Documentation and by LB Southwark Council, and Provide Commentary on Jumeirah‟S Previous Interest in the Development

Home , 10 Trinity Square, Berners Hotel, Corinthia Hotel London, London Waterloo station, Sea Containers House

HOTEL DEMAND AND FEASIBLITY STUDY

HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Planning Application Support On Behalf of St George South London Limited

May 2012

CONTENTS

1. Background and Method of Approach...... 3

2. Executive Summary ...... 5

3. Site Appraisal ...... 10

4. Hotel Development ...... 16

5. Economic Impact ...... 26

6. Viability of Implemented 261 Bedroom Hotel ...... 29

7. Viability of Proposed 152 Bedroom Hotel ...... 41

8. Conclusion ...... 54

APPENDICES

A. Glossary of Industry Terminology...... 59

B. Locational Analysis ...... 62

C. London Hotel Market ...... 70

D. London Transactional Market Commentary ...... 81 E. Implemented 261 Bedroom Hotel - Competitive Analysis & Demand Profile ...... 85 F. Proposed 152 Bedroom Hotel - Competitive Analysis & Demand Profile ...... 92 G. Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel ...... 100 H. Lifestyle Hotel Images ...... 104

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

1. BackgroundBackground and Method of Approach

Introduction Planning permission was granted in 2009 for a mixed use development at One Blackfriars which includes a luxury hotel comprising 261 bedrooms (LPA Ref. 06-AP-2117) - herein referred to as the „Implemented 261 bedroom hotel‟. St George has acquired the freehold interest of this Site and are proposing a new development which will provide a high quality mixed use development including high end residential in a newly constructed tower, affiliated retail space at ground floor level and a 152 bedroom upscale/lifestyle hotel within the adjacent Rennie Street Building – herein referred to as the „Proposed 152 bedroom hotel‟. CBRE Hotels have been retained by St George to provide an independent overview and appraisal of the feasibility of the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel. The purpose of our report is to determine the current and future demand and supply dynamics of hotels within the area and the likely demand, viability and deliverability the Proposed 152 bedroom hotel may have once built and open. CBRE Hotels' offers a wide range of services to support hotel investors, lenders, owners and developers. Our well established and experienced team have provided development consultancy advice, operator selection, feasibility studies and planning support for a variety of hotel schemes in London including The Metropole Building (now operating as The Corinthia), Heron Plaza, proposed Art‟otel Shoreditch, Chelsea Barracks, Great Northern

Hotel, Central St Martin‟s, Café Royale and Battersea Power Station.

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Scope of Works

CBRE Hotels is to appraise the site and the wider area to assess the site‟s suitability for the Implemented 261 bedroom hotel and Proposed 152 bedroom hotel, as well as to understand accommodation supply and demand dynamics for London‟s Southbank. On the basis of these findings the report will seek to assess the viability of the Implemented 261 THODOFAPPROACH bedroom hotel and the Proposed 152 bedroom hotel.

Our demand and feasibility report will address the following topics: 1. BACKGROUND1. AND ME  Site appraisal and locational analysis;  Critique of the approved plans for the Implemented 261 bedroom hotel and Proposed 152 bedroom hotel;  Overview of the London and the London Borough of Southwark hotel markets;  Financial appraisal and viability of each of the developments;  Views on the suitability and brand positioning for the proposed offering.

Method of Approach Our method of approach included the following steps:-

. Inspection of the Site and the immediate neighbourhood to assess its size and location in terms of competing hotels, visibility and accessibility.

. Visit of the surrounding area to determine and assess the existing supply, location and standard of hotel accommodation and facilities.

. Viewings of competing hotels and where possible speaking with hotel representatives to determine type of trade, customer mix and indicative rates.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

1. Background and Method of Approach

. Researching advertised rates for hotels in the immediate area.

. Analysis of information provided by STR Global on the historic hotel trading performance (occupancy and Average Daily Rate (ADR)) achieved in London and the direct competitive set.

. Review of floor plans of the Proposed 152 bedroom hotel.

. Once all our research has been undertaken, we will estimate future projections for an assumed competitive set of hotels and also more specifically for the Proposed 152 bedroom hotel at One Blackfriars Road.

. Provide an indicative view of upscale/lifestyle hotel values in London (as well as boutique hotels by way of comparison).

. Compare the viability of the Proposed 152 bedroom hotel with the Implemented 261 bedroom hotel in terms of indicative values and build costs.

. Assess the current viability of the Implemented 261 bedroom hotel in its present form. We are obliged to point out that all figures and values provided are indicative and for your general guidance purposes only. They should not be relied upon for security of loan or any other formal purpose.

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THODOFAPPROACH 1. BACKGROUND1. AND ME

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

2. Executive Summary

The Site and Surrounding Area  The Site is situated on the Southbank of the River Thames at the southwest end of Blackfriars Bridge, set back from the river by one block. It benefits from its close proximity to popular attractions on the Southbank such as the Tate Modern, National Theatre, Globe Theatre, London Eye, Borough Market and London Dungeons.  The site benefits from excellent public transport links. The new southern entrance to Blackfriars station, which opened at the end of February 2012, provides direct access to the National Rail network and London underground system, via the Circle and District lines. Bus routes and Southwark underground station (0.3 miles away), served by the Jubilee line, connect the site to Canary Wharf and the West End. The City of London can be reached by foot in less than ten minutes.  The Implemented 261 bedroom hotel is part of a wider mixed use development of the Site granted planning permission in 2009 and implemented in 2011. However, since then, change in the economic environment and hotel market has led the new owners to consider the content of the planning permission. This is to ensure the mix of uses (including the scale and format of the hotel) is realistic, viable and deliverable.  Our report provides an independent overview and appraisal of the site for hotel use and the feasibility of the Implemented 261 bedroom hotel, which is designed at the luxury end of the market and the Proposed 152 bedroom hotel, which is tailor made for

an upscale/lifestyle option.

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Implemented 261 Bedroom Hotel

 The Implemented 261 bedroom hotel was to be part of a wider 52 storey mixed use development that also included residential and retail units and an observation deck or “Sky Deck” on the top two floors that were to be open to paying members of the public.

 Jumeirah expressed their interest in managing the whole development when planning EXECUTIVE2. SUMMARY permission was granted in 2009, including the residential and public areas. However, no actual agreement was signed and Jumeirah are no longer associated with the development. Managing the residential apartments would have made the hotel development more attractive to Jumeirah in this location.  The Implemented 261 bedroom hotel was to be located on levels 2 through to 26 of the tower with ancillary meeting and conference facilities located in the basement and in the adjacent Rennie Street Building. Bedrooms would have been an average of 50m² which is typically the room size of a luxury plus hotel.  The integration of the hotel in the main tower would provide opportunities to create an iconic hotel, nevertheless, there are important drawbacks which are important to be considered, which include higher construction costs, inefficient floor plan layouts for servicing guest rooms and operational difficulties.  We understand the Sky Deck visitor attraction was to be managed by the hotel operator, which at the point of planning permission was envisaged to be Jumeirah. The feasibility of this is questionable as hotel operators are not experienced enough to take on such a mandate and are generally not interested to do so.  There have been many new five star/luxury bedrooms which have entered the market in recent years. In addition, numerous luxury hotel developments are due to enter the market which will either compete directly or indirectly with the Implemented 261

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

2. Executive Summary

bedroom hotel. These include the newly refurbished Savoy, The Corinthia and the Shangri-La at The Shard.  We have commissioned competitor set performance data produced by STR Global for hotels we consider would compete with the Implemented 261 bedroom hotel to understand demand and viability for a luxury hotel in this location. We have taken the competitive set information into account in estimating the potential ADR and occupancy levels.  We have been provided with a copy of valuation prepared by Jones Lang LaSalle Hotels (JLL) dated 20th April 2012 which provides a value of the Implemented Permission of £130 million (£498,000 per bedroom) on a Day One basis. This assumes a freehold property subject to a management contract with an internationally branded luxury hotel operator. The JLL report assumes a higher achievable ADR and slightly higher maintainable occupancy than our projections. However, their valuation of £498,000 per bedroom is reasonable for a luxury hotel in this location, assuming current market conditions.  Davis Langdon have estimated construction costs for the hotel within The Tower of £112 million, which equates to £429,119 per bedroom. These costs include FF&E but exclude professional fees and contingency fees. We have therefore allowed 6% for professional fees and 3% for contingency fees. We have not made an allowance for the

site acquisition costs within our appraisal.

Viability Appraisal

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ITEM AMOUNT £/BEDROOM

Gross Development Value (in line with JLL) £130,000,000 £498,000 Less:

Construction Costs £112,000,000 £429,119 2. EXECUTIVE2. SUMMARY Professional Fees @ 6% £6,720,000 £25,747 Contingency @ 3% £3,360,000 £12,874 Return £7,920,000 (6.1% return) £30,345 Source: Cost Estimates provided by Davis Langdon  A return of 6.1% is someway below market acceptance. For a hotel project, we would expect a developer‟s profit to typically range from 10 – 25% of the gross development value, depending upon the perceived risk involved in the project.  Our findings show that ADR achievable for a luxury hotel in this location will be inferior to those achieved in prime West End locations and hence will have a significant negative impact on value. In addition, the build costs are estimated to be excessively high for a luxury product being contained with a tower construction.  In the current economic climate our findings strongly suggest that the alternative Proposed 152 hotel is a far more viable and deliverable development option.

It is our view that based upon the information highlighted above, the Implemented 261 bedroom hotel is, at this moment in time, a far less viable and deliverable development option for the following reasons: - High construction costs;

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

2. Executive Summary

- Operational inefficiencies of the floor plans; - Increased luxury supply, since planning granted, creating greater competition for the Implemented 261 bedroom hotel; - Location unable to support high tariff levels which affects value. This is, in part, the reason why the changes to the type and disposition of uses within the development have been made.

Proposed 152 Bedroom Hotel  St George is proposing a mixed use development for The Site with a high-end residential tower and adjacent retail and hotel components. The Proposed 152 bedroom hotel is to be built in a separate 6 storey building.  The Proposed 152 bedroom hotel identified and the illustrative floor plans target the hotel in the upscale/lifestyle market. This type of operation provides a unique, personalised experience for visitors with high quality accommodation and service.

 Despite the current economic climate, interest in upscale/lifestyle hotels remains strong 7

and these types of hotels often out performs competing corporate chains. Lifestyle

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hotels generally incorporate a „destination‟ bar and restaurant which becomes an attractor to local residents, visitors and workers in addition to hotel guests.  The main hotel entrance will be located on Upper Ground whilst the loading and

delivery docks face Rennie Street. Whilst the Proposed 152 bedroom hotel is not 2. EXECUTIVE2. SUMMARY located within the tower, it will still benefit from being part of the iconic architectural development, with high visibility across London.  Whilst the average room size is circa 29 sq m there are also a number of larger suites which reflect the normal range expected from an upscale/lifestyle led hotel. Room sizes in this range are of a good comparable size to other four star hotels in London for both the corporate and leisure market.  The biggest change from the Implemented 261 bedroom hotel is that the Proposed 152 bedroom hotel is situated in the separate Rennie Street Building as opposed to occupying parts of The Tower. This revision provides significant reductions in construction costs (less complex architecture) and greatly improves operational efficiency of the hotel.  There are numerous upscale/lifestyle hotels located on the Southbank and north of the river which will compete with the Proposed 152 bedroom hotel. In addition there are new hotel developments such as the Hilton Tate Modern and Sea Containers House which will provide competition with any hotel, as envisaged, at the Site.  We have taken the competitive set information into account in estimating the potential revenues and profitability achievable for the Proposed 152 bedroom hotel assuming standard market management fees, which we summarise below. It is important to note that these are provided in present (2012) values.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

2. Executive Summary

YEAR 1 YEAR 2 YEAR 3 YEAR 4 Turnover £9,551.6 £11,065.6 £12,284.8 £13,045.6 EBITDA £2,670.3 £3,310.3 £3,699.6 £4,041.7 % of Total Turnover 28.0% 29.9% 30.1% 31.0%  We have fed our projections into a ten year discounted cashflow model to provide an indicative opinion of worth for the hotel on a Day One basis, i.e. assuming the hotel is developed open for trade. We have assumed the hotel is owned freehold and subject to a management contract with an international branded operator and on this basis have assumed an exit yield of 7.25%, taking into account development risks and location.  This provides an indicative value on a Day One basis of £50.0 million (£329,000 per bedroom).  Davis Langdon have estimated construction costs for the hotel within The Rennie Street Building of £37.9 million, which equates to £249,342 per bedroom. These costs include FF&E but exclude professional fees and contingency fees. We have therefore allowed 10% for professional fees and 3% for contingency fees. Professional fees are higher for this scenario to include planning and additional design related fees. We have not made an allowance for the site acquisition costs within our appraisal.

Viability Appraisal

ITEM AMOUNT £/BEDROOM

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Gross Development Value £50,000,000 £329,000

Less: Construction Costs £37,900,000 £249,342 Professional Fees @ 10% £3,790,000 £24,934

Contingency @ 3% £1,137,000 £7,480 EXECUTIVE2. SUMMARY Return £ 7,173,000 (14% return) £47,190 Source: Cost Estimates provided by Davis Langdon  A return of 14.0% is in line with market acceptance. For a hotel project, we would expect a developer‟s profit to typically range from 10 – 25% of the gross development value, depending upon the perceived risk involved in the project.

 Our findings show that there is currently strong demand from upscale/lifestyle operators such as the Marriott Edition, Starwood W and Malmaison for new hotels in this location. The illustrative plans are tailor made with suitable rooms sizes and ancillary facilities for this type of hotel product. In addition, the build costs will be lower for an upscale/lifestyle product compared to a luxury hotel offering. Furthermore, locating the hotel in a standalone building on Rennie Street will also reduce construction costs which is likely to create a more viable and deliverable development.

It is our view that the Proposed 152 bedroom hotel as detailed is of a more appropriate scale and form of hotel which will be viable and deliverable now for the following reasons: - Upscale/lifestyle hotels currently perform strongly and there is growing interest and development in the sector by hotel operators;

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

2. Executive Summary

- The hotel provides a destination bar or restaurant offering which attracts local custom in addition to hotel guests and this is a key requirement of upscale/lifestyle hotels; - Lower construction costs; - Design of Proposed 152 bedroom hotel, in standalone building, allows for greater operational efficiencies; - The tariff levels achievable in this location for this type of hotel offer will generate sufficient value to ensure the Proposed 152 bedroom hotel is viable given a rationalised design; - Proposed 152 bedroom hotel opens up site, allowing for greater public access and active street frontage which will enhance the potential for passing trade and improve viability of the destination bar/ restaurant; As the adjoining area is becoming recognised as an evolving art, leisure and corporate area, it is our opinion that the Proposed 152 bedroom hotel provides a good complementary

offer.

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The changes to the form and content of the Proposed 152 bedroom hotel result in a more viable development and would provide confidence that the development can be taken

forward in the short term. 2. EXECUTIVE2. SUMMARY

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

SITE LOCATION The Site is situated on the Southbank of the River Thames at the southwest end of Blackfriars Bridge, set back from the river by one block. It benefits from its close proximity to popular attractions on the Southbank such as the Tate Modern, National Theatre, Globe Theatre, London Eye, Borough Market and London Dungeons. The site benefits from excellent public transport links, with the highest Public Transport Accessibility Level (PTAL) of 6b (on a scale where 1 is poor and 6b is excellent). The new southern entrance to Blackfriars station, which opened in February 2012, provides direct access to the National Rail network and London underground system. Bus routes and Southwark underground station (0.3 miles away), served by the Jubilee line, connect the Site to Canary Wharf and the West End. The City of London can be reached by foot in less than

ten minutes.

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3. SITE APPRAISALSITE 3.

Source: Multimap 2010 The site (circled in red on the map above) is circa 0.79 hectares and is currently occupied by billboard advertising hoardings facing Blackfriars Road. The rest of the site is vacant following the demolition of two inter-linked office buildings in 2003.

AREA OVERVIEW

LB Southwark and Southbank In the following table we provide bedroom statistical information for the LB Southwark. LB Southwark has a generally healthy economic profile with a broad economy, underpinned by very high levels of productivity. LB Southwark is undergoing major regeneration and development projects valued at around £4 billion making the Borough one of the most dynamic in London.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

Population & Labour Statistics LB Southwark SOUTHWARK LONDON GREAT BRITAIN Population Statistics: Total Population 287,000 7,825,200 60,462,600 Total Working Age Population 73.3% 68.9% 64.8% Average Earnings (£) 32,718 31,730 26,161 Economically Active 76.4% 75.0% 76.2% JSA Allowance Claimants 10.5% 9.1% 7.7%

Employment Sectors: Manufacturing 4.8% 4.3% 10.2% Construction 3.5% 2.9% 4.8% Services 91.2% 92.4% 83.5% Distribution, Hotels & Rstaurant 13.5% 21.0% 23.4% Transport & Communications 5.2% 7.4% 5.8% Finance, IT, other business activites 43.1% 34.7% 22.0% Public Admin, Education & Health 22.0% 22.2% 27.0% Other Services 7.4% 7.2% 5.3% Tourism-related 6.6% 8.3% 8.2% Source: NOMIS 2011

Note: all data is the latest available

The Southbank is continuing to build up a reputation as the cultural heart of London and is 11

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home to multi-national companies, universities, the UK‟s largest railway station and a fast

growing residential population. The current mix of retail and commercial businesses is broad, with a focus on art/ design

and ethnic restaurants. APPRAISALSITE 3. With many of London‟s greatest attractions situated on the Southbank, the area has become a hub of tourist activity. Recognising the potential that the Southbank can offer, the LB Southwark has witnessed an increase in activity by developers and hotel operators who are keen to exploit the regeneration of the area with development of new hotels. Current upscale hotel schemes under construction include the corporate led Hilton Southwark, Novotel on Blackfriars Road, the introduction of an international lifestyle brand Morgans Hotel Group at Sea Containers House and finally with the completion and opening of the Shard, the Borough will receive its first luxury hotel, the Shangri-La. The Southbank of the River Thames is currently undergoing a major overhaul, with an array of developments, redevelopments, refurbishments and newly completed projects that will have a significant positive impact for the area. In the following map we illustrate the location of a number of these developments including the Site with further detail provided on these developments within Appendix B.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

One Blackfriars and the surrounding area

Major Refurbishments / Developments 1 Subject Property One Blackfriars 2 Sea Containers House 3 20 Blackfriars Road 4 Kings Reach, Stamford Street 5 Wedge House, Blackfriars Road 6 Ludgate House, Blackfriars Road Refurbishments 7 240 Blackfriars Road Recently Developed 8 Bankside, 1/2/3 Southwark Street

New Entrance Blackfriars Station (South)

Source: Promap

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City of London Located on the north bank of The Thames, across Blackfriars Bridge, The City of London, known as the square mile, houses most of London‟s leading financial and business services. A hub of corporate activity, the City also benefits from many restaurants, bars and shops to APPRAISALSITE 3. serve the corporate market. The City contains many of London‟s popular attractions including St Paul‟s Cathedral, Tower Bridge, Tower of London and the Museum of London attracting many leisure visitors to the area. Any hotel development at the Site will be able to draw demand from the City of London.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

Hotel Pipeline Aside from the developments, refurbishments and new office and residential developments in close proximity to The Site (as detailed in Appendix B), we have reviewed the wider hotel development supply and pipeline throughout LB Southwark and the surrounding areas.

Hotels Existing and Proposed MAP REF HOTEL CLASSIFICATION BEDROOMS STATUS Existing 1 Andaz Liverpool Street 5-star 267 Open 2 Corinthia Hotel 5-star 294 Open 3 Chancery Court Hotel 5-star 355 Open 4 One Aldwych 5-star 105 Open 5 Fairmont The Savoy 5-star 268 Open 6 Malmaison London 4-star 97 Open 7 Crowne Plaza Hotel The City 3-star 203 Open 8 Hilton Tower Bridge 4-star 245 Open 9 Marriott County Hall 4-star 200 Open 10 Mercure London City 4-star 144 Open 11 Holiday Inn Express London 3-star 123 Open 12 Hotel All Seasons 2-star 84 Open 13 Novotel London City South 4-star 182 Open 14 Mad Hatter Hotel 3-star 30 Open 15 Premier Inn London Southwark Budget 59 Open 16 Travelodge London Soutwhark Budget 202 Open 17 Grange St. Paul's 4-star 433 Open

18 Club Quarters St. Paul's 4-star 265 Open

19 London Bridge Hotel 4-star 138 Open Page

20 Mint Hotel Tower of London 4-star 583 Open

TOTAL Existing 4277 Proposed X One Blackfriars 5-star 261 Consented A Shangri-La The Shard 5-star 195 Under construction

B Hotel Ibis Blackfriars Budget 297 Under construction 3. SITE APPRAISALSITE 3. C Novotel London Blackfriars 4-star 182 Under construction D Apex Temple Court Hotel 4-star 185 Under construction E Hilton Hotel Bear Lane 4-star 280 Under construction F Premier Inn Southwhark Budget 122 Under construction G Citizen M London 2-star 209 Under construction H Cheval Apart Hotel 4-star 77 Under construction I Trinity Square 5-star 121 Construction not commenced J Indigo Hotel City 4-star 48 Construction not commenced K Four Seasons HeronTower 5-star 190 Construction not commenced L Sea Containes House (Mondrian) 5-star 356 Under construction M Stone House 5-star 190 Construction not commenced N Millenium Bridge House n/a 348 Construction not commenced O 2 Dorset Rise n/a 258 Construction not commenced TOTAL Proposed 3319 Source: London Development Monitor, CBRE Hotels Research In the following map we illustrate the location of the existing hotels and hotels in the development pipeline.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

SWOT Analysis In the SWOT analysis below, we present our assessment of the relative strengths and weakness, opportunities and threats of the site at One Blackfriars Road for a hotel

development.

SWOT ANALYSIS Page

STRENGTHS WEAKNESSES

 Good location on the Southbank close to Blackfriars Bridge;  High degree of competitive pressure from hotels in the immediate  Positioned in LB Southwark which is undergoing major area, including internationally branded properties;

developments and regeneration;  Location is secondary to prime sites in the West End. APPRAISALSITE 3.  Located in a very popular area for tourists and corporate visitors alike – edge of City, Southbank, short walking distance from Holborn and Covent Garden;  Easy access to West End’s shopping and entertainment areas;  Easy and convenient connections on the public transport network. OPPORTUNITIES THREATS  The rebound of the economy and resultantly the travel industry is  Competition in the area is strong and there are some hotels which likely to benefit London and would enable any hotel developed at benefit from a good reputation and a loyal client base; the Site to achieve strong trading results in the years succeeding  A number of proposed hotel developments have recently been its opening; granted planning permission or are under construction in the  Heightened exposure of London as a tourist destination due to surrounding area which could result, if competitive operators Olympics 2012; show interest, in an increase in supply in the medium term  London has historically been a destination favoured by wealthy future. individuals and major corporations which is likely to benefit upscale and luxury hotels;  Substantial redevelopment of the LB Southwark area providing office space, residential units and retail.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

3. Site Appraisal

Conclusion From the research and analysis we have undertaken of the Site, we are of the opinion that there is a good opportunity going forward to develop an internationally branded quality hotel in this location. The strength of the site is its association with the wider regeneration of the LB Southwark area and its close proximity to the City of London, Covent Garden, West End and the tourist attractions on the Southbank. Hence, the development will be able to attract a good mix of corporate and leisure customers. Good transport links provide easy access to other areas of London and the UK. LB Southwark through its continuing regeneration has been able to establish itself as a strong location for hotel development. Whilst there is a considerable amount of upscale and luxury roomstock under construction, London is currently trading very strongly and is a “must see” city for international visitors. There still remains strong demand from numerous hotel companies wishing to enter the market or expand new and existing brands in the

Capital.

