The Hotel Property Handbook Investment & Financing Keys Snapshot

October 2017 Financial Advisory I Real Estate - Hospitality

@ 2016 Deloite Financial Advisory 1 Javier García-Mateo, MRICS

Partner Financial Advisory ‖ Real Estate [email protected] Mob: +34 659 90 02 15 Ana Granado, MRICS

Director Financial Advisory ‖ Real Estate [email protected] Mob: +34 630 78 44 73 Jose María Espejo

Senior Manager Financial Advisory ‖ Real Estate [email protected] Phone: +34 918 232 692

Fernando Baldellou

Partner Head of Financial Advisory – Hospitality The Hotel Property [email protected] Phone: +34 914 432 514

Handbook Jordi Schoenenberger

Partner Balearic Islands Snapshot Hospitality Industry Leader [email protected] Phone: +34 932 543 932

@ 2016 Deloite Financial Advisory 2 ► Balearic Islands is one Top 5 ranked Key Investment destination in in terms of visitors; in 2016 the Islands registered 13m visitors an +11% growth and Financing compared to the same figure in 2015. As at Aug 2017 The Hotel Property Handbook the islands have already registered >9m visitors and Drivers 2 are expected to beat all times highs. 4 Balearic Island Snapshot ► Average Stay in the Islands stands at 5 days, ► High Liquidity for both Supply & However they are affected by a significant Equity and Lending due to the seasonality, with almost 80% of the hotel supply Demand improvement of KPIs throughout EXECUTIVE SUMMARY closed during low season months. Spain. ► 11 new hotels have opened in 2017 with a total of +1,707 new rooms, furthermore 15 refurbishments ► Increasing financing have been executed accounting for +2,622 rooms. demand for prime development projects, ► Balearic Islands average RevPAR grew +37% including refurbishment, (2013-2016) due to robust ADR growth of +27% and repositioning and greenfield occupancy rate increases of +600pb.

► The main chains´ priorities are innovation, ► Location, category, 1 sustainability, asset renovation, brand performance and hotel repositioning, the client experiences and digital brand significantly impact on Market strategy to become the market leaders. financing terms. Overview Balearic Islands growth Key drivers Hotel Real Estate Key 2015 vs 2016 Investment Factors ► Tourism is the key economic driver of Market During 2016 Balearic 3 5 Balearic Islands. Islands Tourism GDP accounted for ► The EMEA region accounts for 27% of the total Hotel Real Full Due Diligence required to 45% of total GDP and 32% of total Estate Investment volume. Spain accounts for 12% perform the optimal deal analysis: Employment. ► In Spain, Hotel Investment volume increased by 21% in ► Financial Factors: Understanding of GOP vs. 2017YTD (€2,600m) and accounted for 35% of total ► Balearic Islands is one of the leading NOP. non-residential investment regions in Spain terms of GDP growth, ► Business Performance: Analysis of market and income sustainability. reaching +3.8% record breaking ► registered for Balearic Islands €281m representing ► Legal Factors: Analysis of all intervenient figure. 2017 GDP growth is expected to 11% of total Spain’s investment market figure. contracts. Comprehensive legal risk analysis. hit all times high with c. 4% growth. Island registered the lions share with 68% of ► Tax Factors: Analysis of tax risks and potential total Balearic Island Investment. tax structuring alternatives. ► Unemployment has fallen down to ► Technical Factors: Functional use (Back of 12% 2017YTD, registering it’s lower figure ► represents the outmost growth House vs. Front of House), equipment since the crisis peak (28.55% - 2013). importance in terms of capital values (€k/room) within condition, legal compliance and the hotel Europe with 18.2% growth (2016-2015). design (BREEAM + LEED certifications). @ 2016 Deloite Financial Advisory 3 The Hotel Market: Unitary Values Analysis (€/room)

