retail investors has been INVESTMENT 25% 10% 3.5% st RETURNS: HIGHEST AVERAGE LOWEST restricted from 1 January 2014.”

are in popular city centre locations, but of the investments being into hotels which a choice of restaurants and entertainment This model gives the owner the most freedom FCA have asked the high court to find that INVESTMENT STRUCTURES forecast returns are also strong. Some are already built, but in need of funds such as kids clubs, waterparks, crazy golf and control and they can make all of the Capital Alternatives, African Land Limited The hotel and resort property market is investments offer guaranteed returns of for refurbishment and modernisation. and sporting facilities. decisions regarding staff, branding, marketing, and Reforestation Projects Limited projects dominated by directly held investments 8% for an initial period, followed by a share Business hotels only account for 5% of operational structure and future growth. have been promoting and/or operating which account for over 70% of the sector. of room revenue. the investment into the hotel and resort Returns are not high compared to other unauthorised collective investment schemes. This includes freehold, leasehold and property sector. hotel and resort property investments However, this can also be one of the riskiest A number of these investments are SIPP and range from 3.5-5%. However, the ways to enter the market. The hotel will need to fractional ownership. If the purchase is purely The FCA also believes that these companies acceptable as they are run as commercial Returns vary widely by investment but returns are generally underpinned by establish itself and build its brand, reputation for investment purposes with no lifestyle have made misleading statements and have hotels and there is no personal usage as a are predicted to be between 6-10% per long-term leasebacks which can run for and marketing from the ground up. element, investors can also use collective given false information when promoting part of the investment. year, with a number of investments being up to 10 years and provide an element of investment schemes and structures with a the schemes to investors. The case is being SIPP acceptable. security for investors. LEASED corporate element such as bonds, loan notes heard in court at the start of October (2013) #6 BUSINESS/CONFERENCE HOTEL or special purpose vehicles. and will set a precedent for the industry. There may also be a lifestyle element The physical building will be owned by a third Business or conference hotels offer a wide #7 HOLIDAY PARK These are not property investments, which allows investors free use of the party who leases the building to the operator. INVESTMENT STRUCTURES AND range of facilities focused toward business Holiday park investments have been around but their operation, promotion and property and facilities for a limited REGULATION customers. Hotels are located in out of town for a number of years. Investors purchase The owner of the building has no control sale is similar to a number of hotel and number of weeks per year. locations where they are cheaper to build, but freehold property which is part of a over the management and will receive a pre- The Financial Conduct Authority (FCA) resort property investments that are they are invariably close to major transport collectively run holiday park. The property is Holiday parks account for a relatively small agreed return as part of the lease. This type does not regulate the sale of land or currently available to retail investors. If links, airports and business centres. then leased back to an operating company proportion of the sector at around 4% of ownership is very common and is used by property but they do regulate Collective Capital Alternatives are found to have such as Centre Parcs. a number of international hotel groups. Investment Schemes (CIS) and a firm must been running an unauthorised CIS, Investment opportunities are available via and come from a very small number of providers. They are generally marketed to be authorised by the FCA to operate or many property investments might find directly held properties as well as collective These parks can be very large (up to 900 The benefit to the hotel group is that there is European, rather than UK, investors which promote a CIS from the UK. themselves next in the firing line. investment schemes and debt financing. properties) and are mainly based in France no requirement for large amounts of capital may explain the smaller size of this section The promotion and sale of Unregulated and Germany. Resorts cater to families on to build new hotels. The hotel owner will These topics are looked at again in the These sorts of hotels are run by small of the market. Again, lower return/lower Collective Investment Schemes (UCIS) weekend and vacation breaks and provide receive a fixed minimum rent and a variable Distribution section. management companies, with a number risk opportunities can be found here. amount based on occupancy or revenue. and Close Substitutes to ordinary retail st investors has been restricted from 1 DIRECTLY HELD Many of these hotels will be owned by January 2014 as a result of the FCA policy The leasehold or freehold title to the OPERATING MODELS hedge funds and institutional investors paper PS13/3. Close substitutes include as it can achieve relatively steady annual Qualified Investors Schemes (QIS) and any property will be owned directly by the FRANCHISE model. The owner of the hotel will sign an The main disadvantages of this model income over a number of years. investment that is not a direct purchase investor, with the property managed on operator agreement (which could be for up are the potentially high costs and lack of The hotel owner pays the franchise of an asset, but instead has a structure their behalf by a management company. to 25 years) and they will pay the franchise potential for growth (as the hotel will be provider fees and royalties in order to MANAGED around it that modifies the investors’ company an initial fee (fixed) and an on- tied to the franchise). Returns are paid from rental income or operate under their brand name. In return, exposure to the asset with an element of going fee (% of revenue). This structure is more widely used with through a leaseback arrangement. There they would receive full branding, training pooling of income, profits or contributions. PRIVATELY OWNED & OPERATED existing hotels rather than new hotels. The is often a guaranteed return offered by and marketing exposure. Franchises range from budget to high end physical building is privately owned, but The new regulations mean that these the product provider for an initial period The owner of the hotel is also the operator. luxury hotels. Franchise costs and set- the owner may employ a well-established investments are only suitable for high (up to 10 years). This can provide security This is usually the fastest and most widely This structure is used by international up costs are likely to be much higher for brand to operate the hotel on their behalf. used route into the hotel sector, as using net worth individuals (those with over and make the investment very attractive, luxury hotels. hotel groups as well as by new entrants a well-known brand means the hotel will £250,000 in investable assets or an but the investor needs to be sure that the looking to enter the sector and set up on The owner will not have any day-to-day instantly gain recognition and benefit from annual income in excess of £100,000) and developer can afford to pay these returns their own. control over the hotel, but will benefit an existing and well-established business sophisticated investors due to their high for the offered period. They also need to from the brand and their experience. This risk, illiquid nature. ascertain, if they can, just how much these model is often implemented when owner (2013) guarantees have been built into the initial HOTEL OPERATING AND OWNERSHIP MODELS operated hotels have struggled to compete PS 13/3 is likely to dramatically narrow the purchase price. MARKETING for market share. The manager is likely to be audience collective investment schemes BRAND HOTEL CAPITAL AND STAFF INCOME paid a percentage of the revenue received. can be promoted to. However, some OWNERSHIP OWNERSHIP INPUT Leaseback arrangements are an DISTRIBUTION property investments will still claim that alternative way of providing long-term The majority of investments in the hotel they are not collectives as they are direct Fee % of rooms fixed returns. Franchised Franchise Third-party Third-party None None and resort property sector tend to be purchases of property - and therefore they revenue run on a leased or managed basis, as this will escape the new regulations. Hotel and resort property investments General Manager Fee% of total revenue allows the owners to be very hands off are commonly operated as commercial Managed Franchise Franchise Third-party Low/none It’s going to be crucial to be certain about as a minimum plus % profit and take advantage of the experience and properties and many do not offer any property investments that claim not to be brand image of the management company. lifestyle element or personal use. These All revenues and a CIS. The FCA has recently taken Capital Owned & Operated Franchise Franchise Franchise Franchise High properties are widely accepted within a SIPP. profits Alternatives (along with several other firms including African Land Limited and There is a lack of established secondary All revenues and Leased Franchise Franchise Franchise Third-party Low Reforestation Projects Limited) to court market for investments in this sector profits over the running of investment schemes with pre-owned resort properties Source: Intelligent Partnership which the FCA believes are illegal. The

14 15 PROPORTION OF “The majority of hotel and resort property funds are closed-ended as property is an illiquid asset and DH 74% CE 18% CIS 8% RETAIL MARKET: it can take a long time for the investment manager to dispose of assets.”

rarely changing hands. Property is an The most common use for a special Collective investment schemes include concentration of assets, complex terms illiquid asset class, particularly when the purpose vehicle is to hold the leasehold unit trusts, limited partnerships, and conditions, lack of regulatory scrutiny, investment is based overseas. or freehold title of a property and then investment trusts, open-ended transparency and high leverage. issue units to investors. Investors hold an investment companies (OEICs) and FRACTIONAL interest in the performance and returns unregulated collective investment ENTERPRISE INVESTMENT SCHEME (EIS) from the underlying property by being schemes (UCIS). The investor owns a fraction of the The EIS is a Government backed initiative a shareholder, rather than owning the property which entitles them to a share of to promote investment in small start- physical title to the property. Open-ended funds can have unlimited rental income. This allows people to own share capital with shares listed on a up companies, with investors receiving luxury products that they might otherwise This structure is also used for non- recognised stock exchange such as tax reliefs for taking on the extra risk not be able to afford. commercial investments to allow them the London or Channel Islands Stock associated with these companies. to be held within a SIPP. This is achieved Exchange. This provides liquidity for Companies have to meet certain criteria The investor will own part of the freehold by the SPV being a genuinely diverse investors and these types of funds are set by HM Revenue & Customs in order for or leasehold title to the property and commercial vehicle (GDCV). A GDCV is generally considered appropriate for investors to receive these reliefs. therefore have a stake in it should the not a collective investment scheme but ordinary retail investors. price increase (or decrease). The investor There are certain trades which are is a structure which has been approved will purchase a share of the total asset, However, the majority of hotel and resort excluded from EIS investment, including: th th by HMRC through which investors can such as a 5 . For example, owning a 5 1. Property development indirectly hold residential property. property funds are closed-ended as # of a £100,000 hotel room might cost property is an illiquid asset and it can take #2. Operating or managing hotels. £25,000 as there is ordinarily a premium This structure is often used by developers a long time for the investment manager The main reason that these trades are paid for fractional. Fractional ownership and hotel operators to raise capital. to dispose of assets. Investors and their excluded is that they are often asset is very well understood in the USA and Investors have become relatively familiar advisors must be aware of the liquidity backed and therefore they do not throughout Europe. It can be used for a with investing in debt and this type of surrounding investments into property undertake sufficient risk for investors wide range of property types including investment can provide stable fixed funds. If the fund is investing into a to be granted tax relief. Companies can ski chalets, buy-to-let apartments, resort returns and a defined exit strategy with physical underlying asset then it is likely to undertake these trades, but according to hotels and city centre hotels. Fractional is capital being repaid on maturity. be a long-term investment and investors HMRC guidelines they can only account for the form of underlying ownership and the should be fully aware of this when they 20% or less of the companies activities. success of the property will come down There is a grey area surrounding the choose to invest. to the management company and their operation, promotion and sale of these Investments into hotel and resort property ability to achieve strong occupancy rates. investments as to whether they come The student property specialist do not meet these criteria and cannot under the FCA’s definition of unregulated Brandeaux is a good example of the receive investment through the EIS. Fractional investment property is almost collective investment schemes and close liquidity problems that can arise from completely hands off for the investor. substitutes. There are investments available running an open-ended fund. Brandeaux VENTURE CAPITAL TRUST (VCT) They will not be involved in any of the day that are being openly marketed through have suspended redemptions from their to day running or decisions surrounding unregulated channels direct to ordinary property funds citing a lack of liquidity Venture Capital Trusts (VCTs) are listed the property and are unlikely to have any retail investors but this could change with due to the changes in the regulation. The companies that are run by a fund manager control over its décor or upkeep. This will be the implementation of PS 13/3 in January directors of Brandeaux cited CP12/19 and which, in turn, invest mainly in smaller in the hands of the management company 2014 and the outcome of the current court as the cause of their liquidity problems, companies that are not quoted on stock or resort operator who may charge a high case involving Capital Alternatives. causing a reduction in in-flows of new exchanges. Investors into VCTs receive fee in return for their services. Investment money. With a portfolio of illiquid assets, generous tax reliefs in return for the returns will come from rental revenue once COLLECTIVE INVESTMENT SCHEME they could no longer meet requests added risk of investing into small, higher management, administration and any other for redemptions, regardless of the risk start-up companies. Collective investment schemes pool costs have been paid. performance of the underlying assets. investors’ funds in order to purchase There are very strict rules on how Venture Fractional investments are illiquid and there underlying property. The fund can purchase Collective investment schemes give a large Capital Trusts can invest pooled money is not an established secondary market the entire asset which is then operated by a amount of control to the operator and in order to qualify for Government tax outside of the USA. designated management company. investment manager to make investment reliefs. In order to receive tax reliefs and decisions such as when to buy and when be classed as an eligible company, the Pooling money in this way allows investors CORPORATE ELEMENT to sell properties. They can provide company must undertake a “qualifying access to the sector and returns from a number of advantages for investor, trade”. Certain trades are specifically Investments with a corporate element rental revenue once all costs (including particularly diversification as the risk can excluded from this, these include: include asset backed bonds, loan notes, management costs) have been paid. be spread across a number of underlying property development and hotels. and special purpose vehicles. These are Investors will also share in any profits unregulated investments and the investor properties. Funds can also be much from the fund as and when underlying Therefore there are no opportunities does not own the underlying physical asset quicker, easier and cheaper to invest in properties are sold. in this sector for investment through a – they own unsecured or secured debt. than buying property directly. However, venture capital trust. closed ended funds are illiquid and often unregulated. Risks include a higher

16 17 SAMPLE RISK L M H ESTABLISHING INVESTMENT CRITERIA WEIGHTING: 0 - 39 40 - 91 92 - 130

Common sense investment criteria can be specification and on time; therefore they However, using a screening system like used to screen for suitable investments. can give a lower score to that risk. this is not flawless. Although it attempts to WORKED EXAMPLE Each criteria needs to be fully explored and be more objective, it is still more art than Criteria Property A Score Risk Comments On the other hand, they may be buying supporting evidence gathered - preferably science. There are many judgment calls Development Stage Building has begun 7 H Still high risk as building work may be affected by delays or issues in an unproven location, and whilst they independent, objective evidence, not the involved in ascribing scores to each criteria Country UK 1 L Well developed country with solid land ownership laws and building controls believe that occupancy levels will rise, they developer or product provider’s opinion. and one person’s opinion of certain risks are not certain about this. This risk is given Location Manchester 3 L Developed city with a number of sources of demand Each investment opportunity can be scored could be very different to another’s. a higher score. Season Year round 1 L Benefits from tourist and business season against the investment criteria (for example, The other consideration is the risk/return it could be scored from 0-10) and then This is one way of trying to distil a lot of Operator Radisson 2 L Globally recognised operator with a long track record and experience ratio. Just because something is higher risk the final score can be used to compare a ambiguous and uncertain information to Occupancy TBD (Forecast 75%) 7 H This is higher than global average occupancy rates does not make it a poor investment as long number of potential investments. allow direct comparisons. Competition High 7 H Competition from a wide range of international brands and budget hotels as investors are being sufficiently rewarded To do this, investors and their advisers Using investment criteria in this manner for taking on that risk and it is compatible Exit Open Market 8 H The re-sale market for hotel rooms is undeveloped and unproven need to take a view on each criterion, and allows investors to screen for properties with their personal appetite for risk. Yield TBD (Forecast 9% pa) 7 H Returns are not guaranteed and are forecast high

then need to decide how confident they that meet their investment objectives in Purchase Price 23% BMV 3 L Backed by RICS valuation are in that view. For example, they may be a dispassionate way, which helps to avoid On-going Costs TBD 10 H No mention of ongoing costs, investor could be liable for high costs buying off-plan, but have a high degree being influenced by glossy brochures and of confidence in the developers’ ability marketing promises. Currency Risk Sterling 0 L No currency risk for UK investors in sterling to complete the project to the required Property Market Flat 7 H Hard to establish whether re-sale prices for this type of property will increase Total 63/130 M This is a high risk off-plan investment which has already been hit by delays