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3. SITE APPRAISALSITE 3.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

4. Hotel Development

INTRODUCTION The following section provides a critique of the Implemented 261 bedroom hotel (to operate within the luxury sector of London‟s hotel market) and Proposed 152 bedroom hotel (to operate in the upscale/lifestyle market). To inform this critique, we set out an overview of both the Implemented 261 bedroom hotel and Proposed 152 bedroom hotel, and associated facilities. In relation to the Implemented 261 bedroom hotel, we also identify how the offer was defined in application documentation and by LB Southwark Council, and provide commentary on Jumeirah‟s previous interest in the development.

IMPLEMENTED 261 BEDROOM HOTEL The Implemented 261 bedroom hotel was to be principally located within a 52 storey tower that was to include market residential and a “Sky Deck” on the top two floors that were to be open to the paying public. The hotel element was to occupy levels 2 to 26 of the Tower, with ancillary meeting and conference facilities to be located in the adjacent Rennie Street Block, at the western side of the site. The tower development was to be located at the northeast side of the site. Residential units were to be located above the hotel from floors 27 - 48. Retail units were located in a plaza development on the south side of the site. The appraisal carried out by

JLL is for the hotel operation only, including ancillary facilities, and does not account for 16

these retail units.

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The main entrance to the hotel was proposed to be from Blackfriars Road, where a main vehicular drop off and pick up point was to be located, with car park access via Rennie Street.

We summarise the Implemented 261 bedroom hotel as follows: HOTEL4. DEVELOPMENT

Proposed Facilities of Implemented 261 Bedroom Hotel LEVEL FACILITIES Basement -4 Car parking, Plant Basement -3 Car parking, Plant Basement -2 - -1 Loading bay/ deck, Ballroom, Pre-function area Ground Hotel lobby/ lounge, Hotel bar, Plaza entrance Level 1 Plaza Level 2 Pantry, Boardroom, Meeting rooms. Plant, Winter gardens Level 3 - 6 Guest rooms, Pantry, Boardroom, Meeting rooms Level 7 - 23 Guest rooms Level 24 Hotel restaurant Level 25 Swimming pool, Sauna, Gym, Hotel bar Level 26 Spa treatment rooms Level 27 - 48 Residential Level 49 - 50 Sky Deck Source: Ian Simpson Architects

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4. Hotel Development

The majority of the bedrooms would have been an average of 50m², which is typically the room size of a luxury plus hotel.

Hotel and Associated Facilities - Definition

Application Documentation The Planning Statement submitted in support of the Implemented 261 bedroom hotel, states that the Implemented 261 bedroom hotel element comprises 35,348m² (GEA), including associated facilities such as a business centre, spa, wellness centre/gym, restaurants and bars. The ancillary business centre which served the hotel was located in the southern half of the Rennie Street building at levels 2 to 4 located and totalled 1,526m² (GEA). The Environmental Statement also states that the four-level basement would contain ballroom accommodation associated with the hotel, the loading dock, hotel back-of-house space, a vehicular loading bay and servicing facilities for the whole site, car parking and plant. Throughout the application documentation, the Implemented 261 bedroom hotel is described as a “5* hotel” or “of a 5* standard” requiring greater level of staff, as detailed in the „Employment Generation Assessment‟ section of this report. The size of the bedrooms would also lend themselves to five star standard operation. In relation to gaps in London tourism provision, the section on Hotel Use in the

Environmental Statement (3.5.2) states that “the Development, which provides a 5-star hotel 17

and business centre of international quality on a site outside London‟s traditional tourist

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areas, aims to bring these benefits to the residents of LB Southwark and to contribute towards promoting London as a world leader in attracting overseas visitors”.

LB Southwark

In the Officer‟s Report, LB Southwark also describe the Implemented 261 bedroom hotel as HOTEL4. DEVELOPMENT a “5* Hotel” (paragraph 6). In relation to the shortfall in hotel space in LB Southwark, the Officer‟s Report states that “there is a need particularly for high quality accommodation, which this proposal will help to meet. The Jumeirah Hotel will provide a „5-star-plus‟ service and level of quality rarely found elsewhere” (paragraph 37).

Jumeirah Management Agreement We understand that the previous developers of the Site entered into negotiations with Jumeirah relating to the development and management of the components of the Site, which was to comprise a luxury hotel, a Sky Deck, retail and residential units. A primary contractual framework was drafted with Longstop Dates, however, to our knowledge; no actual agreement was signed by the two parties. We are aware that Jumeirah is no longer associated with this Site. Critique - Issues and Comments Set out below is a critique of the Implemented 261 bedroom hotel:  The integration of the hotel in the main tower provides some opportunities to create an iconic hotel with great views over the Thames and the City of London. Nevertheless, there are important drawbacks which are important to consider, including higher construction costs, inefficient floor plan layouts for servicing guest rooms and operational difficulties.

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4. Hotel Development

 The main entrance to the hotel was to be from Blackfriars Road, opposite the new Blackfriars south station entrance which opened in February 2012. The plans show that there will be retail units situated adjacent to a public plaza located within a raised podium level. This would provide the hotel with good visibility and access.  Access to the loading bay for deliveries would be from Upper Ground to the north side of the site. Upper Ground is a narrow one way street heading in a westerly direction and runs parallel to Stamford Street. Access to Upper Ground is limited to vehicles travelling north along Blackfriars Road which is a dual carriageway; due to a central reservation vehicles travelling south are unable to turn right into Upper Ground which may provide operational difficulties specifically regarding deliveries.  Pedestrian access to hotel facilities is limited to an entrance off Blackfriars Road. It is our opinion that this limits the opportunity to exploit and enhance the Stamford Street frontage.  The Ballroom is located on basement level two along with the pre-function space and cloakroom. This pre-function space is limited and it is likely to suffer from overcrowding when catering for large functions and conferences.  A Sky Deck is located on the top two floors of the proposed tower. The feasibility of the Sky Deck is questionable as to the management of the platform operation. Based on our experience hotel operators are not experienced enough to take on such a mandate

and are generally not interested to do so.

Another important consideration is security concerns relating to a public Sky Deck in a Page

tower containing hotel and residential uses. We expect that the security measures

necessary to protect hotel patrons and residents would impede the operation of the hotel and would be a further deterrent to a potential operator.

Critique - Summary 4. HOTEL4. DEVELOPMENT As highlighted above there are a number of issues that question the operational efficiency and viability of placing the hotel within the Tower. During the recent economic downturn, hotel operators/investors have sought to improve operational efficiencies and therefore profitability of property. The Implemented 261 bedroom hotel includes all the prerequisite facilities that a luxury hotel of this scale would require, but compromises have been made that we believe are detrimental and would raise issues with a luxury operator.

PROPOSED 152 BEDROOM HOTEL The Proposed Development retains a mix of uses similar to the Implemented 261 bedroom hotel with high-end residential located within the tower and a Proposed 152 bedroom hotel and retail located within the standalone Rennie Street Building. Significant improvements have been made to public realm which has been re-provided at ground level. A new civic space has been created through Blackfriars Place and this provides opportunity for spill out seating and activity. The Proposed 152 bedroom hotel is to be six storeys. The Proposed 152 bedroom hotel provides ancillary facilities at ground floor level, including restaurant /bar and reception area with further guest amenities and back of house functions located over three basement levels. Hotel guest rooms are located over 5 upper floors. The location of a restaurant/bar and entrance lobby at ground floor level will serve to activate Rennie Street and Upper Ground and will also provide vitality to the new civic square which is being created at the heart of the development. The Proposed 152 bedroom hotel has been tailor made for the upscale/lifestyle market in terms of

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location, facilities and number of rooms which we comment on as follows. By way of comparison we also define boutique hotels below as we envisage that the Proposed 152 bedroom hotel will represent a similarly high quality operation.

Boutique/Lifestyle Market Boutique hotels can be described as design-orientated hotels that intend to provide a unique, personalised experience for visitors. Due to the demands of providing a personalised, high quality service for visitors, these hotels typically provide circa 100 rooms, with larger scale versions generally referred to as „lifestyle‟ hotels. Due to the whole concept of a boutique/lifestyle hotel being its individuality and separation from standardised chains of hotels, certain measures are undertaken in order to differentiate it from other hotels. One way this is achieved is through the involvement of a leading designer in the initial planning stage. Another way this is attained is through the involvement of restaurateurs, who treat the food and beverage operations within a hotel as a business within its own right; as opposed to hoteliers who typically treat it as an auxiliary service for visitors. Consequently, signature restaurants and reputable bars are now commonplace within boutique/lifestyle hotels. These attract visitors in addition to hotel guests. Despite the current economic climate, interest in boutique/lifestyle hotels remains strong; with new investors and existing hotel operators alike keen to enter the sector. The sector

has become an established area within the hotel industry, with a recent report by HVS*

highlighting that boutique/lifestyle hotels have outperformed competing corporate chains, Page

especially during the recession.

International chains have typically produced standardised hotels for customers wishing to attain the comforts of a familiar environment in unfamiliar locations; however, visitor trends have evolved and customers are now seeking an authentic, personalised experience. This

has led to leading international hoteliers entering the market, usually through joint ventures HOTEL4. DEVELOPMENT with renowned fashion houses and leading designers. Existing hotel chains that have entered the sector include the „W‟ range by Starwood, „Edition‟ by Marriott and „Hotel Indigo‟ by InterContinental Hotels Group Within the London hotel market, the following table lists the recent and anticipated openings for boutique/lifestyle hotels:

* Boutique Hotels Segment: The Challenge of Standing Out From The Crowd - September 2011

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HOTEL ADDRESS ROOMS OPENING DATE BRAND/AFFILLIATION W London Leicester Square 192 February 2011 W Hotels Eccleston Square Pimlico 39 May 2011 Design Hotels Hotel 45 Park Lane Mayfair 46 September Dorchester 2011 Collection Belgraves Belgravia 85 September Thompson 2011 Hotels Aloft London Excel Excel 252 October 2011 Aloft by Starwood Dorset Square Marylebone 37 January 2012 Firmdale Hotels Hotel Hotel Indigo The City 38 January 2012 Indigo (IHG) Cannon Street Hotel Indigo The City 43 January 2012 Indigo (IHG) Philpot Lane Hotel Indigo Kensington 51 January 2012 Indigo (IHG) Kensington City Road Hotel Hackney 247 January 2012 Soneva

Properties

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ME London Holborn 173 January 2012 ME by Melia

Bulgari Hotel Knightsbridge 85 March 2012 Bulgari by Ritz- Carlton The Great Kings Cross 93 November /

Northern Hotel 2012 4. HOTEL4. DEVELOPMENT 8 Balderton Street Mayfair 75 January 2013 Corbin and King Hotels London Edition by Central London 190 January 2013 Edition by Marriorr (Ex- Marriott Berners) South Place Hotel The City, EC3 80 June 2013 D & D Willow Street Shoreditch 146 June 2013 / Hotel Ham Yard Hotel Soho 92 June 2013 Firmdale Hotels

Source: HVS Research According to a report published by HVS in September 2009, the boutique/lifestyle sector within London will double in terms of rooms available by 2013; effectively making it the fastest growing sector within the hotel industry.

Proposed 152 Bedroom Hotel The main hotel entrance and vehicular drop off point will be located on Upper Ground. The hotel will also be situated adjacent to the new civic square called Blackfriars Place and will benefit from visibility off Blackfriars Road. Whilst the Proposed 152 bedroom hotel is

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not located within The Tower, it will still benefit from being associated with an iconic architectural development, with high visibility across London. We provide a summary of the hotel‟s facilities as follows:

Proposed Indicative Facilities of Proposed 152 Bedroom Hotel

ROOM SIZE Level Facilities 23-25m2 26-34m2 35-40m2 41m2+ TOTAL Basement 3 Plant, Maintenance, Car lift. Basement 2 Plant, Maintenance, Hotel Bin Store, Car Lift, laundry, Basement 1 Conferencestaff locker rooms,reception staff lounge, canteen, conference bicyle store. rooms, Ground Floor Reception,gym, spa, kitchen, Restaurant/Bar, staff offices, Bar/Servery plant rooms. Kitchen, Upper Ground Floor GuestStores. Bedrooms 20 3 1 0 24 Upper Level 1-3 Guest Bedrooms (x 3) 5 22 1 5 99 Upper Level 4 Guest Bedrooms 5 18 1 5 29 TOTAL Guest Bedrooms 40 87 5 20 152 Out of the 152 guestrooms, approximately 20 will be of a size suitable for suites and that 74% of the room stock will have a net internal area over 26m2 ideally suited to an upscale/lifestyle operation. The majority of the rooms will be located on floors 1-4 with 24 rooms on the Upper Ground Floor. On Basement Level 1 business conference facilities are planned together with a spa and gym for hotel guests. The meeting room provision will enable the hotel to attract both corporate and bespoke conference business. The ground floor provides the main hotel

reception (facing towards Upper Ground), as well as a restaurant and a bar, opening up

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onto Blackfriars Place and Rennie Street.

Basement levels 1 and 2 contain back of the house areas including offices, laundry, main kitchen and a staff canteen. Basement 3 will provide more plant and back of house areas. We have assumed that all the guest rooms are fully air conditioned and have the usual

amenities necessary for a design led hotel. Equally, we have assumed that all the HOTEL4. DEVELOPMENT conference space will be fully air conditioned and provide all the necessary technical, IT and lighting equipment required for the modern conference market.

Critique - Issues and Comments Set out below is a critique of the Proposed 152 bedroom hotel:  The biggest change from the existing to the Proposed 152 bedroom hotel is that the Proposed 152 bedroom hotel is situated in a separate building for the hotel as opposed to the hotel occupying parts of the main tower. This revision will provide significant reductions in construction costs (less complex architecture) and greatly improves operational efficiency of the hotel. Servicing a hotel, including housekeeping, is more cost efficient and faster for a building that can accommodate standardised “room bays”. Hotels are typically built on a grid system, with one cell making up a room bay. Having a uniform layout of rooms per floor brings significant operational benefits in the running of the hotel. The Proposed 152 bedroom hotel adopts this design approach, as illustrated in the following architectural plan.

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Proposed 152 Bedroom Hotel – Typical Illustrative Floor Plan

Source: Ian Simpson Architects Limited  In contrast to the Implemented 261 bedroom hotel, the location of the loading and delivery bay on Rennie Street provides much better access, and enhances operational efficiency with regard to deliveries, whilst also providing a greatly enhanced frontage onto Rennie Street and Upper Ground.  The refurbishment and redevelopment of Kings Reach Tower on the opposite side of Rennie Street will provide a strong synergy with the Proposed 152 bedroom hotel and will enhance the potential for passing trade.  The illustrative architectural plans for the Proposed 152 bedroom hotel show new landscaped pedestrian routes from Rennie Street, Stamford Street and Blackfriars Road

onto a new central area of public realm known as Blackfriars Place. Blackfriars Place

will be at the heart of the development connecting the hotel complex with the main Page

tower as well as providing excellent access to the hotel and retail elements. This will

provide an attractive entrance to the hotel from various access points and improve the street appeal of Stamford Street and Rennie Street.  The provision of retail space at ground floor level of a separate podium block and the

double frontage of the restaurant/ bar situated at ground floor level will enhance the HOTEL4. DEVELOPMENT activity and vitality of the area and will increase the potential for passing trade.  In expectation of a corporate led target market for the hotel, based on its location and anticipated business mix, it is important to offer sufficient amenities and services for this clientele. We are of the opinion that the number and size of meeting and conference rooms combined with the proposed ancillary space ensures that the hotel will generate strong corporate demand.  Room sizes between 26 to 45 sq m provide a suitable range for upscale/lifestyle operators. Room sizes in this range are of a good comparable size to other upscale/ lifestyle hotels in London and are suitable for both corporate and leisure markets. The proposed concept of the Proposed 152 bedroom hotel is upscale/lifestyle. According to a report by HVS (a hotel consultancy company) published in 2011, the lifestyle genre distinguishes itself from the more traditional offering by providing a more personalised experience in a contemporary and design orientated environment. Examples of established brands in this sector are W by Starwood and Andaz by Hyatt (see Appendix H). As such, public areas, such as restaurants, bar and lobby are important focus points, intended to draw in guests. The Proposed 152 bedroom hotel provides such areas and they benefit from being located in close proximity of a high quality civic square. We provide in the following table an example of lifestyle operators and brands (including several boutique hotel operators by way of comparison). Some of these are private companies whilst others are brands which are managed by large international hotel

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companies. We are of the view that there would be strong demand for the Proposed 152

bedroom hotel from such operators.

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4. HOTEL4. DEVELOPMENT

Source: CBRE Hotels Research Further information including example images of these brands is attached as Appendix H. We comment further on some of these as follows:-  Marriott are developing a new upscale/lifestyle brand called Edition. They are currently redeveloping a building on Berners Street in the West End to open as their first Edition hotel in London.  Hyatt are keen to develop further hotels in London.

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 Firmdale Hotels are a well established and successful upscale boutique operator. Their hotels in London include the Charlotte Street Hotel, Soho Hotel and Haymarket Hotel. They are also developing a new hotel at Ham Yard close to Piccadilly Circus. They have recently opened their first hotel in New York.  Accor who also operate the Novotel, Ibis and Sofitel brands have MGallery as their design led brand. Their first hotel is London as part of the M Gallery collection has recently opened at the St Ermin‟s Hotel at St James‟.  The Eton Collection operates five star boutique hotels including Threadneedles in the City of London close to Bank underground station and The Glasshouse in Edinburgh.  Starwood Hotels operate numerous hotel brands including W Hotels, Sheraton, St Regis, Le Meridien and Westin Hotels. Aside from W Hotels their upscale/lifestyle brand they also operate Aloft which is their mid market design led hotel. The first Aloft hotel in London recently opened at ExCel in the Royal Docks.  InterContinental Hotels Group (IHG) operate the InterContinental, Crowne Plaza and Holiday Inn brands, among others. They are currently aggressively developing their Indigo lifestyle brand and operate two in London at Paddington and near Tower Hill with further projects under development in the City and Kensington. We attach in Appendix H images and the ethos of some of the hotels outlined above to

highlight their individual style and high quality product.

Critique – Summary

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The Proposed 152 bedroom hotel addresses a number of the operational inefficiencies and difficulties highlighted within the Implemented 261 bedroom hotel. The Proposed 152

bedroom hotel is to be built as a standalone building and to a specification consummate DEVELOPMENT with an upscale/lifestyle product. Operational efficiencies are increased due to enhanced

design of the hotel floor plate and back of house areas. Overall the Proposed 152 HOTEL4. bedroom hotel is designed in a way to attract demand from both the corporate and leisure sectors and also offer food and beverage facilities that enhance the street scene of the area.

CONCLUSION  The build cost of a luxury hotel, especially one that is to be located in a tower, is extremely high in comparison with an upscale/lifestyle hotel located within a standalone mid rise block. The Implemented 261 bedroom hotel adds a further dimension of being inefficient in its layout. In comparison the Proposed 152 bedroom hotel is to be built in a self contained building, with a better operational layout and thus benefits from lower construction costs and greater efficiencies.  The planned average size of the bedrooms at 29 sq m are likely to be too small for a luxury operator, but would suit a upscale/lifestyle operator and suit the requirements of the local market (both corporate and leisure).  The number of rooms, layout of the Proposed 152 bedroom hotel and ancillary facilities on offer lead us to conclude that the Proposed 152 bedroom hotel would therefore be attractive to lifestyle hotel operators in the current market.  We are of the opinion that an upscale/lifestyle hotel would be suited to the LB Southwark market. The art galleries, Tate Modern, theatres, Borough Market, vibrant restaurants and bars in addition to the close distance of other tourist attractions would

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marry well with such a hotel offering and would complement the wider regeneration plans of the Borough.  Viewing Lounge on the 32nd Floor within The Tower will be provided which will provide a unique facility with outstanding views of London for residents of The Tower, the local community and also hotel guests of the Proposed 152 bedroom hotel.  The location of the loading and delivery bay on Rennie Street provides better access and enhances operational efficiency with regards to deliveries.  In addition to the „fit‟ between a lifestyle hotel and the evolving arts and cultural nature of the South Bank area, the destination nature of restaurant and bar areas normally associated with such hotels, will further complement the setting of the residential and

retail around the new civic square.

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4. HOTEL4. DEVELOPMENT

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5. Economic Impact

INTRODUCTION In the following section we assess the economic benefit to the area of building a hotel at the Site.

ECONOMIC IMPACT To measure the benefits of a project to the local economy and its economic impact we have assessed how a hotel can support the local economy in different ways. Economic benefits include guest expenditure within the hotel and within its surrounding environment, such as shops, bars, restaurants and museums, etc. Other benefits include commissioning local suppliers and job creation. For the purpose of this analysis we estimate that benefits of commissioning local suppliers are similar between the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel. However, in terms of spending by hotel guests in the local area, we are of the opinion that there are noteworthy differences between the two. To illustrate these differences, we have created typical guest profiles for each proposal and target market based on our experience and knowledge of the local hotel market: Corporate Guests  Luxury (Implemented 261 bedroom hotel)

Based on the usual profile of corporate travellers in the luxury segment, we expect that

the vast amount of this demand will come from senior executives and high profile 26

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business representatives. Whilst they have a large budget and are generally price-

insensitive, their trips are meticulously planned with little spare time in between meetings. Meetings are usually scheduled in the City of London, West End and Canary Wharf where most major international companies are based. Evening meals are also

likely to take place in these locations. Therefore, guests would only spend a minimum ECONOMIC5. IMPACT amount of time in the local area in LB Southwark, which limits spend in the hotel‟s vicinity and local Borough.  Upscale/Lifestyle (Proposed 152 bedroom hotel) The typical corporate guest in the upscale/lifestyle segment can be classified as middle to senior manager, frequently travelling on business. The choice of hotel will be predominantly influenced by the location of scheduled meetings, which would include the office buildings within LB Southwark, Midtown and the City of London. The types of local companies also lend themselves to design led operations. These guests are also more likely to use restaurants in the direct vicinity. In general, research has shown that “one business tourist is worth at least three times the amount of one leisure tourist in employment and economic terms” (ICC Commission Report, 2005). Business visitors‟ spend benefits many parts of the economy as well as hotels and travel services, such as retail, restaurants and entertainment facilities. The typical spend of a business traveller ranges from £355 to £550. As such, the corporate traveller is very important in terms of economic benefit to the local area. Due to the likely corporate guest profile of the Proposed 152 bedroom hotel, there is likely to be more expenditure by guests in the local area compared to guests staying at the Implemented 261 bedroom hotel. Consequently, the Proposed 152 bedroom hotel will in some respects provide more economic benefits to the local vicinity.

