HOSPITALITY BRIEFING EMEA INVESTMENT MARKET

Q1 2010

1 Market Summary • UK GPD decline of 0.2% in Q3 2009 – out of the gloom in 2010?

1 UK Economic Outlook • First signs of recovery for London after 15 months of 2 UK Hotel Performances consecutive RevPAR decline 3 EMEA Hotel Investment Market • Sun shines brighter in the North – Glasgow and 5 UK Hotel Investment Market Edinburgh more resilient to the 8 Hotel Transactions Highlights market downturn in 2009

• EMEA hotel investment volume reaches € 3.2 billion in 2009 – UK market still leading with € 935 million invested 336-337 Strand, London • Largest London Hotel Transaction was the Strand Hotel project (picture above) – Largest European Hotel Transaction was the Cushman & Wakefield Hospitality in Hamburg European Headquarters 43/45 Portman Square • Increased distressed asset sales in Q4 2009 – Trend to grow London, UK W1A 3BG www.cushmanwakefieldhospitality.com further in 2010

UK ECONOMIC OUTLOOK

As the UK economy hopes to exit the recession in 2010, speculation is now turning to other issues: notably the strength of the recovery, the outlook for inflation and unemployment and the implications of the public sector deficit. Despite Q3’s 0.2% fall in quarterly GDP, there has been a firmer upturn in industrial sector indicators and general business sentiment and most forecasters have now raised their projections for 2010, with the general consensus pointing to a still weak recovery albeit a stronger one than previously thought. An end to de-stocking and a positive contribution from net trade should be sufficient to lift the economy but while this growth may be a welcome change after the recession, it clearly stands some way below past estimates of the economy’s potential. In the absence of any new driver for growth, it seems clear that the recovery will be fragile and, as we bounce along the bottom, businesses will remain under pressure as they compete for orders and seek to keep costs under control.

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EMEA HOTEL INVESTMENT MARKET – Q1 2010

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Helped by the level of the Sterling, exports look a more likely area of growth than domestic demand. Over the summer, consumers did appear to defy the weak labour market, but there are still concerns for the durability of spending given rising unemployment, the return of VAT to 17.5% and the need for further de-leveraging.

ECONOMIC PERFORMANCE % 2006 2007 2008 2009F 2010F GDP Growth 2.9 3.0 0.7 -4.3 1.1 CPI Inflation 2.3 2.6 3.6 1.9 1.8 Consumer Spending 1.9 3.0 1.4 -2.8 0.2 Corporate Investment 7.6 6.2 -3.1 -13.9 -2.7 Manufacturing Output 1.5 0.6 -2.6 -10.0 1.8 Interest rates - 3-month 5.3 6.0 5.5 1.2 0.6 Interest rates - 10-year 4.7 4.6 4.6 3.6 4.1 Source: Consensus Economic Forecasts & Cushman & Wakefield European Research Group Expectations for unemployment have softened somewhat as the recovery has started to emerge and commentators have reassessed the flexibility offered by the UK labour market to adjust costs at a lesser cost to total employment than in past downturns. Even though unemployment is now increasing at a slower rate, it still looks likely to carry on rising through the first half of 2010. Moreover, this will have a lagged impact on wages, with pay pressures likely to be subdued or even negative in the months ahead. The latest figures for UK inflation (CPI) declined to a 7 year low of 1.1% in September, but this is higher than the Euro zone average and, moreover, is likely to increase over the coming months as the annual comparison of commodity prices becomes positive once more, as VAT increases and as higher import prices impact.

UK HOTEL PERFORMANCES

Encouragingly, there are signs that the UK hotel sector may be in the early stages of recovery, although there is clearly some way to go before a full-blown upswing kicks in and many challenges remain. However, along with other forms of holiday accommodation, UK hotels have benefited from the recent “staycation” trend, whereby a greater number of people in the UK have decided to spend their holidays at home rather than abroad.

Data from the various firms which monitor the market show that revenue per available room (“RevPAR” ) has continued to decline year-on-year, although this is largely as a result of falling room rates, whilst the positive news is that occupancy rates have generally held up or increased slightly in some cases.

According to the data provided by TRI Hospitality Consulting including all categories of hotels, the London market has confirmed the first signs of recovery with an increase of 5% in RevPAR at £ 95 from the same period last year and after 15 months of consecutive decline since September 2008. On the other hand, provincial hotels have recorded an average fall of 4% from November 2008. Nevertheless, cities such as Glasgow and Cardiff have performed much better over the last 12 months maintaining or increasing their RevPAR levels for certain months in 2009. The Scottish hotel market with Glasgow and Edinburgh in particular appears to have been the main beneficiaries of the significant increase in domestic tourism demand in 2009.