INVESTMENT CRITERIA MATRIX Criteria Property B Score Risk Criteria Low Risk (0-3) Medium Risk (4-6) High Risk (7-10) Development Stage Open for 10+ Years 1 L Built and open with a track record of occupancy Stage of Recently completed / final stages of Off-plan with significant amounts of work Already built with final touches completed Development development to finish Country Germany 1 L Well developed country with solid land ownership laws and building controls

Country Developed market Emerging market Frontier market Location Bavaria 4 M Demand and local area is relatively unknown

Established tourist destination, close to Developing tourist destination, amenities Season Year round 1 L Benefits from tourist season year round Location Niche tourist destination amenities and attractions still to be developed Operator Independent 5 M Lacks global brand image, marketing and reputation Season Year round Seasonal Short season Occupancy 70% (established) 4 M Reasonably high occupancy rates but established Operator Established, known brand Niche or less well known operator New, unproven operator Competition Low 3 L Shouldn’t be affected, but a new entrant could have an impact Unproven occupancy levels based on Occupancy High year round occupancy levels Seasonal occupancy, levels vary forecasts Exit Buy-back Option 4 M Gives the investors the option for a defined exit, but not guaranteed Few competitors in the area, little scope for Some competitor properties, but Many established competitors / no Competition Yield Fixed leaseback 10% 4 M Leaseback is a well-established model but returns are not guaranteed building more restrictions on new entrants restriction on new properties Purchase Price Market Value 5 M Investors are not purchasing at a discount Active secondary market, including Exit Secondary market No secondary market domestic demand / buy-back built in On-going Costs Fixed 3 L Investors are aware of what costs they are liable for High room rates at well-established levels / Variable room rates depending upon Yield Low room rates Currency Risk Euro 5 M Currency risk for Sterling to Euro exchange rate guaranteed period of rental yield demand Property Market Flat 7 H Hard to establish what the re-sale price for this type of property would be Purchase price at market value or at a Purchase Price Purchase price below market value Hard to establish fair value premium Total 47/130 M This is an established property, but still presents risks to the investor On-going Costs Low and well-established on-going costs High or unpredictable on-going costs Hard to assess level of on-going costs Criteria Property C Score Risk Currency Risk Local currency Major currency ($, €, ¥…) Emerging currency (Brazil, India, Turkey) Development Stage Building behind schedule 9 H Off-plan investment which is already running behind schedule Property Market Rising, but not overvalued Flat Overheating / declining / unpredictable Country Barbados 6 M Investors are susceptible to weak land ownership laws and poor building controls Source: Intelligent Partnership Location Barbados 6 M As above RISK FREE RATE EXAMPLE CRITERIA MATRIX WEIGHTING Season High/Low 5 M Year round tourist season but certain periods of lower demand One of the key numbers to check back to Based on the example criteria matrix, an Different criteria can be given more or Operator Independent 5 M Lacks global brand image, marketing, reputation and track record is the ‘risk-free-rate’, which for an ordinary investment that posed absolutely no risk less weight in the assessment process Occupancy TBD (Forecast 75%) 7 H Due to tourist seasons this occupancy may not be achievable retail investor could be a high-interest would have a total overall weighting of 0, as appropriate. Things that cannot be savings account or the return on a portfolio with an extremely high risk investment reversed should be given a proportionally Competition Low 3 L Not overly affected by competition, but a new entrant could have an impact or fund invested in high quality shares. weighted 130. Of course this is very higher weight: country, location, season, Exit Open Market 9 H Re-sale market for this type of property, in this location, is not established

Both of these investments, which are more unlikely, as all investments are likely to purchase price. Whatever else happens, Yield Fixed company guarantee 10% 4 M Returns are fixed but only underwritten by the management company liquid and more highly regulated, could contain a degree of risk for the investor. these things will not change, so buyers Purchase Price Hard to value 9 H There is no independent valuation or reasonable comparisons available be considered safer than most hotel and For an investment to be classed as “Low need to be confident about them. On-going Costs TBD 10 H Investors are unaware of what costs they may be liable for in future resort property investments. Therefore Risk”, it will have a total overall weighting of you should expect to have a strong chance 0-39, “Medium Risk” from 40-91 and “High Currency Risk USD 5 M Currency risk for Sterling to USD exchange rate of earning a return that is commensurably Risk” from 92-130. Property Market Flat 7 H Hard to establish what the re-sale price for this type of property would be

higher than this in reward for taking on the Total 85/130 H This is a high risk off-plan investment which has already been hit by delays added risk of investing in property. Source: Intelligent Partnership

18 19 “Unlike regulated products, investment property providers can make outlandish claims and RESEARCH AND DUE DILIGENCE advisers cannot rely upon statements made in the marketing literature.”

There are a number of risks associated with There may be periods of very high RESEARCH with high yielding large cap stocks (which of ensure that the investor holds the correct They will also be able to advise whether unregulated property investments, and these course are also more liquid and more highly occupancy, followed by long periods of very title on the property once the transaction there is a double taxation agreement in The following section covers some of risks can be even greater when it comes to regulated than property investments). low occupancy. The average occupancy is completed. The lawyer should also look place for rental income earned abroad (so the main due diligence considerations off-plan property in far off locations. achieved over the year is what is important. into any ownership restrictions or foreign the investor avoids being taxed twice, once in detail, and in the hexagon diagram on A number of investments offer guaranteed investment restrictions that could impact in the investment location and once where the opposite page is a short list of initial or fixed returns for an initial period, Occupancy for the first few years of the investment. they are domiciled) and what taxes may be questions investors, and their advisers, WHERE TO START? usually up to 5 years. Returns are either operation is likely to be low as the hotel due when the investor comes to exit the should be asking. There are so many considerations with paid by the developer or through a lease establishes itself and builds market It would also be advisable for the lawyer investment, such as capital gains tax. arrangement with the management share. This is why many developers offer to review any agreements for the on- purchasing hotel and resort property that WHAT DOES THE INVESTOR OWN? it can be hard to know exactly what to look company. Due diligence is essential to a guaranteed to cover this period of going management of the investment (if INSURANCE for. Marketing and promotional materials The investor must be fully aware of what ensure that the developer or management lower occupancy. applicable) and ensure that these are fair are generally full of benefits but do not they are purchasing and how they will own company can actually afford to pay these to both the investor and the management Insurance is important for any physical always explain the risks in detail. the property. Do they own the leasehold, returns. Money may be put aside or held Investors should consider the projected company. This will help to define the role of asset. With off-plan investments it is likely how long is the leasehold for? Or do they securely by a third party to cover the occupancy rates for the hotel and the management company and any costs that the developer will cover insurance Unlike regulated products, investment own the property freehold? If this is a guaranteed returns. Investors should note compare these to what similar established that they will pay on behalf of the investor, throughout the build stage until the property providers can make outlandish fractional investment, will they be allowed that this money is likely to have come from hotels nearby are achieving. If predicted and also help the investor understand what purchase is completed. For re-sale or claims and advisers cannot rely upon any use of the property? their initial investment and was factored occupancy rates are higher - this should rights they have should the management ready built properties buildings insurance statements made in the marketing literature. into the sale price of the property by the be considered a red warning flag. company not perform as contracted. should be taken out as soon as the It might seem like an unnecessary step, product provider. purchase is complete. Providers also tend to use computer but it is also important to verify that the Consider what occupancy the hotel needs The investor should get an independent generated images to portray the finished project sponsor actually owns the land Guaranteed returns can make it hard to to make a profit. Is there a big enough valuation on the property, ideally by an If there is a management company in place, project, but rarely include actual they intend to build on. accurately assess whether the investment margin between this break-even point and experienced property surveyor who is check what insurance cover they provide photographs of the site or information on has been producing a high enough profit the predicted occupancy for the hotel? accredited by the Royal Institute of Chartered over the property. This should include the current stage of construction. Property/land ownership laws may be very to pay on-going returns. Investors should Surveyors (RICS) or equivalent body. personal liability cover as well as buildings different in some countries and therefore and contents insurance, and should be consider previous projects from the same LEGAL ADVICE this should be checked by their lawyer. outlined in the management agreement. This type of information is important for product provider and see whether these TAX ADVICE It is essential for all information relating to investors. The regulator made this clear are paying investor returns after the initial the purchase of the property to be verified Tax advice is essential to understand the tax in January when the FSA issued their alert The investor should also check exactly guaranteed period has ended. COSTS by a third party, preferable a lawyer. regarding Harlequin Property. They stated what is included in the purchase price. implications of the purchase. There could There are likely to be a number of costs that adviser’s due diligence should include: Does this cover the purchase costs? Does Investors need to ensure that returns be upfront taxes due on the purchase and They will undertake their own due with the investment, property purchase the purchase price cover the completed are realistic and achievable. Do they on-going taxes on income. The tax advisor diligence on the purchase and look costs can be high and vary widely by property or just the basic shell of the rely on high occupancy levels? Are these should have knowledge of the relevant tax Consideration of how building work into building guarantees offered by the country. The investor is likely to be liable structure? Does this include any fixtures occupancy levels achievable? laws for the country where the investment is progressing on the various sites and fittings, or any furnishings? Is the developer, ensure that full planning is based to ensure that all property taxes for upfront and on-going costs. and any factors involved in reported permission is in place and that the land investor liable for any further costs should Property also offers the potential for are correctly paid and settled when due. delays to completion; title is correctly owned by the developer. 1 the project fall behind schedule? capital growth over the long-term. This This reduces the likelihood of a very large They will also check contracts of sale and can often be where a large amount of the tax bill in the future. Establishing precisely how their It is important to have these points investment return comes from, particularly customers’ funds will be used during checked and validated by a third party to with off-plan property investments. But DUE DILIGENCE CONSIDERATIONS (2013) the construction phase and the ensure that no unexpected costs arise with this additional return is not risk-free: it terms of their purchase agreements; the investment. Independent lawyers are comes with much more risk attached: the 2 used by both parties whenever residential What is the underlying Is the investment regulated? How many units are Who is promoting the risk that the development might fall behind property changes hands in the UK - the asset? available? investment? A full assessment of all publicly schedule, run into unforeseen difficulties, same should apply for an investment available information about the not be completed to specification or never purchase, particularly overseas. overseas property investments complete at all. through Harlequin Property and on all the 3 RETURNS OCCUPANCY parties associated with these investments. Have units been built? What are the returns Is there a track record of Property is an expensive and illiquid asset Occupancy will fluctuate - different Structure Or when should they be on offer? returns/buy-backs/capital Location and may account for a large proportion of locations and different types of hotels built by? growth? an investors’ portfolio. Therefore returns will have different customers and tourist must be high enough to reward the risks seasons. Some hotels may be in locations being undertaken. Returns from hotel and that have almost year round demand but resort investments range from 8 to 10% per most resort hotels are likely to see demand year which is attractive compared to returns fluctuating according to tourist seasons. When did the project Are the returns fixed or Is the investment SIPP from cash and bonds, but only comparable launch? variable? Are returns guaranteed? acceptable?

Source: Intelligent Partnership

20 21 “There is no end to the amount of research and due diligence that can be undertaken when assessing a “Hotel and resort property can present additional risks to investors as an unregulated and potential property investment.” illiquid investment.”