The Hotel Property Handbook 10 Year Balearic Island Snapshot Bond 2016-2017 (1 March 2017) 0,92% 1,15% -0,22% -0,22% 2,12% 2,12% 0,34% 1,67% 2,12% 0,23% 0,62% 1,67% 0,91% 1,15% 1,67% ▼4 bps ▼65 bps ▼ 22 bps ▼ 22 bps ▲ 50 bps ▲ 50 bps ▼ 43 bps ▼17 bps ▲ 50 bps ▼ 34 bps ▼ 22 bps ▼17 bps ▼16 bps ▼65 bps ▼ 17 bps Yield 2016 – Dif. 10 408 bps 310 bps 547 bps 522 bps 363 bps 388 bps 516 bps 433 bps 388 bps 477 bps 538 bps 458 bps 509 bps 360 bps 433 bps EXECUTIVE SUMMARY years bond €800k (8.1%) (13.9%)

Drivers increase in cross-border €600k (6.2%) investments: (4.0%) 0.5% Yielding Assets are more 1.7% 6.6% 13.9% (3.7%) €400k attractive than Investment (1.1%) 7.9% 11.0% 4.6% (6.7%)

Grade Bonds 15.5% per

1 16)

18.2% €200k - 2016

Returns expected in Spain - through hotel investment are (2015 €100k

2 above the European average

Capital Values Growth (%) Growth Values Capital 2015

Capital Value Value Capital room

Strength of the dollar (For American investors) and

3 weakness of the Euro since 2014

London Rome Amsterdam Madrid Zürich Geneva Florence Barcelona Milan Munich Copenhagen Europe Dublin Edinburgh Mallorca Palma Political and financial €800k Paris uncertainly in certain 4 countries is favouring Spain

€600k 2016

€400k -

The outstanding tourism performance €200k is expected to continue

- Trend 2006 Trend improving in 2018. per room Value Capital

@ 2016 Deloite Financial Advisory Max. Min (2006-16) 2015 2016 4 Source: HSV London Spanish Investment Market The Hotel Property Handbook In 2017YTD the Hotel investment volume has exceed by Balearic Island Snapshot 21% the investment volume of 2016. Hotel typology represents 35% of the total investment volume EXECUTIVE SUMMARY Balearic Islands 12,398 Top 10 Spanish single asset transactions: Hotels 11,845 €281m 12,000 Mallorca Price # Asset Units Typology Logistic (€m) 68% 1 Ritz-Carlton Abama 461 183 Vacational 10,000 Retail High Street 4,895 2 Hotel Villaitana 390 101 Vacational 32% 8,587 5,313 3 Jardin Tropical 390 101 Vacational Retail Shopping Centre 4 Sol Príncipe 799 89 Vacational 8,000 7,334 5 Hotel Silken 240 80 Urban Offices 2,520 6 Hilton Diagonal Mar Barcelona (55%) 238 80 Urban 1,781 7 Ritz-Carlton Abama 50% 461 Vacational 75 6,000 8 Sol Palmanova 653 73 Vacational 1,894 3,769 9 Silken Puerta de América 315 48 Vacational 4,470 2,297 2,277 10 AC Malaga Palacio 214 48 Urban 4,000 1,263 1,460 3,189 3,151 Total Hotel investment volume in 660 595 807 674 644 1,056 2,087 2,242 930 428 Source: Deloitte Spain as at 2017YTD: €2,600m 2,000 544 867 1,467 687 Hotel 591 365 596 2,702 2,600 571 751 2,145 35% A total pipeline investment volume of €800m is 150 279 120 750 576 88 607 932 expected to be traded in Spain - 519 2010 2011 2012 2013 2014 2015 2016 2017YTD 8% 17% +21% 100% Source: Deloitte Data Base and third party sources 75% For more information see CHAPTER 3 (Investment Market)

@ 2016 Deloite Financial Advisory Short Term Medium Term Long Term TOTAL Source: Deloitte 5 Balearic Islands Investment Market: The Hotel Property Handbook 2016-2017YTD Balearic Island Snapshot Balearic Islands, with €281m of hotel investment volume in 2017YTD, is playing a main role within the Spanish market EXECUTIVE SUMMARY representing a 11% share.