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Other cities such as Manchester and Birmingham have seen their RevPAR falling on average by 17% and 10% since January 2009. These markets, mainly driven by corporate demand, have not been able to take advantage of the domestic leisure market.

UK HOTEL REVPAR PERFORMANCE – YTD 2009 (NOV.)

YTD NOV 08 YTD NOV 09 London Paris

Amsterdam Vienna Berlin Munich

Barcelona

Prague Budapest Warsaw

€ 0 € 20 € 40 € 60 € 80 € 100 € 120 € 140 Source: TRI Hospitality for Cushman & Wakefield (sample of 3-star hotels and above)

Within the four and five-star hotel segments, London properties achieved a RevPAR of circa £ 124 for 2009 (YTD) representing a decrease of 5% from 2008. In terms of performance, London remains the leading market followed by Paris (£ 122), Amsterdam (£ 116) and Vienna (£ 104). EMEA HOTEL INVESTMENT MARKET

After a sharp decline in 2008, the hotel investment volume pursued its fall in 2009 to reach a total amount of circa € 3.2 billion in EMEA. This result represents a decrease of more than 50% over 2008 and about 85% as compared to 2007. Whilst the UK market suffered a larger decline in 2008 compared to the rest of Europe with a fall of 80% versus 45%, the trend was homogeneous in 2009 with a fall of circa 50% for both markets with a total of € 935 million for the UK and € 2.3 billion for the Euro Zone.

EMEA HOTEL INVESTMENT VS STOCK INDEX – 2004-2009

Hotel Investments UK Hotel Investments Euro Zone Dow Jones Euro Stoxx 50 14 14

12 12

) 10 10

8 8 Billions) €

6 6

Stock Index (in '000) '000) (in Index Stock 4 4

2 2 Hotel Investments (

- - 2004 2005 2006 2007 2008 2009 BUSINESS BRIEFING Q1 2010 Source: Cushman & Wakefield Hospitality 3

EMEA HOTEL INVESTMENT MARKET – Q1 2010

A CUSHMAN & WAKEFIELD PUBLICATION Interestingly, the overall trend in investment volume has followed a similar pattern to the stock market index often referred to as a benchmark for investor confidence. The large share of domestic and public companies within the UK hotel investment market resulted in a sharp blueprint of the Dow Jones trend whilst the European investment market mirrored the Euro Stoxx 50 index to a lesser extent due to a more diversified pool of buyers’ profile and cross border investments.

EMEA HOTEL INVESTMENT VOLUME BY COUNTRY – 2009 vs. 2008

2008 2009 Other UK Other 23% 27% UK 25% 29%

Scandinavia Scandinavia 14% 7% 15% France Italy Spain Germany 5% 7% 16% 9% 5% 9% 9% Source: Cushman & Wakefield Hospitality Whilst the UK hotel investment volume has suffered the largest fall over the last three years, it remained the most active market in the EMEA region with 29% of the overall volume invested followed by France and Germany with respectively 16% and 9% of the total investments. The largest single transaction in the UK to date was the acquisition of the Aviemore Highland Resort by MacDonald Hotels on a “pre-pack” basis from the administrators PricewaterhouseCoopers for € 153 million. In London, the 5-star Stafford Hotel was sold in September by Daniel Thwaites to the RAMW Group plc for € 88 million(*) whilst a subsidiary of BBVA purchased the half completed hotel project on The Strand at the end of the year for circa € 125 million(**).The largest single deal outside the UK took place in Germany with the purchase of the 560-room Radisson Blu hotel in Hamburg by Invesco Real Estate from the Azure Group for € 155 million. Other large single asset transactions included the sale of the Radisson SAS Royal Viking in Stockholm by KLP Fastigheter AB for € 110 million, the sale & leaseback of the Melia Princesa

in Madrid to BBVA Renting for € 88 million and the disposal of the Chia Laguna Resort in Sardinia to Castello Sgr for € 83 million.