Upfront costs may include notary and Investors should also check whether Any previous projects that have failed property. The investor must be sure that it unit back off the investor after a set period HIGH EFFORT legal fees, land registry, stamp duty or the loan is to be secured against the or been delayed are a worry, but in is in their best interest to invest and if they of time for a defined amount, such as 120% This may sound like a lot of effort, and it is. purchase taxes, survey, tax adviser fees, investment property, or against their construction delays do happen and it are unsure they should seek independent of the original purchase price. It is essential Investing in hotel and resort property is no transaction/administration, bank and own home or personal assets. Banks do would be beneficial to understand what advice. Agents are NOT advisers, they are that the investor gets independent legal different to investing in any other business mortgage arrangement fees. not often lend against off-plan property caused them. salesmen. Some may be good, some may advice on any buy-back agreement to and in fact has some additional risks as and may require the investor to use be bad, but only an authorised IFA can give ensure that they fully understand it. an unregulated and illiquid investment. The exchange rate will affect overseas their own personal assets as collateral. DEVELOPER genuinely independent financial advice. The buy-back will only be honored if the Investors will be committing significant properties and presents a currency risk, This can mean that the investor is developer has the capital to re-buy the The product provider is likely to outsource amounts of long term capital, so it is as well as the added costs of exchanging putting their personal assets at risk, and The investor may be offered a free units when the time comes, and there is no the construction of the project to a local essential to leave no stone unturned when money for the purchase. should the investment property not be inspection visit which is useful, but don’t guarantee that this will happen. developer and workers. investigating an opportunity. built they could lose more than their lose sight of the fact that this is essentially On-going costs may be similar to owning initial investment. Any kind of financing a marketing ploy. An independent The most common exit strategy is to As with assessing the product provider, a buy-to-let property and include dramatically increases the risk. inspection visit will give the investor sell the asset on the secondary market. it is important for investors to research ground rent, council/land tax and greater freedom and mean they won’t feel Obviously a profitable exit is very much the developers’ track record. They are maintenance fees due on an annual basis. tied to the product provider or property dependent upon the performance of the CURRENCY RISK ultimately responsible for the building If the property is managed on behalf agent. This should give the investor the asset – the success of the property itself. Currency risk will affect all investments of the property which must meet the of the investor, or as part of a resort/ chance to meet the developer and see the that are made in a foreign currency. Note specifications and quality expected. hotel complex, then there will also be location first hand. Investors should consider their exit strategy that some investments are sold in pounds management charges which are likely to from the outset and see if there is an sterling (£), but the asset will be valued in the Investors need to look at their previous account for a percentage of room revenue. established secondary market for similar local currency. It is priced in this way to make projects and potentially visit these. Some MANAGEMENT COMPANY properties. Local property agents may have it easier for the investor to understand and developers offer build guarantees or The management company can be vital to The investor should check whether they clients who have successful re-sold similar compare to property prices they are familiar discounts for delays. This may be built into the success of the investment. They are are liable for upkeep and maintenance of properties. Sellers can use local property with – but investors should not let that the purchase contract. in charge of the day to day running of the the property, or whether this is covered by agents, or the product providers sometimes disguise the additional element of risk. property, room rates and occupancy. The the management company. offer a re-sale service. Any responsible developer will have strict investor will most likely sign a management When investing in a different currency, for deadlines and milestones. Ask to see a contract with the management company Of course, there are transaction costs DEPOSIT example a UK buyer purchasing in France, copy of the project plan. taking a set percentage of rental revenue in associated with the sale of the property With off-plan investments the investor is the current exchange rate would need to payment for their services. which will lower the eventual return. usually only required to pay a deposit to be taken into account. PLANNING This rental contract should be checked secure the property with the remaining Investors should check that the developer Property is an illiquid asset and investors Costs, returns and the value of the by a lawyer to ensure it is fair on both price paid as staged payments once the has the necessary local knowledge to should be aware that it can take a long time property will all fluctuate with the parties and has safeguards in place project hits certain build milestones. The comply with building regulations and local to sell and exit the investment. Property exchange rate. should the management company not initial deposit is usually 10% of the purchase planning laws. Verify that the appropriate prices can be volatile — particularly in perform. The investor must be sure that price although this can vary widely. planning permission has been obtained. this sector — and if investors need to exit The exchange rate will also affect the they are completely satisfied with the quickly they may have to accept a much The investor must ensure that monies are sales price of the property when the services offered by the management ROLE OF AGENT lower price than they were expecting. used correctly and if necessary check that investor transfers the money back into company. It is essential to look into the they are held securely by a third party until their home currency. Distribution of directly held property is management company’s track record and certain building work has been completed. unregulated and relatively unrestricted, the performance of any other properties OTHER FACTORS FOR SUCCESS although a number of property agents are Ideally held within an escrow account or PRODUCT PROVIDER that they manage. There are other factors potentially backed by a deposit protection bond. This part of the Association of International The investor should know exactly who underpinning the success of the investment would ensure that the investor receives Property Professionals (AIPP), the industry A new or independent management they are dealing with and who contracts which investors need to consider. their initial deposit back should the body for the international property market. company could be more risky as they may are between. With such a large number of developer not hit certain build targets. This The AIPP aims to improve standards not have the required experience or brand property agents in the market it is likely that Is the success of the investment incentivizes the developer to keep the build of professionalism in the sector with reputation to establish a share of the the investors’ first contact will be with an relying upon improvements to local on track and means that the investor isn’t members agreeing to follow a professional market and fill the property. agent, rather than the product provider. The infrastructure or transport links committing all of their capital upfront. Code of Conduct. investor should speak to all counterparties which1 is not in the hands of the developer? involved to be sure of exactly who is EXIT STRATEGY MORTGAGE/FINANCE Investors should take into account how the Would a tour operator pulling out of responsible for each aspect of the investment. For the majority of investments the exit is investment was marketed and promoted the location/airport be detrimental Non cash investors will require further likely to be open-ended, meaning that the to them and understand the role of the to the success of the property? funding through either a loan secured Check the product providers’ record and investor can sell and exit whenever they property agent. against the property (mortgage) or through identify any previous projects that they have see fit. 2 Is there demand for the property in developer finance. Investments sometimes been involved with. If they do have previously Property agents work on behalf of the Some investments offer a defined exit the local area? advertise preferential mortgage rates with built projects then an inspection visit could product provider and are usually paid a strategy, most commonly a developer buy- banks and it is essential to research these help to establish whether they live up to the commission based on the sale price of the back. The developer may offer to buy the to ensure they actually are a good deal. investors’ requirements and expectations. 3

22 23 “There has been a small but significant retail investment boom into the hotel and resort sector, this has DISTRIBUTION UPDATE resulted in issues which prompted intervention from the regulator.”

Property is one of the most familiar asset Many investors were led into making PHASE TWO classes in the UK and one that many investments that were not appropriate DISTRIBUTION CHAINS (FROM THE LOWEST TO HIGHEST REGULATORY RISK Tighter regulations, restricted distribution investors feel comfortable investing in – for them: investing in more speculative, Client ➜ IFA ➜ Advised cash investment and lower risks. The FSA/FCA has taken perhaps because of the tangible nature off-plan developments; investing in assets a number of steps over the last twelve Client ➜ IFA ➜ Advised SIPP transfer ➜ Advised SIPP investment of bricks and mortar or because so many that were illiquid and hard to value; months to address these issues. people own their own homes. investing too much of their wealth into Client ➜ Introducer ➜ IFA ➜ Cash investment just one scheme; borrowing to invest; or Commercial property has long been the DISTRIBUTORS Client ➜ Introducer ➜ IFA ➜ Advised SIPP transfer ➜ Advised SIPP investment investing in schemes with esoteric, hard backbone of traditional ‘true’ Self Invested to understand legal structures. It should The first area they addressed was the one Client ➜ IFA ➜ Non-advised investment Personal Pensions (SIPPs) that have be noted that on their own, none of these where they had a clear remit, the behavior discretion to invest in a wide range of assets Client ➜ introducer ➜ non-advised investment things are necessarily bad but each one adds of regulated advisers. In their consultation and many SIPP portfolios have been built paper CP12/19 and subsequent policy another element of risk to an investment. Client ➜ introducer ➜ IFA ➜ advised SIPP transfer ➜ introducer ➜ non-advised investment around a core property holding. paper PS13/03 they made it clear that At the same time, a number of new Source: Intelligent Partnership This background of investor comfort with developments in the distribution landscape unregulated collective investment schemes property on the one hand, and the tradition had sprung up. (UCIS) and ‘close substitutes’, now defined SIPPS the progress of building work, how funds They have suggested that as an interim as ‘non-mainstream pooled investments’ will be used and any other publically measure the FCA should raise the minimal of holding commercial property in a SIPP The second area the FSA/FCA addressed Firstly, some regulated advisers who were (NMPIs), were no longer considered available information. Based on this it would capital level to £50,000 and then carry out on the other, has helped to fuel a small but was the use of SIPPs to invest in this sector. keen not to miss out on this opportunity had suitable for ordinary retail investors. be difficult for any adviser to recommend more detailed analysis of the appropriateness significant boom in investment into the hotel They also took the unusual step of focusing begun to help clients make investments into ordinary retail clients open a SIPP with of basing SIPP capital requirements on assets and resort sector over the last six years. This This prevented advisers from promoting on a specific product – Harlequin Property. hotel and resort property on a ‘non-advised’ the purpose of investing in Harlequin or a rather than expenditure. boom has resulted in many issues which have hotel and resort property UCIS to anybody or ‘execution only’ basis. In this way they Harlequin always grabbed the headlines, it similar style property investment. prompted intervention from the regulator. who was not a HNW or sophisticated However, even though AMPS anecdotally could offer the investment to their existing was a high profile investment with a large investor. It also cast doubt on a number of Finally, the FSA also issued another appear to be making some headway with client banks and earn the same commissions sales and marketing presence, paying property schemes that could be considered consultation paper – CP12/33. This proposed the FCA, the potential threat of having to PHASE ONE as an introducer. The difficulty arises if the sizeable commissions and promising high to be ‘close substitutes’ and therefore this new and rather onerous capital adequacy find much larger capital reserves has led Loose regulations, unregulated distribution consumer still thought they were getting annual returns and capital growth; it also ran had implications for product providers and requirements on SIPP operators where to many SIPP operators closing their doors and higher risks. There were a number of advice or that the investment had the same behind schedule on its building programme non-regulated introducers as well. the SIPPs held alternative asset classes. to any new investments that might be features of this mini-boom which concerned protections (FOS, FSCS) as a regulated one. due to issues with a fraudulent contractor. Controversially, commercial property was considered non-standard assets, including the regulator. Perhaps the biggest issue Previously the assumption had been that Secondly, property investment In an alert regarding Harlequin, the FSA categorised as an alternative asset. hotel and resort property. centered on ordinary retail investors: these schemes were not collectives and intermediaries started to use SIPP transfer made it clear that the SIPP transfer advice investors who are not sophisticated or therefore could be operated and promoted The consultation closed in February, but These two steps have dramatically companies. This enabled introducers to hand process was not being followed correctly in high net worth and who do not ordinarily without authorisation. PS13/03 opened there is resistance to the current proposals reduced the use of SIPPs for investment off clients who had existing pensions that some cases. It is not acceptable to advise have much appetite for risk or capacity up the possibility that they would be from small scheme operators, voiced in the sector and taken together with the could be consolidated in a SIPP. These newly on the SIPP wrapper only, which in many for loss. Normally when these investors considered to be collectives, and therefore through their industry body the Association restrictions imposed in PS13/3 there is liquid clients would then be handed back cases was the model used to make funds take professional advice they would be operating and promoting them without of Member Pension Schemes (AMPS). now a much narrower market for hotel and to the introducer, only now with the funds available to invest in Harlequin. Any adviser placed into well diversified portfolios of authorisation would be a criminal offence. resort property, resulting in more products available to invest in a property scheme. who is advising a client on the merits of Commercial property is the backbone of less volatile, liquid assets, in line with the chasing fewer distributors. There has already been at least one incident transferring their current arrangements into many SIPPs and unnecessarily penalising regulators expectations. Again, it should be noted that there is nothing wrong with an execution only of the regulator changing their opinion on a SIPP must also consider the suitability of operators for having commercial property However, there is no sense that investors’ However, as the direct purchase of property investment via an IFA and there is nothing whether a scheme was an unregulated the proposed new investments that will be assets seemed a little draconian. AMPS have appetite has diminished. Bricks and mortar (even for the purposes of investment) is wrong with using a SIPP transfer company collective. The FCA has also brought a high held within that SIPP. obtained 55 of the 57 industry responses still appeal and despite strong returns not regulated by the FSA/FCA, for many court case against Capital Alternatives, to the consultation through a Freedom of over the last five years many investors are – but the abuse of these developments did To drive the point home the same alert also investors advice never came into the accusing them of running an unauthorised Information request. While there was strong still weary of mainstream assets. It seems increase the risk of consumer detriment outlined the sorts of areas advisers should equation. Non-regulated introducers were collective investment scheme. backing for extra consumer protection, that the challenge for product providers within the hotel and resort property market. look into when considering the suitability of free to promote property investments to there was minimal support for the formula is to secure productive distribution that In addition to the new policy papers, the an investment in Harlequin. This included the public. Some of these introducers were In short, it was a loosely regulated market the regulator has proposed. complies with the new regulations. Financial Ombudsman Scheme (FOS) has (and still are) well trained ethical business with a large number of non-regulated made it clear that execution only cannot be (As defined in PS13/03) people, but some were motivated solely by introducers motivated by high levels of WHAT IS AN NMPI ? used as a way of side-stepping regulation; commission and achieving sales. commissions. They were promoting un- regulated products to ordinary retail the appropriateness test in COBS 10 still Likewise, as the investment was not investors, with the added possibility of applies even to execution only sales. regulated the developers were not bound accessing those investors’ pensions as well as These steps were enough to encourage by the same rules around marketing and their cash savings. Of course this was a recipe the vast majority of IFAs to scale back their promotional literature that regulated for poor consumer outcomes in some cases. activity in the hotel and resort property investments are, and were free to make Qualified Investor Securities issued by Traded Life Settlement investment market. UCIS overly optimistic claims for the levels of risk The final caveat to note – this didn’t just Schemes (QIS) Special Purpose Vehicles Policies and return associated with their product. apply to hotel and resort property, but it was one of the most prominent in the alternative investment sector.

24 But only25 29% accept Off-plan Hotel Rooms "The FCA has taken a number of steps over the last 12 months to address some of the issues surrounding the promotion and sale of unregulated investments." PROPERTY AND SIPPS

Money Management have recently Money Management also looked at SIPPS KEY ANNOUNCEMENTS FROM THE REGULATOR released a special report looking at SIPPs commercial property holdings in SIPPs in Self-invested personal pensions allow (October 2013) and what is and is not more detail and broke this down into Hotel investors far greater choice of where to allowed by certain operators. Some of the Rooms, UK Properties, Overseas Properties invest their pension funds than regular key findings from this research include: and Land Banking. Some of the key findings stakeholder pensions. There are a wide from this research include: range of investments allowed within a SIPP, of SIPPs accept Commercial CP12/19 of providers disclosed their CP12/33 PS13/3 but some assets are excluded. The main Property. Unregulated Collective th 66% holdings as part of the survey. The Retail Distribution SIPP Capital Adequacy Issued 4 June 2013, exclusions are residential property and Investments and Close 80% Review (RDR) Requirements. Issued implemented the majority tangible moveable property (TMP) such as is the average of properties held st Substitutes. Issued August accept Off-plan Hotel Rooms. 1 January 2014 November 2012, consultation of the proposals in CP12/19 fine wine, art or classic cars. per SIPP provider (that disclosed 2012, consultation closed closed February 2013 and will become policy from 29% their holdings). November 2012 st 780 1 January 2014 A large number of hotel and resort accept UCIS (although this of providers disclosed their total property investments are structured and doesn’t take into account the holdings but didn’t split this classed as commercial property to allow underlying asset). 51% down by category. them to be held within a SIPP. The investor 20% must not have any personal use of the is the range of total accept Unquoted Shares (again FSA Alert holdings per SIPP property, and all returns and costs will be this does not take into account FSA Alert Pension Transfers provider. th paid into and out of the SIPP. the underlying asset). 4 - 5,025 Harlequin Property Issued 12 January 2013 53% st is the average property Issued 21 January 2013 The investor can increase the amount of value across all money available to invest by borrowing up providers. to 50% of the value of the SIPP. A number 258,832 of SIPP acceptable property investments encourage investors to take this step. is£50,500-£686,458 the average range of property value Source: Intelligent Partnership across all providers.