Year Q Asset Province * Rooms Price Vendor Buyer 2017 3T Sol Palmanova Mallorca 4* 653 72,600,000 Starmel (JV Starwood Capital y Meliá) London & Regional Properties European Yields & Capital Values (2016): 2017 2T Intertur Hotel Miami Ibiza Ibiza 3* 365 32,420,000 Intertur Hotels KKR y Dunas Capital 2017 3T Sol House Ibiza Ibiza 4* 275 30,600,000 Starmel (JV Starwood Capital y Meliá) London & Regional Properties Capital Value Lease Yield City Country (€k per room) 2016 2017 2T Intertur Hotel Hawaii Mallorca & Suites Mallorca 4* 299 26,550,000 Intertur Hotels KKR y Dunas Capital Paris France €644k 5,00% 2016 3T Hotel Marble Stella Maris Ibiza 4* 300 25,000,000 n.d. Corendon Hotels London UK €601k 4,25% 2017 2T Fergus Tobago Mallorca 3* 275 20,200,000 n.d. Hispania Zürich Switzerland €506k 5,25% 2017 2T Intertur Hotel Hawaii Ibiza Ibiza 4* 210 18,650,000 Intertur Hotels KKR y Dunas Capital Geneva Switzerland €440k 5,00% 2017 4T Hilton Sa Torre Mallorca 5* 104 18,100,000 HI Partners Blackstone Rome Italy €394k 5,75% 2017 2T Intertur Palmanova Bay Mallorca 4* 170 15,100,000 Intertur Hotels KKR y Dunas Capital Florence Italy €375k 6,00% 2016 1T Samoa Mallorca 3* 331 14,415,000 Grupo Hotasa Organización Alexandría Amsterdam Netherland €371k 5,50% 2016 2T Cartago Ibiza 3* 196 13,000,000 Real Estate San Miguel Hispania - SOCIMI Barcelona Spain €327k 6,00% 2017 1T Mar y Pins Mallorca n.d. n.d. 12,600,000 Hacienda Harald Fischl Milan Italy €318k 6,00% 2016 2T Olé Galeón Ibiza 4* 182 12,000,000 Real Estate San Miguel Hispania - SOCIMI Munich Germany €297k 5,00% 2016 3T Paradise Portinatx Ibiza 3* 134 11,000,000 Later Deruser Hispania - SOCIMI Copenhagen Denmark €276k 6,00% 2017 1T Gran Hotel de Sóller Mallorca 5* 38 10,000,000 Andreu Gelabert Sermeta Madrid Spain €268k 6,25% 2016 3T Hilton Sa Torre Mallorca Mallorca 5* 104 8,400,000 Sa Torre Mallorca HI Partners Europe €267k 6,00% 2017 2T Intertur Apartamentos Miami Ibiza Ibiza 2* 82 7,280,000 Intertur Hotels KKR y Dunas Capital 2016 2T Club San Miguel Ibiza 3* 106 7,000,000 Real Estate San Miguel Hispania - SOCIMI Source: Deloitte Data Base For more information see CHAPTER 4 (Key 2016 3T Hotel Kross Mallorca 3* 112 7,000,000 Banco Popular HM Hotels 2017 1T Blue Sea Arenal Tower Mallorca 3* 152 3,900,000 Blue Sea Portobello Investment and Financing Drivers) 2017 1T Blue Sea Gran Playa Mallorca 3* 139 3,500,000 Blue Sea Portobello in the full report. 2017 1T Blue Sea La Pinta Mallorca 3* 130 3,300,000 Blue Sea Portobello 2017 1T Blue Sea Costa Verde Mallorca 3* 124 3,100,000 Blue Sea Portobello 2017 1T Blue Sea Don Jaime Mallorca 3* 120 3,000,000 Blue Sea Portobello European Investment Market 2016 1T Viva Alcudia Sun Village Mallorca 4* 203 n.d. Viva Hotels BQ Hoteles 3 Spanish transactions are included 2016 2T Universal Apartahotel Elisa Baleares 3* 54 + 17 n.d. n.d. Universal Hotels 2016 2T Es Figueral Nou Rural Hotel Mallorca 4* 25 n.d. n.d. Ferrer Hotels within the Top 10 European 2016 2T Bahía Cala Ratjada Mallorca 4* 119 n.d. n.d. Schauinsland-Reisen deals. 2016 3T Allsun Lux de Mar Mallorca 4* 236 n.d. Edificios Fuentemar 16 18 Allsun Amounting to €987m, these Spanish 2016 4T Garden Lago Mallorca Apt 3* 89 n.d. Diamond Resorts Onahotels transactions account for 30% of the Source: Deloitte Data Base and third party sources Top @20 2016 investment Deloite Financial Advisoryvolume For more information see CHAPTER 3 (Investment Market) 6 Spanish Hotel properties performance The Hotel Property Handbook Balearic Islands RevPar increased by 37% on average Balearic Island Snapshot from 2013 to 2016.