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Leisure Guests  Luxury (Implemented 261 bedroom hotel) In the high-end leisure market, there is a strong interdependency between the ancillary offering in the hotel‟s immediate surroundings and the hotel guests. Typical guests of a luxury hotel spend money in those areas where they can find their preferred brands, retail outlets, restaurants, bars and other establishments. As previously outlined in this report the local offering lacks luxury retail and high-profile restaurants in comparison with the West End, specifically Mayfair and Knightsbridge. Hence, guests staying at a luxury hotel in this location are more likely to spend money outside the Borough. This reduces the economic benefit per guest which the Borough can anticipate from the Implemented 261 bedroom hotel.  Upscale/Lifestyle (Proposed 152 bedroom hotel) The typical leisure guest profile of an upscale/lifestyle hotel is slightly younger with a greater interest in art and cultural events and typically seeks new and authentic experiences. As such, LB Southwark and the Southbank have many attractions and offerings that are relevant and attractive to the guest profile. With its museums, art galleries, restaurants and bars, the area is becoming a “lifestyle” hub, supported by the Borough‟s regeneration plans and the additional hotel supply (e.g. Mondrian Hotel – Sea Containers House). As such, we are of the opinion that LB Southwark provides an ideal environment for the typical leisure guest profile and creates numerous

opportunities for hotel guests to spend money in the local area.

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Based on our analysis, we are of the view that the Proposed 152 bedroom hotel and the

typical guest profile is more suited to the local context than guest profiles for a luxury hotel. As a result, we anticipate that the economic benefit for the local economy per leisure guest

is higher with the Proposed 152 bedroom hotel. 5. ECONOMIC5. IMPACT HOTEL EMPLOYMENT BENEFITS We have also assessed the likely employment benefits of the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel. The Implemented 261 Bedroom Hotel The Environmental Statement submitted in support of the Implemented Permission identifies that the Implemented 261 bedroom hotel would have generated approximately 209 jobs based on an employment density of 0.8 employees per room. The Implemented Permissions‟ Planning Statement suggests that the 5* standard of the hotel would require a greater level of staff provision than most hotels and that it was anticipated that it would cater for a wide range of professions, including cleaners and porters, chefs and waiters, hotel management and sales. It was also acknowledged that there would be support for local training and employment initiatives where possible. The Proposed 152 Bedroom Hotel In comparison, the Proposed 152 bedroom hotel will generate approximately 122 jobs based on a slightly lower employment density of 1.25 employees per bedroom (HCA Employment Density Guide 2010 for 4 to 5 star hotels). However, as per the Implemented 261 bedroom hotel, given the retained high quality offer of the hotel, it will continue to generate a wide range of professions as identified above.

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As per the Implemented Permission it is envisaged that this development will support local training and employment initiatives both during the construction and operational phases of development. The development will also continue to offer a number of high quality publically accessible facilities including the re-provision of complimentary ancillary uses such as a conference facilities, restaurant and bar. Overall, the development will continue to provide the opportunity for a range of employment benefits and high quality ancillary facilities, including the creation of the new civic square that will benefit the local economy and population. The wider regeneration benefits of the proposals, including an analysis of the overall employment benefits of the development are included in the Regeneration Statement.

CONCLUSION Whilst the delivery of the Proposed 152 bedroom hotel is estimated to have a staffing level of 122 (slightly less than the earlier Implemented 261 bedroom hotel), the range of jobs, local economic multipliers and wider regeneration benefits from the Proposed 152 bedroom hotel are clearly additional factors that weigh in favour of the development. Whilst employment opportunities are lower in the Proposed 152 bedroom hotel compared to the Implemented 261 bedroom hotel we are of the opinion that the overall positive economic impact for the area is likely to be greater with the Proposed 152 bedroom hotel

due to the guest profile.

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The Proposed 152 bedroom hotel is to be positioned within the upscale/lifestyle

classification and therefore much more accessible to middle to senior management in respect to corporate client base and to a younger more trendy leisure market. Luxury hotels tend to appeal to high net worth individuals or very senior management who either frequent

areas such Knightsbridge and Mayfair and therefore are unlikely to frequent the local area ECONOMIC5. IMPACT attractions.

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6. Viability of Implemented 261 Bedroom Hotel

INTRODUCTION In this section, we look at hotels in close proximity to the Site which we believe will provide direct competition to the Implemented 261 bedroom hotel. Our analysis is based upon current bedroom performance indicators of occupancy, average daily rate (ADR) and room revenue per available room (RevPAR). We further comment on the future competitiveness of the Implemented 261 bedroom hotel, high level projections, indicative value and commentary of construction costs.

ASSUMED COMPETITIVE HOTELS The Implemented 261 bedroom hotel was to be positioned within the luxury end of the market, based upon branding and envisaged product quality. As such the following section assesses the performance of hotels, assumed to be competitive, that are positioned within this luxury banding. These are shown on the map below:

Location Map

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HOTEL EMENTED261 BEDROOM One Blackfriars

Source: Google Maps 6. VIABILITY OFVIABILITY 6. IMPL HOTEL MAP REF STAR RATING NUMBER OF ROOMS Andaz Liverpool Street 1 5-star 267 Corinthia Hotel 2 5-star 294 Chancery Court Hotel 3 5-star 355 One Aldwych 4 5-star 105 Fairmont The Savoy 5 5-star 268

In the following section we provide a brief overview of these hotels:

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is Hyatt‟s five star boutique/design led hotel concept. The hotel has numerous food and beverage outlets as well as 13 meeting rooms, gym and treatments rooms. Although situated northeast of Blackfriars Bridge and the City, it will provide strong competition due to its design led facilities and close proximity to corporate demand generators.

The Corinthia The Corinthia hotel opened in May 2011 in a renovated Victorian building located between Trafalgar Square, Westminster and Covent Garden. The hotel has 251 guest rooms (averaging 42 sq m in size) and 43 suites. There are also six meeting rooms and an ESPA spa spanning 3,300 sq m, including 17 treatment rooms. The hotel features two restaurants led by award winning chefs. The Corinthia is managed by CHI Hotels & Resorts, a Maltese hotel operator in the luxury segment. The hotel‟s easy access to the main tourist attractions in the West End and corporate centre

of both City of London and Mayfair positions the hotel well to attract high end leisure and

corporate segments.

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HOTEL

EMENTED261 BEDROOM

The Chancery Court Hotel

The Chancery Court Hotel is located within a Grade II listed Victorian building in Holborn. OFVIABILITY 6. IMPL The entrance is situated within an attractive a courtyard and provides good privacy for its customers. The Chancery Court used to be managed by Marriott International under the Renaissance brand before it was de-flagged in 2011. The current hotel comprises 355 guestrooms and suites decorated in a traditional style. The hotel also provides 22 meeting rooms and an award winning day spa. The hotel is currently undergoing refurbishment and will become a 300 bedroom luxury hotel operated by Rosewood Hotels and Resorts. This property will compete strongly in the luxury segment. Located in Midtown providing easy access to the City and West End, The Chancery Court Hotel attracts both corporate and leisure visitors due to its proximity to the City and West End.

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One Aldwych One Aldwych is situated in an Edwardian listed building that was built in 1907. The hotel comprises 105 guestrooms and suites, Axis restaurant, private screening room and boasts many leisure facilities, including a chlorine-free swimming pool with underwater music, health club and spa. One Aldwych is affiliated with the Leading Hotels of the World consortium. It was also one of the first lifestyle hotels in London. The hotel is located close to Covent Garden, providing easy access to the City and the West End. Catering for both corporate and leisure visitors and positioned strategically between Theatreland and the financial district, we are of the opinion that this hotel would provide competition towards the Implemented 261 bedroom hotel in terms of accommodation and location.

Fairmont, The Savoy The Savoy, one of London‟s legendary hotels, re-opened in 2010 after nearly three years of renovation, having spent more than £220 million. The Art Deco/English Edwardian themed

hotel features 268 guest rooms and nine “personality suites” furnished after iconic historic

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figures. There are a number of meeting and event rooms available as well as a Health

Club and wet facilities. The restaurant Savoy Grill hosts celebrity chef Gordon Ramsay

whilst the two bars are specialised in fine Champagne and classic cocktails. The Savoy is HOTEL managed by Fairmont, an established hotel operator in the upscale market, based in Canada.

The location of the Savoy at the Strand, together with its historic brand, near London‟s EMENTED261 BEDROOM Square Mile and the River Thames, allows the hotel to capture strong corporate and leisure

demand. 6. VIABILITY OFVIABILITY 6. IMPL

Rate Comparison

WEEKDAY RATE WEEKEND RATE Andaz Liverpool Street London £ 260.00 £ 90.00 Corinthia Hotel London £ 340.00 £ 330.00 Chancery Court Hotel* £ 270.00 £ 200.00 One Aldwych Hotel £ 300.00 £ 275.00 Fairmont The Savoy £ 400.00 £ 350.00 CBRE Hotels Research Unless otherwise indicated, the rate displayed refers to the best available rate for a double room, exclusive of tax, as displayed on the hotel’s own website as of 31/02/12. The rate dates chosen were 21/02/12 – 22/02/12 (Weekday) and 25/02/12 – 26/02/12 (Weekend).

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* Currently independently operated – rates are expected to increase significantly under Rosewood Management. We comment as follows:  The Savoy is the clear ADR leader in the competitive set with a weekday rate of £400 and a weekend rate of £350.  The Andaz Liverpool Street suffers in rate due to its City location (especially at weekends) and the longest distance between the hotel and the West End/Mayfair; areas that generally command a high room rate premium.  The Corinthia hotel is still in its opening phase and we expect this rate to improve as it establishes itself in the market place.

Future Hotel Supply In order to assess hotel projects which are currently being developed or planned and which may become competitive to the Implemented 261 bedroom hotel, we have made enquiries with London & Partners which monitors the developments of new hotels across various boroughs in Central London. In our locational appraisal we listed, together with existing, new hotels within the area surrounding the Site. Whilst it is likely that all new upper upscale and luxury hotels would compete to some extent with the Implemented 261 bedroom hotel at the Site, we summarise below the hotels which we believe would be of greatest

competitive threat.

The Shard

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The Shard, located directly adjacent to London Bridge

Station, is currently under construction. Developed by HOTEL Sellar, on behalf of LBQ Limited, the Shard will be the tallest building in Western Europe at 310m. Totalling 83,000 sq m, the mixed use development will feature

54,000 sq m of grade A office space alongside a 5 EMENTED261 BEDROOM Star Shangri-La Hotel and Spa and residential apartments as well as a major public viewing gallery.

The 195 bedroom hotel is expected to open in 2013 and given its envisaged market OFVIABILITY 6. IMPL position and branding would represent a very strong competitive threat to the Implemented 261 bedroom hotel. Its location, close to More London and the City will enable it to secure strong corporate demand. Hilton Bankside The Hilton Bankside at Bear Lane has recently being sold and construction is due to restart with a likely completion and opening in 2014. The 280 bedroom hotel is to be developed to Hilton brand standards and comprises restaurants, bars, meeting rooms, fitness centre with indoor swimming pool and spa treatment rooms. It is considered to be competitive relevance due to its branding and location, although it will be developed to a different style and standard of accommodation.

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It will have 280 bedrooms and based upon its brand the hotel will attract corporate demand through its facilities, international branding and proximity to the City. Its location close to the South Bank, Tate Modern and ease of access to other parts of London will help secure leisure demand throughout the year.

Sea Containers House Proposals to refurbish Sea Containers House in London's Southbank have recently been approved by LB Southwark's planning committee. Developer Archlane plans to undertake major internal and external refurbishment of the existing building together with the construction of a nine- storey block in the rear parking area which will provide retail space at ground level and office space at higher levels. During the refurbishment, 13 floors of current office space will be converted to provide a 365-bedroom hotel. Archlane also has permission to create a new roof extension from the 12th floor to provide a new bar for the hotel's use. The hotel is to be operated by Morgan‟s Hotel Group under the Mondrian brand. As a luxury lifestyle operator in a similar location to the Site, this hotel will be the closest competitor to the Implemented 261 bedroom hotel.

Four Seasons

Heron International has secured planning Page

permission to progress with their development

Heron Plaza, situated in the heart of the City of London and is just 152m from Liverpool Street HOTEL Station. The development is to include a Four Seasons Hotel and Residences London and will be a

major landmark within the City of London. EMENTED261 BEDROOM The 43 storey tower will comprise 190 hotel guestrooms/suites and 120 branded residences, state of the art conference and banqueting facilities, top quality meeting and

events space, a gym, spa and swimming pool. The plaza, at the nucleus of the 6. VIABILITY OFVIABILITY 6. IMPL development, will create a new public space animated by shops and cafes. Its location will undoubtedly position it as a leading corporate hotel, but its global brand will enable it to draw demand from all market segments. The branding and position within the luxury market would make this hotel of competitive relevance to the Implemented 261 bedroom hotel.

COMPETITIVE SET PERFORMANCE The following section benchmarks the bedroom performance indicators of the defined competitive set and analyses the weekday/weekend demand and seasonality. The data was provided by STR Global and covers 2005-07 and October 2010 to December 2011. The gap between 2008 and 2010 is due to the closure of the Savoy and therefore insufficient data to produce a benchmark sample. To mitigate this, we will put our analysis in context of the historic performance of other hotels which we have assessed on a confidential basis, hotels which are outside the defined competitive set but have similar traits.

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6. Viability of Implemented 261 Bedroom Hotel

Competitive Set KPIs

300 90.0% 80.3% 71.8% 78.7% 80.0% 250 70.0% 63.4% 200 60.0%

50.0%

£ 150 283.88 40.0% 221.48 232.90 100 209.38 30.0% 177.92 183.37 180.01 150.33 20.0% 50 10.0%

0 0.0%

2005 2006 2007 2011

ADR RevPAR Occupancy (%) Page

STR Global HOTEL OCCUPANCY GROWTH ADR GROWTH REVPAR GROWTH 2005 71.8% 209.38 150.33 2006 80.3% 11.9% 221.48 5.8% 177.92 18.4% 2007 78.7% -2.0% 232.90 5.2% 183.37 3.1% EMENTED261 BEDROOM

2011 63.4% 283.88 180.01

OFVIABILITY 6. IMPL  Last year‟s occupancy level of 63% was low in comparison to London overall and in particular to the luxury segment. According to Tri Hot Stats, the average London hotel with an ADR of £200 (equivalent to luxury market) achieved a yearly occupancy of 79.9%. There are two reasons to explain this significant difference. Firstly, the Corinthia had just opened at the beginning of 2011 and has not yet reached its stabilised performance. Secondly, the hotels in the chosen comp set are in “non- traditional” areas for luxury hotels and not located on Park Lane or in Mayfair. Especially for the luxury hotel market, an inferior location can affect occupancy and trading adversely; as evidenced here with a 17% point difference in occupancy.  ADR at £283.88 represents an increase of 22% compared to pre-recession levels in 2007. However, the addition of the Savoy and the Corinthia pushed room rates much higher than ever before in this particular hotel set demonstrating the resilience of the luxury and overall market. Even though this represents a relatively high ADR, we know from our market knowledge that some of the traditional five-star properties on Park Lane achieve ADRs in excess of £600.

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6. Viability of Implemented 261 Bedroom Hotel

 As a result of occupancy and ADR, RevPAR for 2011 settled at £180.01. This is slightly lower than the results from 2007 and significantly lower than the overall London luxury average of £225.26. It is evident that hoteliers pursued a rate strategy over volume. In Appendix E we provide further analysis of this competitive set of hotels to included weekday/weekend trends and seasonality patterns.

FUTURE COMPETITIVENESS OF HOTEL Above we have listed those hotels which we believe represent the future primary competitive set of relevance for the Implemented 261 bedroom hotel at the Site. In the table below we include these hotels together with future hotels we estimate will provide competition in the City of London and Southbank area. As the hotel supply in the area grows and the Implemented 261 bedroom hotel opens, those hotels located further a field will become less competitive. We present in the table below the number of competitive bedrooms in the market of relevance over the next ten years, including existing and future operations.

NUMBER OF DAILY ROOMS AVAILABLE Hotels 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Current Supply Corinthia Hotel London 294 294 294 294 294 294 294 294 294 294 294 Fairmont Savoy 268 268 268 268 268 268 268 268 268 268 268 One Aldwych 105 105 105 105 50 50 50 50 50 50 50 Andaz Liverpool Street 267 267 267 100 100 100 100 100 100 100 100 London Chancery Court 355 355 355 355 355 355 305 305 305 305 305

New Supply

One Blackfriars 261 261 261 261 261

The Four Seasons, Heron Tower 80 80 80 80 80 80 80 35

Shangri-La, The Shard 195 195 195 195 195 195 195 195 195 Page The Hilton, Tate Modern 280 280 280 280 280 280 280 280

Sea Containers House 360 360 360 360 360 360 360 360

Total Daily Rooms Available 1,289 1,289 1,484 1,957 1,982 1,982 2,193 2,193 2,193 2,193 2,193 Growth in Supply 0.0% 15.1% 31.9% 1.3% 0.0% 10.6% 0.0% 0.0% 0.0% 0.0% ROOMHOTEL Source: CBRE Hotels Estimates

We comment as follows: EMENTED261 BED  As new comparable hotels open nearby in the future we have reduced the competitiveness of some of the existing supply, especially those located further afield or

within the upscale bracket. As such we have reduced the competitive nature of The OFVIABILITY 6. IMPL Andaz and One Aldwych hotels.  Of the proposed new supply of hotels (including refurbished supply) that are considered relevant (as stated in table above), not all will compete directly. We have therefore assumed that only 50% of Four Seasons room stock would be considered competitive to the Implemented 261 bedroom hotel.  We are aware that the Chancery Court Hotel is currently undergoing major refurbishment worth £80 million to uplift the hotel to a high end luxury product, directly competing with the likes of the Savoy or the Dorchester. Under the Rosewood brand, the hotel is to reduce its room count to 305. As such, the Chancery Court will become more competitive to the Implemented 261 bedroom hotel, which we have reflected in our future competitiveness analysis.

Market Growth Our assessment of demand for the Implemented 261 bedroom hotel is based upon our analysis of the competitive set of hotels of relevance as well as taking into account our projections of growth for the London market as detailed in Appendix C. Based on historic

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trends for the various demand segments, the state of the local and national economies, and conversations with local hotel operators in the marketplace, the applicable demand segments are projected to exhibit the following growth trends.

Future Growth in Primary Competitive Hotels of Relevance Segment 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Rack Rate 41,760 46,771 51,449 56,593 59,423 61,206 62,430 62,430 62,430 62,430 62,430 % Change 12.00% 10.00% 10.00% 5.00% 3.00% 2.00% 0.00% 0.00% 0.00% 0.00%

Corporate 119,315 143,178 164,655 222,284 244,512 261,628 277,326 285,646 291,358 294,272 294,272 % Change 20% 15% 35% 10% 7% 6% 3% 2% 1% 0%

Conference and Incentive 35,794 37,584 40,591 46,680 49,014 50,484 51,999 53,038 53,569 54,105 54,105 % Change 5% 8% 15% 5% 3% 3% 2% 1% 1% 0%

Leisure/Other 101,418 116,630 128,293 166,781 183,460 196,302 208,080 211,201 213,313 215,446 215,446 % Change 15% 10% 30% 10% 7% 6% 2% 1% 1% 0%

Total 298,287 344,164 384,988 492,338 536,409 569,620 599,834 612,315 620,670 626,253 626,253 % Change 15% 12% 28% 9% 6% 5% 2% 1% 1% 0%

Daily Supply 1,289 1,289 1,484 1,957 1,982 1,982 2,193 2,193 2,193 2,193 2,193

Annual Supply 470,485 470,485 541,660 714,305 723,430 723,430 800,445 800,445 800,445 800,445 800,445

Market Occupancy % 63.4% 73.2% 71.1% 68.9% 74.1% 78.7% 74.9% 76.5% 77.5% 78.2% 78.2% Source: CBRE Hotel Estimates

We comment as follows:

Our assumed growth percentages, over the next ten year period, are based upon our 36

. Page

research of the local and wider area, to include future hotel, commercial and

infrastructure developments that are likely to increase hotel demand. We have also

taken into consideration other events happening in London over the period, such as the HOTEL hosting of the Olympic Games in 2012. Finally we have also been cognisant of the likely development of the global and domestic economy and the recovery period from

the current recession over the next few years. EMENTED261 BEDROOM . Compared to the 2011 average occupancy for the luxury London hotel market of 79.9%, the competitive market performed at a relatively low occupancy of 63.4%. This

is due to the opening of the Corinthia Hotel, which was still in its opening phase. Going 6. VIABILITY OFVIABILITY 6. IMPL forward, we anticipate a steady increase in occupancy to 73.2% until 2013, reflecting the increased demand whilst room supply remains unchanged.

. In 2014, total daily room supply will increase from 1,289 to 1,957 due to the opening of the Four Seasons Heron Tower, The Hilton Tate Modern and Sea Containers House as a Mondrian Hotel. As a result, we expect occupancy to decrease to 68.9%.

. An additional increase of supply in 2017 (the assumed opening year of the Implemented 261 bedroom hotel) will further have an effect on occupancy.

. Given London‟s strong corporate and continued leisure demand, we expect that the market will absorb the new hotel supply quickly, lifting occupancy to 78.2%. Many new competitors will also bring their own demand (induced demand), providing a further boost for occupancy. There is no doubt that London will retain its position as one of the leading global financial centers and a must see destination for the leisure traveller. We are therefore of the opinion based upon the above and the information presented in our market demand sectors that hotels within our assumed markets of competitive relevance will continue to attract demand from all markets discussed. Whilst the areas, which the competitive hotels are located in,

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6. Viability of Implemented 261 Bedroom Hotel

are home to many of London‟s top tourist attractions, the level of business activity and the ease of travelling to the City will result in the corporate sector remaining the dominant generator of room night demand. A detailed analysis of the likely demand generators for the Implemented 261 bedroom hotel is detailed in Appendix E and provides the back up to our estimations of occupancy.

Penetration Analysis and Occupancy

Segment 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Rack Rate 5,944 6,093 6,390 6,538 6,538 Projected MPI 0.80 0.82 0.86 0.88 0.88 Displaced/Created Demand Rooms Sold 5944 6093 6390 6538 6538 Adjusted MPI 0.80 0.82 0.86 0.88 0.88

Corporate 29,045 30,597 31,902 33,272 33,272 Projected MPI 0.88 0.90 0.92 0.95 0.95 Displaced/Created Demand 210 315 525 630 630 Rooms Sold 29,255 30,912 32,427 33,902 33,902 Adjusted MPI 0.89 0.91 0.94 0.97 0.97

Conference and Incentive 4,951 5,176 5,483 5,602 5,602 37

Projected MPI 0.80 0.82 0.86 0.87 0.87 Page Displaced/Created Demand 630 735 945 1050 1050

Rooms Sold 5,581 5,911 6,428 6,652 6,652

Adjusted MPI 0.90 0.94 1.01 1.03 1.03 HOTEL Leisure/Other 20,802 21,366 22,849 24,103 24,103 Projected MPI 0.84 0.85 0.90 0.94 0.94 Latent demand 1095 1278 1460 1825 1825 Rooms Sold 21,897 22,643 24,309 25,928 25,928

Adjusted MPI 0.88 0.90 0.96 1.01 1.01 EMENTED261 BEDROOM

Rooms Sold - One Blackfriars Existing Scheme 62,677 65,559 69,554 73,020 73,020

Available Rooms - One Blackfriars Existing Scheme 95,265 95,265 95,265 95,265 95,265

Resulant Total MPI - One Blackfriars Existing Scheme 0.88 0.90 0.94 0.98 0.98 OFVIABILITY 6. IMPL

Room Occupancy - One Blackfriars Existing Scheme 65.8% 68.8% 73.0% 76.6% 76.6% Source: CBRE Hotel Projections Our assumed penetration analysis takes into account the current and future demand profile of the local hotel market as well as the envisaged hotel‟s position in the market place, its classification and branding recognition.  By the fourth and stabilised year of operation we have projected occupancy of 76.6%, equivalent to approximately 73,020 roomnights sold. On a fair share analysis this is equivalent to 0.98, i.e. below fair share. The hotel, compared to the assumed competitive hotels is located in what we consider to be a weaker location for a luxury hotel, which is why we are of the opinion that it will not be able to perform above its fair share.  We expect the hotel to perform below fair share for one of its main target segments with Corporate at 0.97. However we anticipate the Leisure the Conference and Incentive segments to achieve a performance above fair share at 1.01 and 1.03 respectively, due to the hotel‟s spa and extensive meeting facility offering.