Brandeaux student property funds cited ordinary retail investors. Many hotel and CONCLUSIONS (2013) behind their decision to stop redemptions resort property investments will continue MONEY MARKETING SIPP REPORT COMMERCIAL PROPERTY It’s clear that as regulations in the sector IN SIPPS in June, with the Mansion Student to use this distribution channel (albeit with Allowed Not Allowed have tightened, the number of distributors 70% Hotel Rooms 1,184 Accommodation Fund following suit in fewer SIPP purchases being made) and 71% has fallen and a large number of investors October. You can see our video on the some elements of bad practice, such as UK Properties 15,025 have been excluded from the market 66% issue here: making overblown claims for the investment 60% Overseas Properties 398 -leaving more products chasing successful Property-funds-and-the-issue-of-liquidity in the marketing literature or the use of distribution to fewer potential investors. Land Banking 423 boiler room sales tactics, will persist. Thirdly, as noted above it is very difficult to 50% 53% Not Specified 11,334 There are of course some unintended 51% exclude one class of investment from SIPPs 49% Total Properties 28,364 consequences with all of this. 47% without undermining the ‘self-invested’ 40% Source: Money Management Firstly, many investors may be prevented part of the SIPP concept and potentially (or at least discouraged) from accessing penalizing people for holding the sensible 30% 34% investment opportunities that would have commercial property investments that are 29% been good for them. at the core of many SIPPs. 20% Secondly, there has been some suggestion Finally, the direct route is still open. An that the new regulations and narrowing investment property that is not a collective of the market have caused something of a is still outside of the regulator’s remit and 10% liquidity crunch. This was the reason the can be sold by unregulated introducers to 0% Commercial Off-plan UCIS Unquoted Property Hotel rooms Shares Source: Money Management

26 27 “We can use a SWOT analysis to assess the strengths, weaknesses, opportunities and threats for the hotel and resort property sector.”

SWOT ANALYSIS STRENGTHS WEAKNESSES

Consumer preference for bricks and There have been some high profile failures and some mortar investments outright scams.

The non-advised, direct to client (D2C) route can lead to 1 1 high pressure sales tactics, mis-selling and inappropriate Potential for very high returns investments

The non-regulated status of direct investment products means that they are subject to lower levels of scrutiny 2 Investment and lifestyle sales are both possible 2 and their marketing literature can be heavy on benefits and light on the risks

Many, many products in the market – something for Many, many products in the market – it is a competitive 3 everybody (different locations, price points, stages of 3 space and it can be difficult for product providers and 4 development, risk, return, business model…) 4 distributers to gain any traction OPPORTUNITIES THREATS

Direct investment products (i.e. non-collective) still have a D2C distribution channel with no restriction on The D2C channel is open to abuse who the products can be promoted to

Any collective investment structure now faces 1 Investors are still wary of mainstream markets and 1 restrictions on who it can be marketed to and a much looking for alternative assets to diversify their portfolios reduced SIPP market to target.

Some providers that use structures that they consider 2 2 not to be collectives may be challenged by the FCA, with dire consequences for the operators and promoters.

Hotels cannot qualify for EIS (Enterprise Investment Scheme) 3 status. EIS offer significant tax breaks – this new and rapidly growing market may attract investment that would 4 otherwise have found its way into hotel and resort property.

28 29 PRODUCT PROVIDER SURVEY ANALYSIS “This analysis is based on a survey of over 200 property developers and product providers.”

We identified and surveyed over 200 that there had been (or they expected) a Q. Has the number of units (or size of RETURNS SALES CONCLUSIONS property developers and product investment) changed since the inception delay with almost all of these expecting Q. Does the investment offer guaranteed Q. Have any sales been made to date? This survey was well received by the hotel providers. We received a 21% response rate of the project? the delay to be longer than 12 months. The returns? and resort property product provider to the survey, with 2% of these responses remaining respondents did not give an A. Over 35% of respondents have changed community and has allowed some very not being applicable to be included in this answer to this question. the number of units available or size of 59% interesting information to be collected and analysis. This analysis is therefore based 82% 41% investment required, with over 80% of analysed. Some of the key points to take upon a response rate to the survey of 19%. NO YES these increasing the number of the units. OCCUPANCY 18% from this research include:

The survey included over 90 questions The reasons given for these increases Q. Achieved Occupancy for 2013 vs. NO YES Source: Intelligent Partnership --The majority (53%) of the investments in although not all of these questions were were demand, potential for higher yields Targeted Occupancy Source: Intelligent Partnership this sector are into directly held properties; mandatory or would apply to all projects. A and planning consent being granted for A. Nearly 60% of respondents have not number of important questions have been expansion. A. Only 18% of investments included in the made any sales to date which corresponds --Over 80% are new build properties selected as a base for this analysis. Achieved 69% survey offer guaranteed returns, which with there being a large number of (including off-plan investments); Q. Has the price of units changed since for 2013 Average is lower than the proportion see in the properties still in the planning stage. the inception of the project? --Only 12% of investments surveyed 56% investment register analysis for the hotel and ABOUT THE INVESTMENT Year 1 Out of the 41% that have made sales to were completed, with the majority (53%) A. Nearly half (47%) of respondents have resort property sector as a whole. The same Q. Investment Structure Year 2 62% date, nearly a third said that sales during in planning and 35% currently under changed the price of the investment since proportion (18%) pay returns to investors Year 3 68% 2013 were worse than they had been construction; it was launched. Of this, just over 60% Targeted before building work has been completed. Year 4 72% expecting. Nearly 90% of those that have increased the price due to demand, quality --Average targeted occupancy rates range Only 2% of investments offer mortgages/ made sales to date feel that 2014 will be and the type of client attracted to the Source: Intelligent Partnership from 56% in year 1 to 72% in year 4; development finance to allow investors to better or much better than 2013, with the 35% investment. The remaining 40% lowered purchase more expensive properties. remaining 10% feeling that 2014 will be --41% of respondents said that their the price due to the economic situation and A. The average occupancy achieved from pretty much the same. investment was able to be held within a 53% lower than predicted demand. properties that have opened is 69% for 2013 (to date). This is a strong level of DISTRIBUTION Q. Have sales been affected by UK SIPP; occupancy when compared to average regulatory changes? STAGE OF DEVELOPMENT Q. Is the property marketed to investors --Only 18% of investments offer 12% targeted occupancy rates which range from as well as lifestyle purchasers? guaranteed returns, which is much lower Q. What development stage is the project at? 56% in year 1 to 72% in year 4. Occupancy than seen on the investment register and targets are high compared to average A. Over 70% of the investments are 57% Directly Held 43% implied from marketing literature; UCIS Corporate Element marketed to investors as well as lifestyle 12% global occupancy figures but they are not Source: Intelligent Partnership unachievable. purchasers. Investors account for an YES NO --Distribution is primarily (65%) through A. The investment structure corresponds average of nearly 70% of investment property agents and introducers; Source: Intelligent Partnership closely to the investment register with volumes with the remaining 31% from SIPPS --Nearly 60% of product providers believe directly held property investments 53% lifestyle purchasers. A. Nearly 60% of those who have made that sales have been affected by recent 35% The use of SIPPs for investment into hotel accounting for the large proportion of sales to date believe that they have been and resort property has been widely Q. How was the investment sold/ regulatory changes in the UK; the sector (53%). This is followed by marketed to investors? adversely affected by recent regulatory documented and looked at in detail in this --65% of respondents have a further hotel investments with a corporate element and changes in the UK. The main reasons given report. and resort property investment in the a small number of collective investment include that there is more caution in the pipeline. schemes. Q. Is the investment SIPP Accepted? marketplace, the impact of RDR has slowed

Q. Type of Property Planning Construction Completed sales, and high profile failures in the sector 59% and the heavy handed responses to this by Source: Intelligent Partnership 41% the regulator have scared investors. 18% A. A large number of underlying properties NO YES are still in the planning stage (53%) Source: Intelligent Partnership OTHER INVESTMENT although it is unclear how long they will PROJECTS be in planning and when construction A. 41% of respondents said that their 82% Over half (53%) of respondents have is scheduled to commence. 35% of investment was able to be held within a Agents Direct N/A another hotel and resort property underlying properties are currently under SIPP. Responses seem to indicate that there Source: Intelligent Partnership investment available to investors. construction, with only a small number has been a reduction in SIPP investment (12%) completed. These survey results activity in 2013 due to increased regulatory A. Distribution through property agents Q. Are there any other projects in the correspond to the investment register scrutiny on the sector. This supports issues and introducers is the most popular pipeline? analysis seen earlier. highlighted elsewhere in this report. New build Refurbished method. Based on those surveyed there A. 65% of respondents have a further Q. Were/will building works be completed is on average 30 agents distributing each hotel and resort property investment in Source: Intelligent Partnership However, it is clear that SIPPs are still a on time? strong driver behind the sector. Based property investment. the pipeline. This includes all of those that A. The vast majority of investments are on those investments that are SIPP already have another investment available A. Less than a quarter (24%) of new build properties which is consistent acceptable, 68% of investment volume and shows that product providers are respondents expected building works to with what is seen in the wider hotel and came from SIPPs with the remaining 32% optimistic about the future for the sector. be completed on time. Nearly 30% said resort property sector. from cash investors.

30 31 ALTERNATIVE INVESTMENT REGISTER

This alternative investment register gives Any investment that includes the direct Pooling money in this way allows investors the reader whole of market understanding purchase of property should be considered access to the sector and returns from of the opportunities currently open for highly illiquid and potentially high risk. As rental revenue once all costs (including investment, as well as including a number these are direct purchases of property they management costs) have been paid. that have recently been fully subscribed. are not regulated investments and are sold Investors will also share in any profits through unregulated channels. from the fund as and when underlying HOTEL AND RESORT PROPERTY The investment register includes 161 hotel properties are sold. and resort property investments available The first directly held property Collective investment schemes include to retail investors, including 119 directly investment launched in 2005 with 2008 regulated and unregulated structures held property investments, 29 investments seeing a large number of investment such as unit trusts, limited partnerships, with a corporate element and 13 collective launches. 2009 saw a fall in new product investment trusts, open-ended investment schemes. The information was launches but the segment has recovered investment companies (OEICs) and sourced through internet based research. strongly, with 29 new investment unregulated collective investment properties launching so far in 2013. This investment register is limited to schemes (UCIS). They can be operated on investments that are openly marketed, a fixed or open-ended term. those that are only marketed through CORPORATE ELEMENT Collective investment schemes must be closed channels are not included. This Investments with a corporate element run by a regulated provider and can only register provides a snapshot of the often include debt financing, with the most be promoted through regulated channels. industry at a point in time (November 2013) common investment structures being The FCA have recently restricted the and does not include historical information shares in special purpose vehicles (SPVs); promotion of UCIS to only high net worth, on investments that are no longer being bonds and loan notes issued by private sophisticated or institutional investors. marketed to UK investors. companies and relationship agreements The first collective investment scheme on with property developers. The data gathering relied upon an the register was launched in 2007. 2010 saw a large amount of growth with the exchange of information, with providers Investors can choose investments that launch of 4 new products and the sector and promoters providing product either focus solely on long-term capital has since grown steadily with 2 new literature and responding to relevant growth or fixed annual income, with both investments launched per year since 2011. questions. The reliability of the responses fixed and variable terms available. Due to and accuracy of the literature received their nature these investments should be was not verified and the research is based considered illiquid and relatively high risk. on the information provided. As there is a corporate element to these investments, they are not direct asset DIRECTLY HELD purchases and therefore promotion Directly held investments offer the investor may be limited to only high net worth, leasehold or freehold title to the property sophisticated or institutional investors. which will then be managed on their behalf The first investment included on the by a management company. register launched in 2006 with 2010 Returns are paid from rental income or seeing the largest number of investment through a leaseback arrangement. There launches to date. There have been 6 new is often a guaranteed return offered by investments launched so far in 2013 and the product provider for an initial period more are likely by the end of the year. (up to 10 years). This can provide security and make the investment very attractive. COLLECTIVE INVESTMENT Returns from directly held investments SCHEME range from 7-10% per year and include a Collective investment schemes pool wide range of properties including beach investors’ funds in order to purchase resorts, ski chalets, holiday parks, luxury underlying property. The fund can purchase hotels, city centre hotels, budget hotels and the entire asset which is then operated by a business hotels. designated management company.