EMEA HOTEL INVESTMENT SINGLE VS PORTFOLIO – 2005-2009

Single Portfolio 18 16

Billions) 14 € 12 10 8 6 4 Hotel Investments ( 2 - (*)Cushman & Wakefield acting as 2005 2006 2007 2008 2009 adviser on the buyer’s side (**)Cushman & Wakefield acting as agent on the vendor’s side Source: Cushman & Wakefield Hospitality

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Further to large sale and leaseback portfolio transactions undertaken by Starwood, Hilton, Marriott and from 2005 to 2007, the pace of hotel companies exiting their asset ownership have slowed down in the last two years with less opportunities available. In 2009, the total amount of portfolio transactions accounted for circa € 0.8 billion and € 2.4 billion for single asset deals. The ratio of portfolio versus single asset transactions has been inverted in 2008 and confirmed in 2009 with portfolio deals accounting for only 24% of the total volume invested as compared to 67% in 2007. In 2009, portfolio sales of above € 100 million included the acquisition of the Steigenberger Hotel Group by the Travco Group, the sale and variable leaseback of 158 Formule 1 hotels from Accor to a French private investment trust (OCPI) and the takeover of 12 Azorim hotels by the Fattal Hotel Group.

EMEA HOTEL INVESTMENT BY INVESTOR NATIONALITY – 2005-2009

Europe (excl. UK) UK USA MENA Far East

2009

2008

2007

2006

2005

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Cushman & Wakefield Hospitality As a result of the deteriorating global economy, there has been a significant decrease of foreign buyers to the benefit of domestic investors in the respective European markets. US investors have fallen off the most with a drop in their investments of 68% over last year and 93% since 2007. This drop has resulted in an increased market share for the local buyers in continental Europe and the UK. Middle Eastern investors have slightly dropped by 200 basis points to 14% of the volume invested but are expected to grow further in the next years along with Far East- based buyers fuelled by a faster recovery and strong growth and within their domestic markets. UK HOTEL INVESTMENT MARKET

UK HOTEL INVESTMENT VOLUME – 2005-2009

UK Hotel Investments Average Room Value € 10 € 250 ) € 9 € 8 € 200 € 7 € 6 € 150 € 5 € 4 € 100 € 3 € €

UK Hotel Investments (Billions) 2 50

€ 1 Average Room Value (Thousands € 0 € 0 2005 2006 2007 2008 2009 Source: Cushman & Wakefield Hospitality BUSINESS BRIEFING Q1 2010 5

EMEA HOTEL INVESTMENT MARKET – Q1 2010

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In 2009 the volume invested in the UK reached approximately € 935 million, a decrease of circa 45% from 2008 and a drastic fall of 90% since 2007. Whilst the investment volumes have significantly dropped over the last two years, the average value per room transacted maintained its level during 2008 before a collapse this year as a result of the scarcity of prime hotel deals and a higher percentage of hotels sold under administration. Whilst 27% of the hotels exchanged in

2008 had an average selling price per room below € 100,000, 55% were traded under this level in

2009.

Nevertheless, after a very poor start earlier this year, there has been evidence of a slight pick-up in investment activity during the second half of the year and the value achieved for the London hotels remained comparable with the previous years. The Stafford hotel acquisition in September resulted in a sale value of € 840,000 per room and a net initial yield of circa 5%. Other transactions in the capital included the sale of four properties in receivership namely the ex-Silken project acquired for € 125 million by a subsidiary of BBVA, the initial debt provider, the Ham Yard site acquired by Firmdale Hotels for around € 34 million, the Park Inn London in Russell Square purchased by Crimson Hotels for circa € 50 million and the Poultry Site (ex Midland Bank HQ) in the City of London acquired by a private investor for € 45 million which compares to the former owner having acquired the asset for circa € 105 million in 2006.

Whilst there has been an overall increase in distressed asset sales in 2009 with 50% of the volume

transacted, the actual number of properties sold under administration significantly increased during the last quarter of 2009 and is expected to grow in the next year with large portfolios acquired in 2005 going to market as a result of senior debts coming to maturity and a market still on its way to recovery.

UK HOTEL INVESTMENT BY INVESTOR PROFILE – 2009 vs. 2008

2008 2009

Hotel Op

HNWI

Institutional

Hotel Investment Co

Real Estate Co

Private Equity

SWF

0% 10% 20% 30% 40% 50% 60%

Source: Cushman & Wakefield Hospitality

In the last two years, there has been a significant increase in domestic hotel companies taking advantage of the distressed asset sales such as the acquisition of the Aviemore Highland Resort by MacDonald Hotels in June for an amount of € 153 million. Meanwhile, larger hotel operators such as expanded their portfolio via strategic partnerships with domestic developers and property investors.