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6. Viability of Implemented 261 Bedroom Hotel

Based upon our assumptions of demand and our understanding of the envisaged positioning of the Implemented 261 bedroom hotel we are of the opinion that occupancy at the subject property will, at first, be below the market but will gradually increase occupancy by the stabilised year but remaining below the market, as illustrated in the graph below.

Occupancy Performance of Market and Proposed One Blackfriars

85.0%

80.0%

75.0%

70.0% Occupancy 65.0%

60.0%

55.0%

2011 2013 2015 2017 2019

Page

One Blackfriars Market

Source: CBRE Hotels Research OTEL

. As with all new hotels, there is a period of build up until the property reaches its stabilised level of occupancy. We have assumed for the Implemented 261

bedroom hotel that this will take four years to achieve.

MENTED261 BEDROOMH E . We have assumed an opening occupancy of 65.8% increasing to a stabilised level of 76.6%. This represents a growth of approximately 10.8% percentage points or

10,343 room-nights. OFVIABILITY 6. IMPL

ROOM RATE POTENTIAL The Implemented 261 bedroom hotel is to be positioned in the luxury market. As previously outlined, it is important to note that LB Southwark is a new location for luxury hotels whilst more traditional areas include Park Lane, Mayfair, Knightsbridge and the West End. With the opening of The Shard in 2013, the Asian luxury hotel operator Shangri-La will be operating the Borough‟s only hotel in the luxury segment. There are, however, notable differences between the new Shangri-La (and the economic climate in which it has been built) and the Implemented 261 bedroom hotel. The Shangri- La, although located in one of London‟s most iconic skyscrapers, was subject to agreement before the last economic recession at which time prospects for the luxury market in particular were very different in comparison with the current economic climate. Over the last two years a large number of five star hotel bedrooms have opened (for example the Corinthia Hotel, W Hotel, Renaissance St Pancras, 45 Park Lane) or re-opened following refurbishment works (The Savoy and Four Seasons) or are due to open over the

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6. Viability of Implemented 261 Bedroom Hotel

next few years (Bulgari, Shrangri-La, Four Seasons Heron Tower and 10 Trinity Square) which has increased supply and competition in this sector. Based on our research and market knowledge, we are of the opinion that the Implemented 261 bedroom hotel would not be able to achieve the same ADR as other well-established luxury hotels in more primary locations. The graph below illustrates the average published room tariffs that hotels in various locations in London achieve:

Geographical Tariff Comparison – Luxury and Upscale Market

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HOTEL

Source: CBRE Hotels Research It is evident that there are significant differences in terms of average tariffs between one

location and another. Particularly in the upscale and luxury market, hotels on Park Lane EMENTED261 BEDROOM are considered as occupying a prime location, closely followed by Mayfair and Knightsbridge. Hotels in these preferred locations can demand substantial room tariff

premiums. As hotels move away from these locations, the tariff that can be achieved OFVIABILITY 6. IMPL reduces. Hence, we consider that a luxury hotel at the Site, will not be able to achieve similar rates to luxury hotels located in prime locations. We have attached as Appendices commentary on the London hotel investment market.

CONSTRUCTION COSTS We have been provided with estimated construction costs for the Implemented 261 bedroom hotel by Davis Langdon which equates to £112 million or £429,118 per bedroom.  We understand that the subject tower is a complex building, which will be finished to the highest standards, hence, the high construction costs. The costs allow for FF&E, but exclude professional fees, contingency and site acquisition costs.

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6. Viability of Implemented 261 Bedroom Hotel

FINANCIAL VIABILITY

 We have been provided with a Valuation Report prepared by Jones Lang LaSalle Hotels (JLL) dated 20th April 2012. This provides a Day One value of the Implemented 261 bedroom hotel of £130 million (£498,000 per bedroom).  The JLL report assumes a higher achievable ADR and slightly higher maintainable occupancy than our projections. However, their valuation of £498,000 per bedroom is reasonable for a luxury hotel in this location, assuming current market conditions.  Our viability appraisal is based upon the JLL valuation.  Davis Langdon has estimated construction costs for the hotel within The Tower of £112 million, which equates to £429,119 per bedroom. These costs include FF&E but exclude professional fees and contingency fees. We have therefore allowed 6% for professional fees and 3% for contingency fees. We have not made an allowance for the site acquisition costs within our appraisal.

Viability Appraisal ITEM AMOUNT £/BEDROOM Gross Development Value (in line with JLL) £130,000,000 £498,000 Less:

Construction Costs £112,000,000 £429,119

Professional Fees @ 6% £6,720,000 £25,747

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Contingency @ 3% £3,360,000 £12,874

Return £7,920,000 (6.1% return) £30,345 HOTEL Source: Cost Estimates provided by Davis Langdon  As outlined in the table above, the value generated by the Implemented 261 bedroom

hotel can only support a return of 6.1% once costs have been deducted. EMENTED261 BEDROOM  A return of 6.1% is someway below market acceptance. For a hotel project, we would expect a developer‟s profit to typically range from 10 – 25% of the gross development

value, depending upon the perceived risk involved in the project. OFVIABILITY 6. IMPL  On the basis of the above we would not expect the majority of developers to proceed with the project. Our findings show that ADR achievable for a luxury hotel in this location will be inferior to those achieved in prime West End locations and hence will have a significant negative impact on value. In addition, the build costs are estimated to be excessively high for a luxury product contained within a tower construction. These combined with additional costs lead us to conclude that the Implemented 261 bedroom hotel is a far less viable and deliverable development at this moment in time when compared to the Proposed 152 bedroom hotel.

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7. Viability of Proposed 152 Bedroom Hotel

INTRODUCTION In this section, we provide an overview of hotels close to the site which we consider will provide the main direct competition to the Proposed 152 bedroom hotel. Our analysis is based upon current bedroom performance indicators of occupancy, average daily rate (ADR) and room revenue per available room (RevPAR). We further comment on the future competitiveness of the Proposed 152 bedroom hotel and market penetration, high level projections, and commentary on the viability of the development (taking construction cost into account).

ASSUMED COMPETITIVE HOTELS As outlined previously, following analysis of the illustrative plans, we consider that the Proposed 152 bedroom hotel would be ideally positioned within the upscale/lifestyle end of the market. As such the following section assesses the performance of hotels, assumed to be competitive, that are positioned within this upscale/lifestyle sector. These are shown on the following map.

Location Map

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3 OSED152 BEDROOMHOT

Subject One Blackfriars OFVIABILITY 7. PROP Property 4 5 Source: Google Maps

HOTEL MAP REF STAR RATING NUMBER OF ROOMS Malmaison London 1 4-star 97 Andaz Liverpool Street 2 5-star 267 Crowne Plaza Hotel The City 3 3-star 203 Hilton Tower Bridge 4 4-star 245 Marriott County Hall 5 4-star 200

Malmaison London The lifestyle and boutique chain Malmaison operates its only London based hotel near the Barbican. The hotel comprises 97 bedrooms as well as a bar and a Brasserie. There are two meeting rooms and a Veuve Cliquot Champagne Bar for up to 70 people. With its distinct design concept, the hotel caters mainly to the leisure guest in the mid to upscale market. The location near Smithfield meat market and in close reach of Old Street

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helps to attract a slightly younger target segment interested in art and culture as well as numerous design companies located nearby. Nevertheless, its proximity to the financial district delivers strong corporate demand.

The Andaz The Andaz is located in a large, red-brick, Victorian building dating back to 1884. The hotel comprises 267 guestrooms and suites and is operated by the internationally recognised Hyatt Hotel Group. The Andaz is located next to Liverpool Street Station and hence close to the numerous offices and international companies and financial institutions located in the City. The Andaz is Hyatt‟s five star boutique/design led hotel concept. The hotel has numerous food and beverage outlets as well as 13 meeting rooms, gym and treatments rooms. Although situated northeast of Blackfriars Bridge and the City, it will provide strong competition due to its design led facilities and close proximity to corporate demand

generators.

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OSED152 BEDROOMHOT Crowne Plaza City The Crowne Plaza London City Hotel is close to the north bank of the River Thames in London‟s City business district. The hotel was last renovated in 2009 and comprises 203 OFVIABILITY 7. PROP rooms including two suites. The meeting facilities include three main function suites with the capacity to host up to 160 delegates. The hotel has two restaurants and a lounge bar. The Crowne Plaza brand is part of the worldwide InterContinental Hotels Group, which operates under established brands such Intercontinental, Holiday Inn, Holiday Inn Express and their design lifestyle brand Indigo. This Crowne Plaza is near the Junction with Blackfriars Bridge with good access to South London and areas such as LB Southwark and Waterloo. Due to its prime location in the financial district, the hotel benefits from strong corporate demand.

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7. Viability of Proposed 152 Bedroom Hotel

Hilton London Tower Bridge The Hilton Tower Bridge is situated within a modern glass structure, built four years ago. As a result, the hotel benefits from good natural light throughout as well as a modern contemporary decor. The hotel comprises 245 guestrooms and suites. The Hilton brand is recognised both internationally and throughout the UK with many loyal customers. The Hilton at Tower Bridge is located in the More London development including new office developments with tenants such as PriceWaterhouseCoopers, Ernst and Young and Norton Rose. It is only a short walk away from London Bridge railway and underground stations. The Hilton‟s location also benefits from close proximity to tourist attractions such as the London Dungeons and Borough Market. With its close proximity to the City, Southbank attractions and prominent positioning within More London, the Hilton Tower Bridge would be a competitor to the Proposed 152 bedroom hotel in terms of location and corporate customer base.

Marriott County Hall 43

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Marriott County Hall is a five star hotel located on the Southbank within Central London.

The property comprises 200 bedrooms and is located directly opposite the London Eye, with EL other attractions in the immediate vicinity including London Aquarium, Big Ben and Westminster Abbey.

Due to the proximity of the hotel to the City of London as well as the West End and OSED152 BEDROOMHOT numerous tourist attractions in the local area, the hotel benefits from corporate and leisure demand alike. Local transport connections include Waterloo and Westminster

Underground stations as well as a number of bus services. 7. VIABILITY OFVIABILITY 7. PROP The Proposed 152 bedroom hotel will directly compete with this hotel due to the similarity in location and target clientele; although customers preferring the upscale/lifestyle experience will naturally gravitate towards the Proposed 152 bedroom hotel.

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Rate Comparison

WEEKDAY RATE WEEKEND RATE Malmaison London £ 205.00 £ 155.00 Andaz Liverpool Street London £ 260.00 £ 90.00 Crowne Plaza Hotel London The City £ 234.00 £ 106.00 Hilton London Tower Bridge Hotel £ 175.00 £ 105.00 Marriott London Hotel County Hall £ 235.00 £ 205.00 CBRE Hotels Research Unless otherwise indicated, the rate displayed refers to the best available rate for a double room, exclusive of tax, as displayed on the hotel’s own website as of 31/02/12. The rate dates chosen were 21/02/12 – 22/02/12 (Weekday) and 25/02/12 – 26/02/12 (Weekend).  Due to the clear focus of the Andaz as a five star corporate hotel, it commands the highest ADR of the competitive set on a weekday. On weekends, however, it has to substantially discount rates to maintain occupancy, being located by Liverpool Street Station in the heart of the City.  A good example of a well balanced hotel in terms of its target segment is the Marriott County Hall. It charges a fairly high rate during the week when corporate demand is the strongest and is able to maintain a reasonable rate on the weekends, indicating a strong demand from leisure guests.

 The Hilton Tower Bridge is the most competitive in its pricing strategy, charging £175 44

midweek and £105 on weekends. This is partially due to the hotel‟s location, furthest

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away from the main tourist attractions as well as the quantum of rooms it needs to fill to achieve a high occupancy. EL

Future Hotel Supply

In order to assess hotel projects which are currently being developed or planned and which OSED152 BEDROOMHOT may become competitive to the Proposed 152 bedroom hotel, we have made enquiries with London & Partners which monitors the developments of new hotels across various boroughs

in Central London. In our locational appraisal we listed, together with existing, new hotels 7. VIABILITY OFVIABILITY 7. PROP within the area surrounding the Site. Whilst it is likely that all new upscale/lifestyle hotels will compete to some extent with the Proposed 152 bedroom hotel at the Site, we summarise below the hotels which we believe would be of greatest competitive threat. Hilton Bankside The Hilton Bankside at Bear Lane has recently been sold and construction is due to restart with a likely completion and opening in 2014. The 280 bedroom hotel is to be developed to Hilton brand standards and comprises restaurants, bars, meeting rooms, fitness centre with indoor swimming pool and spa treatment rooms. It is considered to be competitive relevance due to its branding and location, although it will be developed to a different style and standard of accommodation.

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It will have 280 bedrooms and based upon brand attract corporate demand through its facilities, international branding and proximity to the City. Its location close to the South Bank, Tate Modern and ease of access to other parts of London will help it secure leisure demand throughout the year.

Sea Containers House Proposals to refurbish Sea Containers House in London's Southbank have recently been approved by LB Southwark's planning committee. Developer Archlane's plans is to undertake major internal and external refurbishment of the existing building together with the construction of a nine- storey tower block in the rear parking area which will provide new retail space at ground level and office space on upper levels. During the refurbishment, 13 floors of current office space will be converted to provide a 365- bedroom hotel. Archlane also has permission to create a new roof extension from the 12th floor to provide a new bar for the hotel's use. The hotel is to be operated by Morgan‟s Hotel Group under the Mondrian brand, a group synonymous with lifestyle hotels. As a lifestyle operator in a similar location to the Site, this hotel will be the closest competitor to the Implemented 261 bedroom hotel. However, we only consider the bedrooms to the rear

of the development to be competitive as rooms overlooking the Thames will be able to

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charge a premium rate in line with the luxury London market.

Novotel EL Accor has signed a lease agreement with McAleer & Rushe Group to operate a newly

constructed Novotel at 46-49 Blackfriars Road. OSED152 BEDROOMHOT The 182 bedroom, four-star Novotel, will comprise twelve business suites, six meeting

rooms (approximately 250 sq m of conference 7. VIABILITY OFVIABILITY 7. PROP space), bar, restaurant and full leisure facilities, including swimming pool. Construction of the hotel is in its final stages and is due to be completed in time for the London Olympic Games in 2012. We consider that this hotel will provide competition due to its location in close proximity to the Site on Blackfriars Road and the nature of the offering that will generate both business and leisure demand. We have not included the Shangri-La at the Shard as a direct competitor as this hotel will be aimed at the luxury end of the market and therefore will have a different target market and price point. We are also aware of a new Citizen M being developed on Lavington Street and whilst this hotel has a design element it is targeted more at the budget end of the market and hence we have not identified this hotel as a direct competitor. Similarly we have excluded a new Ibis and Premier Inn being developed on Lavington Street and Blackfriars Road respectively as they are operated within the budget sector.

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COMPETITIVE SET PERFORMANCE The following section benchmarks the bedroom performance indicators of the defined competitor set and analyses the weekday/weekend demand and seasonality. The data was provided by STR Global and covers the years 2005-11.

Competitive Set KPIs

250 86.0%

84.7% 85.0%

84.1% 200 84.0% 83.0% 82.4% 82.0% 150

81.0% £ 78.8% 80.0% 100 196.16 200.01 190.50 79.0% 176.73 168.12 154.53 161.31 145.55 78.0%

50 77.0%

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76.0%

0 75.0%

2008 2009 2010 2011 52BEDROOMHOTEL

ADR RevPAR Occupancy (%) OSED1

STR Global

OCCUPANCY GROWTH ADR GROWTH REVPAR GROWTH OFVIABILITY 7. PROP 2005 74.7% 174.58 130.38 2006 79.1% 5.9% 181.78 4.1% 143.71 10.2% 2007 81.0% 2.5% 190.66 4.9% 154.52 7.5% 2008 78.8% -2.8% 196.16 2.9% 154.53 0.0% 2009 82.4% 4.5% 176.73 -9.9% 145.55 -5.8% 2010 84.7% 2.8% 190.50 7.8% 161.31 10.8% 2011 84.1% -0.7% 200.01 5.0% 168.12 4.2%

 Following a dip in 2008, occupancy has steadily grown from 78.8% in 2008 to 84.7% in 2010, or by almost 6% points. In 2010, occupancy was higher than achieved before the global recession of 2007/08. Last year, occupancy fell slightly although ADR continued to rise. Year end results for 2011 show occupancy at 84.1%  Whilst occupancy went up by 4.5% in 2009, ADR actually fell by almost 10%. This is not surprising considering that occupancy generally recovers first following an economic downturn and that it takes longer for rates to improve. It also indicates that the competitor set was more concerned with volume over price in 2009. In the following years, ADR grew steadily and averaged at just over £200 in 2011, the highest it has been in the review period.

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7. Viability of Proposed 152 Bedroom Hotel

 As a result of occupancy and ADR movements, RevPAR dropped in 2009 to £145.55 and grew in the following years. In 2011, RevPAR was £168.12 which exceeds pre- crisis levels. In Appendix F we provide further analysis of the assumed competitive set of hotels to include weekday/weekend trends and seasonality patterns.

FUTURE COMPETITIVENESS OF HOTEL Above we have listed those hotels which we believe represent the future primary competitive set of relevance for the Proposed 152 bedroom hotel at the Site. In the table below we include these hotels together with future hotel supply we estimate will provide competition in the City of London and Southbank area. As the hotel supply in the area grows and the Proposed 152 bedroom hotel opens, those hotels located further a field will lose some of their competitiveness. The table below outlines the competitive bedrooms in the market over the next ten years, including existing and future operations.

NUMBER OF DAILY ROOMS AVAILABLE Hotels 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Current Supply Malmaison London 97 97 97 97 97 97 97 97 97 97 97 Andaz Liverpool Street London 267 267 267 267 267 267 267 267 267 267 267 Crowne Plaza Hotel London The City 203 203 203 203 203 203 203 203 203 203 203 Hilton London Tower Bridge Hotel 245 245 245 245 245 245 245 245 245 245 245 Marriott London Hotel County Hall 200 200 200 200 200 200 200 200 200 200 200

New Supply

One Blackfriars 152 152 152 152 152 152

Sea Containers House 216 216 216 216 216 216 216 216 Page The Hilton, Tate Modern 200 200 200 200 200 200 200 200

Novotel 91 183 183 183 183 183 183 183 183 183

Total Daily Rooms Available 1,012 1,103 1,195 1,611 1,611 1,763 1,763 1,763 1,763 1,763 1,763 Growth in Supply 9.0% 8.3% 34.8% 0.0% 9.4% 0.0% 0.0% 0.0% 0.0% 0.0%

Source: CBRE Hotels Estimates OSED152 BEDROOMHOT We comment as follows:

 Of new hotel supply coming onto the market, we consider that Sea Containers House, OFVIABILITY 7. PROP the Hilton, Tate Modern and Novotel will provide the strongest competition.  Sea Containers House, located opposite the site, will provide a design led operation and will be the most competitive. However, 100 bedrooms out of the total 360 bedrooms will have river views and the remaining 261 bedroom will face Upper Ground. Hence, we have assumed that only those rooms facing Upper Ground will be competitive to the Site given that those hotel rooms benefitting from a river view are likely to be charged at a substantial premium and the rooms with an Upper Ground aspect are more comparable to those within the Proposed 152 bedroom hotel.

Market Growth Our assessment of demand for the Proposed 152 bedroom hotel is based upon our analysis of the competitive set of hotels of relevance as well as taking into account our projections of growth for the London market as detailed in Appendix C. Based on historic trends for the various demand segments, the state of the local and national economies, and conversations with local hotel operators in the marketplace, the applicable demand segments are projected to exhibit the following growth trends.

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7. Viability of Proposed 152 Bedroom Hotel

Future Growth in Primary Competitive Hotels of Relevance Segment 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Rack Rate 43,491 44,361 45,248 48,868 49,845 50,842 51,350 51,607 51,607 51,607 51,607 % Change 2.00% 2.00% 8.00% 2.00% 2.00% 1.00% 0.50% 0.00% 0.00% 0.00%

Corporate 124,259 142,898 147,185 183,982 202,380 220,594 231,624 236,256 236,256 236,256 236,256 % Change 15% 3% 25% 10% 9% 5% 2% 0% 0% 0%

Conference and Incentive 37,278 42,870 44,584 54,393 56,025 58,826 60,002 60,602 60,602 60,602 60,602 % Change 15% 4% 22% 3% 5% 2% 1% 0% 0% 0%

Leisure/Other 105,621 118,295 121,844 149,868 157,361 171,524 176,670 180,203 180,203 180,203 180,203 % Change 12% 3% 23% 5% 9% 3% 2% 0% 0% 0%

Total 310,649 348,423 358,861 437,110 465,611 501,786 519,646 528,669 528,669 528,669 528,669 % Change 12% 3% 22% 1% 8% 4% 2% 0% 0% 0%

Daily Supply 1,012 1,103 1,195 1,611 1,611 1,763 1,763 1,763 1,763 1,763 1,763

Annual Supply 369,380 402,595 436,175 588,015 588,015 643,495 643,495 643,495 643,495 643,495 643,495

Market Occupancy % 84.1% 86.5% 82.3% 74.3% 79.2% 78.0% 80.8% 82.2% 82.2% 82.2% 82.2% Source: CBRE Hotel Estimates We comment as follows:

. Our assumed growth percentages, over the next ten year period, are based upon our research of the local and wider area, to include future hotel, commercial and infrastructure developments that are likely to increase hotel demand. We have also taken into consideration other events happening in London over the period, such as the

hosting of the Olympic Games in 2012. Finally we have also been cognisant of the 48

likely development of the global and domestic economy and the recovery period from

Page

the current recession over the next few years.

EL . The increase in room stock in the initial years will enable the area to capture a proportion of the current frustrated demand that exists and is being accommodated in hotels outside the area under review. It is also likely that new hotels will be able to

generate demand by brand affiliation as a result of loyalty cards. OSED152 BEDROOMHOT

. Based upon these assumptions we project market occupancy of 86.5% in 2012, slightly above the 2011 achieved 84.1%, based on our opinion of the impact of the Olympics

and continuing recovery of the market. OFVIABILITY 7. PROP

. We expect a slight decrease in 2013 to 82.3% as a result of an increase in and return to normalised trade post Olympic Games.

. Going forward, occupancy increases and decreases as supply dynamics change. By 2018 we are of the opinion that new stock will have been absorbed and the market stabilised. There is no doubt that London will retain its position as one of the leading global financial centers and a must see destination for the leisure traveller. We are therefore of the opinion based upon the above and the information presented in our market demand sectors that hotels within our assumed markets of competitive relevance will continue to attract demand from all markets discussed. Whilst the areas, which the competitive hotels are located in, are home to many of London‟s top tourist attractions, the level of business activity and the ease of travelling to the City will result in the corporate sector remaining the dominant generator of room night demand. With the hosting of the Olympic Games in 2012 we do expect strong growth in both occupancy and average daily rate by 1.5% and 3.5% respectively. Similarly, on a micro level within our assumed hotels of competitive relevance we are of the opinion that these

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7. Viability of Proposed 152 Bedroom Hotel

establishments will experience an increase in occupancy by approximately 2.4% percentage points in 2012. We are of the opinion that an upscale/lifestyle hotel should be able to attract high levels of demand. Similar to the hotels within our assumed competitive set, we would expect the Proposed 152 bedroom hotel to attract a similar market segmentation split, with corporate demand generating the greatest level of room-night demand. A detailed analysis of the likely demand generators for the Proposed 152 bedroom hotel is detailed in Appendix F and provides the back up to our estimations of occupancy.