32 33 SECTOR GROWTH 2011 2012 2013 FINDINGS AND ANALYSIS 36% 50% 32%

Again there is a very large choice for #6 SIPP ACCEPTABILITY DIRECTLY HELD SECTOR GROWTH (2005 - 2013) RETURNS (2013) investors who can choose investments A large number of investments claim to be There are over 119 directly held hotel 120 located close to home, potentially giving SIPP acceptable and this is usually clearly and resort property investments from 56 more security as they can visit the property advertised in the promotional literature different product providers included on 100 and see construction in progress. Investors and used heavily as a sales tool. Over 45% the investment register which are openly also have the choice of more exotic and of investments in the register claim to be marketed to retail investors. It has not developing locations, which may be higher (or have been) allowable within a SIPP. been possible to identify every product 80 risk but present the opportunity for provider operating in the segment. stronger returns and capital growth. A number of SIPP providers have stopped taking execution only alternative The segment has seen a large amount of 60 #4 RETURNS investments and it is very likely that a growth in recent years increasing by 36% in number of investments that claim to 2011, 50% in 2012 and 32% during 2013. Returns vary widely with a number of 40 different assurances and guarantees Variable Bi-annually in Arrears be SIPP acceptable would no longer be Number of Investments of Number #1 LAUNCH YEARS offered. The highest return on offer is 25% Monthly in Arrears Annually in Arrears accepted by the vast majority of SIPP providers on an execution only basis. The first property investment was per year which is assured by the product Quarterly in Arrears 20 provider for 5 years. Other strong returns launched in 2005 and this has since sold Source: Intelligent Partnership The remaining 55% do not claim to be out, with the property opening in 2010. include 10.33% offered by the product 0 SIPP acceptable (or at least do not market provider for 10 years. #5 MINIMUM INVESTMENT 2008 saw a large number of investment 2005 2006 2007 2008 2009 2010 2011 2012 2013 themselves as such). launches with some of these still in Source: Intelligent Partnership A number of leaseback properties offer The minimum investment required shows how construction. 2009 saw a fall in new #5 EXIT lower returns but these are underwritten accessible the property is to potential buyers. product launches but the segment has by long-term contracts such as 3.8% The exit is an important consideration for (2005 - 2013) (2013) A number of properties are sold as fractional recovered strongly. There have already LAUNCH YEARS TYPE OF PROPERTY investors. Almost a quarter of investments guaranteed per year for 18 years. investments to make them attractive to been 29 new investment properties are sold with a defined exit strategy, 2005 1 investors with less capital to invest. launched in 2013 with more expected by Over 70% of investments offer guaranteed which is most commonly the developer 2006 2 the end of the year. or assured returns for an initial term, Some investments also offer staged or product provider offering to buy the 2007 3 ranging from 1 to 10 years with the most payments and financing, meaning that property back off the investor after a #2 TYPE OF PROPERTY 2008 18 common being around 5 years. This an initial deposit is required followed by specified period of time. The directly held segment is dominated by 2009 6 return may be built into the initial sales a number of staged payments at a later These are generally only “options” which beach resort properties which account for 2010 14 price of the unit. Guaranteed returns are date. This has skewed the results to some either side can back out of. In the same way over half of the segment. This is followed generally offered as a company guarantee extent, but the minimum investment 2011 16 as guaranteed returns, the investor needs by luxury hotels and ski resorts which and will rely on the product provider or across the directly held segment is only 2012 30 Beach Resort City Centre Hotel to judge whether they believe the product account for 13% and 12% of the segment management company having the capital £5,000. The investment with the highest 2013 29 Ski Resort Budget Hotel provider will honor or be able to afford the respectively. Holiday parks account for only to pay these returns. minimum investment is £400,000, with the buy-back. There is no guarantee that the 4% of the investment opportunities and Source: Intelligent Partnership Holiday Park Business Hotel average investment required across the (2013) product provider will still be around in 5 or are seen as very niche investments, offered Luxury Hotel RETURNS segment of just over £100,000. The median 10 years’ time. by only one product provider. Source: Intelligent Partnership 29% Variable (middle) investment required is £85,000 The majority of investments rely on the There is a large amount of choice for and the mode (most common) is £60,000. (2013) sale of the property on the open market. investors. Different types of property INVESTMENT LOCATIONS (2013) This is risky as the resale market for hotel operate in different market segments and MINIMUM INVESTMENT and resort property is largely unproven. will have different customers and levels CROATIA of demand. Investors should take this SPAIN (2013) (2013) into account when considering different CYPRUS DOMINICAN BRAZIL EXIT ARGENTINA Lowest Minimum properties. i.e. budget hotels may see INDONESIA 24% Defined Exit REPUBLICSLOVENIA Investment Level increased demand during a recession, whilst TURKEY BARBADOS £ 5,000.00 luxury and city centre hotels may struggle THAILANDGRENADA USA due to their higher room rate prices. CAPE VERDE Highest Minimum Investment Level £ 400,000.00

#3 LOCATION SAINT-LUCIA 71% Guaranteed / Assured VENEZUELA Investments are located in 24 countries UNITEDGERMANY KINGDOM Source: Intelligent Partnership across the world covering 12 different SAINT VINCENT & Returns are most commonly paid annually geographical regions. The United Kingdom THE GRENADINES or quarterly in arrears. Other investments has the highest number of investments HUNGARY FRANCE pay on a monthly basis which can provide (28) accounting for nearly 24% of the regular income for investors. Those Average £ 101,516.96 76% Secondary Market market, followed by France (22) with 18% EGYPT investments that pay on a variable basis Source: Intelligent Partnership Source: Intelligent Partnership

of the market and Egypt (15) with 13% of PANAMA will change depending on the management the market. company in charge of the property. GREECE

34 35 "The number of investments with a corporate element have increased by 33% in 2011, 44% in FINDINGS AND ANALYSIS 2012 and 26% so far in 2013."

failed. This is largely made up of Harlequin The remaining resort investments are Investments that offer a relationship The exit strategy is important with CASE STUDY: BEACH RESORTS (2013) Property investments which are currently either currently under construction or agreement, whereby the developer agrees RETURNS any investment and should be a major As beach resorts account for over 50% of suspended and are awaiting restructuring. their status is to be confirmed. We have to pay the investor a set amount interest consideration for potential investors. directly held investments in the segment not verified whether these investments are in return for lending money during the it seems appropriate to analyze them in Property is an illiquid asset but almost all (2013) running to schedule or not. construction phase of the project, account greater detail. CONSTRUCTION STAGE of the investments in this segment offer for a third of the segment (34%). Shares It seems that delays are inherent with a defined exit strategy. This can allow Over 60 beach resorts have launched to in special purpose vehicles are popular 52% 5% this segment and it is important for 48% investors to plan for the exit and mean that retail investors since 2005 and there have 22% with 21% of the segment with loan notes advisors and property agents to manage they do not have to try and sell on their been a range of successes and failures. accounting for only 3% of investments. their client’s expectations and make investment themselves. Investors should 27% Just under a third (27%) of resorts have them aware that building works could be Loan notes, bonds and shares are relatively take into account that this will give them been built and are now open. 6% of resorts 6% subject to delays. Investors should look well understood in the investment world, less flexibility as they are likely to be locked opened behind schedule. for clarity from product providers, be but it is important for investors that in for a defined period of time. kept informed and up to date with the they are secured against an underlying Variable Fixed The worrying point for investors is that It should also be noted that the exit construction process and have strict build asset. It’s also important to note that Source: Intelligent Partnership nearly a quarter (24%) of resorts are in 16% 24% targets and timelines in place. Clauses the investments in this segment are not construction but are running behind Fixed returns account for just over half EXIT (2013) built into the purchase contract can help regulated or listed on an exchange. They of investments and relate closely to the schedule and will therefore open later than 3% Defined Exit to protect investors’ money should the are unregulated, illiquid investments. originally planned. TBC Construction behind schedule number of bonds and loan notes available. build be delayed or the investment fail These tend to offer investors a fixed level Under Construction Built but opened late Relationship agreements are a very A number of investments (16%) in this during construction. Staged payments and niche segment and should be considered of return over a defined period of time. segment have been suspended or have Suspended Built and open deposits held on escrow by a third party extremely high risk. Variable returns will change depending on Source: Intelligent Partnership should be in place as a minimum. the performance of the underlying asset. #3 RETURNS This may give the potential for higher Returns are generally paid on an annual returns but also adds more uncertainty basis (41%) or at the end of the investment into what the returns may be. Variable CORPORATE ELEMENT (2006 - 2013) SECTOR GROWTH term (45%). returns are generally offered by holding There have been 29 hotel and resort 35 Returns paid on an annual basis come from shares in SPVs and from relationship property investments identified in the 97% Secondary Market income generated from the underlying agreements. segment that include a corporate element. Source: Intelligent Partnership 30 asset. Investments that pay out at the These investments come from 13 different #4 MINIMUM INVESTMENT strategy is not guaranteed, for example end of the investment term rely on capital providers and are marketed directly to retail the bond/loan note issuer may not have 25 growth of the underlying asset. The minimum investment required varies investors through a number of channels considerably from only £1,000 to as high as the capital available to repay investors. It including direct distribution and IFAs. The remaining investments (14%) pay out is therefore essential that investors (and 20 £600,000. But the majority of investments bi-annually. advisors) consider the credit worthiness There has been relatively consistent are relatively accessible to investors, with and strength of the product provider and growth in this type of structure in recent 15 This range of options can give investors the a number starting at between £1,000 and the value of any underlying assets. years increasing by 33% in 2011, 44% in choice of an investment that focuses solely £10,000. The average investment required Number of Investments of Number 2012 and 26% so far in 2013. 10 on long-term capital growth or one that across the segment is just under £40,000 can provide a steady income. but this has been skewed by a smaller #1 LAUNCH YEARS number of large investments. 5 Investments pay out both fixed and The first investment included on the variable returns. #5 EXIT register launched in 2006 with 2010 0 seeing the largest number of investment 2006 2009 2010 2011 2012 2013 launches to date. There have been 6 new Source: Intelligent Partnership RETURN FREQUENCY (2013) (2013) investments launched so far in 2013 and MINIMUM INVESTMENT more are likely by the end of the year. LAUNCH YEARS (2006 - 2013) STRUCTURE (2013) Lowest Minimum #2 STRUCTURE 2006 1 Relationship Agreement 41% Investment Level Four main structures are used: shares in 2009 3 45% £ 1,000.00 special purpose vehicles (SPVs); bonds and 2010 8 Loan Note Highest Minimum loan notes issued by private companies and 2011 4 Investment Level relationship agreements with developers. Bond £ 600,000.00 2012 7 14% Bonds are the most widely used structure 2013 6 Shares accounting for over 40% of corporate Annually in Arrears Source: Intelligent Partnership element investments. These do not tend to Source: Intelligent Partnership Bi-annually in Arrears

be listed or traded and therefore should be End of Investment Term Average £ 38,703.55 considered illiquid. Source: Intelligent Partnership Source: Intelligent Partnership

36 37 FINDINGS AND ANALYSIS REGIONAL SPREAD: UK

There are 48 investments in total situated in the UK consisting of 28 directly held, 15 corporate element and 5 collective investment schemes. COLLECTIVE INVESTMENT SECTOR GROWTH (2006 - 2013) SCHEME 14 London 3 There are 13 collective investment schemes CIS Manchester 1 DIRECTLY HELD included on the investment register which 12 The 28 directly held investments are split gives investors access to the hotel and Dundee, Scotland 1 across 17 locations in England, Scotland and resort property sector. This includes both 10 London 4 Wales. London has the highest number of unregulated and regulated collective Whitby 3 investments, followed by Whitby in North investment schemes. Investments are 8 Preston 3 Yorkshire. offered from 11 separate providers and have Harrogate 1 been marketed directly to retail investors. 6 Corporate 1 Element Bradford 1

#1 LAUNCH YEARS Investments of Number 4 Portsmouth 1 The segment saw a large amount of growth Manchester 1 in 2010 with the launch of 4 new products 2 1 1 Aberdeen, Scotland 1 and has since grown steadily with 2 new CORPORATE ELEMENT 0 London 6 investments launched per year since 2011. 2006 2009 2010 2011 2012 2013 There are 15 investments with a corporate Whitby 4 Source: Intelligent Partnership 1 element split across 8 different locations in #2 RETURNS Kent 2 England and Scotland. Once again London (2007 - 2013) (2013) 1 The vast majority of returns are offered LAUNCH YEARS RETURN FREQUENCY Harrogate 2 has the highest number of investments, annually in arrears and come from income followed by Whitby (North Yorkshire) and 2007 2 Carmarthen, Wales 2 generated by the underlying assets the Preston (Lancashire). 2008 1 End of Investment Term York 1 investment scheme owns. Almost a quarter Quarterly in Arrears Birmingham 1 of investments pay out twice annually, 2010 4 with a further 8% paying out quarterly. 2011 2 Bi-annually in Arrears Dover 1 Directly The remaining 15% of investments pay out 2012 2 Annually in Arrears Knutsford 1 Held at the end of the investment term. These 2013 2 Liverpool 1 investments rely on capital growth from Source: Intelligent Partnership Source: Intelligent Partnership Manchester 1 the sale of the underlying assets. 1 4 Stevenage 1 1 3 (2013) (2013) Only a small number of investments pay out RETURNS MINIMUM INVESTMENT Warrington 1 2 fixed returns. Collective investment schemes Leeds 1 3 1 will generally pay a dividend to investors out Dundee, Scotland 1 1 of any profits made during the year or over 15% 1 1 Lowest Minimum Clyde Valley, Scotland 1 the life of the fund. This gives more flexibility Investment Level 1 1 and control to the investment manager but £ 0.00 Edinburgh, Scotland 1 1 1 means that investors do not know what level Highest Minimum of returns to expect. Investment Level £ 50,000.00 These investments may not be suitable for 85% investors looking for regular income but COLLECTIVE INVESTMENT may suit investors looking for long-term SCHEMES growth and the potential for high returns. There are only 5 collective investment Variable Fixed Average £ 17,583.33 schemes based in the UK which focus solely 1 #3 MINIMUM INVESTMENT Source: Intelligent Partnership Source: Intelligent Partnership on hotel and resort property. Due to the 1 The average investment required across nature of collective investment schemes, the be a large amount of flexibility to this. 2 the segment is just over £17,500 although (2013) underlying assets are located in a number The exit may be at the discretion of the EXIT there are a number of schemes that start of different locations and have not been investment manager and therefore the 38% Secondary Market at £10,000. The majority of these schemes individually highlighted on the map. 4 investment manager may delay the sale 6 are targeted at high net worth investors 2 1 of underlying assets should market which pushes up the average investment 3 conditions not be favorable. Investors required. Those investment schemes should be aware of this and the powers of 1 that are stock exchange listed may vary the investment manager and any extensions depending on the current share price. DH to the fund life should be clearly explained DIRECTLY HELD in the investment literatureShares in stock #4 EXIT CE exchange listed funds are openly traded and 62% Defined Exit CORPORATE ELEMENT Over 60% of investment schemes offer therefore investors can exit the investment a defined exit although there is likely to CIS at any time. Source: Intelligent Partnership COLLECTIVE INVESTMENT SCHEME

38 39 INVESTMENTS DH 119 CE 29 CIS 13 REGIONAL SPREAD: GLOBAL BY STRUCTURE :

DIRECTLY HELD CORPORATE ELEMENT There are 119 directly held hotel and resort There are 29 hotel and resort property property investments included on the investments that use a corporate element investment register. These cover 7 different such as bonds, loan notes or special types of property (beach resort, ski resort, purpose vehicles to modify the holding of holiday park, luxury hotel, city centre hotel, the underlying asset. These investments budget hotel and business hotel) and are are mainly located in Europe and offshore located in over 24 countries throughout financial centres such as Malta. The largest the world. The majority of investments are number are located in the UK. located in the UK, France and Egypt. 5 28 15 9 DH DH CE CIS EASTERN EUROPE NORTHERN EUROPE

25 1 2 1 DH CE CIS 8 9 DH WESTERN EUROPE DH CE NORTH AMERICA SOUTHERN EUROPE 4 13 1 DH DH CIS 15 MIDDLE-EAST/ ASIA 1 CARIBBEAN 7 1 DH DH DH CE NORTH AFRICA CENTRAL AMERICA SOUTH EAST ASIA 7 2