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High Net Worth Individuals have maintained their investment share in 2009 via a few but high value acquisitions such as the Stafford Hotel purchased by the Egyptian El Sharkawy family- owned RAMW Group(*). Due to the scarcity of debt available, private equity investors have been very quiet in the last two years whilst most of the proactive institutional buyers diverted their investments to “more secured” assets within the traditional commercial real estate sector. On the other hand, some financial institutions had to reconsider their debt structure and possible buy out on distressed assets such as the acquisition of the half completed hotel on The Strand by a subsidiary of BBVA for circa € 125 million(**). Finally the Sovereign Wealth Funds have not been put to rest as many would consider the recent acquisition of the US Embassy(**) in Grosvenor Square by Qatari Diar as the very first stage of an ambitious luxury hotel conversion .

(*)Cushman & Wakefield acting as adviser on the buyer’s side (**)Cushman & Wakefield acting as agent on the vendor’s side BUSINESS BRIEFING Q1 2010 7

EMEA HOTEL INVESTMENT MARKET – Q1 2010

HOTEL TRANSACTIONS HIGHLIGHTS

EMEA HOTEL TRANSACTIONS HIGHLIGHTS - 2009 Hotel Country City Rooms Price (€) Seller Buyer Sheraton Brussels Brussels 511 n/a Starwood Hotels & Resorts International Real Estate Plc Le Meridien Beach Plaza France Monte Carlo 403 € 25,000,000 Starman Group Private Investor Radisson Blu Paris Boulogne France Paris 170 € 34,000,000 Compagnie La Lucette Algonquin AM Hotel Arc Altitude France Les Arcs 222 € 11,000,000 Club Med Mer Montagne Vacances Hotel Forest Hill La Villette France Paris 259 € 24,900,000 Caisse des Depots et Consignations Forest Hill Citea Paris La Villette France Paris 71 € 7,900,000 Caisse des Depots et Consignations Caisse d'Epargne Renaissance Paris Hotel Le Parc Trocadero France Paris 116 € 35,500,000 Strategic Hotels Westmont Hospitality Group Radisson Hamburg Germany Hamburg 560 € 155,000,000 Azure Group Invesco Real Estate Park Inn Frankfurt Germany Frankfurt 209 € 27,500,000 Lang & Cie Real Estate Fondshaus Hamburg NH Hotel Frankfurt Germany Frankfurt 256 € 30,000,000 Quinlan Private + FOM Real Estate Deka Immobilien InterCity Hotel* Germany Hanover 148 € 46,000,000 Euroland Projektierungen Deka Immobilien Airlines Hotel Hamburg Germany Hamburg 37 n/a Klaus Reents Fattal Hotels Dresden Germany Dresden 228 € 14,000,000 GBI AG LB Immo Invest Motel One Hamburg Germany Hamburg 128 n/a Neuer Steinweg GmbH Union Investment Real Estate Rogner Hotel Heviz 232 € 35,000,000 Lotus Therme Dare-Taverna group Chia Laguna Resort Italy Baia Chia 452 € 82,600,000 Chia Invest SpA Castello Sgr Hotel Internazionale Italy Bologna 116 € 21,500,000 Monrif Leasint Spa Etrusco Palace Hotel Italy Arezzo 80 € 8,000,000 Sogefin SpAHappy Days Hotel Rimini La Perla Ionica Italy Acireale 340 € 46,350,000 Costanzo family Sheikh Hamed Al Hamed Dream Exclusive Hotel Italy Pantelleria 46 € 2,700,000 Cala Tramontana S.p.A. Korion World Forum The Hague 216 € 25,000,000 TCN Invesco Real Estate Park Inn Oslo Oslo 119 € 18,000,000 Norgani Hotels Kristiania Eiendomsforvaltning AS Radisson Blu Krakow Poland Krakow 196 € 32,000,000 UBM Realitätenentwicklung AG Union Investment Real Estate Andel's Hotel Poland Krakow 159 € 29,000,000 Warimpex Deka Immobilien Hotel Villa Rica Lisbon 171 € 31,000,000 Fibeira Group VIP Hotels Lapa Palace Hotel Portugal Lisbon 109 € 29,400,000 Orient Express Hotels Olissippo Hotels Hello Hotel Romania Bucharest 150 € 9,000,000 Radu Enache Immorent West City Hotel Romania Cluj 101 € 12,000,000 Coratim Private Investor Hotel Bellevue Slovenia Ljubljana 79 € 7,000,000 Maribor Student Employment Mawared International AB Skipper Barcelona Spain Barcelona 241 € 68,600,000 Grupo Preyco 44 Axa Reim Fund Selenza de RayaSpain Barcelona 