AVERAGE ANNUAL ROOM OCCUPANCY Based upon the estimates of demand from each market sector (illustrated in the following table), the location of the hotel, envisaged standard of facilities and services, we present below our assessment of fair share/penetration and annual average room occupancies for the Proposed 152 bedroom hotel for the first five years of operation. By the fourth and stabilised year of operation we have projected occupancy of 81.9%, equivalent to approximately 45,426 roomnights sold. On a fair share analysis this is equivalent to 1.0, i.e. reaching fair share. We are of the opinion that despite its secondary location, the Proposed 152 bedroom hotel due to its size and envisaged position in the market place (an upscale/lifestyle hotel) should perform similarly to the assumed

competitive market - and as such we have assumed a fair share equal to the market.

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Penetration Analysis and Occupancy

Segment 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 EL Rack Rate 3,507 3,719 3,915 4,093 4,093 4,093 Projected MPI 0.80 0.84 0.88 0.92 0.92 0.92 Displaced/Created Demand Rooms Sold 3507 3719 3915 4093 4093 4093 Adjusted MPI 0.80 0.84 0.88 0.92 0.92 0.92

Corporate 17,878 19,371 20,369 20,777 20,777 20,777 OSED152 BEDROOMHOT Projected MPI 0.94 0.97 1.00 1.02 1.02 1.02 Displaced/Created Demand 420 630 840 1050 1050 1050 Rooms Sold 18,298 20,001 21,209 21,827 21,827 21,827

Adjusted MPI 0.96 1.00 1.04 1.07 1.07 1.07 7. VIABILITY OFVIABILITY 7. PROP Conference and Incentive 2,637 2,794 2,926 3,239 3,239 3,239 Projected MPI 0.52 0.54 0.56 0.62 0.62 0.62 Displaced/Created Demand 0 0 0 0 0 0 Rooms Sold 2,637 2,794 2,926 3,239 3,239 3,239 Adjusted MPI 0.52 0.54 0.56 0.62 0.62 0.62

Leisure/Other 13,901 14,623 15,226 15,536 15,536 15,536 Projected MPI 0.94 0.96 0.98 1.00 1.00 1.00 Latent demand 730 730 730 730 730 730 Rooms Sold 14,631 15,353 15,956 16,266 16,266 16,266 Adjusted MPI 0.99 1.01 1.03 1.05 1.05 1.05

Rooms Sold - One Blackfriars 39,073 41,866 44,006 45,426 45,426 45,426

Available Rooms - One Blackfriars 55,480 55,480 55,480 55,480 55,480 55,480

Resulant Total MPI - One Blackfriars 0.90 0.93 0.97 1.00 1.00 1.00

Room Occupancy - One Blackfriars 70.4% 75.5% 79.3% 81.9% 81.9% 81.9% Source: CBRE Hotel Projections Our assumed penetration analysis takes into account the current and future demand profile of the local hotel market as well as the envisaged hotel‟s position in the market place, its classification and branding recognition.

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7. Viability of Proposed 152 Bedroom Hotel

. As with all new hotels, there is a period of build up until the property reaches its stabilised level of occupancy. We have assumed for the Proposed 152 bedroom hotel that this will take four years to achieve.

. We have assumed an opening occupancy of 70.4% increasing to a stabilised level of 81.9%. This represents a growth of approximately 11.5% percentage points or 6,353 room-nights. Based upon our assumptions of demand and our understanding of the envisaged positioning of the Proposed 152 bedroom hotel we are of the opinion that occupancy at the subject property will, at first, be below the market but will achieve similar occupancy by the stabilised year, as illustrated in the graph below.

Occupancy Performance of Market and Proposed One Blackfriars

90.0%

85.0%

80.0%

75.0%

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70.0% EL

Occupancy 65.0%

60.0% OSED152 BEDROOMHOT

55.0% 7. VIABILITY OFVIABILITY 7. PROP 50.0% 2011 2013 2015 2017 2019

One Blackfriars Market

Source: CBRE Hotels Research Provided that the concept of the Proposed 152 bedroom hotel, the design and layout of its public areas as well as its overall pricing structure are designed in a way that appeals to the national and international traveller, and that the Proposed 152 bedroom hotel manages to establish itself as an integral part of the local community, we believe that there is great potential for the Proposed 152 bedroom hotel to achieve a stabilised occupancy of 81.9%. Moreover, the site‟s location and connectivity allows for easy access to mainstream markets such as the City of London and will enable the hotel to attract more corporate customers.

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7. Viability of Proposed 152 Bedroom Hotel

CBRE HOTELS PROJECTIONS We summarise below our projections for the first five years of trade. It is important to note that these are provided in present values (2012 values). Proposed 152 Bedroom Hotel

Valuation Period 1 2 3 4 5 Calendar Period 2016 2017 2018 2019 2020 Occupancy 70.4% 75.5% 79.3% 81.9% 81.9% ADR 176.01 185.02 192.62 195.29 195.29 RevPAR 123.96 139.62 152.78 159.90 159.90

Rooms 6,877.18 7,745.94 8,476.51 8,871.02 8,871.02 % of Total Revenue 72.0% 70.0% 69.0% 68.0% 68.0% TOTAL REVENUE 9,551.64 11,065.63 12,284.80 13,045.62 13,045.62

GROSS OPERATING PROFIT 4,071.39 4,971.23 5,679.63 6,158.00 6,158.00 % of Total Revenue 42.6% 44.9% 46.2% 47.2% 47.2%

TOTAL MANAGEMENT FEES 589.34 703.11 793.43 852.70 852.70 % of Total Revenue 6.2% 6.4% 6.5% 6.5% 6.5%

NET OPERATING INCOME 2,861.35 3,642.22 4,191.00 4,563.50 4,563.50 % of Total Revenue 30.0% 32.9% 34.1% 35.0% 35.0%

Reserve for Renewals 191.03 331.97 491.39 521.82 521.82

% of Total Revenue 2.0% 3.0% 4.0% 4.0% 4.0%

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ADJ. NET OPERATING INCOME / EBITDA 2,670.3 3,310.3 3,699.6 4,041.7 4,041.7

% of Total Revenue 28.0% 29.9% 30.1% 31.0% 31.0%

Source: CBRE Hotels Projections; '000s (GBP) ROOMHOTEL We comment as follows:-  We have assumed a maintainable level of occupancy of 81.9% (year 4), which takes

into account the increase in bedroom supply in the local market which we feel appears

OFPROPOSED 152 BED

reasonable.

 A lower year one ADR is forecast to attract new business to the hotel and to reflect the VIABILITY 7. upscale/lifestyle concept of the Proposed 152 bedroom hotel. The average annual rate takes account of higher mid week rates versus lower weekend leisure rates. Once the hotel establishes itself in the marketplace the ADR should grow well over the first few years of operation, assuming current market conditions. We have assumed a maintainable rate upon stabilisation of £195.29 (in present values).  The ADR currently achieved by the competitor set of hotels provided by STR Global shows a rate of £200.01. It is important to note that the benchmark set includes hotels that are not design led, but are deemed competitive due to their location. Some hotels in the competitor set will achieve higher rates (such as The Andaz) and some lower rates. We have taken this into consideration in our projections for the proposed 152 bedroom hotel.  We have cross checked our projections on departmental expenses and other operating expenses against other similar hotels we have valued or with involved with and cross checked on a price per occupied room and price per available room basis.  We have assumed that the hotel will operated under a management contract with an internationally recognised brand and have assumed a base management fee of 3% of

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7. Viability of Proposed 152 Bedroom Hotel

total turnover and an incentive fee of 8% of the Adjusted Gross Operating Profit (GOP less base management fees).  Our projections also include a provision for an FF&E reserve for future capital expenditure and which is commonplace to be include for hotel appraisals. As the hotel is a new development we have stepped the FF&E provision from 2.0% of total revenue for year one rising and stabilising at 4% of total revenue in year four. In our opinion, 4% of revenue is a suitable amount for this type and standard of upscale/lifestyle led hotel operation.  We have fed our projections into a ten year discounted cashflow model to provide an indicative opinion of worth for the hotel on a Day One basis, i.e. assuming the hotel is developed open for trade. We have assumed the hotel is owned freehold and subject to a management contract with an international branded operator and on this basis have assumed an exit yield of 7.25%, taking into account development risks and location.  This provides an indicative value on a Day One basis of £50.0 million (£329,000 per bedroom). This is after the deduction of transaction costs taken at 5.8%. We have attached as Appendices commentary on the London hotel investment market (Appendix D).

CONSTRUCTION COSTS

We have been provided with estimated construction costs for the Proposed 152 bedroom Page

hotel by Davis Langdon which equates to £37.9 million or £249,342 per bedroom.

EL  The Proposed 152 bedroom hotel is to occupy a standalone six storey building and is not as architecturally complex as the tower element of the development which is reflected within the rationalised build cost. A high quality finish has however been

allowed for to reflect the aspiration for an upscale/lifestyle operator. OSED152 BEDROOMHOT The costs include FF&E, but exclude professional fees, contingency and site acquisition costs.

FINANCIAL VIABILITY OFVIABILITY 7. PROP

We have taken consideration of the current trading and economic environment, new supply coming onto the market and made assumptions of market growth leading up to the proposed opening in 2016, in undertaking our projections of ADR and occupancy. We have cross checked our projections on departmental expenses and other operating expenses against other similar hotels we have valued or we are involved with and cross checked on a price per occupied room and price per available room basis. We have fed our projections into a ten year cashflow and have assumed an exit yield of 7.25%.  This provides an indicative opinion of worth on a day one basis of £50.0 million (£329,000 per bedroom).  Davis Langdon has estimated construction costs for the hotel within The Rennie Street Building of £37.9 million, which equates to £249,342 per bedroom. These costs include FF&E but exclude professional fees and contingency fees. We have therefore allowed 10% for professional fees and 3% for contingency fees. Professional fees are higher for this scenario to include planning and additional design related fees. We have not made an allowance for the site acquisition costs within our appraisal.

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7. Viability of Proposed 152 Bedroom Hotel

Viability Appraisal ITEM AMOUNT £/BEDROOM Gross Development Value £50,000,000 £329,000 Less: Construction Costs £37,900,000 £249,342 Professional Fees @ 10% £3,790,000 £24,934 Contingency @ 3% £1,137,000 £7,480 Return £ 7,173,000 (14% return) £47,190 Source: Cost Estimates provided by Davis Langdon  A return of 14.0% is in line with market acceptance. For a hotel project, we would expect a developer‟s profit to typically range from 10 – 25% of the gross development value, depending upon the perceived risk involved in the project.  On the basis of the above we have concluded that the Proposed 152 hotel is viable and deliverable.

Our market analysis suggests that the illustrative plans are in line with suitable room sizes and ancillary facilities for this type of hotel product and the requirements of upscale/lifestyle operators. In addition, the build costs will be lower for an upscale/lifestyle product

compared to a luxury hotel offering. Furthermore, locating the Proposed 152 bedroom

hotel in a standalone building on Rennie Street will also reduce construction costs which is Page

likely to create a more viable and deliverable development.

OSED152 BEDROOMHOT 7. VIABILITY OFVIABILITY 7. PROP

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8. Conclusion

Site Suitability for Hotels We have concluded that the Site is well suited for an internationally branded hotel in this location. The strength of the Site is based on its good transportation links and association with the wider regeneration of the LB Southwark area, in close proximity to the City of London, Covent Garden, West End and the tourist attractions on the South Bank. Hence, the development should be able to attract a balance of both corporate and leisure customers. Implemented 261 Bedroom Hotel We would however apply caution to the type and size of the hotel to be developed on the site. Since planning permission for the Implemented 261 bedroom hotel was granted a number of other hotel developments have either opened or are due to be progressed in both the immediate area and wider London context. These include the conversion of Sea Containers House, development of the Shangri-La, Hilton Southwark and Novotel on Blackfriars Road. These developments will increase the upscale and luxury hotel stock by 1,208 rooms. This is in addition to the reopening of the Savoy and completion of the Corinthia hotel (both considered to be hotels of competitive relevance) which accounts for a further 562 luxury bedrooms. Despite London benefitting from high occupancies, there is some uncertainty as to whether

the increase of room stock (especially in the luxury sector) in this part of London will 54

continue to generate sufficient demand at a consummate rate, in relation to product, to

Page

strongly underpin these hotel developments. For this reason, there are benefits of developing the Proposed 152 bedroom hotel - being both complementary to the business

and leisure users to the area and smaller than the Implemented 261 bedroom hotel. 8. CONCLUSION8. The Implemented 261 bedroom hotel is a luxury hotel to be located within the mixed use development‟s iconic tower, occupying floors basement -4 to level 26. This compares to the Proposed 152 bedroom hotel which is to be an upscale/lifestyle hotel located in a self contained building fronting Rennie Street/Upper Ground/Stamford Street. In Appendix G we compare the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel over a range of issues. Based upon our detailed assessment, we are of the opinion that the Proposed 152 bedroom hotel benefits from a more operationally efficient design and lower construction costs compared to the Implemented 261 bedroom hotel, which has a bearing on the profitability of the hotel. The Implemented 261 bedroom hotel also included a sky deck to be located on levels 49 and 50. Although never formalised, Jumeirah were set to undertake management of this element of the development. The management of a tourist attraction such as proposed would not be a core competence of a hotel operator and in most cases would not be considered or taken on. The Implemented 261 bedroom hotel, due to the envisaged design and size of rooms is aimed at the luxury end of the hotel market. Our research among hotel groups operating in this market place is that their preferred location is Mayfair and Knightsbridge and that all other locations are secondary. We are also of the opinion that the size of the hotel is possibly too large, and as demonstrated, it is unlikely to generate demand to reach fair

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8. Conclusion

share occupancy. As such the number of operators for a luxury hotel in this location will be limited. Proposed 152 Bedroom Hotel By contrast the Proposed 152 bedroom hotel would receive greater interest from operators in this sector. The Proposed 152 bedroom hotel is likely to be more acceptable to both the local corporate market as well as leisure visitors and the size of the hotel should allow it to reach occupancy levels above fair share. Lifestyle hotels provide a personalised, high quality accommodation and service for guests. Certain measures are undertaken by the operators in order to differentiate themselves from other hotels and to create a destination hotel. This is achieved either through strong design elements and/ or the involvement of dedicated restauranteurs to oversee the food and beverage offering. Despite the current economic climate, interest in upscale/lifestyle hotels remains very strong with new investors and existing hotel operators keen to enter the sector. It is commonplace in London, for upscale/lifestyle hotels to outperform competing corporate chains. Examples of lifestyle hotels with an appetite for continued development in Central London are identified in Chapter 4 with further information provided in Appendix H. Examples of lifestyle brands include Hotel Indigo by InterContinental Hotels, aloft by Starwood Hotels, Andaz by Hyatt, W Hotel by Starwood Hotels and Edition by Marriott Hotels.

We are of the opinion that the success of either development will be dependent upon

having a strong branded hotel operator, one that is able to generate strong demand due to Page

their brand awareness, understanding of product and quality of service levels.

The Proposed 152 bedroom hotel, in contrast to the Implemented 261 bedroom hotel, will have enhanced operational efficiencies within a building that can accommodate standardised “room bays” and better access for deliveries. In addition, Blackfriars Place CONCLUSION8. will enhance the activity and vitality of the area and will increase the potential for passing trade to the hotel bar and restaurant. Economic Benefits Benefits that a hotel will have on the local economy include guest expenditure within the hotel and the surrounding environment, such as shops, bars, restaurants and museums, etc. as well as commissioning local suppliers and job creation. For the purpose of this analysis we estimate that indirect impacts on the local economy are similar between the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel. However, upscale/lifestyle hotel guests are more likely to use restaurants and local amenities in the direct vicinity In addition, upscale/lifestyle generally develop „destination‟ bar and restaurants within their hotels which become popular with local residents, visitors and employees as well as hotel guests. In general, research has shown that “one business tourist is worth at least three times the amount of one leisure tourist in employment and economic terms” (ICC Commission Report, 2005). Business visitors‟ spend benefits many parts of the economy as well as hotels and travel services, such as retail, restaurants and entertainment facilities. The typical spend of a business traveller ranges from £355 to £550. As such, the corporate traveller is very important in terms of economic benefit to the local area. As we expect a higher share of business travellers for the Proposed 152 bedroom hotel compared to the

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8. Conclusion

Implemented 261 bedroom hotel, we anticipate that the economic impact of corporate guests would be proportionally higher for the Proposed 152 bedroom hotel. The guest profile of a lifestyle-led hotel is slightly younger, interested in art and cultural events and typically seeks new and authentic experiences. As such, LB Southwark and the Southbank, have many attractions and offerings that are relevant to the target leisure guest in addition to the corporate guest. With its museums, art galleries, restaurants and bars, the area is becoming a “lifestyle” hub, supported by the Borough‟s regeneration plans and the addition in hotel supply (e.g. Mondrian Hotel – Sea Containers House). We are of the opinion that LB Southwark provides an ideal environment for the envisaged leisure guest to the Proposed 152 bedroom hotel and creates numerous opportunities for hotel guests to spend money in the local area. Hotel Viability Based upon a valuation undertaken by JLL dated 20th April 2012, they have valued the hotel assuming it is operated under a management agreement with an internationally branded luxury hotel operator on a day one basis. This value equates to £130.0 million or £498,000 per bedroom. In the following table we provide our summary projections of profit and loss for the Proposed 152 bedroom hotel.

Proposed 152 Bedroom Hotel

Summary Projections of Profit and Loss (2012 values) Page

2016 2017 2018 2019

Occupancy (%) 70.4% 75.5% 79.3% 81.9%

Average Daily Rate (£) £176.01 £185.02 £192.62 £195.29 8. CONCLUSION8. RevPAR (£) £123.96 £139.62 £152.78 £159.90 £000s Total Revenue £9,551.6 £11,065.6 £12,284.8 £13,045.6 Gross Operating Profit £4,071.4 £4,971.2 £5,679.6 £6,158.0 % of total revenue 42.6% 44.9% 46.2% 47.2% EBITDA £2,670.3 £3,310.3 £3,699.6 £4,041.7 % of total revenue 28.0% 29.9% 30.1% 31.0% Source: CBRE Hotel Projections Based upon our trading assumptions (we have assumed that an internationally recognised brand will operate the hotel) and views on likely exit yields our opinion of worth on a day one basis equates to £50.0 million or £329,000 per bedroom. However, assessing the potential profitability on a development basis, we have compared indicative value against indicative development costs. We have assumed a build cost of £112 million for the Implemented 261 bedroom hotel and a build cost of £37.9 million for the Proposed 152 bedroom hotel, as provided by Davis Langdon. Based upon build costs provided for the Proposed 152 bedroom hotel and the Implemented 261 bedroom hotel plus the further standard deductions of professional fees and a build contingency, the following table illustrates the indicative residual value for each proposition:

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8. Conclusion

Viability of the Implemented 261 Bedroom Hotel and the Proposed 152 Bedroom Hotel ITEM IMPLEMENTED 261 BEDROOM HOTEL PROPOSED 152 BEDROOM HOTEL Gross Development Value (in line with JLL) £130,000,000 £50,000,000 Less: Construction Costs £112,000,000 £37,900,000 Professional Fees £6,720,000 (@ 6%) £ 3,790,000 (@ 10%) Contingency @ 3% £3,360,000 £1,137,000 Return £7,920,000 (6.1% return) £7,173,000 (14% return) Source: Cost Estimates provided by Davis Langdon and CBRE Hotels Estimates (for guidance purposes only) The above demonstrates that despite its profitable trading projections, the Implemented 261 bedroom hotel proves to be currently unviable in development terms as we would expect developer‟s profit to range from 10 - 25% of gross development value. Our findings indicate that ADR achievable for a luxury hotel in this location will be inferior to those achieved in prime West End locations and hence will have a negative impact on value. In addition, the build costs are estimated to be high for a luxury product also contained with a tower construction which will further impact the viability of the

Implemented 261 bedroom hotel.

The Proposed 152 bedroom hotel provides a rationalised and more deliverable offer, with Page

the illustrative plans illustrating an upscale/lifestyle hotel that will be of real interest to the

market operators that active in this area.

In terms of certainty and delivery of the overall development with key regeneration benefits 8. CONCLUSION8. to LB Southwark, the build costs associated with the relocation of the hotel into an attractive standalone building on Rennie Street and change from a luxury hotel offering to an upscale/lifestyle product will reduce construction costs, creating a more viable and deliverable development.

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Glossary of Industry Terminology

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TERMINOLOGY

APPENDICES OFGLOSSARYINDUSTRY

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Glossary of Industry Terminology

Appendix A

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TERMINOLOGY

GLOSSARY OFGLOSSARYINDUSTRY

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GlossaryGlossary ofof IndustryIndustry TerminologyTerminology

GLOSSARY OF INDUSTRY TERMINOLOGY

Administrative & General Food & Beverage Minor Operated Departments (A&G) (F&B) (MOD)

This covers items that are not easily This covers restaurants, bars, room These are sources of income that attributable to any one department. service, banquets and conferences. do not fall under any of the listed It includes items such as headings. They generate limited management, administration, income and incur minor direct finance and accounting, stationery, operating expenses. Examples uniforms, training and recruitment. include sports supplies or laundry.

Average Daily Rate (ADR)/ Food Revenue Occupancy Average Room Rate (ARR)

ADR reveals the average rate Includes all sales of food and non- This is the percentage of rooms that charged per occupied room and is alcoholic beverages for have been sold over the period calculated by dividing total rooms consumption by customers. being analysed. revenue for a period by the number Includes revenue from restaurant, of rooms occupied during that conferences, room service etc. period. It may also be referred to as ARR.

Base Fee & Notional Franchise Fees Other F&B Revenue Management Fee (NMF)

The cost of management services Revenue generated through This includes any revenue performed by a management allowing an independent party to generated in the food and

company to operate the property as operate a business under the beverage department, but not 60

a whole. company‟s name, merchandise through the sale of F&B. Page

and supplies.

Beverage Revenue Gross Operating Profit Property Operations &

(IBFC/GOP) Maintenance (POM)

TERMINOLOGY

Includes all sales of alcoholic Gross operating profit is the total Includes all expenses associated beverages for consumption by departmental operating profit, less with operating and maintaining the customers. all undistributed operating property and includes salaries and expenses. It may also be referred to wages as well as equipment costs. as income before fixed charges. OFGLOSSARYINDUSTRY

Cost of Sales (COS) Incentive Fee Per Available Room (PAR)

The cost of raw materials prior to Management fees that are A measure that can be applied to their resale. contingent upon achieving certain any revenue or cost to facilitate pre-defined levels of profitability analysis. The revenue or cost being and charged to this item. analysed is divided by the total number of bedrooms available for sale during the period under analysis.

Departmental Operating Profit Insurance Payroll and Related Expenses as (DOP) a Percentage of Total Sales

The total profit made by the specific The cost of insuring the building This is calculated by dividing the department named, less costs for and its contents. It will also include sum total of related expenses by that department. general insurance costs including total sales and then multiplied by premiums relating to liability. 100.