DH CE 5 1 WEST AFRICA DH CE 1

CIS SOUTH AMERICA NORTHERN EUROPE 52 EAST AFRICA WESTERN EUROPE 28 SOUTHERN EUROPE 17 NORTH AFRICA 15 CARIBBEAN 14 WEST AFRICA 9 SOUTH EAST ASIA 8 COLLECTIVE INVESTMENT SCHEMES SOUTH AMERICA 6 There are 13 collective investment schemes EASTERN EUROPE 5 which give investors access to the hotel and resort property sector, including regulated MIDDLE EAST / ASIA 4 and unregulated structures. A number of DH DIRECTLY HELD these are located in offshore finance centres EAST AFRICA 1 such as the British Virgin Islands, Guernsey CE CORPORATE ELEMENT NORTH AMERICA 1 and Mauritius to take advantage of efficient tax structures and regulation. CENTRAL AMERICA 1 CIS COLLECTIVE INVESTMENT SCHEME

40 41 DIRECTLY LAUNCHED LAUNCHED LAUNCHED INVESTMENT REGISTER HELD : 16 IN 2011 30 IN 2012 29 IN 2013

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Camino Real Country 18.8% Net Return Build Completion Expected Las Rosas Argentina Argentina £ 87,500.00 Annually in Arrears 20 Units 99 Year Leasehold On Sale of Property 2010 Sold Out Club Predicted per year 2012 Build Completion Expected Harlequin Hotels and 10% Return Guaranteed The Merricks Resort Barbados £ 245,000.00 Quarterly in Arrears 1,000 Units Freehold Title 2010, delayed to 2012, On Sale of Property 2006 Suspended Resorts for 10 years Currently Suspended Harlequin Hotels and 10% Return Guaranteed Build Completion Expected Harlequin H Hotel Barbados £ 260,000.00 Quarterly in Arrears 78 Units Freehold Title On Sale of Property 2011 Suspended Resorts for 10 years 2012 - Currently Suspended Harlequin (Garapua) Harlequin Hotels and 10% Net Return Brazil £ 55,000.00 Quarterly in Arrears To Be Confirmed* Freehold Title Currently Suspended On Sale of Property 2009 Suspended Beach Resort Resorts Guaranteed for 2 years Natal Ocean Club 39% of Gross Rental Build Completion Expected Q4 Brazil Pioneer Land Group £ 98,000.00 Annually in Arrears 338 Units Freehold Title On Sale of Property 2009 Open Resort & Spa Revenue per year 2010 but delayed to 2013 6.24% During Caponga Beach Caponga Beach Construction followed by Brazil Empreendimento £ 12,000.00 Annually in Arrears 600 Units Freehold Title Under Construction On Sale of Property 2012 Open Village Resort 8.5% Return Guaranteed Imobilarios Ltda for 1 year 5% Net Return Fixed for Build Completion Expected Salinas Sea Resort Cape Verde Oasis Atlantico Group £ 10,000.00 Annually in Arrears 302 Units Freehold Title On Sale of Property 2007 Open 3 years 2011, open 10/2013 10% Net Return Build Completion Expected Palm View Resort Cape Verde Ciaran Maguire Group £ 75,000.00 Annually in Arrears 90 Units Freehold Title On Sale of Property 2008 Sold Out Guaranteed for 5 years 2010 Tortuga Beach Resort 7% Net Return Cape Verde The Resort Group PLC £ 60,000.00 Annually in Arrears To Be Confirmed* Freehold Title Built and Open 2011 On Sale of Property 2010 Sold Out and Spa Guaranteed for 2 years Dunas Beach Resort 7% Net Return Fractional Build Completion Expected Cape Verde The Resort Group PLC £ 60,000.00 Annually in Arrears 628 Units On Sale of Property 2010 Sold Out & Spa Guaranteed for 2 years Ownership 2011 but delayed to Q3 2014 Santa Monica Beach 10% Net Return Cape Verde Assetz International £ 10,000.00 Annually in Arrears To Be Confirmed* Freehold Title To Be Confirmed* On Sale of Property 2010 Open Resort Guaranteed for 2 years 50% of Net Rental Build Completion Expected Llana Beach Hotel Cape Verde The Resort Group PLC £ 86,760.00 Annually in Arrears 601 Units Freehold Title On Sale of Property 2011 Open Revenue per year 2015 White Sands Hotel 50% of Net Rental Build Completion Expected Cape Verde The Resort Group PLC £ 21,600.00 Annually in Arrears 835 Units Freehold Title On Sale of Property 2012 Open & Spa Revenue per year 2015 Radisson Blue Resort 4% Net Return Fixed per & Spa, Dubrovnik Sun Croatia iO Adria £ 160,000.00 Annually in Arrears 201 Units Leasehold Title Built and Open On Sale of Property 2012 Open year Gardens 5% Net Return Aphrodite Hills Cyprus To Be Confirmed* £ 280,000.00 Quarterly in Arrears 290 Units Freehold Title Built and Open 2005 On Sale of Property 2007 Sold out Guaranteed for 4 years Dominican Harlequin Hotels and 10% Net Return Build Completion Expected Q3 Two Rivers Resort £ 175,000.00 Quarterly in Arrears 600 Units Freehold Title On Sale of Property 2010 Suspended Republic Resorts Guaranteed for 2 years 2011 - Currently Suspended Dominican Harlequin Hotels and 10% Net Return Build Completion Expected Q1 Las Canas Resort £ 100,000.00 Quarterly in Arrears 1,000 Units Freehold Title On Sale of Property 2010 Suspended Republic Resorts Guaranteed for 2 years 2014 - Currently Suspended The Hideaway Las Dominican Harlequin Hotels and 10% Net Return Build Completion Expected Q1 £ 100,000.00 Quarterly in Arrears 225 Units Freehold Title On Sale of Property 2010 Suspended Canas Republic Resorts Guaranteed for 2 years 2014 - Currently Suspended On Sale of Property or Dominican 9% Net Return Palm View Resort To Be Confirmed* £ 60,000.00 Annually in Arrears 216 Units Freehold Title Built and Open 120% Developer buy- 2012 Open Republic Guaranteed for 25 years back after 10 years Sanctuary Bahia Sanctuary On Sale of Property or Dominican 7-10% Gross Return Build Completion Expected Q2 Esmeralda Eco Beach International Resorts £ 30,000.00 Quarterly in Arrears 320 Units Freehold Title 120% Developer buy- 2013 Open Republic Guaranteed for 2 years 2016 Resort & Spa Ltd back after 3 years 5% Net Return Sunset Pearl Egypt Pyramisa Group £ 45,000.00 Annually in Arrears 380 Units Freehold Title Built and Open 2012 On Sale of Property 2007 Sold Out Guaranteed for 10 years

42 43 DIRECTLY 76 OPEN FOR 31 SOLD OUT 12 SUSPENDED INVESTMENT REGISTER HELD : INVESTMENT

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Florenza Khamsin Egyptian International 6% Net Return Build Completion Expected Egypt £ 19,500.00 Quarterly in Arrears To Be Confirmed* Freehold Title On Sale of Property 2008 Open Beach Resort Tourism Company Guaranteed for 3 years 08/2013 5-8% Net Return Build Completion Expected Royal Beach Egypt EGY France £ 39,100.00 Quarterly in Arrears To Be Confirmed* Freehold Title On Sale of Property 2008 Sold Out Guaranteed for 5 years 2012 but delayed to 06/2013 5% Net Return Pyramisa Isis Luxor Egypt Pyramisa Group £ 45,000.00 Annually in Arrears 480 Units Freehold Title Built and Open On Sale of Property 2008 Sold Out Guaranteed for 10 years 7% Net Return Build Completion Expected Paradise Gardens Egypt Pyramisa Group £ 40,000.00 Annually in Arrears 300 Units Freehold Title On Sale of Property 2008 Open Guaranteed for 3 years 2010 but delayed to 2013 Nubia Sharm Sharm El Sheikh Real Egypt £ 39,500.00 Variable Variable To Be Confirmed* Freehold Title Built and Open 2012 On Sale of Property 2008 Open Residence Estate Laguna Vista Egypt Balbaa Group £ 48,200.00 Variable Variable 278 Units Freehold Title Built and Open 2010 On Sale of Property 2008 Sold Out Residence Pyramisa Beach 5% Net Return Egypt Pyramisa Group £ 48,000.00 Annually in Arrears 720 Units Freehold Title Built and Open 2008 On Sale of Property 2008 Sold Out Resort Sharm Guaranteed for 10 years

Samra Bay Hotel Orbit Group 7% Return Guaranteed 125% Developer buy- Egypt £ 47,000.00 Annually in Arrears 400 Units Freehold Title Built and Open 2012 2009 Open Limited Orbit Alliance for 8 years back after 8 years 6% Net Return Build Completion Expected The Place Resort Egypt To Be Confirmed* £ 5,789.00 Quarterly in Arrears To Be Confirmed* Freehold Title On Sale of Property 2012 Open Guaranteed for 3 years 12/2014 10% Return Predicted Build Completion Expected 125% Developer buy- Beach Front Bay Egypt To Be Confirmed* £ 12,350.00 Variable 350 Units Freehold Title 2012 Open per year 2014 back Tropical Jungle 8% Net Return Build Completion Expected Egypt To Be Confirmed* £ 17,500.00 Quarterly in Arrears 178 Units Freehold Title On Sale of Property 2012 Open Residence Guaranteed for 5 years 06/2013

Viva Reef Resort Egypt To Be Confirmed* £ 25,882.00 Variable Variable To Be Confirmed* Freehold Title Built and Open 2012 On Sale of Property 2012 Open

The Red Sea Hotel & Build Completion Expected Egypt To Be Confirmed* £ 27,000.00 Variable Variable To Be Confirmed* Freehold Title On Sale of Property 2012 Open Resort 2014 Kafafy International Jewel Makadi Egypt £ 13,000.00 Variable Variable 300 Units Freehold Title To Be Confirmed* On Sale of Property 2013 Open Property Group The Amara 3.5% Net Return Build Completion Expected Q4 France Pierre & Vacances £ 300,000.00 Annually in Arrears To Be Confirmed* Freehold Title On Sale of Property 2008 Open Residences Guaranteed per year 2012 The Crozats 3.5% Net Return Build Completion Expected Q4 France Pierre & Vacances £ 300,000.00 Annually in Arrears To Be Confirmed* Freehold Title On Sale of Property 2008 Open Residences Guaranteed per year 2011 3.8% Net Return La Chapelle France Ecogest £ 200,000.00 Annually in Arrears 68 Units Leasehold Title Built and Open 2011 On Sale of Property 2010 Open Guaranteed for 18 years Eco Le Ruitor Eco Le Ruitor 4% Net Return France £ 90,000.00 Annually in Arrears 53 Units Leasehold Title Built and Open 2011 On Sale of Property 2010 Open Residence Residence Guaranteed per year 5% Net Return The Trois Forets Park France Pierre & Vacances £ 200,000.00 Annually in Arrears 870 Units Freehold Title Built and Open 2010 On Sale of Property 2011 Open Guaranteed for 9 years Domaine du Bois Aux 5% Net Return Build Completion Expected France Pierre & Vacances £ 170,000.00 Annually in Arrears To Be Confirmed* Freehold Title On Sale of Property 2011 Open Daims Guaranteed for 10 years 2015 Domain des Hauts De 3.5% Net Return France Pierre & Vacances £ 190,000.00 Annually in Arrears 350 Units Freehold Title Built and Open 2012 On Sale of Property 2011 Open Bruyeres Guaranteed for 9 years 4.2% Net Return Aspen Residence France To Be Confirmed* £ 160,000.00 Annually in Arrears 48 Units Leasehold Title Built and Open On Sale of Property 2011 Open Guaranteed per year 4.25% Net Return Residence Le Six France Terresens £ 115,000.00 Annually in Arrears 93 Units Leasehold Title Built and Open On Sale of Property 2012 Open Guaranteed per year The Terrasses 3.75% Net Return Build Completion Expected Q4 France Pierre & Vacances £ 210,000.00 Annually in Arrears To Be Confirmed* Leasehold Title On Sale of Property 2012 Open d’Helios Guaranteed per year 2013