53 € 18,000,000 Rayet Hotels Servihabitat Melia Princesa Spain Madrid 274 € 87,800,000 Sol Melia BBVA Radisson SAS Royal Viking Stockholm 459 € 110,500,000 Royal Bank of KLP Fastigheter AB First Hotel G Sweden Gothenburg 300 € 41,000,000 Host Hoteleiendom Deka Immobilien Renaissance Malmo Hotel Sweden Malmo 128 € 11,260,000 Faktor Group Stockholms Hus AB Vildmarkshotellet Sweden Kolmarden 213 € 14,900,000 Parks & Resorts Scandinavia AB Pandox AB Keyland Hotel Marmaris 227 € 10,500,000 M1 Group Koza Group Express by Crawley UK Crawley 74 € 11,300,000 Mitchells & Butlers Sojourn Hotels Travelodge London Tower Bridge UK London 190 € 28,000,000 Lenta Properties Aprirose Real Estate Norfolk Hotel UK Bournemouth 95 € 9,400,000 English Rose Hotels Central Hotel UK Glasgow 222 € 2,350,000 Real Hotel Company, The Principal Hayley Group The Barnsley House Hotel UK Barnsley 18 € 7,600,000 Barnsley House Ltd Calcot Health and Leisure Ltd Travelodge Birmingham UK Birmingham 100 € 7,050,000 RO St Bernards Aprirose Real Estate Southcrest Hotel UK Redditch 53 € 1,200,000 ProArk Properties Southcrest Manor LLP Stafford Hotel UK London 105 € 88,000,000 Daniel Thwaites RAMW Group Heathlands Hotel UK Bournemouth 115 € 4,000,000 n/a Shendish Manor UK Hemel Hempstead 70 € 8,400,000 Shendish Manor Limited Planned Holding Limited Forbury Hotel UK Reading 23 € 7,600,000 Waterbridge Group Von Essen Hotels Ham Yard Site* UK London n/a € 34,000,000 Windmill Developments Firmdale Hotels Imperial Hotel UK Newcastle 122 € 6,000,000 F&C REIT asset management Cairn Hotel Group New Connaught Rooms UK London 29 € 11,800,000 Real Hotel Company, The Principal Hayley Group Park Inn Russell Square UK London 214 € 50,300,000 WG Mitchell Group Crimson Hotels Poultry site (Ex Midland Bank)* UK London 181 € 44,500,000 Vladimir Chernukhin Private Investor St Brelade's Bay Hotel UK Jersey 82 € 13,230,000 Frost Family Jane Best Aviemore Highland Resort UK Aviemore 359 € 153,000,000 Aviemore Highland Resort Ltd Macdonald Hotels The Strand (Ex Silken Hotel project)* UK London 245 € 125,000,000 BBVA BBVA subsidiary Portfolio Transactions 6xCampanile hotels France Various 268 n/a BNP Paribas Real Estate LFPI/Time Hotels 2xski resorts France Various 793 € 6,000,000 Intrawest Pierre & Vacances 158xFormule 1 France Various 12300 € 272,000,000 Accor Various Investors 3xski resorts France Various 450 n/a Pierre & Vacances Algonquin AM 9xhotels France Various 600 n/a Sopalia Compagnie Financiere Holding SA LFPI/Time Hotels 4xAquis hotels Various 1099 n/a Various Owners Aquis Hotels and Resorts 12xAzorim Tourism hotels Various 3011 € 176,000,000 Azorim Investment Fattal Hotels 2xMoscow Hotels Various 249 € 47,600,000 VTB Bank + MC Ko Hotels Mos City Group 2xPrincess hotels Spain Malaga 525 n/a Princess Hotels & Resorts Ibersol 12xhotels in the UK UK Various 1118 € 81,000,000 Various Owners Travelodge 6xhotels in London UK London 828 € 98,000,000 Various Owners Travelodge 8xFolio hotels UK Various 498 n/a Various Owners Akkeron Group

(*)Development sites Source: Cushman & Wakefield Hospitality – reported transactions

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We are one of the top three global players in team size: we have Nick Pattie more than 70 hospitality staff across the world, covering all Managing Director regions. Our expertise is grounded in hotel operation, sales and Cushman & Wakefield Hospitality EMEA marketing in addition to real estate. 43/45 Portman Square London W1A 3BG We cover all hotel and leisure sectors and our experience of UK mixed-use developments means that we understand how to Tel: +44 (0)20 7152 5044 create the right mix of uses to maximise both value and access to [email protected] brands.

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This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or complete.

BUSINESS BRIEFING Q4 2009 January 2010