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Glossary of Industry Terminology

Per Occupied Room (POR) Rooms Revenue Per Available Total Revenue Room (RevPAR)

Total or individual dept revenue This measures the room‟s revenue Sum total of net revenues from all generated per occupied room. POR yield a property achieves relative to the operated departments including is used to determine the total the rooms available in the property rentals and other income. revenue and profit potential of the for a period. company.

Percentage of Departmental Rooms Revenue Undistributed Operating Revenue Expenses (UOE)

Demonstrates any given criteria as Revenue generated through the These include expenses that are a percentage of the total revenue rental of bedrooms and suites, for considered applicable to the entire generated by a specific a day, week or longer. It includes property and not a specific department. revenue raised from no-show department. They include charges and excludes allowances Administrative and General, Sales and cancellation fees. and Marketing, Property Operation and Maintenance, and Utilities.

Property & Other Taxes Total Operating Costs Utility Costs

This includes a number of tax The total cost of sales, direct The cost of general utilities such as deductions which may be expenses and payroll costs for any electricity, gas, oil, water, steam applicable to a given property and given department. and sewerage which the property includes real estate taxes, personal may incur. property taxes, and business and

transient taxes.

Reserve for Renewals/ FF&E Total Payroll Page

Replacement Reserve

The cost of furniture, fixtures and The total of salaries and, wages,

equipment, which do not have a and employee benefits from all TERMINOLOGY permanent connection to the operated departments and all building and are not covered by undistributed operating utilities. They include computers, departments. tables and chairs. They may also be referred to as furniture, fixtures

& equipment or FF&E. OFGLOSSARYINDUSTRY

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Locational Analysis

Appendix B

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Locational Analysis

INTRODUCTION In the following section we present our detailed comments and analysis regarding the development at the Site, and highlight the bedroom findings of our site inspection, including a location overview and SWOT analysis. We also provide details regarding general communications infrastructure in the Southbank area.

SITE LOCATION

Overview The Site is situated on the Southbank of the River Thames at the southwest end of Blackfriars Bridge, set back from the river by one block. It benefits from its close proximity to popular attractions on the Southbank such as the Tate Modern, National Theatre, Globe Theatre, London Eye, Borough Market and London Dungeons. The immediate area around the site has a mixture of property uses including offices and numerous retail shops, bars and restaurants along the Southbank including the nearby Oxo Tower Restaurant. The site is within walking distance of Covent Garden and within close proximity to London‟s Theatreland as well as the City of London, St Paul‟s and is therefore an attractive location for leisure guests. The proximity of the City of London, due to its corporate nature and the large amount of international corporations located therein, is likely to provide demand for the completed development.

The hotels located in the area surrounding the Site are the Holiday Inn Express Southwark, 63

the Travelodge Southwark, the Mercure Bankside, Hilton More London and the Crowne

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Plaza London City. A large proportion of the immediate hotel stock is unlikely to represent

a competitive threat to any luxury hotel proposed for the Site with the exception of the Hilton and Crowne Plaza due to their position within the market place (upscale) and strong

corporate following due to international branding. LOCATIONALANALYSIS In terms of future developments, the Hilton Southwark, which is currently under development adjacent to the Tate Modern, the redevelopment of Sea Containers House which is to include a Morgan‟s Hotel and the Shangri-La within the Shard will all provide competition for any hotel developed at the Site. However, we are also of the opinion that these developments, together, with the development at the Site will create an active and competitive hotel location within the London market. The site benefits from excellent public transport links, receiving the highest accessibility rating from the LB Southwark Council. The new southern entrance to Blackfriars station, due to open in February 2012, will provide direct access to the National Rail network and London underground system. Bus routes and Southwark underground station (0.3 miles away), served by the Jubilee line, connect the Site to Canary Wharf and the West End. The City of London can be reached by foot in less than ten minutes.

COMMUNICATIONS The development and surrounding area are well served by road and rail. The site is a short distance from London underground, and overground rail services as well as major roads linking to the north, south, east and west London.

Road The Site is bound by Blackfriars Road, Upper Ground, Rennie Street and Stamford Street. Upper Ground is a one-way street with traffic flowing in an east to west direction.

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Locational Analysis

Blackfriars Road leads both north and south from the Site, providing excellent access to the City of London, Victoria Embankment and Holborn viaduct (A40) to the north and Elephant and Castle and the A3 and A2 to the south. In the following table we provide distances and travel times to hotels (by area) from the Site.

Approximate Drive Times and Distances To/From Site BEDROOM DESTINATION APPROXIMATE MILEAGE APPROXIMATE DRIVE TIMES Waterloo Station 0.6 2 min London Bridge Station 1.1 4 min St Pancras Eurostar 2.2 9 min Oxford Circus 2.8 12 min City of London (Bank Station) 1.4 6 min London City Airport 8.6 32 min Heathrow Airport 19.1 55 min Gatwick Airport 28.6 1h 03 min Source: AA Route Planner The development, based upon information provided, does not include underground car- parking facilities, however due to the good public transport provision in the area we are of

the opinion that most hotel guests will either use public transport or taxi.

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Rail and Underground

The nearest overland and London Underground station is that of London Blackfriars located at 0.1 miles on the south side of Blackfriars Bridge. Blackfriars underground station is served by the District and Circle Lines. The renovated station has a new entrance on the south end of Blackfriars Bridge, directly opposite the Site, with platforms stretching across LOCATIONALANALYSIS the railway bridge. This will allow for easier access to the development from locations such as Gatwick and Luton Airports and St Pancras International. There is also a new entrance to Blackfriars underground station on the Southbank, providing visitors with close access to the Circle and District lines Southwark London Underground station is located 0.3 miles to the south of the Site. The station is served by the Jubilee line which mainly crosses London in a northeast direction, offering good communication links to London‟s wider underground network. The Jubilee line provides direct access to a number of mainline railway stations, including Waterloo, London Bridge and Stratford. The Site is only 0.5 miles north east of London Waterloo station, which is the busiest station in London.

River The Site is approximately 100 metres from the River Thames. Regular river bus services are offered from Blackfriars Millennium Pier, on the north side of Blackfriars Bridge, providing easy transport to other parts of London including Canary Wharf. River bus routes travel to many destinations including Greenwich, the O2 Arena, Chelsea and Putney. In addition, river cruises function as a tourist attraction and can be caught from numerous piers in Central London, including Embankment, Waterloo and City Blackfriars.

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Locational Analysis

Air The closest airports to the Site are London City and London Heathrow, at 8.6 miles and 19.1 miles from the site respectively. London City is a regional airport which is served by a number of traditional, international carriers, such as British Airways, Lufthansa and Swiss. In addition, some regional airlines such as VLM and Cityjet (Air France) service London City, connecting the airport to destinations within the UK and Continental Europe. In 2010 British Airways introduced an all business class service offering daily transatlantic flights from London City to New York. British Airways are currently looking to increase their activity at London City. In 2011, the airport saw a total of 3.0 million passengers, representing an 8% increase on 2010 passenger numbers. The airport currently operates scheduled services to some 30 destinations. London Heathrow handles nearly 65.7 million passengers per annum, making it Europe's busiest airport. On the western edge of the city in the London Borough of Hillingdon, it has two runways and five passenger terminals. It is connected to central London by the dedicated Heathrow Express rail service, the Heathrow Connect local rail service and London Underground‟s Piccadilly Line, and is connected to the M4 and M25 motorways. The airport is served by some 90 airlines, had 450,000 aircraft movements in 2010 and offers direct connections to 176 destinations worldwide. The most popular destinations

include New York, Dubai, Paris and Amsterdam.

AREA OVERVIEW

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LB Southwark and Southbank LB Southwark and the Southbank are home to many attractions such as the Tate Modern,

The Globe Theatre, National Theatre, London Eye, London Aquarium, Borough Market and LOCATIONALANALYSIS the Thames Path. LB Southwark is currently undergoing further regeneration close to the Site including new office, residential, retail and hotel developments to improve the area. Southbank is continuing to build up a reputation as the cultural heart of London and is home to multi-national companies, universities, the UK‟s largest railway station and a fast growing residential population. The current mix of retail and commercial businesses is broad, with a focus on art/ design and ethnic restaurants. Luxury retailers, member‟s clubs, fine dining establishments and the like are still scarce, providing little for the high-end market. With many of London‟s greatest attractions situated on the Southbank, the area has become a hub of tourist activity. The Borough, however, is still a relatively new site to most international hotel operators and not as established as the West End and other areas north of the river Thames. The Borough of Westminster has the largest hotel supply with 48% of total, followed by Kensington & Chelsea (20%) and Camden (13%). Recognising the potential that the Southbank can offer, LB Southwark has witnessed an increase in activity by developers and hotel operators who are keen to exploit the regeneration of the area with development of new hotels. Current schemes include the corporate led Hilton Southwark, the introduction of an international lifestyle brand Morgans Hotel Group and finally the completion and opening of the Shard, the Borough will receive its first luxury hotel the Shangri-La. As such LB Southwark will be able to establish itself as a more prominent position on London‟s hotel map.

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Locational Analysis

LB Southwark has a generally healthy economic profile with a large economy, underpinned by very high levels of productivity. Nevertheless, the local work force is weak, by both London and national standards. This results in a low employment rate for residents. LB Southwark is undergoing major regeneration and development projects valued at around £4 billion making the Borough one of the most dynamic in London.

City of London Located on the north bank of The Thames, across Blackfriars Bridge, The City of London, known as the square mile, houses most of London‟s leading financial and business services. A hub of corporate activity, the City also benefits from many restaurants, bars and shops to serve the corporate market. Although benefiting from a busy working population during the week, the City is quiet during the weekends with many shops closed. The City contains many of London‟s popular attractions including St Paul‟s Cathedral, Tower Bridge, Tower of London and the Museum of London attracting many leisure visitors to the area. Any hotel development at the Site will be able to draw demand from the City of London.

BOROUGH, BANKSIDE AND LONDON BRIDGE DEVELOPMENTS

The Southbank of the River Thames is currently undergoing a major overhaul, with an array

of developments, redevelopments, refurbishments and newly completed projects that will Page

significantly positively impact the area. More visitors are enjoying the area's charming and

changing character and residents are closer to the vibrant heart of a world city. In the following we detail some of the most prominent regeneration projects that have or are taking place in the vicinity of the Site that are likely to have a positive impact on any hotel

development. LOCATIONALANALYSIS

Sea Containers House Sea Containers House was constructed in 1986 and was originally designed for hotel use. The property is to undergo a significant redevelopment following granting of planning permission to incorporate a mixed-use office, hotel and restaurant scheme in the existing building and the construction of a new office/restaurant building. The hotel element will comprise 360 bedrooms and will be managed by Morgans Hotel Group under the lifestyle brand Mondrian. Sea Containers House will provide the most significant competition in the future for the development, due to it‟s positioning in the upscale/luxury lifestyle market and its close proximity to the Site.

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Locational Analysis

20 Blackfriars Road This site is directly the south of the subject property, set between Stamford Street to the north and Christchurch Churchyard to the south. The proposed development features a 42-storey residential tower with 286 flats and a 23-storey office tower with 25,769 sq m of office floor space. Additionally, there will be 1,710 sq m retail floorspace within the 23 storey office tower. The timescales for the project (which is unlikely to complete before 2016) will result in the Site coming on stream first. Furthermore, it establishes the location as an office destination which will provide corporate demand to the hotel. However, we are aware that the site is currently being sold and therefore a new planning permission may be sought by new owners.

Kings Reach Tower This property is immediately to the west of, and on land abutting, the subject property.

Planning permission was granted in July 67

2011 for the partial redevelopment of the

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site, with the retention of the existing tower

and „podium‟ building. The new mixed use YSIS development has permission for 34,400 sq m of office space, 173 new apartments, and 6,690 sq m of retail space, with a 6 floor LOCATIONALANAL extension to the existing 30 storey tower. Permission has also been granted to create retail space, pool and gym on the ground floor.

Wedge House (Re-development) Wedge House is situated along Blackfriars Road to the South of the subject property, abutted by Columbo Street immediately to the north. It is a 6 storey office building currently predominantly used as government offices. The property is owned by Derwent London. Planning permission has been secured for the demolition of the existing building and the construction of a new 12 storey tower. The proposed 12,033 sq m development is to be office led with commercial units at ground floor level. The new development will be known as ‟40 Blackfriars Road‟. The existing property is currently tenanted until 2012, and there is as yet no anticipated date for the start of construction.

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Locational Analysis

If seen through to completion, this project will provide more office accommodation in close proximity to the subject property providing corporate demand.

Ludgate House Ludgate House is located immediately to the east of the subject property, on the eastern side of Blackfriars Road and with the River Thames to the north. It is an existing multi-let office building comprising approx. 15,300 sq m of offices. It is reported that Ludgate and adjacent Sampson House are planned to be redeveloped as a 140,000 sq m PLP Architects-designed scheme comprising predominantly residential units, offices and retail uses.

240 Blackfriars Road This site is situated south east of the subject property, opposite the 20 Blackfriars Road site, and abutting Southwark Street to the north. Construction of a 20 storey landmark tower is currently underway, with completion due in 2015. The site is owned and run by the Great Ropemaker Partnership. The new

tower will be mixed use, providing 29,200 sq m of offices, and 68

455 sq m (4,300 sq ft) of retail at ground floor level.

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This is at present the most advanced of the sites in the immediate vicinity to the Site and will also provide demand for corporate guests and for the bar and restaurant facilities.

LOCATIONALANALYSIS

Bankside 1/2/3 Bankside 1/2/3 is a modern office led mixed use scheme located on Southwark Street, directly behind the site of the Tate Modern museum. The project consists of three buildings developed between 2005 and 2007 by Land Securities and totalling 35,170 sq m of office and 7,000 sq m of retail accommodation, linked by pedestrian walkways and public spaces. The office element of the scheme is currently fully let. Bankside 1 (also known as the Blue Fin Building) is tenanted by IPC Media and Telstra, while Bankside 2 and 3 are fully occupied by RBS. The retail offering is tenanted largely by restaurants, bars, cafes and convenience retailers to cater for the office population and passing pedestrians.

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Locational Analysis

The above mentioned projects/developments indicate the likely increased corporate demand for the development and demonstrate the potential of the location in terms of business generation.

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LOCATIONALANALYSIS

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London Hotel Market

Appendix C

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London Hotel Market

INTRODUCTION London is one of the world's leading tourism destinations, and the city is home to an array of famous tourist attractions. London attracts approximately 26 million international visitors per year, making it one of the world's most visited cities in terms of international visitors. However, at times this can be a double edged sword since the city is from time to time disproportionately impacted by world events. These influences tend to be more trackable in terms of negative variances but there is an underlying resilience and the city has generally bounced back more strongly after each downturn.

Factors underpinning London’s hotel market There are many factors which, combined, have a positive impact in creating the resilience which is evident in London‟s hotel market. Below we summarise some of these factors:

. With a population of 7.2m, London is the largest city in Europe. Estimates suggest the city will expand to over 8m by 2020.

. London‟s economy accounts for around 17% of the UK‟s total GDP. London‟s GDP is £162 billion, larger than many EU countries including Austria, Denmark, Finland, Greece, Ireland, Luxembourg and Sweden. London‟s economy has grown faster than the rest of the UK for most of the last 15 years. Its economic position is supported by a series of remarkable statistics. The headquarters of more than 100

of Europe's 500 largest companies are in London and there are 550 overseas

banks and financial institutions in the city, more than in any other city in the world Page

(figures date to prior to current recession).

. London has six international airports – Heathrow, Gatwick, Stansted, Luton, City Airport and Southern Airport. 133.1 million airline passengers travelled to and/or from London‟s airports in 2011. The number of international passengers flying through London is over twice as many as the nearest competitor. Between them, these offer direct flights to 530 destinations worldwide. London‟s three main cargo airports at Heathrow, Gatwick and Stansted have more international cargo flights to more destinations by more carriers than anywhere else in the world. There are also direct high speed rail links to/from Paris and Brussels.

. Tourism is a vital contributor to London's economy generating approximately £10.5 billion in overnight visitor spending each year. Tourism and the visitor economy in general is one of the largest Industries in London accounting for around 10% of the city's GDP. Tourism is responsible for 280,000 jobs in London and contributes £15 billion to the local economy. Direct expenditure by overnight tourists in 2010 amounted to £11.2 billion, the highest expenditure since 2000.

. London has the greatest concentration of major attractions in Britain, with nine of the top ten located in the capital. Globally, of the ten most popular museums in the world, four are located in London. In 2009, the most popular attraction in London was the British Museum attracting 5.6 million visitors.

. On 6 July 2005 London was selected as host city of the 2012 Olympic Games by the International Olympic Committee. This will no doubt prove to be a boost to the city‟s economy, tourism and general development, particularly to the east of the city centre and further add to London‟s reputation as a leading global city.

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London Hotel Market

EXISTING SUPPLY According to their 2009 accommodation census (latest available) the London Development Agency estimates that the city offers overnight visitors a choice of 140,472 bedrooms across 2,020 accommodation establishments to suit all budgets, as summarised in the following table:

All London Accommodation Stock 2009 TYPE ESTABLISHMENTS ROOMS Hotels 603 86,681 B&B / Guesthouse 921 18,567 Serviced Apartments 159 4,994 Subtotal Serviced Accommodation 1,683 110,242 Other (includes campus, hostel and self catering) 337 30,230 Total 2,020 140,472 Source: London Development Agency This census contains less information than the VisitLondon census of visitor accommodation in 2006. We present combined results in the table below. This table demonstrates that a net gain of 3,299 rooms has occurred in the city during the period. Of the 86,681 rooms

that are now understood to exist in the city, our own knowledge and experience suggests

that there are some 70,000 that are relatively easily identifiable, of reasonable size and in 72

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many cases, branded. However there is still a large swathe of properties which are smaller,

generally of lower quality and in private hands. In the table below we illustrate the breakdown of London‟s hotel supply by star grading:

Total Hotel Supply in London 2006 & 2009 NUMBER (2009) NUMBER (2006) ROOMS (2006) BEDS (2006) 5 Star 44 56 10,152 20,215 4 Star 136 173 36,645 71,437 3 Star 58 107 16,521 32,607 2 Star 11 21 1,156 2,311 Budget 93 113 13,650 28,842 Others 261 94 5,266 10,434 TOTAL 603 564 83,382 165,846 NB Number of hotel rooms in 2009 census is reported as 86,681 Source: VisitLondon; London Development Agency The past decade has seen a greater variety of supply, with a new genre of boutique/designer hotels opening in the city as well as branded budget properties and branded apart-hotels. In 2006 VisitLondon estimated that some 16% of the city‟s supply was in the budget hotel category. Undoubtedly this is now at a higher proportion. The boutique/designer properties have generally been included at a relatively high position in the market but none have rivalled the City‟s truly five star properties in performance terms. This is due to the fact that London‟s top performing five star hotels benefit from an excellent, long standing reputation, along with a prime location and a significant prestige

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London Hotel Market

factor, which is more difficult to challenge for any new market entrant. Nevertheless some have made it into the top twenty properties in terms of average achieved room rate. According to Visit London‟s latest development guide, the number of branded hotels in the capital is relatively high, with independents only accounting for about 30% of the market. InterContinental, through its InterContinental, Crowne Plaza, Holiday Inn and Express by Holiday Inn franchises, is the largest branded provider with almost 8,000 rooms. The five star market is more fragmented with relatively few operators having more than one five star property in the city. Starwood have five hotels (and two more at Heathrow) with around 994 rooms, Maybourne have three hotels with a total of 540 rooms, Four Seasons have two hotels with 361. Jumeirah currently has two hotels in Central London (Carlton Towers and Jumeirah Lowndes Hotel with a total of 307 bedrooms and suites). Despite the large number of branded supply in London, the city continues to be undersupplied as suggested by the Mayor of London. Historically high occupancy levels for the London market support such a conclusion. Therefore there remains an opportunity for the building of new branded and unbranded hotels at all levels of classification. Central London proves to be a highly sought after location with limited sites available for new hotel developments. Hotels‟ performance in this market is so strong that any additional supply (even two hotels with the same brand in close proximity to each other) will not negatively impact the trading of existing hotels.

New Supply

The London hotel market has always had a large number of projects on the drawing board Page

and a steady stream of new openings and refurbishment projects. Although the recent

economic situation has made it more difficult for new projects to get “to the finishing line”, the prospects of a boost as the market is getting closer to the 2012 Olympics created a divergence effect thus, to a certain extent, stabilising the market. In the run-up to the Olympics, PWC forecasts 10.6% of additional supply will or has already opened in London. A feature of the new supply in the past five years is location. Development is more widespread than ever before and although there is still a significant quantum of new supply in Westminster some of the other Boroughs with significant increases in supply are more surprising. These include Hillingdon, Lambeth, Hounslow, Wandsworth and Camden. This is partly a reflection of London‟s diversity and its development environment but also supports the view that prime development sites in central London Boroughs are hard to find and planning restrictions are also a barrier to entry for new products and these tend to slow the actual realisation of development sites. The latest London Hotel Development Monitor (October 2011) indicates that 3,810 new rooms entered the London hotel market in 2011. Openings in 2011 include the 583- bedroom Mint Hotel at Pepys Street, the 181-bedroom Montcalm at the Brewery London and Starwood‟s first Aloft hotel in the UK, at London Excel. The charts below set out the new hotel room supply for London by grade and category in the timeline 2011-2014 and a historic growth from 1989 to 2013.

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London Hotel Market

Source: Visit London & TRi

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Source: Visit London & TRi It is widely considered that the upper upscale and luxury market generally sees the run-up to the Olympics as the appropriate time for new developments and refurbishments in this market sector. The reasoning behind this strategy is presumably based on the potential increase in market share that this renowned international event will produce in London. It seems obvious that the demand generated by the Olympics will compensate the abrupt increase in supply and generally, as suggested by PwC, hotel operators will not expect to see a significant negative impact on revenue. However, the challenge is to see how these hotels will react to the forthcoming repositioning of the London hotel market post Olympics in terms of attracting the central tourist core and business clientele.

Trading Performance Recent data reported by STR Global suggests that London‟s hotel sector is currently outperforming other bedroom European cities such as Amsterdam, Barcelona and Rome.