44 45 DIRECTLY FREEHOLD LEASEHOLD FRACTIONAL INVESTMENT REGISTER HELD : 65 TITLE 48 TITLE 6 OWNERSHIP

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Pierre & Vacances and 4% Net Return Build Completion Expected Villages Nature France £ 200,000.00 Annually in Arrears 1,730 Units Freehold Title On Sale of Property 2012 Open Euro Disney SCA Guaranteed for 10 years 2016 Halcyon Retreat Golf Barrasford & Bird 10% Net Return Fraction of 150% Developer buy- France £ 16,000.00 Annually in Arrears 18 Units Built and Open 2012 2012 Open & Spa Resort Worldwide Guaranteed for 4 years Ownership Deed back after 10 years 3.5% Net Return Temples du Soleil France Pierre & Vacances £ 115,000.00 Annually in Arrears 317 Units Freehold Title Built and Open 2009 On Sale of Property 2012 Open Guaranteed per year Residence Le Machu 3.5% Net Return France Pierre & Vacances £ 115,000.00 Annually in Arrears To Be Confirmed* Freehold Title Built and Open 2012 On Sale of Property 2012 Open Pichu Guaranteed per year 3.5% Net Return Residence Le Tikal France Pierre & Vacances £ 115,000.00 Annually in Arrears 64 Units Freehold Title Built and Open 2009 On Sale of Property 2012 Open Guaranteed per year Residence Le 4.6% Net Return France To Be Confirmed* £ 180,000.00 Annually in Arrears 53 Units Freehold Title Built and Open 2012 On Sale of Property 2013 Open Centaure Guaranteed per year 3.7% Net Return Build Completion Expected Q3 Grand Ermitage France Vinci Immobilier £ 215,000.00 Annually in Arrears 33 Units Freehold Title On Sale of Property 2013 Open Predicted per year 2013 5% Net Return Build Completion Expected Les Fermes de Chåtel France To Be Confirmed* £ 135,000.00 Annually in Arrears 89 Units Freehold Title On Sale of Property 2013 Open Guaranteed for 11 years 2015 Les Hauts de la 3% Net Return France To Be Confirmed* £ 175,000.00 Annually in Arrears 97 Units Freehold Title Built and Open 2006 On Sale of Property 2013 Open Vanoise Guaranteed for 9 years 80% (of RICS Chateau de Oak Property 8% Net Return Assured France £ 180,000 Annually in Arrears 55 Units Freehold Title Built and Open 2013 valuation) Developer 2013 Open Rethondes Partnership Limited for 10 years buy-back in year 10 6% Net Return Build Completion Expected Q3 La Foret D’Armotte France Leapfrog Properties £ 180,000.00 Annually in Arrears 50 Units Freehold Title On Sale of Property 2013 Open Guaranteed for 5 years 2015 3.8% Net Return L’Etoile des Cimes France To Be Confirmed* £ 225,000.00 Annually in Arrears 62 Units Freehold Title Built and Open 2011 On Sale of Property 2013 Open Guaranteed for 9 years 15% Net Return Predicted Hotel Royal Germany Nest Hotels £ 60,000.00 Monthly in Arreara 34 Units 99 Year Leasehold Built and Open On Sale of Property 2008 Sold Out per year 5% Net Return Park Bostalsee Germany Pierre & Vacances £ 100,000.00 Annually in Arrears 500 Units Freehold Title Built and Open 2013 On Sale of Property 2010 Open Guaranteed for 15 years 10.33% Net Return Developer buy-back AlpenClub Germany Karma Royal Group £ 44,950.00 Monthly in Arrears 57 Units Freehold Title Built and Open 2013 Open Assured for 10 years from year 2 5% Net Return Halcyon Hills Resort Barrasford & Bird Guaranteed During Build Completion Expected Q1 140% Developer buy- Greece £ 19,500.00 Annually in Arrears To Be Confirmed* 60 Year Leasehold 2009 Open & Spa Worldwide Construction followed by 2014 back 8% Net Return for 2 years Elounda Peninsula Greece Elounda SA £ 400,000.00 Variable Variable To Be Confirmed* 60 Year Leasehold Built and Open 2011 On Sale of Property 2010 Open Diamond Residences Beneficial Interest Rimondi Grand Alternative Asset 8% Return Guaranteed 100% Developer buy- Greece £ 9,555.00 Annually in Arrears 120 Units through Deed of Built and Open 2012 2010 Sold Out Resort & Spa Alliance for 2 years back Trust Bacolet Bay 10% Net Return Build Completion Expected Bacolet Bay Resort Grenada Development £ 40,000.00 Annually in Arrears 280 Units 999 Year Leasehold On Sale of Property 2008 Open Guaranteed for 5 years 2014 Company Saloc International Saloc International 10% Return Fixed for 10 Build Completion Expected Q4 125% Developer buy- Hungary £ 45,000.00 Annually in Arrears 103 Units 175 Year Leasehold 2013 Open Golf & Spa Resort (UK) Ltd years 2014 back after 10 years Karma Kandara 5% Net Return Indonesia Royal Karma Group £ 150,000.00 Annually in Arrears To Be Confirmed* Leasehold Title Built and Open 2010 On Sale of Property 2011 Open Phase V Guaranteed for 3 years Karma Kandara Phase 5% Net Return Build Completion Expected Indonesia Royal Karma Group £ 150,000.00 Annually in Arrears 64 Units Leasehold Title On Sale of Property 2013 Open VI Guaranteed for 3 years 2014

46 47 “Directly Held investments are located in 24 countries across the world covering 12 different INVESTMENT REGISTER geographical regions."

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Sarani Resort 16% Net Return Build Completion Expected Q2 Developer buy-back Panama Global Prospects S.L £25,000.00 Annually in Arrears 35 Units Freehold Title 2013 Open Boutique Hotel Predicted per year 2014 after 3 years Harlequin Hotels and 10% Net Return Build Completion Expected The Marquis Estate Saint Lucia £135,000.00 Quarterly in Arrears 2,000 Units Freehold Title On Sale of Property 2010 Suspended Resorts Guaranteed for 2 years 2012 - Currently Suspended Harlequin Hotels and 10% Net Return Build Completion Expected Blu Hotel Saint Lucia £225,000.00 Quarterly in Arrears 76 Units Freehold Title On Sale of Property 2011 Suspended Resorts Guaranteed for 2 years 2012 - Currently Suspended 6% Return Guaranteed Fractional On Sale of Property for 2 years followed by Build Completion Expected Freedom Bay Hotel Saint Lucia Affinity Resorts £17,500.00 Annually in Arrears 1,508 Units Ownership or 90% Developer 2011 Open 15% Return Predicted per 2013 but delayed to 03/2015 Certificate buy-back year 8% Net Return Build Completion Expected Palm View Golf Resort Saint Lucia Ciaran Maguire Group £250,000.00 Annually in Arrears 230 Units Freehold Title On Sale of Property 2012 Open Guaranteed for 25 years 07/2013 Saint Vincent Harlequin Hotels and 10% Net Return Build Completion Expected Buccament Bay & The £170,000.00 Quarterly in Arrears To Be Confirmed* Freehold Title On Sale of Property 2006 Suspended Resorts Guaranteed for 2 years 2010, Open 2012 Grenadines 8% Net Return Freehold Title or Gora Hotel Slovenia Room to Invest Ltd £5,000.00 Annually in Arrears 18 Units Suspended On Sale of Property 2009 Suspended Guaranteed for 3 years Room Rights Champneys Spa Bi-Annually in 7% Gross Return Build Completion Expected Spain To Be Confirmed* £12,000.00 To Be Confirmed* Freehold Title On Sale of Property 2008 Suspended Resort Arrears Guaranteed for 5 years 2010 but not complete 50% of Rental Revenue Royal Suites Marbella Spain To Be Confirmed* £99,000.00 Annually in Arrears 120 Units Freehold Title Built and Open On Sale of Property 2008 Closed per year Terrazas Costa del Sol 5% Net Return Spain Pierre & Vacances £105,000.00 Annually in Arrears 328 Units Freehold Title Built and Open 2009 On Sale of Property 2011 Open Resort Guaranteed for 10 years Developer buy-back Tomas Linares 10% Net Return Hotel El Nogal Spain £18,500.00 Annually in Arrears 42 Units 175 Year Leasehold Built and Open after 3, 5, 7 or 10 2013 Open Hernandez Guaranteed for 2 years years Movenpick White Apex Development 5-6% Net Return Fixed Build Completion Expected Q4 Thailand £120,000.00 Annually in Arrears 503 Units Leasehold Title On Sale of Property 2009 Open Sand Beach Resort PCL for 15 years 2013 Build Completion Expected Laguna Beach Resort Thailand Heights Holdings £17,475.00 Variable Variable 660 Units Leasehold Title On Sale of Property 2011 Sold Out 08/2014 Laguna Beach Resort Build Completion Expected Thailand Heights Holdings £16,632.00 Variable Variable 1,100 Units Leasehold Title On Sale of Property 2011 Open 2 12/2014 Laguna Beach Resort Build Completion Expected Thailand Heights Holdings £22,000.00 Variable Variable 1,750 Units Leasehold Title On Sale of Property 2012 Open 3 "The Maldives" 12/2015 Amazon Residence Build Completion Expected Thailand Matrix Developments £36,000.00 Variable Variable 796 Units Leasehold Title On Sale of Property 2012 Open Jomtien 06/2014 10% Net Return Build Completion Expected 130% Developer buy- Lakeside Phuket Thailand Phuket PRD Properties £165,000.00 Annually in Arrears 256 Units Leasehold Title 2013 Open Guaranteed for 3 years 2015 back Nikki Beach Hotel and 5% Net Return Leasehold Title held Build Completion Expected On Sale of Property or Thailand Castlewood Group £18,000.00 Annually in Arrears 174 Units 2012 Open Spa Guaranteed for 10 years in Trust 2012 but delayed to 2014 Managed Sale in 2020 8% Net Return Guaranteed for 2 years Build Completion Expected 100% Developer buy- Harmony Bay Resort Turkey Akbuk Resort Group £12,250.00 Annually in Arrears 240 Units Freehold Title 2008 Open followed by 10% Return 2013 back Predicted per year 4% Return Guaranteed During Construction 100% Developer buy- Unity Bay Resort Turkey Akbuk Resort Group £14,000.00 Annually in Arrears To Be Confirmed* Freehold Title To Be Confirmed* 2013 Open followed by 7-9% Return back Predicted per year

48 49 “Over 70% of directly held investment offer a guaranteed or assured return for an initial period, INVESTMENT REGISTER usually for between 1 and 10 years.”

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS The Ramada Equity Plus 10% Net Return Fixed for Pamukkale Thermal Turkey £28,000.00 Annually in Arrears 190 Units Freehold Title Built and Open 2009 On Sale of Property 2013 Open International Ltd 3 years Spa Resort Kusadasi Spa Village 8.5% Net Return Build Completion Expected 132% Developer buy- Turkey CLC Estates £36,000.00 Annually in Arrears 146 Units Freehold Title 2013 Open Resort Guaranteed for 10 years 12/2013 back after 5 years Park Plaza United Park Plaza Hotels 6% Net Return £250,000.00 Annually in Arrears 1,021 Units 999 Year Leasehold Built and Open 2010 On Sale of Property 2005 Sold Out Westminster Bridge Kingdom Limited Guaranteed for 5 years United 8% Net Return The Kimberley Hotel Fund Invest Group £60,000.00 Quarterly in Arrears 93 Units 999 Year Leasehold Built and Open 2008 On Sale of Property 2008 Sold Out Kingdom Guaranteed for 5 years The Flaxby Country United 6% Return Guaranteed Build Completion Expected Q3 Skelwith Leisure £199,950.00 Quarterly in Arrears 303 Units 999 Year Leasehold On Sale of Property 2008 Sold Out Resort Kingdom for 10 years 2015 Holiday Inn West United 10% Return Predicted Key Homes Fund £189,000.00 Annually in Arrears 252 Units 999 Year Leasehold Built and Open 2012 On Sale of Property 2010 Sold Out India Dock Kingdom per year United 7.5-10.5% Return Fixed Build Completion Expected Q1 Holiday Inn Barking Key Homes Fund £125,000.00 Annually in Arrears 207 Units 199 Year Leasehold On Sale of Property 2011 Sold Out Kingdom for 5 years 2013 Holiday Inn Royal United Albert Ventures 7.5-10.5% Return Fixed Build Completion Expected Q3 £125,000.00 Annually in Arrears 204 Units 199 Year Leasehold On Sale of Property 2011 Sold Out Albert Docks Kingdom Limited for 5 years 2013 United 10.2-12.6% Net Return Build Completion Expected Q1 Park Inn Wembley Key Homes Fund £140,000.00 Annually in Arrears 237 Units 199 Year Leasehold On Sale of Property 2011 Sold Out Kingdom Predicted per year 2013 United Kersewell Estate 6% Return Guaranteed Build Completion Expected Kersewell Golf Resort £194,000.00 Annually in Arrears 750 Units Freehold Title On Sale of Property 2011 Open Kingdom Limited for 1 year 2014 10% Net Return 100% Developer buy- United Oak Property Hever Hotel £140,000.00 Quarterly in Arrears Guaranteed for 10 years 84 Units 999 Year Leasehold Built and Open back in year 4 or 80% (of 2012 Sold Out Kingdom Partnership Limited or 50% of Rental Revenue RICS valuation) in year 5 United Bi-Annually in 11% Net Return Predicted The Russell Hotel To Be Confirmed* £35,000.00 43 Units 999 Year Leasehold Built and Open On Sale of Property 2012 Open Kingdom Arrears per year United 7% Net Return Predicted Quality Hotel To Be Confirmed* £30,000.00 Annually in Arrears 113 Units 999 Year Leasehold Built and Open On Sale of Property 2012 Sold Out Kingdom per year United 7.17-11.1% Net Return Build Completion Expected Q1 Royal Arsenal Hotel To Be Confirmed* £95,000.00 Quarterly in Arrears 130 Units 125 Year Leasehold On Sale of Property 2012 Sold Out Kingdom Predicted per year 2013 Raithwaite Hall United 8% Return Guaranteed Skelwith Leisure £118,125.00 Annually in Arrears 45 Units 999 Year Leasehold Built and Open 2011 On Sale of Property 2012 Sold Out Country Retreat Kingdom for 10 years The Keep at United 8% Return Guaranteed Skelwith Leisure £170,000.00 Annually in Arrears 28 Units 999 Year Leasehold Built and Open 2011 On Sale of Property 2012 Sold Out Raithwaite Hall Kingdom for 10 years Raithwaite Hall United 8% Return Guaranteed Build Completion Expected Skelwith Leisure £335,000.00 Annually in Arrears 46 Units 999 Year Leasehold On Sale of Property 2012 Sold Out Residences Kingdom for 10 years 2014 The Cottages at United 8% Return Guaranteed Build Completion Expected Q3 Skelwith Leisure £200,000.00 Annually in Arrears 18 Units 999 Year Leasehold On Sale of Property 2012 Sold Out Raithwaite Hall Kingdom for 3 years 2013 United Bi-Annually in 14.5% Net Return Burn Hall Hotel To Be Confirmed* £49,950.00 94 Units 125 Year Leasehold Built and Open 2012 On Sale of Property 2012 Sold Out Kingdom Arrears Predicted per year 12.5% Return 100% Developer buy- The Corran Resort & United Barrasford & Bird Fraction of £17,000.00 Quarterly in Arrears Guaranteed for 10 years, 546 Units (21 rooms) Built and Open 2013 back after 3 years, 2012 Sold Out Spa - Phase 1 Kingdom Worldwide Ownership Deed 15% years 11-15 150% after 15 years 10% Return Guaranteed 100% Developer buy- The Corran Resort & United Barrasford & Bird Fraction of £17,000.00 Quarterly in Arrears for 10 years, 12.5% years 725 Units (28 rooms) Built and Open 2013 back after 3 years, 2013 Open Spa - Phase 2 Kingdom Worldwide Ownership Deed 11-15 150% after 15 years United 8% Net Return Build Completion Expected Q3 110% Developer buy- JQ Hotel New Manor Group £89,950.00 Quarterly in Arrears 82 Units 999 Year Leasehold 2013 Open Kingdom Guaranteed for 2 years 2014 back after 4 years