VACATIONAL Main vacational hotspots Balearic Islands Hotspots 170 EXECUTIVE SUMMARY 140 137 160 135 137 161 130 150 SPAIN’S GEOPOLITICAL 130 GDP CONTEXT 140

grew by 3.2% The Spanish (2013=100) 124 during 2016. Tourism Industry 125 126 140 Tourism accounts is benefiting from for 11.3% the current 119 124 of Spain’s GDP geopolitical CONSUMER 120 130 RECORD context CONFIDENCE 124 FIGURES 2016 117 CCI has 75.6 million tourists experienced an 115 115 120 123 came to Spain in Uptrend since 2012 111 2016 spending and is close to €77.6k million 110 113 108 max. levels 110 110 106 GROWTH 106 100 110 TOURISM BUSINESS 105 105 COMPETITIVENESS CONFIDENCE 100 102 104 Spanish Tourism Tourism Business 100 industry Confidence close 105

acknowledged as to max. levels hotspot by (€) Evolution 100 the world’s most since 2016 90 competitive EMPLOYMENT BREXIT 95 In contrast to Tourism-related 80 previous estimates, employments RevPar 2013 2014 2015 2016 12% more UK accounts for 12% tourists came to of Spain’s Andalusía Catalonia Spain during 2016 employments Community of Valencia Balearic Islands Mallorca Island Island Ibiza & Island Canary Islands Avrg. Vacational dest.

KPI’s evolution (2013 to 2016) Hotel assets are in greater demand as the tourism industry ADR + Occupancy = RevPar is surpassing historical records SPAIN +14% +840bps +31% every year for a significant +602bps +37% profitability increase B. Islands +27% @ 2016 Deloite Financial Advisory For more information see CHAPTER 2 (Supply and Demand) 7 Spanish hotel new openings The Hotel Property Handbook Significant hotel openings during 2017YTD Balearic Island Snapshot Balearic Islands EXECUTIVE SUMMARY Hotel openings trend Figures 11 Hotels (2010-17 YTD) New Openings (number of hotels and 1,797 Rooms

2017 YTD openings by type of project: rooms) Refurbishment 15 Hotels 200 2,622 Rooms 12000 Chain/Brand Spain Balearic Islands 180 Conversion 21 Hotels

10000

160

140 6,907 8000

120 New openings New openings 25% 23% 5,745 5,697 Chain/Brand 100 5,396 5,120 6000 Conversion Chain/Brand 4,964 52% Conversion 45% 80 Refurbishment Refurbishment 4000 23% 32% 3,124 60 2,825

40

2000

20 Source: Censo Alimarket Hoteles 82 62 68 57 56 34 54 48

- 0 2010 2011 2012 2013 2014 2015 2016 2017 YTD Refurbishments and New Hotels # rooms brand repositioning will be the key priorities during 2017, boosting revenues to its maximum levels within Balearic Source: Censo Alimarket Hoteles Islands.@ 2016 Deloite Financial Advisory For more information see CHAPTER 2 (Supply and Demand) 8 Financing Market The Hotel Property Handbook Yielding assets: Increasing lending demand due to the Balearic Island Snapshot outstanding tourism industry performance