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London Hotel Market

KPIs and RevPAR Trends – Year End 2011 CITY OCCUPANCY (%) ADR (€) REVPAR (€) REVPAR CHANGE (%) London 81.5 156.02 122.31 6.0 Amsterdam 74.8 130.94 97.99 9.5 Barcelona 70.5 116.10 81.82 8.4 Rome 67.5 148.62 100.31 5.3 Source: STR Global & HotStats, 2011 As can be seen from the table above London hotels achieved a 6.0% increase in RevPAR in 2011 compared to 2010. Whilst this represents the second lowest percentage change in the selected set, London recorded significantly higher RevPAR than competitive cities. This is largely as a result of sustained high occupancy levels. The London hotel market has also fared better than the UK regions since the onset of the downturn in 2008 and continues to defy expectations with sustained demand and marginal increases in rate. London began recovery in Q4 2009 and the trend continued into 2010 with record occupancy levels for some London hotels in Q1 and Q2, marking the return of the corporate market. 2010 saw the London market recording strong RevPAR, led mainly by increases in occupancy. The graph and table below show the Bedroom Performance Indicators (KPIs) between 2007 and YTD September 2011 for London hotels:

London (Whole) KPIs 75

£140 82.5%

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£120 82.0%

£100 81.5% Occupancy £80 81.0%

ADR/RevPAR £60 80.5%

£40 80.0%

£20 79.5%

£0 79.0% 2007 2008 2009 2010 2011 ADR RevPAR Occupancy

CHANGE FROM CHANGE FROM CHANGE FROM OCCUPANCY PREVIOUS YEAR* ADR PREVIOUS YEAR REVPAR PREVIOUS YEAR 2007 81.9% £115.33 £94.46 2008 80.7% -1.2% £119.75 3.8% £96.64 2.3% 2009 80.2% -0.5% £112.38 -6.2% £90.13 -6.7% 2010 82.2% 2.0% £122.25 8.8% £100.49 11.5% 2011 81.5% -0.7% £130.29 6.6% £106.23 5.7% Source: TRi HotStats, 2011 * Percentage point change

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London Hotel Market

We comment as follows:  In 2010, London hotels were able to raise room rates on the back of strong occupancy levels, resulting in an ADR increase of 8.8% to £122.25 compared to 2009. Due to the strong supply in the luxury market as well as London‟s position as a leading global financial centre and capital city, the London hotel market was able to push rates, with some hotels realising a growth rate of more than 20% in ADR. As a result of the positive occupancy and ADR performance, London RevPAR in 2010 increased by 11.5% compared to the previous year.  Comparing full year‟s results of 2011 to 2010, the market continued to improve by 5.7% in terms of RevPAR. This was solely driven by strong ADR growth. Seasonality The following graphs illustrate the seasonality patterns for London in terms of occupancy and ADR.

Seasonality London Whole - Occupancy % 95.00% 90.00% 85.00% 80.00%

75.00%

70.00%

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65.00%

Occupancy% 60.00% 55.00% 50.00% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010 2011

Seasonality London Whole - ADR £

160

150

140

130

120

ADR £ ADR 110

100

80 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009 2010 2011

Source: TRi HotStats, 2011

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London Hotel Market

 Though London is a year round travel destination, the graph above illustrates that the high seasons are in the periods from late May to July, peaking in July at around 90% occupancy and September to October. Coinciding with occupancy levels, ADR reaches its highest level in July, due to a large share of high rated corporate travel for this month.  Occupancy drops significantly in August, as this is typically a holiday period with very little business travel. The shortfall in corporate room nights is compensated by leisure guests. As leisure visitors typically pay less than business travellers, ADR can fall by 30- 40% from July levels. Similarly, there are dips in December and January, which are traditional holiday periods with lower corporate travel.  The shoulder months perform relatively strongly, still reaching 80-85% in occupancy.

CENTRAL LONDON HOTEL PERFORMANCE

Central London - KPIs £160 84.0%

£140 83.5% £120

£100 Occupancy

83.0%

Page

£80

ADR/RevPAR

£60 82.5%

£40 82.0% £20

£0 81.5% 2007 2008 2009 2010 2011 ADR RevPAR Occupancy

CHANGE FROM CHANGE FROM CHANGE FROM OCCUPANCY PREVIOUS YEAR* ADR PREVIOUS YEAR REVPAR PREVIOUS YEAR 2007 83.1% £128.85 £107.07 2008 82.2% -0.9% £134.30 4.2% £110.39 3.1% 2009 83.1% 0.9% £126.47 -5.8% £105.10 -4.8% 2010 83.6% 0.5% £139.25 10.1% £116.41 10.8% 2011 82.7% -0.9% £149.87 7.6% £123.88 6.4% Source: TRi HotStats, 2011 * Percentage point change  Similarly to the whole London market, occupancy for central London hotels dipped in 2008, following the global recession and financial crisis. As many corporate rates had been pre-negotiated for 2008, ADR did not fall until 2009, resulting in a RevPAR growth of 3.1% even for 2008.  Nevertheless, the full impact of the crisis on rates could be observed in 2009, with room rates dropping £7.83 or 5.8%. Occupancy levels recovered quickly and were back at pre-crisis levels. Fortunately for London hoteliers, some large properties were closed at this time (refurbishment) which reduced the room stock of the city quite significantly,

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particularly for the luxury segment. However, the growth in occupancy could not compensate for the lower ADR, hence RevPAR dropped by 4.8%.  2010 was a very strong year with all three KPIs showing good trends. Generally, it can be said that the central London market recovered more quickly and more fully than the overall London market, due to the re-strengthening of the financial sector; important for the London economy.  2011 continued to be a strong year in terms of ADR and RevPAR growth. However, the current debt and euro crisis took its toll and occupancy started to decline again. In addition to the clouded economic outlooks, the Royal Wedding in 2011 did not attract as many visitors to London as expected and failed to provide an occupancy boost.

Segmentation The following graph provided by TRi HotStats illustrates the Central London hotel segmentation mix for the last three full calendar years:

Central London Segmentation

12% 13% 13%

14% 14% 15% BAR

Corporate 23%

21% 78

25% Page Conference

6% 6%

5% Leisure

30% 28% 30% Tour/Groups

Other

15% 15% 15%

2008 2009 2010

Source: TRi HotStats, 2011  Typical for a mature destination such as London, the segmentation mix remained almost unchanged from 2008 to 2010. Whilst the corporate and conference market suffered in 2009, they both recovered and represent now 30% and 6% respectively. The leisure segment declined slightly from 2009 to 2010, accounting for 21% of total hotel demand in 2010. In terms of segmentation ADR, the following trends can be established:

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London Hotel Market

Central London Segmentation ADR

£200

£180

£160

£140

£120

£100

ADRper Segment £80

£60

£40

£20

£0 BAR Corporate Conference Leisure Tour/Groups Other 2008 2009 2010

Source: TRi HotStats, 2011  The same market trends can be observed in terms of ADR over the last three years. Whilst 2009 was generally a weak year, ADR recovered quickly and showed growth throughout practically all segments. The leisure segment shows a slightly different ADR evolution – most notably in 2009. Whilst

all the other segments dropped in ADR, ADR for the leisure sector remained practically

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unchanged. However, this strategy had a negative impact on occupancy for the leisure

segment, which we described previously.

HOTEL MARKET OUTLOOK Peaks and troughs are not new to the London hotel market and they can be driven by global events and/or economic circumstances. The latter is the predominant reason behind the recent downturn and, given the difficulty of obtaining a reliable prognosis as to the timing and extent of recovery; it is equally difficult to determine when the hotel industry recovery will be complete. The table below highlights the outlook for London as determined by PwC (Oct 2011) and STR Global (August 2011).

LONDON 2012 % PWC STR Occupancy 1.70% 1.20% ADR 5.70% 4.70% RevPAR 8.30% 6.00% In the run up to the Olympics in 2012, London will witness good levels of growth as the city begins to gear up in preparation for the international event. Many forecasters also foresee the year of the games being a bumper year for London tourism as overseas visits begin to flock to the capital. The Games are projected to lift occupancy above the historic peak, however caution is needed, due to the inconsistent impact seen historically at other Olympic cities. 2013 is expected to see a decline on 2012‟s exceptionally strong occupancy, although ADR growth will compensate for this, leaving RevPAR broadly flat. CBRE Hotels view is that the London hotel market 2012 will be characterised by continued supply increases which is likely to continue to impact occupancy growth. 2012 will be

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largely unprecedented in terms of demand with the Queen‟s jubilee, Farnborough Air show, Olympics and Paralympics games. Managing this demand and, significantly, the displaced demand will be the main challenge for hoteliers. We present below our forecasts for 2012 and 2013 in terms of occupancy, ADR and RevPAR for the London hotel market:

CBRE Hotels’ projection of Occupancy, ADR & RevPAR (2011-2013) Projected annual year-on-year change (including inflation) YEAR OCC ADR REVPAR TRENDING 2011 Actual -0.70% 6.60% 5.70% 2012 Forecast 1.50% 3.50% 5.00% Weaker 2013 Forecast -2.00% 5.00% 3.00% Weaker Source: CBRE Hotels Research Overall this remains a somewhat uncertain time for the UK economy and the London hotel industry and forecasting is especially difficult. The optimistic view would suggest that this is part of the normal cyclicality of the hotel industry and that things should now continue to improve. The more pessimistic view is that the economic environment will remain volatile and constrained for some time to come and the effects of this downturn will have far- reaching consequences for the political, economic, corporate and social environment which will see the next decade as a period of significant change for the UK and its hotel industry.

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London Transactional Market Commentary

Appendix D

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London Transactional Market Commentary

OVERVIEW HOTEL INVESTMENT MARKET Many European economies emerged from the recession during 2010, showing some weak GDP growth in the second and third quarters. Confidence also appeared to return to the investment market, although vendors‟ and purchasers‟ expectations on price remained some way apart. Most hotels that were brought to market were viewed as “distressed sales” and were taken as opportunities for deep discounting by purchasers. Potential vendors were therefore reluctant to bring properties to market and buyer perception was that prices had yet to “bottom out”. Investors are now particularly concerned with the cash flow of the existing business and tend to overlook the potential upside of future improvements in trading performance unless there are particularly compelling circumstances. Poor trading in 2009 has therefore significantly impacted upon pricing, as investors focus on the return on prior year trading. Despite this, transaction volumes improved during 2010, although major single asset deals were largely limited to the upper end of the market in bedroom European cities, such as the Lutetia Hotel in Paris and the Cumberland Hotel in London. In fact, London was the focus of the majority of significant single asset transactions during 2010, both for commercial property and hotels, with the sale of hotels such as the Jolly St Ermins completing in summer 2010, despite a continued lack of debt funding. Portfolio transactions however remain virtually non-existent and most single asset transactions remain below £100 million. Following summer 2010, sentiment appears to be weakening, driven to a large degree by

the banking sector with the introduction of new regulations which will require banks to hold 82

capital totalling 7% of their risk-bearing assets (increased from 2%). It should be noted that

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banks will not be required to do this immediately, but will have to increase their capital to

4.5% by 2015 and reach the full 7% by 2019. Strong transaction volumes have continued in 2011, mainly for hotels in prime cities such as London. Debt remains difficult to obtain and sentiment appears to be weakening in the face of the European debt crisis. However, as an increasing number of loans default, the volume of hotels being brought to the market is expected to continue in 2012.

TRANSACTIONS The adjustments required to compare the development to another hotel facility are numerous and include adjustments not typically required in other acquisitions of real estate such as industrial properties and office buildings. In markets where there is an ample amount of sale activity, the adjustments are few. However, in markets with few transactions (which are typical of the hotel sector) the differences become numerous. These differences can include, but are not limited to, the location, accessibility, strength of one market compared to another, management factors (encumbered vs. non encumbered properties), chain affiliation, date of sale, property performance, financing arrangements, motivation to sell or buy, and/or properties encumbered by a ground lease. Truly relevant comparable evidence remains scarce. Although transaction activity is increasing we have also taken into account other factors, including market sentiment and supply of properties on the market. We have undertaken discussions with our capital markets team who are in regular contact with investors. We understand that substantial equity remains in the market, however, investors require “opportunity fund” IRRs of around 20%, a level unachievable without gearing. We have also had regard to a number of “sense checks” including price per room, initial yield and trailing year yield, all of which

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relate to EBITDA. However, the historic transactions outlined below do provide a useful context and guide in the preparation of our indicative values. The hotel market is not generally as transparent as the commercial property market, and often yield information is not clearly identifiable. In relation to vacant possession purchases and properties subject to management contracts hotel yields are based on multiples of the likely profit to be received by the owner in the future. This level of detail is not made available in the public arena and therefore analysing transactions for yield comparables is not always possible. Instead other comparisons are often used such as price per room and it is largely this detail which is included below. Yields stated as being NIY are net initial yields and reflect the relationship between the first year‟s income and the gross value. Yields stated as being Stabilised are based on an estimate of the stabilised year‟s trading. It is also important to note that hotels, unlike many forms of commercial property are usually unique assets with differing trading performance and outlook, tenure, property condition, facilities and locations. As such comparable transactions are not as easily referred to in valuations as commercial property. Having said that, the hotel investment market does not function as an island and moves in tandem with other commercial real estate investments although not always at the same time or at the same pace. Traditionally hotels have been a more volatile class of investment and yields have tended to be softer than prime commercial investments. We are aware of several hotel sales which have transacted in recent years that have taken

place in Central London which are presented below:

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CONTRACT PRICE PER NET INITIAL

PROPERTY DATE LOCATION SALES PRICE ROOMS CLASS ROOM YIELD DEAL TYPE Queen's Gate Hotel Jan-10 London € 40,000,000 82 Upper midmarket € 487,805 Not Disclosed Leased Soutwark Rose Hotel Feb-10 London £15,100,000 84 Lower midmarket £179,762 5.82% Leased Marriott Marble Arch Hotel Jun-10 London circa £50,000,000 240 Upper midmarket £208,333 Not Disclosed Leased Park Inn Hyde Park Jun-10 London £33,500,000 188 Lower midmarket £178,191 Not Disclosed Vacant Possession Le Meridien Piccadilly Jul-10 London £64,000,000 266 Lower upscale £240,602 6.00% Management Contract Park Plaza Riverbank Hotel Oct-10 London £16,000,000 394 Upper midmarket £40,609 Not Disclosed Leased Hilton Hyde Park Oct-10 London circa £25,000,000 129 Upper midmarket £193,798 Not Disclosed Leased Splendid Portfolio Dec-10 London £112,000,000 616 Budget £181,818 Not Disclosed Vacant Possession Best Western The Cromwell Hotel Jul-11 London £20,000,000 85 Lower midmarket £235,294 Not Disclosed Vacant Possession W London Sep-11 London £200,000,000 192 Luxury N/A 4.80% Lease - Fixed Sanderson and St Martins Lane hotels Oct-11 London £192,000,000 354 Upper upscale £539,326 6.50% Management Contract Hesperia Victoria Oct-11 London £55,150,000 212 Lower upscale £260,142 6.50% Vacant Possession Source: CBRE Hotels Data (compiled from open market data) As outlined in the table above, there has been a substantial increase in transaction volumes throughout 2010 and 2011 in London hotels in prime locations, indicating strong investor appetite for London where hotel performance has been unusually strong. In particular, trophy properties or hotels available with vacant possession, and the opportunity to refurbish, reposition and rebrand, have attracted significant interest. However, hotels that are subject to management contracts or operational leases have also transacted, demonstrating the high levels of investor demand for London hotel assets. We discuss the details of more directly comparable transactions in London below. Le Meridien Piccadilly sold in July 2010 for £64 million at a yield of 6%, and equivalent to 7% at stabilisation. It has a Management Contract in place. The price per room was equivalent to £240,602. The hotel was a short leasehold interest which was less attractive to buyers reducing the pool of potential purchasers and thus somewhat limiting the price.

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London Transactional Market Commentary

The Hesperia Victoria was purchased with vacant possession by a private Middle Eastern buyer. The purchase price reflects a net initial yield of 6.5% and the purchaser plans to rebrand the hotel as a Doubletree by Hilton. The Splendid Portfolio was sold with vacant possession, subject to franchise agreements with IHG. The portfolio included Holiday Inn (HI) Brentford Lock, Holiday Inn Express (HIE) Park Royal, HIE Limehouse, HIE Southwark and HIE Royal Docks. The hotels sold for £112 million which is equivalent to £181,818 per room. The Park Inn Hyde Park was sold in June 2010 at £33.5 million. This was equivalent to £178,191 per room which reflects the lower standard of hotel compared to the St Ermin‟s. The Best Western The Cromwell sold in July 2011 for £20 million which was equivalent to £235,294 per room. The Sanderson and St Martins Lane hotels were purchased on a sale and management back from Morgans Hotel Group (MHG) by a Middle Eastern investor in October 2011. EBITDA for both hotels combined to be £12.6 million, which reflects a net initial yield of 6.5%. The purchase illustrates appetite for hotels with a strong price per room being paid. Both properties are boutique hotels with a strong reputation in the market and demand from buyers was high. The new 300 bedroom Intercontinental Westminster is expected to open in Q3, 2012. We understand the development attracted a high level of interest from investors and a number of offers are understood to have been received at around £100 million. There is

approximately £40 million of capital expenditure required to complete the property and, the

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level of bids, plus the capital needed to complete the development equate to around

£450,000 per bedroom.

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Appendix E

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In the following Appendix we provide further analysis on the performance of the assumed competitive set of hotels to the Implemented 261 bedroom hotel. This section should be read in conjunction with Section 6 of this report. The analysis helps support our assumptions regarding segmentation and our projections of occupancy for the Implemented 261 bedroom hotel.

Weekday/Weekend Trends We analyse weekday and weekend trends in KPIs (Occupancy, ADR and RevPAR) to understand the type of demand the competitive market experiences. Typically, Tuesdays and Thursdays are busy days for the corporate segment and Weekends are popular amongst leisure travellers.

KPIs by Days of the Week

80.0% 350.00

70.0% 300.00 60.0% 250.00 50.0%

200.00

40.0% Page

150.00

Occupancy % Occupancy 30.0% 100.00 20.0%

10.0% 50.00

0% 0.00 Sun Mon Tue Wed Thu Fri Sat Occupancy (%) ADR RevPAR

Source: STR Global  Occupancy follows a typical corporate-led pattern: busy in the middle of the week and more quite on weekends. The increase in occupancy on Saturdays indicates leisure business, mostly from tourists visiting London for the weekend.  In terms of ADR, we do not see the same drop-off over the weekend as for occupancy. This is indicative of an elongated leisure demand, which would keep room rates fairly constant throughout the week.  As a result, RevPAR peaks on Tuesdays to Thursdays, falls on Fridays, increases on Saturday (peak for leisure guests) and drops on Sundays, when hotels struggle to fill their rooms.

Seasonality As part of our demand analysis, we look into seasonality in order to determine demand patterns.

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Seasonality – 3 Year Average (2006-07, 2011)

95.0% 300.00

85.0% 250.00

75.0% 200.00

65.0% 150.00

55.0% 100.00

45.0% 50.00

35.0% - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Occupancy (%) ADR RevPAR

Source: STR Global

 The graph above illustrates that demand is highest in March, June to July and in Page

autumn. These are generally strong corporate and conference periods, with leisure

business picking up in March (Easter) and in July (Summer Holidays). April, August and December are weak in terms of corporate demand. In historic holiday periods, such as December and August, occupancy suffers.  ADR does not experience the same volatility throughout the year, albeit rates drop in August close to the £200 mark. This indicates that hoteliers sacrifice on occupancy in order to uphold rates.

DEMAND GENERATORS Our assessment of demand is based upon our foregoing research/analysis of the primary and local competitive set of hotels of relevance, discussions with luxury hoteliers and hotels located in LB Southwark which we have been involved with. In the following we highlight the main sources of bedroom demand for the existing. In projecting demand for the Implemented 261 bedroom hotel we have adopted a fair share/penetration analysis methodology by market sector. This approach allows us to take in account the current business levels at the competitive hotels, envisaged future demand and future supply profiles in the market of relevance. We have projected the demand for the Implemented 261 bedroom hotel‟s guestrooms on the basis of our fair share model. This takes into consideration the hotels within the subject‟s competitive set and their degree of competitive relevance. We then forecast the hotel‟s performance relative to its competitive set by way of market penetration rates, whereby one (1.0) means that a hotel would achieve exactly its fair share of the market, values higher than one indicate over performance and lower values hint to an underperforming hotel.

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In addition to the fair share/penetration analysis we are also of the opinion that there is a level of latent demand. Latent demand represents potential room nights in the market place that could not be accommodated by the existing hotels, it comes in two forms:

. Induced demand – represents additional accommodated room-nights by the introduction of a new demand generator, such as the construction of a conference centre, a major company moving to the area, or the introduction of a new hotel that has distinct advantages over existing competitors.

. Displaced demand – occurs when individuals are unable to rent a room because all the hotels in the market place are filled to capacity. As a result, individuals must defer their trips or make accommodations in other markets. Because this demand was not accommodated historically, it is not illustrated in the estimate of the historic accommodated room-night demand. We are of the opinion that the introduction of an internationally branded luxury hotel to the existing planning permission will be able to generate its own level of induced demand as a result of its brand, standard facilities, service levels and loyalty programmes. The expected hotel demand for the Implemented 261 bedroom hotel is primarily generated by the corporate visitors visiting corporate headquarters within the City and Southbank area together with the leisure sector visiting London‟s attractions such as its retail offering, theatre

district, restaurants and other world known attractions. Other demand segments include the 88

conference and meeting sector to supplement the corporate demand aided by the size of

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the hotel‟s meeting facilities. On the whole, demand will also include corporate executives

and high-net worth leisure individuals. This market segment tends to organise trips at last minute and thus often pay rack rates at hotels. As such this represents a third sector of demand for the hotel. In the following pie chart we present our assumed market mix for the Implemented 261 bedroom hotel:

Business Mix

Consented 261-Bedroom Scheme Market Segmentation

Rack Rate 9%

Leisure/Other 36%

Corporate 46%

Conference and Incentive 9%

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CBRE Hotels Estimations

Rack Rate Demand The rack rate demand segment is made up of individuals who have not booked their hotel requirement in advance and have to pay full rate rather than a negotiated rate. Hoteliers situated in areas of high demand are able to generate a level of rack rate business compared with hotels in areas with lower demand and who offer continuous discounted rates to drive occupancy. Our analysis of the hotels of competitive relevance in the five star/luxury set has shown high levels of occupancy during mid week periods, which enables them to impose rack rates on individuals booking last minute. On the whole, these hotels attract considerable demand from senior corporate executives and high-net worth individuals, who from time to time tend to leave hotel bookings to last minute, whether on business or pleasure, and thus in periods of high demand are forced to pay rack rates. The Implemented 261 bedroom hotel is likely to attract a level of last minute and rack rate business, due to its envisaged quality, association with a high profile development, its position within the market place and associated branding. However, due to its more secondary location for a luxury property, we have assumed a smaller share of Rack Rate of

9%, equivalent to a fair share of 0.88 by the fourth and stabilised year of operation.

Corporate Demand

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Corporate travellers are defined as business people attracted by businesses in the area. The typical duration of occupancy is one to three days and is characterised by single occupancy (one person). Historically, this demand segment has been somewhat less price sensitive than other segments. Often, these types of travellers are influenced by quality of the hotel, brand loyalty, and location. Corporate volume demand is generated by local firms and includes employees of the company or others doing business with the firm. Rates are often pre-negotiated with the hotel and are sometimes discounted in return for a high number of occupied rooms. Due to the location of the hotel close to the City it is not unsurprising that the corporate market represents the largest demand generator for hotel bedrooms. London will remain a global financial and commercial centre and will continue to attracting more companies to locate within the capital. A report by CBRE (Q3 2011) concluded that after Q2‟s weak performance, office take-up strengthened in the City to reach 0.9 million sq ft. Take-up for the three quarters of 2011 reached 2.7 million sq ft. Similarly, Midtown office take-up rebounded healthily in Q3 with transactions over double than those in Q2. Deals include 95,000 sq ft let to Trowers & Hamlin, 81,300 sq ft let to Expedia.com in the City, 24,900 sq ft to Tate & Lyle and 15,700 sq ft to Goodman Derrick in Midtown. More importantly take-up at offices on the Southbank was above the long term average of 191,400 sq ft in Q3 2011 for the first time since Q4 2007. Office take-up for the last 12 months to Q3 2011 was the highest 12 months total since Q3 2008. Q3 2011 was boosted by a relatively large number of deals over 10,000 sq ft, the largest of which was the acquisition of 40,300 sq ft space at the Blue fin, Southbank Street by Detica (an international business and technology consulting firm owned by BAG Systems).