50 51 CORPORATE LAUNCHED LAUNCHED LAUNCHED INVESTMENT REGISTER ELEMENT: 4 IN 2011 7 IN 2012 6 IN 2013

DIRECTLY HELD PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS United 9% Net Return Assured Build Completion Expected Q3 Dover Port Hotel To Be Confirmed* £85,000.00 Quarterly in Arrears 120 Units 250 Year Leasehold On Sale of Property 2013 Open Kingdom for 1 year 2015 United 8% Net Return The Knutsford Hotel To Be Confirmed* £80,000.00 Quarterly in Arrears 32 Units 250 Year Leasehold Built and Open On Sale of Property 2013 Open Kingdom Guaranteed for 2 years United 10% Net Return Build Completion Expected 120% Developer buy- Titanic Hotel Signature Living £40,300.00 Monthly in Arrears 59 Units 125 Year Leasehold 2013 Open Kingdom Guaranteed per year 08/2014 back after 3 years The Old Trafford United 9% Net Return Assured Build Completion Expected Developer buy-back To Be Confirmed* £74,250.00 Quarterly in Arrears 98 Units 250 Year Leasehold 2013 Open Hotel Kingdom for 3 years 2015 after 3 years United Oak Property 10% Net Return Developer buy-back Needham House £180,000.00 Quarterly in Arrears 69 Units 999 Year Leasehold Built and Open 2013 2013 Open Kingdom Partnership Limited Guaranteed for 10 years after 5 years United 8% Return Guaranteed The Lymm Hotel To Be Confirmed* £90,000.00 Quarterly in Arrears 61 Units 250 Year Leasehold Built and Open 2013 On Sale of Property 2013 Open Kingdom for 2 years Wyndham Grand, The United MAP Property & 6% Net Return Build Completion Expected Q3 Developer buy-back £25,000.00 Annually in Arrears 200 Units 175 Year Leasehold 2013 Open Angus Kingdom Leisure Guaranteed per year 2015 after 5 years United MAP Property & 6% Net Return Build Completion Expected Q3 Developer buy-back Hyatt Place Hotel £65,000.00 Annually in Arrears 181 Units 175 Year Leasehold 2013 Open Kingdom Leisure Guaranteed per year 2014 after 5 years 25% Net Return Assured 115% Developer buy- Great American North Dakota USA £27,950.00 Annually in Arrears for 5 years or 40-46.4% 408 Units 60 Year Leasehold Built and Opening Soon back after 2 years, 2013 Open Lodge Developments LLC Return Predicted per year 120% from years 6-10 360 Units Caracola Beach Mar Y Casas 7% Net Return Build Completion Expected Venezuela £22,000.00 Annually in Arrears (downscaled from Freehold Title On Sale of Property 2008 Suspended Resort & Spa Mediterraneas Guaranteed for 10 years 2010 but not complete 1,244 units)

CORPORATE ELEMENT PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Developer buy-back Salinas Sea Resort Salinas Sea 5% Net Return Fixed for option after 5 years Cape Verde £10,000.00 Annually in Arrears £10m Unlisted Shares Open to Investment 2011 Open Limited Investments Limited 3 years or sale of shares on open market Developer buy-back Salinas Sea Salinas Sea Resort End of Investment 6% Capital Growth option after 5 years Cape Verde £10,000.00 £10m Unlisted Shares Open to Investment 2011 Open Investment Limited Limited Term Predicted per year or sale of shares on open market Minimum 7 years Four Seasons Knightsbridge End of Investment Build Completion Expected Q3 Chile £600,000.00 18-22% Net Predicted IRR £77m B Class Shares from initial closing 2013 Closed Santiago Partners Term 2016 date Coralli Resort 8% Return Fixed for 3 On Sale of Underlying Coralli Spa Residence Cyprus £14,000.00 Annually in Arrears £1.2m Unlisted Shares Built and Open 2012 2010 Sold Out Investments Limited years Property At Discretion of Secret Hills Hotel & End of Investment 61% Predicted Capital North Cyprus Secret Hills (IOM) Ltd £3,500.00 £18.5m Unlisted Shares Open to Investment Investment Manager 2013 Open Spa Resort Term Growth within 7 years Alpine Hotel Profin Développement 5 Year Fixed term Investment (No. 2) LP France £10,000.00 Annually in Arrears 7% Return Fixed per year £20m Fixed Interest Bond Open to Investment 2013 Open et Gestion SARL bond - Bond International Hotel 6.5% Return Fixed per 100% Redemption IHI 6.5% Bond 2014 Malta £1,000.00 Annually in Arrears €12.50m Fixed Interest Bond Closed to New Investment 2006 Closed Investments PLC year 2012, 2013 or 2014

52 53 CORPORATE INVESTMENT REGISTER ELEMENT: 9 OPEN 20 SOLD OUT

CORPORATE ELEMENT PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS 100% Redemption International Hotel 6.25% Return Fixed per IHI 6.25% Bond 2019 Malta £1,000.00 Annually in Arrears €30m Fixed Interest Bond Closed to New Investment 2015, 2016, 2017, 2018 2009 Closed Investments PLC year or 2019 100% Redemption Corinthia Finance PLC 6.25% Return Fixed per Malta Corinthia Finance PLC £1,000.00 Annually in Arrears €20m Fixed Interest Bond Closed to New Investment 2016, 2017, 2018 or 2009 Closed 6.25% Bond 2019 year 2019 100% Redemption International Hotel 6.25% Return Fixed per IHI 6.25% Bond 2020 Malta £1,000.00 Annually in Arrears €25m Fixed Interest Bond Closed to New Investment 2017, 2018, 2019 or 2010 Closed Investments PLC year 2020 Corinthia Finance 100% Redemption 6.25% Return Fixed per PLC 6.25% Bond 2019 Malta Corinthia Finance PLC £1,000.00 Annually in Arrears €20m Fixed Interest Bond Closed to New Investment 2016, 2017, 2018 or 2010 Closed year (Second Issue) 2019 International Hotel 5.8% Return Fixed per 100% Redemption on IHI 5.8% Bond 2021 Malta £1,000.00 Annually in Arrears €20m Fixed Interest Bond Closed to New Investment 2012 Closed Investments PLC year 21st December 2021 100% Redemption Corinthia Finance PLC Malta Corinthia Finance PLC £1,000.00 Annually in Arrears 6% Return Fixed per year €7.5m Fixed Interest Bond Closed to New Investment 2019, 2020, 2021 or 2012 Closed 6% Bond 2022 2022 Build Completion Expected 150% Developer buy- Cool Blue Samui Thailand Project Kudos Limited £25,000.00 Annually in Arrears 15% Predicted IRR 41 Units Unlisted Shares 2010 Open 2012, delayed to Q4 2014 back after 4 years Defined Exit IPIN - The Flaxby United BridgePoint Ventures End of Investment 30% Return Predicted Relationship through Addendum £19,000.00 To Be Confirmed* Closed to New Investment 2009 Closed Country Club Kingdom LLC Term per year Agreement to Relationship Agreement Defined Exit United BridgePoint Ventures End of Investment 18% Return Predicted Relationship through Addendum IPIN - The Woolston £35,000.00 To Be Confirmed* Closed to New Investment 2010 Closed Kingdom LLC Term per year Agreement to Relationship Agreement Defined Exit IPIN - Holiday Inn United BridgePoint Ventures End of Investment 25% Return Predicted Relationship through Addendum £40,000.00 150 Units Built and Open 2011 2010 Closed Docklands Kingdom LLC Term per year Agreement to Relationship Agreement Defined Exit IPIN - The Raithwaite United BridgePoint Ventures End of Investment 18% Return Predicted Relationship through Addendum £52,875.00 To Be Confirmed* Closed to New Investment 2010 Closed Hotel Kingdom LLC Term per year Agreement to Relationship Agreement Addendum to IPIN - The Raithwaite United End of Investment 18% Return Predicted Relationship Skelwith Leisure £ 38,000.00 To Be Confirmed* Closed to New Investment Relationship 2010 Closed Cottages Kingdom Term per year Agreement Agreement Defined Exit United BridgePoint Ventures End of Investment 15% Return Predicted per Relationship through Addendum IPIN - Number One £50,220.00 98 Units Closed to New Investment 2011 Closed Kingdom LLC Term year Agreement to Relationship Agreement

“BridgePoint Ventures Defined Exit United End of Investment 18% Return Predicted Relationship through Addendum IPIN - The Keep LLC” £38,000.00 To Be Confirmed* Closed to New Investment 2011 Closed Kingdom Term per year Agreement to Relationship "Skelwith Leisure" Agreement Manchester Terminal United GDCV Investments 7% Net Return Fixed per Fixed Interest Loan 112% Redemption in £10,000.00 Annually in Arrears £3.2m Open to Investment 2012 Open 2 Hotel Limited Kingdom Limited year Note 2018

54 55 COLLECTIVE INVESTMENT 2 LAUNCHED 2 LAUNCHED 2 LAUNCHED INVESTMENT REGISTER SCHEME: IN 2011 IN 2012 IN 2013

CORPORATE ELEMENT PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Squire Hotels Limited United GDCV Investments Bi-Annually in 6-8% Return Fixed per Fixed Interest A 110% Redemption in £17,000.00 £2.65m Closed to New Investment 2012 Closed A Bond Kingdom Limited Arrears year Bond 2018 Squire Hotels Limited United GDCV Investments Bi-Annually in 6-8% Return Fixed per Fixed Interest B 110% Redemption in £17,000.00 £2.65m Open to Investment 2012 Open B Bond Kingdom Limited Arrears year Bond 2018 7.5% Cash or 9.5% United Bi-Annually in 100% Redemption The Smith Bond Smith Bonds PLC £1,000.00 Loyalty Return Fixed per £5m Fixed Interest Bond Closed to New Investment 2012 Closed Kingdom Arrears after 4 years year Defined Exit United BridgePoint Ventures End of Investment 16% Return Predicted per Relationship through Addendum IPIN - Woolmanhill £33,000.00 97 Units Closed to New Investment 2012 Closed Kingdom LLC Term year Agreement to Relationship Agreement Defined Exit United BridgePoint Ventures End of Investment 18% Return Predicted Relationship through Addendum IPIN - Brick Lane £40,500.00 40 Units Closed to New Investment 2013 Closed Kingdom LLC Term per year Agreement to Relationship Agreement Defined Exit United BridgePoint Ventures End of Investment 15% Return Predicted per Relationship through Addendum IPIN - Aldgate £41,308.00 127 Units Open to Investment 2013 Open Kingdom LLC Term year Agreement to Relationship Agreement Squire Hotels Limited United GDCV Investments Bi-Annually in 6-8% Return Fixed per Fixed Interest C 100% Redemption in £10,000.00 £2.65m Open to Investment 2013 Open C Bond Kingdom Limited Arrears year Bond 2015

COLLECTIVE INVESTMENT SCHEME PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Hypa Investments British Virgin Hypa Management LLP £10,000.00 End of Investment Variable £10m A Class Shares Closed to New Investment At Discretion of 2010 Closed Asia Ltd Islands Term Investment Manager Alpine Hotel France Profin Développement £25,000.00 Annually in Arrears 11.2% Return Predicted £6.3m from up to Limited Partner or Closed to New Investment 5 Year Fixed Term 2010 Closed Investment (No. 1) LP et Gestion SARL per year 100 Investors Unit Holder (in Unit Trust) Alpine Hotel France Profin Développement £10,000.00 Annually in Arrears 15% Return Predicted per £20m Limited Partner or Open to Investment 7 Year Fixed Term 2011 Open Investment (No. 2) LP et Gestion SARL year Unit Holder (in Unit Trust) Park Plaza Hotels Guernsey Park Plaza Hotels No Minimum Bi-Annually in 9% Return Predicted per 41.5m Ordinary Ordinary Shares Open to Investment AIM Listed - Daily 2007 Open Limited Limited Arrears year Shares Dealing Darwin Leisure Guernsey Darwin Property £10,000.00 Annually in Arrears 8-12% Return Predicted Open-Ended Units in Unit Trust Open to Investment CISX Listed - Monthly 2008 Open Property Fund Investment per year Dealing Management (Guernsey) Limited Blackmore Guernsey Blackmore Commercial £10,000.00 Bi-Annually in Variable 24m A Class Shares E Class Shares Open to Investment CISX Listed - Monthly 2010 Open Commercial Opportunities Fund Arrears Dealing Opportunities Fund Ltd Ltd Future Inns Hotel Isle of Man The Premier Property £10,000.00 Annually in Arrears 8% Return Predicted per 100m Ordinary Ordinary Shares Open to Investment CISX Listed - Monthly 2007 Open Investment Sub-Fund Options Fund plc. year Shares Dealing Caldora International Mauritius Caldora Asset £1,000.00 Bi-Annually in 6% Return Predicted per Open-Ended Listed Shares To Be Confirmed* Weekly Share dealing 2012 To Be Fund Limited PCC - Management Limited Arrears year Confirmed* Harlequin Income Fund

56 57 COLLECTIVE INVESTMENT 6 OPEN 7 SOLD OUT INVESTMENT REGISTER SCHEME:

COLLECTIVE INVESTMENT SCHEME PRODUCT MINIMUM RETURN LAUNCH NAME LOCATION PROVIDER INVESTMENT FREQUENCY RETURNS AVAILABILITY TENURE STAGE EXIT YEAR STATUS Limited Partner or United 8% Net Return At Discretion of Hypa Raithwaite LP Hypa Management LLP £10,000.00 Annually in Arrears £7m Unit Holder (in Unit Closed to New Investment 2010 Closed Kingdom Guaranteed for 10 years Investment Manager Trust) Congham Hotels United Congham Hotels End of Investment 270% Predicted Capital At Discretion of £25,000.00 £3m Unlisted Shares Closed to New Investment 2011 Closed Limited Kingdom Limited Term Growth Investment Manager A Class Shares & Cresta Court Hotel United Annually in Arrears 6% Return Predicted per At Discretion of Connection Capital LLP £25,000.00 £1.4m Unsecured Loan Closed to New Investment 2013 Closed Property Limited Kingdom (from year 2) year Investment Manager Notes Limited Partner or Sale of underlying Osprey Income and United Osprey Equity 6% Return Predicted per £25,000.00 Annually in Arrears £12.8m Unit Holder (in Unit Open to Investment property predicted 2013 Open Growth 4 LP Kingdom Partners year Trust) after 4.5 years Sale of underlying United 10% Return Fixed per Limited Partner or Invicta Dundee LP Invicta Capital Limited £50,000.00 Quarterly in Arrears £2.75m Closed to New Investment property predicted 2012 Closed Kingdom year Loan Note Holder within 5 years

58 59 “A particular property achieving high levels of occupancy can be an excellent, long-term, stable investment. But investors must be aware of the risks involved when investing in speculative developments in unproven locations.”

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Intelligent Partnership This report is provided for general The information has been compiled from Halford Chambers information purposes and for use only by credible sources believed to be reliable, 1-3 Halford Road Investment professionals and not by retail however it has not been verified and Richmond investors. its accuracy and completeness are not TW10 6AW guaranteed. Reliance should not be placed on the Company Registration No. 06442114 information, forecasts and opinion set out The opinions expressed are those of Company Registered in England & Wales herein for any investment purposes and Intelligent Partnership at the date of Intelligent Partnership will not accept any publication and are subject to change liability arising from such use. without notice.

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