EXECUTIVE SUMMARY 2013-14 2015 2016 2017YTD

Framework Credit Access Financing Constraints Upturn MAIN DRIVERS FOR THE INCREASING LENDING DEMAND Institutional Main Players Investors / Debt Banking / Insurance MACROECONOMIC ENVIRONMENT Funds Companies . Improvement of fundamentals . Monetary Policy: QE, low funding costs, etc. Upfront Fee 150-250bps 125-175bps 100-150bps 90-135bps

FINANCIAL SECTOR . Restructuring of the Financial Sector Spread 225-400bps 200-250bps 175-225bps 150-225bps . P&L reconstruction

REAL ESTATE INVESTMENT MARKET

. Excess of Liquidity: Increase in transactions LTV (1) 45-50% 45-55% 50-60% 50-65% . Entry of new sponsors

. Alternative to the fixed income / bond yields Main Conditions

Balloon (2) 60-80% 65-100% 70-100% 70-100%

(1) Sustainable LTV to deal with the debt service with high funding costs (A higher LTV will result in a greater debt service) . Development loans: (2) A Balloon is required to cover the high funding costs during the loan´s life (a lower balloon will result in a greater annual debt Traditional lenders are service). Estimated balloon for a 5-7 years loan. coming back Location, category, performance, type of operating contract (and mandatory period duration) Senior Debt: and hotel brand significantly affect financing terms. . Yielding assets: Source: Deloitte gathering@ 2016 Deloite Financial momentum Advisory For more information see CHAPTER 4 (Key Investment and Financing Drivers) 9 The Hotel Property Handbook Main Players: Balearic Island Snapshot Equity Main Chains EXECUTIVE SUMMARY

THE CORE PROFILE STILL DOMINATES THE MARKET: 2015 2016

Value Value Added Added 10% 13.7% Core+ 11% NPLs portfolios

Core+ Core 30.0% 56.3% Core 79%

(€m) €m €m More than 10,000 rooms in Spain Core 1,522 Core 1,702 Core+ 811 Core+ 234 Debt Value Added 369 Value Added 209 Source: Deloitte

The Most active players are expected to stay active in 2017: Source: Deloitte For more information see CHAPTER 4 (Key Investment and Financing Drivers) @ 2016 Deloite Financial Advisory 10 The Hotel Property Handbook Balearic Island Snapshot

@ 2016 Deloite Financial Advisory 11 Innovation

The Hotel Property Handbook Balearic Island Snapshot

Sustainability Digital strategy EXECUTIVE SUMMARY BREEAM & LEED

LEADING SUSTAINABILITY CERTIFICATIONS Hotel Property

Customised experiences Renovation

BREEAM and LEED certifications are the most significant sustainability certifications worldwide. Both standards are regularly updated in line with the Brand repositioning market. @ 2016 Deloite Financial Advisory 12 The Hotel Property Handbook Most significant value drivers for CEOs in 2017 Balearic Island Snapshot

EXECUTIVE SUMMARY Select the two most significant drivers to improve #1 capital and asset efficiency in 2017 Income “Expectativas 2017 increase The Experience Revolution” Investment repositioning 35%

#2 Optimise and invest in asset maintenance 33% Operating margin Systems investments 28% improvement Non-profitable asset sales 25%

#3 Cash Management 23% Talent and brand Funding sources renegotiation 17%

management Accounts receivable and payable management 15%

#4 Acquisitions 15% Asset and Supplier and debtor management 7% capital efficiency CapEx optimisation 2%

@ 2016 Deloite Financial Advisory 13 Javier García-Mateo, MRICS

Partner Financial Advisory ‖ Real Estate [email protected] Mob: +34 659 90 02 15 Ana Granado, MRICS

Director Financial Advisory ‖ Real Estate [email protected] Mob: +34 630 78 44 73 Jose María Espejo

Senior Manager Financial Advisory ‖ Real Estate [email protected] Phone: +34 918 232 692

Fernando Baldellou

Partner The Hotel Property Head of Financial Advisory – Hospitality [email protected] Handbook Phone: +34 914 432 514 Jordi Schoenenberger

Spain 2017 Partner Hospitality Industry Leader [email protected] Phone: +34 932 543 932

@ 2016 Deloite Financial Advisory 14 @ 2016 Deloite Financial Advisory 15