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New office developments on the Southbank which will provide future corporate demand for a hotel on the Site include The Shard which will be followed by a further 430,200 sq ft of space at The Place which is expected to complete in the second quarter of 2013. We estimate that by the stabilised year assumed to be year four future demand from the corporate segment will represent 46% of total room-night demand and as previously stated a large proportion of this demand is accommodated during the mid week periods. This is equivalent to a fair share of 0.95.

Conference and Incentive Demand Segment Conference and Incentive travellers are defined as any group occupying five or more rooms on a given night. This segment includes corporate groups, conferences, associations and incentive groups. This segment is typically attracted by a hotel's meeting facilities and ancillary facilities together with the strength of its location. Often, corporate groups pay high rates, especially incentive groups, where companies “wine and dine” their top salesman in upscale/luxury hotels. Corporate groups tend to have a high level of single occupancy, while other groups tend to have more double occupancy (two persons). Association groups have a more varied occupancy pattern and often hold weekend meetings. This demand segment tends to be somewhat price sensitive. The typical stay for group demand is between three and five days. There is a perception (often true) that by

occupying a block of rooms, a volume discount should be received. Group/meeting

travellers have a tendency to stay at full-service hotels and utilise a hotel's food and Page

beverage facilities. This segment is seasonal, and repeat business on an annual basis is not

guaranteed. Overall, the group/meeting segment is desirable as it provides for a full utilisation of hotel facilities. The Implemented 261 bedroom hotel has a good range, provision and mix of meeting and conference rooms and together with its future location close to office developments on the Southbank, Midtown and the City, we are of the opinion that the Implemented 261 bedroom hotel should attract good levels of demand from this sector compared to other hotels nearby which provide a limited variety of conference facilities. The facilities will be able to generate demand for overnight and day delegates. The facility, due to its Southbank location and excellent transport links to the City and West End, provides easy access to other hotels and conference/exhibition centres in London and it is therefore likely that the Implemented 261 bedroom hotel will also generate demand from delegates attending external events. We have estimated a latent demand equivalent of 1,050 room nights due to the range and quality of envisaged meeting room facilities, by the stabilised year. We estimate 9% of total demand will be from this segment by the stabilised year and represent a fair share of 1.03.

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London as a whole is a major tourist attraction and a „must see‟ destination and attracts many tourists visiting the city, particularly at the weekends. The ease of road access to and from the site (also to Covent Garden and the West End) will enable the Implemented 261 bedroom hotel to attract demand from this sector as well. Five star hotels located in the City and Midtown tend to offer lower rates particularly at weekends compared to West End five star hotels which will attract a certain market. Due to the size and envisaged luxury position of the Implemented 261 bedroom hotel it is unlikely that the property will appeal to the group tour market and thus leisure demand will be generated by the independent traveller market. In addition the association of a branded hotel will generate its own additional leisure demand, so called induced demand projected to represent 1,825 roomnights. As a result, we anticipate leisure demand to represent 36% of total demand and a fair share of 1.01.

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ProposedImplemented 152 26Bedroom1 Bedroom Hotel Hotel - Competitive - Competitive Analysis & DemandAnalysis &Profile Demand Profile

Appendix F

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&DEMAND PROFILE

COMPETITIVE ANALYSIS

HOTEL

PROPOSED 152PROPOSED BEDROOM

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ProposedImplemented 152 26Bedroom1 Bedroom Hotel Hotel - Competitive - Competitive Analysis & DemandAnalysis &Profile Demand Profile

In the following Appendix we provide further analysis on the performance of the assumed competitive set of hotels to the Proposed 152 bedroom hotel. This section should be read in conjunction with Section 6 of this report. The analysis helps support our assumptions regarding segmentation and our projections of occupancy for the Proposed 152 bedroom hotel.

Occupancy by Days of the Week

100.0% 90.0% 80.0% 70.0% 60.0%

50.0%

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40.0%

30.0%

Sun Mon Tue Wed Thu Fri Sat &DEMAND PROFILE 2009 2010 2011

Source: STR Global

COMPETITIVE ANALYSIS

 The graph above clearly indicates that demand is highest from Tuesday to Thursday -

and slows on Friday and Sunday. As described above, this is a common pattern for

HOTEL

corporate led markets. The higher occupancy on Saturdays suggest some degree of leisure and weekend business, which is likely driven by UK and European tourists visiting London for the weekend.

 The daily occupancy distribution indicates that the subject development is likely to have 152PROPOSED BEDROOM a strong corporate base during the week and some leisure business on weekends and during school holiday periods. This assumption is supported by the hotel‟s proximity to the financial district.

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ADR by Days of the Week

250.00

200.00

150.00

100.00

50.00

0.00 Sun Mon Tue Wed Thu Fri Sat

2009 2010 2011

Source: STR Global  Similarly to occupancy, room rates peak in the middle of the week and drop over the weekend. This is indicative of a market dominated by the corporate segment and a

weaker leisure segment.

 However, contrary to occupancy, ADR falls further on Saturday nights, to its lowest point Page

of the whole week. Hotels in the area tend to lower their rates on Saturdays to appeal

to leisure clients and drive volume, which in turn explains the increase in occupancy on

Saturday nights. &DEMAND PROFILE RevPAR by Days of the Week

250.00

COMPETITIVE ANALYSIS

200.00 -

HOTEL

150.00

100.00 PROPOSED 152PROPOSED BEDROOM

50.00

0.00 Sun Mon Tue Wed Thu Fri Sat

2009 2010 2011

Source: STR Global

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 As a function of occupancy and ADR, RevPAR follows the same pattern as occupancy and ADR. The comp set has high occupancy during the week with predominantly business travellers paying a higher rate. Thus, RevPAR peaks in the middle of the week.  On weekends, corporate is replaced with leisure, of which many book a discounted room rate/package. Hoteliers in a corporate led market are often forced to heavily discount on the weekend in order to fill rooms and maintain occupancy. Therefore, market evidence suggests that the subject property will experience more corporate demand than leisure. As such, the hotel‟s offering should be suited to the corporate guest, including work desk in guest rooms, wireless internet connection and meeting rooms.

Seasonality Seasonality is an important indicator of the business mix the subject property is likely to have. It also impacts a hotel‟s seasonal staffing requirements. The following graph highlights the monthly pattern for the hotels in the competitor set.

Seasonality – 3 Year Average (2009-11)

95.0% 250.00 95

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90.0%

200.00 85.0% 80.0% 150.00

75.0%

&DEMAND PROFILE

70.0% 100.00 65.0% 50.00

60.0%

COMPETITIVE ANALYSIS

55.0% - - HOTEL Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Occupancy (%) ADR RevPAR

Source: STR Global PROPOSED 152PROPOSED BEDROOM  June to July and September to November are typically busy months for business travel and conferences. For the competitor set, all three KPIs (occupancy, ADR and RevPAR) show the same trend: strong corporate and conference demand in late spring/early summer and in autumn.  On the other hand, December, January and August are the traditional holiday periods with greater leisure business which tends to be lower rated. Given the competitive set‟s reliance on the corporate segment, it is to no surprise that RevPAR drops in these months. Nevertheless, London as a year round destination doesn‟t experience the same strong seasonality as a seaside-resort would, thus, managing to still keep occupancy above 72% throughout the year.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

ImplementedProposed 152 26 Bedroom1 Bedroom Hotel Hotel - Competitive - Competitive Analysis Analysis& Demand & Demand Profile Profile

DEMAND GENERATORS In the following we highlight the main sources of bedroom demand for the Proposed 152 bedroom hotel. Our assessment of demand is based upon our foregoing research/analysis of the primary and local competitive set of hotels of relevance, discussions with luxury hoteliers and hotels located in LB Southwark which we have been involved with. In the following we highlight the main sources of bedroom demand for the existing. In projecting demand for the Proposed 152 bedroom hotel we have adopted a fair share/penetration analysis methodology by market sector. This approach allows us to take in account the current business levels at the competitive hotels, envisaged future demand and future supply profiles in the market of relevance. We have projected the demand for the Proposed 152 bedroom hotel‟s guestrooms on the basis of our fair share model. This takes into consideration the hotels within the subject‟s competitive set and their degree of competitive relevance. We then forecast the hotel‟s performance relative to its competitive set by way of market penetration rates, whereby one (1.0) means that a hotel would achieve exactly its fair share of the market, values higher than one indicate over performance and lower values hint to an underperforming hotel.

In addition to the fair share/penetration analysis we are also of the opinion that there is a

level of latent demand. Latent demand represents potential room nights in the market place 96

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that could not be accommodated by the existing hotels, it comes in two forms:

. Induced demand – represents additional accommodated room-nights by the introduction of a new demand generator, such as the construction of a conference

centre, a major company moving to the area, or the introduction of a new hotel that

&DEMAND PROFILE

has distinct advantages over existing competitors. Displaced demand – occurs when individuals are unable to rent a room because all the

hotels in the market place are filled to capacity. As a result, individuals must defer their

COMPETITIVE ANALYSIS

trips or make accommodations in other markets. Because this demand was not - HOTEL accommodated historically, it is not illustrated in the estimate of the historic accommodated room-night demand. The expected hotel demand for the Proposed 152 bedroom hotel is primarily generated by

the corporate guests visiting corporate headquarters within the City and Southbank area PROPOSED 152PROPOSED BEDROOM together with the leisure sector visiting London‟s attractions such as its retail offering, theatre district, restaurants and other world known attractions. Other demand segments include to a smaller extent the conference and meeting sector to supplement the corporate demand. Due to the high occupancy level of the competitive set, we anticipate some rack rate business for the Proposed 152 bedroom hotel. As such this represents a third sector of demand for the hotel. In the following pie chart we present our assumed market mix for the Proposed 152 bedroom hotel:

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Implemented 261 Bedroom Hotel - Competitive Analysis & Demand Profile

Business Mix

Proposed 152-Bedroom Scheme Market Segmentation

Rack Rate 9%

Leisure/Other 36%

Corporate 48% Conference and Incentive

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CBRE Hotels Estimations &DEMAND PROFILE Rack Rate Demand The rack rate demand segment is made up of individuals who have not booked their hotel

requirement in advance and have to pay full rate rather than a negotiated rate. Hoteliers

COMPETITIVE ANALYSIS

situated in areas of high demand are able to generate a level of rack rate business -

compared with hotels in areas with lower demand and who offer continuous discounted HOTEL

rates to drive occupancy. Our analysis of the hotels of competitive relevance in the upscale/lifestyle set has shown high levels of occupancy during mid week periods, which enables them to impose rack

rates on individuals booking last minute. 152PROPOSED BEDROOM We anticipate a smaller share of rack rate demand for the Proposed 152 bedroom hotel. The Implemented 261 bedroom hotel features a higher number of suites, for which guest would generally pay rack rate. Due to the nature of the Proposed 152 bedroom hotel concept and its room type configurations, we would expect that the Proposed 152 bedroom hotel will have less „last minute‟ guests and would offer more discounted rates, thus reducing the share of rack rate demand to 9%.

Corporate Demand Corporate travellers are defined as business people attracted by businesses in the area. The typical duration of occupancy is one to three days and is characterised by single occupancy (one person). Historically, this demand segment has been somewhat less price sensitive than other segments. Often, these types of travellers are influenced by quality of

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ImplementedProposed 152 26 Bedroom1 Bedroom Hotel Hotel - Competitive - Competitive Analysis Analysis& Demand & Demand Profile Profile

the hotel, brand loyalty, and location. Corporate volume demand is generated by local firms and includes employees of the company or others doing business with the firm. Rates are often pre-negotiated with the hotel and are sometimes discounted in return for a high number of occupied rooms. We assume a higher proportion of business coming from corporate guests. Companies curtailing their travel budgets, focus on value for money, different target markets (more middle to senior managers) and the economic structure of the local area (more media companies) would support the conclusion that an upscale/lifestyle hotel in this location could generate a relatively high share of corporate demand of 48%.

Conference and Incentive Demand Segment Conference and Incentive travellers are defined as any group occupying five or more rooms on a given night. This segment includes corporate groups, conferences, associations and incentive groups. This segment is typically attracted by a hotel's meeting facilities and ancillary facilities together with the strength of its location. Often, corporate groups pay high rates, especially incentive groups. Corporate groups tend to have a high level of single occupancy, while other groups tend to have more double occupancy (two persons). Association groups have a more varied occupancy pattern and often hold weekend meetings. This demand segment tends to be somewhat price sensitive. The typical stay for

group demand is between three and five days. There is a perception (often true) that by

occupying a block of rooms, a volume discount should be received. Group/meeting Page

travellers have a tendency to stay at full-service hotels and utilise a hotel's food and

beverage facilities. This segment is seasonal, and repeat business on an annual basis is not guaranteed. Overall, the group/meeting segment is desirable as it provides for a full

utilisation of hotel facilities.

&DEMAND PROFILE

There are fewer meeting and function rooms available in the Proposed 152 bedroom hotel compared to the Implemented 261 bedroom hotel. Therefore, we have assumed a lower

market share from the conference and meeting segment, which tends to be lower rated

COMPETITIVE ANALYSIS

business in terms of ADR. Therefore, we assume that the meeting and incentive segment - HOTEL will be less important for the Proposed 152 bedroom hotel, generating 7% of total demand.

Leisure Demand Segment Leisure travellers generally include tourists or visitors passing through the area. This category effectively includes all non-commercial related travellers too small to be defined as 152PROPOSED BEDROOM a group. This segment is typically attracted by a hotel's location relative to the area‟s attractions (including friends/relatives). Demand from leisure/transient travellers is typically generated throughout the week during peak periods, with more weekend demand in shoulder seasons. Leisure travellers tend to have a high level of double occupancy. The typical stay for leisure travellers is between two and five days. Transient travellers typically occupy a room for one or two nights only. As well as London being a „must see‟ destination, the Southbank has a strong reputation both nationally and internationally as a result of its popular tourist attractions such as the London Eye and the London Aquarium. In addition, the Southbank has a strong leisure draw due to its cultural attractions such as the Royal Festival Hall, the National Theatre, British Film Institute, Globe Theatre and numerous outdoor festivals. The area is also „alive‟ with numerous bars and restaurant.

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ImplementedProposed 152 26 Bedroom1 Bedroom Hotel Hotel - Competitive - Competitive Analysis Analysis& Demand & DemandProfile Profile

An upscale/lifestyle hotel will compliment the local cultural and social attractions located in LB Southwark and the Southbank providing good leisure demand. Leisure guests staying at a luxury hotel (like the Implemented 261 bedroom hotel) are more likely to head straight to Mayfair, Knightsbridge and the West End rather than explore the local area. Whereas the clientele at upscale/lifestyle led hotels tend to explore local areas in the vicinity of the hotel. In addition, the style and ambiance of the hotel will create its own leisure demand for weekend and short breaks where guest like to stay somewhere a bit different. Hence, we

have assumed a good proportion of leisure demand of 36%.

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&DEMAND PROFILE

COMPETITIVE ANALYSIS

HOTEL

PROPOSED 152PROPOSED BEDROOM

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Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel

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Appendix G

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel

In the following we compare the Implemented 261 bedroom hotel and the Proposed 152 bedroom hotel over a range of issues.

Implemented 261 Bedroom Hotel versus Proposed 152 Bedroom Hotel Comparative commentary ISSUE DEVELOPMENT ADVANTAGES/PROS DISADVANTAGES/CONS Location within development 261  Hotel to occupy a large proportion of site, with ancillary space taking up most  Hotel bedrooms located in tower creates inefficiencies in terms of the day to day of space on ground floor. operation.  Rooms benefit from fantastic views being located in tower.  Very expensive build compared to stand alone hotel building.  Hotel forms an integral part of development and is able to take advantage of the design of tower, which would be iconic against the London skyline. 152  Stand alone building that enables the hotel to benefit from a simple and  Hotel sits towards rear of site and thus will have more limited visibility from

efficient design and layout. street.

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 Construction costs lower due to a more uniformed design and build. Page

 Greater operational efficiencies, thus allowing hotel management to generate

greater profitability. Ancillary Space/Access 261  Main entrance to face Blackfriars Road – providing maximum visibility from  Large public areas equate to a wasted opportunity to create revenue. road.  Access is limited to Blackfriars Road, would benefit from additional entrances from Stamford Street.  Sky deck operation creates increased pedestrian population within development that would be a security issue for both hotel and residential units. 152  Main entrance to be positioned off Upper Ground.  Entrance is hidden from Blackfriars Road  Design allows for a new civic square, creating greater opportunities for hotel to influence streetscape and increase visibility.

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Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel

ISSUE DEVELOPMENT ADVANTAGES/PROS DISADVANTAGES/CONS Guestrooms 261  Located in tower and thus many rooms enjoy uninterrupted views across  Room sizes compete with the luxury end of the market, which is traditionally London. located in Mayfair and Knightsbridge. Unlikely to generate similar rates in this  Minimum size of room 50sqm – providing some of the largest standard rooms location which in turn decreases profitability of the development. in London.  Tower location provides operational inefficiencies.  Size and envisaged quality of room limits potential operators. Main luxury operator’s prime location remains Mayfair and Knightsbridge. LB Southwark considered secondary. 152  Rooms range from 20m2 to 45m2+ enabling hotel to appeal to a wider range  Limited views – large proportion will look across Rennie Street. of operators. Mix of rooms and sizes envisaged are comparable to other hotels

operating within the envisaged market place this hotel will occupy.

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 Room product is envisaged to be upscale/lifestyle, a segment of demand that is Page

not focused on primary London and will choose accommodation in secondary

locations.  Servicing rooms, due to size and design creates greater operational efficiencies, despite being a lifestyle product. Food & Beverage Facilities 261  Bar and Fine Dining Restaurant located on levels 24 and 25 of tower, providing  Food & Beverage units facing Stamford Street – designed to be operated by excellent views across London. third parties and thus immediate competition to the Implemented 261 bedroom  All day dining concept on ground floor. hotel.  Lobby bar in reception area, capturing both internal and external trade.  Limited accessibility to passing trade.  Inefficiency of fine dining restaurant due to kitchen located within tower – requires further service lifts. 152  Main restaurant to face onto both newly created civic square and Stamford  Lacks visibility from Blackfriars Road. Street. Greater visibility from street and more accessible to general public.  Further F&B facilities to be included at ground level of the podium block that  Bar forms link between reception area and restaurant and thus creates a vibrant would be competitive to Proposed 152 bedroom hotel. atmosphere with public areas.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel

ISSUE DEVELOPMENT ADVANTAGES/PROS DISADVANTAGES/CONS 152  Efficient placement of back of house facilities due to standardised design of building.  Design allows for hotel kitchen to operate the additional food and beverage facilities within new development, with little if any operational difficulties. Source: CBRE Hotels

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Lifestyle Hotel Images

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Appendix H

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Lifestyle Hotel Images

Set out below are examples of lifestyle operators and brands (including several boutique hotel operators by way of comparison). Some of these are private companies whilst others are brands which are managed by large international hotel companies. We are of the view that there would be strong demand for the Proposed 152 bedroom hotel from such operators.

Edition by Marriott Edition Hotels provides stylish, boutique accommodation in the most attractive locations worldwide. Along with the personal touch and vision of award-winning designer Ian Schrager, ambiance and energy are the signatures of each distinctive location.

Marriott has purchased the formerly known Berners Hotel and will open the first Edition in London in 2013.

Andaz by Hyatt

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Global in scale while local in perspective, Andaz delivers an innovative hospitality

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experience and attentive, uncomplicated service designed to accommodate guests' personal preferences. Hotels in this unique collection reflect the spirit of their locale, and are dedicated to creating natural and vibrant living spaces where travelers can indulge in their own personal sense of comfort and style.

There is currently one Andaz hotel in London at Liverpool Street. The hotel features 267 bedrooms.

Firmdale Firmdale, owned by Tim and Kit Kemp, have six hotels in London and one in New York. The high standards of excellence and unique style of decoration have over the years added to a winning combination. Further hotels are currently planned for London and New York.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Lifestyle Hotel Images

Their current portfolio in London includes The Haymarket, The Soho Hotel, Charlotte Street Hotel and Knightsbridge Hotel.

MGallery by Accor MGallery is a new collection of upscale hotels, each with a marked personality. They appeal to individual travellers looking for distinctive services or seeking a place with a true soul. At the time of launch in September 2008, the MGallery collection comprised eight hotels in Europe and in the Asia-Pacific region. Today, it has expanded to the five continents with 48 hotels. The collection will further grow to 100 properties by 2015.

W by Starwood Once a New York phenomenon, W has transformed into a global powerhouse, with 50+ hotels to be open by the end of 2013. The first W hotel in London opened in 2011 and is

located near Leicester square.

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Missoni by Rezidor Hotel Group Hotel Missoni is a close creative and business collaboration between the international Italian fashion label Missoni and The Rezidor Hotel Group. The first, award winning Hotel Missoni launched in Edinburgh in late 2009, followed by Hotel Missoni Kuwait in 2010. More openings are planned in fashionable locations around the globe.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Lifestyle Hotel Images

Doyle Collection The Doyle Collection is a unique selection of eleven urban hotels, extending across six major cities in the U.S., the U.K. and Ireland. Each boast their own contrasting character and provide a modern interpretation of hospitality. The eleven properties within The Doyle Collection all have been renovated over the past two years to an exceptional level of specification.

The group has to date three properties in London: The Marylebone Hotel, The Bloomsbury Hotel and the Kensington Hotel.

Mondrian by Morgans Hotel Group The opening of St Martins Lane in London in late 1999 represented Morgans Hotel Group‟s first foray across the Atlantic. Received with great fanfare and both critical and customer acclaim, St Martins Lane is an urban hotel that takes the Morgans Hotel Group concept of

“Hotel as Theatre” to a new level to provide its guests with a singularly magical, exciting 107

and visceral experience. As a follow up to St Martins Lane, Morgans Hotel Group opened

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Sanderson in London‟s stylish Soho district in 2000.

Threadneedles by Eton Collection Eton Collection has a portfolio of seven boutique hotels in Edinburgh, Leeds and London. The Academy is five Georgian homes linked to create a townhouse hotel in Bloomsbury in London‟s West End. The Colonnade is a Victorian mansion in Little Venice, near Paddington. Threadneedles is an upscale boutique hotel in a converted banking hall in the City of London.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Lifestyle Hotel Images

Thompson Hotels Thompson Hotels is a collection of Luxury Hotels in the U.S., Canada and London. Blending traditional British hospitality with an American bohemian attitude, Thompson Hotels‟ premier transatlantic addition Belgraves interprets the Thompson Hotels experience in London. The London hotel opened in 2010 and features 85 of rooms.

The Standard by Andre Balazs Andre Balazs has developed nine boutique hotels in the U.S., including the Mercer in New York and the Standard. It is rumoured that an expansion into the London market is

planned.

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Soho House Group Soho House was founded in London, in 1995, as a private members‟ club for those in film, media and creative industries. The group has since expanded to include Houses across Europe and North America, as well as restaurants and hotels. There are currently four hotels in the UK, including the 39 bedroom hotel Dean Street Townhouse.

CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS

Lifestyle Hotel Images

Aloft by Starwood Aloft is a highly sociable, tech-savvy destination inspired by the celebrated W Hotels. Available in both franchise and managed models, Aloft is a fast growing brand with more than 50 hotels having opened in the first three years. The first and only Aloft in London opened in 2011 by London ExCel and features 252 bed rooms.

Malmaison Malmaison is a UK boutique/lifestyle hotel operator with currently 12 hotels. The group

operates one hotel in London in Clerkenwell, near the Barbican.

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